Responding to Recession KB RBS

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					Responding
to Recession
Research examining how UK
Corporates have and are
responding to changes in the
economic environment

Prepared for:
Corporate & Institutional Banking (CIB)




Prepared in compliance with the international quality
standard covering market research, ISO 20252 by:


Illuminas EMEA
Tel: +44 207 909 0929
CONTENTS




RBS FOREWORD                                                  4
EXECUTIVE SUMMARY                                             5
STATE OF THE NATION                                           6
LOOKING AHEAD                                               10
BORROWING BEHAVIOUR                                         17
MORE FUNDAMENTAL SHIFTS                                     20
APPENDIX: Research background and sample breakdown          26




“Responding to Recession” – Illuminas                Page 3 of 28
RBS FOREWORD

Responding to Recession

Recent economic challenges have had a significant impact on UK businesses.
To help our customers benefit from the experience of others, RBS commissioned
independent research company Illuminas to speak to a wide selection of senior
decision makers to understand how the corporate world has been faring over the
past 12 to 18 months.

More than 300 interviews have been conducted with business leaders from
a range of organisations with an annual turnover in excess of £25m.

Encouragingly, the majority of those interviewed are more positive than they were
this time last year. Following views on their experience of the last year, you’ll also
find insights into four fundamental shifts which look likely to impact UK corporates
in the medium term.

Firstly, an underlying theme of risk management has resulted in, for example,
greater emphasis on forecasting and tighter management of working capital.
Likewise, cost reduction and prudence have become new watchwords for most
senior decision makers. The pressure of the recession has also forced businesses
to refocus on core competencies and identify where true value lies. Finally, and
in contrast to previous recessions, there are stark differences in behaviour and
attitudes between internationally and domestically focused companies.

We remain committed to supporting you and your organisation. If you would like to
discuss any requirements or find out more about any products and services that
might help you sustain and build for the future please do not hesitate to contact
your Relationship Director.

Angela Potter
Managing Director
Product, Sales & Marketing
Corporate & Institutional Banking




“Responding to Recession” – Illuminas                                         Page 4 of 28
EXECUTIVE SUMMARY

   n    UK Corporates have responded to the recession by focusing on the basics
        of management and adopting short-term fixes

   n    The issues businesses have had to deal with extend far beyond the
        credit crunch

   n    Some Corporates have experienced upsides to the recession

   n    The outlook is more positive now than last year (though it is relatively fragile
        and varies across different sectors of the economy)

   n    There is a distinct lack of visibility which is impacting on the decision making
        process – this is compounded by uncertainty surrounding the likely
        complexion and policies of the next government

   n    Borrowing intentions are down – explicitly because Corporates are holding
        cash and implicitly due to the same lack of visibility

   n    More fundamental and longer lasting shifts that the research suggests have
        occurred include:

            – Stronger focus on risk management
            – Productivity measures adopted during the recession are likely to remain
            – Re-evaluation of business models to seek value and re-define core
              competencies
            – Globalisation winners and losers are more visible




“Responding to Recession” – Illuminas                                           Page 5 of 28
1        STATE OF THE NATION

To begin with we asked UK Corporates to reflect on their experiences over the
last year or so; how they were coping and whether there was any positive news.


1.1 Back to basics and short-term fixes

In speaking to the Finance Directors
of UK Corporates we noted some                “There are probably a number of
parallels with consumer research we           clients there who had facilities that
have conducted over the last two years.       have been over generous but who
There was a sense of acceptance that          have subsequently been massively
some businesses (though never those           impacted by the recession.”
we spoke to of course!) may have              COO, £25m, Marketing Services
been over-leveraged or enjoying credit
facilities which they didn’t always need.


                                            One COO of a marketing services
    “We had an overdraft facility which     company admitted that the overdraft facility
    was more than we needed...we’d          his company had previously enjoyed had
    get lazy in enforcing payment           indirectly encouraged them to offer more
    terms and use the facility instead.”    flexible payment terms towards their own
    COO, £25m, Marketing Services           clients, pay the overdraft fee they then
                                            incurred and happily absorb the costs.


The recession forced many Finance Directors to address the niggling concerns
which a more buoyant economy allowed them to forget. These issues ranged from
FX exposure, to the more prosaic tasks of cost management, working capital
management, payment terms and accurate forecasting.




