hlca.co.uk Manufacturing & Engineering Report 2017/18

Transcription

1 hlca.co.uk Manufacturing & Engineering Report 2017/18

2 Contents Foreword The Scottish View Key Scottish Findings Growth Business Confidence Staff Recruitment The Brexit Effect Exports Investment in R&D Funding & Grants Industry 4.0 Capital Investment Page 2

3 Foreword Gavin Black Partner Manufacturing Group Henderson Loggie There is growing confidence in the manufacturing and engineering sector in Scotland the sector is certainly gritting its teeth in what has been a difficult and uncertain period. However, we should not be complacent and the survey has found that despite the ambitions, growth is being constrained and companies continue to be under increasing pressure to cut costs, meet the rising prices of raw materials and embrace new technologies if they are to survive. The sector continues to have difficulty recruiting staff with the relevant skills, the pressure on which is likely to increase as some businesses are at risk of losing staff due to Brexit. It is encouraging that the sector has ambitions to grow staff numbers over the next 12 months and continue to offer apprenticeships and grow talent from grass roots to try and fill the skills gap. The Scottish and UK Governments need to continue to support the sector and expand skills training for the future workforce in schools and colleges. I hope you will enjoy reading our survey and I invite you to contact us with feedback or to discuss the findings in more depth. Our thanks go to the survey respondents for taking the time to contribute and to the Bank of Scotland for sponsoring our report. Craig Pollock Area Director Manufacturing Bank of Scotland We are again delighted to have the opportunity to sponsor this year s report and continue to develop our understanding of the manufacturing sector and issues and opportunities that Scotland faces. Manufacturing continues to be important to the success and growth of the Scottish economy and like last year s survey the theme of Brexit and the ongoing implications impact the sector -particularly around production costs. Again, on a similar theme to 2016 one of the major challenges facing the sector is a skills shortage which threatens the ongoing success of manufacturing in Scotland. With the rise in productivity costs and the growing need to ensure an increase in productivity the focus on Industry 4.0 and digital technology will undoubtedly grow. Digitalisation is accelerating across many industries and will create opportunities for businesses that wish to drive long term growth. Finally, like any sector cashflow management is key to successful manufacturing businesses. With 31.5bn of cash tied up in working capital in Scotland, a focus on improving and releasing this working capital for investment can support Scottish manufacturers to grow. Our University of Warwick Accredited Relationship Mangers are available to help businesses realise their potential at home and in global markets. Page 3

4 The Scottish View Background The Scottish review focuses on respondents from Scotland and, where appropriate, considers these results as part of a UK wide picture. The Scottish respondents were primarily small and medium sized enterprises (SMEs) 80% and 20% microbusinesses (less than 10 employees). This response had a similar profile to the UK survey. Membership of MHA Henderson Loggie is a member of MHA, a fast-growing association of eight like-minded, progressive and respected accountancy and business advisory firms located around the UK. The 50 nationwide offices allow MHA to balance the national access provided by the association with the local insight and perspective that individual member firms offer their clients. MHA members can assist clients with their needs wherever they are in the UK, as well as globally through their international association. Economic Context Scotland s economy bounced back in the first quarter of 2017 as GDP grew by 0.8% (having reduced by 0.2% in Q4 2016). The growth rate for the rest of the UK for the same period was 0.2%. This was the best quarter growth for Scotland since before the effects of low oil prices began to emerge in Positive results are also reflected in the most recent Scottish i Engineering survey that reported a fourth consecutive quarter of growth with 44% of businesses reporting a rise in orders and 39% reporting a rise in exports over the past three months, boosted by the low cost of borrowing and the fall in the value of sterling. Bank of Scotland s regional Purchasing Managers ii Index (PMI) for July also reported positive signs for job creation, with July marking the fastest expansion in employment in over two and a half years. On an annual basis, the Scottish economy grew by 0.7%, equivalent UK growth was 2%. Page 4

5 Key Scottish Findings 65% 45% of respondents are predicting growth for 2017/18 of respondents expect staff numbers to increase in the next 12 months 72% 36% of respondents have difficulty recruiting employees with the relevant skills of respondents currently export, down 14% from last year 84% 22% of respondents expect production costs to continue to rise of respondents cited Brexit concerns as a key barrier to growth Page 5

6 Growth Forty-five per cent of respondents achieved growth in some form in the last year, lower than the UK average at 69%. However, there continues to be optimism for growth for the year ahead with 65% 45% (78% UK) predicting growth for 2017/18. This growth is expected to come from increased demand from customers, expansion of product offering and currency appreciation. 65% achieved growth in some form in the last year are predicting growth for 2017/18 Business Confidence Business confidence is not as strong as growth predictions. When asked to rate their business confidence over the next 12 months and 36 months, only 4% of respondents rated it as high for 12 months and 3% for 36 months, lower than the UK figure of 12% for the same two periods. These results are very much in line with the business confidence report from the Federation of Small Businesses (FSB) iii released in June % 3% rated their business confidence as high for the next 12 months rated their business confidence as high for the next 36 months Page 6

