A quarterly survey produced by Euler Hermes UK and NTC Economics
LATEST MANUFACTURING INDUSTRY FINDINGS
- Growth of cash flow at 9% in Q1; close to a 4-year high
- But growth of profits falls back from Q4 2006’s 8-year high
Financial conditions at UK manufacturers remained largely positive at the start of 2007, according to the Q1 Cash Flow & Profit Report (2007) from Euler Hermes UK, a company of Euler Hermes, subsidiary of AGF and member of Allianz. Year-on-year growth of free cash flow rebounded to 9.0% in Q1, from 6.9% in Q4 2006 and only fractionally below the four-year series high of 9.2% recorded in Q3 2006. The last three quarters’ readings for growth of cash flow at UK manufacturers have been the three highest in the series history. Manufacturers linked their recent impressive cash flow growth to strong sales and prompter payments from clients.
Strong growth of current cash flow helped engender robust confidence at UK manufacturers with regard to likely changes in their cash flow over the next twelve months. On average, manufacturers expected to see growth of free cash flow of 6.2% over the coming year. Of the four industry sectors covered by the survey, only the construction sector (7.2%) was more upbeat with regard to their likely cash flow growth.
Profits at UK manufacturers also continued to rise in Q1, with an increase recorded for the third consecutive quarter. The rate of increase in profits fell back from the eight-year series record rate posted in Q4 2006 but nevertheless remained well above the long-run average. While strong underlying demand from the domestic and overseas markets and improved pricing power helped manufacturers to rebuild their margins, high raw material costs continued to exert a negative influence on manufacturers’ profitability.
Cash Flow at Q1 2007
Average % change in cash flow over:
past 12 months next 12 months
All companies 3.8% 3.2%
Services 1.6% 1.3%
Manufacturing 9.0% 6.2%
Distribution 2.7% 2.8%
Construction 4.5% 7.2%
The Euler Hermes UK Profits Index
Index 50 = no change on previous quarter / year:
2005 2006Q3 2006Q4 2006Q1 2007
All companies 50.1 52.6 51.3 57.3 50.9
Services 54.8 55.4 53.0 52.1 63.0
Manufacturing 52.3 55.0 53.0 65.6 52.8
Distribution 44.6 52.4 53.8 59.3 36.2
Construction 52.1 37.7 40.7 37.7 57.6
