Consider the following information from its February 2002 issue concerning refrigeration firms.
A report cited in the magazine said that the majority of firms over there “are using debt to gain market share. Last year, these ‘chancers’ increased sales by almost four times the industry norms, capturing 6% extra market share.
“Yet they are carrying over twice as much debt as their competitors. Perhaps it is not a surprise that almost two-thirds of these companies are at high financial risk” according to a rating system developed by Plimsoll, the research firm that did the study.
FINANCING THE DEBTThe researchers noted, “Taking other people’s money and using it to generate a profit is great in the good times” but “the dilemma for those companies is that they will need to keep charging a price premium to finance the debt.”
In some related findings, the study noted that such companies are showing about a 2% profit on sales compared with the 2.7% industry average; and larger companies are just as likely to be “chancers” as smaller companies.
In noting that overall industry sales only went up 3% in 2001, the report said, “There is little doubt that companies will associate this level of market pressure with a recession as the market simply cannot sustain this level of behavior.”
MARKET GROWTHSome other stats from the study: The United Kingdom refrigeration market is expected to grow by 1% in 2002 — “but this growth will not be seen across the entire industry. Just under half the industry may not see growth at all and could lose 17% of sales on average this year.”
Finally, the report said that of the 923 companies surveyed, 75% saw profits fall in 2001 and almost 41% are currently “loss making” (losing money). “Despite this, very few reduced staff levels and (only) 52% made attempts to reduce their asset base.”
I don’t profess to be a business management expert. (That’s probably why I work for a company and don’t own one.) But most of what I read in that AC&R News report makes me a bit concerned about the refrigeration industry in the United Kingdom. It fact, the stats could be good guidelines on how not to run a refrigeration business.
Powell is refrigeration editor. He can be reached at 847-622-7260; 847-622-7266 (fax); or email@example.com (e-mail).
Publication date: 05/06/2002