- Growth in UK marketing budgets maintained…
- …but uncertainty and cost pressures weigh on budgets
- Internet remains best performing sub-category but main media underperforms
- Company financial prospects positive, but concerns over wider industry performance
- UK adspend growth shows resilience in 2017, but set to slow markedly in 2018
Weakest rise in budgets since Q1 2016
The marketing budgets of UK private sector companies continued to be expanded during the final quarter of 2017, reveals the Q4 2017 IPA Bellwether Report, out today (17 January 2018).
Latest data showed that 23.9% of marketing executives raised their budgets during the latest survey period, generally as part of efforts to support brands, aid the launch of new products or in response to greater competition. However, cost pressures led in some cases to budget realignments as part of wider company efforts to protect profitability. There were reports of client caution and ongoing economic uncertainty weighing on sales, and these factors led to 15.2% of panellists reporting a cut to their total marketing budgets.
The resulting net balance of +8.6% was down from +9.9% in the previous quarter and the lowest since the start of 2016. Although growth has weakened for a second successive quarter, marketing budgets have been continuously expanded since the end of 2012.
Internet marketing records robust, but much slower, growth in Q4
Anecdotal evidence indicated that the recent trend towards greater digital marketing continued in the fourth quarter, with a number of respondents commenting on making greater usage of search/SEO and social media tools. Some panellists reported refreshing and re-launching their websites.
The net result was a further increase in overall internet marketing spend, extending a run of growth in this Bellwether category to eight-and-a-half years. However, the respective net balance of +10.9% was notably down on the previous survey’s +17.0% and the lowest recorded since Q3 2016.
Other Bellwether categories to register expanded budgets during the latest survey period were events and main media advertising.
Events budgets were raised for the seventeenth successive quarter, with companies noting the positive sales impact of direct client engagement. However, the net balance of +5.5% was down from +9.4% to signal a slower rate of expansion in the latest survey period.
Meanwhile, main media advertising returned to growth after the previous quarter’s stagnation. However, at +1.7% (from 0.0%), the net balance was indicative of only modest growth. Moreover, with internet a sub-component of the main media category, latest data implies a disappointing quarter for spending on the ‘big-ticket’ marketing areas of TV, press, cinema and radio.
Marketing budgets for all other Bellwether categories were reduced during the final quarter of 2017. PR recorded the lowest net balance (-6.6%, down from +7.2%), followed by other (-5.8%, from +2.3%) and market research (-5.4%, compared to Q3’s -2.4%). Meanwhile, direct marketing (-4.5%) and sales promotions (-3.0%) both returned to contraction territory following stagnations in the previous survey period.
Financial prospects continue to underwhelm
The Q4 2017 Bellwether survey indicated that company financial prospects remained in positive territory, with a net balance of +10.6% of panellists more optimistic than three months ago. That said, the latest reading was slightly down on the previous quarter’s +11.1% and remained below the average for the survey to date.
Companies remained pessimistic about wider industrial prospects, with a net balance of -12.1% of companies becoming less confident when compared to three months ago. That compared to a net balance of -8.2% in the preceding survey.
2018 adspend growth predicted to be 0.3%
With business investment – and for that matter the wider economy as a whole – showing some unexpected resilience last year, the Bellwether Report has revised up its adspend growth forecast for 2017 to 1.4% (previous 0.6%).
However, with the Bellwether showing a loss of growth momentum in budget setting during the second half of 2017, we expect this to spillover into 2018.
With consumer spending set to remain under pressure from an ongoing real wage squeeze in 2018, adspend is set to rise by just 0.3%. Subdued growth occurs in spite of the positive tailwind to adspend that will emanate from the staging of the football world cup during the summer.
Adspend growth picks up in 2019, but remains weak at just 0.7% before improving to 1.0% in 2020. In line with forecasts of improved economic growth, adspend is set to rise by 1.4% and 1.6% during 2021 and 2022 respectively.
Commenting on the latest survey:
Says Paul Bainsfair, Director General, IPA: “Looking at quarter-on-quarter results it is clear that uncertainty from the wider geo-political situation continues to affect a cautious approach from marketers regarding their budgets.
“That having been said, we must take comfort in the fact that budgets have been revised up overall in Q4 and that as ever the ability for advertising to drive business growth cannot be underestimated.”
Says Dr Paul Smith, Director at IHS Markit and author of the Bellwether Report:
“A relatively lacklustre fourth quarter ensured that 2017 proved to be a year of two halves. After a strong first half, marketing budget growth was notably slower in the final six months of 2017 culminating in Q4 with the weakest upward revision to budgets since the start of 2016.
