Advanced Manufacturing Supply Chain Initiative (AMSCI)

Transcription

1 Advanced Manufacturing Supply Chain Initiative (AMSCI) David Kynaston Chairman AMSCI Independent Investment Board 19 & 20 May, 2015 The National Manufacturing Debate

2 What is AMSCI? To provide funding to help improve the growth, quality and global competitiveness of the UK s advanced manufacturing supply chain thereby helping to create and safeguard jobs

3 What is AMSCI Provide repayable loans and/or grants to cover part of the cost of undertaking one/all of the following: Purchase of capital equipment R&D that improves manufacturing equipment, systems or processes Specific training and skills development to support the project proposal Scheme delivered by Department Business Innovation & Skills (BIS), Birmingham City Council & Finance Birmingham Limited.

4 AMSCI History 25m announced October 2011 Enterprise Catalyst across Birmingham, Black Country, Coventry and Liverpool City LEP s Focused on Automotive and Aerospace sector. Also provided working capital support. 100m Round 1 and 2 announced in December 2011 to form a National round. Sector focus was widened to include Renewable Energy, Chemicals, and Nuclear. 120m further Rounds 3 and 4 launched during 2013

5 AMSCI History Rounds 1 4 criteria: 2m minimum funding ask Collaborative Must include a manufacturer Commitment from Prime/Tier saw the launch of AMSCI m England-wide fund In line with Round 3/4 with a reduced funding ask of 1m A focus on re-shoring was introduced

6 AMSCI 2014 Programme 100m England-wide fund Organisations/companies must be part of the manufacturing supply chain Any manufacturing sector Beneficiaries must be based in England Demonstrate how they support wider Government policy Represent good value for money for the taxpayer Re-shoring of lost production processes Job creation and safeguarding Draw down funding and repay loans by 31 st March 2019

7 AMSCI Key Stats 250+ bids received 277m allocated 86% Grant and 14% loans 70 projects agreed with over 500 beneficiaries Total value will ultimately be > 700m 13,000+ jobs created/safeguarded 414m+ private investment so far

8 AMSCI Key Stats 2012 saw funding agreed for NATEP National Aerospace Technology Exploitation Programme, which as a Programme will see 23m of AMSCI money leverage a 40m scheme to benefit c100 small suppliers, primarily SME s in the aerospace sector, in the development of technology and enable routes to market in the aerospace supply chain jobs will be created/safeguarded.

9 Sectors Supported Automotive 49% Aerospace 13% Life Sciences 4% Electronics 7% Construction 1.5% Nuclear 1.5% Other manufacturing 17% Other 7% e.g. Gas and Oil, Low Carbon/Renewables etc. AMSCI 2014 s key focus on re-shoring saw 8.8m awarded to projects featuring re-shoring

10 Landed Cost Analysis A. Elements considered within cost of supply chain: Assembly labour rates Cost of Acquisition Freight / Logistics Import Duties Hubbing Pipeline Inventory Differences to BoM costs B. Cost of Supply Chain = Total Value Add + Cost of Pipeline Inventory + Outbound Freight C. Cost of Pipeline Inventory = Financial cost incurred for goods in transit and average holding in the Hub as applicable at 1.5% per month of inventory value

11 Landed Cost Analysis 4.53% 2.74% 5.67%

12 Landed Cost Analysis Table of Relative Total Supply Chain Cost Index for PCBAs Box Location End Customs Location PCBA Location US SFO US Raleigh US Nashville Europe Amsterdam US (SFO) Weight/volume assumption : 0.83kg/29.5cm x 19.5cm x 3cm

13 The Target Enterprises The Investor 1 OEM Internal Manufacture The Market The Market The Investor 2 OEM s & Tier 1/2s Tier 1 The Market The Investor 3 Other Tier 1/2 Tier 2

14 Concept of a Product Price Not unique to re-shoring OEM is exposed to end market pricing Tier 1/2 are exposed to Ex-factory pricing The outsourcing model was generated by competing with internal factory prices Tool ownership (IP) often remains with Tier 1

15 Managing this Enterprise The Physical View Investors cash Profit The Enterprise Product to market Sales revenue A Simple Financial Decomposition ROE = Net profit = Net profit X Sales X Equity + Liabilities Equity Sales Total Assets Equity = Commercial X X Margin Productivity of Assets Financial Structure M A F

16 Characteristics High Volume M Low commercial margins A Extremely high asset utilisation F Needs access to finance for growth Medium Volume M Higher Margins A Average asset utilisation F Could sometimes be self funded Low Volume M Very high margins A Can be asset lazy!! F Not high borrowing need

17 How are we equipped to finance this ambition OEM - Probably quoted company Has a high use of debt finance (low cost) Can raise equity finance Tier 1 - Mix of large private and some quoted companies Limited financing opportunities Tier 2 - Private enterprise Often owner managed Has great difficulty with all finance sources

18 An Opportunity Revenue OEM A long term strategy to re-shore is real but not on their penny Tier 1/2 Event driven opportunities from OEM New model New technology A big revenue impact can this re-shoring event be financed? Time

19 SME What growth can I finance? Tier 1 & Tier 2 Borrow Raise Equity Self Finance Very difficult Often considered undesirable In reality the RoE is our spare cash Accordingly self sustainable growth G can be computed as: G = RoE (100-D) where D is the Distribution Rate (Dividend)

20 SME What growth can I finance? Example. 20m Revenue SME RoE of 20% Distribution is 50% of earnings G=10% Zero earnings G=20% 4m opportunity This is often not enough for a real opportunity Can the Banks help? Moving away from overdraft - Invoice Discounting typically 2.5% margin + arrangement fees + service charge of % of turnover. Little else.

21 Conclusion What s needed? Intimate knowledge of supply chain dynamics Clear knowledge of competitors Business run at optimal performance e.g. asset turn Funding costs and sources Banks, AMSCI etc Push up the value add IP ownership Automation provides deskilling and low cost but is just part of the equation Encourage more Government deep supply chain intervention to act as a catalyst for continued sustainable growth

22 AMSCI Thank you for listening David Kynaston