Manufacturing Sector Insights – October 2012

This edition explores key topics and issues which have real potential for impact on manufacturers and the concept of optimisation in the context of business models, capital structure, funding profiles, working capital efficiency, approach to risk management and cost base.

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Welcome to our 2012 edition of Sector Insights: Manufacturing.

It’s hard to believe it is 12 months since our first Manufacturing Insights publication. The themes of a sustained high Australian dollar, higher costs, global volatility and softer consumption continue to present meaningful challenges for Australia’s manufacturing sector. In the very least, they have tested business models and supported ongoing structural change in the sector. During the past 12 months we have launched our Manufacturing Activity Index with the intention of providing our customers with good quality, timely industry insights to support decision making activities.

Notwithstanding some of the challenges identified by the Index, it is clear that there are some sub sectors that continue to perform well, and certainly many of our customers are responding well to the environment.
In this edition we explore the optimisation theme that has emerged from many of our customer conversations over the past 12 months. Most, if not all of our customers, have expressed the concept of optimisation in the context of business models, capital structure, funding profiles, working capital efficiency, approach to risk management and cost base, to name but a few.

With this in mind, we take a look at some key topics and issues which have real potential for impact on manufacturers. The changes taking place within the banking sector in preparation for the implementation of Basel 3 will have flow on consequences for all industry sectors, we explore these and how businesses can minimise the impact.

In challenging environments, competitive advantages can provide an invaluable edge for any business. Adopting active risk management practices is one way to achieve such an advantage, we look at the different options and how they can work for you. What makes for a successful manufacturing operation? We share our views on the ‘success factors’ learned from companies who have strategically positioned themselves for ongoing performance through adverse conditions. Carbon has proved to be one of the hottest topics of 2012.

We take a look at how getting on the front foot and investing in energy efficiency can be an effective means of improving the cost base. Meg McDonald, CEO of Low Carbon Australia, also shares her views on how manufacturers can best position themselves to manage the transition to a low carbon environment.

Our economics team share their views on the sector and overall economy, particularly why outlook for Australia remains favourable although significant structural rebalancing will continue. We are very pleased to share with you the views of Ross McKean, Treasurer of Orica, and Greg Barnes Chief Financial Officer of CSR, who candidly discuss some of the issues and opportunities that exist in the Sector.

There is no denying the local outlook for manufacturing remains a challenging one. Uncertain global economic conditions continue to impact on confidence and top line demand. Notwithstanding this, NAB remains committed to supporting businesses in the Australian manufacturing sector.

We have been witness to businesses who have demonstrated a real ability to adapt to the changing environment, noting in most cases management teams have been extremely proactive in managing these difficult conditions. Manufacturers that continue to adapt, grow, remain well managed and cash generative, with an eye for optimising the execution of a sound business and financial strategy, will be the ones that attract the strongest support from banks and investors alike.

We look forward to continuing to work with you in the year ahead.

For further analysis download the full report.