Mechanical Engineering and Plant Construction 2021 – Pulscheck & Initiatives

Manage­ment Sum­ma­ry

In our view, the fun­da­men­tal chal­len­ge in the plant and machine­ry sec­tor is now to con­so­li­da­te or even expand our mar­ket posi­ti­on through an inte­gra­ted but custo­mi­sed approach com­pri­sing rest­ruc­tu­ring and a stra­te­gic inno­va­ti­on initia­ti­ve (digi­tal pro­ducts inclu­ding AI-based pro­ducts, ser­vice busi­ness, digi­tal sales and main­ten­an­ce). In our view, com­pa­nies need to deve­lop a „restart“ plan for various sce­n­a­ri­os in order to be pre­pa­red for the time after the pan­de­mic.

Indus­try over­view

The Ger­man plant and mecha­ni­cal engi­nee­ring indus­try is a stron­gly export-ori­en­ted key sec­tor with annu­al sales of around €229 bil­li­on and around 1.1 mil­li­on employees (2019). This puts it in third place behind the manu­fac­tu­ring and auto­mo­ti­ve indus­tries in terms of sales. Around 6,650 com­pa­nies belong to this sec­tor, which is domi­na­ted by medi­um-sized enter­pri­ses.

In 2020 COVID 19 cau­sed a big drop in orders in April of 31% com­pa­red to the same month last year. Simi­lar decli­nes were recor­ded for May and June. The various spe­cia­list sec­tors were hit with vary­ing degrees of seve­ri­ty, with auto­mo­ti­ve-rela­ted are­as being par­ti­cu­lar­ly hard hit.

In the peri­od July – Sep­tem­ber 2020 order inta­ke in the plant and machine­ry sec­tor impro­ved again, but was still well below the level of the same mon­ths a year ear­lier. Accord­ing to VDMA esti­ma­tes, the trough was pas­sed in Q3/2020. For 2020 the VDMA esti­ma­tes that pro­duc­tion will slump by 17%, with slight growth of 2% expec­ted in 2021.

Results of the h&z mar­ket stu­dy

Our sec­tor stu­dy from May of this year alre­ady revea­led that fal­ling demand, cor­po­ra­te insol­venci­es and con­so­li­da­ti­on effects among sup­pliers and com­pe­ti­tors are expec­ted to be major extrin­sic effects. Intern­al­ly, the par­ti­ci­pants in our sur­vey anti­ci­pa­te that digi­ti­sa­ti­on will beco­me increa­singly important, that adjust­ments will be requi­red in the ser­vice busi­ness and that staff will be cut.

Howe­ver, just under 50% of par­ti­ci­pants see both oppor­tu­nities and risks ari­sing from the COVID 19 cri­sis. Oppor­tu­nities are seen through new working models and digi­ti­sa­ti­on as enab­lers, inno­va­tions and con­so­li­da­ti­on ten­den­ci­es. In addi­ti­on to fal­ling demand, the most signi­fi­cant risks are expec­ted to lie in more dif­fi­cult demand plan­ning, lack of liqui­di­ty and dis­rup­ti­ons in the sup­ply chain.

Out­look and assess­ment h&z

On the basis of mar­ket deve­lop­ments and the mar­ket stu­dy we have con­duc­ted, we see stra­te­gic initia­ti­ves in the machine­ry and plant engi­nee­ring sec­tor for 2021:

• Rest­ruc­tu­ring
• Inno­va­tions
• Digi­tal trans­for­ma­ti­on and indus­try 4.0
• AI
• Green technologies/ sustai­na­bi­li­ty

Rest­ruc­tu­ring

Near­ly all com­pa­nies in the indus­try have reac­ted to the COVID 19 cri­sis by taking imme­dia­te mea­su­res such as short-time working, more fle­xi­ble working hours and secu­ring liqui­di­ty. Struc­tu­ral issu­es are on the com­pa­ny agen­da for 2021:

