As many as 324 of the top 1,000 recycling companies have been rated as failing, but overall the industry is regarded as healthy, according to an industry study.
The report from financial analysis service, Plimsoll, suggests that these companies are in ‘danger’ and require an urgent injection of capital, a radical cost reduction scheme or financial restructuring in order to continue business.
The study rated each company on their financial health (see chart above).
Many of the companies rated as ‘danger’ have high debts and 167 are making a loss. Typical characteristics of these companies included:
- Fall in sales relative to investment
- Decline in profitability relative to investment
- Increase in total debts
- Fall in shareholder equity
- Increase in the exposure of creditors
David Pattison, Plimsoll senior analyst, said: “The recycling market is going through a period of great change and the market is highly competitive. These 324 companies rated as ‘danger’ are clearly operating under financial pressure and many risk being forced out of the market.”
However, Pattison added that the 429 companies rated as ‘strong’ have a real commercial advantage and this is proof that the market overall is healthy. The strongest companies make on average 4.5% margins per year and tend to operate debt free.
Pattison said: “We tested this method of analysis on a study of 351 previously failed companies, including all the latest retail failures, and this showed 320 had a caution or danger rating up to two years prior to their demise.
“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.”