‘Promising outlook’ for Australian manufacturing, says Grant Thornton
Increased capital expenditure and investment in emerging technology have led to increased growth in sales among manufacturers, according to analysis by Grant Thornton.
Recent analysis of mid-sized Australian manufacturers has revealed some positive trends in the sector, with average year-on-year sales growth now at 6.7 per cent for manufacturing companies, according to the 2023 Manufacturing Benchmarking Report by Grant Thornton.
The report, which analysed the financial data from 100 Australian mid-sized manufacturers, found that sales growth has now risen above pre-COVID-19 results.
Grant Thornton partner and national head of manufacturing Michael Climpson said this has predominantly been driven by increased capital expenditure and investment in emerging technology.
Capital expenditure increased in the 2023 financial year, which demonstrates there is now confidence to reinvest in the sector, the report said.
This follows a decline in plant and equipment carrying values during the COVID-19 period when there was uncertainty about the future.
“The outlook is particularly promising for business with revenue over $100 million, whose scale has supported ongoing success through stronger forecasting linked to better pricing agreements and growing market shares due to their steady inventory,” said Mr Climpson.
The top 10 performers in the sector achieved sales growth of 29 per cent in the 2023 financial year compared with the previous period, exceeding the previous average of 25 per cent.
However, despite the growth observed in sales and gross margin, EBITDA and profit margins decreased as a percentage of revenue growth, despite increasing in dollars across the top ten.
“This is largely due to the sharp increase in revenues experienced during the year, combined with significant outlays in costs relating to administration and marketing expenses,” the report stated.
Mr Climpson said despite the rising sales figures for manufacturers, cash flow is still being heavily impacted by rising costs, inflationary pressures, and disruptions in supply chains.
“This has mainly affected manufacturers with turnovers under $40m, who face increasing profitability challenges and struggle with pricing uncertainty and maintaining production volumes,” he said.
“High competition and a lack of skilled labour has added to these challenges by increasing costs for businesses, creating a desire and sometimes need to adopt innovative solutions to increase production capacity.”
Around a third of manufacturing companies are still experiencing a decrease in revenue, which indicates that there are still companies in the industry experiencing the ongoing effects of COVID-19 and consumer consumption behavioural changes.
Mr Climpson said the manufacturing industry was responding to these challenges, however, by embracing new and emerging technologies along with sustainability measures to maintain sales margins and profitability.
Government support through initiatives such as the National Reconstruction Fund, R&D Tax Incentive and state-driven programs are also empowering mid-sized manufacturers to deliver on their growth ambitions and strengthen domestic capabilities, he said.
With inflation now easing, the accounting firm expects that sales growth will continue to be high for the manufacturing sector in the 2023–34 financial year.
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