1 ©2014 Experian Limited. All rights reserved. Experian Public. Department for Business, Innovation and Skills Analysis of Cash Retention Behaviour of.

1©2014 Experian Limited. All rights reserved.Experian Public.

Department for Business, Innovation and Skills

Analysis of Cash Retention Behaviour of PNFCs

March 2015


1. How much cash? Per firm, in total?

2. Is the cash increasing? In absolute terms and as a % of turnover?

3. Is the cash concentrated?

We analyse the PNFC population through the lens of company demographics:

4. Company size (turnover, employees)

5. Complexity (group structure)

6. Industry sector (SICs re-grouped by BIS team)

…does this behaviour appear to have an impact on business investment, and thus on the pace of the recovery?

Given the nature of the granular data, a substantial amount of work was undertaken jointly with the BIS team to identify and remove outliers, and to re-classify certain types of records as non-PNFC etc.

Do we observe that cash is being “hoarded” in the corporate sector?


The analysis draws on the Experian pH database of all UK businesses, the most comprehensive such dataset available, we focused on the subset of 3 million live, trading UK-PNFC firms (there are 2 million more but these are either non-PNFC, or dormant, or foreign records, or very late filers etc; consolidated accounts are also left out to avoid double-counting, as each separate subsidiary is analysed)

For purposes of overall quantifications, key values (such as cash) for firms which do not file accounts are inferred based on the observed values for filers in the same size band and sector

In order to adjust the data to real terms, we have applied a deflator based on the year’s RPI inflation rate across all the analysis in the report.

By necessity, we focus the analysis, aimed at revealing any correlations and behavioural patterns, on the sub-universe of firms which do file accounts and declare cash levels, assets, etc.; they represent nearly half the total firms, but over 90% of total value, as non-filers are mostly sole traders and small partnerships

The types of data attributes used in the analysis include demographic parameters, financial (where filed), and historical

The Data Resource


Selected examples of the top cash holders (and of anomalies):- some are perennial (e.g. WPP, Vodafone)- some build up for a specific purposes (e.g. BP at the time of the US oil spill)- some appear topically (e.g. Easyjet, EDF)

CASH NAMELAST EMPT CASH (£) STRUCTURE

Top 5, 2012 WPP Finance Company Ltd N/A 3,921,339,066 very complex(after outliers exclusions) Vodafone Finance Ltd N/A 3,063,975,660 very complex Easyjet Airline Company Ltd 5000&+ 1,476,935,100 very complex EDF Energy plc 5000&+ 1,105,791,940 very complex Diageo Finance Plc N/A 1,051,709,900 very complexFor ref: Top 5 in 2011 IHS Group Holdings Ltd 10-19 37,692,512,233 ANOMALY BP International Ltd 5-9 11,254,317,000 very complex WPP Finance Company Ltd N/A 4,172,718,542 very complex Vodafone Finance Ltd N/A 4,031,330,009 very complex Network Rail Infrastructure Fin. N/A 2,428,934,600 Independent…and Top 3 2009 Techtronic Industries (UK) Ltd 100-199 4,974,349,723 very complex BP International Ltd 5-9 3,834,880,600 very complex WPP Finance Company Ltd N/A 3,271,054,851 very complex

EXAMPLES OF ANOMALIES NAME £CASH: Nuclear liabilities fund ltd 8,178,000,000,000 £8 trillion!CAPEX: Bow Bells House Ltd Partnership 53,553,514,092


CHAPTER 1: CASH ESTIMATING THE TOTAL UK PNFC CASH HOLDINGHaving removed the outliers, we observe total holdings of £231bn; on average, this equates to £76k per firm, or one month of sales. Within this, the 1.5m reporting firms hold £210bn of cash, (£140k on average) compared to the 1.6m of much smaller, unregistered firms (for which cash is inferred) and who hold very little cash (estimate of £21bn). 2012 data

Number of firms

Total cash held

Average cash balance

Cash as % of turnover

Total live firms (excl outliers) 3.6m £418bn £116k 12%

Of which, PNFC * (excl fin, public, not-for-profit) 3.1m £231bn £76k 8%

Of which, data reported (mean empl size for all firms = 44*) 1.5m £210bn £140k 7%Data inferred (mean empl size for all firms = 6*) 1.6m £21bn £12k 10%

*where reported


VARIABILITY OF CASH HOLDINGSWe observe strong variation by company size, and also by type (independent vs group), and complexity of corporate structure (no. of subsidiaries). There is a considerable “group effect” over and above the size effect - complex group companies hold much larger balances than equally-sized independents. 2012 data

N/A 1-2 3-4 5-9 10-19 20-49 50-99 100-199

200-499

500-999

1000&+

0

5

10

15

20

25Independents

Groups simple

Groups medium

Groups complex

Employment

Ave

rag

e ca

sh (

£m)

Average Cash


CASH RETENTION IS HIGHLY CONCENTRATED As a result of the impact of firm size combined with structural complexity, complex groups, with only 3% of the firms, concentrate half of the total cash (51%); very small independents are 73% of firms, but hold only 16% of the total cash, with 13% for small-to-large independents and 20% for simple and medium groups.No of firms at granular level for groups; outliers within “independents” of no reported size resembling cash boxes of larger groups were re-classified into groups

Independents Group-structured TOTALVery Small Small Medium Large Simple Medium Complex (1-4 empl) (5-49) (50-249) (250+) See note 3 See note 2 See note 1

No of firms 1.1m 172k 10k 1k 114k 57k 44k 1.5m

Total cash volume £33bn £19bn £7bn £2bn £23bn £19bn £108bn £210bn

Average cash balance £30k £113k £629k £1.7m £200k £328k £2.4m £140k

Median cash balance £7k £21k £94k £194k £21k £19k £334k £9k

Cash as % of sales 14% 9% 8% 7% 9% 9% 6% 7%

(1) Members of complex groups: >5 subsidiaries, and >£100m turnover; average empl size at subs level 265, but note 24% are under 10 empl.

(2) Medium = >5 subsidiaries but with <£100m turnover, and <5 subsidiaries but with >£100m turnove

(3) Members of simple groups: <5 subsidiaries, and <£100m turnover; average empl size at subs level 30, note 43% are under 10 empl.


THOSE WITH THE LARGEST BALANCES, HAVE GROWN THEM MOSTSince 2008, the larger and/or the more complex the firm, the higher the increase,in what are already the largest and most concentrated cash holdings to begin with. - Increasing not just in absolute terms, but also faster than turnover.- Smaller independents and simple groups hold the only stable (and small) cash balances.

Full period 2008-2013


THE PATTERN HOLDS OVER TIMEExamining the pattern across all the years, there are some ups and downs but the overall pattern holds: large/complex cash holdings on the increase, small/simple cash holdings reducing or steady.