“Responding to Recession” – Illuminas                                         Page 6 of 28
Many commentators (RBS Group Economics included) have observed that this
recession has not been accompanied by the turmoil in the labour market seen
in previous recessions. The qualitative research did reveal some instances of
significant staff reductions (one business travel specialist reduced headcount
by 20%); however, in most cases the approach taken had one or both of the
following characteristics:


	   n   Taking advantage of the conditions to fix a longer term problem
        (such as replacing lower skilled, less productive permanent posts
        with temporary contracts)

	   n   Pushing current staff to take on new responsibilities (whereas previously
        a new team would have been hired)


So, whilst the worse has been avoided for now, those interviewed had been
trying to take steps to be able to react quickly by planning for more drastic
headcount reduction should a double dip recession materialise. This was
a task which some believed is far harder in 21st Century lean operations than
during previous recessions.



    “Industry has gone so lean and mean in the last few years, that we simply
    can’t drop any more people because we can’t do the activity. The excess
    capacity that was there twenty-five, thirty years ago, is not there to be
    taken out again.”
    FD, £1bn+, Telecoms




“Responding to Recession” – Illuminas                                           Page 7 of 28
1.2 Not just the credit crunch

The major issues faced over the last 12 months by UK businesses, whilst possibly
related to the credit squeeze, extend significantly beyond it. The issue at the
forefront of most people’s mind is a contraction in domestic demand, mentioned
spontaneously by 39% of those interviewed. The unwillingness of banks to lend,
whilst critical to some businesses, has not been a major issue for the majority over
the last year.


Fig 1. What were the major issues that your business faced over the last year?
                                                                                                          Total mentioning (%)

                   Shrinking domestic demand                       39                                26           65


             Instability in the financial markets       7              27              34


                 Cost pressures from suppliers          11              22          33


 Increased price competition in core markets 3                    28              31

                                                                                                    Spontaneous
                                                                                                    Spontaneous
                               Low interest rates   3         25             28
                                                                                                    Prompted

                     Working capital shortages          11         16        27


                                    Weak sterling       8    12         20


   Shrinking demand in international markets            7    13         20


                   Banks’ unwillingness to lend         7    13         20
                                                                                  Base: All (300)




“Responding to Recession” – Illuminas                                                                              Page 8 of 28
1.3 Upside to the downturn?

When asked if there had been any upside to the downturn just over half (52%) of
those interviewed gave a resounding “no”. The most frequently mentioned upside
was the disappearance of competitors. Some of those interviewed in depth in
the qualitative research gave examples of price-driven, low margin competitors
who had gone and would not be missed. The more “back to basics” behaviour
mentioned earlier was also present in the quantitative research (7% mentioning
“downturn forces a focus on efficiency” as an advantage).


Fig 2. What opportunities or advantages, if any, did the downturn create for your business?

                    Some competitors gone                                      20


                 Forces focus on efficiency                           7


                    Labour market flexibility                     5


                Improved export prospects                         5


                                        None      0.5                     52
                                                Base: All (300)




One CEO we spoke to mentioned that the downturn and tighter credit meant that
previously questionable acquisitions were now definitely off the radar.



   “In the past – maybe a business would come up. You’d think – it doesn’t quite
   fit with our core business but the financing’s there… it’s cheap and you’d be
   tempted. Now it’s an easier decision – it doesn’t fit with what we do.”
   CEO, £253m, Media & Exhibitions



Although 20% had earlier mentioned “weak sterling” and “shrinking demand in
international markets” as major issues – for some (5%), the corollary was that
export prospects were improved. Proof once again that in an increasingly globalised
economy, businesses with a geographically broad customer base can benefit from
a downturn and associated FX fluctuations.


“Responding to Recession” – Illuminas                                               Page 9 of 28
2        LOOKING AHEAD

Given the gut-wrenching nature of the contraction in the UK economy in this
downturn (over 6%) – it is perhaps not surprising that UK Corporates are more
optimistic now than 12 months ago. Many of those we spoke to were confident
the worst was behind them. However, further questioning revealed this
confidence to be fragile and clouded by uncertainty.


2.1 Apocalypse then

The research found 53% of UK Corporates felt more positive about their own
business than 12 months ago, whereas only 13% were less positive – giving a net
score of +40% more positive. Net positive scores also applied at the sector level
(+33%) and at the level of the economy as a whole (+23%).


Fig 3. Relative to 12 months ago, are you feeling more positive; less positive; much
less positive; or no different, about...?

