More than 100 civil engineering contractors in financial danger - and deserve to fail

Of the 117 firms rated as danger, the report shows 66 increased their debts last year and are now carrying almost twice the level of debt recommended.

In addition 78 saw profits fall last year and 58 are losing money. Costs are clearly ahead of sales and they have failed to respond to changes in their business structure.

Amid calls for bail-outs and emergency measures, Plimsoll senior analyst David Pattison argues these firms should be allowed to fail.

"It is clear that many of these 117 “danger” businesses are fundamentally poor, aggressive or disruptive and are unhelpful to the market. With newly prudent banking systems in place, raising quick finance will not paper over the cracks as it once did.

"There is no doubt in my mind that recessions catch bad businesses out. Those companies that have entered this period ill-prepared have placed themselves at a distinct disadvantage. Many have grown used to running their businesses on high risk business models, propped up largely on finance," he said.

Recent examples of failed businesses in the news bear this out. Zavvi, Woolworths, Whittard and Wedgewood, were all rated danger by Plimsoll prior to their demise.

Latest research shows that the UK civil engineering contractors industry is not immune to the current crisis. The sector has overcapacity, 34% of businesses suffered a fall sales last year, with competitive pressure forcing many to see sales fall by 13%.

"The reality is, for many of these 117 danger businesses, their problems go back years, certainly long before the current UK slow down, yet they have failed to fix their problems. Darwin, in his work, The Origin of Species, recognised that extinction was an integral part of evolution, survival going to those most responsive to change," said Pattinson.

"Our analysis is clear, not all of these 117 businesses will survive. Of those who do, very few will be in their current shape and many will be in the hands of new owners.

"This further supports the argument that despite the obvious tragedy of job losses, livelihoods lost and the pain of a business in decline this period is inevitable and can only be good news for the market in the long run.

"There are 586 terrific companies who can compete fiercely on price, and are largely debt free while holding their margins. Most are operating at the height of productivity. These will be the ones to watch in the next period.”

The 2009 Edition of the Plimsoll Analysis - civil engineering contractors includes an individual analysis of each of the industry’s largest 1000 companies. The report values each company as well as rating each company on its attractiveness as an acquisition. Each of the 1000 companies analysed receives a unique Plimsoll rating showing the company’s strengths and weaknesses.

Have your say

You must sign in to make a comment.