1 Alberta Business Beat Volume 8, January 2015. 2 Background and Methodology.

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Alberta Business BeatVolume 8, January 2015

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Background and Methodology

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Business & Agriculture

Background

• ATB Financial commissioned NRG Research Group to conduct a survey of 300 randomly selected small to medium-sized businesses (SMEs) in Alberta each quarter, beginning in Q1 2013.• The purpose of the study is to gain an understanding of the challenges faced by SMEs in Alberta, and to track confidence in the business climate in Alberta.

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Research Objectives

• Measure business owners and managers’ perceptions of what the business climate will be like six months from now;• Determine how recent drops in the price of oil and the Canadian dollar have affected SMEs’ operations; • Understand how SMEs manage their cash flow, including what they would do with a sudden cash infusion, whether and how often they operate under a deficit; and,• Profile the firmographics as well as respondent demographics for SMEs in Alberta.

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Methodology

Qualifying Businesses<500 employees,

<$20 million annual revenues,

must be financial decision makers or influencers• Excluded agriculture,

government, financial institutions, media, market research, PR, advertising

and communications sectors

Field dates:November 24 –

December 5, 2014

• Telephone• Approximately 3,000

businesses were contacted and 300

completed the survey• Margin of error is +/-

5.8%

Alberta SMEs

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Although optimism about their business’ future remains relatively high, Alberta SMEs (especially those in the Energy industry) are much less confident about the future of the Alberta economy

Some Alberta SMEs are already feeling the impact of recent declines in the price of oil and value of the Canadian dollar. Impacts are both positive and negative.

42% of Alberta SMEs report having run a deficit. Of these, 41% report running a deficit on at least a quarterly basis.

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2

3

Key Insights

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The ATB Business Beat Index

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Drop in optimism about the Alberta economy

Alberta Economy

60%will be better off or the

same

Your Company


same

“How do you think… will be six months from now?”

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 300.

(±) Change from last quarter

-4-28

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Specifically in Oil & Gas/Energy industry

Alberta Economy


same

Your Company


same

“How do you think… will be six months from now?”

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 32 Energy/Oil and Gas industry respondents.

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Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 201440

45

50

55

60

65

70

75

80

70.2 69.8 69.872.3

75.173.1

70.467.5

55.4

59.8

66.2 66.868.8

70.968.6

44.5

ATB Business Index

ATB Economy Index

The ATB Business Beat Index

Data time periods: Q1 2013= Jan 2013, Q2 2013 = May 2013, Q3 2013 = Aug/Sept 2013, Q4 2013 = Dec 2013, Q1 2014= Mar 2014., Q2 2014 = June 2014, Q3 2014 = Aug, 2014; Q4 2014 = Dec 2014

Source: ATB Financial, Survey on Alberta SMEs 2013-14.

Index (0-100)

ATB Business Beat Index

Less optimistic about future performance

More optimistic about future performance

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Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 201430

35

40

45

50

55

60

65

70

75

80

85

70.2 69.8

69.8

72.3 75.1

73.1 70.4 67.5

69.1

77.8 78.8

72.2

83.380.3

68.8

45.2

55.459.8

66.2 66.8 68.870.9 68.6

44.5

54.2

67.6

72.1

68.968.5

78.2

30.6

ATB Business Index

ATB Business Index (Energy)

ATB Economy Index

ATB Economy Index (Energy)

The ATB Business Beat Index - Energy




Index (0-100)



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Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 201440

45

50

55

60

65

70

75

80

85

90

70.2

69.8 69.872.3

75.1 73.1 70.4

67.5

70.7

63.8

66.0

77.575.6

79.2

64.4

75.0

55.4

59.866.2 66.8

68.8 70.9 68.6

44.5

59.1

50.0

67.768.3

68.5

76.471.0

45.5

ATB Business Index

ATB Business Index (Retail)

ATB Economy Index

ATB Economy Index (Retail)

The ATB Business Beat Index – Retail




Index (0-100)



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Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 201440

45

50

55

60

65

70

75

80

85

90

70.2

69.869.8

72.375.1 73.1 70.4

67.5

72.2

85.2

69.5

73.7

81.783.9

73.3

66.3

55.4

59.8

66.2

66.868.8

70.9 68.6

44.5

54.1

78.6

65.5

68.4

78.375.0

68.3

53.4

ATB Business Index

ATB Business Index (Con-struction)

ATB Economy Index

ATB Economy Index (Con-struction)

The ATB Business Beat Index - Construction




Index (0-100)



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Impact of Oil Prices and Canadian Dollar

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Impact from drop in price of oil“Have your business operations been affected by the recent drops

in the price of oil?”

