Understanding Project Contractors and Contracting Businesses - Report Example

Company Analysis Table of Contents Table of Contents 2 Introduction 3 Aim of study 3 Kier Construction Limited 4 Morrison Facilities Services Limited6 Business Models 6 Kier Construction Limited 6 Morrison Facilities Services Limited 9 Comparing the business models 11 Conclusion 14 Reference List 15 Introduction The construction industry has experienced high growth over the past few years in United Kingdom (UK). The performance of the companies has been quite remarkable as they contributed to the economy to a great extent. It contributed about £ 64,700 million to the UK economy in 2004. The industry has been encountering huge profit from 2004 as it received large construction project. In 2009, it was recorded that there were 194,000 construction firms which employed more than 2.3 million employees in the both public and private sector. However, the industry also encountered a grim phase in 2009 after the sharpest fall monthly in 1997. The prompt fall in the construction industry forced the companies to slash down cost and job. Thus, the industry experienced hard time during the phase from 2008-209, however it recovered soon after 2010. The challenges thus faced by the industry have made the companies more determined and they have planned new strategies for facing the difficult times of business (The Telegraph, 2013). The paper elaborates the company analysis of two well known construction companies in UK. The performance of the companies over the years from 2004 – 2011 is studied in order to get the clear picture of their operation and financial status during the period. The companies chosen are Kier Group Plc. and Morrison Facilities Services Limited (Bloomberg Business Week, 2013). Aim of study The paper highlights the business models of the companies which depicts the following: a) The source of finance for the company and the main drive for finance b) The credit policies that are exercised by the companies (types of asset to total assets and types of liability to total assets) c) The resources that are deployed by the firms and the levels of productivity obtained by it. d) Measuring the turnover per employees and value assed per employee, turnover-to-asset ratio, profit per employee and remuneration per employees. e) The decision taken by the firm on the make or buy situation f) The growth of the firm and growth rates of assets in comparison the growth rate of turnover and employment g) Evaluating the reinvestment margin, equity growth ratio. The paper elaborates the strategies and the project undertaken by the companies. It also consist a comparative analysis of the companies with its peer groups. Kier Construction Limited Kier Construction Limited is regarded as the leading service, construction and property group which specialises its work in civil engineering, building, support services, structured property financing, commercial property and development and financing affordable housing. The core values of the company are built in as set of beliefs and standards that reflect the efficiency and the character of the company. The group holds few values that represent the essence of the same. The company believes in success by complying with the core values enthusiastically and honestly. The team are committed and proactive to their work and they focus at delivering their vision in reality and becoming the best. The project undertaken by the teams are realistic and they are responsible for the good and bad new associated with them. They share respect among the colleagues and thus the working environment is healthy. The company provides with creative solutions to the customers and adds value in the way (Kier Group Plc., 2013c). The teamwork seen in the company starts internally and extends to the customers, communities and the professional partners who are in need of their services. The success is shared among the shortcomings and challenges are seen to the scope of improvement. The company concentrates at providing its customers the best quality services and sustainable profit. The success of the company depends on the lucidness of its vision, strategy and commitment. The corporate strategy of the company is basically comprised of four strands. These strands forms the main basis of the capabilities of the company as it provides a framework that guides the decision making process of the company (Kier Group Plc., 2013i). During the changing times the company has remained alert and focused and have taken that project which had utilised their strengths and shadowed their weakness. The technical expertise is employed at its best to the projects where the processes are re-engineered and schemes are created to add value to the customers’ expectation (Kier Group Plc., 2013j) The company have concentrated on extension and have pushed the boundary according to the growth of the market. It has been offering services to the adjacent markets by leveraging the existing skills and they even got the opportunity to work in a different geographic location. By leveraging the business model of the company, it had given its best effort for the success. The group has wide ranging capabilities and thus offer expertise and solutions to the cents which only few other companies can provide. The company trains and inject in their people the best method of work and maximise their potential so that they can account for the success of the company (Kier Group Plc., 2013e). Morrison Facilities Services Limited Morrison Facilities Services Limited has been acquired by Mears Group Plc in 2012. Morrison Facilities Services Limited engages itself in the maintenance and repairing of the houses in UK. The services provided by the company are the following: electrical, joinery, painting, plastering, plumbing and decorating