INTRODUCING INDUSTRY SECTORHighly populated sectors such as agriculture have low average balances per firm. Sectors with the highest average balances, such as pharmaceuticals, have few but very large firms and very high average cash balances. 2012 data

*69-way BIS grouping** not including “Holding Companies”

Sorted by:

Sector Numberof firms

Total cash Averagecash

As % of sales

Top 3* Pharmaceuticals 1k £1.4bn £1365k 4%

Electricity/Gas 3k £2.3bn £687k 3%

Aerospace 1k £0.4bn £529k 5%

Last 3 Agriculture 111k £3.2bn £28k 11%

Repair services 32k £0.8bn £25k 10%

Misc recreational 15k £1.9bn 16k 15%

Largest 3 by Management Consulting 144k £14.5bn £101k 26%

total cash Computing/IT 174k £11.0bn £63k 15%

held Construction (Buildings) 116k £11.3bn £29k 7%


FULL INDUSTRY SECTOR LISTSome sectors concentrate more cash, either in absolute or in relative terms or both – though some of this is driven by differential average company sizes across the sectors. 2012: Overview of cash behaviour by BIS 69-way classification

TBISSIC69Number of

firmsTotal cash

(£Bn) Average cash (£)

Ratio total cash/total turnover

(all)FINANCE 68,828 148.7 2,160,238 42%K1BNK-Banking 14,913 66.9 4,483,368 87%K2INSP- Insurance and pension funding 8,014 33.8 4,221,933 28%K3AUX- Auxiliary financial services 45,688 44.3 968,789 31%K4HLD-Holding companies 153 2.9 18,717,945 27%K5OFI-Other financial instruments 60 0.9 14,399,068 16%PUBLIC 329,503 23.6 71,536 16%O-Public administration and defence 13,154 1.8 135,188 7%P801-2-Nursery, primary and secondary education 33,778 4.8 142,310 15%P853-4-Higher and adult education 74,060 3.9 52,233 18%Q851- Human health activities 145,317 7.9 54,218 17%Q853-Social work 63,194 5.2 82,901 22%RSNPISH 142,574 12.9 90,226 34%PNFC 3,058,667 232.7 76,071 8%A-Agriculture, forrestry and fishing 111,389 3.2 28,732 11%BMQ-Other mining and quarrying 1,755 0.7 400,344 9%BOG-Oil and gas 4,405 2.3 522,850 6%CHMH244-Pharmaceuticals 1,061 1.4 1,364,599 4%CHMH24other-Chemicals excluding pharma 4,642 1.5 318,694 5%CHMH29-Machinery and equipment 20,516 3.3 161,344 7%CHMH30to33-Electrical and electronic 29,522 5.9 199,384 7%CHMH34-Automotive 5,063 2.2 433,127 4%CHMH353-Aerospace 765 0.4 528,921 5%CHMH35other-Other transport 2,209 0.1 51,835 3%CML23,25-26-Fuels, Rubber and non-metalic products 18,401 2.5 134,754 3%CML27-28-Metals and metal products 41,589 4.8 115,470 7%CMLother-Other Medium-low technology 2,937 0.6 195,295 11%CZL15-16-Food, beverages and tobacco 16,198 3.2 194,627 3%CZL17-19-Textiles and clothing 19,948 1.2 61,622 6%CZL20-22-Wood, paper and printing 33,623 2.3 68,369 5%CZL36-Other Low technology 34,113 2.3 66,985 6%D-Electricity and gas 3,324 2.3 687,270 3%E-Water and waste 12,347 2.3 184,107 8%F4521-Buildings 115,850 11.3 97,936 12%F45other-Other construction 293,499 8.7 29,496 7%

Without outliers Without outliers

TBISSIC69Number of

firmsTotal cash

(£Bn) Average cash (£)

Ratio total cash/total turnover

(all)F7011-Real estate development 18,997 3.6 191,796 22%G45other-Other motor trades 74,858 2.2 29,370 4%G45s501-Sale of motor vehilces 22,380 3.0 134,590 3%G46s511-Wholesale agents 18,168 1.3 73,617 5%G46s512-3-Wholesale of food products 20,035 2.5 124,068 4%G46s514-Wholsesale household goods 27,726 4.7 168,043 7%G46s515-9-Wholesale machinery etc 49,457 7.6 153,409 5%G47other-Other retail 84,826 3.6 42,087 4%G47s5211-Retail supermarkets etc 32,697 1.7 52,488 1%G47s524-Retail specialised stores 158,087 8.0 50,325 5%H6024-Road Freight transport 31,210 2.0 64,355 4%H63-Transport support services 22,709 3.1 136,853 7%H64-Postal 7,600 1.1 146,385 8%Hother-Other transport 37,499 7.7 205,049 12%I551-2-Accommodation 46,004 2.3 50,034 9%I553-5-Food services 178,293 5.2 29,414 9%J22-Publishing 24,928 4.0 161,465 15%J642-Telecoms 16,693 7.5 452,068 18%J72-Computer and information services 174,402 11.0 63,222 15%J92-Broadcasting 28,791 4.1 141,095 12%L7012-Buying and selling of own real estate 27,100 2.4 89,149 42%L7020-Letting of own property 70,660 7.1 100,592 24%L7030-Real estate on fee or contract basis 56,304 4.0 71,351 19%M73-Research and development 7,644 1.5 197,814 17%M7411-12-Legal and accounting 76,820 2.9 37,856 8%M7414-15-Management consultancy services 143,770 14.5 100,526 26%M742-3-Architecture and technical services 96,387 5.7 59,464 10%MPother-Other professional services 61,673 4.8 78,100 15%N71-Rental of machinery and equipment 24,976 2.5 98,371 9%N745-Employment services 26,303 1.7 65,657 5%NAmisc-Miscellaneous administrative services 58,941 4.8 81,785 8%Naother-Other administrative services 232,165 19.5 83,918 18%RS527 and 725-Repair services 32,394 0.8 24,871 10%RS926-Sporting and amusement activities 71,157 2.8 38,854 13%RS9271-Gambling activities 2,515 0.6 251,050 2%RSMisc-Miscellaneous recreational activities 114,641 1.9 16,299 15%RSz9305-Other services acticities nec 106,701 6.4 60,375 18%Total "live" 3,599,572 418 116,068 12%


AVERAGE CASH PER FIRM (y axis) VS TOTAL CASH HELD, PLUS AVERAGE CASH NORMALISED BY TURNOVER: No sector combines both a high average balance and total cash held; the bubbles are proportional to the % of turnover held in cash, which, for example, is much higher for management consultancy than pharmaceuticals. 2012 data

Pharmaceuticals

Buildings

Management consultancy services

Other administrative services


CHANGES IN VOLUME OF CASH AND AVERAGE CASH OVER TIME, BY SECTOR: Water & waste, admin & support services grew in cash the most; mining, real estate and construction are down the most. For average cash, water & waste, transport, admin & support services are up the most; mining, energy, real estate and construction are down the most.

