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The Factory Flaw
8 June 2022
In this episode, Susannah and Sarah discuss the challenges facing the manufacturing sector. They speak to Elliot Barlow from UK Fashion and Textiles about the unique position the UK fashion manufacturing sector finds itself in, as well as chatting to Sophie Lund Yates about some listed companies in the sector. Also, Emma Wall talks to Julian Fosh, a fund manager at Liontrust Asset Management, about how he approaches investment during tough economic times.
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Susannah Streeter: Hello, and welcome to Switch Your Money On from Hargreaves Lansdown. I'm Susannah Streeter, I'm the Senior Investment and Markets Analyst here at Hargreaves Lansdown and, as usual, I'm with Sarah Coles, our Senior Personal Finance Analyst. And Sarah, we are going to have the quiz later, I'm sure you can't wait, but I have a quick question for you before I begin. So, have you been buying, A, alcohol, B, cigarettes, or, C, glad rags recently?
Sarah Coles: Oh, blimey, what a nice way to surprise me at the opening of this with the quiz, which we now is obviously my favourite bit. You won't be surprised to hear that I haven't been snapping up designer fashions for myself, but my teenagers are growing at a ridiculous rate which is costing me a fortune in new clothes. Actually, now I come to think of it, I am probably holding my own in the gin department too.
Susannah Streeter: I thought so, well, single-handedly, Sarah, you are almost representing the rise we've seen in the most recent snapshot of retail sales. Volumes rose in supermarkets because we're snapping up ciggies and alcohol, gin included, while preparations for holidays and summer events saw clothes sales lift.
Sarah Coles: Yes, the rise in sales was a bit of a surprise, especially given that we're having to spend so much more on bills now. And it's not just shoppers facing this challenge, high commodity costs, for everything from wheat to oil prices, means that the manufacturers are wrestling with much higher import prices too.
Susannah Streeter: And that's just one of a many of pressures on manufacturers right now, there are also worries that economies could be tipped into recessions by efforts of central banks to try and keep a lid on rampant inflation. Meanwhile, we've got the ongoing crisis of COVID in China easing slightly but lockdowns really have caused fresh supply chain issues for companies, and that's led to expectations that more companies will onshore production facilities, a lot closer to home, to try and avoid snarl-ups in the future, instead of contracting out manufacturing to suppliers on the other side of the world. So, the pendulum of globalisation could be swinging back the other way, which could come at a cost.
Sarah Coles: Yes, there's an awful lot going on. So, that's what we're going to be delving into on today's podcast, in an episode called The Factory Floor.
Susannah Streeter: To get the low-down on the challenges facing the manufacturing sector we're talking to Elliot Barlow from UK Fashion and Textiles, who's been in the business for years. Elliot, some pretty hefty developments to navigate right now, I imagine?
Elliot Barlow: Yes, we've seen a lot big changes happen in the last couple of years, some have been surprising and some have really caught us off guard.
Sarah Coles: Well, there's a lot going on, I know, so thanks for joining us on the programme, we really look forward to finding out more about developments later on. We'll also be talking to Sophie Lund-Yates, our Lead Equity Analyst, who's been looking at some listed companies in the sector.
Hi, Sophie, you've got quite a mix of businesses for us this time, haven't you?
Sophie Lund-Yates: Hello, Sarah, yes, definitely an eclectic mix I'll be discussing this week, I'll be talking about everything from the humble cardboard box to a tech giant, so looking forward to getting stuck into that in a little while.
Susannah Streeter: Thanks very much, Sophie, looking forward to hearing more a little bit later. We'll also hear from Emma Wall, our Head of Investment Analysis and Research here at Hargreaves Lansdown, who's been speaking to Julian Fosh, Fund Manager at Liontrust Asset Management. And we'll have the quiz, of course, and I'll be taking you back to the factory floor, Sarah, and don't worry, you won't need a hair net and overboots, you'll be pleased to know, but I do have a few tricky questions up my sleeve. But first, talking about sleeves, it was demand for posher frocks and other occasion wear which really helped boost retail sales in April according to the British Retail Consortium.
