More ‘Zombie’ firms, more risk
16 November, 2016
Company Watch, who monitor corporate financial health, has found that there are now approximately 249,000 ‘Zombie’ firms trading in the UK, an increase of 10,000 compared to November 2014 when they conducted the same research.
Zombie firms (named after the so-called ‘living dead’) are severely financially distressed. They are able to continue trading because low interest rates mean they can afford cheap debt costs, but almost a third (31%) are actually loss-making, which is 2.5 times more than the national average.
According to Company Watch, most Zombie firms have significantly negative balance sheets. In fact they have collective debts of £115 billion, and average debt levels of £461,000. In the last year, average short-term debt has risen by £3.6 billion (£12.2bn to £15.8bn), whilst long-term debt decreased by 5%. This is a worrying trend as short-term debts carry much higher risks.
Comparing collective debt to 2009, this number has risen steeply. In that year Zombie firms were responsible for only £31 billion of debt, so this has increased by 270 per cent over seven years.
The sectors with the highest number of Zombies are Retail and Hotels & Catering.
In Retail (including Wholesalers) approximately one in five (38,500 Zombies) are severely financially distressed.
In Accommodation and Food Services one in four (18,700) are Zombie companies
Other sectors with a high proportion of zombie firms include Construction, Information & Communication, & Administrative and Support Services.
Denis Baker, CEO of Company Watch, said:
“The Bank of England forecasts inflation to rise from 1% today to 2.5% by 2019. If this happens, this puts considerable strain on Zombie firms, who will face not only increased costs but also the prospect of rising interest rates that will increase the cost of their debt. Any company that has Zombie firms (particularly if they are increasing their short-term debt) within its supplier or customer portfolios should be managing their risk more carefully and possibly be investigating alternative suppliers or customers, in case these pressures finally kill off these struggling businesses.”
Further information, please contact:
CEO Company Watch
Tel: +44 (0)20 7043 3300
| Neil Boom
MD, Gresham PR Ltd.
Tel: +44 (0) 7866 805 108
About Company Watch
Company Watch rates and predicts the financial health of companies worldwide. It provides in-depth analysis of companies by applying its unique H-Score® methodology to published financial data. Since its launch, the H-Score® has identified nine out of ten corporate insolvencies or restructurings in advance. Company Watch is used by major international blue chip corporations, banks, fund managers, insurance companies, public sector bodies, accountancy firms, restructuring practices and other professional organisations throughout the world.