Southern comfort

Bob Hall has a lot to be cheerful about. The Southern Electric Contracting chief executive proudly shows me the display cabinet containing the trophy he picked up for top major m&e contractor at our recent Building Services Awards. Better still, the latest figures show his company to be once again the most profitable electrical contracting business in the country, turning in a tidy £14 million of profit on sales of £186 million.

He’s keen to let me in on the secrets of SEC’s success. “Although we are a large electrical contractor, we operate as though we are a lot of small contractors,” explains Hall. “Within SEC, there are 60 operational cost centres, each responsible for something between £2-10 million. So we are competing more with the medium-sized contractors.”

Individual managers are given the freedom to go for what contracts they see fit, but have the back-up of SEC’s central systems and buying power. “We have an overall framework, with common accountancy principles, safety procedures and purchasing procedures, but each manger is responsible for what he delivers: if it’s good, it’s his; if it’s bad, it’s his. I’m a great believer in ownership and it’s that ownership that tends to drive out the performance,” says Hall.

This business model also means that although SEC is among the top six electrical contractors in the UK, it is not in the arena of adversarial, high risk construction contracts that frequently catch out some of its rivals. “We try to deal with local end-user clients and builders that we know and trust, avoiding the high value, high risk, highly confrontational construction projects,” he says.

The figures weren’t always so rosy. Back in 1992, the business was loss-making and a recently privatised Southern Electric took the decision to set up SEC as a stand-alone business. Hall, who joined the group as a student apprentice 38 years ago, was drafted in as contracting director. “We had a £50 million turnover, 1200 employees and we were losing money. It was very much a rescue mission,” recalls Hall.

Tough decisions had to be made, including a fresh look at some of the hangovers from the old nationalised industry days. “Our terms and conditions were out of line with the marketplace. We were paying supply industry rates, while the industry was paying lower JIB rates. All of our staff were on final salary pension schemes. Our cost base was not competitive, so we set about turning it round to make it profitable.”

One thing that has always remained constant at SEC is the belief that apprentices are key to the future success of the business. “We wouldn’t have got anywhere near where we are today if we hadn’t continued to take on apprentices. Even when times were hard and we were losing money, we continued taking them on,” explains Hall. “Now, if we look at the managers we have in place around the company, a considerable majority were apprentice electricians back then. Without apprentices we would be unable to resource our engineering and managerial needs. I’m absolutely sold on it; it’s not philanthropic, it’s pure business sense.”

SEC has a development structure in place and apprentices can see a clear route to electrician, technician and beyond to engineers and managers. “We try and create a culture where people feel they can develop themselves to their full potential. That’s the way we grow our business; we grow the people and the people bring in the business.”

Without apprentices we would be unable to resource our managerial needs. It’s not philanthropic, it’s pure business sense

Hall is also developing the business by offering mechanical services to clients. “That’s what the marketplace requires now. Most of our competitors are now m&e,” says Hall. He plans to do this by a mixture of acquisitions of small, local mechanical contractors coupled with organic growth. “The right acquisitions haven’t come up, so we are building it on the back of our existing centres at the moment,” explains Hall.

That’s not to say that the group is new to mechanical contracting. Southern Electric bought mechanical specialist Thermal Transfer back in the 1990s and for many years SEC and Thermal Transfer were run as separate businesses. “Around five years ago we started to bring the companies together more. We wanted to retain the individual strengths and attributes but take advantage of uniform central services. We now have all the same systems and processes across the group. Do it once, do it well.”

That time also saw the merger of Southern Electric and Scottish Hydro Electric to form Scottish and Southern Energy (SSE). Hall is head of the SSE Contracting Group which, in addition to SEC and Thermal Transfer, also includes Hydro Contracting in Scotland and the recently acquired Swalec Contracting in Wales.

The Swalec business is “building up quite nicely”. “When we are starting in a new region, we focus on specialist activities such as our hv expertise to try and differentiate ourselves from others.”

Another new venture is Novus Solutions, where SEC is an equal shareholder with Bucknall Austin and Thomas vale, two of its partners on the MoD’s Andover North project for Defence Estates (EMC, June 2002). Hall is evangelical about the lessons learnt from Defence Estates’ prime contracting formula, its version of partnering, and Novus intends to roll these out to the wider marketplace. “Our hope is that we can convince some more clients that this is the right way to do things,” says Hall.

Novus could offer SEC the vehicle it needs to enter the big bad world of commercial construction with confidence. “It wasn’t the size of the projects that was the problem, it was the confrontation that was a problem. You can be a busy fool in that arena,” argues Hall.

Clearly, this promises to a be a busy time for Hall and SSE Contracting. The five-year business plan predicts growth to a turnover approaching £400 million across the Group. Past performance points that they will be more profitable than most as they get there.