13%

16%

69%

2%

Yes, positiveYes, nega-tiveNoDon't know

9%

47%

44%

Energy/Oil & Gas

5%

27%

68%

Retail

23%

14%64%

Construction


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How has oil price impacted?“Can you describe how your

business operations have been affected by the recent drops in the

price of oil”

Less revenue

Projects or contracts have been cancelled

Fewer customers

Customers making fewer discretionary purchases

Business has slowed down

Business is dependent on oil companies

6%

6%

8%

14%

20%

22%

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 49 respondents affected negatively by recent drop in oil prices, responses mentioned by 6% or more are shown..

Affected Negatively(n =49)

“WE ARE A MANUFACTURER AND WE BUILD PRODUCTS FOR THE OIL INDUSTRY. WHEN OIL PRICES GO DOWN, PROJECTS ARE SHELVED THAT ARE HALFWAY INTO COMPLETION.“General Manager or Office Manager, Manufacturing, 20 years in business,5-19 employees,$3 million to less than $5 million in revenues.

“I AM NOT SEEING AS MANY HOUSING STARTS AND THE FORECAST IS TO DROP BY 30%.“Owner/Operator, Construction, 5 years in business,5-19 employees,$1 million to less than $3 million in revenues.

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How has oil price impacted?“Can you describe how your

business operations have been affected by the recent drops in the

price of oil”

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 39 respondents affected positively by drop in oil prices, responses mentioned by 10% or more are shown..

Spending less on operating costs

Other

Spending less on fuel

10%

18%

54%

Affected Positively(n =39)

“IT'S BEEN BETTER BECAUSE OUR GAS IS CHEAPER. IT'S BETTER FOR THE ECONOMY, PEOPLE ARE SPENDING MONEY AND GOING PLACES.”Senior Manager or Manager, Automotive, 10 years in business,5-19 employees,$500,000 to less than $1 million in revenues.

“LOWER PRICE OF OIL MAKES A BETTER PRICE FOR MY PRODUCT TO SELL, BECAUSE I SELL AN OFF-PRODUCT OF OIL.”CEO or President, Energy or Oil and Gas, 11 years in business,5-19 employees,$250,000 to less than $500,000 in revenues.

Other- Lower input costs - More interest in methods that reduce dependency on oil products (e.g., engine retrofits, alternative fuel and energy sources)- Lower cost of other petroleum products

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7%

28%

64%

1%

Yes, posi-tiveYes, nega-tiveNo


“Have your business operations been affected by

the recent drops in the value of the Canadian

dollar?”

22%

34%

44%

Energy/Oil & Gas

68%

32%

Retail

2%25%

73%

Construction

Impact of drop in Canadian dollar

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Our prices have gone up

Decreased sales

Increased costs of services

Inventory purchased in US currency

Increased cost of goods

Inventory purchased from the US

4%

8%

10%

10%

20%

41%

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 84 respondents affected negatively by drop in value of the Canadian dollar, responses mentioned by 4% or more are shown..

“Can you describe how your business operations

have been affected by the recent drops in the value of the Canadian

dollar?”Affected Negatively(n =84)

How has dollar drop impacted?

41% of SMEs with storefronts (vs. 21% of SMEs without storefronts) have been

negatively affected by the low value of the Canadian dollar

“WE HAVE HAD TO CHANGE OUR IMPORT PRACTICES TO EXCLUDE ANYTHING FROM THE UNITED STATES, BASICALLY JUST CUT OUT ALL TRADE WITH THE U.S. BECAUSE WE CAN'T AFFORD TO.“General Manager or Office Manager, Arts, Entertainment, and Recreation, 3 years in business,1-4 employees,$500,000 to less than $1 million in revenues.

“IT'S BEEN AFFECTED BY THE FACT THAT I BUY ALL MY PRODUCTS BY CANADIAN DISTRIBUTORS IN AMERICAN DOLLARS.“Owner/Operator, Retail, 31 years in business,1-4 employees,$1 million to less than $3 million in revenues.