• Stra­te­gy: Revi­si­on of busi­ness model („more robust“)
• port­fo­lio: Stream­li­ning and stra­te­gic acqui­si­ti­ons
• Sup­ply Chain/ Ope­ra­ti­ons: adjust­ment of pro­duc­tion foot­print, clo­sure of pro­duc­tion capa­ci­ties, site clo­sures, fle­xi­bi­li­sa­ti­on of the value chain
• Pro­cu­re­ment: Opti­mi­sa­ti­on of sup­plier port­fo­lio (relo­ca­ti­on), risk manage­ment, tech­ni­cal levers for cost reduc­tion such as cost value engi­nee­ring
• finan­ces: Adjust­ment of struc­tu­ral costs inclu­ding SG&A, review of invest­ment plan­ning, medi­um-term finan­cing stra­te­gies
• Personnel/ com­pa­ny orga­ni­sa­ti­on: remo­te working forms, fle­xi­bi­li­sa­ti­on and staff reduc­tion, stream­li­ning of the orga­ni­sa­ti­on

respond effec­tively.

The most important ele­ments of a suc­cess­ful rest­ruc­tu­ring con­cept are a deep under­stan­ding of the mar­ket envi­ron­ment and a clear tar­get for the tur­naround with a detail­ed descrip­ti­on of the mea­su­res. The decisi­ve suc­cess fac­tor is the agree­ment of the top manage­ment on the tar­get pic­tu­re and the demons­tra­ted con­fi­dence that the rest­ruc­tu­ring will be suc­cess­ful­ly com­ple­ted. The lea­dership of top and midd­le manage­ment the­re­fo­re plays a key role.

Inno­va­tions

Inno­va­ti­on dri­vers and most important future tech­no­lo­gies in plant and mecha­ni­cal engi­nee­ring are digi­ta­li­sa­ti­on, Big Data, AI, robotics and green products/services. Inno­va­tions – based on a clear cor­po­ra­te stra­te­gy – are more important than ever in the COVID 19 cri­sis in order to be pro­tec­ted against dis­rup­ti­ve influ­en­ces in the rapidly chan­ging situa­ti­on and to open up new busi­ness oppor­tu­nities through new products/services.

Digi­tal trans­for­ma­ti­on and indus­try 4.0

Nowa­days, digi­ti­sa­ti­on ser­ves as a dif­fe­ren­tia­ti­on fac­tor and allows on the mar­ket side on the one hand the esta­blish­ment of new busi­ness models and on the other hand the digi­ti­sa­ti­on of pro­ducts and ser­vice port­fo­li­os. The hig­hest degree of digi­ti­sa­ti­on is found in the cor­po­ra­te func­tions of mar­ke­ting, sales and pro­cu­re­ment. Digi­ti­sa­ti­on in ser­vices has increa­sed signi­fi­cant­ly sin­ce 2018. Howe­ver, the­re is still a back­log demand in pro­duc­tion.

AI

Arti­fi­ci­al intel­li­gence (AI) holds con­s­i­derable poten­ti­al for growth in mecha­ni­cal engi­nee­ring. Whe­ther it is that esta­blished pro­ducts are fur­t­her deve­lo­ped, e.g. through embed­ded assi­s­tan­ce func­tions, or new busi­ness models such as pre­dic­tive main­ten­an­ce can be offe­red in the ser­vice busi­ness. The company’s own busi­ness and manu­fac­tu­ring pro­ces­ses are also opti­mi­sed through the use of AI. AI also offers con­s­i­derable poten­ti­al for the more effi­ci­ent use of raw mate­ri­als, sup­plies and ener­gy. A VDMA sur­vey shows that expe­ri­ence with AI pro­jects increa­ses signi­fi­cant­ly with increa­sing com­pa­ny size.

Green technologies/ sustai­na­bi­li­ty

The need to redu­ce CO2 emis­si­ons in many indus­tri­al sec­tors quick­ly and sustain­ab­ly offers the indus­try signi­fi­cant mar­ket oppor­tu­nities and the chan­ce to fur­t­her impro­ve the posi­ti­ve image of the indus­try. With its pro­ducts, the plant and mecha­ni­cal engi­nee­ring sec­tor has immense leverage when it comes to sustai­na­bi­li­ty and the decar­bo­ni­sa­ti­on of other sec­tors, based on tech­no­lo­gies such as CO2 storage/utilisation, „green“ power gene­ra­ti­on, plants for the pro­duc­tion of hydro­gen, more effi­ci­ent dri­ves, buil­ding and air con­di­tio­n­ing tech­no­lo­gy or recy­cling plants.