                                                                      Net score (more
                                 Outlook vs 12 months ago           positive – less positive
          Own
                      13            34                53                           40
        business




      Own sector      13                41              46                    33




        Economy        17                 43               40            23



               Less positive            No change   More positive
                      Base: All (300)




“Responding to Recession” – Illuminas                                                    Page 10 of 28
It’s logical that confidence is higher at the micro level (own business) than the
macro level (economy as a whole) as this is the level at which Finance Directors
have greatest visibility and control. The qualitative research revealed examples of
business sentiment running contrary to perception. However, this was frequently in
relative terms compared to the previous year’s “apocalypse then”.



   “We’ve also won some business –              “I am not saying we haven’t had
   revenue is up year on year about             a downturn please don’t get me
   15/17%, which wouldn’t be difficult          wrong, but I am saying it’s not
   after last year.”                            been as bad as if you just read
   COO, £30m, Travel                            the press, as bad as you think it
                                                might have been.”
                                                FD, £40m, Fashion




“Responding to Recession” – Illuminas                                         Page 11 of 28
2.2 Not all in the same boat

Dissecting the sample revealed some significant variations in business sentiment
(circled in red below) showing variations by turnover, sector and borrowing intention.


Fig 4. Relative to 12 months ago, are you feeling more positive; less positive; much
less positive; or no different, about...?

                        Outlook vs 12 months ago. Net score (more positive – less positive)
                       TURNOVER                                        SECTOR                              BORROWING INTENTION
                                                                                                             (NEXT 12 MONTHS)
                                           46                                                     62                                       45
     Own
                                     37                                             36
   business                                                                                                                           38
                                      39                                       27


                                   40                                                38                                          33
       Own
                                  35                                                34
      sector                                                                                                                    32
                                29                                        22


                                27                                              32                                 13
  Economy                     22                                          21
                                                                                                                            27
                         14                                               21

      £25-100m         £100-250m            £250m+         Consumer            Other        Services         Borrowers          Non-borrowers
   Base: £25-100m (150), £100-250m (100), £250m+ (50)   Base: Consumer (63), Services (63), Other (174)   Base: Borrowers (83), Non (217)




Larger Corporates (turnover £250m+), whilst still positive on the economy, were
significantly less so than their counterparts. This could be due to a number of factors
– not least of which may be access to superior data, analyses and forecasts.


Consumer focused businesses (retail and wholesale) had the most positive view
of their own business prospects. This is not due to any reported sales uplift among
those we interviewed. We suspect that this is due to improved visibility and lower
perceived risk after one of the most significant periods of inventory reduction the
economy has ever seen. This (inventory reduction) is a factor not shared by the
Services sector which, whilst still positive, is notably less optimistic at the business
and sector level.




“Responding to Recession” – Illuminas                                                                                                Page 12 of 28
Those intending to borrow in the next 12 months were less positive on the economy
than those who were not. As we shall see later, the main reason for borrowing
is usually for cashflow rather than investment or expansion and is contingent on
continued low borrowing costs. This may explain borrowers’ relatively stronger
concern over the economy (and, of course, the thorny issue of monetary policy and
interest rates).


2.3 Green shoots or false dawn? ...we don’t know

When asked for their reasons for feeling positive (about their business/sector/
economy) respondents gave multiple explanations – the only reason given by a
sizeable minority was “sales uplift” (mentioned by 44% of “positive” respondents).
This was more likely to be mentioned by businesses with mainly a B2B client base
than those with a B2C client base. After “sales uplift” the other factors mentioned
tended to be more macroeconomic in nature and there was no other single issue
mentioned by more than 10% of those interviewed.


Fig 5. What factors are leading you to feel more positive?

            Reasons for feeling positive (spontaneous)
                             (% mentioning reason)                                    “It is not going to be as

      Sales lift                          44
                                                                                      tough as 2009. There is
                                                                                      a lot more confidence
                                                          Mainly
   More stable                                             B2B
                                                                                 50   now than there was
                             17
    economy
                                                                                      12 months ago. Has
                                                             B2C            34
      Own                                                                             that translated into
    customer              11
   confidence                                                                         more orders yet? Hard
                Base: All positive – All 187, Mainly B2B – 113, B2C – 74)
                                                                                      to tell… but it’s not
                                                                                      translated into less.”
                                                                                      FD, £40m, Fashion




“Responding to Recession” – Illuminas                                                                    Page 13 of 28
When pushed to look a little further ahead it was clear that most UK businesses
are in no mood to make bold predictions. There are however, two clear exceptions to
this rule: taxes (the expectation is that these will be raised by the new Government)
and interest rates (also expected to rise). On issues of inflation, sterling and
domestic demand there was no agreement over whether these would go up or
down. Indeed, 11% of those interviewed did not make any predictions at all.


