Economic Report 2018

Although EBITDA margins are a good method for comparisons across sectors, they should only be taken as a rough guide to a company’s performance. This is because they do not account for exceptional items such as restructuring costs, which have been required by many companies throughout the downturn, nor do they consider any repayments on capital expenditure. As a result, the margins of highly capitalised sectors (such as Rig & Drilling Contractors) may be being represented as artificially high. Insolvencies and Merger and Acquisition Activity Current margin and cash flow levels are unsustainable for many businesses and as a result there has been an increase in business failures during the downturn. Yet supply chain companies have, in general, demonstrated resilience over the last four years. Although there has been an increase in business failures in recent years, this has not been as great as may have been expected; 13 supply chain companies filed for insolvency in 2017, with a further three in the first quarter of 2018. This compares with 24 in 2016 and 15 in 2015. Many companies have managed to drive efficiencies through their businesses and operations to remain competitive and preserve cash flow. Despite this, cash flow concerns persist across the supply chain.

1

2

3

4

Figure 28: UK Oil and Gas Supply Chain Company Insolvencies

5

12

6

10

8

7

6

8

4

Number of Insolvencies

2

9

0

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 2010 2011 2012 2013 2014 2015 2016 2017 2018

10

Source: BEIS

Drivers Behind the Changing Supply Chain Business Landscape In an attempt to adapt to the challenging business conditions, there has been an increase in consolidations and M&A activity across the supply chain. This has allowed companies to improve their position in the market, offer new integrated services, reduce costs and drive new efficiencies.

11

53