Boost for manufacturers

Sector north of Border appears to be in better shape than rest of UK

FEWER Scottish manufacturers are showing insolvency warning signs, suggesting the sector is in good shape to weather the troubles of the oil and gas industry and broader output challenges, research has revealed.

The research, published by insolvency trade body R3, shows that the proportion of manufacturers in Scotland with a heightened risk of insolvency has fallen in every month since February.

Scottish manufacturers also appear, overall, to be in better shape than their counterparts else- where in the UK in terms of financial security.

R3 noted that 22.4 per cent of manufacturing businesses in Scotland were considered at higher-than-normal risk of insolvency. This is below the UK average of 23.1 per cent.

The proportion of manufacturers in London showing a heightened risk of insolvency in this month’s analysis is 29.9 per cent.

In both Wales and south-east England, 24.1 per cent of manufacturers are considered to be at greater-than-normal risk of insolvency.

R3’s insolvency risk tracker comes hard on the heels of a survey from Bank of Scotland showing another fall in manufacturing output north of the Border in June, and amid continuing cost-cutting by the North Sea sector.

Oil and gas companies have been cutting jobs, pay rates and other costs in the wake of a tumble in crude prices in the second half of last year. The North Sea sector’s troubles are cited in the Bank of Scotland survey as having played a key part in the weakness of the broader manufacturing sector.

Tim Cooper, chairman of R3 in Scotland and a partner at law firm Gateley in Edinburgh, described the fall in the proportion of manufacturers north of the Border showing a heightened risk of insolvency as encouraging.

He said: “There are some particular risk factors for manufacturing in Scotland associated with the oil and gas sector but the general feeling (is) of it being a sector that is capable of dealing with it. Maybe [there will be] some squeeze on margins, some squeeze on profitability. Overall, that is the most likely effect.”

R3’s research is based on Bureau van Dijk’s Fame database. Companies in the Fame database are awarded a score in terms of their likelihood of insolvency in the next year. This score is based on factors including turnover, pre-tax profit, working capital, cash and bank deposits.

Noting the fact that the proportion of Scottish manufacturers showing a heightened risk of insolvency had fallen in every month since February, Mr Cooper said: “You can see a trend there, over that period. When you see that trend, I think you can say this is a sector that is showing rude health.”

He added: “The risk indicators [are] saying effectively the manufacturing sector in Scotland is more robust, or has certainly got a more robust attitude to risk, than maybe what we are seeing in other parts of the UK.

“I think that is really encouraging: a sector that feels it can weather the storm, if there is a storm at all.”

Bank of Scotland’s latest PMI (purchasing managers’ index) report, published yesterday, showed slight falls in output and new orders in the manufacturing sector north of the Border in June.

The PMI survey cited reports from companies that weakness in the oil and gas sector, as well as unfavourable exchange rates, had weighed on demand at home and overseas last month.It also showed a decline in manufacturing jobs.