Sector Analysis

UK tech sector growth slows as Brexit uncertainty bites, says new study

BY Fraser Tennant

Growth across the UK tech sector in Q4 2018 expanded at its weakest pace for three years, as the impact of Brexit and accompanying uncertainty began to bite, according to a new report by KPMG.

According to KPMG’s UK Tech Monitor Index, the sector experienced a difficult end to 2018, as business activity growth eased and new work remained subdued, with global trade, in addition to Brexit-related uncertainty, contributing to a loss of momentum in the final quarter of 2018.

Furthermore, although the Index, which measures the strength of business activity across the sector, remained above the crucial 50.0 no-change value at 52.4 in Q4 2018, this was down from 54.0 in Q3 2018 to the slowest rate of tech sector business expansion since Q4 2015.

“Our report reveals that political uncertainty has dented client confidence contributing to a slowdown in growth at the end of last year,” said Bernard Brown, vice chair at KPMG UK. “But, buoyant staff hiring and capital expenditure plans are still in place for 2019.”

Indeed, despite the subdued end to 2018, the KPMG Index reports positive signs, with tech firms indicating that they remain “highly upbeat” about their capital expenditure plans, although projections for demand growth have “softened”.

The tech sector’s more upbeat attitude to business growth is in marked contrast to the rest of the UK economy, with many companies stockpiling and holding off on investment decisions.

In terms of the tech sector, KPMG notes that strong R&D spending continues to drive confidence regarding new product launches, with a weak pound providing a competitive boost that will help achieve new export sales.

“This confidence is reflected in the statistic that almost 50 percent of UK tech firms intend to add jobs over the next year, whilst many traditional manufacturers are considering moving jobs offshore,” added Mr Brown. “This demonstrates the strength and resilience of the UK tech sector in the new digital economy.”

News: Tech Sector Growth Weakest for Three Years as Uncertainty Begins to Bite

Global energy sector “undergoing rapid change”, says new report

BY Fraser Tennant

The global energy sector is undergoing rapid change following years of cost cutting, with many oil and gas companies expanding into new projects and territories, according to a new report by the Institute of Risk Management (IRM).

In 'Fuelling the Debate: Trends, Survey Report and Findings for the Energy Industry 2019', the IRM provides insight and thought leadership for risk managers operating in the sector, including oil and gas, energy and renewables, and offers advice on how they can improve their performance and relevance across a range of topics – from safety and sustainability to improving risk maturity and building effective risk cultures. 

According to the report, which is based on a survey of around 50 energy sector specialists, cost control and safety are key areas of focus, with businesses planning to invest in new projects because they are confident of achieving profits despite a long period of low oil prices.

Furthermore, strategic risks, the global economy and a skills gap are considered top risks by survey respondents, although only 27 percent said that green energy was likely to be an area of concern over the next five years.

“Excellence in risk management requires a strong understanding of general concepts and techniques but also an appreciation of the detailed risk landscape in particular sectors,” said Socrates Coudounaris, chairman of the IRM. “Among the report’s conclusions is that there is great scope for raising levels of risk maturity in the energy sector. This will require attention to various aspects of risk management and particularly to competence, training and education, raising them to world class standards.”

Risk managers also expressed concern over a lack of resources and a failure of the board to provide the right tone at the top. For example, just 40 percent of respondents said they had access to specialist ERM software.

In a bid to improve the global energy sector’s risk management outlook, the IRM has announced a series of initiatives, such as publishing individual expert insights and articles, as well as continuing to work towards establishing a regular maturity benchmarking assessment of the sector with fixed criteria.

Mr Coudounaris concluded: “We intend to build further on these initiatives and conduct more specialist academic research. We also intend to develop an ongoing special interest group for the energy sector that will support risk professionals in the field.”

Report: Fuelling the Debate Report: Trends, Survey Report and Findings for the Energy Industry 2019

Marketing and media M&A “resilient” in Q3 2018 despite Brexit uncertainty, says new report

BY Fraser Tennant

Despite the ongoing uncertainty induced by Brexit, mergers and acquisitions (M&A) activity in the marketing and media sectors has been “resilient” in Q3 2018, according to a report published this week by Kingston Smith.

In its ‘Mergers and acquisitions in the marketing and media sectors – Q3 2018’, the firm notes that 70 deals took place in the quarter, up from 60 in Q2 and keeping pace with the 73 recorded in Q1 2018.

Among the high-profile transactions were WPP acquiring Hirshorn-Zukerman Design Group,  Emark, Gorilla Group and 2Sale International, the acquisition of Digital Mind, Whitespace and Amicus Digital by Dentsu, and the deals by Next 15 to acquire Technical Associates Group and Viga.

“Q3 is testament to the enduring hunger of acquirers, with the deal announcements possibly lagging behind the appetite,” states the report. “Many mid-market buyers lack sufficient bandwidth to assess all the opportunities available to them and this is holding back deal completions. The quarterly uptick is welcome but the jury is out as to whether activity will continue at this level, as liquidity tends to dry up quickly once shocks impact on the system – meaning businesses may be rushing deals through before any material change in the external backdrop.”

Furthermore, digital businesses remain the most sought-after in the marketing services sector, accounting for nearly half of deals in this area (57 percent). In addition, media-tech continues to gain pace, accounting for almost a quarter of all deals (23 percent) in Q3 2018. Acquisitions in the media-tech space have been undertaken by WPP, Google and Deloitte, among others. 

