business factors index | q2 2013 smes and the march to ... · • business services is 94.9 up from...

Business Factors Index | Q2 2013

SMEs and the march to recovery

Issue 5

Business Factors Index | Issue 5 | Q2 2013 Page | 2

SMEs experience cross sector growth in Q2

In line with wider economic activity the first half of the year has seen positive performances across the five sectors tracked by the Business Factors Index, resulting in the second highest reading in the past six years.

The overall level of the Index for Q2 2013 stands at 105.8 which is a significant increase on the previous quarter at 93.5.

What is the Business Factors Index?

The Business Factors Index is a quarterly report measuring business activity – based on the value of invoices issued – for over 4,000 small and medium sized enterprises in the UK since 2007. The Index provides unique insight into the turnover of businesses operating with an invoice finance facility in place across five key sectors: manufacturing, construction, business services, wholesale and transport.

Manufacturing and construction driving upturnGrowth in the second quarter of the year has been driven by the resurgence in the manufacturing and construction sectors, coupled with strong results from both the transport and wholesale sectors.

Following a disappointing second half of 2012, the business services sector has reversed its decline to post its highest reading since Q2 2012.

• Manufacturing stands at 124.2 up from 116.2

• Construction is 110.2 up from 102.6

• Wholesale is 115.8 up from 101.5

• Transport is 104.9 up from 100.8

• Business Services is 94.9 up from 80.2

SME confidence on the rise but investment for growth still a problem for manyIn conjunction with the data from the client base the Business Factors Index includes an independent study of 450 UK SMEs, which also reflects a more positive trend in confidence and activity for Q2.

Almost a third of business owners say they have seen an increase in orders during the quarter, up from 24% in Q1, and 23% in Q2 2012. As a result 40%, say they have seen an increase in new customers this quarter, up from 38% in Q1 2013 and Q2 2012.

Analysis reveals a dramatic slump in the number of businesses that have cash available to invest in growth from 20% in 2009 to just 2% in the second quarter of 2013.

The latest Business Factors Index reveals four consecutive quarters of increasing activity

2008 2009 2010 2011 2012 2013

124.2

115.8

110.2

104.9

94.9

80

70

90

120

100

130

110

140

150

Manufacturing

Construction

Transport

Wholesale

Business Services

Business Factors Index stats from Q1 2008 to Q2 2013


The long road to recovery – the view from our CEO

Our customers are an excellent indicator of the wider economy because of their industry spread and size. The latest Business Factors Index report offers encouragement for business owners striving to grow in a difficult climate and results mirror the wider economic picture as the UK looks to be making progress on the road to recovery.

On July 25th the Office for National Statistics (ONS) announced growth in Gross Domestic Product (GDP) of 0.6% and increasing output in the construction, manufacturing and services sectors.

Although only a first estimate, the findings suggest the economy has recouped more than half of the 7.2% of output lost during the recession.

Each sector has played its part in this small but positive step forward, however, the manufacturing and construction sectors seem to be the primary forces pushing us towards recovery. According to the official output figures, UK manufacturing grew by 0.4% and construction by 0.9%. The Business Factors Index reflects a similar pattern in relation to relative sector performance.

Bibby Financial Services’ client base is already returning to pre-recession levels of turnover activity, and significantly outstripping 2008 figures in sectors such as manufacturing and construction.

Other business performance indicators for Q2

• ICAEW/Grant Thornton Business Confidence Monitor reports confidence is at its highest level since Q3 2010, forecasting growth by 1.0% in Q3 2013

• The Federation of Small Businesses’ Small Business Index – the FSB’s measure of confidence – reached 15.9 points in the second quarter; 9.6 points higher than at the start of 2013 and the second highest reading since the Index began in 2010

• British Chambers of Commerce report suggests UK export trade in July rose to 118.12 in the second quarter, up 2.9% on the same period last year

• Ernst & Young’s Item Club report in July predicted the UK’s recovery will gather pace from 2014 as exports and business investment take-up the slack in the economy

• Markit/CIPS Services Purchasing Managers’ Index (PMI) rose to 60.2 in July from 56.9 the month before, a stronger showing than economists had expected. Any reading above 50 indicates growth

The UK economy – Q2 results

But it’s still tough out there and for so many businesses, such as traditional family-run firms and new start-ups, there is still a long way to go before they can feel fully confident about their future.