and gas installation. It also provides facilities management services like the planned and reactive maintenance, cleaning, document management and capital works. It is a Public limited company and it provides its facilities to the central, local government bodies and to the private business. It specialises in the repairing and maintaining housing and thus assists its clients by providing the best effort and the best quality services. The company from its incorporation in 1989 is based in London. However, in November, 2012, Morrison became the subsidiary of Mears Group Plc. As of November 7, 2012, Morrison Facilities Services Limited operates as a subsidiary of Mears Group Plc (Ocean Media Group, 2013). Mears Group Plc. acquired Morrison Facilities Services Limited which is a subsidiary of Morison Plc. for £24 million (EMAP Publishing Limited Company, 2013). The consideration was £16 million cash funded from the existing bank facilities of Mears and the rest of the amount was issued through 2,833,489 Mears shares. The shares were issued at 282.3 pence per share (Thomson Reuters, 2013). Business Models This section elaborates the business model of both the companies. Kier Construction Limited The business model of Kier Construction is vast and quite impressive as the company operates through a number of managements. Increased the number of management, delegation of authority will be god and as a result the company will be performing well. Thus Kier owns an expensive and impressive business model which is as follows: Construction Management The construction process involves number of stages which is important for its establishment. Thus the company at its every stage of the projects employs the expertise knowledge and guidance so that construction goals are fulfilled without any hassle. The goal is to give the clients their required model or construction. To provide the exact need it’s very difficult but it’s important for retaining the clients. There has been change in the construction process and technology involved. An example can be cited as Kier suggesting the combined New Engineering Contract (NEC) by “replacing the bespoke lump sum contracts” (Kier Group Plc., 2013a). The new approach for construction helped to foster new team strength and thus became the vital component for the successful delivery of the project. The combined and consultative style of working of the team has motivated the clients to associate with the company. Programme Management Kier have employed a stable team of employee for leading a wide range of integrated modelling of complicated fast track projects. The projects are simulated regularly in 3, 4 and 5 dimensions at moderate stage, for explaining the alternative proposals those results from the study of range of works (Kier Group Plc., 2013b). The Kier staffs operate within the respective management system that is audited and certified by the British Standards Institute (BSI) every year. Primavera allows the management to combine the resources, time, value and cost elements of project and hence produces detailed reports on the procurement, design and construction operations. The site statistics are inserted in the control system of the project and are later converted to a standardised dashboard for a perfect visualisation of the status of the project. The management systems are lined up according to the series of process maps. The process is followed in order to handover the elements of business development. The change management is the area where the measures are defined clearly and based on the best practical experiences. Studies At the start-up stage, Kier employs a number of alternatives for designing and settling the optimal solution for the construction. The clients are presented with video simulations of various design options. The options make them easily see and interpret available options. The Kier team had remained at the limelight of “3D computer aided design development” (Kier Group Plc., 2013f. ) and has it is widely accepted in UK that the company is among the leaders in the industry. The company has employed new technology for enhancing the visual representation of the projects. The physical coordination and the data association with the schemes are very important for the processes that are employed. The experience of the company includes the delivery and design of the projects that are highly required for the facilities. The information is improved and highly co-ordinated in 3D. The improvement is undertaken for to ensure that services are fully incorporated with the framework. The advanced tools of visualisation allow the users and clients for gaining better understanding of new facility and the working environment. These results in fewer late design changes and the issues are handed after reducing the cost and increasing the client satisfaction. The example is Front End Engineering and Design (FEED), the studies whish are carried out for reducing the catalytic effect on plant at Eggborough and Aberthaw power stations for reducing their emissions. The designs have helped the customers to achieve a particular savings (Kier Group Plc., 2013d). Risk mitigation Every company face the challenge of encountering risk during its days of operation. The following are the risk mitigation processes for the company: The nature of the business environment and the industry in which the Group operate is highly risky. However, it is predictable that it is not possible for eliminating all the uncertainties and risk. The company has developed a well organised internal control system and risk management for supervising the operation and managing the risk. The internal control system has helped the company to respond positively to the changing business. According to the widespread operational revaluation of business and the incorporation