Manufacturers Are Upping The Inestment Game

In contrast to the official figures, new research from the EEF shows that Britain s manufacturers are significantly increasing their investment performance as they strive to improve productivity and take advantage of growing world markets. And for most, the investment is made from retained income, and not from borrowing

The results, however, also pointed to concerns ahead for small firms, following last week s Bank of England report showing that lenders are now tightening their lending criteria. This is likely to hit disproportionately small firms as the survey showed that the lack of a long and stable track record was more of a hurdle for companies in that sector.

According to the survey, in the last year, over 53 per cent of companies had increased investment, with 36 per cent holding investment steady and only 11 per cent proposing to cut back.

These figures contrast with official data which, it is suggested, is not accurately capturing actual investment in manufacturing. However, there are a number of reasons for this, including the shift to intangible investment in areas such as design, marketing and R&D, as well as more investment taking place abroad. These factors highlight the changing face of industry and the shift away from capital intensive manufacturing which is a feature of many countries in the first world.

Of equal importance to the actual levels of investment, the survey also shows that the quality of management decision making has improved. Since 2003 there has been a decline in the use of management discretion to block investment projects that have passed any technical criteria and, an increase in those receiving the green light, despite not meeting payback periods or hurdle rates.

Furthermore, average payback periods have lengthened from 2.9 years to 3.3 years. Small companies used the longest payback periods with almost two in five saying they used four years or more.

The survey also showed that retained earnings continue to be the main source of finance for investment, with four fifths of companies citing it as the main source and only one third using an external source in the last two years.