News

KPMG Fraud Barometer infographic July 2014

Offices converted into residential drives up commercial shortages

During Q2 2014, chartered surveyors saw a rise in the number of transactions of commercial properties being sold with Permitted Development Rights (PDR) to be converted into residential properties. UK-wide, a net balance of 49% of respondents said this activity was having a moderate impact on commercial market activity, while almost one in five (net balance of 18%) said it was having a substantial impact.

The picture across the country, however, was more polarised, with respondents in the north being less affected by PDR transactions (net balance of 49% saying it was having no effect on the market, compared with 32% of respondents in the south saying it was substantial).

Further compounding shortage issues, overall availability of commercial property declined at its fastest rate since the commercial market series began in 1998 (net balance of 33% more surveyors reporting shortages), with sharp declines in office and industrial space availability and the lack of supply to the commercial market is pushing investors away from prime location investments and towards B grade investments.

In London and the South particularly, respondents reported that growing demand and the resulting drop in yields is encouraging investors to look for opportunities beyond prime locations. In London, a net balance of 50% of respondents indicated that investors were looking to add secondary or tertiary assets in their portfolios, while in the South, 62% signalled a growing appetite secondary space.

Looking ahead, expectations for rent levels over the course of 2014 revealed a net balance of 33% more surveyors expecting rent levels to increase throughout the year. Respondents forecast rents will rise by 5.5% in the industrial sector, 4.3% in the offices sector and 2.8% across retail space.

Simon Rubinsohn, RICS chief economist, commented: “The latest results provide clear evidence that the economic recovery is broadening out across the country with rising employment increasing the demand for space in all sectors of the market. As a result, the balance of power is now shifting back to landlords with rent expectations turning increasingly positive.

“Meanwhile, the pressure in the office sector is being exacerbated particularly in popular locations by the gradual conversion of some secondary space into residential. While making a much needed contribution to the substantial shortfall of homes, there are understandable concerns that this could be creating a related problem for businesses looking expand their footprint as economic confidence grows.”

Financial services vacancies on the rise as employers search for fresh talent

Vacancy levels in the financial services sector have risen by around 7%, according to year-on-year statistics released this month by one of the UK’s leading professional specialist recruiters.

The Robert Walters UK Jobs Index, which charts vacancy numbers posted to online platforms, also points to a 13% increase in advertised financial services jobs between the first and second quarters of 2014.

As anticipated, many of these jobs are being generated in the capital, with London-based institutions creating 8% more vacancies in the second quarter of 2014 compared to a year ago.

Peter Milne, director of financial services recruitment at Robert Walters UK, commented:

“These latest results underscore a rise in employer confidence and point to an increasing flow of fresh roles coming to market. Permanent recruitment has enjoyed a strong boost, particularly as employers have sought to reduce their ‘time to hire’ in order secure the most talented individuals.

“With the most challenging years of the recession now behind us, a growing number of job seekers are also taking the opportunity to kick start their career advancement.

“For many institutions, regulation remains a key area of focus, generating strong demand in areas such as financial control, compliance and risk.”

GDP not a relevant measure, say UK SMEs

Businesses need regional economic indicators as well, says funder

As the official measure of the UK’s economic performance suggests a return to pre-recession levels, research today reveals that the majority of small and medium-sized enterprises (SMEs) believe that gross domestic product (GDP) is irrelevant and does not reflect the true business environment.

The UK GDP – the official measure by which economists, analysts, financial institutions and the Government assess the health of a country’s economy – grew 0.8% in the last quarter, 0.2% ahead of its pre-financial crisis peak.

But a survey of 1,000 SMEs by business funding provider, Bibby Financial Services, has found that only one third (34 per cent) would describe it as a relevant measure of the health of the economy.

Edward Winterton, commercial director at Bibby Financial Services, said: “It’s interesting that while the quarterly GDP announcements are eagerly anticipated by the government, economists and bigger businesses, small businesses – the engine room of our economy – don’t feel it is an accurate reflection of the business environment in their local areas.