Our Index offers valuable insight into the performance of these small businesses and we know from the close relationships we have with our clients that there are shoots of recovery and this is being seen in the wider economy.

Global rises in business costs have also led more big businesses to seek out UK manufacturers, resulting in the improvement in trade we have witnessed in the second quarter of 2013.

The Government’s focus on funding the housing market via the Funding for Lending scheme and Help to Buy, has driven trade for our construction clients which operate mainly in the finishing trades, as confidence has returned to the large house-builders.

It’s encouraging to see the results of our independent SME survey, which shows that confidence is starting to return, however, news that fewer businesses have cash available to invest in growth threatens hopes for long-term recovery.

The key to the recovery is sustainable growth so while we welcome the results of both our SME Index and the wider economic picture, we need to sound a note of caution to ensure that we remain sensibly realistic for the future.

David Postings UK CEO, Bibby Financial Services


The sector storyManufacturing | Construction | Transport | Wholesale | Business Services

Times Square, West Midlands

Case study: Times Square has been in the heartland of the ceramics industry in Stoke-on-Trent since the 1880s, growing out of the copper engraving tradition and specialising in the distinctive willow pattern print.

The company specialises in designing and printing fine china plates providing unique and bespoke product for the premium end of the market in the UK and abroad. It has also been at the centre of the trade around key royal events in recent years, as an official supplier for merchandise, including the recent royal birth.

By taking on an invoice discounting facility with Bibby Financial Services to support cash flow the business has been able to invest in new equipment and re-build the company which has now increased its full-time workforce. The company has seen a return to growth with an annual turnover of £1.5 million.

Business owner Mark Chilton says: “The arrival of the royal baby has had a significant

Making industry greatThe second quarter of 2013 saw the second highest level of business activity in the manufacturing sector since the Index began in 2007. The sector stands at 124.2, significantly higher than 116.2 from the previous quarter, up from 122.8 year-on-year, and second only to Q3 2012 when it was 129.6.

The success in the manufacturing sector among Bibby Financial Services’ clients has been building steadily since the low point of the recession in 2008. In fact, the first two quarters of 2013 are the best performing Q1 and Q2 for five years.

Bibby Financial Services Commercial Director, Edward Winterton said: “We’ve seen positive signs across each sector but manufacturing SMEs have been the driving force behind performance for some time and the sector remains the best performing of the Index in Q2.

“Many of our clients play important roles in the supply-chain of large UK manufacturers so this performance is indicative of the sector as a whole. If manufacturing trends from previous years continue, the third quarter will perform even better, pointing to an Index record breaking 12 months for the sector and the SMEs working in it.”

The UK manufacturing revivalFollowing an unprecedented slump in performance throughout the recession, British manufacturing recorded its strongest growth in more than two years at the end of Q2 in June – welcome news to the new governor of the Bank of England.

According to the Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI), activity jumped to 52.5 from an upwardly revised 51.5 in May, exceeding previous analysts’ forecasts for a reading of 51.5.

The PMI Index reached its highest level since May 2011, and the average level in the March-June period represented the strongest growth in manufacturing since the second quarter of 2011, when Britain’s economy was expanding.

In addition figures from the Office for National Statistics confirmed manufacturing output surged in June at the strongest pace since the end of 2010.

According to the official figures, manufacturing output rose 1.9% month-on-month in June, following declines in both May and April.

