Pricing pressures are a concern for SMEs

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Irish SMEs are showing a strong ability to weather the current storm with improving activity levels, increasing operating profits and a positive outlook for the rest of the year.

That’s according to Linked Finance’s latest SME Confidence Index, based on research by Behaviors & Attitudes.

Pricing pressures pose a challenge, with 42% of companies charging higher prices in Q2 2022, an increase from 39% of respondents in Q1 2022 and 23% in Q2 2021.

Eurozone inflation hit a new record high of 9.1% in August and Irish SMEs are seeking to recoup their higher production costs by raising prices, with only one in three SMEs (30%) reporting declining profits.

This suggests an ability to maintain margins and pass on input cost increases to customers.

The survey also revealed that 82% of companies believed they had performed better or were in line with expectations in the first half of the year: 44% cited better or much better performance than expected, 38% the same, and only 18% of SMEs said performance was better. worse than expected.

Looking to the second half of the year, 62% expect performance to be better than the first half, and 66% of companies report higher or the same operating profits in the second quarter of 2022 compared to at the same time last year.

Overall, the Business Optimism Index score rose slightly to 62 (out of 100) in the quarter, after dropping 7 points from 68 to 61 between Q4 2021 and Q1 2022.

Similar to previous results, the latest index results suggest that the recovery is slower for micro-SMEs (those with 1-3 employees). These companies show the lowest level of increase in operating profits compared to their peers. 25% of micro-SMEs report higher profits, compared to 38% for transitioning SMEs and 48% for medium/large SMEs (more than 10 employees).

Micro businesses also report significantly lower optimism for the future, with only 38% anticipating a better performance in the third quarter, compared to 47% for large SMEs.

The retail and wholesale sector was the slowest to recover, with only 31% of businesses performing better in the second quarter. Retailers also appear to be doing their best to recoup higher input costs, with prices rising 64% in the quarter versus 42% for the overall business.

There are indications that exporters are coming under increasing pressure, reporting a lower score of 58 on the overall confidence index, compared to a higher score of 62 for indigenous businesses. Rising shipping costs and growing Brexit-related bureaucracy are possible reasons for this discrepancy.

Niall O’Grady, CEO of Linked Finance, said Irish SMEs have proven resilient in the face of the continuing challenges of rising inflation and the economic ramifications of war in Ukraine.

“The major challenge for businesses, especially micro-SMEs and those operating in the retail sector, is to find ways to manage the impact of soaring input costs, a problem that is likely to grow. worsen during the winter period when the use of expensive energies will increase,” Mr O’Grady said.

“We are also seeing some divergence between the experience of SMEs selling in Ireland and those focusing on exporting, with exporters less optimistic about the outlook and beginning to see that the pressures of Brexit and soaring costs of shipping potentially outweigh sustained demand.”

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