Sarah Coles: Yes, after so many months of not being able to go out and party or travel we're keen to get stuck into both. So, we've actually been buying the clothes to go with our new lifestyles, it means demand's holding up despite the cost of living crisis, which is likely to owe something to the fact that so many people still have some lockdown savings, so they may feel a bit more relaxed about splashing out. But the figures show the preparations for weddings and holidays really helped lift volumes in clothing shops, and separate figures from the Office for National Statistics showed that food stores were boosted by almost 3%, partly due to higher spending on alcohol.
Susannah Streeter: Yes, it seems that a trend is emerging for people to buy items to help them experience life's pleasures rather than items to decorate the home, with sales of furniture in household goods stores falling back slightly. So, overall, this is an unexpected burst of momentum for the retail sector, and given consumer demand is showing little sign of easing off just yet, the Bank of England will be even more focused on raising interest rates to try and lower prices. It's particularly surprising how resilient shoppers appear to be given the GFK Consumer Confidence Index for May showed a dramatic fall off in optimism with the lowest reading shown since records began back in 1974. Well, the Bank of England faces the supremely tricky task now of trying to put a lid on demand without causing a lingering recession, but the majority of investors are prepared for an inevitable path of tighter monetary policy. According to our HL Investor Confidence Index, confidence that interest rates will be higher over the next six months remains at 92%, while confidence that rates will rise in the medium term has also risen slightly.
Sarah Coles: So, for businesses with a great deal of borrowing, higher interest rates pose a challenge in themselves, but even those without significant debts, they're faced with trying to tread a really tricky tightrope. So, on the one hand, customers are facing a squeeze from all sides, so they might not be able to cope with price rises, but then on the other side their own costs are rising, and that's everything from energy prices and raw materials to their overheads, and there's only so much they can absorb. The Office for National Statistics calculates that the price of these imports is up almost a fifth in a year, and that's rising faster than any other time on record. Separately, it's asked businesses about the biggest impact of price rises on their operations, and while two fifths said it was absorbing costs that hurt the most, just over a quarter said is was passing the price rises on that hurt, and this was particularly striking among manufacturing and accommodation of food service industries. That was, of course, in late April, and the trend has been continuing. Interestingly, necessity appears to be becoming the mother of invention because one in ten businesses say they've become more innovative since the onset of the pandemic.
Susannah Streeter: And what's also interesting, Sarah, in that data is that firms are still facing real difficulties importing, with two thirds facing that issue despite a slight fall from March. Now, while some of this is related to the additional paperwork associated with Brexit, the Shanghai shutdown has exacerbated the issues facing some firms, with the closure of factories piling up problems for importers large and small, with trucks and lorries commandeered to replace industrial components with groceries for the millions of Chinese locked inside their homes. Now, this has put the prospect of onshoring, bringing production closer to home back in focus. At Davos, towards the end of May, it was discussed as one of the major trends emerging around the world. So, there's an awful lot to unpack here, so it's a good job we have our guest, Elliot Barlow from UK Fashion and Textiles. So, Elliot, just to set the scene, what is the UK known for when it comes to textile manufacturing and have we seen any particular growth areas?
Elliot Barlow: Yes, and historically the UK manufacturing industry of textiles has been world-leading. We have one of the longest histories of textile production, mainly based up in the North, lots of wool, lots of cotton, and linen has been produced here historically, and that's really shaped the import and export trade of our country, put it on the map. In terms of finished products, we're known very well round the world for high quality woollen products, overcoats, your outerwear garments, but also suitings and fine-finished products.
Susannah Streeter: And so, let's now talk about the inflationary pressures affecting manufacturing right now, how is it affecting UK manufacturing in particular?
