Contractors need to merge to survive

A report on the contracting industry from Plimsoll Publishing indicates that many companies' costs are rising dramatically but few have been able to increase profits.

Plimsoll recommends that contractors in this position seek strategic alliances to drive down costs. Alternatives are acquisition, sale or even closure.

The study looked at the ability of a company to spend wisely and generate a profitable return. With an ever-increasing cost burden, as many as 23 of the top 250 could be forced out of the market.

Of the 250 firms, Plimsoll highlights 50 companies with falling profits and rising costs (dubbed the spenders), 46 firms with falling profits and falling costs (the retreaters), 16 companies with increasing profits and falling costs (the thrifties) and 61 companies with increasing profits and costs (the ambitious).

For the 96 firms suffering profit erosion, 23 are in high financial risk.

Strategic options are to push sales up, with attendant costs, and go for profits; reduce costs and sales and go for profits; sell the company; buy a company; close the company down; or seek an alliance.

Plimsoll's study concludes that as major players look for extra market share to afford increases in overheads, particularly salaries, then there is a real need for many of them to merge, be taken over or seek alliances.

The UK electrical contractors major player strategic options analysis looks at the performance of the top 250 over the last four years.