Fig 6. What are the key developments you are expecting in the UK economy as
a whole over the next couple of years?

                         Key developments expected in next two years
                                                          (%)
                             Interest rates
                                          Up                                     33
                                   Stay Low                            13
                                        Taxes
                                           Up                               22
                                        Down              5
                                    Inflation
                                          Up                      11
                                        Down                      10
                                    Sterling
                                    Stronger                      11
                                     Weaker             4
                       Domestic demand
                                 Up sharply           3
                                  Up slowly                       10
                              Stay sluggish                 6


                                 Don’t know                       11
                                                Base: All (300)




“Responding to Recession” – Illuminas                                                 Page 14 of 28
Some of the evidence from the research points to very different expectations
between those who are planning to borrow and those who are not. We have
already seen how borrowers are less optimistic about the economy than
non-borrowers. The data below shows that Corporates planning to borrow are
also significantly more likely to think that domestic demand will stay sluggish
and sterling will weaken. However, the most telling difference is on interest rate
expectations where borrowers are more likely to predict or possibly hope for
low interest rates. Once again this highlights the delicate nature of the task
facing the MPC over the course of the year.


Fig 7. What are the key developments you are expecting in the UK economy as
a whole over the next couple of years?
                                                              % mentioning
                                               Planning to borrow in   Not planning to borrow
                                                  next 12 months         in next 12 months
                                        Base           83                       217
                  Interest rates to stay low           23%                       9%
        Domestic demand stay sluggish                  12%                       3%
                          Sterling to weaken           7%                       2%




“Responding to Recession” – Illuminas                                                  Page 15 of 28
The Corporates we spoke to in the qualitative research also mentioned factors
which compounded their feelings of uncertainty. These typically included fears
on sovereign debt default and political uncertainty, as illustrated below.


                                                          “The announcements that come
                                                          out post election on spending and
                                                          on tax will have a big impact…
    “Given the massive debt we have
                                                          but it is hard to see what exactly.”
    and the thumping tax increases
                                                          COO, £25m, Marketing Services
    coming through, my own personal
    view is that it (recovery) is very
    much in the balance to be
                                                          “All the stuff we’re hearing about
    brutally honest.”
                                                          our European neighbours’ debts
    FD, £1Bn+, Telecoms
                                                          – we really don’t know how that’s
                                                          going to play out or affect us”
                                                          FD, £40m, Fashion


Corporate indecision and uncertainty were also dominant when respondents were
asked about their recent and future plans. The most frequently quoted business
plan was doing nothing or avoiding risk. This was the case whether respondents
were asked about the recent past or the future – although there were some positive
signs for the latter (20% New markets/sectors, 18% M&A).

Fig 8.
n   So, thinking back, 6-8 months ago –
    can you tell me what your plans for the
    business were?
n   And which of those have in fact                     Fig 9. Which are you planning to undertake
    happened?                                           in the next 18 months – 2 years?

                   Plans for business (%)
                  Plans for business (%)                          Plans for business next
                                                                 Plans for business next
                                                                  18 months 2 years (%)
                                                                 18 months – – 2 years (%)
       Avoiding
      Avoiding                                    37
                                                 37
          risk
        risk                                                  Avoiding risk
                                                             Avoiding risk                                 27
                                                                                                          27
                                                  37
                                                 37

                                                                New
                                                               New
                                                                                                     20
                                                                                                    20
                                                 35
                                                35         markets/sectors
                                                          markets/sectors
          Other
         Other
                                         24
                                        24
                                                                      M&A
                                                                     M&A                            18
                                                                                                   18


                                           28
                                          28                  Financing
                                                             Financing
           None
          None                                                                            11
                                                                                         11
                                                   39
                                                  39        working capital
                                                           working capital

                  Planned 6-8
                 Planned 6-8               Actually
                                          Actually
                  months ago
                 months ago                happened
                                          happened                   None
                                                                    None                                  25
                                                                                                         25
                    Base: (300)
                  Base: AllAll (300)                                           Base: (300)
                                                                              Base: AllAll (300)



“Responding to Recession” – Illuminas                                                                     Page 16 of 28
3        BORROWING BEHAVIOUR

3.1 Borrowing: no need or no willingness
    from banks?

Nearly three quarters (72%) of those interviewed claimed that they had no
intention of borrowing from a bank over the next 12 months.


