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Automation in 2018: the fourth industrial revolution

UK companies should start to see the benefit of increased demand this year
January 4, 2018

“Automation” has been dropped into many a report and speech over the past year, but its buzzword status should not belie its potential to transform multiple industries. At a time when management teams must capture and analyse huge swathes of ‘big data’, its potential to reduce costs and increase productivity is extremely attractive. 

The UK government’s ‘Industrial Strategy’, published in November, identified artificial intelligence (AI) and big data as one of four areas where Britain might “lead the global technological revolution”. As the driver of automation, AI could – by one estimate – add £232bn to the UK economy by the year 2030.

Despite this huge addressable market, chancellor Philip Hammond pledged just £75m to AI research in his latest Budget. Blue Prism (PRSM), perhaps the best-known automation specialist on the London Stock Exchange, has a market capitalisation of £787m – making the government’s investment look like a drop in an ever-expanding ocean.

The stellar performance of Blue Prism's shares since it listed almost two years ago points towards the confidence that many investors have in robotics and automation. Those who bought into the robotic process automation (RPA) specialist after its IPO in March 2016 will have made more than a 1,300 per cent return on their investment.

A recent trading update indicated the continuing demand for Blue Prism’s products. The group, which uses ‘software robots’ to automate back-office functions in global organisations, won 609 software deals during the year to 31 October 2017; up significantly from 189 deals a year earlier. However, it will need to start generating a profit for the shares' strong run to continue. 

Automation is not just confined to the office. In retail, some UK-listed players continued to automate their factories in 2017. Ocado (OCDO) recently announced the development of its “latest generation, state-of-the-art automated warehouse” to cater for the new international partnership with France’s Groupe Casino. But, as we noted at the time Ocado’s usage of robots hasn’t come cheap – net debt has been rising.

Asos (ASC) and Boohoo (BOO) also rely on automation. The latter announced a £50m fundraising back in June to pay for a “new automated super-site” of around 600,000 sq ft. This should bring the group over £2bn in net sales capacity on top of the £1bn provided by its extended Burnley site. In the new year, we may see more retailers developing autonomous capabilities, with a view to streamlining the order fulfilment process.

But can UK companies automate at the same pace as their overseas competitors during 2018? The UK government's investment may help smaller businesses jump over initial hurdles, but it seems more likely the best will be acquired by US tech behemoths such as Alphabet (GOOGL) and Amazon (AMZN), which dominate in AI and automation.