Lee Hopley, chief economist at manufacturers’ organisation EEF, said chemicals, electrical equipment and transport had shown particular strength over the past three months. She said:

“The production data gives further weight to the view that manufacturing activity will continue to gain pace, becoming a more important contributor to growth in the year ahead.”*

*Courtesy of BBC Online News, August 6 2013.

Q2 Index level

124.2Up 8 points on Q1

Client profile: ManufacturingAverage turnover of client in sector: £1.44MTypical client: Engineering, Printing, Plastics manufacturingAverage funding line extended: £130K

bearing on our turnover this year. After a steady Q2 we are now expecting a strong Q3 and a reasonably promising final quarter.

“This will depend on the fortunes of the High Street however and in turn how much money people have in their pockets in the run up to the all-important Christmas season.

“Over the next 12 to 18 months, the price of gold as well as the rate of inflation will be important to us – the former as a result of our royal memorabilia making greater use of the precious metal.”

Manufacturing



V&C (SW) Limited, Wales

Client profile: TransportAverage turnover of client in sector: £1.30mTypical client: Hauliers, CouriersAverage funding line extended: £120K

Building for the futureThe story for Bibby Financial Services’ clients in the construction sector is one of continued growth over the course of six consecutive quarters, going back to Q1 2012.

The Index for the sector in Q2 2013 stands at 110.2, up from 102.6 in the previous quarter and significantly up on 99.6 from Q2 2012.

The sector could in fact be in line for a record year of growth as the first two quarters of 2013 are the highest performing Q1 and Q2 in the sector across the entire Index, going back to 2007.

This continued and sustained rate of increased turnover performance is being driven in part by initiatives announced in recent months to help boost the housing market, such as Funding for Lending and the Help to Buy Scheme.

Karen Rawlinson, Director of Construction Finance at Bibby Financial Services said: “These results are encouraging and much of this growth can be attributed to the house-building recovery. It seems as though the Help to Buy scheme is having a real impact, which is positive.”

Driving sector growthThe transport and haulage sector has been hit hardest over recent years by increasing fuel prices and the flat lining economy resulting in fewer goods requiring transit. But in Q2 2013 the sector looks to have turned a corner, posting its highest Index reading for the past three quarters, and the second highest for more than two years.

The sector stands at 104.9, up from 100.8 in the previous quarter and is higher than both Q4 and Q3 in 2012. However, this is lower than the same period last year when it was 107.7.

The upturn seen among the transport sector clients at Bibby Financial Services can be in part attributed to the revival in other sectors such as manufacturing and construction where increased activity is leading to more demand for goods and products to be moved around the country and Europe. Furthermore, the Government’s decision to scrap the 3p fuel tax increase which was planned for September, will have given operators more confidence.

Q2 Index level 104.9Up 4.1 points on Q1

Client profile: ConstructionAverage turnover of client in sector: £1.93mTypical client: Sub-contractors, Plumbers, Roofers, ElectriciansAverage funding line extended: £90K


TransportConstruction

Chillfast Couriers, North East

Case study: Chillfast Couriers is a family-run business concentrating on the transportation of temperature controlled goods, such as chilled and frozen foods and pharmaceutical products. The North East-based business specialises in offering urgent deliveries to customers across the UK, working 364 days of the year.

Owner, Angela Goundry says: “We hear a lot of reports in the media about funding being made available for small businesses, such as the Funding for Lending scheme, but it doesn’t seem to be making its way from the banks to the businesses that need it most.

“Small businesses need to look elsewhere for funding support to help them grow, such as invoice finance, which is available and offers support and flexibility.”

Case study: Vince McCormick runs V&C (SW) Limited, based in Swansea but operating all over the country providing painting, dry lining and plastering services to major housing developers.

He says: “The first two quarters of 2013 have been excellent and I am confident that the rest of the year will be the same if not better. Business is definitely picking up and confidence within the industry is stronger. I believe the days of low profit and chasing turnover are disappearing.

