The mechanical and electrical (M&E) sector is experiencing fluctuating fortunes amidst growing demand.
- Demand for electric-vehicle charging, renewable energy connections, and grid upgrades is driving the M&E market forward.
- Top 10 M&E firms saw a 13% revenue increase, yet median margins remain slim at just 1.3%.
- Significant losses at NG Bailey and Enerveo impacted the sector’s overall profitability.
- New market dynamics and strategic cautiousness are shaping the future of M&E firms.
The M&E sector is currently navigating a complex landscape, with increased demand for services such as electric-vehicle charging stations, renewable energy connections, and grid enhancements. These evolving market needs have provided a solid foundation for growth, with the top ten companies in the sector experiencing a 13% uplift in aggregate revenue, reaching £3.04 billion.
Despite the notable revenue growth, the median profit margin among these leading firms is a mere 1.3%. This discrepancy between revenue and profitability is largely attributed to substantial losses at firms like NG Bailey and Enerveo. The sector overall posted a pre-tax loss of £13.8 million, a sharp decline from the previous year’s £5.7 million profit. For Enerveo, rebranding and new system implementations following its acquisition have been costly, while NG Bailey’s financial strain stems from inflation impacts on fixed-price contracts and a failed investment in a gigafactory project.
David Hurcomb, NG Bailey’s CEO, emphasises a shift towards strategic customer evaluation rather than mere turnover pursuit. This reflects a broader market sentiment where firms are increasingly selective about engagements, aiming to mitigate risk by ensuring client solvency. Hurcomb points out the inherent risk within the M&E market due to its position at the end of the supply chain, often bearing the brunt of budget overruns and project delays.
Opportunities within the nuclear power sector are highlighted as a potential growth area, with Jonathan Stockton of NG Bailey acknowledging the strong balance sheet that supports their continued investment. Meanwhile, industry consolidation remains a significant trend, illustrated by Imtech’s acquisition of Spie and subsequent rebranding, positioning the newly formed entity, Dalkia, at the forefront of the market by focusing on decarbonisation solutions.
Looking ahead, caution prevails as the industry anticipates a slowdown in investment decisions in the public and private sectors, particularly in the run-up to upcoming elections. This slowdown may disproportionately impact M&E firms, given their role in the latter stages of project execution.
The M&E sector demonstrates both resilience and caution in navigating its growth amidst financial challenges.
