Report shows grim outlook for Irish SMEs

Employers' group ISME has today described the results of its first quarterly trends survey for 2009 as "extremely concerning".

The survey, which attracted a response from more than 600 companies, confirms, as was anticipated, that the first three months of 2009, were particularly difficult for the SME sector

It showed continued reductions in sales, investment, employment and general business activity.

Exports in particular have declined sharply, as small businesses attempt to readjust to the prevailing negative business environment.

The indicators confirm that the next 12 months will continue to be extremely challenging, with companies further readjusting downwards their employment and investment levels.

Business optimism has slightly improved since the previous quarter however, with 75% of companies less confident about future business prospects in comparison to 79% in the previous survey. In the corresponding survey last year 47% of companies indicated they were less optimistic.

The most negative sectors are distribution and manufacturing with a net 92% less optimistic, followed by construction at 75%, retail (69%) and services at 64%.

More than two thirds of companies (69%) rate the current business environment as either poor or very poor, with only 16% expecting business conditions to improve in the next 12 months.

There has been a significant increase in job losses in the SME sector, with one in two companies (56%) employing less than this time last year, with only 8% employing more.

The construction sector was worst affected with 83% of companies letting people go, in comparison to 59% of distributors, 58% of retailers, 49% of service firms and 33% of manufacturers.

Only 5% of companies anticipate increasing employment in the next 12 months, with 42% expected to reduce numbers and 51% expected to maintain current numbers.

Distribution companies are the most pessimistic about employment prospects, with a net 63% expecting to let people go, in comparison to 46% in the manufacturing sector, 44% retailers, 42% construction companies and 23% of service businesses.

A net 72% of companies have reported lower sales in comparison to a net 39% in the previous survey.

Some 76% of companies anticipate a reduction in net profits. 69% expect revenues to decline over the next 12 months.

Following on from the reduction in sales, a massive 80% of companies outlined that their sales/order books are down in comparison to last year, up from 73% in the previous quarter.

There has been a rapid reduction in investment by SMEs in the last quarter, with 30% of companies indicating a reduction over the next 12 months, in comparison to 21% in the previous quarter.

Only 18% of companies anticipate an increase in investment over the next 12 months.

The export performance of Irish SMEs showed a sharp downturn, particularly over the last three months. The survey results confirm that a net 43% of companies reported that the value of their exports was down on the same period last year, in comparison to a net 17% in the previous quarter.

As 47% of all SME exports go to the UK, the impact of the sterling-Euro exchange rates is really being felt, having a devastating impact.

“The results of the latest survey confirm that the situation for SMEs is progressively deteriorating, with little or no respite in sight, due to current economic conditions,” said ISME head of research, Jim Curran.

“Clearly, the sector is struggling badly with sharp falls in turnover, sales, revenues and profits impacting negatively on investment and employment.

“The indications are that the situation is going to deteriorate further and there is massive concern at the dramatic fall in exports, down significantly on the previous quarter. Obviously the impact of a weak sterling is hitting business a lot harder than previously anticipated, particularly as nearly half (47%) of all SME exporters, export to the UK.

“With employment numbers reducing rapidly, the signs are that the trend is set to continue. As a significant number of companies have individuals on a three day week, the likelihood is that many of these individuals will be let go over the next number of months, unless there is a dramatic improvement in economic conditions. On that basis, the recent budget was a missed opportunity, which did nothing to address the maintenance of employment.

“In fact, if anything, the Budget details have only succeeded in making the problem progressively worse, with the tax measures in particular, restricting employers’ options on proposed pay cuts, leading to a further anticipated increase in redundancies. Taken together with deteriorating business performance, this will negatively impact on future tax revenues”

“The Government has clearly failed to address the concerns of smaller businesses. Unless policies are introduced to stimulate business, address cost competitiveness, free up credit and assist companies exposed to Sterling, the problems being encountered by the sector will continue to magnify, with devastating consequences in the form of company closures and job losses.”

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