Shares in two of Britain’s biggest manufacturers soared on news of a Trump victory in the US, but the picture belies deeper problems for factories and engineering based businesses on this side of the pond.
BAe Systems and Rolls-Royce, both acclaimed FTSE100 engineers and defence manufacturers, derive a huge proportion of their earnings from the US market. The President-elect has promised widescale military improvement and UK operators’ top-tier supplier status is expected to offset some adverse currency translation from a (so far) stronger dollar.
At home, even the most innovative engineers, metal bashers and fabricators are seeing a very different story. In recent days, a 30-year old business that might have become a national champion fell into administration. Oxfordshire based Reaction Engines had developed new technology combining the fuel efficiency of a jet engine with the power and high-speed capability of a rocket. It had been dubbed by many as ‘the Concorde successor.’ Funded by grants and various equity rounds, the company was pursuing opportunities to raise additional investment but these were ultimately unsuccessful.
In the past few weeks, UK manufacturers of hydraulic cylinders, specialist textiles, Formula 1 carbon products, beds, lighting equipment and steel springs have all appointed administrators.
As economic statistics go, manufacturing output and purchasing manager figures are among the best for giving us false hope of recovery before falling back. The seemingly inescapable fact is that manufacturing output remains fairly flat and will be for the foreseeable future: in the three months to August 2024 it was only 0.5% higher than in the three months to May 2024. It had fallen 1.5% between June and July.
The perennial debate at government level is a long way from being solved: what can generate earnings outside financial and professional services, or early stage tech development? Manufacturing’s share of the UK economy is around 10% today, half of what it was in 1990. Everyone knows that our manufacturers face fierce competition from emerging economies in Asia, primarily China and India, which are able to produce goods more cheaply. Fewer realise that well over 90% of UK manufacturers are SMEs or even microenterprises; relative to larger business in all sectors, they have poorer access to funding, skills, physical space and exporting. The pattern of administrations is all too predictable.
Domestic demand for manufactured goods has picked up, but businesses continue to experience global difficulties that have restricted foreign orders. Conflict in the Middle East and disrupted shipping in the Red Sea remains a concern. In addition, businesses reported reduced demand from mainland Europe, notably from France, the Netherlands, Belgium and Poland. ‘Trump tariffs’ in the US next year won’t help.
Manufacturing insolvencies totalled 990 in H1 2024. August’s monthly figure was up 13% on July, which may not bode well for H2. Manufacturing and engineering businesses considering the insolvency toolkit for an exit route or restructuring, while the decision is still theirs, are welcome to get in touch for a free-of-charge initial exploratory chat. As ever, the Buchler Phillips philosophy is ‘work out, not bail out’.
Written by Anoushka Desai, Senior Analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.