Small manufacturers outpace larger rivals in post-COVID recovery
Grant Thornton’s annual sector report has found smaller manufacturers improved profitability, cut costs and boosted sales in the past year.
Smaller manufacturers are leading the sector’s rebound from the lows of COVID-19, with data from a recent survey showing they outperformed their larger counterparts in sales growth and operational efficiency in the past year.
Manufacturers with revenues up to $40 million posted an average sales growth of 19 per cent compared to the average of 7.7 per cent, according to Grant Thornton’s annual manufacturing benchmark report.
Grant Thornton said sales growth was “the way to recovery” after the sector reached a low of 1.79 per cent in 2020.
“It’s clear the manufacturing sector has been able to rebound from the initial impact of COVID-19 and capitalise on the resulting opportunities for growth,” Michael Climpson, national head of manufacturing, said.
“The sector has shown consistent growth in sales over the past five years, with strong inventory management and consistent capital expenditure allowing them to maintain a competitive edge and foster innovation.”
The report, which analysed data from 100 mid-sized manufacturing companies across Australia, also found smaller manufacturers improved their EBIDTA margins due to sales, averaging 7 per cent compared to a -5 per cent average from 2023.
“This improvement partly reflects the sales growth seen among smaller businesses and their overall cost management during the year,” the report said.
Larger manufacturers were more affected by inflationary pressures, however, which reduced their EBITDA margins despite robust sales.
Manufacturers who made $40 million to $100 million saw their margins decline from 14 per cent to 13 per cent, while those who made over $100 million fell from 14 per cent to 10 per cent.
On average, employee costs as a percentage of revenue held at 20 per cent, with headcount reductions resulting in costs for small manufacturers going from 30.1 per cent in 2023 to 27.7 per cent in 2024.
“This suggests a strategic focus on cost management and efficiency in response to changing economic conditions,” the report said.
Manufacturers investing in efficiency, flexibility and emerging technologies were also best positioned to plan to sustain their growth and navigate uncertainties, Climpson said.
Capital investments remained consistent at 3.3 per cent of revenue, reflecting “manufacturers’ positive outlook”.
“Spending is fuelling the development of growth segments including research and development for electric vehicles and clean energy technologies,” the report said.
It said the sector was also well-placed for further borrowings to fund further growth, with the debt-to-equity ratio at 23 per cent, down from 29 per cent in 2022.
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