“Firms need to be realistic in this growth period as an increase in subcontractor wages is inevitable, maybe not this year but I would expect to see a controlled rise in 2014.”



Getting the job doneAfter a challenging 2012 the business services sector within the Bibby Financial Services client base has experienced a welcome upturn.

In the first quarter of the year, many commentators attributed economic growth (0.3 per cent) largely to the services sector. Perhaps importantly, the fluctuating nature of the business services sector among SMEs (highlighted in the Index) serves to underline the difference in performance between the wider services sector (including large multinational financial services) and business services SMEs, measured by the Index.

It is clear to see how the fluctuation in the jobs market has affected performance going back over the past five years as the sector hit its lowest point on the Business Factors Index in Q2 2009, when it was measured at 77.4. Since this point it has achieved a general upward trend. For Q2 2013 the sector was recorded at 94.9, the highest point for three quarters, which suggests the upward trend may continue to pick up through 2013.

Client profile: WholesaleAverage turnover of client in sector: £1.34mTypical client: Clothing wholesalers, Chemical wholesalersAverage funding line extended: £122K


Oak Exports, North West

Case study: When starting the business in 1987, company directors Stuart Dunbar and Richard Harvey saw a gap in the market for exporting British foods to foreign shores. Now, 26 years down the road, Oak Exports is a successful exporter of non-perishable British food and drink across 40 overseas markets including Asia, Australia and the Americas. This year the business is celebrating its tenth year as a Bibby Financial Services client.

Stuart says: “We’re on target for 10% growth. The business has seen an increase in volume in both south east Asia and America and we are confident that we will see additional business developing in emerging markets.

“Our business challenge generally is the UK supply chain. Major manufacturers seem to be adopting a ‘call centre’ attitude and are losing touch with their customer requirements. We’ve been able to see this change and ensure we always have a friendly voice on the end of the phone.”

Change in fortunesAn important indicator of economic success comes from the wholesale sector as retailers make advance orders, forecasting their performance in three to six months’ time. To this extent the Index provides the clearest evidence yet that confidence is starting to return as the sector stands at 115.8, the highest level since Q2 2012 (119.5).

The sector suffered a decline towards the end of 2011, in line with the falling fortunes on the high street which were still being suffered into 2013 with the loss of national chains such as Comet and Jessops. The pattern we have seen since that point is for increasing activity in the sector and a general trend towards pre-recession levels of activity, boosted by rising consumer spending.

Client profile: Business ServicesAverage turnover of client in sector: £1.34mTypical client: Recruitment, IT, CleaningAverage funding line extended: £100K


Maxwell Bruce, Scotland

Case study: Maxwell Bruce is a growing recruitment agency with offices in Dunfermline, Glasgow and Dundee. The business began trading in 1995 and specialises in recruitment outsourcing for sectors such as business support services, engineering and supply chain, construction and scientific.

Roddy Donaldson, Managing Director, says: “We saw an improving second quarter when compared to Q1 with our turnover up 47% across that period, and I’m feeling confident going into the second half of the year. There is a growing sense of business optimism out there and the recent summery weather should help our fortunes in Q3. However, managing costs continues to be important as some are starting to creep up again – not to pre-recession levels, but something we need to keep a close eye on.”

Business ServicesWholesale


UK SMEs fighting their way back over the past four years

Business Factors Index charts four years of business confidence and activitySince 2009 the Business Factors Index has also been surveying a representative sample of 450 UK SME owners, alongside the Bibby Financial Services client base, to understand the changing sentiment in the wider business community.

This data forms the basis of a long-term study which is now focussing on what the past four years have meant for SMEs in terms of the long march to economic recovery and the long-term effects of the slump.

Taking into consideration seasonal changes, there is a clear upward trend from 2009 when barely a quarter, 24%, of SMEs reported new orders to Q2 2013 when a third, 32%, of firms confirmed they have experienced an increase in new orders.