“For many of our business customers, an indicator of activity in their region or sector is more relevant than the broad, macro-economic view. GDP undoubtedly has its place as an indicator but this research suggests that businesses in the UK would value analysis on a more local level.”

The Office for National Statistics publishes Gross Value Added data (GVA) which measures regional output – but its widespread use as an indicator is relatively limited. GVA figures are published annually rather than quarterly and statistics relate to the year previous.

“For businesses, understanding regional economic performance is likely to be more useful in a practical sense. Using a regional measure – like GVA – alongside GDP on a quarterly basis would offer a more holistic, macro and micro-economic view, which would reflect local business environments more accurately”, Winterton added.

LS Contracts provide interim, temporary and permanent staffing services across a variety of industry sectors, specialising in the provision of permanent and contingency labour to the logistics and construction sectors.

Jane Eggleton, director of the Milton Keynes-based business agrees that GDP doesn’t capture the information most relevant to her, or her clients’ businesses. She said: “It’s good to have an idea of how the UK economy is performing but in reality, it doesn’t mean a great deal to a lot of the businesses on our books. What matters to us and our clients is how things are locally and whether there is work in a particular region, in specific sectors.

“Having a regional performance measure – and measurability by industry sector – would be much more relevant and may help to encourage more businesses to take an interest in economic announcements. Furthermore, if this data were more readily available, some businesses may be encouraged to move into areas which suit their industry type better”, Jane concluded.

Profit warnings reach highest first half total since 2011

The recovery continues to gather pace, but intense competition, pricing pressure and currency headwinds are still denting expectations, taking UK profit warnings to their highest second quarter total for three years.

UK quoted companies issued 137 warnings in the first six months of 2014, up 9% on the same period of last year and the highest first half total since 2011, according to EY’s latest Profit Warnings report.

There were 63 profit warnings in Q2 2014, nine more than the same quarter of 2013, but down by 11 when compared with the previous quarter.

Pricing and competitive pressures are clearly affecting businesses in 2014. In the first half of the year, 19% of profit warnings cited competitive or pricing pressures, compared with 7% in 2013. Adverse currency movements triggered over a fifth of profit warnings in the first half of 2014, compared with just 3% last year.

Consumer goods manufacturers in particular find themselves in the crossfire of pricing, currency and competitive pressures. The percentage of companies warning in FTSE Consumer Goods sectors has almost doubled, from 9% in the first half of 2013 to 16% over the same period this year.

The percentage of companies issuing profit warnings also rose year-on-year from 3.8% in Q2 2013 to 4.4% in Q2 2014.

FTSE sectors issuing the highest number of profit warnings in Q2 2014 were support services (7), software and computer services (7), household goods (4) and electronic and electrical equipment (4).

UK plc buoyed by growth but hits headwinds

Keith McGregor, EY’s capital transformation leader for Europe, Middle East, India and Africa, said: “For UK plc, the improvement in domestic demand has been a welcome fillip and this growth rests on a broader base than 2013, encompassing a rise in investment as well as consumption. However, translating this into profitable growth remains more problematic.

“The pounds rapid rise is one of the biggest pressures on earnings. Although, the problem highlighted in profit warnings isn’t one of sales but of currency translation. Recent history shows that UK exports are relatively insensitive to currency effects. However, the pound’s leap to multi-year highs has caught out a number of companies who translate foreign earnings back into pounds.

“Price and competition pressures have also intensified. While the recovery has boosted demand, it hasn’t eradicated the austerity mind-set of businesses or consumers. Moreover, the low level of insolvencies means companies are competing in packed and competitive market place, lowering the normal level of returns.”

Retailers issue record low warnings

Drilling down into sectors, UK retailers continue to issue an unusually low level of profit warnings. FTSE General Retailers and FTSE Food & Drug Retailers together issued just issued just nine warnings in the first half six months of 2014. Profit warnings from General Retailers equalled the record first half low set in 2013 and 2002. However, the total percentage of retailers warning in the first half of 2014 is actually much smaller at 8%, against 16% in the same period of 2013. A smaller number of companies issued profit warnings in H1 2014 – six compared to nine in 2013 – while the quoted retail sector has grown by 25% in the last year.