Sector 2008 2009 2010 2011 2012 2013

Agriculture, forrestry and fishing 1.8 1.8 1.8 1.7 1.9 1.9

Mining and quarrying 4.4 3.2 3.0 3.2 2.9 2.5

Manufacturing 32.1 39.0 36.9 46.8 29.0 31.6

Electricity and gas 3.0 2.6 3.5 2.7 2.1 2.9

Water and waste 1.6 1.9 2.3 2.3 2.1 2.3

Construction 28.9 26.5 25.5 22.9 21.1 21.0

Distribution 34.1 31.8 35.8 32.9 30.6 31.5

Transport 11.8 12.5 13.8 14.3 13.0 13.0

Accommodation and food services 5.4 5.2 4.7 4.9 6.2 5.7

Information and communication 26.3 21.9 25.6 25.1 24.9 31.3

Real estate 16.8 16.1 15.8 13.0 12.5 12.4

Professional business services 26.1 30.5 33.0 28.1 26.5 29.8

Administrative and support services 19.7 24.5 27.2 26.2 26.6 30.4

Arts, recreation and other services 9.9 9.7 9.5 10.0 10.6 11.6Total 222.0 227.3 238.3 234.1 210.1 227.9

Volume of cash (£Bn)

Sector 2008 2009 2010 2011 2012 2013

Agriculture, forrestry and fishing 98,072 94,888 92,823 88,281 92,793 91,455

Mining and quarrying 1,186,305 780,315 700,998 730,734 642,233 504,445

Manufacturing 275,460 329,835 319,720 406,358 249,343 265,414

Electricity and gas 2,412,233 1,886,325 2,329,564 1,674,787 1,080,471 1,138,661

Water and waste 345,144 379,378 444,966 426,798 384,691 396,708

Construction 144,778 123,760 122,102 110,070 99,860 96,733

Distribution 186,158 169,270 193,629 174,181 155,871 152,178

Transport 248,606 247,748 330,218 340,376 299,043 281,894

Accommodation and food services 107,525 98,458 88,719 89,495 106,797 89,761

Information and communication 188,026 147,276 170,356 160,798 147,776 169,272

Real estate 157,069 142,894 138,425 111,748 104,176 99,505

Professional business services 146,179 155,205 163,412 133,455 116,755 118,524

Administrative and support services 78,265 92,392 130,995 129,099 130,005 145,888

Arts, recreation and other services 107,860 98,582 94,393 92,965 90,798 89,985

Total 159,210 154,104 169,236 163,372 140,508 143,742

Average cash (£) (cash>=0)

Sector 2008 2009 2010 2011 2012 2013

Agriculture, forrestry and fishing 100 101 101 98 106 108

Mining and quarrying 100 73 69 73 66 56

Manufacturing 100 122 115 146 91 98

Electricity and gas 100 87 117 91 70 97

Water and waste 100 119 144 143 134 145

Construction 100 92 88 79 73 73

Distribution 100 93 105 96 90 92

Transport 100 106 116 121 110 110

Accommodation and food services 100 97 86 90 116 106

Information and communication 100 83 97 95 94 119

Real estate 100 96 94 78 75 74

Professional business services 100 117 126 108 101 114

Administrative and support services 100 124 138 133 135 155

Arts, recreation and other services 100 98 96 101 107 117Total 100 102 107 105 95 103

Indexed volume of cash

Sector 2008 2009 2010 2011 2012 2013



Manufacturing 100 120 116 148 91 96


Water and waste 100 110 129 124 111 115

Construction 100 85 84 76 69 67

Distribution 100 91 104 94 84 82

Transport 100 100 133 137 120 113



Real estate 100 91 88 71 66 63



Arts, recreation and other services 100 91 88 86 84 83

Total 100 97 106 103 88 90

Indexed average cash (cash>=0)


CASH-HOARDING RATIO:

On the evidence, since 2008, the mining sector as a whole has been the largest cash hoarder, followed by the ICT sector, then by manufacturing and water/waste

Sector 2008 2009 2010 2011 2012 2013

Agriculture, forrestry and fishing 9.0% 6.4% 6.4% 7.0% 6.9% 7.1%

Mining and quarrying 4.4% 4.4% 5.7% 7.4% 9.6% 10.9%

Manufacturing 4.6% 5.9% 6.5% 8.3% 5.2% 5.7%

Electricity and gas 6.9% 4.2% 5.7% 4.0% 4.2% 4.5%

Water and waste 9.1% 10.5% 10.9% 10.8% 9.2% 11.1%

Construction 10.1% 8.7% 9.7% 10.7% 9.7% 8.9%

Distribution 3.6% 3.6% 4.4% 4.0% 3.8% 3.9%

Transport 7.3% 7.5% 8.7% 8.9% 9.2% 7.9%

Accommodation and food services 8.7% 7.4% 7.5% 7.7% 9.7% 9.8%

Information and communication 10.7% 12.1% 11.8% 12.8% 12.2% 15.2%

Real estate 26.5% 23.2% 31.0% 21.7% 20.7% 23.2%

Professional business services 11.5% 11.5% 10.2% 10.8% 10.5% 10.8%

Administrative and support services 8.4% 8.3% 7.9% 7.8% 8.1% 9.0%

Arts, recreation and other services 8.8% 7.8% 7.9% 8.0% 7.9% 9.5%

Total 6.6% 6.7% 7.4% 7.6% 6.9% 7.3%

Ratio cash/turnover

Sector 2008 2009 2010 2011 2012 2013



Manufacturing 100 126 141 180 111 123


Water and waste 100 116 120 119 101 123

Construction 100 86 96 106 96 88

Distribution 100 101 122 110 106 107

Transport 100 103 120 121 126 108



Real estate 100 88 117 82 78 88



Arts, recreation and other services 100 88 90 91 90 107

Total 100 102 111 115 104 111

Indexed ratio cash/turnover


AVERAGE CASH BY INDUSTRY SECTOR (ADDS INSIGHT BEYOND THE SIZE VIEW):Holding company size constant, there is some variation from one sector to another in average cash for group firms (e.g. mining consistently above average, accommodation below average)…although for small/medium independents, most sectors cluster. 2013 data

Indep 1-4 Indep 5-49 Indep 50-249

Indep 250+ Simple group

Medium group

Complex group

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Average cash in 2013 by sectors Agriculture, forrestry and fishing

Mining and quarrying

Manufacturing

Electricity and gas

Water and waste

Construction

Distribution

Transport

Accommodation and food services

Information and com-munication

Real estate

Professional business services

Administrative and support services

Arts, recreation and other services

Ave

rag

e ca

sh (

£) i

n 2

013

(cas

h>

=0)


How does borrowing behaviour reflect available cash resources? To what extent do some firms borrow in order to sustain high cash balances?

