Manufacturing and engineering firms across Wales have painted a picture of growing optimism in an annual survey of their sector.

Companies in Wales with turnovers ranging from £1m to more than £40m responded to the survey, saying that their confidence was supported by continuing investment in R&D, capital expenditure and an increase in recruitment, including plans to take on an increasing number of apprentices.

The survey, which looked at a broad range of companies in the sector across Wales including aerospace, automotive, chemical, pharmaceuticals and construction, was carried out by Newport professional advisors Broomfield & Alexander through MHA, a UK-wide association of independent accountants and business advisers.

Welsh manufacturing companies reported being fairly upbeat and more optimistic about the manufacturing sector than they were in the same survey last year – an outlook reflected in the finding of the MHA survey in other parts of the UK as well.

In Wales, 90 per cent of the companies responding predicted growth in 2014, with 60 per cent saying they thought those growth levels would be moderate to high - a significant improvement on the 2013 predictions.

Other findings of the Welsh survey were that:

• 57 per cent of companies anticipated that they would recruit more production staff and skilled workers in 2014, an increase of seven per cent in the prior year

• 76 per cent of respondents expected production costs to increase in 2014 because of factors including increases in the price of energy, materials, fuel and labour

• 60 per cent did not expect to pass on these increased production costs to customers and were seeking to achieve cost reductions by making improvements to productivity, design changes and sourcing new suppliers

But a major cloud on the horizon emerged in the survey in the shape of the new legal requirement to offer auto-enrolment workplace pensions.

In line with the UK results, a concerning number of Welsh companies (40 per cent) were unsure how they will finance the costs of auto enrolment, and over half of the respondents expect the burden of ‘red tape’ on their business will increase in 2014.

Ian Thomas, managing director of Broomfield & Alexander, said the underlying trend was very positive for small and medium-sized businesses operating in the manufacturing sector.

“It’s possible that many had to restructure during the economic downturn and now they are reaping the benefits of improved productivity,” he said.

“For the time being, most are looking to absorb any cost increases rather than passing them on. However, this is unlikely to be a sustainable option for the long term.

“While the trading environment is showing positive improvement, there are still many immediate challenges for our SME manufacturers, particularly around energy prices, increasing regulation - despite government commitments to the contrary - and the costs associated with auto-enrolment.”