CIMA mid-sized business confidence monitor | Survey annual trend report 2010
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CIMA mid-sized business confidence monitor Survey annual trend report 2010 The market research team of the Chartered Institute of Management Accountants and their selected research agency partners are members of the Market Research Society Company Partner Scheme, and guarantee that all work carried out complies with the MRS Code of Conduct.
CIMA mid-sized business confidence monitor | Survey annual trend report 2010
Foreword This is the second CIMA annual trend report. The data provided in this document draws together the findings from our quarterly surveys of members and students working in medium-sized businesses around the UK. Medium-sized businesses are the backbone of the UK economy and they can be a good indicator of the broader business community’s confidence in the current economic climate.
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Reflecting the UK’s economic outlook as a whole, this report depicts a climate that is generally gloomy but dotted with the occasional sunny spell. Overall, CIMA’s economic confidence index showed a small decline in business optimism (1.9 index points) between Q4 2009 and Q4 2010. Concerns about the recent VAT hike and the possibility of a double-dip recession indicate that mid-sized businesses are gearing up for another turbulent year. At the start of the year, 91% of business said they were confident that they would survive the downturn. This figure dipped slightly through the year and ended at 84% in the final quarter. However there are also signs of a fighting spirit. Despite the continued uncertainty over economic recovery, most businesses surveyed indicated that they were ready to rise to the challenges ahead. In 2010, just over half of respondents recorded an increase in company turnover and net profits. A reduction in overhead costs was reported by almost a third of companies, indicating that cash flow management has been critical to business success. But our data on salaries shows that there is a notable gap between businesses that are thriving and those that are struggling. With the additional burden of fuel and VAT increases, this gap may widen further. Access to capital is also still problematic - despite the continuation of the Enterprise Finance Guarantee to encourage more bank lending to SMEs. Our survey saw improvements in access to finance in Q2 and Q3 but in the final quarter, almost half of businesses said they were having difficulty in securing additional finance. However, there was some optimism that businesses would grow in 2011 with 43% expecting company turnover to increase and 42% anticipating that net profits would rise. Charles Tilley Chief Executive CIMA
CIMA mid-sized business confidence monitor | Survey annual trend report 2010
CIMA economic confidence index 2010
between Q4 2009 and Q4 2010, it is anticipated that confidence in the economic prospects facing mid-sized businesses will see a shaky start to 2011.
Despite a strong start to CIMA’s economic confidence index in Q1 2010, confidence in the economic prospects facing mid-sized businesses over the next 12 months saw a sharp decline throughout the remainder of 2010, falling more than 17 index points from 29.6 in Q1 to just 12.2 in Q4.
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With further spending cuts on the way, fears surrounding a rise in inflation and growing concerns over a double dip recession following the shock contraction of the UK economy in the last three months of 2010, it is anticipated that mid-sized businesses are facing another turbulent year in 2011.
While this sharp decline in confidence defied stronger than expected UK economic growth recorded in Q2 and Q3 2010, it highlights the continued uncertainty surrounding the recovery in the UK market.
However, it’s not all doom and gloom. In January 2011, UK manufacturing expanded at its fastest level since records began in 1992, showing a glimmer of hope on the horizon for mid-sized businesses.
Although year-on-year the confidence index shows little change, with a decline of just 1.9 index points recorded Economic confidence index 35.00 30.00
29.6
25.00 22.3
20.4
20.00 18.2
15.00
14.1
12.2
10.00 Economic confidence index
5.00 0.00
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
-5.00 -10.00 -15.00
Despite the continued uncertainty surrounding the UK economy and ongoing challenges faced by mid-sized businesses, confidence amongst mid-sized businesses surviving the economic climate started 2010 more positive than at any point during 2009. Confidence in business survival peaked at 91% in Q1 2010, before dropping off slightly to 87% in Q3 and settling at 84% in the final quarter of 2010. The mid-sized business survival chart on the following page indicates a widening gap between those that are
confident and those who are extremely confident in the survival of their business over the coming 12 months. Furthermore, there were fewer businesses that were extremely confident that they would survive the next 12 months in 2010 compared to 2009. With research showing that more companies go bust in the months after a recession than during a recession, many mid-sized businesses would have stripped out any unwarranted costs during this period, leaving even less margin to make any further cost savings now.
CIMA mid-sized business confidence monitor | Survey annual trend report 2010
Confidence about surviving the economic climate 90% 80%
83%
85%
83%
91%
87%
88%
87%
84%
70%
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Confidence total Extremely confident Confident
60%
56%
50%
45%
39%
39%
51%
48%
49%
43%
42% 40%
46%
48%
38%
36% 32%
35%
30% Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Securing additional finance and access to cash in 2010 The UK Government and Bank of England economic policy continued to provide mid-sized businesses with as much support as it could as the transfer of power progressed, with the coalition giving direction to banks to support mid-sized businesses to stimulate business activity.