Elliot Barlow: Well, firstly, with UK clothing manufacturers, they're quite distinct to those that operate globally and, for the most part, they aren't what's called an OEM, which is an original equipment manufacturer. So therefore, they don't typically purchase the materials, they in themselves are selling their labour instead. So, their clients, the fashion brands and businesses that want to produce here are the ones that are bearing a lot of the cost increase due to inflation, whereas the manufacturers are typically being able to operate at the same prices.
Susannah Streeter: So, is that across the board though? I mean, surely there are some manufacturers here in the UK who still have to import raw materials, and also the fact that it's a lot more expensive to transport goods as well, so even shipping costs are rising.
Elliot Barlow: For those manufacturers that are operating in that way, but that's typically within other sectors, the UK clothing manufacturers operate in a slightly different model from those abroad, they follow a system called CMT, where they just provide the cutting, and making, and trimming of the garments that they're making. So, for that they're not the ones that are purchasing the raw materials, so not the ones that are shipping the materials in, and a lot of that responsibility is down to the brands and businesses who produce with them. So, in turn, for manufacturers that are based here in the UK clothing industry, they can continue to operate and have operated throughout the pandemic without too much risk due to the inflation.
Sarah Coles: That's definitely a real bonus for the industry, but presumably they also have their overheads to consider and those, as we all know, they're all going up massively, aren't they?
Elliot Barlow: Definitely, that's one area where they're going to see a big increase. It requires a lot of energy to use all the different types of machinery that are connected to producing clothing, and because of that, that in turn is just multiplied.
Sarah Coles: And in terms of how they operate, are they able to, sort of, pass those costs back to the companies that they're producing for?
Elliot Barlow: They can do, they can change the prices that they ask for to produce the garments, usually it's assigned to each item that's costed in, and that will definitely be something that will be appearing much more readily on the final bill for the fashion brands.
Susannah Streeter: As far as onshoring is concerned, this trend of bringing production closer to home, do you think UK manufacturers are rubbing their hands with glee at that thought or do you think it's still quite a long way off before we see really large volumes making their way here?
Elliot Barlow: I think so. There's a few different issues in there that needs to be unpacked. I think there's a lot of fashion manufacturers that are very much welcoming the return, but for the most part, globalisation over the last 30 years or so has really moved so much of the production abroad, we haven't necessarily got the skills force to be able to produce big volume here. So, it's a bit of a chicken and egg situation. If we get a lot more work that's coming back to this country to be able to produce, it shows that there's a demand for that here, and hopefully that will entice more people to work in the industry, and then we can supply that demand.
Susannah Streeter: Do you think that could spur on a big spurt of automation, digitisation, to try and find deficiencies and make up for the labour shortfall, or do you worry that if we're heading towards recession, companies may delay that necessary investment?
Elliot Barlow: In essence, I don't believe that the recession will hold that back, the manufacturing sector has continually proved its resilience and purpose during the pandemic, and it's stayed open throughout that time, and it also added a significant and vital income to the country over that period. And as we are moving more towards, hopefully, high amounts of production in this country, we can put ourselves back on the map as being a production destination and if there's more interest in the country, to be able to produce here, there's more opportunity for investment and we have greater control over that here, being a smaller country. So, it should in turn entice other industries to apply their learnings and knowledge, bring that into the manufacturing sector, and hopefully develop more to a digitally integrated and automated manufacturing base.
Sarah Coles: And do you think there's a, sort of, process of adjustment, so for a firm if it's, for example, bringing production back onshore, do they have certain expectations about margins that they're going to have to rethink when they're bringing production closer to home?
Elliot Barlow: Absolutely. Margins is one of the main reasons that a lot of fashion brands have been hesitant to want to reshore to this country. As consumers we've become so used to decreasing costs in garments due to outsourcing and producing in low cost labour countries, and where we charge a living wage in this country, the cost of the materials and the products that are produced here are far more expensive than abroad, it means that the prices are greater that the fashion brands have to purchase from. It is a big expectation that a brand, to reshore, is going to have to stomach the higher cost, and those costs would in part need to be passed on to the consumer.
