SMEs worried over the next 6 months

Singapore businesses are less confident in the months ahead as profit expectations have plummeted by 15.9%.                                                                                                                                                              

According to a study by the Singapore Business Federation, turnover expectations for the next 6 months decreased by 6.1% to 5.52 index point. The year on year drop is even higher, decreasing by 9.3% from an index of 6.03 a year ago.

A downward trend is observed in every sector, with the Manufacturing sector recording the largest drop of 11.4%. Reflecting the weaker order books of the Manufacturing sector, more SMEs in the Transport / Storage sector are now expecting to see fewer goods shipped in the next 6 months.

In Commerce / Trading, traditional festive spending leading up to Chinese Lunar Year in the first quarter of 2012 has helped improve their turnover expectations somewhat.

PROFIT
In tandem with the decrease in turnover expectations, profit expectations for the next 6 months have also softened, decreasing by 5.7%. At 5.23, the overall outlook is the lowest overall score for profitability since the inception of this Index.

Manufacturing led the drop across all sectors with a 9.6% decrease, retreating below the halfway score point to 4.89. Sandwiched between reduced revenue and higher operating cost, more SMEs in this sector expect thinner margins in the next 6 months.

The degree of profit decline is lower in the Commerce / Trading sector, reflecting the more moderate decline in turnover expectations.

Year on year, the Business Services sector observed the biggest drop in profit expectations, deceasing by 15.9% to 5.36. High operating costs, especially for manpower and rent – is expected to affect a higher proportion of SMEs in this sector.

BUSINESS EXPANSION
The number of SMEs seeking to expand their businesses in the next 6 months has decreased by 3.8% to 6.08.

With more SMEs feeling the strain of lower profits in the face of rising costs, more SMEs are now holding back on their investment plans to expand their businesses.

In the Business Services and Commerce / Trading sectors, a number of SMEs are now looking at expanding their product and business lines, exploring new opportunities and revenue lines amidst a tightening market.

HIRING
Fewer SMEs continue to hire in the next 6 months. Overall hiring expectation decreased by 5.3% for the next 6 months. Year on year, the Index score for hiring expectations declined by 9.0% to 5.55.

On a positive note, a number of SMEs are continuing with their plans to fill up their existing vacancies. However, with the lower turnover expected, the number of new positions created in next 6 months is anticipated to decline. This trend is most visible in the Manufacturing and Transport / Storage sector, where the higher drop in turnover expectations in these two sectors have led to a corresponding drop in hiring expectations.

CAPITAL INVESTMENT
Overall expectation towards capital investment has decreased by 5.3%. Across the four sectors, there are still a number of SMEs that are currently looking to invest in machinery, equipment and IT in the next 6 months. In part, this is in response to the decision of some of these SMEs to expand beyond their current scope of business to explore new potential opportunities.

It is also believed that some of these SMEs may be tapping on the PIC scheme to undertake new capital investments to renew or expand their existing resources and facilities. This will help them to enhance their productivity in face of rising operating cost and stiffening competition.

CAPACITY ULTILISATION
More SMEs shared that they will be operating at below their optimal level in the next 6 months.

The utilisation expectation sub-indices dipped below 7 in the current reading.

A reading of 7 means that a company is operating at 100% capacity.

The utilisation level of SMEs in the Manufacturing and Transport / Storage sector in expected to decline below optimal level in the next 6 months if the current economic uncertainty continues.

With Manufacturing generally playing the role of the lead indicator amongst Singapore SMEs’ performance, the dip suggest that further deterioration may be expected in the other 3 sectors in the coming months. Already SMEs in Transport / Storage are forecasting lower level of activities in the next 6 months.

ACCESS TO FUNDING
Across the board, most SMEs expect their ability to access external funding to be harder in the next 6 months.

Access to funding expectations are at their most negative level since the Index began in the first quarter of 2010. An Index reading of below 5 points indicates more SMEs have expressed difficulty to access external funding in the months ahead.

With weaker global economic performance, banks are relooking their loan portfolios and risk exposure. For manufacturing SMEs, weaker order books are expected to hinder those from this sector looking for fresh debt financing.