“Whilst fears of a sharp deterioration in the UK economy following the surprising EU referendum result in 2016 have so far proven to be unfounded, the current trend in growth signalled by the Bellwether survey is nonetheless consistent with an economy undermined by ongoing Brexit uncertainty and an increasingly common “wait-and-see” attitude amongst businesses and consumers alike.
“Companies have subsequently adopted a similar attitude towards their marketing budgets. Whilst willing to expand in perceived cost-value areas such as digital they continue to do so by weighing down on budgets related to traditionally bigger-ticket main media campaigns.”
An unprecedented Black Friday: How can retailers prepare?
Retailers must invest heavily in their online presence and fight hard to remain competitive as a second lockdown stirs greater uncertainty
With an unprecedented Black Friday and Cyber Monday weekend on the horizon (27th – 30th November), eCommerce hosting and consultancy expert, Sonassi, advises retailers to strengthen their online presence and make the necessary preparations for a fatigue in consumer spending.
James Allen-Lewis, Development Director at Sonassi, explains: “This year’s golden quarter has squeezed together three of the biggest sales periods like never before, meaning retailers will have to fight harder than usual to remain competitive this Black Friday. With greater discounts over a longer period of time, alongside the fact that a second lockdown has moved everyone and everything online, retailers will be battling it out for a share of decreasing consumer spending.
“However, this sense of uncertainty should not deter merchants from implementing their sales strategies this Black Friday and Cyber Monday weekend. Instead, they must go further than simply providing online discounts and tackle challenges head on by re-focusing their efforts on creating a highly competitive user experience. Successful merchants will make the necessary preparations for a change in consumer demand and invest more heavily in their eCommerce infrastructure.
“One way in which retailers can do this is by using last year’s Black Friday as a case study to inspire their future response. For example, retailers should take note of the key consumer behaviours that transpired throughout last year’s mega peak in discounting and plan accordingly for the upcoming Black Friday and Cyber-Monday weekend.
“Tactics such as providing the ultimate online delivery service and secure payment methods will also be pivotal for retailers looking to survive a fatigue in online spending. Consumers will look to retailers who do not overpromise on items like next-day delivery and ensure their checkout process is safe and frictionless for all. It is the retailers who embrace this fact and meet the needs of the conscious consumer that will win their share of consumers wallets.
Allen-Lewis concludes: “With Black Friday and the build-up to Christmas just around the corner, retailers must adapt to changing consumer demand, invest more heavily in their eCommerce infrastructure and focus their efforts on creating the ultimate online experience. The only way to plan ahead amid challenging times is to listen to the needs of the customer.”
Optimistic outlook for 2021 public M&A
Optimism is returning and the outlook is positive for the Australian M&A market in 2021 after a COVID-induced crash in deal activity in 2020, according to Corrs Chambers Westgarth’s tenth M&A 2021 Outlook report.
The special report reveals that an environment of historically low interest rates positions M&A as a significant means of achieving growth and generating returns, including for private equity firms looking to deploy capital and strategic buyers focused on complementary acquisitions.
With the unprecedented challenge of the COVID-19 pandemic, global political instability and arguably the greatest economic challenge since the Great Depression, M&A 2021 Outlook details somewhat surprising trends emerging for the next 12 months and analyses a number of common COVID-19 myths and their influence on future M&A deal making.
Corrs’ detailed examination of the Australian M&A market draws on data taken from the firm’s proprietary database of transactions combined with in-depth research for the 12-month period ending 30 September 2020.
Key trends identified in the report include a rapid escalation in M&A levels and an increase in creativity in pricing and speed in closing deals, while also highlighting the critical need for support from target shareholders. Conditions also appear to be set for a continued rise in equity prices as a result of the ongoing influx of capital into Australian equity markets, making it imperative that bidders employ strategies to move quickly on M&A transactions.
Discussing the M&A 2021 Outlook, Corrs Head of Corporate, Sandy Mak, said “Despite a challenging year, our research indicates that 2021 could well see the volume and value of deals continue to grow. We are already witnessing this uptick in activity and while some industries and sectors are seeing a faster rebound than others, early indications are that the wider public M&A market will continue to strengthen over the coming months.”
Based on its detailed research, the M&A 2021 Outlook report discusses further key findings including:
- Deal volume and value is the lowest since 2016, however volumes have shown significant recovery since June 2020.
- More than 50% of deals in 2020 were ‘hostile’ and not recommended at the outset.
- 71% of deals over A$500 million were structured by way of a takeover – a significant increase from prior years – largely as a result of increased competition for assets through rival bids.
- Despite border closures and the tightening of foreign investment regimes, the percentage of deals with foreign bidders has increased materially since April 2020.
