Plimsoll's annual financial health-check of the top 268 companies in the UK sound equipment industry reveals that consolidation will be essential as supply is currently outstripping demand. Plimsoll 'rates' every company in the industry based on its overall financial strength. Ratings are given as Strong, Good, Mediocre, Caution or Danger. Alarmingly, 48% of companies rated have now deteriorated in overall financial strength from last year's ratings. Perhaps even more disturbing is that 58 companies are experiencing their second year with a 'Danger' rating. For these companies, time could be running out. In total, 96 companies in the industry are rated in financial 'Danger'.
David Pattison, senior analyst for the sound equipment 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. Strictly speaking a company cannot stay in our 'Danger' rating. Either they will improve or disappear."
Profit margins were 1.8% 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, and almost half failed to grow. The average growth in the UK sound equipment market was 2.8% last year with only 63 companies increasing sales at a rate greater than inflation.
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."
(Ruth Rossington)