Further key findings in the report include private equity (PE) portfolios proving a fertile hunting ground for mid-market buyers, and a number of marketing and media businesses thriving under PE stewardship and reaching sufficient scale to attract trade buyers. Among the key PE deals in Q3 2018 were Fishawack’s acquisition of Healthcircle and Williams Lea Tag acquiring Taylor James.

Also highlighted by the Kingston Smith report is the increasingly international nature of many of the transactions being seen.

The report concludes: “A strong quarter is encouraging and puts 2018 in line with the activity levels recorded in 2017 and 2016. What remains certain is that hungry acquirers will continue to hunt for deals.”

Report: Mergers and acquisitions in the marketing and media sectors – Q3 2018

UK economy droning on

BY Richard Summerfield

The UK economy could increase by £42bn, or 2 percent, by 2030, according to a new report from PwC. This growth will be built on the increased availability and commercial applications of ‘unmanned aerial vehicles’ – drones.

The report, ‘Skies without Limits’, claims that there could be 76,000 drones operating in the UK by 2030 and that around 36 percent could be used in public sectors, including defence, health and education. The number of jobs in the drone economy could be around 628,000.

One of the biggest advantages of drone use in the economy will be their ability to generate cost savings. The UK’s technology, media and telecoms industry could record cost savings of around £4.8bn by 2030, according to the report. Productivity would also benefit from greater drone usage. Cost reductions and efficiency improvements could increase so-called ‘multi-factor’ productivity by 3.2 percent, boosting GDP uplifts across multiple sectors, including the public sector, which could increase by £11.4bn, the construction and manufacturing sector (£8.6bn) and the wholesale, retail trade and food services space (£7.7bn).

Within the offshore industry, for example, the report says using drones to inspect a live flare stack on a North Sea oil platform could save £4m a day, compared to shutting the asset down for traditional methods.

Elaine Whyte, UK drones leader at PwC, said: “Drones have the potential to offer a powerful new perspective for businesses across a variety of industries, delivering both productivity benefits and increased value from the data they collect. The UK has the opportunity to be at the leading edge of exploiting this emerging technology, and now is the time for investments to be made in developing the use cases and trial projects needed to kickstart our drone industry.”

“Drones could spark significant improvements in the UK economy. The rise in GDP and job creation from drones uptake are expected to be substantial, but productivity is likely to see the greatest gains," said Jonathan Gillham, economics director at PwC. “By automating routine tasks, improving effectiveness, safety and reducing costs, drones will free up people to focus on higher-value work.”

The government is taking steps to help usher in the next phase of the drone economy, with a draft drones bill expected to be published this spring. Baroness Sugg, Aviation Minister said: “PwC’s research demonstrates the significant economic benefits that drone technology can bring to the UK. And they are already improving people’s lives – helping the emergency services and keeping key national infrastructure like rail lines and power stations safe. Excitingly this is just the beginning, which is why Government is doing everything possible to harness the huge future potential through our Industrial Strategy and Drones Bill.”

Report: Skies without Limits

Digital doubts for CPOs

BY Richard Summerfield

Procurement has continued to deliver solid savings and manage risk, according to the eighth annual 'Global Chief Procurement Officer Survey' from Deloitte.

While most procurement leaders feel supported by their executives, they are, however, unsure about whether they are contributing significant strategic value, the report suggests.

However, more procurement leaders believe that their teams have sufficient capabilities to deliver on their procurement strategy – 49 percent of those surveyed, compared to 40 percent in 2017. The survey also indicates that while many CPOs have high hopes for the potential of analytics to transform their profession, only a third of them are utilising such technology.

Though many organisations have identified digital skills as a major area of focus, the majority of companies are neglecting to prioritise digital functions. Just 3 percent of CPOs believe that their teams possess the skills required to maximise digital capabilities. Only 16 percent of procurement leaders surveyed were focused on enhancing these skills. Seventy-two percent of procurement leaders are spending less than 2 percent of their budget on training, compared to 66 percent in 2017. Furthermore, 17 percent of procurement leaders do not have a digital procurement strategy.

“With today's global supply chains, risk exists across geopolitical and economic disruptions," said Brian Umbenhauer, principal and global head of sourcing and procurement at Deloitte Consulting LLP. "There are demonstrated techniques to help drive value, reduce risk and meet goals – from digital transformation to increasing visibility and properly training teams – but CPOs right now are struggling to make the most of them. Major benefits and competitive advantage await those who do.” 

Despite uncertainty around issues such as Brexit, NAFTA, weakness and volatility in emerging markets, rising geopolitical risks in the Middle East and Asia, as well as the spillover effects of a slowdown of China, many procurement leaders remain cautiously optimistic about the future.

“Lack of visibility is a major concern for CPOs as they look to navigate global headwinds and prepare their teams for the future of procurement and innovative technologies,” said Mr Umbenhauer. “Visibility throughout the supply chain is a key tool for meeting regulatory and corporate social responsibility requirements while mitigating risk.”

For most respondents, cost reduction, product and market development and managing risk are the top business priorities. Despite concerns, 61 percent of CPOs delivered better year-over-year savings performance than last year, with the highest-performing leaders excelling in executive advocacy, leadership, talent and digital.

Report: The Global Chief Procurement Officer Survey 2018

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