Manufacturing’s muscular response to recession

The UK manufacturing sector is emerging from the recession stronger and leaner than ever, according to a recent survey by PwC, which found that leading manufacturing businesses were not only able to improve working capital by up to 15% in the recession, but also to improve gross margins by 1.5% through cost saving initiatives.

Clive Penwarden. manufacturing partner at PwC, says: “Although UK manufacturing has just experienced one of its worst periods of decline and turmoil, the majority of the companies we spoke to used it as an opportunity to carry out radical restructuring, cost reduction, improve agility and flexibility, renegotiate contracts and pension liabilities.

“Potential acquisitions or divestitures are actively being evaluated in order to strengthen market position and take advantage of opportunities such as acquisitions of strategically valuable distressed assets in the market.

“Businesses which have shown resilience and stability during the recession and emerged leaner and more efficient may now find themselves as potential takeover targets, in particular by overseas conglomerates looking to benefit from weak sterling and gain from recovery upside opportunities.”

As the UK manufacturing sector emerges from recession PwC urges manufacturing companies to:
 
• Offer ‘solutions’ rather than just products such as full systems, installation and service offerings;
• Rationalise the product portfolio even further by discontinuing ‘dead wood’, commoditised and low / negative margin products;
• Increase prices in more resilient markets like repair and maintenance, value-added services, brand leaders;
• Shift towards markets more resilient to cycle and downturn for instance military, repair & maintenance, services;
• Invest in intellectual property (IP) and R&D to focus portfolios on differentiated, high-technology and high-value products;
• Bolt-on acquisitions of good and/or complementary products to increase portfolio value.
 
Penwarden says: “With the possibility of a ‘double dip’ recession still looming and continued uncertainty remaining there is a real opportunity for businesses to ensure they have robust detailed plans in place to cope with both upturn and downturn scenarios.”

PwC's report, Never Waste a Good Crisis, is available to download here: http://www.pwc.co.uk/pdf/premium/never_waste_a_good_crisis.pdf

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