The Recession bites

The latest market report from industry analysts Plimsoll rates 185 of the UK’s leading 1000 sign companies as being in financial danger. Amid calls for bailouts and emergency measures, Senior Analyst David Pattison feels that some companies should simply be left to fail.

He argues: “There is no doubt in my mind that recessions catch bad businesses out. Those companies that have entered this period ill prepared have placed themselves at a distinct disadvantage. Many have grown used to running their businesses on high risk business models, propped up largely on finance.”

The report lists 185 firms as being in a dangerous position, with 58 increasing their debts last year. These companies have grown used to using debt as a means of propping up their businesses, with many starting to do this three years ago. 153 companies saw their profits fall last year and 138 are losing money. Their costs are clearly ahead of sales and they have failed to respond to changes in their business structure. And, although 57 companies actually managed to increase sales last year, it is, according to Pattison only because they have been desperate to maintain sales at any cost.

He adds: “66 are firms are what I would call ‘well established’, having been set up over 10 years ago. Arguably, these are failing to adapt to the modern market and are now falling behind as a result. In summary, it is clear that many of these 185 “danger” businesses are fundamentally poor, aggressive or disruptive and are unhelpful to the market. With newly prudent banking systems in place, raising quick finance will not paper over the cracks as it once did.”

Recent examples of failed businesses in the news bear this out. Zavvi, Woolworths, Whittard and Wedgewood, were all rated ‘Danger’ by Plimsoll prior to their demise.

Pattison concludes: “The reality for many of these 185 ‘Danger’ businesses, is that their problems go back years, certainly long before the current slow down and not all of them will survive. Of those who do, very few will be in their current shape and many will be in the hands of new owners. This further supports the argument that, despite the obvious tragedy of job losses, livelihoods lost and the pain of a business in decline, this period is inevitable and can only be good news for the market in the long run.”

Copies of this analysis are available for £350, by calling Clair Sherwood on Tel: 01642 626400.

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