UK companies set to ride out economic storm, say analysts

The UK economy is set for a rocky year ahead, but two thirds of labels companies look surprisingly well placed to benefit, according to market analysts Plimsoll Publishing.

Despite predictions of doom and gloom, the label sector will not suffer terminal fallout in 2008, according to the company’s latest in-depth report on the industry.

In fact, said Plimsoll’s senior analyst, David Pattison, it could turn out to be a very exciting year.

Plimsoll sees four clearly defined groups among the 462 companies in its new analysis: 

• 79 firms chasing extra market share at any cost 


• 79 successful companies poised to go on the offensive 


• 145 being squeezed out of the market 


• 159 sitting the whole thing out

For each of these groups, there are advantages and disadvantages to the position they find themselves in. David Pattison outlines them.

The market chasers

These 79 companies spent 2007 gearing up for growth – to such an extent that some of them are completely reliant on outside finance. Despite the prospect of even tighter credit, they look surprisingly confident to continue with their aggressive expansion plans. With their expect growth rates likely to be in the 20 percent to 24 percent range, they could cause chaos in the market as their undercutting pricing policies cripple the competition. Capturing sales from other players is a key part of their strategy.

The biggest threat to these companies is any interruption of cash flow, which could be fatal. They need to hope that the financiers and the banks don’t become any more nervous as the year develops.

The predators

This group has most to gain in 2008, and the companies in question are capable of funding their investments with their own cash, rather than looking for outside finance. They have enjoyed average profit margins of 7.0 percent in the last two years, and the economy will play into their hands in 2008, as competitors go under and cheap acquisitions appear on the market.

The biggest danger in this sector is missing opportunities because of a lack of clear strategy.

The prey

These companies are badly exposed because 59 of them are losing money, they are in debt and their ability to respond is slow. If they act quickly, cut costs and bring their bad news out now, they may still turn things around.

The biggest threat they face is leaving it too late in 2008 to act.

The fence-sitters

These companies have been slowing down their capital expenditure, controlling costs and sticking to profitable areas of their business. They have been staggeringly profitable, making margins of more than 12 percent year on year, often in niche markets.

The firms in question may appear to be in the lowest risk category as they ride out the storm. But doing nothing is perhaps more dangerous than you think. All it takes is for a more aggressive player to target their sector of the market and their position could be jeopardized.