Susannah Streeter: Do you think with increased appetite for sustainable brands that could certainly help propel more brands towards UK manufacturing, or do you think because of the looming cost of living squeeze that desire for more sustainable, but inevitably more expensive, products is going to be pushed further into the long grass?
Elliot Barlow: Yes, as the world moves more towards sustainable and ethical goals there's less room for fashion brands and businesses to hide behind those opaque standards of practice that they've built up over such a long period of time. And unfortunately as consumers we've become so accustomed to purchasing from fashion brands who've built themselves off the back of low cost labour and exploitation that the value that's often associated with raw materials, to finish products, has been driven lower and lower over time. Therefore, the justification for increasing those prices has to be met with a very plausible reason for why it should be considered in the eyes of the consumer as worth the value for money.
But the UK can offer so much in terms of transparency and traceability, and as well as also a growing conscience within the wider consumer mindset, that's typically the Millennial and Gen-Z demographs, that a greater understanding of the impacts that fashion and apparel products has on our environment and those who produce it. And I think they're more willing to pay a high price for improved principles and practices and really challenge those brands on their credentials as they continue to produce in that way.
Sarah Coles: Given the trend towards onshoring, and if that was to continue, presumably we do have some capacity issues producing in the UK, do you think then the future's going to be quite a lumpy process of trying to increase capacity, and of course with the increased labour costs that that's likely to bring too?
Elliot Barlow: Yes, I think so, it's going to be a bumpy road ahead, but no more bumpy than it has been. There's quite a few factors that have reshaped the UK manufacturing industry over the past few years, and the biggest issue that we have at the moment, that we're facing, is a growing skills gap, and really trying to change the stigma of what working in manufacturing is like. If there's an increase in interest, as we mentioned before, about digitalisation, and automation, and engineering elements, hopefully it can really entice people to want to enter into the industry and make those innovative changes, it becomes exciting, and that's when we really gain ground and progress as an industry.
Susannah Streeter: And has there been any increase to loungewear products? Because, of course, they really increased during the pandemic and, actually, athleisure wear is still en vogue right now, would you say that UK manufacturers are pushing into that area increasingly?
Elliot Barlow: Absolutely, I think there's two elements of that. First of all, Susannah, that over the pandemic the change of consumer lifestyle habits meant that a lot more of the customers were wanting to purchase loungewear, because they didn't have anywhere to go, they didn't have any functions to attend to, so they still wanted to buy products and loungewear was something that they could wear comfortably in their home. And the knock-on effect of that is many UK manufacturers moved more towards producing those types of garments at the request of their clients, who are the brands.
Susannah Streeter: And now we're out and about once more and demand for loungewear has dropped a little, is that a particular headwind or do you thin it's a fashion that really is here to stay?
Elliot Barlow: I think it's a fashion that's here to stay, I think as we've not changed exactly from one type of living to another just yet, there's a lot of this working from home and there's a lot of enjoying being at home and understanding that the simple pleasures of life are in the home. And I think loungewear has formed a big part of that trend, so I think it will still remain.
Susannah Streeter: Elliot, it's been really fascinating talking to you and finding out what's happening in UK manufacturing, certainly as far as fashions and textiles are concerned, really great to have you on the programme.
Elliot Barlow: Thank you very much for having me.
Susannah Streeter: Let's bring in Sophie Lund-Yates now, our Lead Equity Analyst at Hargreaves Lansdown. And Sophie, you've been looking at some of the listed companies operating in this sector, in the manufacturing sector, tell me what's caught your eye.
