SMEs less confident of 2H growth prospects: survey

Guess what sector recorded all-time low profit expectations.

SMEs here expect their sales and profits to pick up during the second half of 2013, albeit slower than in previous years.

This is the key finding of the SBF-DP SME Index (the Index) for Q3 and Q4 2013. The Index is a joint initiative of the Singapore Business Federation (SBF) and DP Information Group (DP Info). It is a six months forward-looking Index which measures the sentiments of SMEs. The current index tracks
SME sentiments for July 2013 to December 2013.

The Index is based on 3,000 interviews with SME owners and managers, as well as the actual financial performance of SMEs. Five industry sectors are tracked – Commerce/Trading,
Construction/Engineering, Manufacturing, Business Services and Transport/Storage.

Ms Chen Yew Nah, Managing Director of DP Info said SMEs are usually more optimistic about their "Traditionally there is a jump in outlook for turnover and profits among SMEs for Q3 and Q4. The Index tells us SMEs expect sales and profits will improve in the second half, but not as much as previous years. The second half bounce will be much more subdued this year."

"The reasons why the second half may not be as rosy as previous years are many and varied. Global trade has not picked up significantly and the Singapore dollar continues to remain strong. Many SMEs are focussing their attention on productivity improvements as they adjust to higher labour

"In the key areas of business expansion and capital investment, SMEs have an increasingly positive outlook. A positive business expansion score means companies have the confidence to pursue new markets or introduce new products and services which will drive future growth. Increased capital investment indicates SMEs are pursuing productivity improvements in their operations, which should lead to greater profitability in the future," Ms Chen said.

Mr Ho Meng Kit, SBF CEO said, “The pickup in investment and business expansion indicators are encouraging signs that SMEs are making concerted efforts to drive growth by investing in better processes and equipment rather than through manpower increase. This is a positive reflection that SMEs appear to be taking up the various schemes and initiatives introduced by the government under the Budget 2013 Quality Growth Programme.

The Overall Index score for the quarter dipped slightly from 54.80 to 54.10. This score indicates SMEs are still slightly optimistic about their overall performance prospects in Q3 and Q4, but they are well short of being confident.

TURNOVER EXPECTATIONS

The Index score for Turnover Expectations increased from 5.36 in the last quarter to 5.42 this quarter. While an increase is welcome, the level of optimism is well below the same quarter in previous years - 5.70 in 2012, 5.88 in 2011 and 5.98 in 2010. Construction (5.68), Business Services(5.58) and Manufacturing (5.37) are increasingly optimistic about their turnover prospects, while companies in Transport/Storage (5.23) and Commerce/Trading (5.26) are less optimistic this quarter.

PROFITABILITY EXPECTATIONS

Like the scores for turnover, the outlook for profitability is also up but less so than in previous years. The Construction/Engineering sector has seen four consecutive quarters where its profit expectations have deteriorated. This year's Index score of 4.98 is an all-time low for the sector and indicates an expectation that profits will shrink during the next two quarters.

The lower profits reflect the increase cost of doing business, in particular the tight labour market and rising labour costs.

CAPITAL INVESTMENT

Capital investment by SMEs is at its highest point since the middle of 2011 and continues an upward trend over the last five quarters. The increase in capital investment is significant as it reflects the drive by SMEs to improve their productivity.

The tighter labour market has pushed many SMEs into investing in better processes and equipment to achieve higher outputs - all of which leads to improved productivity by SMEs.

The increase in capital investments may also be partly driven by the need to drive turnover growth by increasing their output.

BUSINESS EXPANSION

Business expansion expectations continue to trend upwards as SMEs look for new ways to drive growth with the Index score improving from 5.67 in the last quarter to 5.85 this quarter. A strong business expansion score indicates that SMEs are confident of their strategies to drive growth, which include targeting new markets or introducing new goods and services.