The glass sector, like many other industries, continues to face tough challenges.The harsh economic climate coupled with rising costs and increased global competition for business ensures that all aspects of business performance remain under close scrutiny, particularly financing. While it appears that companies may favour using precious cash reserves to fuel growth ambitions, the sector should also not lose sight of how a strategic approach to innovative alternative sources of funding can help drive vital efficiency gains to tackle day-to-day rising costs and optimise process performance.
Looking at a broader context, global glass sector prospects within the business landscape remain varied as specific economic conditions dictate worldwide market opportunity. Many glass companies will be closely monitoring the changes being witnessed in important markets such as Asia. Here the growth of the middle classes is leading to vast increases in urbanisation and consumer spending. With this comes the growth potential for the glass sector as a key component supplier into the container, construction,automotive and specialist sectors which are at the forefront of this transformation. However, tapping into this market opportunity is not without risk. Capital investment for a new float line to serve this market can cost up to £200 million and for companies in the sector looking to exploit the Asian growth potential, key decisions around financing such a strategic move will be critical.
Conversely, mature markets for glass supply, such as Europe, present different issues. Slower growth, tighter consumer spending, a significant slowdown in construction activity across the Eurozone and an over capacity of supply, combine to make this a market where product innovation, value added solutions and efficiencies can make all the difference to sustainability.
The examples of the Asian and European markets illustrate clearly how the glass sector of today is having to revise its strategic approach across all areas of operation to fuel growth plans, while also not ignoring essential day-to-day business performance. Critical among such strategies will be how capital is utilised, cash flow protected and efficiencies maximised.
For many, available cash reserves could well be targeted at the growth potential such as witnessed in the Asian market example. The significant expenditure associated with new product lines, research and development, marketing and entry into such a competitive marketplace will place real pressure on available company cash reserves. However, it remains the case that for many businesses it is a growth opportunity that is deemed too important to ignore. Targeting cash reserves in this way also places real pressures on cash flow and the requirements for essential day-to-day running of a glass operation. Rising raw material costs and increasing energy prices, along with staffing and stock expenditure, also add their own pressures.
The potential outcome of these factors can be that the efficiency effectiveness of the business can be side-lined or slide down a list of priorities. Driving down costs and ensuring operational effectiveness also requires focus and investment to deliver results. While the attraction of setting up new product lines to serve a new and growing market are apparent, it could be argued that tackling energy efficiency issues or implementing proven process control and automation technology systems that can drive efficiency gains, are just as important to the long term health of a glass business.
Financing pressures are present and they cannot be ignored. While it is accepted that cash reserves may need to be used to drive growth strategies, how can glass companies access other sources of finance that will also help them tackle the efficiency gains that are so critical?
News headlines have, over the past few years, repeatedly referred to the lack of bank lending, particularly into the business sector. Finance has been problematic to access as the credit squeeze has remained in place. Initiatives such as the Government’s Funding for Lending Scheme have helped in some ways, as has the Department for Business and Skills support for advanced manufacturers via the advanced manufacturing supply chain initiative (AMSCI). This has provided over £100 million to help companies in critical areas such as skills training, research and development and capital investment. Likewise the Green Investment Bank is also a potential source for glass companies looking to secure alternative funding sources. It can help with the part funding of appropriate business projects, particularly around funding energy efficiency improvements and renewable technologies.
Another key area has been the growth seen in asset-based finance solutions for organisations. The market has seen a move from traditional bank loans to today’s position with about 40% of industrial companies using this form of funding. Asset finance, which can help free up capital locked up in outright capital purchases, is playing an increasingly important role across industrial sectors. It helps align regular, affordable monthly payments with the incremental earnings from greater productivity, or the savings gained from lower energy consumption as a result of technology implementation.
Siemens Industry is already working with many companies in this way through the provision of innovative and flexible finance packages. This allows ambitious and forward-thinking companies to support investment strategies without having to tap into existing cash reserves or impair day-to-day cash flow health. In this way, organisations can simply and easily implement impactful efficiency programmes for plant and processes that influence the bottom line and underpin overall growth plans. Integrated packages of engineering prowess and flexible, tailored financial support are available from a single source in what is a unique market offering. Indeed one leading UK glass manufacturer has already taken advantage of the funding on offer through this route
A prime example is the relationship with Pilkington which takes the form of performance financing. Gary Charlton, Pilkington’s UK Operations Director, comments: “We value the relationship we have with Siemens as it helps to underpin our strategic growth and operational strategies. The current performance financing solution which sees the balance collected over the term as a result of the operational savings we have made is a great example of where innovative financing can have a real impact.”
As the global commercial environment facing the glass sector is set to intensify, the role of driving efficiencies and reducing costs will need to go hand-in-hand with growth ambitions. It will be organisations that better use their cash and utilise the availability of flexible, supportive and innovative funding sources that will be best placed to focus capital investment on securing business opportunity from emerging markets. They can do this while simultaneously tackling the operational efficiency measures that will play an equally critical role in future success.
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About Siemens Industry:
Siemens Industry UK is one of the UK’s leading suppliers of innovative and environmentally friendly products and solutions for industrial customers. With end-to-end automation technology and industrial software, solid vertical-market expertise, and technology-based services, the Sector enhances its cus-tomers’ productivity, efficiency, and flexibility. Part of Siemens UK’s workforce of over 13,000 employees, the Industry Sector comprises the Divisions Industry Automation, Drive Technologies, Metal Technologies and Industry Services. For more information, visit www.industry.siemens.co.uk.
About Siemens in the UK:
Siemens was established in the United Kingdom 169 years ago and now employs around 13,520 people in the UK. Last year’s revenues were £3.2 billion*. As a leading global engineering and technology services company, Siemens provides innovative solutions to help tackle the world’s major challenges, across the key sectors of energy, industry, infrastructure & cities and healthcare. Siemens has offices and factories throughout the UK, with its headquarters in Frimley, Surrey. The company’s global headquarters is in Munich, Germany. For more information, visit www.siemens.co.uk * Data includes intercompany revenue. Data may not be comparable with revenue reported in annual or interim reports.