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Business & AgricultureSource: ATB Financial, Survey on Alberta SMEs, December 2014, n = 20 respondents affected positively by drop in value of the Canadian dollar, responses mentioned by 4% or more are shown..

“Can you describe how your business operations

have been affected by the recent drops in the value of the Canadian

dollar?”

Increased revenue due to the exchange

rate

We are paid in US Dollars

50%

50%

Affected Positively(n =20)

How has dollar drop impacted?

“INCREASE IN REVENUE SIMPLY THROUGH THE EXCHANGE RATE GAINS, BECAUSE PRIMARILY OUR BUSINESS IS DONE IN EUROS OR U.S. DOLLARS. SO, THE CANADIAN REVENUE IN BUSINESS THAT WAS IN EFFECT FROM 2 YEARS AGO IS 15 PERCENT HIGHER THAN IT IS TODAY.“CEO or President, Environmental Consulting, 15 years in business,1-4 employees,Less than $250,000 in revenues.

“WE ARE PROVIDING SERVICE TO AMERICAN AND EUROPEAN CUSTOMERS THAT PAY US IN U.S. DOLLARS.“CFO, Professional, Scientific, and Technical Services, 14 years in business,50-99 employees,$15 to 20 million in revenues.

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Cash flow

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Pay outstanding invoices

Save it

Purchase inventory

Pay off loan debt

Invest to grow my business

4%

4%

4%

25%

54%

“Which of the following would be your top priority if your business were to

receive a cash infusion of $100,000?”

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 300, responses mentioned by 4% or more are shown.

If you received $100,000 …

42% of SMEs that have run at a deficit would pay off loan debt (vs. 12% of SMEs that haven’t run a deficit)

62% of SMEs that haven’t run a deficit would invest to grow their business (vs. 41% of SMEs that have run a

deficit)

“WE COULD PROBABLY DROP THE PRICE OF THE PRODUCT WE ORDER IF WE BOUGHT MORE IN ONE SHOT. IF WE DID THAT, IN A SENSE IT WOULD BOOST OUR BUSINESS.“Owner/Operator, Solar Energy, 5 years in business,1-4 employees.

“MARKETING, THAT'S WHAT BRINGS IN THE MOST CASH FOR PUTTING DOWN CASH ON MY INVESTMENT.“Owner/Operator, Health Care and Social Assistance, 5 years in business,1-4 employees,Less than $250,000 in revenues.

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29%

70%

1%

Yes

No

Don't know

“During the past 12 months, were there business growth opportunities

that you did not pursue because your business lacked the necessary

funds?”


34%

66%

Energy/Oil & Gas

27%

73%

Retail

25%

75%

Construction

Missed growth opportunities?

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29%

70%

1%

Yes

No

Don't know

“During the past 12 months, were there business growth opportunities

that you did not pursue because your business lacked the necessary

funds?”


Missed growth opportunities?

47% of SMEs that have run at a deficit have had to pass on growth

opportunities due to a lack of funds (vs. 16% of SMEs that haven’t run a deficit)

29% of micro SMEs and 34% of medium SMEs have had to pass on growth

opportunities due to a lack of funds (vs. 8% of large SMEs)

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Other

Diversification

Work opportunities

General expansion

Expanding product and service offerings

Purchasing new property

Advertising

Larger contracts or projects

Hiring additional employees

Purchasing more inventory

7%

5%

7%

7%

9%

11%

13%

13%

13%

22%

“What type of business growth opportunities were missed

because of funding issues?”

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 88 respondents who missed growth opportunities because of funding issues, responses mentioned by 5% or more are shown.

What type of opportunities?

“BIGGER CONTRACTS. I CANNOT AFFORD TO HIRE MORE EMPLOYEES, I DO WHAT I CAN HANDLE BY MYSELF.“Owner/Operator, Professional, Scientific, and Technical Services, 27 years in business,1-4 employees,Less than $250,000 in revenues.

“BULK SALE OPPORTUNITIES, BECAUSE YOU HAVE TO RECOUP A CERTAIN MARGIN AND YOU GO BELOW THAT TO MAKE A PROFIT. SO, IF YOU HAD A RESERVE FUND, YOU WOULD BE ABLE TO DO THAT.“General Manager or Office Manager, Health Care and Social Assistance, 12 years in business,20-49 employees,$1 million to less than $3 million in revenues.

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42%

57%

1%

Yes

No

Don't know


50%47%

3%

Energy/Oil & Gas

41%

55%

5%

Retail

45%55%

Construction

Does your business ever run a deficit?

