SMEs feeling the pinch

Turnover in the first six months is more or less stable but profits are down as a result of rising costs, entrepreneurs told a survey by the Chamber for Small and Medium Enterprises - GRTU.

The survey results, released yesterday during a forum for SMEs, show that while 64 per cent of respondents said that their turnover remained the same or increased by over 30 per cent, 44 per cent said their profits were down by more than 30 per cent in the first six months of this year.

Twenty-six per cent reported a corresponding increase in profits and 30 per cent said their profit margin remained the same. More significantly, 76 per cent expect the situation to remain unchanged or worsen (29 per cent). Twenty-four per cent are expecting an improvement.

The survey is run quarterly and was carried out with a sample of 290 entrepreneurs from among the GRTU members. Roughly, 58 per cent come from the import or retail sector and 27 per cent are in services, the rest being scattered in different sectors.

Speaking to The Times, GRTU director general Vince Farrugia said the results could have been worse, especially with regard to turnover, considering that in the first six months of this year there was the changeover to the euro and an election. "However, the result confirms a trend we have been talking about in the past two years, which is that profits are being eaten away by rising costs," he said.

A large majority of respondents, in fact, placed rising running costs, particularly those related to the utilities surcharge and fuel costs, as the main factors eating into their profits.

"The situation is that businesses are absorbing much of the increasing costs, which are not only coming from fuel prices and the surcharge, but also from the increasing cost of bureaucracy, because they're afraid to pass it on to the consumer and kill the turnover," Mr Farrugia explained. The result, obviously, would be reduced profit.

"We are calling for more incentives that help keep the economy buoyant," he continued, referring to initiatives such as the tax cuts on energy-efficient appliances and incentives on IT. The incentive scheme on energy-efficient white goods was singled out in the survey as a positive initiative that helped boost sales.

The results come in the wake of the latest fuel price hikes, which took effect on Monday. The increases were criticised by both the GRTU and the General Workers' Union, which both complained about the lack of consultation and urged the government to mitigate the cost by lowering fuel taxes.

Finance Minister Tonio Fenech said on a talk show programme on the same day that the government had foreseen this year's situation and had catered for it in the last budget through a special cost of living increase and significant tax cuts. He also said the next budget would be further addressing the present situation.

At the seminar yesterday, Mr Fenech mentioned a major exercise being undertaken by the government to review and simplify legislation pertinent to the services sector.

He announced that the government intended making the financial reporting requirements for SMEs simpler than they are for larger companies, reducing the bureaucratic burden as well as the cost.