Welcome to the Close Brothers Asset Finance update of the Transport industry, where we highlight a wide range of issues relevant to SMEs in this sector.
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The results are based on the Close Brothers Business Barometer, a quarterly survey of close to 1,000 SMEs across the UK conducted by specialist independent researcher, Kantar, on Close Brothers’ behalf.
Our last Business Barometer results were received just prior to the lockdown and reflect a very different world to the one we now find ourselves in, where no-one has escaped the impact of COVID-19.
Because of that, in this edition we instead focus on our newly-created Business Sentiment Index (BSI), which is a confidence tracker calculated based on business owners’:
- Appetite for investment in their business in the coming 12 months
- Access to finance and whether they’ve missed a business opportunity in the last 12 months due to a lack of available finance
- Views about the UK’s economic outlook
- Thoughts on their likely performance in the coming 12 months
Each measure contributes 25% of the final BSI score.
We’ll analyse both the reasons for the current score, but also take a look back to 2016 and see how the scores have fluctuated and the possible influences that have caused them to go both up and down.
Business Sentiment Index
Following a strong 2018 for Transport’s BSI score, culminating in an all-time high of 34.5 in November of that year, confidence dipped during 2019 and was just picking up again at the start of 2020.
Then came COVID-19 and, unsurprisingly, the outlook changed significantly, with the score falling to 11.25. Interestingly, this is by some distance not the lowest it’s been – that came in August 2017 when it dipped to just 1.5 as the elongated ‘soft’ Brexit uncertainty continued to impact the economy.
Current sentiment in the Transport industry is three times that of the UK national figure and higher than many other industries, indicating how well the sector has weathered the COVID-19 crisis, although it’s by no means been unscathed.
Unpicking the data
Appetite for investment
Starting with ‘investment appetite,’ the number of firms looking to secure funding for investment remained remarkably stable (post-lockdown: 63%; pre-lockdown 60%).
This metric is not about companies wanting loans purely to survive – business owners are looking beyond the immediate and are still confident they want to invest to grow and that it’s in their best interests to do so. It’s encouraging that firm bosses are still ambitious and are thinking beyond the short and medium term.
The next measure that forms an important component of the BSI score looks at whether a company has missed a business opportunity in the last 12 months because of a lack of available finance.
For the last few years there has been a strong supply of cheap finance from a wide variety of sources and typically, during downturns and recessions, the number of lenders in the market reduces and we’d consequently expect the number of firms missing opportunities to increase.
There has, again, been no shift in this metric for the Transport industry, although the number of missed opportunities may increase the longer the economy takes to recover.
Predictably, respondents’ views about the economy contributed most to the dip in the latest BSI figure.
In January 67% of those in Transport who took part in the research felt positive about the prospects for the UK’s economy; by the end of April, this had fallen to 48% as the lockdown measures continued to take effect.
Historically, the UK has proven to have an incredibly resilient economy, with well-established and well-run businesses able to ride out economic storms, and we don’t expect this to change.
Predicted business performance
Every time we commission our research, we ask business owners to predict how their firm is going to perform in the coming 12 months, and the differences between January and April is clear. The number of firms looking to expand has slipped by 18% to 25%, which, under the circumstances, is a respectable result, while those expecting to contract has increased to 20%.
Positively, the dial hasn’t moved much in terms of the number of businesses expecting to closedown altogether, with only four respondents predicting a permanent pulling up of the shutters.
What we take from these results is that expectations have shifted and for many it’s a case of metaphorically battening down the hatches until the storm has passed.
Yes, these are troubled times, but business sentiment has been at these levels before. We must not forget that for nearly two years from April 2018 business sentiment was high and there should be no reason why we can’t return to those levels.
Clearly, there any many dependencies – the world may well be a very different place in some ways, but fundamentally, our economy will run in much the same way as it did before COVID-19.
We remain realistically optimistic about what the future will hold and look forward to renewing acquaintances when the time is right.