A raft of recent surveys suggest a business landscape carpeted in the green shoots of recovery, with SMEs feeling bullish for the year ahead. Bibby Financial Services found two thirds of the 1,000 businesses it surveyed across the UK anticipate growth this year, while the number considered to be in ‘critical distress’ fell for the third quarter in a row.
Begbies Traynor’s latest Business Factor Index, meanwhile, found that while SMEs were not experiencing an enormous upsurge in business, they were nevertheless showing greater activity levels and expressed confidence moving forward. Furthermore, the latest IPA Bellwether study, a quarterly survey of the UK’s top brand marketers, reported last week that 2014 would see the biggest marketing budgets since 2008 – good news for print.
The industry too is showing confidence, according to the likes of Close Brothers Asset Finance and Compass Business Finance, who are seeing a distinct uptick in businesses seeking finance to re-equip and diversify.
Close Brothers has reported seeing print businesses, some who’ve not spent for years, investing, particularly in press replacements, both new and used, and, to a lesser extent, in bindery and pre-press departments. Moves into wide-format and super-wide format are also up, the company has found.
The firm’s David Bunker (see Opinion) feels there is considerable opportunity for investment to replace older assets and in new digital machinery, across the industry.
Compass Business Finance director Mark Nelson agrees. “There are a lot more people looking to upgrade their equipment at the moment, and this has been really growing over the past six to nine months,” he says.
“The £1m-£3m turnover businesses have been under the cosh for a number of years and they are coming out of the woodwork now. They’ve been knuckling down and getting on with what they’ve got. Investments and upgrades have been considered a luxury, compared to the larger multimillion-pound businesses that have been able to continue investing.”
Adding value
Nelson says much of the flurry of investment activity he is seeing is focused on adding value and increasing efficiency. “New technology investments are key right now, either secondhand or new, because people are trying to maximise on efficiency, but also take the opportunity to diversify,” he explains.
Stephen Palmer, Ricoh’s production print director for the UK & Ireland, echoes this. “We are definitely seeing an upturn in the number of people who perhaps in the past only had offset and had been looking to move into digital but resisted because the economy was in the doldrums. They are now coming back to us and telling us the time is right for them to move into new areas.”
Palmer says uplift in new investments, particularly from businesses with turnovers of £2m to £15m, has been most significant in the past four months, which he thinks will result in a 25% hike in the vendor’s UK sales figures in the second half of 2014.
Investments in cut-sheet equipment is broad spectrum, he says, while continuous-form spend is reflecting a move from pure transactional print to more graphic applications, such as DM, educational books and training manuals.
Nelson cites three reasons for this surge of new investments: positive media reports breathing confidence into businesses and consumers; market consolidation giving more room to competitors; and better access to finance, particularly government-backed funding streams.
“A lot of people have looked where they wouldn’t have bothered in the past, to see what is possible. What they are finding is that there are government-backed schemes available, like the Regional Growth Fund (RGF) and Funding for Lending scheme, that are more accessible than they potentially thought they would be.
“What we are seeing is that not everyone is eligible for these schemes, because they are possibly more creditworthy than they thought, but if they get into the buying cycle then more often than not, even if they don’t get the funding, they are more likely to find the funds and make the investment anyway.”
But the government came under heavy fire this month in a report from the House of Commons Public Accounts Committee, which claimed that its “ad hoc lending schemes” lacked coherence and that SMEs were still struggling to gain access to finance, with the latest Bank of England data showing overall lending actually declining.
In print though, it seems the hard work of businesses such as Close and Compass is helping to pump funding from these streams, particularly the RGF, into the industry.
Finance in Partnership founder Murray Booker says more can be done. “Many of the government’s initiatives are still not getting through properly, although the Business Bank will help that when it comes in next year. Of course the RGF is worth having, but is it enough to make people want to spend hundreds of thousands of pounds on a new machine, employ people and take on new risks in the current climate?
“Things are undoubtedly getting better and people are starting to invest, yes, but it isn’t just going to be plain sailing from here on, so we need to be cautious. It has been a hard few years, people have had to reduce costs and streamline their businesses and, before they start letting all that go, they need to be sure it’s sustainable.”
BPIF chief executive Kathy Woodward agrees and says the feeling in the industry is one of “strange optimism”.
“No-one is quite sure where it is coming from,” she says. “People are definitely coming out and investing, some who’ve not upgraded for years, some who’ve simply reached the end of their payment terms and have some flexibility.
“That’s not to say there is wholesale joy across the industry. As we know, some sectors are still struggling and some have invested just to stand still, but others are now looking at really exciting developments for their businesses.
“Yes, the confidence is fragile, but its time to make this a fulfilled prophecy,” she says.
OPINION
The indicators are positive, but caution should prevail
David Bunker, business development director, Close Brothers Asset Finance
Investment is picking up, and this is for a number of reasons. Firstly, our customers appear to be more optimistic, which we are seeing in an increased number of enquiries seeking funds for investment in new and used machinery.Our customers are also reporting that their order levels and enquiries are up, possibly as be a result of slightly higher demand.
Meanwhile, surveys point to a 10-year high in business confidence with the recovery being driven both by business and consumers. Surveys are also reporting that financial performance indicators, such as turnover and profit growth, improved in 2013 along with increased interest in investment. While there is undoubtedly still spare capacity in the print industry, businesses would appear to be willing to take the plunge once again, but in a careful and considered way.
The government’s Regional Growth Fund, which is set to run until 2016, has certainly helped with the rise in this investment. This scheme has, in our view, been very successful in creating jobs and helping SMEs safeguard jobs that can often be lost through lack of investment and outsourcing production.
Close Brothers Asset Finance has supported SMEs throughout the cycle and so we‘ve often seen an increase in activity when high-street banks withdraw support and change their appetite. The level of activity has therefore increased since 2008, but we noticed a shift last year from restructuring and refinance to more new and used equipment investment. We’ve also seen a number of businesses start investing in better technology.
A false dawn is of course a possibility but economic forecasts indicate GDP increasing in January and this trend follows an assessment of positive GDP growth since June last year. So in terms of print, there are considerable opportunities for investment to replace older assets and around digital machinery.
READER REACTION
Is growing industry confidence prompting you to invest?
Colin Harding, production director, Face Creative Services
“We’ve chosen to add to our offering recently to bolster client retention. To be honest, I haven’t noticed a huge amount of optimism, but this is a cyclical trade so things will improve, and if media reports are to be believed, they are already doing that. The main thing is not to bury our heads in the sand. In this industry you can’t work on the theory that you’ll be okay if you stay put, so as well as our Canon imagePrograf investments, we’ll be looking to spend more this year.”
Iain Wyeth, managing director, Wyeth Print Group
“We’ve invested in new kit now because interest rates are still low and I wanted to get my borrowings fixed now. We needed to replace old equipment and, by upgrading, we can reduce production costs. Economic reports are positive, but we are still being squeezed on margins and if interest rates go up I think things could come unraveled again. I don’t think we’ll be investing further this year because it’s important for us to focus on building revenue to compensate for the tight margins we face.”
David Laybourne, managing director, Real Digital International
“We constantly invest whether we’re in a downturn or not, so our recent Screen Truepress purchases are not down to confidence in the economy. For us it’s about the appropriateness of the technology, adapting to a changing market and where we want to position ourselves within that. We have confidence and I do think there is going to be some healthy growth for the country this year – everyone is saying that – but our view is that whatever happens we should keep investing. It’s about continually moving forward.”
