How catering to niche sectors can help maintain turnover?

How catering to niche sectors can help maintain turnover?
Nathan Hanns of Alemco
Published: 2 January 2019 - 10:15 a.m.

ALEMCO, the MEP arm of ALEC, focuses mostly on projects that only a few MEP contractors would dare to take on. The firm’s mantra has been to work with a few selective and picky clients. “We work with clients who want projects to be driven on a timescale and not always necessarily on a budget. A bit of technical proficiency should be needed in delivering such projects. We are a company that is technically proficient and we deliver on a desired timescale,” says Nathan Hanns, general manager of ALEMCO, proudly.

Hanns explains that it’s all about having the right clients and working for the right projects. He says: It’s a price-driven market, so you are not going to get anything by being the most expensive. If your clients have an understanding of what you are bringing to their projects, and you have an understanding of what the projects want from a delivery process, it’s not necessary that the budget is the key driver.”

By being technically proficient, Hanns means that his firm likes to take on challenging projects that require working on a live environment. He says: “The refurbishment market is growing and it is a good market to be in. The time scale of such projects is quite difficult. We have got some key clients that we go back to every year and help fast tract refurbishments.

“We like to focus on live refurbishment where interruption of hotels cannot happen. So being able to do that and the technical proficiency is what they look for. And that’s where we can differentiate from a normal contractor. There are very few MEP companies in the market that offer this.”

Last year, Engie joined forces with ALEC by investing a “significant stake” in Dubai-based independent energy services company (ESCO) Smart4Power.

According to a statement, the French global energy and services group acquired the stake under an agreement signed with Smart4Power’s new capital structure now featuring Engie and ALEC as its major shareholders.
Smart4Power was one of the first companies accredited as an ESCO in the market, and provides energy savings performance contracts for regional buildings in the public and private sectors.

ALEMCO’s current portfolio of work includes One Za’abeel and Marina Gate 1 projects, both in Dubai, and Liwa Plastics Industries in Oman, which is an EPC contract.

He says: “The Marina Gate 1 project is completed. Gate 2 will be done early 2019 and Gate 3 will be done next year. We did the refurbishment of Spring Cinemas in Dubai.”

Market

Hanns does admit that despite ALEMCO being selective in its projects, the market has been difficult. He says: “I think we have had some good projects to keep us bust. We have managed to maintain our turnovers. The last two years have been challenging. It is more difficult to execute and deliver on time and there are a number of factors involved in it. The tendering market is very difficult at the moment. It is mainly price-driven.”

The firm’s current focus is on the turnover that it has secured and in carrying out the major deliveries within ALEC. “WE are quite a conservative company. We don’t like to take too much risks. Our focus is mainly to help ALEC in the delivery of its projects,” Hanns says.

ALEMCO has been around for 11 years, which started as a turnkey inhouse section of ALEC. In the beginning, the firm was called ALEC MEP and then it developed into a fully fledged subcontracting firm with a
separate license.

Hanns says that the firm’s key regional focus are in the UAE and Oman. “The value of the projects that we work on is very diverse. Anywhere from a million dirhams to up to 400-500 million dirhams. The appetite for large jobs is viewed on a different scale. We check if we have the technical resources to deliver these projects and that’s how we basically view our turnover,” Hanns adds.

The firm has a total staff of around 360, in both UAE and Oman, with an internal resource of around 1,800.

Talking about the working relationship with ALEC, Hanns says: “ALEMCO is a separate entity, but 70% to 80% of our work is in support of ALEC. So our working relationship with ALEC is key. We do other projects outside of ALEC but only with key clients with whom we have relationships with. Our working relationship [with ALEC] is good but we can only handle about 50% of their workload.

“It’s all about communication and relationships as long as everybody has a mutual respect for what they are doing; then your outcomes are good.”

Challenges

Price and tendering in the market are very difficult, says Hanns. “Cash flow and liquidity remain a problem. Maintaining good turnover with profitability is a challenge,” he elaborates.

The firm’s biggest issue is overruns. “For project overruns we incur the cost. We don’t necessarily get the fair treatment and recovery of the costs in the market. You are already under tight conditions from a tendering process. Project overruns can create additional cash flow issues. Especially, on large projects there is generally a certain percentage of overruns and change that occurs. For smaller projects, it generally finishes within the time period.

“Most companies have taken on work as a self-preservation process which is not necessarily what the true cost of the project will be. There has to be failure for something to become right. I do see certain failures coming up in the next year. There is a problem in the market.”

But will liquidity issues improve in the future? Hanns believes that “the market can’t continue like this as we can’t have a negative equity in the market”. He says that the market has to rectify itself at some stage. At the moment, he says, the contractors and the supply chain are focused on having good technical skills and working for the right clients.

The other challenge facing the market is retaining talent. He says: “The biggest challenge that we face as an MEP company is retaining proficient skills. So in order to carry out our large scale challenging projects, you need to have a very good skill level. And we have to maintain that skill level within the industry. Because if we lose it, we lose projects. There is talent available in the region. But we try and retain the talent as much as possible. We have quite a good length of employment within the business. That’s our focus. Keeping people and training people.”

A recent Great Place to Work study concludes that “the best workplaces have found a way to cut attrition in half”. The ability of these top employers to retain employees is closely associated with pride and meaning at work, the study states. ALEMCO believes in that philosophy. Hanns says: “The longer the teams work together, the better they perform. That’s one of the benefits of working with ALEC on a number of contracts. The teams work together for longer periods. They become more efficient by working together. There is a lot of understanding of what each party needs.”

Focus

ALEMCO has a couple of key drivers when it comes to technology and innovations. Hanns explains: “We have a commercial-based system that is driven predominantly through tracking of costs and accounting which is live so we can see exactly where we are. It is imperative for a contractor to know where exactly you are standing with the costs.

“Our BIM and 3D modelling [teams] are developing auto measurements within the systems. So as a business we generally operate all projects in a 3D model and in certain levels of BIM. But we are developing full schedules of parts and materials against the drawings. It helps us in correlating the costs and all our order in process. And also the final delivery onto the buildings. We model all of our engineering drawings in 3D. It makes it easier for clash detection and coordination.

“In addition, we are re-looking at the conventional methods of construction by trying to find faster and proficient installations. For example, modular construction and prefabrication, where we can reduce the labour content at ground level and have it prefabricated for quicker installation. We have our own fabrication yards, but we generally tie up with a prefab company for the modular units. Our focus in our factories is prefabrication on piping and ducting.”

ALEMCO has always focused on being fast and proficient since its inception. Hanns concludes: “I have worked for ALEC my entire career in the Middle East. Through the early stages there was a lack of support in the market for quick delivery and fast track operations on a lot of ALEC contracts. And that’s how ALEMCO was formed, to bridge this gap.”

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