Written by: Keith Tully
Published: 8th May 2019
At least 8 per cent of UK companies, and quite possibly many more, are displaying ‘zombie-like’ symptoms and struggling to make positive financial progress.
That’s according to the professional services firm KPMG, which is warning that the prevalence of companies with falling revenues and stifled profitability could be acting as a drag on the overall economy.
The firm also says that roughly one in seven companies across the country could have collapsed altogether in recent months or years if it weren’t for historically low rates of interest.
Some 21,000 businesses were assessed by KPMG as part of its recent research and report, which uses the idea of zombie-like companies to describe operations with financial difficulties including squeezed margins, limited cash reserves, high leverage levels and problems with a consistent inability to improve profitability.
Sectors most under strain and with the highest concentrations of zombie-like firms were found to include the energy sector, the automotive industry and utilities.
As many as 23 per cent of all energy sector operators were deemed to be under financial stress, along with 17 per cent of those in the automotive field and 15 per cent of those in utilities.
Across the economy, it could be that close to 14 per cent of businesses are exhibiting zombie-like symptoms and struggling to stay afloat in the current climate, according to KPMG’s assessments.
The company has said that “the rise of zombie firms in the UK could spell trouble ahead” for the British economy.
“The threat that zombie companies pose to the wider economy is very real,” said Yael Selfin, KPMG’s chief economist in the UK.
“If interest rates rise further, highly-leveraged businesses may soon find that borrowing will become more difficult to repay, and if the economy continues to stutter, these businesses, will be left especially vulnerable to adverse market forces.”
Blair Nimmo, head of restructuring for KPMG UK, added: “Urgent dialogue is required between regulators, banks and businesses in order to minimise the ongoing drag that these companies have on the economy.”
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