Fig 10. So thinking about the next year, can I ask you whether or not you plan to
borrow from a bank or banks?

             Plans for bank borrowing
               in next 12 months? (%)                       Why not? (% saying...)

                                                              Cash rich                                      65



                                             Parent company finance                  10



                 28                     72                     No need               10



                                                                    Cost         5



                                                                 Timing       4

                      Yes        No
                                             Banks not willing to lend       1
            Base: All (300)
                                                 Base: All not planning to borrow in next 12 months: (217)




The majority (65%) of those not intending to borrow explained that this was
because they were cash rich. Only 5% claimed this was due to the cost and only
1% due to a lack of willingness to lend on the part of the banks.


Evidence from elsewhere in the research (lack of visibility/forward planning)
suggests that the will to take on debt has fallen. Anecdotal evidence from the
qualitative research supports this. RBS Group Economics also make the point
that profitability has not taken the hammering which might have been expected.




“Responding to Recession” – Illuminas                                                                             Page 17 of 28
However, despite the low cost, bank borrowing intentions* (and general planning)
both appear to have fallen. The evidence therefore suggests that UK Corporates
are treading water and hoarding cash, whilst waiting for clearer indicators (not
least from the new Government).



    *Drop in borrowing intentions vs. 2009 study

    The 2010 figure for bank borrowing intentions of 28% represents a
    significant drop from the 45% as measured by a similar study conducted
    by RBS in 2009.

    The 2009 study was conducted uniquely among RBSG Corporate customers,
    whereas the 2010 study included Corporate customers from other banks.
    The 2009 study included clients in the Financial and Property sectors,
    whereas these were excluded form the 2010 study. When the 2009 and 2010
    results were filtered to ensure that the data is comparable, the data still shows
    a significant year-on-year fall from 41% to 31%.



3.2 The borrowing minority

It should be remembered that            Fig 11. What type of borrowing do you
10% of those not planning to            anticipate using?
borrow from the banks are not
                                                               Instrument (%)
doing so because they can
                                                Commercial loan                                                    40
obtain funding from their parent
company. The 28% who do
                                         Revolving capital facility                                        24
intend to borrow from banks in
the next 12 months are using
                                                  Invoice finance                                17
a range of instruments.

                                                    Asset finance                            13



                                                    Trade finance                          10

                                                    Base: All planning to borrow in next 12 months: (83)




“Responding to Recession” – Illuminas                                                                       Page 18 of 28
Nearly half of the borrowers we interviewed were already in the process of
arranging their facilities. For the vast majority, this represented an increased or
similar level of borrowing. The purpose of the borrowing appeared to be more
tactical than strategic (22% “working capital”, 19% “General”). However, a hardy
13% were borrowing to finance M&A projects.

Fig 12. When are you planning to borrow?
Is that an increase, decrease or no real change relative to your current borrowing?
What will be the purpose of the borrowing?

                      When planning to                Change vs current                                Purpose of
                        borrow (%)                     borrowing (%)                                  borrowing (%)
          Already                                                                          Working
                                         47           Up                           40                                           22
         arranging                                                                         capital

            Next 3
                               10
            months
                                                   Same                             43      General                        19
           Next 6
                                    16
           months

                                                  Down           7                              M&A                  13
       6-12 months              13



          Next year        7                   Refused               10                   Property              11



                                         Base: All planning to borrow in next 12 months: (83)




“Responding to Recession” – Illuminas                                                                                     Page 19 of 28
4        MORE FUNDAMENTAL SHIFTS

There are a few themes which run across one or both pieces of research
conducted and which suggest there may have been some more fundamental
changes which will impact on UK Corporates at least in the medium term.
They have the following characteristics:


	   n   Prompted by hardship

	   n   Focused on traditional risk reduction (through taking greater control)

	   n   Previously desirable but resisted change now acceptable

	   n   Globalisation related


4.1 Risk management is the new black

Increased focus on risk management was an underlying theme of the
conversations we had with UK Corporates. It is worth remembering “avoiding risk”
or doing nothing (“None”) were the most popular business plans for next 18–24
months (mentioned by 27% and 25% respectively).


