National Trends in Manufacturing - Karen Kurek, national manufacturing & distribution practice leader, McGladrey

Next Generation ManufacturingWhat lies ahead for manufacturers and distributers

Karen L. Kurek National Manufacturing & Distribution Practice Leader at McGladrey

October 23, 2012St. Paul Hilton Mall of America, Minneapolis, MN

About McGladrey

• 80+ year history

• Fifth-largest provider of accounting, tax and business consulting services in the U.S.

• We provide services to more than 8,000 midsize manufacturers and distributors across the nation

• 75 U.S. offices; offices in 85 countries worldwide

• 6,500 professionals nationally, 32,000 worldwide

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A distinctive industry focus

Understanding your business and industry

• Focused on the middle market• Industry association memberships and board appointments • Advocate on both national and local levels

Sharing global best practices

• Manufacturing & Distribution Monitor • CFO Clubs • Executive Summits• Webinars• Thought leadership articles and publications

Providing resources • National resources and services• Subject matter experts• Local, national and international presence

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Source: United Nations Statistics Division; the World Bank.

U.S. still dominates manufacturing worldwide, with China close behind

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Source: Bureau of Economic Analysis, NAM calculations , Moody’s Analytics simulation model

Real GDP forecast

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Source: Institute for Supply Management 5

ISM manufacturing indices

Growth in output

Source: Bureau of Labor Statistics 6

Source: United Nations, Bureau of Labor Statistics, International Labor Organization

U.S. is the global leader in labor productivity

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Source: Bureau of Labor Statistics

Employment situation

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Source: Bureau of Labor Statistics

Largest net employment gains by sector

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Top 20 states for manufacturing job creation

Source: Bureau of Labor Statistics 10

Source: U.S. Census Bureau, National Association of Home Builders

Building permits, starts and completions higher in June 2012 vs. June 2011

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Source: U.S. Department of Commerce

Distribution of U.S. exports

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Source: U.S. Department of Commerce 13

Percent growth of manufactured goods exports

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1. The United States will be the best place in the world to manufacture and to attract foreign direct investment.

2. The United States will expand access to global markets to enable manufacturers to reach the 95 percent of consumers who live outside our borders.

3. Manufacturers in the United States will have the workforce that the 21st-century economy requires.

4. Manufacturers in the United States will be the world’s leading innovators.

A Manufacturing Renaissance: Four goals for economic growth

Source: National Association of Manufacturers

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•Tax reform: The coming “taxmageddon”

•Regulatory reform: Potential impact of the EPA's proposed regulations

•Trade and exports: A national competitiveness strategy must prioritize exports

•Workforce investment: Education and training programs that result in nationally portable, industry-recognized credentials

•Health care reform: Addressing costs and increasing regulation

•Innovation and efficiency: The impact of high energy prices

NAM: Critical issues affecting the industry

Minnesota profile

• State job growth rose 2.2% in July 2012 from a year ago; national job growth rose 1.4%

• State unemployment averaged 5.9% in July 2012; the national average was 8.3%

• Personal income rose 2.6% to $243.0 billion in Q1 2012 from a year ago.

• Tax revenue increased 3.2% in Q1 2012 from a year ago.

• Exports fell 2.8% to $13.3 billion in the first four months of 2012 from a year ago.

• Venture capital investment in MN rose 20.8% to $70.5 million in Q1 2012 from a year ago

16Source: First research – September 2012

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Demographics and key findings

• Report released September 12

• 924 total participants- 554 Manufacturers

- 370 Distributors

- 62 Respondents from MN

• 77% private or closely held businesses- Mostly CEO’s and CFO’s

• 12% private equity-owned businesses

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19Source: 2012 McGladrey Monitor

The number of thriving and growing companies remained steady

56%

Thriving and growing:Manufacturing and distribution


MN Respondents

Industries leading growth


50%

48%

47%

45%

45%

Industrial and Commercial Sector in biggest decline

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Industry Sector Thriving in 2011 Thriving in 2012Aerospace - 34%

Automotive (OEM and Aftermarket) 57% 45%

Biotech, Life Sciences and Medical Equipment/Supplies 38% 45%

Building Materials 24% 28%

Chemicals, Petroleum and Plastics 48% 40%

Computers, Electronics and Electrical Components/Appliances 52% 41%

Energy and CleanTech 41% 48%

Food and Beverage 44% 47%

Furniture and Fixtures 17% 34%

Industrial and Commercial Machinery 63% 43%

Metal Fabrication 47% 41%

Textiles, Apparel and Accessories 29% 16%

Transportation Equipment 52% 50%

Wood/Paper Products and Printing 25% 29%

20% Decrease

Business optimism and the outlook for growth

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World Economy dropped 33%

U.S. Economy dropped 15%

Source: 2012 McGladrey Monitor

Business optimism by MN respondents

24Source: McGladrey 2012 Distribution Monitor

Taxes pose a major concern


U.S. and non-U.S. sales


Increase expectations in U.S. sales by industry sector

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Percent increase expected over next 12 months


Importance of new products and services to company growth


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Cost expectations over the next 12 months


Inventory level changes


Inventory level changes for MN respondents in the next 12 months


Strategies to maintain margins


Approximate percentage increase in sales prices in next 12 months


Capital expenditures

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Capital equipment spending compared to previous year (average)


Capital expenditure changes in the next 12 months

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Information technology is the biggest target for all companies


Most midsize companies likely to increase workforce

• Two thirds of companies (67%) are expected to increase employment levels- 67% 2012 vs. 56% in 2011- Private equity companies are most likely to increase hiring (76%)- 85% of T&G companies plan to increase workforce where 42% of

declining companies plan to reduce workforce36


Percent planning workforce increase in the next 12 months


Finding skilled talent

38


Companies are attempting to address the skills gap

39


Process improvements


Social media


Perception of information and data risks


Best practices of thriving and growing companies

• Have increased and plan to increase U.S. and non-U.S. sales

• Corporate objectives are all about infrastructure

• Plan to use the following sales strategies to drive growth:

- Increased penetration in existing markets

- New customer segments

- New products and line extensions

• Hiring talent by proactively addressing skills gap

• Have a mature continuous improvement culture

• Annual investment in R&D is higher compared to others43


Experience the power of being understood.SM

http://www.mcgladrey.com

In addition to the key findings outlined in this presentation, results from the 2012 McGladrey

Manufacturing and Distribution Monitor can be found at

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Open Discussion- Q&A

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Questions?

Karen L. KurekMcGladrey LLPNational Manufacturing & Distribution Practice Leader

[email protected]

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National Trends in Manufacturing - Karen Kurek, national manufacturing & distribution practice leader, McGladrey