Tiger by the tail

31 July 2007
IMMEDIATE RELEASE

Tiger by the tail

The latest Canterbury Manufacturers’ Association (CMA) Survey of Manufacturers completed during July 2007, shows total sales in June 2007 increased just over 0.31% (export sales decreased 6.5% with domestic sales increasing by just over 5%) on June 2006.

The CMA survey sample this month reported NZ$500m in annualised sales, with an export content of 40%.

Net confidence was recorded at -17, down from 8 last month.

The current performance index (a combination of profitability and cash flow) is at 95.5, down from the previous month’s 96, the change index (capacity utilisation, staff levels, orders and inventories) remains at 103 from the previous month, and the forecast index (investment, sales, profitability and staff) remained steady at 102 on the previous month. Anything less than 100 indicates a contraction.

Constraints reported 15% production, 8% staff, 8% capital and markets 69%.

Staff numbers for January decreased by 4.4%.

“Sales are much the same as last year, as would be expected there is severe pressure margins for sales in US$. The adage “sales are vanity, profits are sanity” probably sums up where things are. Many companies are working harder for longer just to stand still”, says Chief Executive John Walley. “What do the headline numbers really mean?”

“Manufacturers are increasingly reviewing their business strategies in an effort to deal with current conditions and recent weakening of the NZD is unlikely to have much impact on these reviews. Our companies are producing high quality goods, strong brands and delivering excellent service to their customers, yet with margins still under pressure, it is a case of looking at all options to hang on to what you have and constantly re-examining the business model”.

“Manufacturers and exporters are constantly bombarded with calls to innovate, draw on their intellectual capital and become more efficient. The people who make these calls generally have no real experience in the sector or do not realise that manufacturers have been doing just that for the past 20 years. Innovation and efficiency requires the re-investment in plant, process and people and this takes cash. More importantly, the confidence that you will still be in business in the future. If to a large extent confidence and expectations matter more than money, comments indicate that there is little confidence in investments targeted at export growth.”

“Some of our respondents report that they have been able to take advantage of the over spill from Australia, possibly the one slightly brighter export market. Avoiding capital investments results in other solutions that might be risky in the medium term but they at least have a short terms pay off. Today’s partners quickly become tomorrow’s competitors. This growing trend of off-shoring production, holding the intellectual property in here, at least for a time controlling development and marketing, can work short term but is a bit like controlling the tiger by its tail – not a long term proposition”.

“At the headline level, conditions have not changed too much year on year. The positives in the domestic market remain. However there is a general lack of confidence, a move to a short term approach and work flow that is becoming more project based, with less and less future visibility. Add in exchange rate volatility, and a number of exporters simply see the risk associated with a long-term opportunity as too great. The impact of these changes will show in the future as the sector winds down”.

ENDS

Results: Survey of Business Conditions - June 2006 compared with June 2007

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