Sophie Lund-Yates: So, to start off, I'll be talking about DS Smith, which is a cardboard box maker, which I know doesn't sound very glamorous, but to me there is a lot that makes them quite exciting. The world obviously needs a lot of cardboard, first and foremost, all of our online shopping comes wrapped in the stuff and all those products on supermarket shelves get delivered in it as well. It's one of those crucial supply chain inputs that gets forgotten, in my opinion, and at the time of recording, DS Smith's expecting full year underlying operating profit to be about £605 million to £615 million. I mean, that comes as price increases and volume growth have more than offset inflationary headwinds. Speaking of those headwinds, DS Smith definitely isn't immune to rising costs, but as those profit projections are proving, DS Smith is a really classic example of how the world is prepared to pay whatever it costs to get what it needs, and that's why DS Smith has been able to increase its own prices alongside rising inflation. And a big reason for the resilience is that it has a lot of exposure to e-commerce which, I mean, you don't need me to tell you that that's been growing rapidly and is expected to continue doing so.
I should mention that the balance sheet is carrying a little bit more debt than is ideal and that's following the acquisition of Europak, which is a French, Spanish, and Portuguese packaging group, but management's expecting net debt to be about 1.7 times underlying cash profits, which you might see abbreviated as EBITDA in the results at the full year. Now, that does suggest some progress on that front, which brings me nicely to the group's dividend, which is now back on the table after a COVID related pause last year. And in light of the improving trading, the 5.5% prospective dividend yield looks to be well covered for now, however this is contingent on price increases continuing to offset those rising input costs without denting volumes, and that is the crux. And just please remember that this isn't guaranteed and yields aren't a reliable indicator of future income.
Susannah Streeter: So, that's the business of packaging but what about what goes inside all of those parcels? Let's talk about Apple, what kinds of headwinds is it facing?
Sophie Lund-Yates: There is no getting away from the fact Apple has huge exposure to troubled supply chains, particularly Asia. The tech giant has said it expects to lose sales of up to $8 billion in the current quarter, that's $8 billion, in the current quarter. There are big delays across some key products, which is what's causing the issues, and Apple isn't much without its products, after all, if you think about it. And the other thing I need to mention is inflation, shock horror, but household incomes are under immense pressure in some of Apple 's major markets, including the UK and the US. That may well mean people are deciding to hold off throwing £1,000 at a new iPhone. And the flip side to this, of course, is that Apple has one of the most successful brands on the planet, so that does mean it has some cushioning, people will push their limit on some occasions to make sure that, you know, they have the latest model of this tech. But that brings me to a wider concern, and that is that Apple's economic moat is narrow, and all I mean by that competitors may start to eat into some of its enormous success. So, while the brand is in its heyday, absolutely, there's not technically much standing in the way of that being eroded. There are companies out there, predominantly in Asia, that are already bigger than Apple, and I'm not suggesting Apple is in immediate trouble, it's still a powerhouse, but it is one to watch as the world of technology evolves.
Susannah Streeter: And let's go back to fashion, what's the focus for ASOS in particular?
Sophie Lund-Yates: Yes absolutely, bring it back to on theme for this week. Another element to consider with manufacturing, quite clearly, is online fashion. The supply chain networks for these digital giants cannot be overstated, I mean, we saw ASOS's CEO step down in October last year, their supply chain and cost issues were expected to affect profits moving forward. There was a nasty fall in half year pre-tax profit as the benefits from COVID spending habits unwound as well, and we saw supply chain disruption stifle growth in all regions. But, to the group's credit, growth in the UK and the US was still 8% and 11%, respectively. Now, as the year progresses there is no real easy fix, the group itself has warned that reduced discretionary spending could impact performance as well. ASOS has been sticking sales stickers on to stimulate activity, but putting gross margins under pressure while the supply chain is in a tough spot is not an ideal situation. And ASOS's longer term potential, it is still intact, in my view, but there will be some ups and downs, sadly.
