Business Snapshot Survey – Spring 2010 Findings for the North West Region Steve Lomax – Director Ben Davies – Associate Director Christoph Kőrbitz – Senior Project Manager IFF Research 020 7250 3035
Contents Executive Summary Background, Objectives and Methodology Business Performance Business Trends Business Investment Changes in External Costs Financial Conditions Business Support Business Profile
Executive Summary • The Spring 2010 Business Snapshot Survey (BSS) for the North West region shows some signs of economic recovery and stability in the context of the current global economic crisis. At the same time, the survey reveals that challenging conditions persist for the region’s businesses. • Overall performance has remained stable or improved for a majority of businesses (74%) while a quarter (26%) reported worsening performance in the last 3 months – this is not significantly different to the results of the last BSS in Autumn 2009. Most businesses continue to attribute deteriorating performance to the current economic conditions. • Recent investment levels in key business areas have been solid, particularly in marketing and sales, and in staff training, and a clear majority of businesses expect to sustain their future levels of investment.
Executive Summary • Signs of relative improvements are emerging from the analysis of a number of key business metrics, such as volume of output and stabilising export orders. However, many businesses continue to see a negative trend in terms of their profit margins (34%) and cash flow (32%) over the past 3 months, indicating a tougher competitive environment. • Even so, expectations about future business performance are quite positive with 40% of businesses thinking their performance will improve and only 9% expecting it to worsen. A third of all firms expect higher volumes of output (33%) and higher levels of domestic orders (33%) in the coming 3 months. • Businesses have to accommodate a range of cost pressures and report rising transport costs (53%), energy (43%) and raw materials (38%) costs. Yet, their tentative optimism regarding future performance may help to explain why more businesses (22%) are now confident to pass cost increases on to their customers than previously in Autumn 2009 (14%).
Executive Summary
• One in ten businesses (11%) have sought additional finance or credit – a slightly higher proportion than reported in the last BSS (7%) – and a majority obtained what they needed. However, there is evidence of companies struggling to access finance due to stricter lending rules implemented by banks. Smaller companies were more likely to report greater burdens placed on them by banks compared to larger firms. • Indicating shortages of money supply, two-fifths (42%) of firms reported that their customers delayed payments to them and three in ten (29%) said they had to delay payments to their suppliers. • Around half of the business population are unaware of the NWDA (47%), and just one in five (19%) feel they know at least ‘a fair amount’ about its role in the region. More than two-thirds (70%) of those aware share the view that NWDA is making a positive difference.
Background and Methodology
Research background •
This report presents the findings of the latest Business Snapshot Survey (BSS) for Spring 2010 conducted amongst businesses in the North West region.
•
The research measures business performance on a range of key economic indicators, as well as business confidence, on a quarterly basis. The BSS survey is used to complement the findings from the six-monthly National Business Survey (NBS).
•
IFF Research undertook the survey on behalf of the NWDA, the Regional Development Agency for the Northwest.
Survey Design •
The survey fieldwork was carried out in two weeks between later January and early February 2010. All interviews were carried out via telephone with business respondents in a senior position.
•
In order to ensure a representative sample, quotas were set for region, sub-region, business size and sector.
•
In total, 447 interviews were achieved for the North West region. The survey results discussed in this report are weighted according to the latest IDBR population counts
Sample Profile The table below shows the profile of achieved interviews (unweighted)
Business Performance
Overall business performance has improved
Net score
Spring 2010 (447)
Autumn 2009 (401)
Approaching a third (30%) of all businesses report improving performance – up from a quarter (24%) in Autumn 2009 – while a quarter (26%) are experiencing deteriorating performance (close to the 24% reporting this in the previous Wave)
National Business Survey Winter 2009 North West - Business performance over the past 12 months: • 23% Improved • 36% Remained stable • 41% Deteriorated
Q1. Would you say that, overall, your business performance in the past 3 months has improved, remained stable or got worse? Base = All (447)
Increased sales and customer traffic are the most frequently reported improvements to business performance
A quarter of businesses (26%) with improved performance felt that their sales had increased and around one in seven reported increased customer numbers (15%)
Overall business performance is heavily dependent on trends in Volume of output, Export orders, and Domestic orders, as multivariate analysis demonstrates. These three key areas strongly impact on performance, explaining 61% of the variation of business performance in the multiple regression model. Q2A. Which aspects of your business’s performance have particularly improved or worsened? Base = Respondents who reported their business performance had improved (153)
Small businesses (with 1-9 staff) are more likely to report worsening business performance Reflecting previous BSS and NBS trends, small businesses are more likely to report deteriorating business performance.
