Business Trends Service Companies by vhd89767


More Info
									       ISME PRESS RELEASE

                  PUBLICATION OF
                   SUMMER 2009

       Two thirds of companies (66%) under threat.

       62% of SMEs reduce employment, as job prospects remain ‘bleak’.

       74% view the current business environment as ‘poor’ or ‘very poor’.

       77% report fall in sales.

       Significant reductions in profits and revenues anticipated.

       Almost half of businesses (47%) blame Government for current crisis.

       SME focused initiatives required to rebuild confidence.

                                                               ISME, Tuesday June 23rd 2009.

The results of ISME’s second quarterly trends survey for 2009 confirm that smaller companies are
still in the throes of economic despair with employment levels, investment and sales remaining
extremely negative. Despite this harsh environment business optimism has improved for the
second quarter running, albeit from historically low levels.

The survey, which attracted a response from over 600 companies, confirms that there has been no
improvement in the second quarter and the indicators are that the next 12 months will continue to be
extremely challenging, with companies further readjusting downwards their employment and investment

Business Environment/Confidence
Business confidence, while still negative overall, has improved since the previous quarter with a
net 56% of companies less optimistic in comparison to a net 71% in the previous quarter.

The most negative sector is Construction with a net 73% less optimistic, followed by Retail at 71%,
Distribution (70%), Manufacturing (51%) and Services at 48%.

74% of companies, up from 69% in the previous quarter, viewed the current business environment
as being either ‘poor’ or ‘very poor’.

23% expect business conditions to improve over the next 12 months, up from 16% in the previous quarter.

Worryingly,two thirds of businesses (66%) outlined that the viability of their businesses was under
threat over the next 12 months, if present conditions remain.

                                              Page 1 of 4
Employment - existing
                                                                                Net Employment

            -40%                                                                                                                     Net Employment
                                   Q2 '05
                                            Q4 '05
                                                             Q4 '06

                                                                      Q2 '07
                                                                                                                    Net Employment

                                                                               Q4 '07

                                                                                          Q2 '08

                                                                                                   Q4 '08

The labour environment continues to be extremely depressed with nearly two thirds (62%), (56% in
the previous quarter), of companies employing less than this time last year and only 6% employing
more. These figures are the worst ever recorded and confirm that there has been no slowing down in job
losses in the sector, with evidence suggesting that this trend is to continue over the next number of

The Construction sector was worst affected with 83% of companies letting people go in comparison
to 72% of Distributors, 61% of Retailers and Manufacturers, and 43% of Service firms.

Employment - prospects
Employment prospects remain bleak with 43% of companies anticipating letting people go over
the next 12 months, with only 7% planning to increase employment numbers. Distribution
companies are the most pessimistic with a net 52% expecting to let people go, in comparison to 40% in
the Construction sector, 35% Retailers, 32% Manufacturers and 28% of service businesses.

Sales continue to fall off a cliff with a net 77% of companies reporting lower sales in comparison to
a net 72% in the previous survey. To put this in context there has been an eight fold increase in the
number of companies reporting reduced sales in comparison to the same period last year. Only 23% of
companies expect to increase sales over the next 12 months.

Not surprisingly profit levels are badly affected with a massive 73% of companies anticipating a
reduction in net profits, while 61% expect revenues to decline over the next 12 months, down from
69% in the previous quarter.

   Following on from the reduction in sales, a massive 81% of companies outlined that their
    sales/order books are down in comparison to last year.

   33% of companies reported that their stock levels are down for the year, in comparison to 24%
    in the previous quarter.

   26% of companies have orders, production capacity and markets unserviced for want of
    working capital. This highlights the difficulty that companies are having in accessing credit
    facilities from their banks.

A significant 54% of companies have encountered cancellation of orders in the last quarter.
Cancellations were from,

                                                                                        Page 2 of 4
   Locally Based Multinationals                16%.
   Export Destinations                          7%
   Local Indigenous Firms                      77%

The fact that over three quarters (77%) of cancellations are from indigenous businesses is extremely
worrying and confirms the dramatic slowdown in the sector over the last number of months.

SMEs continue to reduce the level of investment in their businesses with 32% having done so in
comparison to 30% in the previous quarter. 19% indicated they increased investment, down from
25% in the previous 3 months.

Only 16% of companies anticipate an increase in investment over the next 12 months.

