Sector review: Engineering

Engineering sector review

 

Welcome to the Close Brothers Asset Finance review of the Engineering sector. In this article we highlight a wide range of issues relevant to SMEs in this industry. 

The results are based on the Close Brothers Business Barometer (conducted in August 2017), a quarterly survey of close to 1,000 SMEs across the UK and Republic of Ireland conducted by specialist independent researcher, GMI on Close Brothers’ behalf. 

Where relevant, comparisons are made with national sentiment. 

The commentary in this review focuses on: 

  • Economic conditions 
  • Where business owners go for financial support and advice
  • Culture of slow payments 
  • Impact of the general election 
  • Customer data and their rights 
  • Apprenticeship schemes 
  • Conducting business online 

 

Economic conditions 

Sector review: Engineering - conditions

Just over half (54%) of Engineering SME business owners expect their business to perform the same as they did in the previous 12 months with 1 in 5 (20%) expecting to expand against 11% seeing contraction. Three percent say they will close their doors for business before the end of 2018. 

Of those surveyed, 21% feel trading conditions have improved over the past 12 months with 14% saying they can see opportunities but can't access the finance to make them happen. Exactly half of respondents feel things are no different to last year while things have become worse for 14% of respondents and a further 1% may be forced to close down. 

“The sentiment of the Engineering sector closely matches that of the SME community across the UK,” said Ian Barker, Managing Director, Engineering division at Close Brothers Asset Finance. “An area of concern is that access to finance is still preventing growth for a large number of businesses despite the varied and non-traditional funding routes available today.”

 

Where business owners go for financial support and advice

For SMEs in the Engineering sector, the most popular source of financial support and advice was their accountant (26%) followed by their friends and family (21%). Nationally, friends and family were the first port of call (24%) for businesses and accountants in second place with 21%.  

“Many businesses have a long-established and trusted relationship with their accountants who have an objective understanding of a firm’s performance, and they are able to provide the kinds of insights not available elsewhere,” said Ian. “There are also a large number of family-owned companies in our sector and it makes sense that the owner involves those they know and trust.” 

Where do you mainly go for financial support and advice?

 

National

Engineering

Accountant

21%

26%

Bank Manager

13%

13%

Finance Advisor

15%

20%

Friend/family

24%

21%

Online

16%

14%

Other

7%

1%

Peers

2%

1%

Solicitor/lawyer

2%

4%

 

Culture of slow payments 

Sector review: Engineering - slow payments

Close to half (49%) of Engineering companies are affected by slow payments, compared to the national average of only 34%, while 75% feel that current legislation does not support  SMEs to counteract slow payment by debtors. 

“Late compensation is a real problem for firms in our sector with 63% going so far as to say that there is a culture of slow payments in the UK,” said Ian. “And 38% of firms have been forced to seek legal advice because of the issue, which is stressful and time consuming.

“The consequences of slow payments are multiple, ranging from damage to the supply chain and business reputation to the ability to access further funding.” 

 

Impact of the general election 

The majority of Engineering SMEs (73%) have not noticed an impact on business levels following the recent general election, leaving more than a quarter of respondents (27%) who have been affected.

“Elections can be disruptive and sometimes bring with them an element of uncertainty,” said Ian. “Some businesses benefit more than others but it appears that for most the effect was negligible this time around.”

Despite the lack of impact on organisations, a big majority of 80% say that that they have no appetite for another election any time soon, and furthermore, 70% of Engineering firms do not think that another election would benefit the UK. 

Sector review: Engineering - election

“The prevailing view seems to be that the UK needs to press ahead to end the uncertainty, regardless of the political landscape,” said Ian. “Set against these results is the understanding that only 30% of sector SMEs are of the view that the lack of a majority government will help the UK when negotiating Brexit.”

Confidence; however, is strong with over a quarter (26%) of business owners stating that they are more confident now than they were two years ago (pre-Brexit and general election). Only 19% and less confident with the remaining 55% feeling ‘the same’. 

“Nationally, more businesses are pessimistic than positive (23% v 16%), but in the Engineering sector this is reversed (19% v 26%), which is a positive indictment of the Engineering sector,” said Ian. “For the most part, there is an air of positivity, as reflected in these figures.” 

 

Customer data and their rights

Less than one third (31%) of manufacturers truly understand what ‘personal data’ means, while 13% answered that they were not; the remaining 56% were unsure of its meaning. 

“Keeping customer data secure is becoming one of the key issues of our times with the new General Data Protection Regulation (GDPR) coming into force in May 2018,” said Ian. “It’s vital that businesses of all sizes understand the rights customers have when it comes to collecting and utilising their personal information, because currently 48% of SMEs in our sector don’t understand customers’ new extended rights and another 36% don’t have the right levels of permissions to contact their customers under the new requirements of the GDPR.”

Around one in every six (15%) Engineering firms share their customers' personal data with 3rd parties while 21% are ‘unsure’ if they do or not. When asked if they have a process in place to ensure they are collecting data in the correct manner, 46% either did not or were unsure. 

“The GDPR’s definition of personal data makes it clear that even online identifiers, for example an IP address, can be personal data,” explained Ian. “The new definitions provide for a wide range of personal identifiers to constitute personal data, reflecting changes in technology and the way organisations collect information about people.

“This example shows just how detailed the new regulations are going to be and it’s incumbent on business owners to understand what this means to them.”

 

Apprenticeship schemes 

Sector review: Engineering - apprenticeships

According to 85% of Engineering SMEs, apprenticeships are all or part of the solution to the UK's skills gap. Firm owners also strongly believe that apprenticeships are a viable alternative to university, with 78% of business owners agreeing with the statement ‘apprenticeships are a valuable alternative to university’. 

“Skills shortages have made headline news recently and it’s clearly an issue that SMEs feel very strongly about,” said Ian. “Many businesses are very concerned about where their next cohort of skilled workers is going to come from and the answer, they feel, is more apprenticeships.”

Almost one third (30%) of Engineering companies have their own apprenticeship scheme while 50% say it’s not right for their firm and the remaining 20 % cite lack of affordability as the reason why they don’t have one of their own.  

“Clearly, not every business has a need for an apprentice; however, the fact that for many it’s simply too expensive shows that more needs to be done,” said Ian. “Close Brothers has long been a supporter of apprenticeships, with two schemes currently underway in the Engineering and transport sectors.”

Nationally, 49% of business owners answered ‘yes’ to the question ‘if assistance was available either from either the government or the private sector, would you participate in an apprenticeship scheme?’. In the Engineering sector this rose to 54%. 

 

Conducting business online 

Over half (56%) of firms conduct some form of business online with 44% having seen growth in online trade, although in 39% of cases it was limited to less than 20%; an impress 20% of firms saw more than 80% expansion.

“60% of those surveyed felt that online will play an increasing role in coming years,” said Ian. “For many companies, especially those at the smaller end of the spectrum, there will continue to be a reliance on traditional channels to get their product to market.” 

 

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