There could be nearly 100bn in capital ‘trapped’ in manufacturing equipment in three of Europe’s biggest economies, according to a study published by Siemens Financial Services (SFS).
SFS has estimated the capital locked in the UK manufacturing industry between 2014 and 2018 at £10bn (11.9bn) while the figures for France and Germany were 27.5bn and 57.8bn, respectively.
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The capital is considered ‘locked’ or ‘trapped’ because it has been used to purchase machinery and equipment outright and cannot be deployed elsewhere in the business.
SFS said the report highlights how effective asset finance can be in allowing companies to spread capital expenditure over an agreed period, increasing the funds available for operating expenditure, and helping companies access the latest technologies, without having to commit capital.
According to SFS, manufacturing represents more than 22% of the German economy, and around 10% of the French and UK economies.
The research also estimated as much 1,348bn could be trapped in asset purchases in China’s manufacturing sector, with 163.9bn the equivalent figure in India, and 27.3bn the figure for Turkey.
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By GlobalDataSFS’ research also found locked liquidity, on average, represented around 75% of manufacturing turnover and, with profit margins in manufacturing around 10-11%, locked liquidity could be equivalent to around 7% of annual profits.
Brian Foster, head of industry finance at SFS, said: "Industrial companies need to refresh, renew and extend their equipment, plant and technology to compete in the fierce global marketplace.
However, he added businesses must also finance acquisition in a way which is financially efficient, such as asset finance.
"This not only allows them to conserve precious capital, but also gives them additional financial flexibility," he said.
The research results are based on projections for capital equipment spending by industrial companies between 2014 and 2018 which were then adjusted to reflect the proportion of equipment spending which can be financed and the amount of equipment investment which is financed. The remaining sum is regarded by SFS as locked liquidity.
