August 1, 2019

The impact of Brexit on UK small & mid-capsQuoted Companies Alliance Small & Mid-cap Sentiment Index

July 2019

2

Executive summary

The last three years of preparing for Brexit has

negatively impacted small and mid-sized quoted

companies:

•59% of small and mid-caps say preparing for Brexit has distracted from running their business (and 95% of advisors believe it has distracted companies)

•16% have invested less in the UK because of Brexit (although for the majority it has had no impact)

•31% say that recruiting EU nationals has got harder since the 2016 referendum.

•43% say that preparing for Brexit has had a negative impact on their company’s growth.

The information that the UK Government has

provided to help prepare for Brexit has been

inadequate:

•Only 24% of small & mid-caps believe the government has provided adequate information to companies to help them prepare for Brexit.

Small and mid-caps are taking action to prepare

for no deal:

•More than half of companies have taken steps to prepare for a no deal scenario.

•Stockpiling goods and moving operations outside of the UK are two of the most popular actions.

Small & mid-caps are most likely to favour remaining

in the EU:

•47% of small and mid-caps say it would be best for their company if the UK remained in the EU under its current terms.

3

Impact of Brexit on company priorities

BASE: 74 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES; 38 ADVISORY COMPANIES

How much time, if any, has preparing for the possibility of Brexit since 2016 taken away from other priorities for your business / small and mid-cap UK quoted companies?

AdvisersSmall & Mid-cap companies

10%

50%

41%

A lot + A little = 59%

A lot A little Almost none Don't Know

50%

45%

5%

A lot + A little = 95%

A lot A little Almost none Don't Know

Advisers think

impact is

greater than

the companies

themselves

4

Impact of Brexit on investment decisions

BASE: 74 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES;

8%

65%

16%

12%

We have invested more as a result The prospect of the UK leaving the EU hashad no impact on our investment decisions

We have invested less as a result Don't know

How, if at all, has the possibility of the UK leaving the European Union impacted your company's investment decisions in the UK?

5

Impact of Brexit on recruitment and retention

BASE: 74 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES; 38 ADVISORY COMPANIES

Since the referendum on the UK's membership of the European Union, have you found / do you think small and mid-cap UK quoted companies have found... (not including UK citizens)

AdvisersSmall & Mid-cap companies

31% 25%

31% 37%

28% 27%

11% 11%

Attracting EU nationals to workfor you...

Retaining EU nationals that workfor you...

Harder The same Easier Not applicable Don't know

74%66%

21%29%

5% 5%

Attracting EU nationals to workfor you...

Retaining EU nationals that workfor you...

Harder The same Easier Not applicable Don't know

Again, advisers’

perceptions are

at odds to what

the companies

say themselves

6

Impact of Brexit on turnover growth

BASE: 74 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES;

6%1% 45% 35% 7% 5%Impact onturnovergrowth

Strong positive impact Slight positive impact No impact

Slight negative impact Strong negative impact Don't know

What impact, if any, has the possibility of the UK leaving the European Union had on your company's turnover growth?

7% - Positive impact 43% - Negative impact

7

Estimated impact of Brexit on turnover growth since 2016

BASE: 74 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES;

1%3% 3%

1%

6%

47%

25%

7%4%

By how much, if at all, do you estimate the impact of the possibility of the UK leaving the European Union to have had on your company's turnover growth since 2016?

3% - Don’t know

8

Actions taken to prepare for ‘no deal’ scenario

BASE: 74 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES

4%

2%

1%

2%

5%

5%

5%

8%

12%

12%

13%

14%

16%

17%

17%

Don't know

Other

Increased prices

Lobbied government

Invested to increase productivity

Set aside contingency funds

Adjusted contracts

Adapted for import/export duties

Hedged currency

Established or acquired EU subsidiaries

Sourced additional working capital

Moved operations outside the UK

Secured supply chains

Stockpiled goods

Reviewed government technical notices

What actions, if any, has your company taken in order to prepare for a 'no deal' scenario?

42% of companies have

done none of these

9

Has the Government provided adequate help to prepare for Brexit?

