Manufacturing companies in Wales are some of the most optimistic in the UK for revenue growth over the next 12 months, according to a survey conducted by Lloyds Bank Commercial Banking and MHA, a UK-wide group of accountancy and business advisory firms that includes Wales’ leading independent accountancy firm, Broomfield & Alexander.
Results showed that more than 70% of the Welsh firms responding to the annual survey are anticipating turnover growth of five per cent or more over the next 12 months – 21 percentage points higher than the national average. This optimism also translated into planned investment in staff, with 71% of respondents in Wales expecting to increase headcount over the next 12 months, compared to 57% nationally.
Of those that are looking to recruit, 35% of Welsh businesses feel confident in finding candidates with the appropriate skills and training; however, 36% reported difficulties in recruiting skilled technicians, which may become an issue when they look to expand their production teams. In addition to skilled staff, 65% of Welsh respondents intend to take on at least one apprentice or trainee in the coming year, which is ahead of both the previous year for Wales (59%) and the national average of 59%.
Anticipated growth is predicted to be driven by a combination of increased demand from customers, diversification and entry into new markets, both domestically and overseas. Whilst future trading arrangements post Brexit remain uncertain, the majority of Welsh respondents are not yet focussing on strategies to deal with anticipated impacts, with 50% identifying that they have not yet considered the impact on their business. The availability of new premises and funding for capital expenditure are seen as more immediate and substantial barriers to growth for a combined 47% of respondents in Wales, compared to 24% nationally.
Matching the UK-wide position, 88% of the manufacturing companies surveyed in Wales reported investment in Research & Development (R&D), although just 47% made claims for R&D Tax Credits in the last 12 months (albeit ahead of the national average of 44%). Encouragingly, 59% of respondents in Wales plan to make a claim in the upcoming year.
Despite a widespread perception that many firms in Wales remain dependent on government grants, results show that only 19% of respondents received grant funding via local and national government schemes in the last 12 months – lower than the UK average of 21%.
The picture for Welsh exports was mixed, with Europe and the Eurozone remaining the most popular export destinations for the 60% of respondents that currently ship goods overseas. Overall, the number of export markets accessed by Welsh manufacturers lagged behind the UK average, suggesting that the ability to expand the range of markets traded in could be critical in a post-Brexit world. Also of concern is that 45% of respondents who received export assistance from Government identified that it was not useful to them (compared to the UK average of 37%), highlighting a need for more effective support to be given to Welsh businesses in formulating and executing their export strategies.
Finally, all Welsh respondents saw the cost of production rising in the next 12 months, driven by a number of factors, including increases in wage costs and energy prices, as well as the rising cost of raw materials and components. More respondents in Wales favour increased pricing (38%) to offset rising production costs, rather than focusing on efficiency savings (32%), reflecting the finding that 75% of respondents believe they have already adopted lean manufacturing processes and made significant investments in automation to drive productivity.
“It is encouraging that the Welsh manufacturing sector continues to be optimistic about prospects for growth, despite the continued uncertainty around Brexit,” said Ian Thomas, managing director of Broomfield & Alexander. “The findings from this year’s survey suggest that while there are many reasons to be positive, there is more that can be done to support Welsh manufacturers in areas like export market development, access to finance, education and skills. Manufacturers themselves also need to take full advantage of opportunities offered by grant support and tax credits for R&D activity.”
Ciaran Leaden, area director for manufacturing in Wales at Lloyds Banking Group, said: “Welsh manufacturers have strong relationships with companies overseas, so it’s encouraging to see that, despite recent uncertainty, they have plans to continue to invest in growth.
“Education and training also remains a key area of investment for companies across the country. As part of our commitment to helping manufacturing firms prosper, we’ve pledged to support the training of more than 1,000 apprentices, graduates and engineers in the UK.”