March Of The Machines

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We’re seeing a remarkable level of interest in purchasing aluminium window and door manufacturing equipment, writes Ian Latimer, MD at Emmegi (UK) as he explains what is driving that interest.

That interest is despite rising interest rates and the end of the super tax deduction tax incentive which was implemented after the pandemic to encourage investment in certain items of plant.

As I see it, there are several very good reasons for that:

 

Underlying confidence

Growth in aluminium continues to outstrip PVC-U. Despite the most recent figures from the housing market, there is still underlying confidence in the commercial market and in higher-end retail in particular.

Certainly, our enquiries are fairly well spread from PVC-U businesses making the decision to add aluminium products to their output for the first time, all the way up to large façade manufacturers.

 

Annual investment allowance

While the super tax deduction benefit might have finished in March, the AIA (annual investment allowance), which includes plant and machinery, is still in place for all qualifying business expenditure. The AIA limit is now set at £1m (and looks likely to stay at that level for the foreseeable future), so fabricators are still taking advantage of the fact that any machinery investment below that limit can be offset against their taxable profits, saving them between 19% and 25% depending on their corporation tax threshold.

 

Interest can be set against tax

The AIA obviously isn’t the only tax incentive continuing to encourage machinery investment either. Those fabricators who choose to finance their investment can also set the full amount of interest they pay against their corporation tax bill.

 

Cash is king

We work with trusted partners to help businesses access finance for their machinery investments. They are telling us that the cash is king mantra has never been more relevant than it is at the moment. Interest rates might have risen for borrowing, yet they have also risen for saving as well, so many businesses which do have cash available are choosing to hold onto it and opting for finance instead, successfully offsetting at least some of the interest they are paying against interest being earned.

 

Interest rates not at record levels

Anyone with a mortgage knows that interest rates have risen at remarkable speed over the past year, although, as we keep being reminded by the Bank of England, historically, they are still fairly low. It is only since 2009 that we’ve got used to rock bottom rates. The fact is that, for 31 of the 36 years between 1973 and 2009, interest rates were well above their current level of 5%+.

I have some figures from our funding partner which show the typical monthly repayment costs over the years on a £100,000 machine, repaid over five years (not allowing for inflation):

• 1990, interest rates at 15% = £2,916

• 2000, interest rates at 8% = £2,333

• 2005, interest rates at 6% = £2,166

• 2022, interest rates at 4.5% = £2,041

• 2023, interest rates at 6% = £2,166

All the indications from the wider economy and the Bank of England suggest that interest rates won’t be coming down any time soon, so lots of fabricators are clearly judging that there’s little reason to postpone their investment.

 

Investment still pays off

The commercial benefits for fabricators in automating their operations and adding more machining capacity or capability obviously remain as compelling as ever. The cost savings and efficiency improvements that they can achieve via machinery are arguably more valuable than ever when competition is fierce and margins are under pressure.

 

Picture: Emmegi (UK) is seeing strong demand for aluminium window and door manufacturing machinery.

www.emmegi.com

Article written by Ian Latimer, MD Emmegi (UK)
24th October 2023

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