We use total liabilities as the metric, to encompass reliance on trade debt etc, not just bank debt; this is banded, then cross-tabulated against cash held (also banded), to look for concentrations (see next page, p17).

To facilitate the visualisation of these granular cross-tabulations of numbers, the « bubble charts » (e.g. p19) represent each cell in the table, by a circle whose size is proportional to the number in that cell – in this way, concentrations become very easily apparent.

Bubble charts are especially useful when comparing the relative concentrations of two separate populations: by overlaying two transparent bubble charts, cohorts which weigh more in one population (e.g. small independents), and differentiate it from another (e.g. the overall population), are immediately apparent (see pp20 and 21).

CHAPTER 2 Bringing debt into the picture to get a more complete view of cash


- INTRODUCING THE GRANULAR DATA -DEBT NOT GENERALLY FINANCING OVERALL CASH HOLDINGS, BUT SOME EVIDENCE OF THE CONTRARY AMONGST FIRMS WITH LARGE CASH HOLDINGS (>£10m) (2008 similar to 2013) Overall, in 2013 only 29% of all firms have over £100k of total liabilities (down from 34% in 2008), and only 11% of firms have over £100k of cash. Even focusing on the 21,675 firms in 2013 with over £10m liabilities, a majority of these firms (52%) have under £200k of cash; but 9% of this group show evidence of contrary behaviour with over £10m cash...

0 <10k 10-20k 20-50k 50-100k 100-500k 500k-1m 1-2m 2-5m 5-10m >10mN/A 279 293 106 154 94 131 19 17 12 5 8 1,1180 42,373 46,633 17,795 27,014 19,038 30,909 8,115 5,642 4,787 2,339 6,125 210,770<50k 40,088 299,638 178,522 219,761 112,758 157,433 33,770 19,417 11,584 3,470 3,321 1,079,76250-100k 548 6,256 9,149 29,159 23,095 31,364 6,607 4,065 2,789 969 812 114,813100-200k 340 3,022 3,302 13,075 12,110 29,006 6,648 4,286 2,930 1,173 1,023 76,915200-500k 160 1,545 1,242 4,850 6,200 23,198 8,443 5,420 3,985 1,588 1,732 58,363500k-1m 64 381 209 718 1,123 5,901 4,530 3,542 2,717 1,217 1,520 21,9221-2m 33 174 92 204 295 1,828 1,542 2,361 2,276 1,081 1,755 11,6412-5m 17 55 42 54 80 425 456 727 1,621 1,063 2,126 6,6665-10m 11 8 4 13 7 47 54 111 245 390 1,315 2,20510-20m 5 2 2 4 5 12 13 20 52 86 920 1,121>20m 10 3 1 2 7 9 3 8 22 27 1,018 1,110Total 83,928 358,010 210,466 295,008 174,812 280,263 70,200 45,616 33,020 13,408 21,675 1,586,406

2013 - Number of firms

Cash (£) Liabilites (£) Total

0 <10k 10-20k 20-50k 50-100k 100-500k 500k-1m 1-2m 2-5m 5-10m >10mN/A 1,791 866 328 427 251 375 65 39 29 11 77 4,2590 58,091 102,445 17,377 26,469 19,907 37,268 10,726 7,611 6,275 3,127 6,619 295,915<50k 30,944 209,702 117,958 158,600 93,597 147,514 34,162 20,573 13,161 4,074 3,634 833,919

50-100k 366 4,684 6,008 18,955 20,573 29,408 6,353 3,966 2,822 967 840 94,942100-200k 184 2,404 2,339 8,890 10,121 27,239 6,700 4,094 3,094 1,169 1,070 67,304200-500k 120 1,322 1,071 3,610 5,272 22,158 8,567 5,585 4,091 1,634 1,767 55,197500k-1m 45 308 268 717 1,120 5,942 4,582 3,900 3,024 1,281 1,573 22,7601-2m 24 60 93 250 304 1,839 1,616 2,388 2,549 1,192 1,705 12,0202-5m 20 23 17 94 95 539 488 804 1,787 1,226 2,180 7,2735-10m 14 5 6 13 12 74 77 105 324 428 1,398 2,45610-20m 11 3 1 1 3 19 17 22 69 98 938 1,182>20m 17 3 0 2 0 5 7 13 16 15 1,042 1,120Total 91,627 321,825 145,466 218,028 151,255 272,380 73,360 49,100 37,241 15,222 22,843 1,398,347

2008 - Number of firms

Cash (£)Liabilites (£)

Total


…Of the 21,675 firms in the previous chart, with over £10m total liabilities in 2013:

52% of these have <£200k cash; so clearly not a “hoard”, and at the other extreme “only” 1,938 (11%) also have >£10m cash

But this 1,938 with large debts are the vast majority of the cash “piggybanks” (87% out of the total 2,231 firms with >£10m cash – so the largest “piggybanks” are also simultaneously big borrowers, which suggests possible hoarding.

However, the evidence of hoarding is not conclusive: the case studies below illustrate how the debts of many of these 1,938 firms may still be much larger than their cash balance and therefore is likely to relate to real investment needs, i.e. “normal” behaviour:

The granular data enables us to search still closer for “unusual” types of behaviour among the firms with the largest debt and/or cash figures

Cash (£m) Liabilities (£m)

Company Name Stock (2013)

Change(2012-2013)

Stock (2013)

Change(2012-2013)

Network Rail Infrastructure Finance plc 1,778 1,112 30,016 3,123Tesco Stores Ltd 679 34 22,084 11,060Jaguar Land Rover Holdings Ltd 1,851 1,172 5,741 1,206Heathrow Airport Ltd 34 31 12,511 826

The London Organising Committee of the Olympic 287 263 11,493 1,467


The following analyses (p20-23) are “bubble charts”, which are simply large tables of numbers mapping out all the firms in the market, made more visual for ease of interpretation.

In each case, the number in every cell of the table (which here is the number of firms contained within that cell) has been graphed as a circle which is proportional to that number.

In this way, it is easy to immediately identify the concentrations within the populations, as well as to infer possible correlations between the dimensions portrayed by the table (in this case, the amount of cash and liabilities held by the individual firms, banded).

This data-visualisation technique is especially useful when comparing two different populations (for example, spotting concentrations which make large independents different from the overall population, then similarly for large groups against the overall, etc). As shown in p21-22, this is done by overlaying one population (e.g. large independents, in red, on top of the overall, in clear), revealing at a glance areas where they are over-represented (the red exceeds the clear bubbles), and those where they are under-represented (the red is smaller than the clear).

