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SMEs under the hammer as cash flow and profitability stalls

Jun 23, 2009

Confidence in Queensland and Western Australia hardest hit

Sydney, 23 June 2009 – A significant decline in business confidence, falling credit growth and a significant increase in working capital requirements shows conditions will worsen for the small and medium-sized enterprise (SME) segment over the next six to 12 months, a new report into Australia’s SME market has found.

The joint J.P. Morgan / Fujitsu Consulting Australian SME Market Report, (Volume 3, June 2009) provides an up-to-date snapshot of the state of the SME sector. It highlighted that SMEs have become increasingly pessimistic about their own profitability and declining staffing levels, which will contribute to an overall increase in unemployment. Borrowing by the sector is predicted to fall at a time when they have an urgent need for working capital support.

“As we forecast last year, the SME sector has come under increasing pressure as the domestic economy has slowed. With declining national capital expenditure intentions, the trickle-down effect of less investment from larger corporates continuing to impact SMEs profitability cannot be underestimated. The implications for the SME segment are decidedly negative,” said Scott Manning, J.P. Morgan’s Banks Analyst.

“These outcomes around the SME sector are at the centre of our concerns around escalating provisioning levels for the Australian banks,” he said.

Fujitsu Consulting’s Executive Industry Director, Martin North, said the small business sector is regarded as the engine of the economy.

“The temperature of the SME sector is a very important one to take in the current environment,” he said. “Our research highlights that over the last few months the small business sector has come under significant pressure as a result of the global financial crisis and related changes in the local economy.

“This has manifested itself in SMEs having difficult access to credit, significant cash flow issues as payments from customers have blown out from less than 40 days to over 50 days, and there is a further fall in business confidence,” he said.

Fujitsu Consulting’s data shows 50 per cent of surveyed ‘growing’ small businesses indicated either an intention to decrease staff or reduce overtime. This figure rose to 60 per cent of ‘mature/stable firms’.

“The SME business engine is misfiring, and as a result the crisis of confidence translates into intent to trim employment or to reduce employee’s working hours,” Martin North said.

A deterioration in confidence levels has continued across 2008 and 2009 for most sectors, with the largest declines seen in construction, transport and storage, mining and hospitality.

There are significant variations across the States, with confidence crashing in Queensland and Western Australia because of the resources slow down, in contrast NSW and Victoria have not deteriorated as deeply.

Other key findings of the detailed review of the SME market include:

• The big four banks have the lion’s share of secured commercial SME lending. Westpac/St.George bank have a combined market share of 24 percent, followed by Commonwealth Bank/Bank West with 22 per cent. Both eclipse the previous market share leader NAB, which holds 21 per cent. ANZ has the lowest market share of the major banks with 19 per cent;
• The outlook for SME credit growth is not inspiring, driven by a focus on demand for working capital rather than business investment; and
• SME write-offs have consistently escalated with 2.21 per cent, 2.19 cent and 1.98 per cent of secured line of credit, residential and commercial loans respectively written off.

In a separate update on SME banking relationships, Fujitsu Consulting’s research found that whilst overall satisfaction levels continue to improve, price and availability of credit have now become the undisputed drivers of concern in 2009. In addition, 57 per cent of customers would consider switching banking relationships under the right conditions.

About J.P. Morgan
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of US$2.2 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan, Chase, and WaMu brands. Information about JPMorgan Chase & Co. Information about the firm is available at www.jpmorganchase.com and www.jpmorgan.com.au

About Fujitsu Australia and New Zealand
Fujitsu Australia and New Zealand is a leading service provider of business, information technology and communications solutions. Throughout Australia and New Zealand we partner with our customers to consult, design, build, operate and support business solutions. From strategic consulting to application and infrastructure solutions and services, Fujitsu Australia and New Zealand have earned a reputation as the single supplier of choice for leading corporate and government organisations. Fujitsu Consulting is the management consulting arm of Fujitsu Australia and New Zealand with over 100 Consultants in Australia and New Zealand. Fujitsu Consulting provides a range of professional services to the public and private sector, in both the business and technology domains. It has a numbers of industry practices including Financial Services, Telecommunications and Media, Retail, Health, Education and Justice. Fujitsu Australia Limited and Fujitsu New Zealand Limited are wholly owned subsidiaries of Fujitsu Limited (TSE: 6702). For further information, please visit: au.fujitsu.com or nz.fujitsu.com

About Fujitsu Limited
Fujitsu is a leading provider of IT-based business solutions for the global marketplace. With approximately 160,000 employees supporting customers in 70 countries, Fujitsu combines a worldwide corps of systems and services experts with highly reliable computing and communications products and advanced microelectronics to deliver added value to customers. Headquartered in Tokyo, Fujitsu Limited (TSE:6702) reported consolidated revenues of 5.3 trillion yen (US$53 billion) for the fiscal year ended March 31, 2008. For more information, please see: www.fujitsu.com.