Q2 2010
Q3 2010
Q4 2010
In November 2010, the coalition government announced that Enterprise Finance Guarantee (EFG), set up by the former Labour government to encourage more bank lending to SMEs, would continue for the next four years, making about ÂŁ2bn available, and aiming to help 6,000 SMEs access capital each year.
Access to cash was‌. Q3 2009
6%
11%
Q4 2009
5%
10%
Q1 2010
Q2 2010
8%
29%
26% 33%
19%
Not at all difficult
22%
35%
11%
23%
19%
30%
23%
19% 8%
43% 33%
16%
Q3 2010
Q4 2010
21%
19%
29% 20%
Not difficult
Neutral
24%
9%
36%
13%
Difficult
Extremely difficult
CIMA mid-sized business confidence monitor | Survey annual trend report 2010
In order to monitor the support that mid-sized businesses are receiving, CIMA’s mid-sized business confidence monitor survey asked whether their business had sought to secure additional finance from a bank over the last quarter.
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CIMA’s mid-sized business confidence monitor shows that despite improvements in access to finance in Q2 and Q3 2010, Q4 saw much tighter restrictions on lending, and almost half of businesses were again saying that securing additional finance from banks was difficult or very difficult.
Also seeing an increase, but more prohibitive to business growth was the cost of transportation and fuel. In January 2010, diesel prices stood at 109.46p per litre, compared to January 2011, when prices had risen to 128.35p per litre; just five pence below its record high of July 2008. And with the 0.76p introduction of the government fuel duty on New Year’s day and the VAT rise from 17.5% to 20% on 4 January 2011, fuel prices are set to rise further over the next 12 months. When reviewing the previous quarter, 51% of mid-sized businesses recorded an increase in transportation and fuel.
The notion that lending became tougher at the end of 2010 is supported by the Bank of England’s Trends in Lending report published in January 2011, which shows that the stock of lending by UK banks and building societies to businesses contracted by around £5 billion in the three months to November.
Almost half (47%) of mid-sized businesses also saw an increase in supplier prices in 2010. This is hardly surprising given that annual producer output price inflation rose to 4.2% in November 2010, according to the latest figures produced by the Office for National Statistics (ONS).
Business performance for last quarter during 2010
Amongst the indicators that have largely stayed the same during 2010 are:
Each quarter mid-sized businesses rate factors which measure their performance against 17 key business performance indicators, comparing each indicator over the last quarter, to identify if they had increased, stayed the same or decreased. The following data aggregates these indicators for all of the quarterly 2010 surveys to provide an annual summary for 2010. Against a backdrop of extremely tough economic conditions, just over half of mid-sized businesses surveyed in 2010 recorded an increase in company turnover (52%) and net profits (51%). 46% of mid-sized business also recorded an increase in domestic sales turnover.
• research and development budget (79%) • skills training both internal (73%) and external (72%) • supply of goods and services (67%) • basic salaries (66%) • number of full time vacancies (66%) • marketing/advertising (58%) • capital investments (60%) • total salary packages (60%).
CIMA mid-sized business confidence monitor | Survey annual trend report 2010
A reduction in overhead costs was also reported by three in ten mid-sized businesses in 2010, which indicates that cash flow management has been critical to business success during the recent difficult economic climate. One such impact will have been a reduction in the number of full time employees, which was also reported by three in ten mid-sized businesses last year. With UK unemployment rising by 49,000 to almost 2.5 million in the three months to the end of November 2010, according to the latest figures from the ONS, the government’s spending cuts appear to be having a negative impact on employment figures.
As well as being amongst the largest increasing indicators, company turnover and domestic sales turnover also recorded some of the most significant decreases amongst mid-sized businesses in 2010. This indicates a notable gap between successful businesses during the tough economic climate and those that are struggling.
60%
60%
66%
42%
Supplier prices
73%
72%
79%
18%
17%
15%
16%
67%
9%
Increased
5%
13%
Stayed the same
7%
Decreased
10%
R&D budget
Transportation and fuel
66%
58%
30% 14%
Total salary packages
11%
31%
Export sales turnover
10%
Domestic sales turnover
30%
29%
Net profits
31%
11%
Skills training (external)
39% 55%
Overhead costs
39%
12%
Skills training (internal)
24%
20%
12%
24%
46%
34% 17%
27%
Supply of goods/services
47%
29%
Capital investments
51%
31%
Basic salaries
51%
31%
Number of FT employees
52%
31%
17%
Number of FT vacancies
35%
26%
Marketing/advertising
Business performance for last quarter during 2010
Company turnover
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Although the majority of mid-sized businesses recorded no change in earnings during 2010, three in ten recorded an increase in total salary packages (31%) and basic salaries (29%). This uplift in earnings is supported by the most recent data released by the ONS, which also showed a slight uplift in earnings, with average earnings recording an increase of 2.1% in the year to November 2010, with average total pay rising by 1.9% to ÂŁ449 a week in the private sector, and by 2.4% to ÂŁ469 a week in the public sector.