Now for an overall view of the market - methodological note


THERE IS NO OBVIOUS MASS BEHAVIOUR OF BORROWING PURELY TO SUSTAIN HIGHER CASH BALANCES… in fact the bubbles show that the bulk of firms hold under £50k or 0 cash (68% + 13%), most of which also hold <£50k liabilities.The cohort of firms with >£500k cash and >£1m liabilities, i.e. where significant hoarding could perhaps be taking place (and which we will investigate in more detail later), is very small.


FOR EACH OF THE 4 CHARTS, THE CLEAR BUBBLES REPRESENT THE OVERALL MARKET FROM THE PREVIOUS PAGE: Large independents (in red) are strongly represented among firms with over £2m liabilities, especially when they also hold over £500k cash (i.e. in the bottom right corner); however they are under-represented among firms with £50k cash, especially if holding less than £500k in liabilities. Small independents are of course the mirror image. Mid-sizes display intermediary behaviour. Note nonetheless how non-trivial numbers of small firms have high cash and/or liabilities, and similarly for large firms with very low values – i.e. the behaviour is very dispersed.


SIMILAR PROCEDURE FOR COMPARING THE 3 GROUP COHORTS TO THE OVERALL MARKET:Simple and medium groups (yellow and orange) look very similar to the mid-sized independents of the previous page. Large/complex groups look very different: 45% of the firms have no cash at all (top row), as this is often concentrated by the parent, while the large liabilities are often concentrated in those 0-cash entities (right-most column, the biggest bubble of which is at the top).


GOING FROM THE STATIC TO THE DYNAMIC VIEW: Do changes in borrowing match changes in cash held? Again, there is no visible correlation overall. If anything firms concentrate along the diagonal, i.e. exhibiting similar trends in both liabilities and cash; increasing liabilities by no means imply an increase in cash (bottom of chart), or vice-versa...This finding is confirmed for each of the individual market segments (e.g. small independents, large groups, etc)


How many firms borrow even though they have plenty of cash (i.e. net cash >£0)?

As is detailed in the following slide, only 1 in 7 firms has positive net cash* (for only 1 in 25 does it exceed £70k); for over 60% of firms, it is negative**. Since many firms do not even borrow at all***, this suggests that only a very small minority borrow just to artificially support cash balances.

Looking for potentially “unusual behaviour”, we can for example isolate 1,105 firms each with >£5m cash and net cash >£70k; these weigh 12% (£26bn) of total PNFC cash, having already paid dividends of £29bn (i.e. “gross cash” of £55bn; their liabilities being £13bn****).

By contrast, 3,270 firms, also with cash of >£5m but with net cash <-£500k, concentrate £87bn of cash (net of £77bn dividends paid, so “gross cash” £164bn), and liabilities of £946bn**** – i.e. potentially “normal” behaviour, since the cash held is a small proportion of total borrowing?

We discuss under next steps the possibility of zooming in on these small but very cash-rich cohorts. See the detail in the next table.

*: in LHS panel, the top 3 cohorts as a proportion of the total; **: in the same panel, the last 3 cohorts; ***: the majority of firms which file accounts declare nil bank debt (not shown in chart); ****: total liabilities for this population is £4.5 trillion

Finally, we combine cash and debt in order to define a “net cash” position (and take dividends paid into account)

Net cash = cash - liabilities


DETAIL UNDERLYING THE “NET CASH” VIEW Combined view: cash compared with debt, also quantifying dividends paid, and “investment” (= modified Capex, as defined on the next page)

N/A 0 <50k 50-100k 100-500k 500k-5m >5m Total

>70k 3,949 44,006 15,673 1,105 64,733

20k - 70k 21,576 34,585 13,652 676 12 70,501

5k - 20k 65,484 8,668 3,579 247 2 77,980

-5k - 5k 71,608 288,562 5,814 2,711 218 13 368,926

-50k - -5k 57,450 327,198 13,665 8,131 658 14 407,116

-500k - -50k 52,209 231,146 26,869 29,240 4,291 72 343,827

<-500k 28,618 71,676 13,610 27,985 17,093 3,270 162,252

N/A 1,520 1,520

Total 1,520 209,885 1,005,642 107,160 129,304 38,856 4,488 1,496,855

Number of companies

Cash minus liabilities

Cash (£m)

N/A 0 <50k 50-100k 100-500k 500k-5m >5m Total

>70k 351 10,148 19,002 26,051 55,552

20k - 70k 817 2,435 2,292 591 92 6,227

5k - 20k 1,499 581 623 262 27 2,993

-5k - 5k 1,934 392 500 217 139 3,183

-50k - -5k 2,544 943 1,509 629 220 5,844

-500k - -50k 2,356 1,905 5,950 4,260 860 15,330

<-500k 835 983 6,647 25,159 87,347 120,972

N/A

Total 9,986 7,590 27,669 50,119 114,736 210,100

Total amount of cash (2012) £m


Cash (£m)

N/A 0 <50k 50-100k 100-500k 500k-5m >5m Total

>70k -15 -383 -1,108 -821 -2,327

20k - 70k -75 -90 -83 -28 0 -275

5k - 20k -107 -16 -2 -10 0 -136

-5k - 5k -6,807 -298 -22 -54 -23 -4 -7,209

-50k - -5k -295 -453 -41 -28 -16 0 -832

-500k - -50k -998 -1,270 -131 -525 -219 -32 -3,176

<-500k -17,259 -5,317 -1,966 -2,814 2,304 -1,744 -26,795

N/A -31 -31

Total -31 -25,360 -7,520 -2,280 -3,889 900 -2,602 -40,781

Total investment (2012) £m


Cash (£m)

N/A 0 <50k 50-100k 100-500k 500k-5m >5m Total

>70k 48 631 1,515 28,857 31,051

20k - 70k 139 121 47 44 4 354

5k - 20k 715 27 11 6 0 758

-5k - 5k 39,942 948 17 8 16 21 40,952

-50k - -5k 3,410 568 31 82 23 4 4,118

-500k - -50k 2,103 781 77 355 288 50 3,653

<-500k 91,918 14,906 17,684 8,378 34,389 76,875 244,149

N/A 12 12

Total 12 137,372 18,057 18,004 9,511 36,280 105,811 325,048

Total dividends paid (2012) £m


Cash (£m)


CHAPTER 3 TURNING TO PROPENSITY TO INVEST BY PNFCs:Has « investment » increased or decreased recently, and if so, is there a correlation with cash behaviour?

For purposes of this analysis, we define « investment » in year t, as:

Tangible assets(*) in year t, minus tangible assets in year (t-1), in constant prices by deflating(**) using the RPI inflation rate between t and t-1

I.e. CAPEX, but without adding back the depreciation term. (We found that adding back depreciation induced additional volatility in the data set.)

