Of the firms said to be in danger, the report shows:
18 increased their debts last year – they are now carrying almost twice the level of debt recommended by market analyst Plimsoll. Using debt has become a means of propping up their businesses. For many, this started to become an issue up to three years ago.
39 saw profits fall last year, and 33 are losing money. Their costs are clearly ahead of sales, and they’ve failed to respond to changes demanded for their business structure.
25 managed to increase sales last year, which some would argue to have been an enviable task. However, it only proves that despite their rising debts and mounting losses, they have been desperate to maintain sales at pretty much any cost.
11 of the firms concerned are what Plimsoll analyst David Pattison would call “well established” having been set up over ten years go. Arguably, these companies are failing to adapt to the modern security guarding market, and are now falling behind the rest as a result.
Should we just let them fail?
In conversation with SMT Online, Pattison explained: “There’s 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.”
It’s clear that many of these ‘danger’ businesses are fundamentally poor, aggressive or disruptive and 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 to be in danger by Plimsoll prior to their demise.
Guarding not immune to the economic crisis
“The UK security guarding industry is not immune to the current crisis,” continued Pattison. “The sector has overcapacity. 24% of businesses suffered a fall in sales last year, with competitive pressure forcing many to see sales fall by 10%.”
The reality is that, for many of these 47 danger businesses, their problems go back years, certainly long before the current UK slowdown, and yet they have failed to fix their problems. In his work The Origin of Species, Darwin recognised that extinction was an integral part of evolution, survival going to those most responsive to change.
“Plimsoll’s analysis is clear – not all of these 47 businesses 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.”
If you were to examine the airline industry, which to some extent is 12 to 18 months ahead of the manned security market in the evolutionary cycle, the failure of XL Leisure has turned out to be the best thing that could have happened to the industry as it has freed up capacity. Similarly, the security guarding market will see winners emerging out of the crisis.
Pattison added: “There are 125 terrific companies who can compete fiercely on price, and are largely debt free while holding their margins. Most are operating at the height of productivity. These will be the ones to watch in the next period.”
Copies of the 2009 analysis
The 2009 Edition of the Plimsoll Analysis: Manned Security includes an individual analysis of each of the industry’s largest 300 companies. The report values each company as well as rating them on their attractiveness as an acquisition. Each of the 300 companies analysed receives a unique Plimsoll rating showing the company’s strengths and weaknesses.
Copies of this timely analysis are available for GB pound 350. Call Clair Sherwood on 01642 626400 for details.