Western Cape Business News

Send  Share  RSS  Twitter  01 May 2012

ENGINEERING: Racec Stays On Track


Recent Western Cape Business News

CAPE TOWN-based rail engineering specialist Racec – which recently disposed of its electrical engineering interests – has a promising order book for 2012 and 2103. But it has raised a flag around capacity. CBN suspects this may signal a greater role for its empowerment partner Solethu – a 50% shareholder rail specialist RRL Grindrod – in terms of building sufficient capacity to capitalise on new opportunities.

CEO Gary Harrod, writing in the latest annual report notes that more than 80% of the 2011 revenue is already secured for 2012. “We know further opportunities are out there. Our challenge is not our ability but our capacity. We need to know when to take on work and when to walk away.”

Harrod says indications are that Transnet is looking for a third operator in the mechanised maintenance market. “As a black-empowered, rail-focused contractor we are ideally positioned to seize this opportunity. We have already appointed a dedicated high-level management resource to drive this opportunity.”

Even bigger opportunities, it seems, may lie in Africa. Racec chairman Mike Uys reckons both government and private business in fact growing economies in Africa are committed to ‘investing hugely’ in infrastructure development – including railways and ports.

All this requires either refurbishing existing rail track, or building new and, of course, there are then the annual annuity contracts to maintain the rail systems.”

Uys also recognises Racec’s limitations: “We are determined, however, to move at our own pace, putting in place solid contracts that we know we can deliver on. We are not looking at an explosive expansion: our capabilities will be largely determined by our skills set.” He stresses one of the decisions Racec made was to focus on top management.

We believe that if we are to engage in contractual discussions with the likes of the Passenger Rail Agency of South Africa (PRASA), for example, senior highly skilled and experienced people are needed. I believe acquiring capital is not really that much of an issue. What is a constraint is acquiring the right personnel.”

Racec is currently trading on the JSE under cautionary that warned shareholders that negotiations that could affect the company’s share price are underway.

It’s doubtful Racec are looking at an acquisition (having just disposed of its electrical engineering interests). One might guess Solethu – in conjunction with Racec’s equity holding executives – might look at buying out minority shareholders.

In this process it might make sense for Racec to shift closer on an operational basis to its empowerment partner Solethu – which owns a 34.9% stake in Racec as well as the RRL Grindrod joint venture with shipping/logistics giant Grindrod Limited.

A combination of Racec and RRL Grindrod will present a broad rail services offering – the latter providing locomotive full maintenance leasing, rail operations and shunting services.

More importantly a link-up with a Grindrod related entity will go some way in helping Racec address any lingering capacity issues...

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