Business conditions dip for Aussie SMEs: NAB survey


New data shows business conditions, profit growth and cash flow of Australia’s SMEs slipped in the March quarter

Business conditions dip for Aussie SMEs: NAB survey
Business conditions dip for Aussie SMEs: NAB survey
May 18, 2010

Business conditions, profit growth and cash flow of Australia’s SMEs slipped in the March quarter, although profit outlooks remain extremely positive over coming months.

National Australia Bank’s (NAB) SME Quarterly Survey found business conditions of SMEs fell 8 index points to 5 points in the March quarter, similar to conditions six months ago.

This was driven by reduced customer confidence, seasonality and reduction of government stimulus.

BUSINESS CONDITIONS

NAB Business Executive General Manager Geoff Greer says while business confidence has corrected, SMEs have a positive 12-month profit outlook.

"SMEs reported a fall in customer confidence for this quarter which coincides with a wind-back of government stimulus spending and seasonality. Business conditions also fell post-Christmas and this was largely due to a combination of these events," Greer says.

"Between the June and December quarters last year, customer confidence and demand increased very rapidly by 44 points for SMEs. Many said at the time it was like watching a recovery in fastforward so a correction towards more realistic growth and confidence is not surprising," he says.

"Whilst locally there is an optimistic outlook, the Global recovery is still quite fragile and there is the potential for contagion as a result of the financial problems in Greece and Europe."

All states recorded a decrease in SME business conditions, with the Australian average decreasing 8 points to 5.

In Queensland (-3) and Western Australia (-2), conditions fell back into negative territory, similar to the September 2009 quarter, while conditions decreased from 31 to 12 in South Australia, Victoria 17 to 4 and New South Wales fell more slowly, by 2 points to 10.

Health (22 index points), property services (18) along with finance and insurance (15) were the best performing SME sectors for the quarter.

The biggest improvements were seen by construction SMEs, which experienced a significant jump from 11 to 14.

On the down side, conditions in retail fell from zero to -12.

BUSINESS CONFIDENCE

When it comes to business confidence, levels among SMEs remained stable at 16 points for the June quarter.

By industry, property services (27), construction (15) and finance (19) SMEs were the most confident.

Retailers and health were the least optimistic for the quarter.

"The health sector is countercyclical and always benefits from investment during difficult trading periods," Greer explains.

"With the stabilisation of business confidence, and general economic turnaround, the health sector will often demonstrate an opposing trend bringing it back into alignment with the general economy. There was also concern about potential changes to the health insurance rebate," he says.

Demand (28 percent), cash flow (21 percent) and ability to access qualified staff (20 percent) were highlighted as key issues by SMEs.

Rising interest rates (11 percent) and access to credit (8 percent) suggest borrowing costs was an area of concern for SMEs.

CASH FLOW

Average state cash flow for SMEs deteriorated from 11 to 2 index points during the March quarter, according to NAB.

New South Wales was the only state with an improved cash flow, up from 6 to 13 points.

By industry, finance (35) and health (32) reported very strong cash flow positions, whilst unsurprisingly, retail decreased from -5 to -20 impacted by seasonality.

In terms of the main drivers of cash flow, SMEs highlighted a weakening, but positive, contribution from sales, reflecting falling demand from 19 to 4, as well as increasing competitive pressures manifested in terms of a deteriorating working capital position.

PROFIT GROWTH

SMEs reported muted profit growth in the March quarter, with NAB’s SME profit index down 13 points to 1.

The 12-month profit outlook for SMEs is very optimistic at 34 points, slightly lower than expectations last quarter (35).

Profit outlook across all SME segments was best for finance, health and property services SMEs.

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