By Daniel Hunter
The latest QCA/BDO Small & Mid-Cap Sentiment Index reveals that companies are increasingly optimistic about economic prospects and adopting a trailblazing attitude to corporate governance as they plan for growth.
This confidence comes despite the economy re-entering recession, and signals a new era of business stewardship.
The index - a joint initiative from accountants and business advisors BDO LLP and the Quoted Companies Alliance (QCA), the independent membership organisation for the UK’s small and mid-cap quoted companies — reveals that optimism in the UK economy has risen sharply from 40.9 in January to 47.3 in April this year, with an even larger increase from 36.6 in January to 46.6 in April among advisory firms to the group, although both scores remain negative (less than 50). Confidence in companies’ individual prospects for the next 12 months has also increased, from 62.4 in January to 66.1 in March, suggesting that small and mid-caps feel better prepared to face the challenges ahead.
“Small and mid-cap quoted companies now seem better able to anticipate the economic climate, which is reflected in the optimism scores of our research. Our clients tell us that they are not seeing the trends identified in the ONS growth statistics and are planning to invest in growth,” Scott Knight, Partner, BDO LLP, commented.
Tim Ward, Chief Executive of the Quoted Companies Alliance said, “Our members are beginning to see brighter times ahead, with more confidence about their ability to secure finance. They need the backing of Government, the banks and market operators to help them deliver the growth in jobs and economic value that have been missing for so long.”
In addition, companies are looking to raise capital - 40% of small and mid-cap companies expect to raise finance in the next 12 months and 38% of companies would consider turning to public equity if the need for finance arose in the coming year. This again shows that there is sufficient confidence among small and mid-cap quoted companies to proactively plan for growth.
This positive outlook also permeates other areas of business management - confidence among the group extends to a firm belief in their own current corporate governance standards, with 92% of small and mid-cap companies calling for a corporate governance code for standard listed, AIM and PLUS-quoted companies that is appropriate to the size and complexity of the company and where it was mandatory to explain or comply.
Scott Knight, Partner, BDO LLP, added, “For such a large number of small and mid-cap quoted companies to actively call for a mandatory corporate governance code shows how confident they are in their current business stewardship standards - many are already choosing to follow a voluntary code, such as the Quoted Companies Alliance’s Corporate Governance Guidelines for Smaller Quoted Companies. Despite re-entry into technical recession, the sector is leading the charge towards a new era of business stewardship in which small and mid-caps feel ready to face the challenges ahead.”
In keeping with these buoyant attitudes to the future, hiring intentions have also become more positive. More than half (55%) of small and mid-cap companies expect to recruit in the year ahead, a 7% increase since January.
Tim Ward, Chief Executive of the Quoted Companies Alliance said, “The engines of growth are telling us that small and mid-caps must focus on delivering revenue and profits and keeping shareholders informed, while facing further regulation. However, cash is the fuel to finance this growth — and we need to see more attention in this critical area.”
The QCA/BDO Small & Mid-Cap Sentiment Index identifies a number of trends exemplifying broad confidence, strong corporate governance and a trailblazing attitude to business stewardship standards:
· Non-executive directors are well-informed enough to challenge management on risk strategies, according to the vast majority (77%) of small and mid-caps when asked about their own boards.
· Nearly half (42%) think NEDs should not be paid in shares - showing how highly the independent judgement of non-executive board members is valued by many small and mid-caps in safeguarding corporate governance standards.
· Investors are engaged or very engaged with the company they are investing in, according to almost two-thirds (64%) of small and mid-caps. This suggests that perceptions of investors as “absentee landlords” are misguided.
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