Engineers to power UK growth next year
Sunday 12 December 2010
It seems the unexpected could really be happening.
British manufacturing is staging a robust comeback that could even help to haul the economy back to sustained growth.
According to the Engineering Employers Federation (EEF), the manufacturing sector will outperform the rest of the economy next year. However, the EEF says this hinges on continued recovery in overseas markets. Truth is, manufacturing has been on a firm path to recovery since 2009 anyway. Consequently, investors should not casually dismiss the proud boast by the EEF as empty rhetoric. After all, manufacturing does account for about a sixth of the economy. That said, it is important to pick through the recession-hit manufacturing rubble and identify those companies with a strong competitive edge.
The aerospace industry is one in which the UK does have an edge. It is ranked among the global top flight, with an annual turnover of about £20bn. A standout company in the sector is Rolls-Royce, which has a significant global presence. It generates about a third of annual turnover from the US, a quarter from Asia, a fifth in Europe. Britain accounts for about one-seventh of its annual sales.
Admittedly, Rolls-Royce could have done without the turbulence caused by faults that developed in its Trent 900 engines. However, the engine defect has been identified and repairs are now in progress. What's more, the engine maker has picked up orders worth about $3bn from two separate Chinese airlines.
Investors need to tread carefully, though, because Rolls-Royce is not an easy company to value by the usual measures. This is because individual contracts take place over quite long timescales. But what we can say about Rolls-Royce is that it has been paying a steady dividend.
The lucrative contracts inked at Rolls-Royce are some of the many deals that will help to accelerate growth in manufacturing output. According to the Office for National Statistics, factory output grew 0.6 per cent in October, which was twice the expected rate and the highest since March. In the three months to October, growth of 5.6 per cent was the strongest since 1994.
For some players in the manufacturing sector, growth has never been a problem. For example, Weir Group, which makes pumps for the mining, oil and gas and industrial sectors, has delivered five years of unbroken growth. Between 2005 and 2010, Weir's turnover grew by 70 per cent and profits more than doubled. To match the increasing profits, Weir has been rewarding investors with year-on-year dividend increases.
The outstanding performance at Weir confirms findings by the British Chambers of Commerce that growth in manufacturing could be strong this year – at least 3 per cent. However, Weir added a note of caution for investors. It said conditions in the Canadian and UK general industrial markets remain challenging. Nevertheless, analysts are forecasting that its profits will grow 70 per cent this year.
One of the keys to improving performance is the ability to raise prices in times of inflation. Interestingly, the EEF has found that the balance of firms planning to increase prices climbed to its highest in more than two years. It would seem that companies now have the confidence to pass on higher commodity prices and some intend to rebuild margins that shrank during the recession.
The ability to maintain margins is not something that valve-maker IMI has had to worry too much about. IMI's outward appearance may be that of a boring manufacturer in a commoditised market. But to those in the know, it produces specially engineered valves for the power generation industry. The critical nature of its products may help to explain why IMI has been able to maintain operating margins at around 12 per cent over the past five years.
Without question, manufacturers have benefited from improved confidence, a lower pound and inventory restocking. However, Britain has always been strong in high-value manufacturing. It is just not very good at commoditised metal bashing.
David Kuo is director of financial website www.fool.co.uk
Independent Partners: See how much you could save by switching credit cards. Compare now
arts + entsThere were towering ideas, some scintillating performances and revelatory grooves... our writers pick out their personal highlights
elephant appealThe first 23 lots in our charity auction have now gone. But there are 22 more still up for grabs
elephant appealPrince William signs up for our charity appeal
peoplePrepare to be entranced by worms as the molecular biologist gets ready to give the Royal Institution science lectures
elephant appealSo says man jailed for cutting off dead elephant's tusks
booksWe examine the best titles for teens
voicesPeople moan that Christmas is too commercial, the spirit lost. But it is a time to over-indulge, and always has been, says DJ Taylor
scienceResearchers teach border collie to understand sentences using more than 1,000 words
booksA Christmas story in six parts
travelWill high-value tourism help the workshops of this Renaissance city?
food + drinkA trifle without custard? Surely not! Nonsense – and here’s three to finish your festive meal that prove it
Geoffrey Macnab does not like the comedian's big screen debut
- 1 Tim Sherwood challenges Daniel Levy to set out vision for Tottenham Hotspur’s future
- 2 French pub fined €9,000 after customers returned empties to bar - because it's 'undeclared labour'
- 3 Sun will 'flip upside down' within weeks, says Nasa
- 4 #Teamnigella: It’s the only side to be on
- 5 Christmas comes early: Justin Bieber is 'retiring from music'
Tom Daley ‘is gay because his father died’ says UK evangelist
Iain Duncan Smith leaves Commons food banks debate early
David Cameron takes his biggest gamble yet as he gets tough on Europe over immigration
Kiss and yell: Italian protester charged with sexual assault after kissing riot police officer
Anachronistic and iniquitous, grammar schools are a blot on the British education system
Scientists ‘incredibly concerned’ for fate of banana as plagues and fungus infections spread across world’s supplies
- < Previous
- Next >
iJobs Money & Business
£59999 - £80001 per annum + Benefits: Pro-Recruitment Group: A Top 10 firm in ...
£50000 - £75000 per annum + benefits + bonus: Harrington Starr: Project Manage...
£60000 - £90000 per annum + benefits + bonus: Harrington Starr: Business Analy...
£Negotiable: Citifocus: High calibre individual with institutional client serv...
Day In a Page
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.