High-profile difficulties belie broadly positive outlook despite skills gaps.
When both Emcor and Mitie announced within months of each other that they would exit the UK M&E market in 2013, alarm bells were ringing for those in the sector.
The period since suggests the recovery has still not fully bedded in for M&E firms, despite encouraging signs in 2015 to date.
*Imtech UK results taken from its parent’s annual report, which does not include figures for uk profit, and converted from euros to pounds
**Figure comprises Balfour Beatty’s total revenue from M&E works
While revenues are largely up for companies in this year’s top 10 M&E table, closer examination of the figures reveals a market that remains challenging.
Big names such as SPIE have continued to struggle, with the company blaming “difficult market conditions” for its recent losses - although its latest results show the firm has managed to reduce these significantly.
Imtech UK was in the process of being sold at the time of writing due to its parent group’s financial difficulties.
Balfour Beatty’s woes have also been largely down to poor returns on problem M&E jobs in its engineering services division.
Bigger players the most positive
According to a survey by the Electrical Contractors’ Association in Q1 2015, 86 per cent of ECA members expect turnover to grow or remain stable during the course of 2015.
Companies with an annual turnover of more than £5m are the most optimistic, with 92 per cent expecting an increase or stability in turnover throughout 2015.
“If we look at the pipeline of opportunities, it’s definitely better and it’s not just in London anymore”
David Hurcomb, NG Bailey
Growth sectors identified by leading contractors include commercial offices, which has bounced back significantly over the course of the year, as well as data centres and higher education.
NG Bailey chief executive David Hurcomb says his firm is more optimistic than 12 months ago, with a strong pipeline of work spreading outside London.
“If we look at the pipeline of opportunities, it’s definitely better and it’s not just in London anymore,” he says.
“That’s good news, especially up north where it’s been incredibly quiet for the last three or four years. There’s still a way to go, but there are definite signs that it’s improving.”
But Mr Hurcomb warns that the London market remains volatile, largely due to the sheer amount of work available: “A lot of people have lost a lot of money in London.
“It’s a bizarre situation that London’s booming but quite a few contractors are reporting some pain in that market - and there’s more pain to come, particularly as costs increase beyond inflation.”
Of similar concern is the growing skills shortage across the sector. “All companies are saying that within 18 months to two years, we’re going to see a major shortage of skills,” says ECA director of employment and skills Alex Meikle.
“SMEs are already feeling it and have seen a major shortfall in the people available.”
“Coming out of the longest recession in memory, there’s a shortage of funds for investing in large apprentice numbers”
Alex Meikle, ECA
More than 40 per cent of specialist contractors said that applicants to roles lacked the required qualifications; addressing this should be a priority for M&E firms, Mr Meikle argues. “In M&E it takes four years to produce a skilled electrician,” he says.
“We need to come up with more short-term answers; that’s why we’re looking closely at the adult training requirement and upskilling the current workforce.”
NG Bailey has targeted an annual training investment of £3m a year, and in the past year the firm has taken on 80 apprentices across the business.
But Mr Meikle says even the larger firms have struggled to invest in apprentices, with the slow recovery in workloads only exacerbating skills shortages.
“Coming out of the longest recession in memory, there’s a shortage of funds for investing in large apprentice numbers,” he says.
“A simple answer is that more apprentices need to be recruited. But ultimately we need to develop our own skills rather than having to look overseas to come up with an answer to our skills shortages.”
Margins are another legacy of the downturn that leading figures in the sector are trying to address. Mr Hurcomb says net margins across the M&E market have been “very poor” for the last five years.
“We need to move the margins up sensibly while remaining competitive,” he says. “We need to restore margins to a more sustainable level across the supply chain, because in the last five years it’s been very much a main contractors’ buyers’ market.”
The sector needs to “balance back” to build a more sustainable relationship down the supply chain, he adds.