Engineering sector flags export surge
Weakness of pound in wake of Brexit vote boosts sales but costs also rise
ENGINEERING companies in Scotland have achieved a surge in order intake in the latest quarter, with export business boosted by sterling’s weakness following the Brexit vote, a key industry survey shows.
The overall rise in export orders for the sector north of the Border follows 13 consecutive quarters of decline, according to the survey from industry body Scottish Engineering.
While not taking any position on Scottish independence, amid the heightened constitutional debate following the Brexit vote, Scottish Engineering chief executive Bryan Buchan writes in the quarterly review that the “topography of our landscape has the potential of another indyref, exacerbating yet another period of seemingly interminable uncertainty”.
He adds: “We emphasised the importance of the UK market for Scottish companies last quarter and it is imperative that we keep our borders clear for trade.”
About 43 per cent of engineering companies in Scotland achieved a rise in export orders in the latest quarter, with only 13 per cent recording a decline and 44 per cent reporting a flat position. The resultant balance of 30 per cent of companies reporting a rise in export orders was in stark contrast to the net 17 per cent posting a decline in the preceding three months.
Mr Buchan said of the jump in export orders: “It is on the back of the weakness of sterling against the euro and the dollar.”
He highlighted the fact it was the small and medium-sized engineering companies which had achieved a rise in export orders. Large companies reported a flat position.
A balance of 27 per cent of engineering companies in Scotland reported a rise in overall order intake in the latest quarter.
This signals a sharp acceleration in the pace of increase, with a net four per cent having posted a rise in the preceding three months.
Meanwhile, a net 14 per cent of engineering companies recorded a rise in output volumes in the latest quarter. This signalled a modest acceleration of output growth, with a balance of 11 per cent having achieved a rise in volumes during the preceding three months.
However, the rate of increase of staffing in the Scottish engineering sector slowed in the latest quarter. A net four per cent of companies reported a rise in staffing, with a balance of nine per cent having recorded an increase in the previous quarterly survey.
Mr Buchan cited mixed signals regarding the state of the oil and gas industry, noting companies in the sector had reduced their costs of extraction significantly through productivity gains and had also seen a bit of a recovery in global oil prices. Noting the pound’s weakness, he also cited benefits in sterling terms for UK companies because oil was sold in dollars.
He said: “We have mixed reports on oil and gas, where some are saying there are no signs of improvement in the services sector but, on the other hand, an engineering company [is] reporting a few significant orders [for capital equipment] from the oil and gas sector after what has been a very long period of inactivity.”
Mr Buchan noted metal manufacturers, fabricators and machine shops had enjoyed a good quarter.
He added: “Overall, it is a pretty encouraging report…It is better than I expected it to be.”
Mr Buchan noted that two larger electronics manufacturers were experiencing year-on-year growth, and benefiting from the weak pound.
However, he also highlighted rises in the cost of raw materials, including metals such as copper and nickel, arising from sterling’s weakness against the dollar.
And he cited a still generally tough competitive environment. He noted some companies were taking business “on the margin”.
Mr Buchan said: “As long as they are recovering material, labour and overhead cost, they will take the business, so they can keep volume going through the plant [and] look for better times.”
He added: “In most cases, the machine shops and the fabricators and the others would rather retain skills than go after margin-only business that means they have to reduce volume.”
Asked if Scottish Engineering had any further comment on talk about a second Scottish independence referendum, Mr Buchan replied: “We are not going to come out with any sort of position at the moment. We don’t have any pressure on us to do that.
“We will sit tight [and] wait until anything does happen and [see] if the members want us to say anything.”
He added: “Above all else, we need to keep the borders clear for trade with the rest of the UK.”
Mr Buchan cited changes to business rates, the lower 40p income tax threshold in Scotland, and the apprenticeship levy as key areas of concern for engineering companies in Scotland.
He said: “Major areas of concern for all Scottish operations include the revisions to business rates, the relatively unfavourable mid-range personal taxation regimen and the long-awaited detail of the disbursement of the apprenticeship levy takings.”