Britain's exposure to the financial turmoil sweeping through southern European economies could be far greater than previously thought, according to data seen by the Guardian.
Despite relief that Britain's decision to stay out of the euro has avoided the kind of budgetary crisis brewing in Mediterranean nations, figures showing that UK sales to Spain, Britain's seventh-largest trading partner, plunged by 31% to £7.74bn (€8.92bn) in 2009, reveal how exposed are the balance sheets of some of the UK's biggest companies.
Top-selling brands such as Vodafone, Burberry and British Airways are suffering from Spain's shrinking economy – which accounts for twice as many UK exports than China.
Barclays is also suffering from low savings and lack of investments. In a rare piece of bad news from the bank yesterday, it said that its impairment charges in global retail and commercial banking across western Europe rose £370m to £667m, largely driven by losses in Spanish commercial property, construction and small business loans.
With four million – almost 20% of the workforce – unemployed, Spaniards are cutting down on their spending. This trend includes those who have a job and who fear that they may lose it.
Consumers are leaving bills unpaid, forcing companies such as Vodafone to sell lists of unpaid accounts to businesses that specialise in recovering cash. The phone giant recently reported a 6.8% sales decline in Spain, where it generates an annual £1.3bn of service revenues – the third-largest market after Germany and Italy.
The business of recovering money has grown so popular in Spain that it advertises in top venues such as FC Barcelona's football stadium, grabbing millions of TV viewers. Even Barcelona football club is tightening its belt. It has put on hold a multimillion-pound redevelopment project of its 100,000-capacity Camp Nou stadium, a project assigned to British architect Norman Foster.
London-based Diageo, maker of brands such as Smirnoff and Baileys which are popular in Spain, is suffering from the new habits in a country that has traditionally entertained more outside the home than inside. Now this has changed, people are going out less, and while at home, local and cheaper beer is replacing spirits and wine.
"The challenging macro-economic environment continued to shape Diageo's performance in Iberia with reduced on-trade consumption [in bars and pubs] and down-trading to value brands in the off-trade [supermarkets, shops]," the company said recently.
Spain and Portugal account for only about 4.5% of Diageo's net sales, although the company blamed the falls in Spain, as well as Ireland and eastern Europe, for being the main reason for its overall sales decline in Europe.
Spain is one of Diageo's strongest markets for products such as Baileys, which is often served along with dessert at weddings. Sales of famous names such as J&B fell in shops and supermarkets as consumers moved to cheaper brands. The company is now aiming to sell to customers at home, offering ready-to-serve cocktails such as the Cacique Mojito.
As many as 700 British companies operate in Spain, employing about 100,000 people. Top exporters include British Petroleum, which has a network of more than 300 petrol stations around the country.
The energy sector has been severely affected by the recession: UK energy sales to Spain more than halved to £575m (€663m) in 2009 from £1.2bn in 2008, mostly driven by a plunge in oil exports, according to the data from the Spanish government.
"Spain's recession implies a big adjustment in the country's imports, despite the strength of the euro," said José Antonio Zamora, economic and trade councillor at the Spanish embassy in London. "Energy products and capital goods have been particularly hit because of the fall in investment."
Tourism companies have also suffered as the number of British visitors to Spain has plummeted to about 11 million from 17 million, due to the UK recession and the stronger euro, which makes trips to the Costas more expensive.
Other big export names include British Imperial Tobacco – which bought Spain's cigarette maker Altadis – and Bupa, owner of the Sanitas private health insurance brand.
UK-Spanish mergers have flourished over the past few years as the two economies opened up to competition in Europe. Spain's Iberdrola took over Scottish Power, while British Airways is now planning a tie-up with Spain's flagship carrier, Iberia.
Copyright Speakers Corner 2016