Smaller businesses continue to experience serious delays in late payments, with the average
waiting period now 73 days, up from 68 days in the previous quarter. The trends survey confirms
that compared to 12 months ago 57% of respondents outlined that the credit period being taken
is longer, with only 6% stating that they get paid faster. A significant 45% of companies have to
wait over 90 days or more to be paid. Difficulties in getting paid are not helped by the unwillingness of
the government to implement and monitor adequate legislation that would protect smaller businesses.

The export performance of Irish SMEs, while showing an improvement on the previous quarter,
still remains an area of concern. For instance a net 33% of companies reported that the value of
their exports was down on the same period last year, in comparison to a net 43% in the previous
quarter. This however is still down 32 percentage points on the corresponding survey 12 months
ago. The impact of a downturn in the world economies, especially the UK, continues to be problematic.

Inflationary Pressures
Firms continue to experience inflationary pressures, with increases of 5% plus being reported for
transport, energy, raw materials, Insurance and waste. However, there is evidence of reductions
in wage costs and rents.

Business Concerns

           TABLE 1
           Immediate Biggest Concern
                                                         Summer 2009
           Economic Uncertainty                             38%
           Reduced Orders                                   24%
           Access to Credit                                 12%
           Government Action                                11%
           Regulations                                       4%
           Euro Exchange                                     4%
           Labour Costs                                      2%
           Erosion of Competitiveness                        2%
           Energy Costs                                      1%
           Labour Shortages                                   -
           Inflation                                          -
           Other                                             2%

As can be seen from Table 1, Economic Uncertainty was identified as the biggest immediate
concern across all sectors, with 38% identifying this as their main worry. Unsurprisingly, with the
sharp drop in sales, „Reduced Orders‟, at 24% was identified as the next biggest concern. Difficulties in
                                               Page 3 of 4
getting credit from the Banks ensured that, „Access to Credit‟ was identified by one in eight companies
as their immediate biggest concern.

Finally, 47% of companies apportion blame to the Government for the current economic crisis,
with a significant number of SMEs concerned at the lack of direction being provided. 31% blamed
the financial institutions for the crisis.

According to ISME Head of Research, Jim Curran, “The latest survey figures confirm that even though
smaller businesses are more optimistic there is little evidence of green shoots in the sector. In fact the
second quarter has proven to be more difficult than the first quarter with a noticeable deterioration in
sales, employment and investment”.

 “The evidence suggests that small businesses continue to downsize, with companies planning to reduce
employment numbers and investment levels over the next number of months. Among the primary
concerns are the level of economic uncertainty and the lack of available credit, which continues to
hamstring companies. It is not surprising therefore, that small business owners hold the Government and
financial institutions mainly responsible for the current economic crisis.”

On a slightly positive note there are indications that export values, which were decimated in the previous
quarter, have improved, albeit from historically low levels. There is also clear evidence that wage rates
and rents are reducing, which should assist in long term competitiveness. However, businesses continue
to be impacted by rising costs in other areas including local charges, transport and Insurance.

“Rebuilding confidence is key to ensuring that SMEs are able to survive and, ultimately, as the economy
recovers, begin to grow again. This requires the introduction of workable policies to create the proper
platform and the right conditions for SMEs to prosper. The Government needs to take its head out of the
sand and implement short and longer-term strategies to help bolster cash flow, remove costly barriers to
growth, protect employment and stimulate business,” Curran continued.

Among the policies that the Association would like to see immediately introduced, include:
   A dramatic increase in funding of the Enterprise Stabilisation Fund, which is already
     running dry.
   The introduction of a Government guarantee scheme, similar to that introduced in the UK,
     to free up badly needed bank credit.
   The immediate introduction of initiatives to maintain employment, including PRSI
     reductions and employment subsidies.
   The reconvening of the Small Business Forum to address the issues of concern to the
     sector and implement the appropriate policies to assist in SME survival and growth.


For further information contact:

Jim Curran                                                              Mark Fielding
Head of Research                                                        Chief Executive
Office: 01 6622755                                                      Mobile: 087 2519675
Mobile: 086 2640469

Note to Editors:
ISME is the independent voice of Small & Medium business in Ireland, representing in excess of 8,500
members across all sectors. The Association is owned and run by owner managers and is independent
of big business, government and unions; the TRUE voice of the SME.

                                                Page 4 of 4

To top