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51% From 1.41% In 2004, Its Gross Margin Has Remained Fairly Constant During ...

51% from 1.41% in 2004, its gross margin has remained fairly constant during the five year period being at 12.31% in 2005. Return on capital employed has varied widely during the five year period. In 2001 it was at 12.16% reducing to 10.41% in 2003 and dipping further in 2005 to 2.31%. This would suggest that management is less effective during 2005 in producing returns on resources before making any distribution of those returns.

The current and liquidity ratios are good at around the 1;1 mark for the five year period, which suggests the organisation has no difficulties in paying its debts during the year.

Amec's gearing ratio is also high at 254.4 during 2005. Debtor days seems particularly high at 95.79 during 2005, having been at 57.06 in 2002. This needs to be addressed as soon as possible. Creditor days is far more acceptable than that of Balfour's.
Kier's profitability ratio has increased in 2005 to 3.68%, from 2.81% in 2004. Gross profit has also consistently risen over the five year period. Return on capital employed is higher than the competition at 26.81 in 2005. The current ratio is at a good level during the five year period, being at 1.17% in 2005.

However, the liquidity ratio is very alarming at considerably less than 1;1, and consistently lower than 0.7;1.Management would need to seriously consider this area of the accounts.

Debtor days it is at an acceptable level at 43.04 days in 2005 and creditor days at 86.95 days in the same year.
Factors influencing these figures would include acquisitions and other exceptional costs which would have the effect of distorting the trends of the figures. Other exceptional costs such as government levies or taxes, fines or other investments.

Conclusion

Balfour operates in a fast moving, volatile industry, where acquisition and merger are seeing the consolidation of the industry. Balfour differentiates itself by focusing on sustainable partnerships with customers and suppliers. It has broadened its service offering to include social housing, with the acquisition of Mansell, which in turn, facilitated the company's adherence to the Egan Report.

The industry is vast, with many competitors. Amec plc and Kier Group have expertise that Balfour lacks, that of mining, and in Amec's case, oil and gas production facilities. They therefore differentiate themselves by providing discrete offerings. Each organisation is adaptable and flexible enough to adjust to its changing environment, and in turn, achieves sustainable competitive advantage.

With all three of these organisations having the stated strategy of growth via organic and transformational means, such as acquisition, it's just a question of . . . watch this space!

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