Optimism rises among South West SME manufacturers

A Manufacturing Barometer, the largest survey of SME manufacturers in England, has revealed a more upbeat picture as the sector emerges from lockdown, but there is still a long way to go.

Only 17 per cent of regional SME manufacturers surveyed have taken advantage of the Coronavirus Business Interruption Loan Scheme (CBILS) and more sector-specific government support is still required to ensure that the manufacturing industry, key for research and development, export, and high value jobs, continues to recover and grow over the coming months.

Conducted by SWMAS (South West Manufacturing Advisory Service) and the Manufacturing Growth Programme (MGP), the report reveals that almost three quarters of firms saw sales drop in the last six months, with 42 per cent still predicting sales to decrease between now and the end of the year. More encouragingly though, 44 per cent of those questioned are expecting future sales to increase, which is a massive improvement on the 10 per cent who predicted this back in April.

The Manufacturing Barometer received responses from more than 100 firms in the South West, and shows that the sector is bouncing back from the worst effects of COVID-19 – with a degree of increased optimism around turnover, profits, jobs and investment.

The previous report, surveyed in April as the COVID-19 crisis intensified, showed plummeting sales and production volumes, and the probability of deep job cuts throughout the sector.

Three months on, the latest report reveals that while the key indicators remain in “negative territory”, with manufacturers slightly more optimistic about their prospects over the short and medium term. However, it is clear there are still difficult times ahead for the manufacturing sector.

More than a third of respondents describe their current status as static or growing, with some businesses reporting very little change since the COVID-19 crisis, and others experiencing an increase in product demand. However, others have seen their customer base almost vanish overnight, and more than half of respondents describe their business’ current status as ‘surviving’ or ‘recovering’, which shows the majority of SME manufacturers are still facing significant challenges.

In April, only 19 per cent of South West respondents thought that the government support on offer was sufficient to survive the crisis. This survey confirms that 14 per cent have already taken additional steps, above and beyond the support from government, to protect their cashflow, and a further 23 per cent identify a need for more financial help going forward.

Although more than three quarters of manufacturers have used the furlough scheme to retain employees, more than a quarter have already been forced to make redundancies, while almost a third of South West businesses expect to make further cuts to their workforce within the next six months. This coincides with the end of the furlough scheme in October, and shows a need to bridge the gap further, until manufacturing is able to operate at full capacity once again.

A quarter of businesses surveyed expect future investment in capex and staff to decrease between now and January 2021.

Nick Golding, Managing Director at SWMAS, said: “Whilst the figures represent an improvement from the previous quarter, many SME manufacturers are still finding the current climate challenging. Three quarters of businesses have had to review cashflow forecasts to help mitigate the impact of COVID-19, whilst at the same time, 22 per cent are also coming under pressure from customers to extend payment terms, further stretching them financially.

“Our survey shows that manufacturers have been busy adapting their businesses as necessary over the last three months. That said, 29 per cent of respondents indicated that some of their production is still on hold due to either customer or supplier closures, which will continue to impact them over the coming months. As a result, 36 per cent have identified a need for financial and/or business support to help them identify new supply chains as part of their recovery strategy.”

Manufacturers were predicting a drastic drop in profits last quarter, with only six per cent expecting an increase within six months. The latest findings show that a much larger number (36 per cent) are now expecting profits to grow in that same period. Despite this confidence from a segment of the market, 41% of South West SME manufacturers still expect profits to fall further between now and 2021.

And with all this, Brexit hasn't gone away. But less than a quarter of South West respondents stated that COVID-19 has negatively affected their Brexit preparations.