The examples given by our respondents were:


	   n   Increased accuracy of and attention to forecasting

	   n   Increased authority and operational responsibility for Financial Directors

	   n   Tighter management of working capital

	   n   Balancing less flexibility on client payment terms whilst seeking more
        from suppliers




“Responding to Recession” – Illuminas                                        Page 20 of 28
    “I think there has been a permanent          “My role is Financial Director
    fundamental change in how                    which – these days – is not only
    companies do business, you                   the financial side of it but also
    know, which I think, at least for the        helping to run the company
    medium term, in terms of people              proactively rather than reactively,
    not taking, companies not taking             which I think is how finance
    as high a risk, being cautious.              directors were seen in the past.”
    Growth has been muted. We are                FD, Fertiliser, £450m
    not going to get back to those
    times that we had three years ago.”
                                                 “We are stricter than we were
    COO, £25m, Marketing Services
                                                 a year ago. The recession has
                                                 changed the way all companies
    “My role has expanded from Group             do things. The focus on working
    FD to COO and I am increasingly              capital – the reality is they can
    taking the view of more prudence             only do it a lot better than in
    actually in all respects.”                   the past.”
    COO, £25m, Marketing Services                CEO, £253m, Media & Exhibitions


One interviewee admitted previously in some parts of their business they had
built overheads before being confident in the revenue. Whilst acceptable when
in a growth phase, this was no longer acceptable in the current environment.


    “Building overheads before the revenue is there, we have certainly done that in
    the past. Not any more.”
    COO, £25m, Marketing Services



4.2 Doing more with less
Cost reduction and frugality were the new watchwords for most. Examples included:

	   n   Senior management pay cuts

	   n   No performance bonuses

	   n   Travel bans



“Responding to Recession” – Illuminas                                              Page 21 of 28
    “We did everything we possibly could do to cut costs. Senior management took a
    pay cut. Whatever was not bolted down contractually… was not paid out. It was
    as simple as that.”
    COO, £30m, Travel



Though not expressed in those terms, some Finance Directors, gave examples of
how risk had been transferred to employees:


	   n   A manufacturing and installation company (£29m turnover) had reduced
        the permanent headcount – shifting contracts from permanent to temporary
        staff. Whilst employees on temporary contracts now held greater risk, one of
        the indirect benefits was that core staff felt “safer”

	   n   A fashion company (£40m) had launched a new retail venture by giving this
        responsibility to an existing team rather than recruiting a new one



    “I am sure if we had done this three years ago we would have recruited a team,
    a back office to manage it. What’s happened is you have kind of doubled up on
    people, you have put pressure on people to do stuff that three years ago you
    wouldn’t have done.”
    FD, £40m, Fashion



This new, more puritanical business culture was extended by one corporate
to suppliers by replacing their raw materials buyer with a new one who was
specifically briefed to negotiate harder with existing suppliers.




“Responding to Recession” – Illuminas                                         Page 22 of 28
4.3 Knowing the business you’re in

The pressure of the recession has forced businesses to refocus on their core
competencies and identify where value truly lies. This has taken forms such as:


	   n   Outsourcing non-core or less profitable activities

	   n   Prioritisation of specific NPD projects

	   n   Acceleration of merger plans


Some examples of the above included:


	   n   A manufacturing company (£29m turnover) outsourced production of specific
        components to a supplier who they discovered could produce them for the
        cost of materials they were paying (due to higher volumes)

	   n   A telecoms company (£1bn+ turnover) aware that industry margins are likely
        to fall without further consolidation, accelerated the M&A process as a direct
        result of the recession



    “Consumer marketing is what we’re probably best at… but maybe we
    spread ourselves too thin. We’ve got customer services, retail, real estate,
    networks to run and a brand. Over the next 12 to 18 months we’ve really
    got to make sure we pick the right one and do it really well, otherwise we
    will be relegated.”
    FD, £1bn+, Telecoms



	   n   A licensing and marketing company (£25m+ turnover) sought new
        shareholders from within their own industry to enable them to acquire
        brands. The company realised they were able to evaluate licensing revenue
        potential more accurately than their clients (brand owners). This reflection
        was driven by hardship experienced during the recession (specifically
        a squeeze on working capital for which clients were partly responsible)




“Responding to Recession” – Illuminas                                        Page 23 of 28
4.4 Globalisation: Rocking in the free world

The latest recession has taken place in a world far more globalised than the
previous two. Consequently, some of the behaviour and attitudes identified by
the research have made more stark the differences between internationally and
domestically focused companies.


