‘Zombie Companies’ – danger & opportunity for UK electronics manufacturing

“These companies are in a state, posting growing losses and, despite the obvious freeze in the credit markets, increasing their debts. They are Zombie businesses with debts at an average of 54% of turnover – they exist to service their out of control liabilities. Many are also using their suppliers to finance their growing losses, taking twice as long as to pay their bills as the industry average of 32 days”, David Pattison, author of the new Plimsoll Analysis, is cited in the new EIPC newsletter in saying. Productivity of such companies is below industry average and competing with others is difficult. As a consequence, all investments have been postponed indefinitely, which in turn further hampers their ability to compete. Not all of these companies will be able to survive, the analyst explains in the article. The lucky ones will have to endure a lot of pain doing just that. The most essential thing is “sort out their immediate finances”. The longer it takes them to address important issues, the harder and less likely it is they will ever fix them, he is convinced. However, for others, Zombie businesses might pose an attracting acquisition target; picking up a bargain on the way. Plimsoll Industry Analysis – Electronics Manufacturers has picked 59 such companies. And for those unable to attract new buyers Mr Pattison says, “Most have simply had their day and a combination of aging assets, rising losses and increasing debts mean they are unlikely to attract a suitor before the receivers are called. They will be forced back into negotiations with their lenders to buy more time but their future doesn’t look good”.