Scotland's financial services industry confident about business prospects for 2007 but fierce competition is expected
March 28, 2007
The majority of companies across Scotland's financial services industry expect their business prospects to improve this year according to the latest survey from Scottish Financial Enterprise (SFE) and Capgemini, released today (28 March 2007). Business confidence is up for nearly two thirds (63 per cent) of survey respondents, fueled by a strong finish to the previous year with increased volumes being reported by 61 per cent of companies in the final quarter of 2006. However the level of competition in the marketplace is now the greatest cause of concern for the industry with 87 per cent of respondents citing it as a factor likely to constrain business development during this year. Europe is expected to be the main growth market in the current quarter although growth in profits is not likely to match anticipated increases in business volume. More companies (41 per cent) plan to increase employment numbers this quarter and the main sectors of employment growth are expected to be Asset Servicing and Investment Management.
The Scottish Financial Enterprise (SFE) Quarterly Survey of Scotland's Financial Services Industry, sponsored by Capgemini, polls SFE's member companies on issues such as general business confidence, business volumes and profitability. The survey also looks at changes in the geographical source of business, business investment, employee levels and other factors affecting business to complete the snapshot of how the different sectors that make up Scotland's financial services industry see their performance over the last quarter and how it may change in the next.
The Q4 2006 survey reports that:
• General business confidence is high, with the majority of companies (63 per cent) expecting business prospects to improve in 2007• Almost two thirds (63 per cent) of respondents expect business prospects to improve in the current quarter while 31% expect no change
• 59 per cent of respondents reported improved business volumes in Q4 2006 which is slightly ahead of the forecast made in the previous quarter
• 59 per cent of respondents forecast that volume levels will rise in Q1 2007, and 31 per cent expect them to remain constant; Investment Managers are most optimistic about business levels for Q1 2007 with 63 per cent of companies expecting an increase
• 41 per cent of respondents improved their profit margins in Q4 2006 compared with the previous quarter
• 38 per cent of respondents expect to increase profit margins in Q1 2007; Investment Managers are most bullish with 50 per cent of respondents from this sector expecting increased profits in the period
• The percentage of companies reporting an increase in turnover was higher across all regions than forecast. Rest of Europe and Asia performed particularly strongly ahead of expectations in Q4 2006; Europe is expected to be the main growth market in the first quarter of 2007
• Business investment and R&D spend remained level for the majority of companies in Q4 2006; the outlook for Q1 2007 is similar, although more companies (19 per cent) expect to increase R&D spend
• Employment levels were in line with expectations for Q4 2006; just over a third of companies (34 per cent) increased employment levels, over half (53 per cent) kept headcount level and 13 per cent reduced it
• The employment outlook for Q1 2007 is positive, with 41 per cent of companies expecting to increase staffing levels; Asset Servicing and Investment Managers are expected to be the main sectors of employment growth in the period
• The level of competition is now the greatest concern for companies with 87 per cent of respondents perceiving it as a factor likely to limit business development in the next 12 months
• Nearly two thirds (60 per cent) of respondents are concerned about the availability of professional and management staff
Amanda Harvie, SFE Chief Executive, said: "Scotland's financial services industry is looking forward to another successful year but we do not expect market conditions around the world to be easy given the fierce levels of competition that businesses are experiencing and the pressures on margins these will exert. This highlights the importance of maintaining the momentum behind the successful initiatives being delivered by government and the industry working together in Scotland to enhance the competitiveness of the operating environment here for financial services companies, and of accelerating the UK government's much needed reforms to our fiscal and regulatory regime."
Rosemary Stark, Capgemini Vice President, Financial Services, commented: "Increased competition and ongoing concerns about levels of customer demand mean that financial services companies will need to keep the focus on cost efficiency, particularly for high volume, low margin retail business. With this approach we would expect all of the key sectors of Scotland's financial services industry to maintain their competitive edge and deliver growth in 2007."
View the Q4 2006 survey results in full
