Strong demand sparks profits growth for electronics manufacturers in Q4

The surge in profitability for mid-sized companies within this sector can be attributed to a rising demand for their products and the stabilisation of supply chains, as detailed in the most recent edition of the Manufacturers’ Health Index. This index, compiled quarterly by inventory management software Unleashed, a branch of the Access Group, provides insights into the financial health across 16 manufacturing categories, utilising data on GMROI (gross margin return on inventory) to measure the profitability against inventory costs. The findings are enriched by survey responses from manufacturers, offering a closer look at the unique challenges and prospects they encounter.

The report highlights that electronics manufacturers have notably profited, earning an average of £2.69 for every pound spent on inventory, a significant increase from £1.54 in the preceding quarter. This growth is particularly noteworthy when compared to Q4 2022's GMROI of £1.30. The electronics sector's performance is closely matched by that of electrical manufacturers, who reported a GMROI of £2.68 in Q4 2023, up from £1.85 in the quarter before.

Jarrod Adam, Head of Product at Unleashed, commented: “Electronics manufacturers saw profitability increase at the end of 2023, with an impressive improvement in the final quarter. Overall, the businesses we surveyed across different manufacturing categories were optimistic about 2024, with almost three-quarters saying they expect demand to grow this year.”

Broader perspective: resurgence in manufacturing sector health

The report from Unleashed also reveals that the UK manufacturing sector has rebounded strongly, showcasing its most impressive performance in over two and a half years during the last quarter of 2023.

Firms recorded an average GMROI of £2.33 for every pound invested in inventory during this period, an improvement from £1.98 in the previous quarter and £2.05 in the same period of 2022.

While the vast majority of the 16 manufacturing categories examined witnessed enhanced profitability in Q4, standout sectors included clothing manufacturers and the energy chemicals sector, with GMROI of £4.53 and £3.30, respectively. On the contrary, the plastics and rubber sector faced the sharpest decline, with its profits on inventory plummeting to £1.16 from £2.65. Meanwhile, health and medical manufacturers, along with cosmetics and personal care sectors, experienced slight decreases of 16p and 8p in their profitability, respectively.

“The improvements in profitability show how well mid-sized manufacturers in the UK have rallied following the seemingly endless economic and supply chain uncertainty of the past few years,” said Adam.

“In navigating the supply chain and economic challenges they’ve faced, many firms have embraced technology to refine their inventory management processes, enabling them to achieve better  margins on their inventory spend.”