CIMA mid-sized business confidence monitor | Survey annual trend report 2010
Business performance for next quarter during 2010 Each quarter mid-sized businesses rate the same factors to measure their performance against 17 key business performance indicators, comparing each indicator to the next quarter, to identify if they expect them to increase, stay the same or decrease. The following data shows how mid-sized businesses rated how they expect each indicator to perform in the following quarter during 2010.
The factors that were expected to largely stay the same in the following quarter were:
• skills training, both internal (77%) and external (78%) • number of full time vacancies (75%) • supply of goods and services (73%) • marketing and advertising budgets (70%).
Projected business performance levels for the next quarter followed a similar pattern to that of actual business performance in the last quarter, although overall, mid-sized businesses were generally slightly more positive about the outlook for the next quarter when compared to the last.
The factors that were expected to decrease the most in the following quarter were: • • • • •
Overall, the factors that were expected to increase the most in the following quarter during 2010 were:
company turnover (22%) overhead costs (22%) net profits (21%) domestic sales turnover (21%) number of full time employees (19%).
7%
7%
5%
Increased
9%
70%
75%
77%
78%
84%
5%
10%
9%
10%
10%
7%
R&D budget
11%
22%
12%
Skills training (external)
6%
69%
57%
13%
Skills training (internal)
8%
65%
66%
16%
Number of FT vacancies
21%
60%
20%
Marketing/advertising
21%
54%
Overhead costs
23%
50%
Transportation and fuel
30%
Domestic sales turnover
27%
Net profits
21%
Supplier prices
45%
24%
22%
73%
19%
Number of FT employees
33%
Basic salaries
40%
Total salary packages
42%
Capital investments
49%
27%
Export sales turnover
56%
52%
26%
28%
29%
Supply of goods/services
Business performance for next quarter during 2010
Company turnover
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• company turnover (56%) • net profits (52%) • domestic sales turnover (49%).
Stayed the same
Decreased
CIMA mid-sized business confidence monitor | Survey annual trend report 2010
Topical issues As the mid-sized business confidence survey has monitored attitudes to the economy it has also provided a vehicle for gauging the opinion of mid-sized businesses on topical issues each quarter. This has provided further insight into the decisions that mid-sized businesses have been taking both as result of Government policy and trading in the current economic climate.
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Mid-sized businesses have been asked since the start of the survey how important they think that the recent Bank of England decision not to change interest rates has been for their business. Throughout 2009 and 2010 around 40% of mid-sized businesses said it was neither important nor unimportant for their business; with a third saying that it is important to their business.
Technical information about the mid-sized business confidence monitor This research is completed by the market research department of the Chartered Institute of Management Accountants. Each quarter, approximately 14,000 active CIMA members working in mid-sized businesses in the UK are interviewed via an on-line questionnaire. The interviews last about 15 minutes and they gather opinions on past and expected business performance and future prospects for mid-sized businesses. A copy of the full question set is available on request from the market research department: yourvoice@cimaglobal.com
While at the start of 2009, half (51%) of mid-sized businesses said that the interest rate decision had no effect on their business, this increased to almost twothirds (63%) by the end of 2010.
Data has been sampled to closely reflect the profile of the UK economy for mid-sized businesses by company size, number of employees, turnover, regional location and industry/business sector.
In Q4 2010, nine out of ten mid-sized businesses said that they were ready for the 20% VAT rate being introduced on 4 January 2011. Over a third said the 20% VAT rate would negatively impact on the overall performance of their business, sales and administration costs and to a lesser extent turnover (26%).
How the CIMA economic confidence index is calculated
Just over half (54%) of mid-sized businesses also said that they will pass the full VAT increase over to their customers, with 15% saying that they will absorb the increase in full and 14% saying that they would absorb it in part. Relationships with suppliers to mid-sized businesses improved from Q3 2009 to Q4 2010, as only a third of mid-sized businesses had not changed supplier, increasing to 61%. The main reasons for changing supplier was price and value for money indicating careful purchase and procurement of products and services because of the economic environment.
The CIMA economic confidence index is calculated from responses to the following question: Compared with the previous 12 months, overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months? Variable
Score
Much more confident
+100
Slightly more confident
+50
As confident
0
Slightly less confident
-50
Much less confident
-100
Using this method, +100 would indicate that all midsized businesses responding in the survey are much more confident about future prospects, and -100 would indicate that all mid-sized businesses are much less confident about future prospects. For more information contact the market research department of the Chartered Institute of Management Accountants.
Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP United Kingdom T. +44 (0)20 7663 5441 www.cimaglobal.com Š February 2011, Chartered Institute of Management Accountants
CMI003V0211