The volatility in FX markets during and following the financial crisis acted as a
wake-up call to many of those we spoke to. Qualitative research revealed three
typical behaviours as shown below.


         INERTS
         INERTS                               PROSPECTS
                                              PROSPECTS            PROMISCUOUS
                                                                  PROMISCUOUS


                                             Some turn
                                        Some may may turn        Some have turned
  Some will do nothing
                                              to bank
                                         to theirtheir bank     away from their bank




   “The fluctuations                    “Whereas previously        “I say to anybody
   give us problems in                  we just had the risk       ‘take some time do
   certain parts of the                 between sterling           some research’ and
   world with Euros                     and the dollar we          just work out what
   and occasionally                     now have sterling,         the effect might be.
   the Yen etc... but we                Euro and it, that is,      We were getting a
   find that it usually                 it is a concern for        terrible deal from
   smooths itself out.”                 me. Have I done            our bank. I now use
   CEO, £253m, Media                    anything to protect        an FX broker and it’s
   & Exhibitions                        myself against it,         saving us £30–40k
                                        not much yet but I’m       a year… that’s like
                                        looking at it.”            an extra person.”
                                        FD, £40m, Fashion          COO, £25m,
                                                                   Marketing Services




“Responding to Recession” – Illuminas                                                  Page 24 of 28
Other differences that we noticed include the following:


	   n   A greater appreciation among exporters of benefits of non-dependency on
        domestic market

	   n   Exporters appear to be more confident borrowers


Perhaps the most revealing difference between exporters and more domestically
focused companies, was in their outlook for their business, sector and economy.
Exporters were consistently more positive.


Fig 13. Relative to 12 months ago, are you feeling more positive; less positive; much
less positive; or no different, about…?

                                                   Outlook vs 12 months ago:

                       (Net score: saying more positive – % saying more negative)

                                                                                                47
        Own business
                                                                           27


                                                                                 37
          Own sector
                                                                      23
                                                                                      Customer base

                                                                                      Some international
                                                                            28
             Economy
                                                               17                     UK only

                       Base: UK only (99), some international (201)




“Responding to Recession” – Illuminas                                                                Page 25 of 28
APPENDIX

RESEARCH BACKGROUND AND
SAMPLE BREAKDOWN

Objective

“To provide practical insight for senior corporate decision makers trying to
make sense of the current environment, by sharing with them the views of
their peers in organisations across the UK”


The Research

The research had a qualitative and a quantitative phase. The fieldwork (10 depth
interviews and 300 telephone interviews) was run concurrently for both components
in February and March 2010.


All respondents had to meet one of the criteria outlined below:


	   n   Responsible for all decisions relating to financial matters for business and
        also deal with day-to-day banking activities

	   n   Responsible for making overall decisions about banking providers, products
        and services used, but do not get involved in the day-to-day matters

	   n   Have significant influence in the selection of banking providers and products,
        but not the final decision maker


All qualitative interviews were carried out by senior executives from Illuminas.
All quantitative interviews were carried out by a team of trained telephone
interviewers.




“Responding to Recession” – Illuminas                                         Page 26 of 28
All respondents were working for businesses with a UK turnover of at least £25m.
The Finance, Property and Public sectors were excluded from this research.
Quota sampling was used to ensure a spread by turnover and main UK lending
bank. A sample profile is shown below.


                           Qualitative research: 10 interviews


               Job Title                     Sector               Turnover
                   FD                     Refrigeration             £29m
                  CEO                   Media/Exhibitions          £253m
                   FD                       Fertiliser             £450m
                  CFO                         Travel                £30m
                  COO                   Marketing Services          £25m
                   FD                        Fashion                £40m
                   FD                    Manufacturing             £240m
                   FD                     Construction             £100m
                   FD                       Telecoms               £1bn+
                  COO                         Media                £150m


                         Quantitative research: 300 interviews


                              Turnover                       %
                               £25-50m                       39
                              £50-100m                       11
                             £100-150m                       29
                             £150-250m                       4
                             £250-500m                       12
                               £500m+                        4
                                TOTAL                        99




“Responding to Recession” – Illuminas                                        Page 27 of 28
The Royal Bank of Scotland plc.
Registered Office: 36 St. Andrew Square, Edinburgh EH2 2YB
Registered in Scotland No. 90312                             933903 0910

				
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