Alan Hudson, EY’s head of restructuring for UK & Ireland, commented: “The FTSE general retailers sector has already undergone a deep level of restructuring in response to relentless competition and structural change. This pace isn’t letting up and the grocery sector looks set to face the next round. The consumers’ shift to online, convenience and, above all, value-based shopping is rapidly reshaping food retail.”

Value-based retailers shape price agenda

Ultimately, discount grocers don’t have the footprint required to mount a serious head-to-head challenge against the major supermarkets. However, they are setting the price agenda and rapidly capturing precious share in a tight market.

Alan added: “Competitive pressures look set to reach a new level of intensity, with further implications for suppliers already stretched by tough conditions in developed and emerging markets. However, the major food retailers cannot squeeze their suppliers indefinitely without consequences for quality and supply. They must focus strategy beyond just price, on areas where they can compete – like range, service and convenience.”

Future path for retailers

It is only by operating at their full potential, remaining in tune with consumer behaviour and leveraging their advantages that retailers will be able to benefit from the upturn in consumer spending and meet the challenges that lay head.

Alan said that companies should be looking to take operational measures to get ready for growth and ensure their businesses are flexible enough to face the future.

“Physical retailers will undoubtedly need to reshape their footprint to meet these demands. However, the store is by no means dead. It still offers advantages for retailers to leverage from the need for immediate gratification to the creation of a brand experience and the ability to provide a seamless multi-channel offering.”

New dawn for monetary policy clouds the future

Concluding, Keith said: “It could be another year of two halves. Perhaps not with the same drama as last year with the effects of tapering in the US or a mid-summer Eurozone crisis, but the second half of 2014 will pose a few more challenges than the first. Central bank actions have helped to quash volatility, pushing asset prices to pre-crisis highs. However, the countdown to a new monetary era will bring new tests and greater volatility as markets begin to re-price risk.

“With the countdown to a new era in monetary policy beginning in earnest and the potential for more volatile markets, companies need to think carefully about their capital needs and allocations. Low growth in international markets and low inflation will also pose significant challenges. Operational and financial fitness are vital to ensure companies make the most of any top line growth and attract investment. M&A provides the other obvious answer to the growth conundrum. We expect deal volumes to stabilise after several years of decline, with the potential for a modest increase. However, we will continue to see higher value driving sentiment in M&A across all sectors.”

Smartphone searches: a recipe for grocery sales success

Helen Dickinson, director general, British Retail Consortium, said: “In a change that will give particular cheer to grocery retailers, the latest BRC-Google numbers show that customers are increasingly turning to their tablet computers and smartphones for culinary guidance. With recipes dominating the top ten search terms and a personal favourite, chocolate cake recipes, topping it, this presents a great opportunity for retailers. Many grocers are integrating their online shopping offer with recipe websites and apps. This means that when customers find a recipe they like, they are a mere one click away from having all the ingredients placed in their online shopping basket.

“The internet is also proving to be a valuable resource for those with special dietary requirements. A spectacular 122% rise in smart phone searches in this category suggests that customers are researching their purchase on-the-go, potentially even as they walk the supermarket aisles, to find products that meet their very specific needs.

“Across all devices, searches for grocery items were up 22% on the same quarter last year. Customers, it seems, are looking for the best value across everything they buy. Grocery retailers with a great online offer are set to benefit as consumers turn to looking online for the best prices for the food they buy.”

Peter Fitzgerald, retail director, Google, said: “Grocery shoppers have embraced mobile technology, with nearly double the number of searches coming from mobile devices compared to last year. Greater London has seen the sharpest rise in searches, reflecting the developments grocers have made in the region, for example the increase in delivery options becoming available to Londoners. Further growth should be expected as these options are expanded across the UK.