BASE: 74 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES

Yes24%

No 55%

Don’t know21%

Companies: Do you believe that the Government has provided adequate information to help your company prepare for the UK leaving the European Union?

10

Companies’ views on information provided to businesses to help them prepare for Brexit

“All small companies need is clarity –

they can adjust an adapt. It is only big

companies that have entrenched

positions that benefit from the current

stalemate. Small companies naturally

have to invest to grow – and they are

unable to do so at the moment.”

“There are still too many open

questions where decisions haven’t

been made, making it very

difficult to plan – e.g. regulatory

impact on medical devices.”

“The guidance has been very high level but there are a raft

of unknowns around leaving without a deal where the

government could have stated clearly how they would

operate (which would have also signalled preparedness to

leave with no deal to the EU). As two examples, the impact

on personal importation allowances and VAT reporting for

imported goods are two areas where we have no idea what

the changes mean but will impact our business.”

QUESTION: ANY FURTHER COMMENTS ON THE INFORMATION PROVIDED TO COMPANIES BY GOVERNMENT AND REGULATORS REGARDING THE POSSIBILITY OF THE UK LEAVING THE EU?

“Too little, too late. EU

information was available

on a more timely basis.”

11

Most beneficial Brexit outcomes to small & mid-caps

BASE: 74 SMALL AND MID-CAP PUBLICLY QUOTED COMPANIES; 38 ADVISORY COMPANIES

47%

14%

10%11%

3% 8% 7%

42%

16%

26%

0% 5% 5% 5%

Parliament revokingArticle 50 and the UK

remaining in theEuropean Union under

current terms

The UK leaving theEuropean Union without

a deal

The UK leaving theEuropean Union with an

agreed deal andtransition period (i.e.Theresa May's deal)

The UK to remain in apermanent CustomsUnion with the EU as

part of any deal

The UK to join theEuropean Free Trade

Association (EFTA) andEuropean Economic

Area (EEA) withcountries such as

Norway

Other Don't know

Companies - Which of the following outcomes would be most beneficial for your company?

Advisers - Which of the following outcomes would be most beneficial for small and mid-cap UK quoted companies?

12

Methodology

• 117 interviews were conducted between 17/04/19 and 04/06/19.

• 78 from small and mid-cap UK quoted companies, 39 from advisory companies (this includes investors, auditors, accountants, lawyers, brokers, and AIM NOMADs etc.)

• This survey was conducted by YouGov using an online interview administered to members and associates of the QCA. An email was sent to the QCA database, inviting them to take part in the survey and providing a link to it. A link to the survey was also circulated by the QCA to their contacts. The sample definition is "small and mid-cap UK quoted companies and advisory companies". The responding sample is weighted by industry to be representative of small and mid-cap UK quoted companies, as derived from London Stock Exchange data, but the advisory companies are not weighted in any way.

• Note: Where the percentages for a chart are calculated on bases fewer than 40 respondents these must not be reported as they do not represent a wide enough cross-section of the target population to be considered statistically reliable. These questions and figures will be italicised.

13

Appendix: background

The Small & Mid-Cap Sentiment Index:

• The QCA/YouGov Small & Mid-Cap Sentiment Survey has been running since 2011.

• This is the 22nd wave and is conducted twice yearly. It is an established source of information about the small and mid-sized quoted company sector.

The small & mid-cap sector in the UK:

• In 2019, there are around 1,250 small and mid-size quoted companies in the UK, representing 93% of all companies quoted on UK stock exchanges.

• They employ approximately 3 million people, representing 11% of private sector employment in the UK, and contribute over £26bn in annual taxes (source).

The Quoted Companies Alliance:

• The Quoted Companies Alliance is the independent membership organisation that champions the interests of small to mid-size quoted companies.

• For more information please visit www.theqca.com.

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All companies quoted on London Stock Exchange Main Market and AIM

Appendix: All UK quoted companies by market capitalisation

100 biggest companies (FTSE 100)

1,249 small and mid-cap companies

Source: How small and mid-cap quoted companies make a substantial contribution to markets, employment and tax revenues, May 2019, QCA/Hardman & Co