of May Gurney the company has experienced an era of organisational change. The changes have affected a number of principle business risks of the Group. The risks are associated with the health and safety of the people, reputation and informational technology. The risk that is identified by the Risk Management and Audit Committee and Board focuses mainly on the steering group and the chief operating officer has taken appropriate decision relating to any change in the management. The changes are informed to the Board in order to establish and ensure appropriate controls on the risk mitigation process (Kier Group Plc., 2013h). Legal and regulatory The company has to face a number of demanding, complex and evolving legal and regulatory requirements. The violation of regulations or laws has led to legal proceedings and investigations. The disputes arising from the business ranges from the additional costs that are incurred by the project for the criminal penalties which damage the reputation of the company. Morrison Facilities Services Limited Interface Management The focus on intelligent interface management of the company has one way to guarantee the unbeaten delivery of the major projects. The team understands the approach which is systematic in nature and co-ordinate with the client departments, government bodies, systems contractors, consultants and specialist subcontractors which represents multiple nationalities. By devoting effort, time and technical the challenges to the interface management are met by expertise. The company has successfully kept the projects on schedule and maintained the budgets. The document control is the essential part of co-ordinating interfaces. There is strict control on the organisation for divesting and closing thousands of documents during the construction phase (Morrison, 2013f) Building The company has undertaken a number of successful buildings projects that have made a forward looking approach for the company. The projects have encouraged the growth of the company. The company has engaged the latest technologies for building processes and those processes have benefitted the customers to a great extent. The strong network of the local and regional offices in UK has enabled the company for providing national coverage with a local presence. The company has established strong bases in Hong Kong, Middle East and Caribbea by delivering international projects. The company has the capability of delivering high quality construction projects for a number of public and private sector customers. The company own skilled teams who have experience and good reputation in working with partnership with the clients across a number of diversified sectors. The examples of such projects include the projects from central government, local authority, custodial, educational, community facilities and healthcare. The company provides innovative solutions for the challenges that are faced in the building processes. The solutions help in reducing the timescale and complexity (Morrison, 2013a). Extensions The company had huge reliance on the in house talent and the project expertise. It also depends a lot on the technological process for completing the demand for extension projects for the customers in all the sectors. The refurbishments and extension forms a vital part of the construction portfolio for both the public and private sector customers. The quality of the projects is independent of its size and the complexity (Morrison, 2013g). The company understands the limitation of the working sites and access in those areas skilfully by minimising the impact on the works. During an ongoing project the safety of the employees and visitors are of top priority and the workers are continuously committed at improving the working condition. The company also concentrates in keeping a good behaviour with the communities they operate in. They have always taken into account the issues that are raised by the locals (Morrison, 2013b). Comparing the business models The following table elaborates the capital employed for both the companies over the period of 2005 – 2011 (Kier Group Plc., 2013g: Morrison, 2013c): Capital Employed in GBP 2011 Capital Employed in GBP 2010 Capital Employed in GBP 2009 Capital Employed in GBP 2008 Capital Employed in GBP 2007 Capital Employed in GBP 2006 Capital Employed in GBP 2005 Kier Construction Limited 110,284 98,914 95,632 83,545 76,018 72,279 59,479 Morrison Facilities Services Limited 10,520 22,832 21,025 20,840 26,614 27,989 24,953 From the above table it is evident that Kier Construction Limited is a much established company than Morrison Facilities Services Limited since the company since the former company has the ability to employ the huge amount of capital to the business. The source of the capital for Kier is both equity and debt capital. The following table elaborates the value added per employee for both the companies over the period of 2005 – 2011: Value Added per Emp. 2011 Value Added per Emp. 2010 Value Added per Emp. 2009 Value Added per Emp. 2008 Value Added per Emp. 2007 Value Added per Emp. 2006 Value Added per Emp. 2005 Kier Construction Limited 68.9 51.7 63.0 59.5 53.9 39.1 44.0 Morrison Facilities Services Limited 29.2 42.3 40.9 38.1 38.4 30.8 39.1 From the above table it can be elaborated that the value added per employee of Kier is higher than that of Morrison. This indicates to the fact the employees of Kier have higher productivity than Morrison. Over the years the productivity of Kier employees has increased whereas the productivity of Morrison has decreased (Morrison, 2013d). The following table indicates the fixed asset per employee over the period of 2005-2011 (Morrison, 2013e): Fixed Assets per Emp. 2011 Fixed Assets per Emp. 2010 Fixed Assets per Emp. 2009 Fixed Assets per Emp. 2008 Fixed Assets per Emp. 