“The warm weather led to an increase in barbecue and beer related queries, plus the World Cup brought a rise in Latin American cuisine searches of 35% year-on-year. However, Britain still remains health-conscious, with significant growth reported in diet, organic and weight-loss foods.”

Grocery search volume breakdown – monthly (year-on-year % change)

– All device grocery search volumes growth was 21% in April compared with the same period a year earlier. Across smartphones and tablets, search volume growth rose by 99% and 32% respectively.

– Search volumes on smartphones were also highest in May 2014, up 98%.

– Growth of grocery search volumes on smartphone devices was also strongest in June, up 85% compared with 23% growth on tablets and 22% growth across all devices.

Top trending sub categories searches – Q2 2014 (year-on-year % change)

– The growth rate of smartphone searches for organic and natural foods outpaced all other grocery categories for Q2 2014.

– Total grocery search volumes growth across all devices was highest for BBQ and grills (40%), special and restricted diet foods (37%), Latin American cuisine (35%) meat and poultry (34%) and beer (32%).

– Special and restricted diet foods, meat and poultry and French cuisine were the three fastest growing categories on tablet devices.

United Kingdom focus

– All countries and regions of the UK have experienced growth in grocery search volumes across all devices but most significantly in smartphone searches.

– Consumers searching for groceries on smartphones grew most rapidly in Greater London, 152% up on a year ago.

– The South West experienced the largest growth across all devices and tablets for grocery searches.

– All devices and smartphone search growth for groceries in Northern Ireland outpaced that of Scotland and Wales.

United Kingdom regions

– London accounted for 35% of total proportion of grocery searches in Q2 2014, the highest in all the regions and countries of the UK, followed by the North and Yorkshire (20%) and the Midlands (14%).

– The proportion of grocery searches in Northern Ireland (2%) and the South West of England (2%) is the lowest in the UK.

– Scotland and Wales proportions of grocery searches are 7% and 3% respectively.

UK mid-market fuelling recovery says GE Capital

Commenting on the latest UK GDP data, Ilaria del Beato, chief executive of GE Capital UK said: “It is great to see such strong growth figures for the UK confirming what we saw in our research – that the UK is firing on all cylinders with the UK mid-market fuelling the recovery.

“Our research showed that the revenues of mid-market businesses are set to grow by 6.1% this year – the equivalent of £133bn and double the rate of the UK’s economic growth. They are taking on the growth challenge from all directions, investing in exports, training, R&D and planning to add an estimated 326,000 jobs this year.

“The mid-market is a key component of delivering ‘Made in Britain’ to the world. 70% of mid-market firms are already exporting internationally, with growth in exports set to rise by an average of 7.6%, far above the UK’s current export growth rate.”

According to GE Capital’s research, the definition of a mid-market company is an annual turnover of £15-800m. Please find GE Capital’s annual ‘Leading from the Middle’ research here.

Bibby Financial Services hires former Barclays director to boost funding

Gary Davis appointed as southern regional sales director at independent funder.

The UK’s leading independent invoice financier, Bibby Financial Services (BFS), has appointed former Barclays director of Trade and Working Capital, Gary Davis.

Gary joined the business at the start of July as regional sales director for the South, reporting into UK sales director, Dave Golding.

With almost 20 years’ experience in the invoice finance industry, Gary spent the past seven years at Barclays, where he headed-up both commercial finance and SME funding teams.

Commenting on the decision to join the independent funder, Gary said: “The opportunity to join Bibby Financial Services was simply too good to turn-down.

“The business has a real can-do attitude and has invested heavily in technology and people since the start of the year. There’s a real opportunity to expand our funding and to take the business to the next level so I’m delighted to join at such an exciting time.

“Over recent years the business has grown its client-base along with its funding capabilities and we are able to structure complex transactions more efficiently than anyone else in the market today.”

After time at Venture Finance (now ABN AMRO Commercial Finance) – where he was awarded top individual performer in 1999 – Gary became one of the founder directors of Dynamic Commercial Finance Plc, which was listed on London AIM in 2000. Before joining Barclays, he took over as Regional Director at Eurosales in 2006 where he led its London office to the position of best performing region in the UK.

