Energy Sector Zombie Firms Down 13% in 2022

Energy Sector’s Tiny Apocalypse: Zombie Companies Shrink Fast

What’s a zombie company? In plain English, it’s a business that’s been stuck in the “no-exercise” zone for three straight years because it can’t bill enough to cover its interest on debt.

2022’s Surprising Turnaround

The global market sees a 5 % jump in zombie companies across all industries.
But by a cosmic twist, the energy industry turns the tables and shrinks by 13 %, dropping from 3.9 % in 2021 to 3.4 % in 2022.

Why the Energy Sector is Doing Better

Picture a wild west style showdown: Russia invades Ukraine, the world’s energy supply chain reboots, and prices shoot up. High levers get a boost because soaring commodity costs give these companies a lifeline.

Research powered by Kearney’s Dawn of the Debt study examined 70,000 companies across 180 sectors and 153 countries. Energy, the stand-out hero here, avoids the global grim trend.

Electricity Suppliers: The Big Hit

The electricity supplier slice is the heavyweight champ, slashing zombie numbers by almost 45 %.

In a nutshell, if you thought 2022 was a dumpster fire for the energy world, think again. Those groaning ghost firms are doing a better dance than their peers, and the high‑price, high‑leverage vibe seems to be their saving grace.

Heightened vulnerability to interest rate hikes

How Rising Rates Are Turning Energy Firms Into More Zombies

Even though zombie companies in the energy sector took a hit last year, a deep dive into the industry shows that they’re still very much on edge when interest rates climb.

When the rates rise, the undead rise

Here’s the low‑down:

— 1.5‑fold hike 4.3% of the industry turns into a walking, breathing zombie.
— 2‑fold hike 4.5% – a near‑50% jump from the baseline.

In plain English: a big surge in rates will see almost half as many dead‑on energy firms hit the market compared to before.

Experts Talk About the Undead Surge

Nils Kuhlwein, Partner & Managing Director at Kearney, said:

“It’s not shocking, but it’s a relief, that the energy and utilities sector is one of the few places where companies are coming back to life rather than becoming new zombies. However, those firms still need to watch out for future rate hikes and use the extra cash they earn to keep paying down debt for the long haul.”

Benedikt Frank, Partner in Energy and Process Industries, added:

“The vitality of energy and utilities is key to the health of both the European and global economies. The stress tests we ran at Kearney should act as a wake‑up call for leaders – make sure your companies can survive rates higher than they’re used to. The good news is that last year the number of zombie firms shrank, giving everyone a better chance to brace for what’s ahead.”