1-9 staff
Q1. Would you say that, overall, your business performance in the past 3 months has improved, remained stable or got worse? Base = All (447)
More recently established companies are more likely to report improved business performance Almost half (46%) of establishments in business for fewer than 5 years reported improved performance over the past 3 months. This compares to just over a fifth (22%) of companies that are 10 years or older, possibly indicating that older companies are finding it harder to adapt to the crisis or take advantage of the emerging upturn.
Base = All (447)
Business performance varies quite significantly by industry sector
Businesses in the Transport and communication sector are particularly struggling with 53% reporting declining business performance, as do to a slightly lesser extent businesses in the Agriculture, hunting, and forestry, fishing, mining and quarrying sector (42%). Public sector organisations and those in Financial and business services appear to be performing best, with 46% and 37% respectively reporting improvements. Q1. Would you say that, overall, your business performance in the past 3 months has improved, remained stable, or got worse? Base varies for each sector
Businesses in the North West mentioned a variety of aspects that have improved
“We increased the volume of goods transported and new business, and acquired additional staff.”
“Across all areas, demand and turnover have improved.”
“Sales have risen after a recent influx of orders from Asia, in particular China.”
“Sales have generally improved as a result of the high quality of our products and good promotion.”
Q2A. Which aspects of your business’s performance have particularly improved or worsened? Base = Respondents who reported their business performance had improved (153)
A vast majority of businesses with worsening performance attribute this at least in part to the economic downturn
By organisation size
Fewer companies attribute their declining business performance to the current crisis compared to the previous BSS.
Q2. To what extent do you attribute this specifically to the current economic conditions affecting the UK? Base = Respondents who reported their business performance had deteriorated (93)
The effect of the economic downturn on business performance is felt across all sectors
Two-thirds of firms in the Manufacturing, electricity, gas and water supply sector (67%) and three in five in Transport, storage and communication (62%) fully attribute their recent poor business performance to the current economic conditions. The effect of the downturn is also particularly felt within the Financial and Business services sector and the Wholesale and retail trade sector (58% and 50% respectively). Q2. To what extent do you attribute your deteriorating business performance specifically to the current economic conditions affecting the UK? Base = All those who thought business performance had got worse (93)
Businesses with declining performance report that sales and orders/bookings are down
A third (34%) of businesses whose performance deteriorated reported a decrease in sales and approaching a fifth said that orders and bookings are down (17%).
Q2A. Which aspects of your business’s performance have particularly worsened? Base = All those who thought business performance had got worse (93)
Businesses across the North West report a range of aspects that have deteriorated “Two things have worsened – the amount of work around and the profit we can make on it which is virtually non-existing.”
“Profitability is down. Prices dropped. We do the same amount of work but for 30% less revenue.”
“There has been no demand for our services and people are not spending at the moment.”
“It’s a downturn in the level of business on the whole.”
“We couldn't open the business because of the floods in November and then the snow in December. The weather has affected us a lot. We’re 20% down.”
Q2A. Which aspects of your business’s performance have particularly worsened? Base = All those who thought business performance had got worse (93)
Companies’ optimism about future improvements are consistent with the previous BSS survey
By organisation size
Q3. Over the next 3 months, do you expect the business climate in which your business operates to generally improve, remain stable, or get worse?
A similar proportion (40%) of all businesses expect their business climate to improve as last Autumn (38%). However, this optimism is slightly less pronounced amongst the largest companies (35%).
Respondents across all sectors expect the business climate to stabilise or improve
Optimism about the future is particularly prevalent among companies in the hotels and restaurants sector, where half of businesses expect business conditions to improve (51%). Expectations are also high amongst companies in the transport, storage and communication sector (49%) and the wholesale and retail sector (46%). Positive expectations about the future business climate are largely driven by anticipated improvements in terms of domestic orders and cash flow, as multiple regression analysis shows. Q3. Over the next 3 months, do you expect the business climate in which your business operates to generally improve, remain stable, or get worse? Base = All (447)
Business Trends
The negative trend for profit margins and cash flow continues but output volume is stabilising Net score Net score Spring Autumn 2010 2009
Higher
Same
Lower
Domestic orders
15%
36%
25%
-10
-15
Export orders
3%
9%
2%
+1
+1
Numbers employed
9%
72%
15%
-6
-7
Volume of output
29%
39%
25%
+4
-12
Prices charged to customers
12%
65%
17%
-5
-18
Staff costs
16%
70%
12%
+4
-1
Profit margins
13%
39%
34%
-21
-31
Cash in the business (cash flow)
13%
42%
32%
-19
-18
Not applicable / Don’t know answers not shown in the table
Reflecting the effects of the financial crisis, there are more businesses reporting lower profit margins (34%) and cash flow (32%) than those that reported higher levels. Domestic orders and employment numbers have also deteriorated in this quarter. At the same time, though, there is a net surplus of businesses reporting higher levels of output volumes (+4%). Q4A. Excluding seasonal variations, what has been the trend during the past 3 months for each of the following...? Base = All (447) Net scores are derived from subtracting those who responded with 'lower' from those who said 'higher‘.