Sarah Coles: Thanks, Sophie, I'm impressed you managed to bring together the glamour of cardboard boxes, mobiles, and fast fashion for us. Now, I'd like to bring in Emma Wall, our Head of Investment Research and Analysis here at Hargreaves Lansdown, she's been talking to Julian Fosh, a fund manager at Liontrust Asset Management.
Emma Wall: Hello, Julian.
Julian Fosh: Hello, Emma.
Emma Wall: How are you?
Julian Fosh: Yes, I'm great, thank you very much.
Emma Wall: So, we're here today to talk about manufacturing, and in particular with the engineering, kind of, building materials slant that you have exposure to in the portfolio. But before we get into the stock nitty gritty I just really wanted to take a step back and understand how you, as an Equities Manager, are trying to make sense of some of the less than positive forecasts we're getting for the UK economy, and indeed for the global economy, over the next twelve to eighteen months. How does that economic backdrop impact the way that you build up the investment case for stocks in your portfolio?
Julian Fosh: We're very much bottom up investors. With the best will in the world, however people try to forecast, most forecasts are wrong and it's just a very difficult thing to do, so if you're a member of an asset allocation committee or something like that good luck to you. But what we've evolved is a completely different, really, way of looking at the world, which is we don't try and let prevalent beliefs or expectations about the economy infect or affect the way we go about stock section. What we try and do instead is build pretty concentrated portfolios, so it's something like 40-60 stocks. So, not too many that you can't keep close tabs on them but not too few so that the portfolio's exposed to too much risk if we get any one wrong, which of course does happen from time to time. The aim is to try and build a portfolio that's sufficiently diversified across sectors which encompasses stocks that are at different stages of their own individual cycles, but then to study them hard so we understand those cycles. So, what I try and pass on to investors is really not to be too clever but just clever enough.
Now, obviously you're going to have some biases in that and it's important to understand the bias that your particular investment philosophy gives you in that regard. And so our bias is towards what's known as quality, so high return on capital businesses but with strong balance sheets and strong solvency. So, to neatly square the circle to your opening question, we don't try and predict the future but if the more bearish and gloomy predictions out there are correct then this is an environment in which quality tends to do relatively well. Quality companies, because they have high returns stemming from competitive strength in their position in their markets, usually generate a lot more cash than they need to fund their ongoing growth, they use that to pay down debts, so they have solid balance sheets. And the flip side, of course, is that they tend to be a bit more expensive than the average company because quality costs. We tend to do very well, or relatively very well, in steep downturns when growth is contracting or there is a market shock, you lag a little behind in the recovery phase when, finally, markets realise that the bad times are behind them and the good times are rolling again. We do a lot of work in finding companies with a genuine strength, niche, and competitive advantage in the way they do things, and then, as long-term investors, just nurture them really.
Emma Wall: You know, quality does help smooth those returns over the long-term and, as you say, hopefully helps to mitigate somewhat the danger of the market. But I think it's also fair to say there are certain sectors which just are more sensitive to economic growth, or lack thereof, and if we are going into recession next year, which a number of forecasters, albeit nothing is guaranteed, seem to predict, that will have an impact on cash flow to certain sectors, won't they? I mean, if you just think back to, kind of, the global financial crisis, thinking about things like the Crane Index, which is an index which, sort of, says how many cranes there are in the sky as a proxy for how robust the construction industry is, the Crane Index took a massive downturn during that time because people were just building less. Ditto, people buy less, consumers tend to save more and spend less money, inflation is another factor which impacts that as well. So, if we're going into this higher inflation and lower growth environment, what do you need to be mindful of within the manufacturing and industrial and engineering sectors that that will impact?
