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Welsh Manufacturers Target Growth Despite Concerns Over EU Exit Plans

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Welsh manufacturers and engineers are optimistic of their future growth prospects, but are cautious of the impact leaving the European Union could have on their plans, according to a new survey from MHA and Lloyds Bank Commercial Banking.

The fifth annual survey from MHA, the UK-wide group of accountancy and business advisory firms, was sponsored by Lloyds Bank’s manufacturing team for the second year. It asked over 550 small to medium sized manufacturing and engineering businesses from across the UK for their views on the challenges and opportunities facing the sector.

Barriers to growth

Three fifths (60 per cent) of Welsh businesses questioned are optimistic about their growth prospects in the coming 12 months. However, a note of realism was struck in relation to concerns over the way negotiations over the country’s exit from the EU will go, with over a third (36 per cent) of businesses perceiving this uncertainty to be a barrier to growth.

Another cause for concern was the skills gap. Half (52 per cent) of businesses are hoping to recruit over the next 12 months, but the inability to find skilled staff to do the job remains a major problem for over two fifths (40 per cent) of those firms.

All Welsh respondents believe that their production costs will rise in 2016/17 due to the increasing cost of raw materials together with higher wages. As a result, productivity gains are being seen as important in bringing down costs, with almost three quarters (71 per cent) of firms looking to improve productivity and efficiencies.

New opportunities

Securing opportunities to trade globally is a priority for 65 per cent of Welsh manufacturers and engineers, which is down eight points on 2015. North America (56 per cent) is a popular trading partner for firms, followed by Asia (38 per cent) and South America (13 per cent).

Industry 4.0 is building momentum, but the growing trend towards sophisticated automation and data exchange in manufacturing technologies is a principle that almost three quarters of total survey respondents didn’t understand. This suggests that more work needs to be done across the sector to make sure manufacturers are aware of the opportunities that automation presents.

Ian Thomas, Managing Director of Broomfield & Alexander Ltd said:

“The manufacturing sector continues to be important to the success of the economy in Wales and it is very encouraging that 60% of Welsh businesses questioned are optimistic about their growth prospects over the coming 12 months despite the uncertainty surrounding Brexit.

“Also encouraging is that 52% of businesses are hoping to recruit new staff over the next 12 months. However, the ability to find skilled staff remains a major problem for many businesses and this could be a potential barrier to growth. It is important that manufacturing businesses continue to secure opportunities to trade globally and to continue to invest in research and development.”

Ciaran Leaden, area director for Manufacturing at Lloyds Bank Commercial Banking in Wales, said:

“While the result of the EU Referendum has left Welsh manufacturers with some questions over how they will fulfil their future plans, many are actively identifying new opportunities with global trade partners to help deliver sustainable growth.

“Manufacturing has never been more important to the success and growth of the economy, and closing the skills gap remains crucial to sustain the long-term success of the industry. We are continuing to work closely with firms through this evolving economic landscape to help ensure they maintain their competitive position in domestic and global marketplaces.”

Main report findings:

  • Half of all respondents put skills shortages at the top of their agenda. Most businesses want government to expand skills training for the future work-force in Secondary Schools, Higher and Further Education (FE) colleges.
  • 68% of respondents believe their main competitors are UK based and 32% said their main competitors are based within their own region of the UK.
  • 47% of respondents expect to increase their staff numbers in 2016 (an increase of 8% from last year), with 57% of companies intending to take on apprentices or trainees.
  • Of the respondents that anticipate their staff numbers increasing in the next 12 months, 59% need to recruit production staff. However, 41% indicated that they have trouble recruiting skilled machinists / technicians.
  • 18% of businesses reported that recruiting appropriately skilled staff is the main barrier to growth over the next 12 months; this is a decrease of 10% from last year which is encouraging although this may just be a reflection in the shift of concern towards the effects of leaving the EU.
  • Where recruitment is a barrier to growth, 31% of respondents favoured adopting lean manufacturing strategies and 23% favoured automation or further automation as a coping strategy. Shift working or flexible working patterns (25%) was also seen as a viable option.
  • When asked about the availability of skilled recruits, only 11% had a positive outlook compared with 49% having a negative outlook.

The MHA Manufacturing Survey also finds around eight in every 10 companies committing to R&D investment this year, although surprisingly 10% remain unaware of the benefits associated with R&D Tax Credits.