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£2.1bn is `trapped` in UK manufacturing sector

06 September, 2012

More than £2bn was “frozen” in UK manufacturing industry in 2011, tied up in outright equipment purchases, says a new report from Siemens Financial Services (SFS). If the sector made wider use of asset-financing techniques such as leasing and rental, it argues, this £2.17bn could be freed up for other purposes, such as acquisitions, new product development or investment in personnel.

Although there has been some reduction in inefficiently deployed capital since 2009, when it was valued at around £2.4bn, UK industry is still not using financing tools widely, and there is potential for significant improvement, the report contends. In light of the increasingly globalised markets, any limitation on the ability to invest in the latest technology and equipment affects the sector’s competitiveness and growth, it adds.

To reach its figure for “frozen capital”, SFS combined the amount that UK manufacturing industry spends each year on equipment with a “conservative” calculation of the equipment considered leasable or rentable.

“High productivity and engineering efficiency are determinants for the success of the manufacturing sector, but the accomplishment of these goals requires modern technology and equipment,” comments SFS` general manager, David Martin (above). “Access to available capital is therefore crucial and industrial organisations cannot afford to have a significant proportion of their annual capital budgets tied up in plant, equipment and technology.

“Given the slow economic recovery in Europe and persistent tight credit conditions,” he adds, “it is all the more important that manufacturers release much-needed liquidity to implement operational efficiencies or fund new product development in order to maintain their competitiveness.

“By making greater use of asset financing techniques to acquire the most up-to-date technology and equipment, industrial management can benefit from higher financial efficiency and lower energy consumption, which is critical to making technological and process developments affordable, and economically sustainable.”

Asset finance can also help companies to convert to more energy-efficient equipment, because it helps to align regular, affordable payments with the incremental savings gained from lower energy consumption. The investment cost can thus be subsidised, or in some cases, offset completely through the energy cost-savings.

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