So, we compare the book values of capital stock for years t and t-1 and the information is aggregated for all firms who report it at Companies House.

This provides us with a “net” view of capital investment activity each year, since tangible assets reported in the accounts for a given year contain (but do not break down): the pre-existing stock of tangible assets, plus new investment during the year, minus retired assets during the year.

This is an alternative view to ONS figures, which are based on survey results and focus on the actual, new-in-year investment figures (without reference to retirements of capital where no sale is recorded).

(*) tangible assets = all assets which have physical form, such as machinery/plant & vehicles, buildings & land, fixtures & fittings (excluding dwellings)

(**) In line with the analysis in the rest of the report, a deflator was applied to put the investment data into real terms. Extra analysis of the investment data was carried out in nominal terms and this did not alter the findings throughout the chapter.


The next 2 pages break out the quantum of investment (or disinvestment) by size and complexity cohort, then examine the change over the period 2008 to 2013:

Overall, we observe net disinvestment by PNFCs of -£49bn in 2013 (net of outliers).

The average amount per firm only exceeds £50k (whether positive or negative) for independent firms with >50 employees, or medium-to-complex groups (under 8% of the population).

As with cash, the volumes are highly concentrated in the large/complex groups (-£44bn of the -£49bn overall); other groups add -£5.5bn, whilst all independents together are just barely in positive territory (+£0.5bn; with some size bands positive, some negative).

In 2008, large/complex groups were more negative (-£120bn vs -£44bn; similarly but to a lesser extent for medium groups), while independents were positive in all size bands.

Although large/complex groups seem to be improving by 2013 (not as negative as in 2008), the continued disinvestment is occurring even as cash has continued to steadily increase. Mid-to-large independents perform best.

USING THE DEFINITION ON THE PREVIOUS PAGE, FIRMS’ INVESTMENT BEHAVIOUR IS NEGATIVE


The observed net disinvestment by PNFCs of -£49bn in 2013 is not generalised: 21% of all firms actually show positive investment (on average £270k), while 53% show negative investment (on average -£170k); and 26% firms show a neutral profile.

Zooming on the 1 in 5 firms with positive investment:

Only 5,000 of these are large/complex groups (13% incidence)

Vs. 191,000 very small Independents (20%)

…Or 4,000 medium-large Independents (32%)

However these large/complex groups weigh 61% of the total invested by this “positive” cohort: so the large/complex group segment is bipolar, as overall it is “negative” (next chart).

…THOUGH THERE ARE POCKETS OF POSITIVE INVESTMENT BEHAVIOUR


Independents Group-structuredV. Small Small Medium Large Simple Medium Complex

______ _____ ____________

_______ ________ _______

No of firms* 933k 160k 10k 1k 109k 54k 43k

2013 Total invt (net) -£0.2bn £1.0bn -£0.5bn £0.2bn -£2.0bn -£3.5bn -£44.0bn2008 £0.5bn £1.1bn £1.0bn £0.4bn -£1.5bn -£9.8bn -120.0bn

2013 Avg net invt -£0k £6k -£55k £212k -£15k -£145k -£820k

2008 £0k £4k £93k £486k -£20k -£162k -£1.6m

* No of firms with tangible assets available; at granular level for groups; outliers within unknown-size independents re-classified in groups. Note less firms report this data than earlier in the report.

CAPEX SUMMARY BY COHORT: Persistent and high disinvesting activity is observed among the groups cohort (even if less virulent in 2013 than in 2008); in contrast, independents, especially larger ones, are exhibiting positive investment behaviour.


INVESTMENT PERFORMANCE SINCE 2008 BY COHORT: Visualising the data confirms how much disinvestment is concentrated in the large groups; and the continued disinvestment is occurring even as cash has continued to steadily increase (see dotted lines)

“Available” in the chart below refers to firms that have reported the data


INVESTMENT SINCE 2008 BY COHORT CONT.: In fact, whether in 2008, 2012 or 2013, large/complex groups concentrate the overwhelming majority (even up to 93%) of the overall PNFC disinvestment, although they represent only 3% of all firms; note that this high disinvestment in the large complex group has “improved” since the levels of 2008, though it is down on 2012.


FOCUSING ON INVESTMENT PERFORMANCE BY FIRMS THAT INVEST:

Zooming in on the 273,000 firms with positive investment behaviour (1 in 5 of all firms), medium to large independents are much more likely (1 in 3) to be positive investors than groups (1 in 6), though this reflects in part the fact that within groups, investment may be done just by certain subsidiaries within the group. Note that groups concentrate 82% of the total value of investment, 61% for the complex groups alone. Note: % incidence = proportion that positively investing firms account for all firms in each size cohort

Size No. of firms Investment (£m)Average investment

(£)% incidence

Indep 1-4 190,829 7,381 38,681 20%

Indep 5-49 46,004 3,113 67,665 29%

Indep 50-249 3,240 2,184 674,487 32%

Indep 250+ 320 955 2,985,788 32%

Simple group 19,537 7,216 369,380 18%

Medium group 7,365 7,938 1,077,895 14%

Complex group 5,339 45,039 8,443,767 13%

Total 272,634 73,826 270,799 21%


Unfortunately these 270k positively-investing firms fail to outweigh the 703k dis-investing firms, not just in number but also in total invested (+£70bn vs. -£112bn), and in total cash (£53bn vs. £105bn). The 39k firms with highest cash increase, yet simultaneously disinvesting, concentrate £53bn cash while “disinvesting” by -£23bn… Cash evolution is an analysis of the stock of firms in 2012, and then examining their change 2013/2012

But there is a “goldilocks” cohort as well: the 23k firms that are in the highest cash-increase band, yet are investing (see top-right table) – concentrate +£30bn of investment (bottom right), and £29bn of cash (bottom left)!

In incidence terms, stepping away from these small-but-weighty cohorts, there is however very little overall correlation between the trend in cash holdings, and whether firms have invested (top-right).

