Almost a quarter of UK fire protection companies are in danger of going out of business, according to a worrying new study.
Plimsoll’s latest report into the health of the fire protection industry looked at 968 of the largest companies, and ranked their financial health from strong to danger. A massive 239 fire protection companies are apparently in danger, with a further 65 being given a rating of caution.
However, despite this worrying number, the overwhelming majority — 577 companies — had a rating of strong or good in the report, and 228 companies are worth more than they were this time last year.
David Pattinson, a senior analyst at Plimsoll, said that the 519 companies rated as “strong” proved that the industry in general “is healthy” and that these companies have a “real competitive advantage.”
The report features a number of high-profile companies, including Kidde, Aico, Tyco, Fike, and Kentec, to name but a few. A company defined as “strong” in this analysis makes at least 4 percent margins each year, has a “healthy” cash pile, and is mostly operating debt-free.
The “danger” companies, meanwhile, are losing an average of 2 percent of every pound they sell, have high debts, and around 65 percent of the 239 companies are making a loss.
Dubious methodology
The methodology used to identify the danger companies was tested by Plimsoll against a list of 351 companies that have already gone under, including “all of the latest retail failures”, according to Pattinson. This analysis showed that 320 of the failed companies had a caution or danger rating up to two years before they went out of business. Pattinson continued:
This proves our method of analysis can identify the key characteristics of a failing company. If failures are predictable, and if enough warning can be given, the management has time to get a survival plan in place to save the company.
However, we are a little dubious that failures in retail businesses can be held up as a benchmark for businesses in a completely different industry. Relatively speaking, the fire protection industry is more resilient than most, although a degree of reliance on new buildings has meant some weakness as the construction industry generally continues to stutter.
Pattinson concluded:
It is clear from this study the Fire Protection market is going through a period of great change and the market is highly competitive. These 239 companies rated as danger are clearly operating under financial pressure and many risk being forced out of the market.
There may be some scope for some major acquisitions in the market on this basis in the next 12 months. There are 308 companies in the report that are identified as the best targets for a takeover.
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Whilst the basic principles of the report are sound, looking at profits/loss, debts, overheads etc – as the article says, comparing markets that are chalk and cheese isn’t a very scientific methodology.
By the same logic, most of the professional football clubs in the UK are running at a Loss (Chelsea last £78M in 2011/12 season) and they are still functioning just fine…
I did hear that Alexander Lebedev, satisfied with saving the Independent and the Evening Standard, is now considering sweeping up a few intumescent paint manufacturers…
(Note: I didn’t)
Rob can you please explain what is the procedure the departments are following to rate different fire protection departments in terms of strong to danger?
same question here… but a lot of the time it all depends how numbers get calculated and presented after… how I see it…
Sheh, as far as I can glean they look at company returns for the previous year and compare revenues, profits, cash in the bank, debt levels etc. What their exact benchmarks are for how much debt or revenue equates to a ‘strong’ or a ‘danger’ rating I’m not sure.
Rob thanks for the reply but I still believe that every firm is not submitting its true information as companys wants to avoid taxation and increase their profits. I think that the dta shown on the chart might be all together different if some proper investigation in actual standing of the firms taken into consideration.
yes and know… not all Co. playing games with Tax-man… but you have interesting point/idea… make me think… what if scenario…
True of course that the bigger the business the more likely they are to be moving money around their global empires, but as you allude, if the taxman can’t keep track of it, it’s difficult for the general public too.