Western Cape Business News

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ENGINEERING: Racec Gets Major Contracts


Recent Western Cape Business News

CAPE TOWN-based rail and electrical engineers Racec, which have been undergoing a lean period of late, have managed to snaffle two major contracts close to home.

According to an announcement to shareholders last month Racec was awarded two large electrical projects with a total contract value of around R140 million.

These projects involve an electrical installation at the Cape Town Container Terminal on behalf of Transnet Limited and the installation of street lighting on the N1 highway on behalf of the Western Cape Provincial Administration.

The Cape Town Terminal Expansion Project is a 22-month contract valued at R70 million, and is part of Transnet’s upgrade of five substations and the construction of two new substations.

Racec chairman Mike Uys says the project scope includes reconfiguring the container stack areas and installing new electrical supplies to about 2 700 refrigerated containers.

He says the electrical works will include the installation of some 25km and 70km of medium voltage and light voltage cabling respectively, 38 miniature substations and 460 Reefer Power kiosks.

The street lighting project stretches from the N1 motorway between Koeberg Interchange and the Old Oak Interchange. It covers the supply and installation of street lighting in a 13-month contract valued at more than R70 million.

Uys says the distance to be lit spans around 12.75km of multi-lane divided highway and 10.5km of on- and off-ramps located at the interchanges.

The new lighting will be controlled by an intelligent wireless mesh-network. “This would eliminate the need for a wired control circuit and will allow remote management and control of the installation from a centralised management server.”

The projects will be a welcome boost to business after Racec slumped unexpectedly into the red for the year to end September 2009. There is also talk that Racec could clinch a lucrative rail rehabilitation contract in North West Africa.

It seems since financial year end Racec has battled along. The six months to end March 2010 saw the group notch up losses of R2 million off revenue of R167 million.

The company’s Railway arm managed to show a R5.4 million profit off turnover of R63 million. But the Electrical division showed a R7.6 million loss off turnover of R164 million.

One of the problem areas for Racec has been recently acquired Greenbro, which produces industrial generators and electrical kiosks. Racec directors say Greengro’s problems stemmed from the economic downturn and the ‘reversal’ of Eskom’s inability to supply consistent power.

Subsequently Greenbro’s senior management team has been restructured (including the employment of a temporary MD while the incumbent MD is on sick leave) as well as a “significant” cost cutting and retrenchment programme.

Racec directors also reiterate that with confirmed projects representing 85% of this year’s anticipated total revenue, management is confident that results will continue to improve. They reckon Racec will return to profitability by the end of September this year.

But Racec clearly faces some short-term working capital constraints. The company recently announced its intention to raise R10 million via a rights issue.

In the interim Racec’s new empowerment partner Solethu has coughed up R10 million in form of a bridging loan, which will allow the company to tackle its big Cape projects.

Solethu, though, looks set to consolidate its strategic holding in Racec after securing participation in the rights issue after the company’s main directors – including chairman Mike Uys and former CEO Charles Harrod - relinquished their rights to participate in the fund raising exercise.

Solethu’s willingness to jump aboard Racec is quite telling. No doubt Solethu has recognised that over the longer term one has to believe Racec – particularly in terms of much needed rail spending – has a captive market.

Rail utility Transnet has already indicated it aims to spend another R93 billion in the next five years. While some work will go to the construction sector it has already been estimated that engineers can expect at least another R60 billion of cash flow in the next five years.

Obviously companies with pukka BEE credentials will score, which puts Racec in a rather enviable position, CBN would imagine.


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