LAST year was a significant year for North East PLCs. Over the 12 months we lost five listed companies; Eaga, Wellstream, Northumbrian Water, Southern Cross and Romag.

Of these, two of the businesses were sold to foreign corporates – Wellstream to US company GE, and Northumbrian Water to Hong Kong-based Cheung Kong. In addition to Arriva which was sold in the second half of 2010 to German company Deutsche Bahn it appears that increases in global trade coupled with the relative weakness of sterling can make UK companies appear attractively priced.

Of the remaining listed companies in the North East 13 of them, over half, are listed on AIM. Despite the current global economic turmoil AIM companies are surprisingly confident about their prospects a recent PwC survey has found. Participants thought the AIM market had emerged leaner and fitter as a result of the recent shake-out of companies exiting the exchange. However companies should consider developing a ‘Plan B’ to deal with the impact of a renewed recessionary period.

In the Thriving on AIM report, PwC found that the average target for revenue growth over the next 12 months is 24%, some way ahead of comparable surveys of FTSE 250 firms (average 12% target for growth) and private companies (average 18% target for growth). One in five AIM companies are looking to expand turnover by over 50% in the next year, though these higher expectations may have since been tempered by heightened market concerns in recent months.

There are some encouraging signs regarding profitability but there is also a real risk that AIM companies adopting aggressive growth strategies could be caught out by recent global macro-economic events and a fall back into recession.

One notable finding is that AIM companies in our survey looking to new geographic markets as a source of growth see the US (28%) and the EU (24%) as their main focus. With recent eurozone difficulties and continuing issues in the US economy, I would encourage more AIM companies to consider emerging markets as potential markets for growth.

Almost all of the companies in our survey recognise the importance of a strong growth story in winning over investors. Yet, most feel that maintaining effective investor relations is the toughest challenge they face. Only:

28% believed that investors were looking for greater transparency

21% of respondents thought investors were looking for improved corporate governance

4% were of the opinion investors wanted more diversity on their board.

Smaller AIM companies are always going to be vulnerable to a withdrawal of investment in difficult economic conditions. But with markets this hostile, it is essential that all AIM companies continue to focus on effective market communication as well as maintaining the highest possible standards of governance and transparency.

The government has an important role to play in supporting investment in AIM companies which are likely to be a key part of our economic recovery. AIM companies are calling for a simpler tax system, lower rates of corporate and employment taxes and greater investment incentives. They also recognise the importance of a skilled workforce and identify investment in education as a priority for government.

:: Bill Macleod is assurance partner at PwC in the North East, tel; 0191 269 4037 or email bill.macleod@uk.pwc.com