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Large companies continue to fail as the UK sees two large failures just days apart

 
May 02, 2024 Rory Traynor Updated On: May 2, 2024
Large companies continue to fail as the UK sees two large failures just days apart

We are only one month into the new financial year and have already seen our fair share of large insolvencies; and that trend shows no signs of abating with two more eight figure insolvencies in the space of three days.

Telefonica Tech UK Ltd and Gojo Industries – Europe Limited become the latest victims in the UK’s deepening insolvency woes. Each company will inevitably add a significant amount of bad debt into the economy, which will then threaten the solvency of their creditors.

More concerning is what the presence of such relatively high numbers of significant failures represents.

In times of economic hardship, insolvency cycles follow the same pattern. First smaller companies start to go insolvent in higher than usual numbers, which then causes more of their creditors to go insolvent as they fail to absorb the bad debt. This continues and proliferates until medium sized companies, with turnovers in the low millions, too start to fail.

In this way, bad debt snowballs through the economy, growing bigger with every failure and starting to threaten increasingly large companies. The cycle is stopped when the ‘snowball’ reaches the companies large enough to absorb the debt and ‘melts’.

But, where a large company is unable to do so and become insolvent themselves they generally leave behind extremely large amounts of bad debt spread across a much higher number of creditors; therefore disproportionately exacerbating the bad debt ‘snowball’.

The recent failures of the likes of Gojo, Telefonica, Wilko, Buckingham Group and Ted Baker suggests that the worst may be yet to come in the UK’s fight against rising insolvencies.

Fortunately for Red Flag Alert customers, we provided months of advanced warning of these two most recent failures. Below we will look into each case in more detail.

Telefonica Tech UK Ltd

Telefonica Tech UK Ltd were the UK arm of Spanish tech and cybersecurity giant Telefonica. Their customers included Heathrow Airport, Simplyhealth and the NHS. At their last filing in 2021 they reported a turnover of £76 million. However, this came with a post-tax loss of over £4 million.

The company had been in financial trouble since 2022 and on 1st December 2023 we moved them to three red flags (our most serious risk rating). This gave our customers 5 months to recover debts and avoid offering credit before their eventual collapse on 29th April 2024.

GOJO Industries -Europe Limited

GOJO Industries – Europe Limited, a sub company of USA firm GOJO Industries who are the inventor and manufacturer of the popular hand sanitizer Purell, entered into administration on 30th April 2024. The last filed accounts show a turnover of £56 million; though the company has not filed results since 2021. Late accounts are generally a sign of poor performance as companies hold back on delivering unfavourable results.

GOJO’s accounts show a surprising post-COVID hangover. The onset of the pandemic saw turnover balloon from £67 million to £111 million from 2019 to 2020. Given the demand for hand sanitiser in that period this will be little shock to most people, but what will be is that 2021 saw turnover almost halve and drop below pre-pandemic levels. Given that the world was still suffering through lockdowns and the end stages of COVID, one might have expected the company’s turnover to prove more buoyant.

However, given the way the market mobilised to produce sanitiser, increased competition on price and consumers wallets being increasingly strained by the pandemic it seems that GOJO was unable to secure the brand loyalty they were counting on.

Directors of the USA based parent company had sought to sell the entire group in 2023 and went to market open to offers above $2 billion. Commentators were surprised by this valuation, as it was over twenty times the group’s annual ebitda. The market agreed and no offers were forthcoming.

It was likely that potential investors were aware that the group was experiencing difficulties and just a year after going to market the UK & European branch has entered into administration.

Red Flag Alert gave our customers five months of warning to this impending failure and listed them as a critical credit risk on 1st December 2023.

Red Flag Alert leads the industry in the ability to analyse financial health and predict business failure; with our insolvency score maintaining the highest level of accuracy in the UK. So if your business isn’t protected by the best in the business, request pricing to upgrade your defences today.

  
Published by Rory Traynor May 2, 2024

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