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INTRODUCTION
Within the broad definition of
engineering, Precision Engineering
focuses on the production and/or
maintenance/refurbishment of bespoke
components, plant and machinery,
to strict specifications with very low
tolerances measured in microns (1
micron = 0.001mm). This high precision
necessity applies to sophisticated
objects with a weight of a few grams
to very large items of 20 tonnes or
more. This is not mass production, but
a very individualised service that is
often mission-critical to its customers
who may be looking at the shut-down
of an entire factory, if an essential
part of the production line fails and
needs to be replaced or repaired at
short notice. Such requirements tend
to forge strong relationships between
suppliers and customers as a result of
the need for fast, efficient and reliable
work to limit potentially significant
losses when pieces of machinery (for
example on an oil rig, a nuclear power
plant or car assembly plant) break
down. For the manufacturers, having a
trusted Precision Engineering company
on hand to refurbish or manufacture a
bespoke component quickly becomes
more important than shopping around
for untested alternatives for short term
cost savings.
There are also strong links between
engineering and manufacturing, with
Precision Engineering forming the
backbone of manufacturing activity.
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The importance of this relationship
should not be underestimated, given
that the UK manufacturing industry is
currently the 11th largest in the world,
employing more than 2 million people
and contributing £140 billion to the UK
economy each year.
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As a result, the
fortunes of Precision Engineering are
connected to those of manufacturing,
which are affected by general economic
conditions.
However, in a rebounding economy
in which increased purchasing power
drives more manufacturing and greater
spending on research and development,
it is timely to examine the asset class as
an investment opportunity, particularly
as it is one which is not well understood
by banks and therefore generally not
supported through standard business
loans. The majority of companies in
this sector are SMEs and the reduction
in risk taking by banks in funding such
businesses since the credit crunch is
well documented. But there is also a
lack of understanding of the value of
the real assets – the very specialised
machinery, the short term nature of
order books which are usually only filled
for up to six months at a time, frequent
dependence on one key customer
and the regular and costly equipment
updating requirements. This is all
notwithstanding the fact that many
UK Precision Engineering businesses
have been servicing the same Blue Chip
client(s) for up to 50 years (effectively
acting as a manufacturer’s in-house
engineering business). As a result,
some companies are left underfunded,
with a lack of capital to keep up with
changes in technology, creating a
sector where many enterprises with
valuable and robust long term customer
relationships are undervalued and ripe
for takeover.
Britain is great
at engineering.
Engineering
turnover grew
6.7% to 1.17
trillion
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in the
twelve months to
march 2013.
The 2015 Plimsoll report on Precision
Engineers puts the number of such
firms at 355.
Many of these firms are likely to fit
the traditional model of old family
businesses, with some companies
going back over 100 years. They also
benefit from the high regard and
international reputation for quality
The Oxford
English
dictionary states
that engineering
is, “The branch
of science and
technology
concerned with
the design,
building, and
use of engines,
machines, and
structures.”
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Engineering as a whole is a critical
sector within UK industry – bringing
jobs, income generation and exports;
According to Rt. Hon Vince Cable MP,
former Secretary of State for Business,
Innovation and Skills. “A strong British
engineering sector is vital to the long
term sustainability of our economic
recovery.” This is hardly surprising
when you consider that, in 2014, the
UK’s engineering sectors contributed
an estimated £455.6 billion to Gross
Domestic Product (GDP), equalling
27.1% of the £1,683 billion total UK
GDP and that 26.6% of VAT and/or
PAYE registered enterprises in the
UK were in engineering fields.
“Engineering sectors are vital to
the UK’s economy, contributing
an estimated £455.6 billion to
Gross Domestic Product (GDP)
in 2014, 27.1% of the £1,683
billion total UK GDP”
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