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MIXED RESULTS REFLECT MARKET VOLATILITY FOR SCOTTISH FINANCIAL SERVICES

The latest industry survey for Scottish Financial Enterprise (SFE) and Capgemini shows a decline in business confidence at the end of 2007, and mixed forecasts for the year ahead.

The report looks back at performance in the last quarter of 2007, and anticipates business prospects for 2008.

The figures were collated between December 2007 and February 2008.

Business confidence

Around a third of respondents expected decreased business confidence for the first quarter of 2008, a rise of 17% on the previous quarter. Anticipating business for the full year from January to December 2008, the outlook was mixed - 31% believed their prospects would decline, a rise of 24% on the previous survey. 31% expected business to remain level, and 38% believed their prospects would improve.

When asked to rate the level of business undertaken between October and December 2007 with the previous quarter, there was a similar three-way split. 38% reported that business volumes had improved, while 27% reported that business volumes were down, compared to the previous quarter.
And around a third thought that business volumes would fall in the first quarter of 2008.

Profitability figures were stronger. More than half (52%) of respondents reported that their profit margins remained stable for the last quarter of 2007, while 28% saw a fall in margins. But 60% predicted that their profit margins would remain steady in the first three months of 2008, and 32% expected an increase in profit.

Turnover

The majority of companies expected turnover to remain broadly level in Q1 of 2008. Splitting this into regions, this was particularly the case for Scotland, where 71% expect business to remain level, and 29% expect it to rise.

For Asia, 50% expect business to remain level, 38% expect it to rise, and the remainder expect business to fall.

And for the US, 56% expect business turnover to remain level, 22% expected a decline and 22% expect turnover to rise.

Investment, Research & Development and Employment

In predicting the first quarter of 2008, the trend was towards steadying or increasing levels of investment, R&D and employment.

There were mixed results on employment, with 19% of respondents reporting a drop in headcount for Q4 of 2007, up 12 percentage points from the Q3 forecast.

But looking forward, the majority of respondents forecast either an increase (38%) or level (46%) rates of employment for Q1 of 2008. A smaller but increasing number of respondents (15%) expect employment to decrease in Q1. Owen Kelly, chief executive of Scottish Financial Enterprise, said:

"These quarterly results very much reflect the environment in which we are operating . It is quite volatile and some decline in confidence is unsurprising. However, the diversity of our industry in Scotland and the continuing focus on the long term, for many of our member companies, offer some resilience.

The disparity in levels of confidence around business prospects in Asia and the US also reflect the well-recognised international conditions, as well as the longer term growth trends in China and other Asian markets."

Rosemary Stark, Capgemini vice president, financial services, commented:

Current market conditions are clearly very challenging for the industry. The survey demonstrates more subdued forecasts for Q1 with stability for most respondents in 2008 beyond that, highlighting the long-term nature of much of the investment business within Scotland. Interestingly confidence within the asset servicing sector is marked in comparison to the investment managers sector, indicating a strong move towards investment in tangible assets rather than mortgage-based investment. This is a clear indication of the industry’s desire to manage its risk in the current climate."

To download the full report, please click here.

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