Julian Fosh: So, first and foremost, I think it's a strong balance sheet or strong solvency characteristics. A technique we use is borrowed from a third-party provider, name of Quest, and it's based on the Altman Z-Score, so the Z-Score, famously, is the thing that predicts, it has 100% accuracy in terms of predicting companies that go bust. It focuses on some key solvency measures. We use a variation of that called the QR, the Quest Risk Rater, so that really looks at the well known accounting flags alongside, sort of, acute solvency measures, and simply scores every company in the market relative to every other one. And quite a lot of these engineers score very strongly on this, so take Halma, for example, the safety, detection, and quality of life company. Halma has never deviated from 97th percentile, oscillates between the 97th percentile and 99th percentile over the last fifteen years. Similar example is Renishaw, which we hold, and is also a highly solvent company. Rotork also, in actuators.
So, solvency is a key thing to focus on. In a broad sense, I think, there's a trade off for investors always between price, or the valuation that you're prepared to pay, solvency, and financial security. And so, when times get tough, when the Crane Index perhaps is plummeting, that's when you would expect to see people rotate a bit more towards the more robust companies.
Emma Wall: So, it's not so much about that these companies aren't going to face the knocks it's just that they are in a more robust position to be able to manage the knocks when they come because they have more cash, because they have less debt? Because I think there's nothing that these companies can do to stave off the economic downturn if it comes, it's more about, you're saying as a stock picker, look for those ones that are more likely to survive the hard times?
Julian Fosh: Exactly. And particularly look for what the past can tell you about the future. So, Renishaw are a world-leading company in metroscopy and medical devices. When Chinese demand contracted very severely, a decade ago, in 2009, I think, '10, they had three successive profit warnings, but what we look for in a company is what is underlying their delivered results? What is it that makes this company special? And if they're the only one, a world leader in what they do, these products are going to be affected by the knocks, as you put it, of what's going on in the economy but still they haven't lost the essence of what makes them a must-have company, they're going to come back stronger. And so, what you saw after that downturn was Renishaw's return on capital, which is the measure we use, move to ever higher levels and it's been a terrific long-term investment for that reason. If you have a must-have product then as long as you don't go bust, you know, whatever the economy holds in store for you people will want your goods. You can see that coming through some of the trading statements and some of these companies, I'm thinking about Coats, the world-leading manufacturer of sewing thread and supplies who just recently, in their last statement, advised of robust sales growth, strong pricing in their environment.
So, in a sense we're coming out of the post-COVID recovery, and that led to a lot of euphoria, and now that's being tempered, obviously, by higher interest rates, by the realisation that things don't go in a straight line, and hence the worries and the forecasts that you're alluding to. Obviously, not helped by high inflation and the war in Ukraine are leading to an element of caution coming in again. But if you have a must-have product, so long as you can run your company efficiently, your balance sheet, you've conserved your cash, you will be fine.
Emma Wall: Julian, thank you very much.
Julian Fosh: Thank you very much, Emma.
Susannah Streeter: Emma Wall, our Head of Investment Research and Analysis at Hargreaves Lansdown, talking to Julian Fosh, a Fund Manager at Liontrust Investment Management. He must be working in a pretty glorious bit of countryside right now, I'm very jealous being stuck here in the broom cupboard studio. And please do bear in mind that these are the views of the Fund Manager and are not individual stock recommendations. You're listening to Switch Your Money On from Hargreaves Lansdown.
Sarah Coles: And finally, it's time for the quiz, and Susannah's been exploring some of the mind-boggling facts around manufacturing. So, I was racking my brains earlier, when I was trying to think about anything I knew about manufacturing, and realised that for five years of my life I was in smelling distance of one of two factories, both of which greatly improved my quality of life. So, one was a brewer in Edinburgh, so you could smell the hops roasting, and the other was when I lived on the outskirts of Bournville, and the air just always smelled of chocolate.
Susannah Streeter: Well, I can actually share that experience because I grew up near Fry's Factory in Keynsham, so there we are. But I'm not sure if living surround by the smell of chocolate is really brilliant or terrible. I know, certainly, some pupils used to come in with lots of cut price chocolate to sell at break time, so in many ways it was pretty brilliant in my teenage years. But anyway, given you've brought up manufacturing geography, I'm going to start by asking about the areas of the UK with the highest manufacturing output in 2020. The area producing the most manufacturing was the North West at an impressive £27.4 billion, but what area came second? Was it the West Midlands, the East Midlands, or the South East?