7 Staff Forty-five per cent (57% UK) of businesses expect staff numbers to increase in the next 12 months. Key areas where respondents will be recruiting include; production staff (65%), administrative staff (15%), design, research & development (12%) and sales & marketing (8%). Twenty-three per cent (20% UK) of businesses have lost or are at risk of losing staff as a result of Brexit, which is due to uncertainty over post Brexit EU workers' rights and a drop in the value of the pound. 45% 72% 23% expect staff numbers to increase in the next 12 months have difficulty recruiting employees with the relevant skills have lost or are at risk of losing staff as a result of Brexit Recruitment Seventy two percent of respondents (75% UK) have difficulty recruiting employees with the relevant skills, evidencing short supply. Forty six percent of respondents report that they have difficulty recruiting skilled machinists/technicians, followed by skilled (21%) and semi-skilled (21%) workers, which is in line with the UK position. In addition to the challenges of finding applicants with the right skills, respondents also cite a lack of motivated applicants locally for lower skilled roles (17%) and unrealistic salary expectations (13%) as key recruitment issues. 72% 17% 13% have difficulty recruiting employees with the relevant skills cite a lack of motivated applicants locally for lower skilled roles as a key issue cite unrealistic salary expectations as a key issue Page 7

8 Growth is expected to come from increased demand from customers, expansion of product offering and currency appreciation.

9 The Brexit Effect Twenty-two per cent (16% UK) of respondents cited Brexit concerns and uncertainty over future trading tariffs as a key barrier to growth, followed by global economic concerns, 14% (13% UK) and recruiting appropriately skilled staff, 14% (17% UK). Production costs are already being impacted by the Brexit vote with 84% of respondents reporting that production costs will continue to rise over the next 12 months and the key driver for this is the increasing price of raw materials and components (directly or indirectly) through currency fluctuations. Respondents plan to improve productivity/efficiency and increase prices to deal with the rise in production costs. 22% 84% cited Brexit concerns and uncertainty over future trading tariffs as a key barrier to growth reporting that production costs will continue to rise over the next 12 months Fifty six percent of respondents have considered the risk of Brexit, of that 14% regard the potential impact as extensive and 41% regard it as limited. Exports Thirty-six per cent (51% UK) of businesses currently export, down from 50% last year. The Eurozone is the most popular destination recorded by respondents followed by Asia and North America, very much in line with the overall UK position. 36% 14% of businesses currently export decrease since last year for number of businesses who export Page 9

10 Investment in R&D R&D continues to play a key role in economic growth and this is reflected in the survey findings in that 76% made some form of investment in research and development activities in the last year which is slightly lower than the UK average at 88%, with 5% (8% UK) spending more than 10% of turnover on R&D. Percentage of respondents who made some form of investment in research and development activities in the last year 76% 88% Scotland 5% UK as a whole of businesses are spending more than 10% of turnover on R&D Funding & Grants Seventy-four per cent of businesses have not received grants in the last 12 months, of those that did, the key source of grant funding was from Scottish Enterprise. Thirty-five per cent have access and will apply for a Government grant in 2017/18. 74% 35% of businesses have not received grants in the last 12 months have access and will apply for a Government grant in 2017/18 Page 10

11 Industry 4.0 Eighty eight percent of respondents (92% UK) view robotics, automation and the Internet of Things as an opportunity to be embraced and developed to maintain competitive advantage. 88% view robotics, automation and the Internet of Things as an opportunity to be embraced Capital Investment Encouragingly, 49% of respondents plan to increase capital investment, with only 8% planning a decrease. In line with the UK picture and up 8% on last year, this could be linked to Industry 4.0 and the need for businesses to invest in production facilities to improve efficiency and remain competitive. 49% 8% of respondents plan to increase capital investment of respondents plan to decrease capital investment Page 11

12 58 Queens Road Aberdeen AB15 4YE The Vision Building 20 Greenmarket Dundee DD1 4QB Melville Street Edinburgh EH3 7HA Gordon Chambers 90 Mitchell Street Glasgow G1 3NQ Offices in: Aberdeen, Dundee, Edinburgh and Glasgow Follow us on Follow us on LinkedIn Like us on Facebook Subscribe on Youtube Sources i - Scottish Engineering June 2017 Quarterly Review ii - Bank of Scotland Purchasing Managers Index (PMI) July 2017 iii - Federation of Small Business (FSB) Report June 2017 Henderson Loggie is a member of MHA, an independent member of Baker Tilly International. Arrandco Investments Limited is the registered owner of the UK trade mark for Baker Tilly and its associated logo. Designed by Andy Campbell Henderson Loggie Chartered Accountants 2017