The net balance for domestic orders has been negative for all but one industry sector Overall, more businesses are reporting lower domestic order levels than higher levels in the past 3 months. However, the financial and business sector reports a positive net balance (+3%).
Q4A. Excluding seasonal variations, what has been the trend during the past 3 months for each of the following...? Domestic orders. Base = All (447)
More companies are expecting higher levels of activity in all business areas in the future Net score Net score Spring Autumn 2010 2009
Higher
Same
Lower
Domestic orders
33%
35%
9%
+24
+18
Export orders
4%
8%
1%
+3
+2
Numbers employed
13%
77%
6%
+7
+5
Volume of output
33%
48%
10%
+23
+18
Prices charged to customers
13%
73%
6%
+7
+3
Staff costs
15%
76%
5%
+10
+7
Profit margins
22%
48%
14%
+8
+4
Cash in the business (cash flow)
27%
47%
13%
+14
+9
Not applicable / Don’t know answers not shown in the table
There are encouraging signs of growing business confidence about the coming 3 months, despite the recent challenges in many areas. Domestic orders and output volume are anticipated to increase for a third of businesses (both 33%), which may be related to businesses’ bullish expectations for improvements in cash flow (27% cf. 13% over previous 3 months) and increased profit margins (22% cf. 13% in previous 3 months). Q4B. And now thinking about the next 3 months, what are the expected trends for...? Base = All (447) Net scores are derived from subtracting those who responded with 'lower' from those who said 'higher'
Expectations about future levels of domestic orders are optimistic in most industry sectors
There is a positive net balance in all industry sectors (except in Manufacturing, electricity, gas and water supply), that is to say more companies expect higher, rather than lower levels of domestic orders in the future.
Q4B. And now thinking about the next 3 months, what are the expected trends for...? Domestic orders. Base = All (447)
Current output levels are still below capacity for just over half of all businesses Just over half of businesses (56%) report that they are working below a full rate of operation, down from 66% during the last BSS in Autumn 2009. Medium sized companies with 1049 employees are most likely to report output levels below capacity (61%).
By organisation size
Q5. Is your present level of output below capacity, that’s to say are you working below a full rate of operation? Base = All (447)
Most industry sectors report working below their capacity
Transport, storage and communication companies are the most likely to report working below capacity (73%), reflecting the trend of poor overall business performance in this sector. By contrast, a majority of businesses in agriculture (55%) and the wholesale and retail trade (52%) say they are not working below capacity.
Base = All (447)
Business Investment
Recent investment levels are stable or increasing in many business areas Net score Net score Spring Autumn 2010 2009
Higher
Same
Lower
Buildings
14%
44%
11%
+3
-4
Plant and machinery
13%
43%
9%
+4
0
Product and process development
13%
44%
6%
+7
4
Marketing and sales
26%
43%
15%
+11
12
Training and retraining
17%
57%
10%
+7
3
On balance, overall investment in the business
28%
48%
14%
+14
6
Not applicable / Don’t know answers are not shown in the table.
Around a quarter of businesses reported higher overall investment levels (28%) and investment in marketing and sales (26%), while only a minority reported lower investment levels in any key business area. However, many companies are still reluctant to significantly increase capital investment in buildings, plant and machinery. Investment trends have a relatively weak impact on overall performance in the multiple regression model, with external factors playing a much greater role in determining performance. Q6A. What has been the trend during the past 3 months in relation to your investment in each of the following...? Base = All (447)
Recent overall levels of business investment are strong and growing, especially among larger organisations Indicating improved business confidence, the proportion of firms reporting higher overall investment (28%) has increased since the last BSS in Autumn 2009 (22%). Larger companies were more likely to have increased their overall level of investment.
By organisation size
Q6A. What has been the trend during the past 3 months in relation to your investment in each of the following...? Overall investment in the business. Base = All (447)
Future investment trends indicate sustained levels of investment Net score Net score Spring Autumn 2010 2009
Higher
Same
Lower
Buildings
19%
46%
6%
+13
-3
Plant and machinery
13%
45%
6%
+7
-2
Product and process development
14%
50%
3%
+11
+8
Marketing and sales
31%
46%
6%
+27
+21
Training and retraining
27%
54%
4%
+23
+6
On balance, overall investment in the business
33%
52%
6%
+27
+14
Not applicable / Don’t know answers are not shown in the table.