Sarah Coles: Well, I suppose sticking with what I know, I mean, I know there's a huge amount of manufacturing in the West Midlands, so, I'd assume that's the answer.
Susannah Streeter: I'm afraid not, it is the South East at £23.4 billion. Although, if it makes you feel any better, the West Midlands was in third place, so there we go. Okay, nil points. Now, looking overall at the UK, in 2019, we were ninth on the list for value of manufactured exports, this was down from seventh place in 2015, but which countries had overtaken us? Was it France and Italy, Mexico and Brazil, or South Korea and Japan? What do you think, Sarah?
Sarah Coles: Oh, blimey, well, I know South Korea and Japan have been, kind of, close to the top of this particular table for years, so I'll rule them out. So, I suppose out of the others I'd say probably France and Italy?
Susannah Streeter: You are right, yes. France is now the eighth biggest manufacturing exporter and Italy is seventh. Unsurprisingly, China, the US, and Japan remain in the top three spots. Okay, right, as is pretty traditional now we'll go back in time for this one. The person who patented the production line was an American car manufacturer but what was his name? Was it Ransom Olds, Henry Ford, or William Chevrolet?
Sarah Coles: I'm pretty sure I know this one, I think it's Henry Ford.
Susannah Streeter: No, it wasn't, I'm sorry, it was Ransom Olds, who founded Oldsmobile. Henry Ford just improved on it with the first conveyor belt assembly line, which made a huge difference to production. And as for William Chevrolet, I'm afraid I just made him up.
Sarah Coles: Oh, well, that's just not fair.
Susannah Streeter: Well, seeing as you're doing so badly let's go back to a factory you actually lived near in Bournville, where Cadbury famously made chocolate and built their own community where locals and factory workers could buy or rent pretty good quality homes. Well, since it was first started something's been banned from sale within the community, but what was it? Was it chocolate bars made by anyone other than Cadbury, was it Turkish delight, or was it alcohol?
Sarah Coles: Oh, brilliant, this is one I do actually know, it was alcohol. Because I lived just outside the boundary and you just couldn't move for pubs and off licences, as a student it was my ideal home.
Susannah Streeter: Chocolate and alcohol, what better mix for you, Sarah. Okay, you're right, yes, it was alcohol, because as Quakers, the Cadbury's didn't drink alcohol. You see, it all comes back to chocolate and alcohol in the end, which means you managed to get two right this time.
Sarah Coles: Do you know, either I'm going to have to expand my range of interests or we're just going to have to stick with these every single time.
Susannah Streeter: Who knows? We'll have to wait and see.
Well, that's all from us for this time, but we do need to remind you that this was recorded on the 30th May, 2022, and all information was correct at the time of recording.
Sarah Coles: Nothing in this podcast is personal advice, you should seek advice if you're not sure what's right for you. Investments rise and fall in value, so you could get back less than you invest and past performance isn't a guide to the future.
Susannah Streeter: Yes, this is not advice or a recommendation to buy, sell, or hold any investment. No view is given on the present or future value or price of any investment and investors should form their own views on any proposed investment.
Sarah Coles: And this hasn't been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place including dealing restrictions, physical and information barriers to manage potential conflicts of interest presented by such dealing.
Sarah Coles: You can see our full, non-independent research disclosure on our website for more information. So, all that's left is for me to thank our guests, Elliot, Julian, Sophie, Emma, and our producer, Elizabeth Hotson.
Susannah Streeter: Thank you so much for listening, we'll be back again soon. So, if you enjoyed this podcast please do let us know what you think and please do subscribe, wherever you get your podcasts, you can get a fresh new episode in your inbox as soon as it's ready. Goodbye.