Latest Manufacturing Barometer reveals a more upbeat picture as the sector emerges from lockdown, but there is still a long way to go

The Manufacturing Barometer, the largest survey of SME manufacturers in England, received responses from over 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.

Conducted by SWMAS (South West Manufacturing Advisory Service) and the Manufacturing Growth Programme (MGP), the report reveals that almost three quarters of firms (70%) saw sales drop in the last six months, with 42% still predicting sales to decrease between now and the end of the year. More encouragingly though, 44% of those questioned are expecting future sales to increase, which is a massive improvement on the 10% who predicted this back in April.

Over a third of respondents (41%) 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 58% 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% of South West respondents thought that the government support on offer was sufficient to survive the crisis. This survey confirms that 14% have already taken additional steps, above and beyond the support from government, to protect their cashflow, and a further 23% identify a need for more financial help going forward.

Although 80% of manufacturers have utilised the Furlough scheme to retain employees, it is concerning that more than a quarter have already been forced to make redundancies, while almost a third of South West businesses (32%) 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.

Whilst the government support has benefited businesses across the UK, only 17% of regional SME manufacturers surveyed have taken advantage of the Coronavirus Business Interruption Loan Scheme (CBILS). The VAT payment holiday was welcomed by over half of those surveyed. The results and feedback received indicates that additional 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.

The report also shows that protecting cashflow is of continued importance as South West manufacturers move out of lockdown, with a quarter of businesses surveyed expecting future investment in capex and staff to decrease between now and January 2021.

Nick Golding, Managing Director at SWMAS, said:

“The latest Manufacturing Barometer shows that 70% of regional businesses have had their sales significantly impacted, and only a small number have been able to access government support schemes to help them survive. The survey shows a picture of resilience and innovation from a sector that is doing its best to survive the COVID-19 crisis, but more still needs to be done to get it back on its feet.

“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% 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; restarting and increasing production, identifying new customers and suppliers, upskilling existing staff, and developing new products and processes in an attempt to overcome current challenges.

“That said, 29% 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% 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 6% expecting an increase within six months. The latest findings show that a much larger number (36%) 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.

Furthermore, 19% of South West respondents stated that COVID-19 has negatively affected their Brexit preparations. This is another issue above and beyond COVID-19 that must be addressed by the end of 2020 to prevent further economic problems for an industry just beginning to get back on its feet.

Nick Golding continued:

“Despite the challenging conditions currently faced by manufacturers, it is great to see a third of those surveyed have launched new products to find alternative routes to market.

“Respondents have indicated that further support is required, both financially, and to help them identify new opportunities until demand stabilises more widely across the various sectors. SWMAS will continue to offer fully-funded, impartial advice to SME manufacturers across the region, as well as grant funding to help firms at this difficult time."