Despite the problems facing the overall UK economy, the players in the UK telecommunications services sector need to be ready and prepared for a series of unique opportunities that will present themselves in the year ahead.
MARKET VIEW
On the surface, the overall Telecommunications Services market is not in bad shape. Sales growth is running at a little over 6.4%., which is up in fact on the previous year. However, even the most bullish of companies will need to rethink for 2009. Plimsoll predicts that the overall market will see very little growth, if any. Already over half of all UK Telecommunications Services companies have seen a decline in sales as the impact of the wider economy moves to the UK Telecommunications Services market. Where opportunities to increase sales do not materialise, this is sure to be at the expense of other, weaker players in the market. For a select group of 186 companies, 2009 could be their year. These companies, many of whom are offering low-cost alternatives, could capitalise as businesses and consumers alike seek to reduce costs.
PROFIT
Historically, profitability in the UK Telecommunications Services market has been very uneven; we’ve seen a select band of 168 super profitable players delivering 21%+ margins, whilst most of the other companies are achieving 3.7% margins at best, with loss making not uncommon. In 2009 margins will again be under pressure from increased pricing competition. However, 2009 could turn out to be a profitable year if companies take action now to reduce their costs and accept their current level of business activity. Shareholders missed out in 2008, dividends running at 46% below historical highs, this cannot be allowed to happen again, so management must up their game to deliver in 2009.
DEBTS
If 2008 taught us anything, it was that using other people’s money to run your company is a risky business. 236 heavily indebted telecommunications services companies are now paying the penalty. Having invested heavily, they are now desperate to keep busy; they are a serious threat to pricing levels in the market in 2009. Their high risk strategy is in stark contrast to the 450 companies who have elected to run their businesses debt free, many carrying large cash surpluses.
Plimsoll predicts that in 2009 businesses will act more responsibly, as banks and institutions tighten their lending policies. Against this backdrop, finance directors and executives need to think very carefully about their finance needs for next year and plan early.
DIRECTORS AGES
2009 will see 238 of the 2086 directors working in the telecommunications services market exceed the retirement age, most of these having spent a lifetime in the industry. We expect to see a wave of significant retirements. This will drive a number of noteworthy companies to consider their independence, as the primary owners consider their futures. 594 of the UK’s leading 1000 companies remain in private hands; expect this number to reduce by this time next year. Opportunity then, for those wishing to seize the moment and acquire one of these businesses, a clear way to way to gain and advantage on your competitors in 2009.
SALARIES / PRODUCTIVITY
As sales decline companies will need to work hard to maintain their competitiveness- estimates suggest 5000 jobs could be under threat as business come under pressure to reduce costs in line with sales. 342 companies are currently on the watch list for this exact scenario. Over the last few years productivity levels have been increasing well, the sales per employee figures rising from £185,600 per person 2 years ago to just over £185,800 now. Managers should be setting their businesses up to deliver at least £192,000 sales per employee in 2009.
ACQUISITIONS
The top of the market is most congested: 86% of the total market size is now shared by the top 15 players, and the significance of this should not be underestimated. As the market tightens the major players have started to review their strategic options. However their key strategy will be to look at the emerging sectors within the market and target their acquisition strategy at a group of 285 high growth, high margin players that are leading the industry forwards. The major players need to establish their position in these markets quickly, despite their reluctance to spend any cash. The penalty of not moving in now is too high for each of them.
SUMMARY
2009 will be a very exciting year for the industry; it will be a time to choose your enemy wisely. Going on the offensive may well be the best defence. Key to this is the successful targeting of your weakened, low margin and heavily indebted competitors, their failure will be vital to your own company’s success.