Western Cape Business News

Send  Share  RSS  Twitter  28 Feb 2011

ENGINEERING: Racec Back On Track


Recent Western Cape Business News

CAPE TOWN’s rail and electrical engineering specialist Racec is back on track after its growth prospects were unexpectedly de-railed in 2009.

After incurring an interim loss of R2 million, Racec managed a steamy second half to produce impressive after-tax profits of almost R13 million in the full year to end September.

In addition Racec – now in the hands of Gary Harrod (who took over the company’s leadership from long serving directors Mike Uys and Charles Harrod) – appears to have a string of project work to keep profits spinning for the medium term.

Much of the future impetus will come from projects in Racec’s own backyard – specifically major electrical jobs in Cape Town.

But what pulled Racec back into the black in 2010 was the rail segment, which chipped in a hefty R18 million in after tax profits.

That’s quite a turnaround from the R5 million loss in the 2009 financial year.

Racec Rail MD Fonty Bartleman says despite the continuing tough business environment (again characterised by delays in contract awards) the division secured 95% of its turnover budget and bucked up gross profit margins to way over budget.

He notes that during the year Racec Rail was awarded a number of larger scale projects in the Western and Northern Cape as well as through newly founded operations in Mozambique and Sierra Leone.

Clever capital expenditure was also a factor. Bartleman says over the last year Racec Rail procured a sizeable fleet of heavy-duty on-track equipment and associated plant.

In doing so this places Racec Rail in a niche market whereby Racec is only one of a few companies within South Africa to be able to provide heavy-duty on-track mechanised services.”

Racec Electrification also managed a turnaround – albeit a more modest shift from a loss of around R2 million in 2009 to an after tax profit of R5 million in 2010.

But it appears the electrical side can provide the spark at bottom line in the years ahead.

Contracts undertaken in 2010 included Cape Town Container Terminal Container Berth for Transnet – worth R80 million over 22 months - and the N1 Street Lighting project for the Western Cape government – worth R94 million over 15 months. (see accompanying box for more detail on the street lighting project).

With these big projects under its belt Racec Electrification appears to be re-energised.

In his annual review Racec MD Charl Gous is relatively optimistic for 2011 with interest rates set at relatively low levels and the signs of steadily increasing economic recovery.

He says the division plans to strengthen its position in the Western and Eastern Cape, but will also look at chasing business opportunities throughout South Africa and Africa.

In reviewing Racec’s prospects for 2011, new CEO Gary Harrod says despite an uncertain local short-term outlook the medium to longer-term opportunities in the public sector within South Africa are promising.

We are confident that with the political will, the local demand for infrastructure provision will once again become a priority.”

Perhaps more intriguingly, he adds that Racec is also seeing early signs that the local private sector construction market is recovering.

The impact may not be fully felt during 2011, and we are confident that this will once again be a source of stability for the local market in the future.”

Harrod says in the shorter term Racec is excited about resource-based industries that are presenting promising opportunities.

He points out that Racec recently expanded and modified the company structure to further build capacity to take advantage of future growth opportunities.

This additional capacity, with our strategy to only move into new markets with reputable strategic partners, will be the key driver underpinning our future sustainable growth targets.”

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