One in four companies using debt to finance growth

Keywords: Aerospace industry, Equipment, Finance

Is it shrewd or risky business gaining market share through funding from banks? With over half of the entire UK Aviation Equipment industry increasing debt last year, remarkably 45 per cent are putting this extra finance to good use.

60 Chancers, named in the Plimsoll Strategic Risk Index of the Aviation Equipment Industry, are using debt to gain market share. Last year these Chancers increased sales by almost 3 times the industry norms, capturing 13 per cent extra market share. Yet they are carrying over twice as much debt as their competitors.

Perhaps it is no surprise that almost over three quarters of these companies are at high financial risk according to Plimsoll's own rating system.

However risky it might sound, it seems a popular strategy. "Taking other people's money and using it to generate a profit is great in the good times,"says David Pattison, senior analyst at Plimsoll. "The dilemma for these companies is that they will need to keep charging a price premium to finance the debt."

Current pre tax profit margins are 6 per cent compared to the industry norm of 4.4 per cent. Adding back interest payments profitability is healthy at 8 per cent well above the industry average. It seems their strategy is finding reward. Perhaps of greatest surprise is that it's the larger players in the industry that seem particularly drawn to this risk strategy with 64 per cent of the Chancer companies having sales above £10 million.

Almost two thirds of the companies in the industry with sales over £10 million have been named as Chancers in the analysis.

Last year the industry only saw sales increase by 7 per cent. 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 behaviour.

Other companies in the Aviation Equipment analysis are also considered and named as the 58 shown as having a losing strategy; the 58 named as Winners and the 60 Sleepers of the industry.

Don't risk being left behind in the market. These latest findings from Plimsoll Publishing covering 236 companies has revealed 4 types of strategy that the UK Aviation Equipment industry will be using next year. Readers of this publication can claim a 5 per cent discount when mentioning this article upon ordering.

In a second report Plimsoll suggest that it's time to break open the champagne for 20 companies in the Aviation Equipment industry! Focusing on the best companies in the industry as part of a new Trailblazers' Edition, Plimsoll has awarded 20 companies its highest mark of distinction, 'Best Trading Partner'for 2001.

Chosen from 503 companies in the Aviation Equipment industry, these 20 companies have been selected for their financial and commercial success. These companies are taking the industry forward, effectively changing the rules of the game and proving that the Aviation Equipment industry can reward innovation and niche performance.

Taking an overall measure for success, companies must have a combination of a strong balance sheet, good profitability and sound cash control. They are achieving this whilst capturing market. Last year these 20 'Best Trading Partners' grew by over 18 per cent on average compared to the industry average of 7.7 per cent. Profit margins at 5.7 per cent on average were also above the industry of 4.7 per cent. But it is their overall performance that sets them apart.

• ATC (Lasham) Ltd

• B A C Express Airlines Ltd

• Dasic International Ltd

• Endeavour Holdings Ltd

• Everwarm Services Ltd

• FIrst Choice Holidays plc (H)

• Flitetec Ltd

• Hunting Engineering Ltd

• HYDE DETAILS LTD

• Martin-Baker (Engineering) Ltd

• Nicholson's Aircraft Seals Ltd

• P F A (Ulair) Limited

• Percival Aviation Ltd

• Qualitair Holdings Ltd

• Roxboro Group plc

• Score (Europe) Ltd

• Sedgewall Communications Group Ltd

• Smiths Group plc

• Unova U K Ltd plc

• Vitec Group

A few companies listed as a "Best Trading Partner" have been given special mention. The company with the biggest market share increase over last year is the Smiths Group plc. Sales increased by over £140 million and now have sales of almost £1324 million. This 11 per cent growth is well above the industry average of 7.7 per cent for the same period.

Earning the biggest turn around in profit margin over the last 12 months,Qualitair Holdings Ltd. has made a massive improvement and now holds a healthy 6.0 per cent profit margin. With annual sales of over £10 million and no debts this company is now able to maximise profitability.

Proving that success is still firmly in their grasp, Percival Aviation Ltd is the oldest company to receive a 'Best Trading Partner' award this year. Incorporated in 1979 with current sales of £2.1 million, this company grew 63.9 per cent last year! This company is surely an inspiration to us all.

Companies featured in this special Trailblazers' Edition received a special award to celebrate their success and their contribution to the Aviation Equipment industry.

This special edition, priced at £395, also includes outstanding company performance in 15 areas of business, including sales growth, efficiency, best use of people, best young businesses and more.

Details available from: Plimsoll Publishing Ltd. Tel: +44 (0) 1642 257800;Fax: +44 (0) 1642 257806; E-mail: plimsoll@dial.pipex.com; Website: http://www.plimsoll.co.uk