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Very Rarely

Yearly

Quarterly

Monthly

37%

18%

28%

13%

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 126 respondents whose business sometimes runs a deficit, responses mentioned by 5% or more are shown.

How often does your business run a deficit?

41% report running a deficit at least once a quarter

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60%

37%

2%

Yes

No

Don't know

“Would you say that your business' deficit is

seasonal in nature?”

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 126 respondents whose business sometimes runs a deficit.

56%44%

Energy/Oil & Gas

67%

33%

Retail

55%45%

Construction

Are business deficits seasonal?

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Don’t do anything

Infuse cash (non-specific)

Borrow money (non-specific)

Reduce staff

Take on more contracts

Borrow from within the organization

Reducing costs

Extend bill payments

Borrow from personal funds

Loan or line of credit with the bank

5%

5%

6%

6%

6%

8%

8%

8%

9%

34%

“What are your business' typical

strategies for getting through a short-term cash

crunch?”

Source: ATB Financial, Survey on Alberta SMEs, December 2014, n = 126 respondents whose business sometimes runs a deficit, responses mentioned by 5% or more are shown.

How do you get through short-term cash crunch?

“WE CATCH UP ON INTERNAL PROJECTS TO KEEP EVERYBODY EMPLOYED. WE TAKE ON PIECEMEAL JOBS, ANYTHING TO KEEP REGULAR STAFF ROLLING. THERE IS NO CAPITAL PURCHASES DONE UNTIL WE GET OUT OF THE TIGHT SPOT.“General Manager or Office Manager, Manufacturing, 20 years in business,5-19 employees,$3 million to less than $5 million in revenues.

“WE START USING PERSONAL CREDIT CARDS. WE PAY COMPANY BILLS WITH PERSONAL CREDIT CARDS.”Owner/Operator, Business Services, 25 years in business,5-19 employees,$1 million to less than $3 million in revenues.

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APPENDIX: Firmographics & Respondent Demographics

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55%37%

8%1 to 4 'Micro'

5 to 49 'Small'

50 to 499 'Med'

28%

18%15%

14%

15%

8% < $250k$250k-500k$500k-<$1MM$1MM-<$3MM$3MM-<$10MM$10MM+

Number of Employees

Annual Revenues 2013


Half of Alberta SMEs have less than 5 employees

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Business Firmographics

Less than 6 years

6 to 10 years

11 to 15 years

16 to 20 years

Over 20 years

14%

17%

15%

13%

41%

No borrowing needs

Less than $1MM

$1 to < $3MM

$3 to < $10MM

$10MM+

Don't know/Refused

45%

43%

5%

4%

1%

3%

Borrowing Needs

# of Years in Operation

MEAN21

years


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Business FirmographicsIndustry

Construction

Energy/ Oil & GasHealth Care & Social

AsstManufacturing

Retail Trade

Arts, Entertain & Rec

Prof, Sci & Tech

Transp/ Warehouse

Non-Profit

15%

11%

8%

8%

8%

5%

4%

4%

4%

Franchise Industry (n = 14)

Automotive 4

Financial Services/Insurance

3

Retail 2

Energy/Oil & Gas Services 1

Food Services 1

Other 4

5% of interviewed

SMEs are franchises


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Business Firmographics

Yes

No

35%

63%

Does your business have a store front?

Business FirmographicsBusiness Life Stage

PhaseStart-up

Initial Growth

Established

Expansion

Mature

Winding Down

6%

9%

37%

23%

17%

8%


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Respondent Demographics

Owner/ Operator

Chief Executive Officer (CEO) or President

General Manager (GM) or Office Manager

Chief Financial Officer (CFO)

Managing Director, Senior Director or Director

Accountant

60%

16%

14%

6%

5%

4%

18-34

35 to 44

45 to 54

55 to 64

65+

11%

18%

29%

32%

9%

41%55+Title/ Role Age


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Male61%

Fe-male39%

46%

42%

12%

Sole decision-makerShares responsibilityInfluences decisions

Respondent DemographicsRole in Financial

DecisionsGender


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Judy DuncanManaging Director Marketing,B&Ag(403) [email protected]

Cody TousignantSenior Research ManagerCustomer Insights(403) [email protected]

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1 Alberta Business Beat Volume 8, January 2015. 2 Background and Methodology.

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