Manufacturing

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What’s impacting manufacturing?

The future of manufacturing industries globally is bright. According to IIoT World, 27% of worldwide manufacturers estimate at least a 10% YOY increase in revenues until 2024. This growth doesn’t come without challenges, such as trade barriers, political instability and keeping pace with technological advances, whilst remaining sustainable.

Manufacturing Report: Unlocking value on the road to net zero

While food and drink manufacturers across the UK are being challenged to reduce their carbon footprint, it is important to note that investing in sustainability doesn’t have to impact profitability. We identify ways to unlock value through investing in sustainability, including:

  • Focusing on generating revenue through waste minimisation and potential diversification
  • Improving efficiency by reducing costs
  • Revisiting people management strategies
  • Maximising available reliefs from R&D and capital allowances

The UK itself is currently the 9th industrial nation in the world, accounting for 45% of the country’s exports and 69% of its R&D activity. Despite global economic uncertainty, UK manufacturers remain resilient and resourceful. Investment in automation and technology, combined with a focus on high-value manufacturing, is high on the agenda. The Government’s Industrial Strategy has identified some key areas of opportunity for innovative manufacturers which promotes significant growth potential. As the need to be sustainable is becoming essential rather than desirable, more manufacturers are stepping up to meet the environmental concerns – and making cost savings in the process.

Menzies Manufacturing Magazine

Edition 1

We wanted to create a magazine which summarises, in one place, the topical challenges and opportunities we see impacting the manufacturing sector. These come not only
from our own insight as manufacturing specialists but also from discussions with our clients and across our network.

Within the current environment, it seems more pertinent to continue to ‘expect the unexpected.’ However, whilst the significant challenges across the sector are widely recognised, there are ways to both mitigate these risks and to focus on available opportunities.

In this first edition we take a look at some of those opportunities, including how to benefit from the need to be a sustainable business and how advantageous freeports may be, amongst other current issues of the moment.

Supporting the Manufacturing sector

We advise a diverse range of manufacturers, as well as a number of sector-dependent clients. We work closely to find solutions to industry issues, utilising our expertise in everything from business strategy and corporate finance, to audit and tax advice.


Key challenges for the manufacturing industry

People and Skills

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An estimated 186,000 new UK-based engineers are required each year until 2024 and currently this target is not within reach. With skills shortages and the upcoming national insurance set to continue pushing up the cost of labour, manufacturers should review their future talent requirements and incentivise existing staff to encourage retention. Maintaining and increasing investment in training at all skill levels is key. Manufacturers investing in new systems and equipment are also much more likely to invest in the personal development of their people. Funding is now available as part of the Government’s Industrial Strategy to support Knowledge Transfer Partnerships and strengthen leadership skills.

Innovation

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The UK is one of the world’s top five most innovative economies, according to the Global Innovation Index. To innovate effectively, manufacturers face challenges in balancing competing demands of winning new contracts, delivering projects and helping customers. Manufacturers are leading the way with investment in R&D and opportunities exist to utilise tax incentives, such as R&D tax relief and the Patent Box regime. Making the most of these reliefs will leave manufacturers with more funds to invest in building a stronger business and recruiting skilled staff.

Technology

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Manufacturers need to utilise the latest technology to stay relevant, innovative and competitive. Their biggest challenge is how best to use technology to achieve operational goals such as reducing costs, improving quality, productivity and safety whilst pushing product innovation. Without investment in automation and other digital technologies, they risk losing market share to competitors. Strategic investment in AI and robotics is increasingly crucial to deliver long-term value and business sustainability. Embracing Industry 4.0, particularly the Internet of Things (IoT) and the IIoT (Industrial Internet of Things), opens doors for manufacturers to create a more digital focus, including real time tracking and quality management.

