EXPORTER SENTIMENT INDEX February 2018

1 | ESI Feb 2018

Confidence among Australia’s small business exporters continues to grow strongly, with the latest Exporter Sentiment Index now at 148, 10 percentage points higher than one year ago.

More than half of small business exporters (58 per cent) now say that they are in a better financial position compared with a year ago. This optimism about business performance means that almost half (47 per cent) also expect to recruit in the next 12 months.

These positive results are a testament to the Turnbull Government’s ambitious trade agenda and our small-medium business tax cuts to drive economic growth and create jobs, through reducing red tape and creating opportunities for small business exporters.

Opportunities are being created by new Free Trade Agreements in our key export markets, and the recent launch of our new Defence Export Strategy and Beyond Tourism 2020 strategy will bode well for future exports.

These are the types of opportunities that will help Australia's small business exporters grow their overseas revenue and create jobs, for the benefit of all Australians.

The Hon. Steven Ciobo MP Minister for Trade, Tourism and Investment February 2018

2 | ESI Feb 2018

About the Exporter Sentiment Index Efic conducts a bi-annual research program to track sentiment among Australian small to medium enterprise (SME) exporters with 1–200 full-time employees, and up to $100 million in revenue, from a range of industries, and representing all Australian states and territories.

This report outlines the findings from the third wave of tracking conducted in the 2017–2018 financial year. Research was administered as an online survey from 1 November to 1 December 2017.

The research involved a sample of 1,124 exporting Australian SMEs, sourced from the Efic customer relationship management (CRM) database and a business research panel.

Comparisons have been made to the first two waves of tracking, which were conducted in November to December 2016 and April to May 2017.

Sample by 2016 business revenue

1%

Up to $250K

$250K to less than $10m

$10m to less than $100m

Over $100m

21%

61%

12%

3 | ESI Feb 2018

How the Exporter Sentiment Index is calculated The Exporter Sentiment Index is expressed as 100.0 plus the unweighted average of the difference between the percentage of respondents who give favourable answers and those who give unfavourable answers to key business sentiment questions (referred to as net balance).

The Sentiment Index is based on six questions:

• current financial position;• future financial position;• future economic conditions;• future overseas sales revenue;• future profitability of international business; and • future employee numbers.

4 | ESI Feb 2018

Confidence among small business exporters is high

148(up from 145 in July 2017)

Exporter Sentiment

Index

Expectations for future economic conditionsnext 12 months

Expectations around future sales revenuenext 12 months

Future financial situationnext 12 months

Current financial situationcompared to 12 months ago

Profitability of international businessnext 12 months

Expectations around growth in full-time employeesnext 12 months

+33%(+31% in July 2017)

+56%(+52%in July 2017)

+57%(+56% in July 2017)

+49%(+45% in July 2017)

+52%(+48% in July 2017)

+39%(+40% in July 2017)

5 | ESI Feb 2018

Business sentiment continues to improve…The February 2018 Exporter Sentiment Index shows that business sentiment among Australian SME exporters continues to rise, with five of the six sentiment measures higher than the last wave.

Exporters seeing an improvement in their current financial situation (from 12 months ago), and those with positive expectations around future sales revenue, were the main drivers of this positive result.

Sentiment around expectations of growth in full-time employees was the only indictator to fall, down just one percentage point from July 2017.

The Exporter Sentiment Index is now at 148, up from 145 in July 2017, and 10 points higher than the 138 in February 2017.

Exporters that currently work with Efic had above average business confidence (an index of 170), perhaps due to Efic’s financial support allowing them to access opportunities that may otherwise have been out of reach.

Businesses in the Information, Media and Telecommunications sector (an index of 160), medium-sized businesses with 20+ employees (an index of 156), and those that had past contact with Efic (an index of 155), were also more confident on average.

As with previous waves, smaller businesses with revenue up to $250k (an index of 134), and those in the Professional, Scientific and Technical Services sector (an index of 139), continue to be less confident about the future.

Confidence about the future

Exporters currently working with EFIC

Information, Media and Telecommunications sector

Professional, Scientific and Technical sector

170

160

139

6 | ESI Feb 2018

…with small business exporters positive about the future… Expectations among Australian SME exporters about economic conditions in the next 12 months continue to be positive, with a net balance of +33 per cent (up 12 percentage points from February 2017).

Related to improved expectations, more than half (58 per cent) say that they are in a better financial position now compared to 12 months ago (net balance of +49 per cent, up 11 percentage points from February 2017).

Fewer exporters said that they were also worse off now, as compared to 12 months ago (9 per cent, down from 13 per cent in February 2017).

This positive outlook is expected to continue, with 93 per cent of SME exporters confident that their future financial position will be the same or better in the next 12 months (net balance of +57 per cent, up 8 percentage points from February 2017).

