Consolidation Ahead as Telecommunications Services firms hit the Danger list

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

Plimsoll has produced a financial health check for each of the top 1000 companies in the UK telecommunications services industry. It reveals that consolidation is essential as supply is outstripping demand. All companies are having a difficult trade off between protecting margins and appeasing price sensitive customers.

Plimsoll has rated each of the UK’s largest Telecommunications Services companies into one of five financial ratings based on their overall financial performance. Ratings have been given as Strong, Good, Mediocre, Caution and Danger.

Rating No. of firms Definition

Strong 441 The best performing in the market

Good 100 Improving overall financial performance

Mediocre 115 In transition, a make or break year

Caution 114 A weakening financial position

Danger 230 Need to change in order to survive

David Pattison, senior analyst on the project, comments “A great deal has been written on the general slow down in the UK, but until now no one has measured the impact on the telecommunications services market and crucially who is most exposed.”

Of most concern are the 230 firms who have been rated as Danger. These firms are being hit the hardest. The numbers are stark – profit margins falling to only -6% of sales, and the majority of companies in this classification are making a loss. Most are taking on debt at an alarming rate simply to cover costs.

David Pattison continues: “I think these figures just prove the point that we have all been aware of that a period of consolidation is long overdue. Bit by bit the weaker players will be removed from the market.”

A period of consolidation will obviously have consequences, aside from the obvious job losses. The report suggests that up to 287 companies might need to shed jobs. For some businesses as many as 30% of the payroll may have to go if the company is to survive.

“These companies (those rated danger) must put immediate plans in place to start to trade their way out of their problems. Cutting costs, jobs and even turning unprofitable work away- stringent measures must be put in place before it’s too late. Currently the owners are sitting on an ‘unsellable’ asset and are woefully exposed to acquirers who are ready to snap them up for next to nothing.”

Those companies rated as ‘strong’ and ‘good’ offer some room for optimism. Benefiting from stronger business models and tighter financial management these companies are ideally placed to benefit from the fall-out in the market.