5 steps for SMEs to budget properly for the coming year
By Fabio Comminot, Head of Dealing, Switzerland at Ebury, one of Europe’s largest Fintechs, has provided a five-step guide to make sure budgeting is done on time.
During the challenging times of COVID-19, it is difficult to forecast orders and costs. This is especially true for SMEs that operate internationally and therefore are exposed to currency fluctuations and market movements. So budgeting is immensely important.
Autumn is budget season for most companies. Upcoming project costs, sales and fixed costs must be defined or forecasted. Budget planning should be as accurate as possible right from the start of the process to avoid unexpected consequences at the end of the year..
With the effects of the COVID pandemic it has become difficult for all companies, no matter their size or history, to plan and make sales forecasts. Early planning and hedging are especially important for companies that work internationally and are therefore particularly exposed to currency risk.
These five steps will help SMEs take the right measures for the coming financial year, in time for budget season:
Step 1: Estimate your costs or sales in foreign currencies
As difficult as it may seem, every company must estimate its expected fixed and variable costs for the coming year. Most companies can forecast their revenues based on experience or existing orders.
However, start-ups or young companies should also be able to at least estimate their costs including rents, insurance, wages and production costs. Special attention should be paid to costs or revenues that are spent or received in a foreign currency.
Step 2: Profit or cost assurance – define the strategy
As soon as an approximate plan for the coming year is in place, the company should consider the importance of currency management. Regular earnings or expenditures in foreign currencies are exposed to movements in exchange rates. If costs in a foreign currency are to be forecasted until the end of the year, the company needs to minimise volatility. This means that the exchange rate should be fixed so that there are no unexpected negative consequences at the end of the year.
Another option would be to protect the operating profit. Fluctuating exchange rates can rapidly ruin intended profit margins. In this case the company could aim to define the forecasted sales in the foreign currency and fix the margin based on this.
Step 3: Fix your budget rates
The budget is set, the currency management goals are defined, the major part is done. Now it is a matter of defining the budgeted rates for the various currencies based on the current exchange rate. A buffer of about 5% can be useful when doing this – for example. instead of fixing the exchange rate from US dollar to Swiss franc at the current 91 cent, a rate of 95 cent could be budgeted. In this way, the minimum budget rate is defined and any negative exchange rate movement can be at least partially compensated for.
Step 4: Define the hedging strategy
With the targets and the budget course set, the next questions are: What currency developments can be expected? What is the industry outlook? Is the order situation relatively secure? Or is there practically no empirical data?
This step is where Ebury can support the company. Our experts in FX markets help answer these questions and begin to define the individual hedging strategy.
Step 5: Ensure a flexible fit
It’s done: the measures have been defined, now it’s time for implementation.
Ebury will implement the previous steps and , so that the company focuses on its core business. In contrast to traditional financial services providers such as banks, Ebury constantly monitors international trade and political events in order to assist clients with strategy adjustments. The Ebury team is supported by state-of-the-art technology and international currency analysts. It makes no difference whether the changes are driven by the currency market or whether the company’s order situation itself is changing. This allows the SME to focus on its operational business, which is worth a lot in uncertain times like these.
Barclays announces new trade finance platform for corporate clients
Barclays Corporate Banking has today announced that it is working with CGI to implement the CGI Trade360 platform. This new...
An unprecedented Black Friday: How can retailers prepare?
Retailers must invest heavily in their online presence and fight hard to remain competitive as a second lockdown stirs greater...
What’s the current deal with commodities trading?
By Sylvain Thieullent, CEO of Horizon Software The London Metal Exchange (LME) trading ring has been the noisy home of...
Optimistic outlook for 2021 public M&A
Optimism is returning and the outlook is positive for the Australian M&A market in 2021 after a COVID-induced crash in...
The ever-changing representation of value
By Vadim Grigoryan, Partner, Lunu Solutions Ask a selection of people about cryptocurrencies and you’ll likely receive a wide range...
Revolut Junior introduces Co-Parent – teach children about money together
Premium and Metal customers can invite a team mate to jointly manage their child’s Revolut Junior account Setting Tasks, Goals...
The Next Evolution in Banking
By Young Pham, Chief Strategy Officer at CI&T Everything we know about banking is about to change. A new industry...
Equity Sharing – How do you choose the right plan for you?
By Ifty Nasir, co-founder and CEO of Vestd, the share scheme platform In a survey of 500 SMEs, nearly half...
Cash was our past, contactless is our present, contextual payments are the future
By Jason Jeffreys, founder of FETCH $6tn in the next five years, this is how much the world will spend...
Iron Mountain releases 7-steps to ensure digitisation delivers long-term benefits
Iron Mountain has released practical guidance to help businesses future-proof their digital journeys. The guidance is part of new research that found...