Change in average cash per firm 12-13 De-invest Stable Investment N/A Total

N/A 703 1,022 350 182,851 184,926

>-60k 40,542 11,027 19,954 86 71,609

-60k - 10k 92,585 24,520 37,505 368 154,978

-10k - 1k 135,663 49,580 44,775 804 230,822

-1k - 1k 194,617 174,512 52,304 1,389 422,822

1k - 10k 116,096 42,370 47,702 637 206,805

10k - 60k 84,580 23,530 45,050 382 153,542

>60k 38,707 9,730 22,808 106 71,351

Total 703,493 336,291 270,448 186,623 1,496,855

Number of companies

Change in average cash per firm 12-13 De-invest Stable Investment N/A Total

N/A -794 0 279 0 -515

>-60k -48,687 0 18,671 0 -30,016

-60k - 10k -6,118 0 4,226 0 -1,892

-10k - 1k -3,479 0 2,058 0 -1,421

-1k - 1k -22,906 0 10,833 0 -12,073

1k - 10k -2,669 0 1,613 0 -1,057

10k - 60k -4,198 0 2,827 0 -1,371

>60k -22,988 0 29,675 0 6,687

Total -111,839 0 70,182 0 -41,657

Investment (£m)Change in average cash per firm 12-13 De-invest Stable Investment N/A Total

N/A 26 85 21 5,800 5,933

>-60k 33,129 20,761 16,071 18 69,979

-60k - 10k 5,560 1,335 2,298 14 9,207

-10k - 1k 2,281 623 843 11 3,758

-1k - 1k 685 263 248 3 1,199

1k - 10k 2,644 635 1,044 10 4,333

10k - 60k 7,534 1,553 3,504 25 12,615

>60k 53,463 20,255 29,281 78 103,077

Total 105,322 45,510 53,311 5,958 210,100

Cash (£m)


This did not prove to be a fertile ground for analysis:

Very low fill-in rate (only 10% of firms overall declare their profits)

…Even if we try to approximate profit by "change in net worth"

…Still relatively disappointing for large firms (e.g. 38% of the >250 empl independents do not declare their profits)

…Moreover, when the data is reported, it is given to many outliers

…Not to mention that profits is a highly manipulated number, for tax exposure management purposes!

However, large independents have good data fill-in rates and are without the complexities of balance sheets being linked to mother-daughter balance-sheets, and so we analyse large independents’ profitability in the next table.

Profitability


PROFITABILITY AND INVESTMENT OF LARGE INDEPENDENTS (250+):For the 624 firms with known data, profitability and investment are not correlated – a fairly even spread of investment levels is observed for unprofitable firms, similarly for profitable ones (top table). The great bulk of the net £585m investment made by this cohort does however come, in value, from the most profitable (bottom table), in line with the Pareto (80/20) rule.

N/A <-200k -200k - 0 0 - 50k 50k - 200k 200k - 1m 1m - 5m >5m Total<-500k 1 19 4 2 6 19 33 28 112-500k - -20k 41 12 8 19 13 53 30 7 183-20k - -10k 25 1 3 3 3 8 1 0 44-10k - 0 162 0 9 7 9 8 3 2 2000 - 50k 174 9 18 31 12 31 13 8 29650k - 500k 20 6 2 3 12 36 21 11 111>500k 5 20 0 1 2 20 35 23 106Total 428 67 44 66 57 175 136 79 1,052

Number of companiesInvestment (£)

Pretax profit (£)

N/A <-200k -200k - 0 0 - 50k 50k - 200k 200k - 1m 1m - 5m >5m Total<-500k -26,816 -33,214 -3,060 -3,794 -6,593 -22,683 -105,224 -91,908 -293,291-500k - -20k -3,104 -2,873 -1,670 -2,943 -1,427 -8,764 -5,617 -1,994 -28,392-20k - -10k -357 -10 -48 -44 -39 -117 -14 0 -629-10k - 0 -367 0 -14 -27 -38 -29 -14 -5 -4940 - 50k 1,011 146 7 65 113 529 26 0 1,89750k - 500k 2,817 1,459 502 159 2,369 7,884 3,556 2,694 21,441>500k 7,570 52,614 0 0 982 53,727 276,347 493,453 884,693Total -19,245 18,121 -4,281 -6,585 -4,632 30,547 169,061 402,239 585,225

Investment (£k)Investment (£)

Pretax profit (£)


Very small independents as a segment (1.1m firms out of 1.5m analysable) have reduced their investment levels overall (from +£574 to -£229 in 2013 on average, accounting only for -£226m total).

However their cash position has also dropped (median of under £10k each), by 4% in the same period, as have liabilities…

…Net of small dividends paid (which have been dropping 75%...).

Thus, small independents seem on the whole to have experienced a slight overall contraction. Inversely, large independents (>250 empl) on the other hand are the only cohort to have positively invested:

Even as their cash has increased significantly

Along with (and net of) high and increasing dividends paid, and increasing debt.

These seem on the whole to have been able to achieve several goals at once (investing, but also saving for a rainy day and rewarding shareholders). Unfortunately there are only 1,052 of them (total invested just over £1bn).

Note that small/medium independents (5 to 250 empl) form an intermediary behaviour in terms of investment, with intermittent positive contribution (either investing in 2012 or 2013 but not both).

CONCLUSIONSOver the 2008-2013 period, we observe 3 distinct

and even opposite behaviours within PNFCs


By contrast, the large/complex group cohort (only 3% of all firms) appears to show high dis-investing overall; this was true in 2008, remained true in 2012 (by which time the situation had “improved” to a -£28bn disinvestment level, 67% of total), and also in 2013 (when it fell back, to -£44bn, or 90% of total);

But this cannot be attributed to a precarious cash position: they concentrate a dominant £108bn of cash, half the PNFC total (£2.4m each on average)

Which they have increased by 14% from 2008 to 2013

NET of dividends paid, which themselves have more than doubled.

On the other hand, this cohort also concentrates a dominant proportion of all PNFC liabilities (£3.6tn out of total £4.3tn, £82m on average and stable), with a negative overall net cash position.

In fact, within the L/C group cohort, this behaviour is attributable to an even less numerous sub-cohort, as many L/C groups actually show positive investment and net cash profiles. In principle, we should therefore focus deeper on this small but key population (a few thousand CEOs at most, as the 44,000 firms in the entire L/C group segment, which are mostly subsidiaries, concentrate into a much smaller number of corporate groups).

CONCLUSIONSDepending on the year, 67% to 93% of the total PNFC disinvestment is down to a single segment of just a few thousand firms – the same one which also dominates the cash hoard


Summary: behaviour in 2013, compared to 2008

Segment Cash Debt Net Cash Dividends Investment Conclusion

Very small independents (1.1m firms)

Slightly down (£30k on avg) Down Up

Way down (and very

small: under £1k on avg)

Down"Contracting,

and de-leveraging"

Med/large independents

(>50 empl;12k firms)

Way up(£600k on avg) Up Down

Mostly up (and £50k on

avg)Down "Positive

momentum"

Large/complex groups

(44k firms)

Up(£2.7m on

avg)Stable Stable Way up (and

£12m avg)Very negative in 2013, though up

from 2008"WHY"?*

* Note that a sub-cohort concentrates this behaviour (many other firms in this segment are positively

investing)

NB: 5-49 indepts and simple groups similar to each other, and in "mixed" profile. Medium-complex groups also mixed but close to L/G groups


