Warning – consolidation ahead

Citation

(2003), "Warning – consolidation ahead", Anti-Corrosion Methods and Materials, Vol. 50 No. 5. https://doi.org/10.1108/acmm.2003.12850eab.008

Warning – consolidation ahead

Warning – consolidation ahead

If you want confirmation of how tough the market is, then look no further than the latest findings from industry analysts, Plimsoll Publishing Ltd. Their latest report confirms that zero growth, sliding profits and escalating debts have pushed over a quarter of the UK Metal Treatments industry to the brink of failure.

Plimsoll's annual financial health check of the top 1,000 companies in the UK Metal Treatments industry reveals that consolidation will be essential as supply is currently outstripping demand.

Plimsoll "rates" every company in the industry based on a company's overall financial strength. Ratings are given as Strong, Good, Mediocre, Caution or Danger (see the ratings explained).

Alarmingly, 50 per cent of companies rated have deteriorated in overall financial strength from last year's ratings. Perhaps even more disturbing is that 185 companies are experiencing their second year with a "Danger" rating. For these companies, time could be running out.

292 companies in the industry are rated in financial "Danger"

David Pattison, Senior Analyst for the Metal Treatments industry says "The 'Danger' rating is given to companies whose financial performance is suffering. Their balance sheets are now straining under the heavy debts and this, combined with companies already losing money, could be a fatal mix."

Pattison goes on to say "Strictly speaking a company cannot stay in our 'Danger' rating. Either they will improve or disappear. The 'Danger' rating can be a great opportunity to re-build or for a new owner to take a company over."

It seems almost a third of the industry is making a loss

Average profit margins were 2.4 per cent on average last year. For those companies where debts have been accelerating, interest payments are becoming a considerable burden. In fact, a record number of companies made a loss.

In the industry almost half of companies failed to grow

Average growth in the UK Metal Treatments market was 0.3 per cent last year with only 183 companies increasing sales at a rate greater than inflation. Only an elite few seem to be tapping into the future of the industry.

Consolidation will be essential to the future of the market

Analyst David Pattison continues "A couple of years ago companies would have tried to trade their way out. But now, because margins are so low, 'trading out' is becoming less and less possible. Some company's debts are so high that even with 5 or 10 years of generous profitability, they still would not be able to make a dent in their debts. That is why I see acquisitions as simply inevitable."

Those set to prosper in 2003

Seventy-two companies are named in the analysis as the companies tipped to prosper out of the consolidation. Benefiting from a strong recent performance and a healthy sales growth, these companies are in a prime position.

The ratings explained

Plimsoll's ratings should only be used when referring to the individual Plimsoll Analysis of a company.

Strong – companies proving sound financial management over the last 4 years. Good – companies of sound financial strength over the last 4 years. Mediocre – performance in these companies are in a transition. Caution – companies with a weakening financial position. Danger – performance in these companies must change in order to survive.

To order the Plimsoll Portfolio Analysis: Metal Treatments – Third Edition 2003 for £305, contact: Tel: (01642) 626400; Web site: www.plimsoll.co.uk Readers of this publication will receive a 5 per cent discount if mentioning this article upon ordering.