…as employment growth expectations remain steady. Confidence in future economic conditions and business performance means that almost half of Australian SME exporters (47 per cent) expect to grow their employee numbers in the next 12 months (net balance of +39 per cent, up 5 percentage points from February 2017).

Businesses that were currently working with Efic (67 per cent) were particularly confident, which perhaps reflects the impact that Efic's financial support can have on an SME exporter’s ability to grow their business through increased access to new export opportunities.

In contrast, those smaller businesses with revenue less than $250k felt that they were less likely to increase their employee numbers in the next 12 months.

47% of SME exporters expect to increase employee numbers

over the next 12 months

Expectations for future financial situation – next 12 months

Better off About the same Worse off

+49% +56% +57%

Feb 17 Jul 17 Feb 18

35%30% 30%

8% 7% 6%

57%63% 63%

7 | ESI Feb 2018

Overseas sales revenue is expected to grow… Almost two thirds (63 per cent) of Australian SME exporters expect their overseas sales revenue to increase in the next 12 months, with a net balance of +56 per cent (up 11 percentage points since February 2017).

Increased demand from existing markets (24 per cent) and improved sales strategies (16 per cent) were again the key drivers of this result, with the introduction of new products and services (20 per cent) rising significantly from July 2017.

Fewer SME exporters also felt that their overseas sales revenue will fall, with just 8 per cent expecting this revenue to decrease in the next 12 months, down from 11 per cent in February 2017.

As you would expect, this confidence around overseas revenue growth also translated into positive expectations around future profitability, with 60 per cent of Australian SME exporters expecting that their profitability will increase in the next 12 months (net balance of +52 per cent, up 14 percentage points from February 2017).

…as is direct investment into overseas markets.Around half of Australian SME exporters remain confident that their direct investment into overseas markets will increase in the next 12 months (a net balance of +44 per cent, up from +38 per cent in February 2017).

There was a decline in those SMEs that believe direct investment into overseas markets will fall, this was balanced by an increase in those who believe that it will remain the same.

Expected change in overseas direct investment

Increase Remain the same Decrease

+38% +43% +44%

Feb 17 Jul 18 Feb 18

45% 38% 42%

8% 9% 7%

46% 53% 51%

A positive outlook for profitability

51% February 2017

58% July 2017

60% February 2018

8 | ESI Feb 2018

Confidence around access to finance remains steady…Just over half of Australian SME exporters (52 per cent) believe that access to finance will remain the same over the next 12 months (a net balance of +15 per cent, up 8 percentage points since February 2017).

The number of SME exporters who felt access to finance would actually become easier was steady (32 per cent, up from 29 per cent in February 2017), with fewer also saying that it would become more difficult (16 per cent, down from 21 per cent in February 2017).

Of those that thought access to finance would become more difficult, concerns over the cost of credit (19 per cent) and a future business plan involving increased risk (17 per cent) both rose significantly from July 2017.

Availability of unsecured funding decreased as an impediment to accessing finance for overseas sales, (5 per cent, down from 8 per cent in July 2017).

…with exchange rates and economic uncertainty the key challenges.The impact of exchange rates (45 per cent, the same as February 2017), dealing with international partners (35 per cent, up from 34 per cent in February 2017) and moving into new export markets (31 per cent, up from 28 per cent in February 2017) are the main challenges that Australian SME exporters said they will face in the next 12 months.

While still important, there was a decrease in the number of SME exporters that felt uncertainty about economic conditions was a major challenge (39 per cent, down from 43 per cent in February 2017). Changes to business model and trading overseas (22 per cent, the same as February 2017), were less of an issue for their business.

About EficEfic is a specialist financier that delivers simple and creative solutions for Australian companies to enable them to win business, grow internationally and achieve export success.

As Australia’s export credit agency, we operate on a commercial basis and partner with banks to provide financial solutions for:

• Small and medium enterprises (SMEs) that are exporting or starting to export. • Australian companies in the export supply chain. • Australian businesses looking to expand their business operations overseas to better service their clients.• Australian companies operating in emerging and frontier markets.

Enquiries Please direct any research enquiries to:

Geir Kristiansen Associate Director, Insights & Analytics Email: research@efic.gov.au

The research was commissioned by Efic and undertaken by Potentiate, an independent market research company. The survey was conducted from 1 November to 1 December 2017 among Australian Exporters n=1124. Sample source: Efic CRM database and independent business research panel. Results were compared with wave 1 of the Exporter Sentiment Index study conducted November to December 2016 and released in February 2017, and wave 2 conducted April to May 2017 and released in July 2017.Due to rounding effects some figures in the report may not add up to 100. *Net balance is the difference between the percentage of respondents who give a favourable response and those who give an unfavourable response. **Based on the six questions (excludes direct investment into overseas markets and access to finance for overseas markets).

For more information,contact Efic on1800 093 724 orvisit www.efic.gov.au