2007 Fixed Assets per Emp. 2006 Fixed Assets per Emp. 2005 Kier Construction Limited 7.22 6.81 7.01 7.64 7.76 7.94 5.51 Morrison Facilities Services Limited 1.78 1.11 1.20 4.80 1.31 1.71 3.45 From the above table it can be depicted that the fixed asset allotted for each employee of Kier Construction is much higher than that of Morrison. This indicates that Kier has higher fixed assets in comparison to Morrison which can be due to the high turnover of the company. Creditor days 2011 Creditor days 2010 Creditor days 2009 Creditor days 2008 Creditor days 2007 Creditor days 2006 Creditor days 2005 Kier Construction Limited 119.5 125.4 108.6 108.1 112.2 102.3 103.4 Morrison Facilities Services Limited 26.0 10.0 7.0 6.8 6.7 14.3 17.8 The creditor’s days indicates the time taken by a company to collect the credit from its suppliers. From the above table it is evident that Kier have provided their creditors a much longer time for payment than Morison. This indicates to the fact that the former has larger cash base for its sustenance. Conclusion The two companies chosen possess contrasting evidences that are elaborated in the sections above. The companies have different process in operation and the strategies that are followed by them in order to sustain in the industry. Kier Construction Limited and Morrison Facilities Services Limited give contrasting financial data too. The former has a good financial base and thus the capital employed is higher than that of the later. Thus, it can be elaborated that the former has an established business and are earning adequate turnover to finance the business. The business models of both companies are interesting and impressive which connects the operation with the management. However, it can be concluded that Kier Construction Limited has a much stronger financial base than that of Morrison. Reference List Bloomberg Business Week, 2013. Company Overview of Morrison Facilities Services Limited. [online] Available at: < http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=22687553 > [Accessed 6 January 2014]. EMAP Publishing Limited Company, 2013. Mears takes £6.4m hit on Morrison deal but profits up 15%. [online] Available at: < http://www.cnplus.co.uk/news/business/mears-takes-64m-hit-on-morrison-deal-but-profits-up-15/8651922.article > [Accessed 6 January 2014]. Kier Group Plc., 2013a. Markets. [online] Available at: < http://www.kier.co.uk/markets.aspx Kier Group Plc., 2013b. About. [online] Available at: < http://www.kier.co.uk/about.aspx > [Accessed 6 January 2014]. Kier Group Plc., 2013c. Core Values. [online] Available at: < http://www.kier.co.uk/about/core-values.aspx > [Accessed 6 January 2014]. Kier Group Plc., 2013d. Our Strategy. [online] Available at: < http://www.kier.co.uk/about/our-strategy/overview.aspx > [Accessed 6 January 2014]. Kier Group Plc., 2013e. Capabilities. [online] Available at: < http://www.kier.co.uk/capabilities/construction.aspx > [Accessed 6 January 2014]. Kier Group Plc., 2013f. Investor Relation. [online] Available at: < http://www.kier.co.uk/investor-relations.aspx > [Accessed 6 January 2014]. Kier Group Plc., 2013g. Annual Report 2012. [online] Available at: < http://www.kier.co.uk/investor-relations/reports-and-presentations/2013.aspx > [Accessed 6 January 2014]. Kier Group Plc., 2013h. Annual Report 2011. [online] Available at: < http://www.kier.co.uk/investor-relations.aspx > [Accessed 6 January 2014]. Kier Group Plc., 2013i. Press Office. [online] Available at: < http://www.kier.co.uk/press-office.aspx > [Accessed 6 January 2014]. Kier Group Plc., 2013j. Press Release. [online] Available at: < http://www.kier.co.uk/press-office/press-release/2013.aspx?page=2 > [Accessed 6 January 2014]. Morrison, 2013a. Our Business Model. [online] Available at: [Accessed 6 January 2014]. Morrison, 2013b. Risk and Uncertainties. [online] Available at: < http://www.morrisons-corporate.com/2010/AnnualReport/strategic-review/risk-and-uncertainties/ > [Accessed 6 January 2014]. Morrison, 2013c. Consolidated Statement of Comprehensive Income. [online] Available at: < http://www.morrisons-corporate.com/2010/AnnualReport/financial-statements/group-financial-statements/consolidated-statement-of-comprehensive-income/ > [Accessed 6 January 2014]. Morrison, 2013d. Independent auditor’s report to the members of Morrison Supermarkets PLC. [online] Available at: < http://www.morrisons-corporate.com/2010/AnnualReport/financial-statements/group-financial-statements/auditors-report/ > [Accessed 6 January 2014]. Morrison, 2013e. Annual Report and Financial Statement 2010. [online] Available at: < http://www.morrisons-corporate.com/2010/AnnualReport/default.aspx > [Accessed 6 January 2014]. Morrison, 2013f. Market Overview. [online] Available at: < http://www.morrisons-corporate.com/2010/AnnualReport/strategic-review/market-overview/ > [Accessed 6 January 2014]. Morrison, 2013g. Our Strategy. [online] Available at: < http://www.morrisons-corporate.com/2010/AnnualReport/strategic-review/our-strategy/ > [Accessed 6 January 2014]. Ocean Media Group, 2013. Morrison Buy Out Hits Mears’ Profit. [online] Available at: < http://www.insidehousing.co.uk/finance/morrison-buy-out-hits-mears%E2%80%99-profit/6526208.article > [Accessed 6 January 2014]. The Telegraph, 2013. Construction Faces A Grim 2009 As Industry Shrinks at Fastest Pace in a Decade. [online] Available at: < http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/4124475/Construction-faces-a-grim-2009-as-industry-shrinks-at-fastest-pace-in-a-decade.html > [Accessed 6 January 2014]. Thomson Reuters, 2013. Mears Group PLC Announces Acquisition of Morrison Facilities Services Limited From Anglian Water Group Limiteds Morrison plc. [online] Available at: < http://in.reuters.com/finance/stocks/MERG.L/key-developments/article/2639197 > [Accessed 6 January 2014]. Read More