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Capital Confidence Barometer, November 2015: Power & Utilities | 13th edition

Sector boundaries blur as utilities seek growth through innovation

Optimism returns as deals hit five-year high

Our 13th Power & Utilities (P&U) Capital Confidence Barometer reveals that confidence in the global economy and intentions to pursue M&A among P&U executives have reached a new high. 81% of those surveyed see the global economy as improving (up from 51% one year ago), while 58% expect to actively pursue acquisitions in the next 12 months (up from 40% one year ago). This renewed optimism has been reflected in recent transactional activity – global deal value reached US75.5b in Q3 2015, a five-year high.

Positivity towards market though risks remain

Rising confidence is largely due to easing global financial conditions, a more neutral fiscal policy in the Eurozone and lower fuel prices. Most P&U executives are positive towards leading market indicators including corporate earnings and equity valuations. Quantitative easing in the Eurozone and Japan, low interest rates in several markets and policy shifts in China are boosting credit availability. 70% are confident of short-term market stability, despite ongoing volatility. It’s this volatility in commodity prices, as well as political instability and economic uncertainty in the Eurozone, that are seen as the biggest risks to business over the next 12 months.

Technology will drive innovative growth

Many (68%) executives plan to pursue growth through leveraging technology or R&D to develop new products and services. We see opportunities for this innovative growth through increases in distributed solar installations, cheaper energy storage, grid modernization and smart meters. Still, while it is encouraging to see utilities prepared to adapt their businesses in response to sector transformation, the focus in boardrooms remains firmly on cost reduction. More than half of respondents prioritize cost reduction and operational efficiency over growth, most likely because of ongoing economic and market pressures in some regions.

M&A activity set to rebound

The stage is set for an exciting 12 months in the P&U sector – 76% of respondents expect the global economy to improve. More than half of those we surveyed expect to actively pursue acquisitions in the next year with increased confidence in both the quantity and quality of deal opportunities.

While most plan acquisitions that will add to existing capabilities, many are planning deals outside the industry as they review business models amid a changing sector. Of those looking beyond P&U, many are focusing on government and the public sector, a reflection of the investment opportunities presented by numerous reform agendas.

Australia, the US, the UK and Germany are preferred investment destinations, which may be due to a slowdown in emerging markets and the high-quality assets on offer in these developed countries.

Key findings

EY - Power & Utilities Capital Confidence Barometer

About this survey

The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas — EY’s framework for strategically managing capital.

It is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU). Our panel comprises select global EY clients and contacts and regular EIU contributors.

Respondent profile

  • In August and September, we surveyed a panel of more than 1,600 executives in 53 countries; more than 850 were CEOs, CFOs and other C-level executives. In this survey, we had 113 respondents from P&U companies; 52% were CEOs, CFOs and other C-level executives.
  • P&U companies’ annual global revenues ranged from less than US$500m (14%); US$500m– US$999.9m (25%); US$1b–US$2.9b (24%); US$3b-US$4.9b (11%) and greater than US$5b (26%).
  • Global company ownership was publicly listed (65%), privately owned (31%), government/state-owned (2%) and family-owned (2%).