Manufacturing Sector Sees 20% Increase in Company Insolvencies

Manufacturing Sector Sees 20% Increase in Company Insolvencies

Manufacturing company insolvency has seen a significant increase, as companies are winding up across the country, fresh data from Exaro has shown.

June saw the number of companies within the manufacturing sector which filed for insolvencies drastically climb from 168 to 200 – representing a rise of 19% – compared with June of last year.

These figures come at a time of heightened economic stability in the UK, with the Office for National Statistics (ONS) releasing statistics showing the UK’s GDP has returned to the level it stood at before the 2008 financial crisis. Moreover, June’s insolvency figures are all the more troubling, given April and May’s improvement on the previous year’s rate of insolvencies.

Exaro calculates, via their reputable Exaro Insolvency Index, shows that insolvencies across all industrial sectors climbed by 4.6% in June.

These factors combine to paint a somewhat worrying picture for the UK’s economy.

However, Clive Lewis, chief of enterprise at Institute of Chartered Accountants for England & Wales (ICAEW) seemed unperturbed by the figures, noting that though wind ups are inherently unpredictable entities, that nevertheless “the UK has come a long way since recession”

“Insolvency figures can fluctuate, but we are a far cry from the number of corporate liquidations we saw in 2009. Business survival rates have come a long way since the ‘great recession’.”

Although there was a slight drop in the number of winding up petitions filed between June 2013 and June 2014, the hiring of insolvency practitioners and liquidators increased by over 20 % during the same time period. All figures bear a remarkable trend, that of increased insolvencies on a year-by-year basis across all sectors.

These insolvencies are having a profound impact on manufacturing outputs, as this part of UK industry fell by 1.3% between April and May – the most significant drop for over 18 months, according to data from the ONS.

Ernst & Young data ramifications

According to data from Ernst & Young, the quantity of profit warning released by listed companies increased by 9% in the first half of this year, with the majority of these coming in the last 3 months. Struggles due to competition, pricing pressure and hostile currency transfers were commonly alluded to by ailing companies as key factors adversely affecting their profit margins.

Manufacturers of consumer goods, such as electronics suppliers, household goods distributors and those proffering software enhancing skills comprised the group delivering the greatest number of insolvency claims, according to Ernst & Young. Higher insolvency means more company liquidations, company voluntary arrangements and administrations.

“The pound’s rapid rise is one of the biggest pressures on earnings, although the problem highlighted in profit warnings isn’t one of the sales but of currency translation,” said Keith McGregor, a partner at Ernst & Young. “Recent history shows that UK exports are relatively insensitive to currency effects. However, the pound’s leap to multi-year highs has caught out a number of companies who translate foreign earnings back into pounds.”

“Price and competition pressures have also intensified. While the recovery has boosted demand, it hasn’t eradicated the austerity mindset of businesses or consumers. Moreover, the low level of insolvencies means companies are competing in a packed and competitive marketplace, lowering the normal level of returns,” he added.
On the other hand, the retail sector appears to be coping with market conditions swimmingly, with trends showing a marked increase in the number of firms, and the issuing of only 9 profit warnings across the entire sector.

“The FTSE General Retailers sector has already undergone a deep level of restructuring in response to relentless competition and structural change,” said Ernst & Young’s leading restructuring financier in the UK, Alan Hudson. “The pace isn’t letting up and the grocery sector looks set to face the next round. The consumers’ shift to online, convenience and, above all, value-based shopping is rapidly reshaping food retail.”

“Competitive pressures look set to reach a new level of intensity, with further implications for suppliers already stretched by tough conditions in developed and emerging markets. However, the major food retailers cannot squeeze their suppliers indefinitely without consequences for quality and supply. They must focus strategy beyond just price, on areas where they can compete – like range, service and convenience,” he said.