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The end of the road?

Some 218 companies in the UK electrical contractors industry are following a strategy that has led them into a blind alley and they must change quickly or risk disappearing altogether.

That's according to a new study assessing the strategic, financial and commercial performance of the top 1000 companies in the market.

David Pattison, author of the new Plimsoll Analysis explains: "It's undoubtedly tough out there with demand still subdued and costs rising all the time. With too many companies chasing too little market, many are finding it difficult to pass on rising costs to customers. As a result we have seen profitability fall with average margins in the market now down to 1%.”

Pattison goes on to explain that his latest study shows performance in the market is fragmented into four distinct categories. Based on these categories, he has been able to recommend strategies for the next 12 months to improve or protect each company's performance.

Get back to growth
According to the analysis, there are currently 88 companies in the UK Electrical Contractors industry that are struggling for growth. Although they have healthy profit margins and most have little or no formal debt, they are just not growing. Plimsoll recommends that these companies change their strategy and sacrifice some of their profits on finding new growth as they are in danger of being left behind.

Fix the profitability hole
Interestingly, 138 other companies in the UK market are at the opposite end of the spectrum. They are growing at a pace beyond the rest of the market, but they are doing so at the expense of profitability. Many of these companies could be accused of ‘overtrading’ by continuing to make losses and/or financing growth via increasing debt. They risk running out of cash unless they return to profit soon.

Maintain their advantage
There is a band of 527 companies that are clearly the market leaders. They are achieving above average sales growth, retaining healthy profit margins at an average of 2%, and carrying little to no debt. Their challenge is to maintain this outstanding performance in such a difficult trading environment and avoid complacency. Pattison suggests that they might even consider the acquisition of distressed competitors.

Try to survive or be rescued
Finally, there are 218 companies for whom the strategy for the next 12 months is mere survival or rescue via a takeover. These companies have high debts as a percentage of sales at 20%, are averaging profit margins of -2% and are often seeing sales fall. These companies need to downsize their operations, focus solely upon the profitable parts of their business and work at making a profit. Some will attract buyers to rescue them but others won't be so lucky.

The new report from Plimsoll informs readers which companies are following the right strategy and which are heading in the wrong direction. It offers an individual commercial, strategic and financial study of each of the top 1000 companies in the market, and EP’s readers are entitled to a £50 discount by telephoning: 01642 626400 and quoting reference: PR/CS38.

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