Supply Chain

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From car makers toiling with semiconductor shortages to fast food chains being compelled to take milkshakes off the menu, supply issues are increasingly prominent in headlines all over the world. This has significant working capital implications for manufacturers, who will need to work with both customers and suppliers to manage fluctuating prices and demand. The challenges of an inflationary materials market extend beyond financial concerns: bulk purchasing may protect margins where the business has the storage capacity and infrastructure in place to deal with larger orders, which could have a positive impact on product lead times. Manufacturers who are able to respond with agility to a fluctuating supply chain will increasingly stand out from their competitors.

Sustainability

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To strengthen their position as global suppliers, UK manufacturers must continue to invest in boosting their sustainability credentials and drive efficiencies in the process. Growing public awareness of environmental damage requires businesses to adopt a proactive approach and take steps to mitigate their carbon footprint and reduce waste. Businesses are under increasing pressure from governments worldwide to address their impact on the environment. In the UK, large companies are now required to include Streamlined Energy and Carbon Reporting in their financial statements, whilst companies using more than 10 tonnes of plastic packaging per annum may be subject to a new plastic packaging tax. In response, Britain’s manufacturers are implementing a growing range of sustainability measures and reaping cost-saving benefits. According to Make UK’s Sustainability Report, manufacturers are beginning to look beyond the initial cost-saving benefits and instead focus on the long-term benefits of sustainable approaches within their organisations.

Productivity

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According to the UK’s Office for National Statistics, recent figures suggest that labour productivity declined in the manufacturing sector by 0.9%. Manufacturers must explore ways to close this productivity gap and secure a competitive advantage. Data is now available to identify areas where streamlining the production cycles improves efficiency. Good examples of this are the development of lean manufacturing systems, performance dashboards and predictive maintenance.

More Manufacturing Brighter Thinking

Gov.uk support packages

How we’re helping the Manufacturing sector

Hair product supplier:
International structure and R&D

A hair products supplier expanded into the US in line with their marketing strategy. We assisted with building a commercially structured group, taking into account the relevant tax legislation between jurisdictions.

Withums, part of the HLB International network in the US, supported with the transfer pricing requirements.

The company had to adapt quickly after the onset of the COVID pandemic, becoming B2C rather than solely B2B. In line with this, they invested heavily in an IT platform. Investment in the platform included over £500K of qualifying R&D expenditure, helping them achieve significant tax savings in the UK.

Automotive manufacturer:
Maximising tax efficiency

We supported an automotive manufacturer with a group restructuring in order to protect key assets and to enable the business to scale up for growth whilst managing associated risk. We also advised them on tax efficient property acquisition and optimising tax relief on a recent fit-out.

Chemical distributor:
Business valuation

We performed a valuation of this chemical distributor to facilitate the establishment of a share ownership plan for the company.  Given the asset level was too high to implement an EMI (Enterprise Management Incentive) scheme, we discussed alternatives with the client and settled on an alternative that would support their commercial objectives. We will also be undertaking a capital allowances review to maximise claims for the capital allowances super deduction announced in the 2021 Budget.

Hair extension supplier:
International restructure

Prior to Brexit, we held a meeting with this hair extension supplier to highlight the risks relating to goods coming into the UK from Africa and being exported to Europe, as duty was being paid twice. We focused on providing advice to give the right structure for the business. We also identified the best structure for ownership whilst maximising tax efficiencies.

Steel fabricator:
Succession planning

We worked with this steel fabricator to transition leadership to the next generation, spreading financial activity across time to create a ‘soft landing’ for the new owners. We created a tax efficient structure, ensuring they were not incurring unnecessary liabilities. We made recommendations on share ownership and retention of sentimental holdings, to create additional value for the business.

Electronics manufacturer: Streamlining workflow

We undertook a project to write comprehensive stock and work in progress flow charting for this electronics manufacturer. This enabled a better understanding of the bill of materials, re-order quantities and work in progress assessment following issues where stock had continually and unknowingly been hugely overstated in the accounts.

Contact Menzies Manufacturing Sector Team
















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Caroline Milton - FCA

Partner

Caroline Milton is a Menzies Partner specialising in audit & compliance advisory and heads up Menzies Manufacturing sector team.