Dave Golding said: “Gary is an experienced, proven performer with a track-record for delivering success, so I’m delighted he has joined Bibby Financial Services.

“The South of England is hugely important to our expansion plans – particularly London and the South Coast areas – so Gary’s role is critical to our success. I’m confident his knowledge of the industry will be a real asset in helping us to expand our funding to businesses of all sizes across a range of sectors.”

Gary will head-up a sales team of over 40, with plans to boost the number of staff across the region throughout the remainder of the year. He will split his time between the funder’s London, Hastings and Slough offices.

Dave concluded: “We’re committed to the SME market but also capable of writing larger ticket deals. Bringing Gary on-board is all part of our long-term strategy of becoming the first-choice funder for all businesses.”

Over half of online shoppers cautious after wave of high-profile security breaches

Of the 2,000 online consumers surveyed as part of eDigitalResearch’s and IMRG’s eCustomerServiceIndex (eCSI), half (50%) felt that retailers should be doing more to keep them safe online, especially in the wake of yet more data and security breaches to hit the news in 2014. Whilst a handful of consumers think that reminders to update passwords and security notifications would be helpful, the majority of respondents feel that it is up to retailers to invest in stringent security and privacy policies to keep customers safe when shopping online.

Derek Eccleston, commercial director at eDigitalResearch, said: “It is clear from our latest set of results that security really has become a crucial factor in the online customer journey for consumers. The fact that just one third of us are happy to share our bank card details speaks volumes, especially when this is a key component to complete a purchase. Onus is very much on retailers to invest in and improve their security measures for their online customers – over two thirds (67%) expect organisations to contact them immediately (within 6 hours) by email or phone if security had been breached and it leads to a potential loss of data”.

Of the 2,000 online consumers surveyed, almost one in four (24%) have (or have a family member who has) been a victim of a fraudulent transaction online in the past.

Yet worryingly, a significant percentage of those surveyed were not aware of basic security measures, such as regularly updating their passwords. Under half (43%) said that they update their passwords every three to six months, whilst 6% of those surveyed were not aware they could do this. Similarly, just two thirds (69%) use different passwords for different sites and 5% of online consumers were unware that this is a possibility.

Andrew McClelland, COO of IMRG commented: “These findings are interesting in that industry has invested heavily over the last five years in standardising and improving card payment security. Yes, big data breaches are of enormous concern but careful management of our own data limits the impact that these will have. We as consumers must be much more aware of who we are giving our data to, how often we update passwords and making sure our anti-virus programs are kept up-to-date. It is in retailers interests to ensure that their customers are safe when shopping online and they continue to invest in security measures. New data protection regulation from the European Parliament is due to come into force shortly, helping to raise the bar even further and providing consumers with further protection”.

Recovery shows little sign of slowing

With private-sector output growth maintaining a healthy pace, the recovery is showing little sign of slowing down, according to the latest CBI growth indicator.

This comes as official figures published tomorrow are expected to confirm that GDP has surpassed its pre-recession peak. The survey of 790 respondents across the manufacturing, retail and service sectors again registered strong growth, with a balance of +29%, the same as last month’s survey. Expectations for growth in the next quarter are also robust, with a balance of +37% of respondents reporting that output will increase further in the three months ahead.

In the quarter to July, output volumes in the manufacturing sector grew at the strongest pace for five months. Business & professional and consumer services have also maintained solid growth recently, and retail sales volumes rose firmly on a year ago in July.

Katja Hall, CBI deputy director-general, said: “The recovery shows little sign of slowing and it’s looking likely that GDP has surpassed its pre-crisis peak.

“There are signals that the recovery may now be on a more sustainable footing, with growth becoming more broad-based as business investment in particular grows strongly.

“But there are still long-standing issues around boosting exports, while disappointing productivity could impact wages and household spending. Firms will also be carefully monitoring the situation in Ukraine and parts of the Middle East, where political volatility is likely to make the global economic environment that bit tougher.”