A third of all companies expect to invest more into their business overall (33%) and in marketing and sales (31%), and just over a quarter plan to invest more in training (27%) which is an encouraging indication of long-term confidence. Future plans for capital expenditure seem more modest, but still higher for the coming 3 months compared to the previous quarter.
Q6B. Thinking about the next 3 months what are the expected trend in relation to your investment in each of the following...?
Base = All (447)
Future investment plans are more optimistic than previously, with larger companies driving this trend A third (33%) of businesses expect increased overall investment in the next 3 months – up from a quarter (24%) previously. Confidence about future levels of investment was highest amongst larger companies (43%)
By organisation size
Q6B. Thinking about the next 3 months what are the expected trend in relation to your investment in each of the following...? Overall investment in the business Base = All (447)
Changes in external costs
Rising transport, energy and raw material costs are driving up the cost pressures for many firms
Base = All (447)
Energy costs and transport costs are the factors placing the most significant upward cost pressure on businesses
Base = All businesses where more than one cost has increased
More companies are now passing cost increases on to their customers
Base = All respondents where any cost area has increased
Financial conditions and resources
The proportion of businesses seeking additional finance or credit has increased slightly
By organisation size
11% of businesses reported having sought new finance or new lines of credit – a slightly higher proportion than previously found. There are few differences by size of business.
Q9. Have you sought new finance or new lines of credit for your business in the past 3 months? Base = All (447)
Businesses in two sectors were particularly likely to seek additional finance or credit
Only a small proportion of businesses have sought additional finance but those in the Construction (25%) and the Transport, storage and communication sectors (21%) were more likely to have done so.
Base = All (447)
Businesses primarily use overdrafts and bank loans in order to access additional finance
Base = All businesses that sought finance (56)
A majority of companies are successful in securing additional finance
Q10. Did you successfully obtain the finance you were seeking? Base = All businesses that sought finance (56)
At the same time, some businesses were struggling to secure additional finance from their banks
“Because the recession has been around for two years I’ve no paperwork to show the bank. So they refused me a loan, and the overdraft.” “The problem is that banks are asking for too much security now.”
“It’s about cost. It is too expensive.”
Q11. What problems, if any, did you have in accessing this finance? Base = All that encountered problems seeking finance (13)
Compared with previously, a similar proportion of businesses report issues with payments and cash flow
Base = All (447)
Smaller companies are particularly likely to delay payments to their suppliers
By organisation size
Q13. Have you found it necessary to delay payments to your own suppliers over the past 3 months? Base = All (447)
A third (29%) of businesses reported they had to delay payments to their own suppliers – this tendency decreased as company size increased with 32% of smaller companies, 21% of medium companies and only 11% of larger companies delaying payments to suppliers.
Delayed payments to suppliers are particularly prevalent within the Construction and Transport sectors
Half (50%) of businesses in Construction and 44% in Transport, storage and communication report they had to delay payments to their own suppliers.
Base = All (447)
More businesses report banks placing greater burdens upon them than banks becoming more supportive
By organisation size
One in eight (14%) reported that their bank placed greater burdens on their businesses, a similar proportion to that previously found. This was most likely to be reported by companies with fewer than 10 employees (16%).
Q14. Thinking now about your relationship with your bank, would you say that over the past 3 months your bank has generally...? Base = All (447)
Businesses’ relationship with their bank varies considerably by industry sector
Hotels and restaurants (33%) and organisations in the Wholesale and retail trade (22%) were significantly more likely to report their banks placing increased burdens.
Base = All (447)
Business support
Knowledge about the role of North West RDA appears to be limited to about half the business population Just under half (47%) of all businesses in the North West felt they know ‘nothing at all’ about the NWDA, while 34% knew ‘not very much’ and a fifth (18%) ‘a fair amount’. Smaller companies were more likely to know ‘nothing at all’ about the NWDA.
Base = All (447)
Businesses have a positive view of the impact the North West RDA is making on the region's economic development On balance, a greater proportion of companies aware of the NWDA (70%) agree that they are making a positive difference in the region compared to those who disagree with this view (8%).
Q16. To what extent do you agree with the following statement: “The North West Regional Development Agency is making a positive difference in the region in terms of the region’s economic development and regeneration.” Base = All who know a great deal or a fair amount about NWDA 96)
Business profile
Size of businesses
S3. How many employees are there at this workplace? Base = All (447)
Turnover of businesses
Base = All (447)
Sector of businesses
Base = All (447)
Age of businesses
Base = All (447)