Summary-2: underlying data for the overall analytical universe

- data used for stock views

Analytic poolindep

1-4indep

5-49indep

50-249indep 250+

group simple

group medium

group complex

Total

Number of companies (2012) 1,098,832 171,812 10,484 1,052 113,728 56,863 44,084 1,496,855

Number of companies (2008) 961,639 186,760 10,864 895 120,633 67,437 50,119 1,398,347

Total amount of Cash (2012) M£ 33,190 19,393 6,586 1,824 22,731 18,662 107,716 210,100

Average cash (2012) £ 30,205 112,872 628,151 1,733,483 199,871 328,225 2,445,589 140,366

Average cash (2008) £ 30,624 106,190 399,593 957,489 225,674 331,222 2,352,660 158,725

Total amount of Investment (2012) M£ -3,832 -396 621 585 -3,580 -7,128 -27,927 -41,657

Average Investment (2012) £ -4,106 -2,471 62,007 589,350 -32,855 -133,157 -652,665 -31,795

Average Investment (2008) £ 574 4,334 92,658 486,302 -20,046 -161,780 -1,589,076 -71,034

Total amount of liabilities (2012) (M£) 179,467 72,553 46,993 14,504 194,706 333,840 3,635,607 4,477,669

Average Total liabilities (2012) £ 163,325 422,282 4,482,323 13,786,809 1,712,048 5,871,472 82,543,018 2,991,477


Total amount of Cash minus liabilities (2012) (M£) -146,277 -53,160 -40,407 -12,680 -171,975 -315,178 -3,527,891 -4,267,569

Average Total Cash minus liabilities (2012) £ -133,120 -309,411 -3,854,172 -12,053,326 -1,512,177 -5,543,247 -80,097,429 -2,851,111


Total amount of Dividend paid (2012) (M£) 1,532 804 1,186 348 6,422 6,710 308,046 325,048

Average Total Dividend paid (2012) £ 1,394 4,681 113,111 330,764 56,469 118,016 6,993,882 217,160



Summary-2: underlying data for the overall analytical universe

- data used for time trends

Analytic poolindep

1-4indep

5-49indep

50-249indep 250+

group simple

group medium

group complex

Total

Number of companies (2013) 1,172,614 176,395 9,624 808 122,730 60,185 44,050 1,586,406

Number of companies (2008) 961,639 186,760 10,864 895 120,633 67,437 50,119 1,398,347

Total amount of Cash (2013) M£ 34,501 19,365 4,656 1,422 28,185 21,202 118,542 227,873

Average cash (2013) £ 29,422 109,782 483,763 1,760,161 229,651 352,288 2,691,072 166,624

Average cash (2008) £ 30,624 106,190 399,593 957,489 225,674 331,222 2,352,660 158,725

% change in average cash (2008-2013) -3.9% 3.4% 21.1% 83.8% 1.8% 6.4% 14.4% 5.0%

Total amount of Investment (2013) M£ -226 1,010 -511 165 -2,006 -3,527 -43,975 -49,071

Average Investment (2013) £ -229 6,099 -55,331 211,920 -15,445 -144,568 -820,411 -32,363

Average Investment (2008) £ 574 4,334 92,658 486,302 -20,046 -161,780 -1,589,076 -71,034

% change in average Investment (2008-2013) -139.9% 40.7% -159.7% -56.4% 23.0% 10.6% 48.4% 54.4%

Total amount of liabilities (2013) (M£) 156,605 63,878 24,280 8,990 249,448 306,889 3,513,796 4,323,885



% change in average Total liabilities (2008-2013) -11.2% -8.9% 5.0% 24.2% 6.0% -20.7% 0.3% -22.3%

Total amount of Cash minus liabilities (2013) (M£) -122,104 -44,513 -19,624 -7,568 -221,263 -285,686 -3,395,254 -4,096,013



% change in average Total Cash minus liabilities (2008-2013)13.1% 13.4% -1.8% -17.1% -6.5% 22.2% 0.1% 22.9%

Total amount of Dividend paid (2013) (M£) 1,044 635 394 112 5,329 29,452 521,494 558,459

Average Total Dividend paid (2013) £ 890 3,599 40,904 138,485 43,420 489,366 11,838,673 352,028


% change in average Total Dividend paid (2008-2013) -75.3% -39.2% -5.9% 21.2% -15.8% 84.6% 129.2% 70.9%


A combination of desk and field research should be undertaken to:

Confirm we are not missing legitimate aspects of the behaviour peculiar to that cohort

Delve deeper into the likely reasons for the behaviours.

We would thus take the preceding analysis to a more granular level: in particular, we should recognize that for this cohort, intangibles (as opposed to tangible assets only) could represent an important quantum of investment, which may well have increased in the period and could possibly make up for the dip in intangible assets:

Goodwill on acquisitions

Capitalised R&D

Patents, Brand value, etc.

Liabilities could also usefully be split into working capital debt and long-term debt, in case this reveals differentiated patterns.

Potential next steps: focussing on the “apparently ineffective” sub-cohort within the large, complex group segment


Who are the top UK firms/groups, which simultaneously combine:

Very high (and increasing) cash balances (say >£10m), with

High (and increasing) debt,

…but the cash exceeds the debt significantly,

And the cash represents a higher-than-normal % of sales,

And we simultaneously observe a negative investment profile?

There will only be a relatively small number of them, and patterns may emerge from a close examination of their actual identities and of the industry sectors they populate, ideally combined with some field research:

Providing clues as to the likely reasons for the choices made

For example, M&A activity has been notoriously down since 2008; would a return to normal levels account for the investment gap, and for the cash build-up?

Is it not rational for groups to load up on cheap debt now, while it is available?

Going to the fully granular level, for both field and desk research


The following slides (44-59) are appendices,

containing more background data to the main results.

Appendices


List of the largest cash-balances, across PNFC - 2013

Many unknown-size at the top – these are specialised “piggybank” subsidiaries of complex groups


Continued…


Continued…


2011 1/3


2011 2/3


2011 3/3


2009 1/3


2009 2/3


2009 3/3


Breakdown by the BIS 19-way SIC cut: the core £233bn cash is fairly evenly distributed; average cash/firm is highest by far for the two sectors with the lowest populations: Mining, elec & gas (though they also have the highest average turnover per firm).


Detailed Industry Sector View (64-way BIS cut), by size band

First - number of firms


Continued…


Now total cash…

Four sectors out of 57 concentrate £56.3bn of the total £233bn cash: Buildings, computer/IT, management consultancy, admin services.


Continued…


Now average cash/firm…

within the >1000-empl, several sectors exceed £40m/firm;note anomalies within the small (similar to the N/A)


Continued…

1 ©2014 Experian Limited. All rights reserved. Experian Public. Department for Business, Innovation and Skills Analysis of Cash Retention Behaviour of.

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