It is a trend that looks set to continue as there is a clear correlation between that data and what the Business Factors Index reports from the Bibby Financial Services client base, where there has been consecutive periods of increased turnover.

Increase in late payment prompts decline in investment for growthThe number of small and medium sized businesses with cash available to invest in future growth has drastically fallen since 2009 due to an increase in customer late payments, according to the study of four years of business activity and sentiment.

The long-term study has revealed how late payment is twice the problem for firms in 2013 than it was four-years-ago and while debtors are taking longer to pay invoices, the number of firms with cash available to invest has slumped from 20%, to just 2%.

The findings have prompted calls for bigger businesses in the UK to face up to their responsibility to support SMEs by ensuring the prompt payment of invoices.

Staff morale under pressure but recruitment picking upFor any business its workforce is one of its biggest assets and as the pressures of economic uncertainty affect the performance of the company, staffing morale and motivation are also challenged.

Looking back at the past four years the data reveals a steady decline in the level of staff happiness at work which could be as a result of the stagnant job market in recent years.

In terms of the rate of decline, in 2009 almost half, 45%, of those surveyed said staff morale was high, compared to just 14% in Q2 2013.

At the same time the level of businesses looking to recruit new staff has been far less predictable, with significant peaks and troughs over the past four years. Following a low of 7% in the fourth quarter of 2011, levels increased to 15%, reflecting the growth seen in the economy in that period.

Levels reached a four year high in December 2012 at 20%, possibly as a result of both the economic impact of the Olympics and the seasonal increase in the run up to Christmas.2010 2011 2012 2013

10%

0%

20%

50%

30%

40% Looking at recruitment

Happier staff

2010 2011 2012 2013

5%

0%

10%

25%

15%

20% Found spare cash to invest in business

Debtors are paying quicker


The view around the UKOrders and confidence rise in the regions

Region 2013 level of funding

1. Scotland £22,553,679

2. North East £52,327,046

3. North West £67,022,767

4. West Midlands £44,360,728

5. East Midlands £25,702,556

6. East Anglia £39,208,059

7. Wales £19,616,330

8. South West £31,331,469

9. London £52,578,045

10. South East £23,297,910

Total £377,998,589

16

2

26

4 41

1

1

37

28

23

18

26

8 17

5

9

27

22

Diagram shows point change (Q1–Q2) in:

SME orders Increase Decrease

SME confidence levels Increase Decrease

1

3

7

2

56

810

9

4

20 14

Business and sentiment in the regionsThe Business Factors Index includes an independent survey conducted throughout the UK to determine regional performance and confidence among SMEs.

Findings from the second quarter of the year suggest East Anglia is performing best when comparing levels of new orders from Q1, with a 41 point increase.

This is closely followed by Wales where there was a 37 point increase. Wales is also the area with the highest shift in confidence from Q1 with a 27 point increase over the course of the second quarter.

However there are areas still very much struggling with the effects of recession such as the North East where there has been a 28 point drop in orders compared to Q1 and a 22 point drop in levels of confidence.

Funding support around the regionsBibby Financial Services is increasing the level of funding being made available in each region of the UK to SMEs in need of specialist and bespoke funding solutions.

Contact Us

To find out more about Bibby Financial Services, our products and services visit www.bibbyfinancialservices.com

Alternatively, you can call us on 0800 91 95 92

Bibby Financial Services – funding SME growth

As the UK’s largest independent invoice finance provider, Bibby Financial Services works with SMEs every day, helping them to maximise opportunities and realise their growth potential.

At present, we provide cash flow funding for over 4,000 businesses, handling an annual client turnover of £3.9 billion and advancing in the region of £370million.

Our expertise is inspired by our industry knowledge and committed teams around the UK. This is demonstrated by our customer satisfaction rates, which currently stands at 93%. Furthermore, over 80% of our customers say that they would refer us to other businesses, helping us to remain the UK’s leading independent invoice finance partner to SMEs across all sectors.

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