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RACEC

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stea m a â&#x20AC;&#x2030; head Railway engineering specialist Racec steams ahead following successful refocusing. By Ian Armitage

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ACEC is a company transformed, it has returned to profitability and, with a healthy order book, the future looks bright. In June, the JSE-listed firm announced interim revenues were up 58 percent to R128 million in the six months ending March 2012. That compares to a loss at 2011 year-end. What’s the remarkable turnaround down to? A decision to re-focus on ‘core’ rail business. Indeed, RACEC sold off its loss making electrification operations and disposed of its noncore and loss-making subsidiaries in an effort to refocus its business exclusively on the rail sector. CEO Gary Harrod believes although impressive, this is just the start. “We are hugely optimistic and excited about the future. Our determined commitment to being a railfocused entity is already paying dividends. We’ve really turned the company around”. The company’s 2012 and 2013 order book is extremely healthy. “We have a promising order book in South Africa and into Africa – most notably upgrading 71km of railway in Sierra Leone. “We’re very optimistic for the remainder of 2012 and beyond.” Harrod says the company has been in direct contact with potential projects that hold a long-term value – value which tallies into the billions. “If we secure only five percent of the potential new business which is out there, that is worth an additional R500 million to us in the next four to five years.” While most of this work will come from mining companies and cross-border business, Racec also stands to benefit from Transnet’s R205 billion investments in bolstering rail networks over the next five years. “There’s a lot of opportunity. As you may know SA itself is going through a large infrastructure revival and rebuilding scheme, as announced by Jacob Zuma.

We have a promising order book in South Africa and into Africa, most notably upgrading 71km of railway in Sierra Leone. We’re very optimistic for the remainder of 2012 and beyond

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We want to have a 50/50 split between work in South Africa and work in the rest of Africa

Billions are going into rail infrastructure and we’re just hoping to see a small piece of that pie. “They’re already putting out tenders for the upgrading of the signalling and upgrading of the railways. It’s taken a while to come to fruition but it is starting to happen now.” Although there will be lots of work locally, Africa could be Racec’s ticket to ride, Harrod says. “We want to have a 50/50 split between work in South Africa and work in the rest of 4

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Africa. The margins on African business are slightly higher than earned on local work.” In recent years cross-border business has grown quickly to account for around a third of revenue. “We’re currently working in Mozambique, Kenya and Sierra Leone where we are working with London-listed African Minerals Limited. Things are looking up and we’re definitely in a sweet spot. “We’re looking at quite a few countries in Africa, but we’ve been cautious going in

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and are making sure that we’ve got our facts right so that there aren’t any Commercial risks or political risks that we can’t handle. “With the mineral boom in Africa, there is no better place to be than in the rail business.” There is a catch: RACEC does not have the capacity on its balance sheet to chase down all the wonderful opportunities so it is having to be very selective on the work it takes on - an enviable position to be in. “We are being invited to tender on a host of different and exciting opportunities but we have to bear in mind that we’re not a massive company so the challenge is to take into consideration that we cannot grow too fast too quickly. We can’t take on the world. We have a fairly aggressive growth target but it isn’t unachievable. We are mindful of over spreading ourselves and we know we can only go as far as our cash flow will allow us. That is our biggest restraint.” Its interim report showed Racec was unable to fully convert its pre-tax profits of around R15 million into positive cash flow. “Our cash flow is improving daily and will rectify in the second half. We were right at the peak of our losses and were dealing with lots of various challenges, but now we have swung the cash flow. Between now and this time last year we’ve achieved an approximate R40 million positive swing in our cash flow. “For now we will remain selective around contracts, opting for fewer contracts at higher margins.” Is Harrod worried about any potential pitfalls with working in 6

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Africa? No. “Working in certain African countries can be quite difficult but I think we’re mastering it. For example, Sierra Leone is perceived to be quite a hostile environment and we’re sometimes operating in places where there is no water or electricity, but we have risen up to the challenge and are succeeding. In other areas we have had to put up basic camps with everything from water purification plants to power generation etc. You’ve also got challenges with the Internet, email and basic communication, which are tricky to overcome. Then you’ve got the distances that you have to travel between work areas. It can be significant distances when you’re

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Working in certain African countries can be difficult but I think we’re mastering it. For example, Sierra Leone is perceived to be quite a hostile environment and we’re sometimes operating in places where there is no water or electricity, but we have risen up to the challenge and are succeeding

putting down a railway line from point A to B. On top of that you have the administration challenges – different tax regimes, different labour laws, different rules, different everything! That combined with the extreme weather in certain cases and sometimes even staff contracting malaria, well… it’s not for the faint hearted!” What’s the secret to the firm’s success? “We’ve got a young and dynamic team. We like the new ideas that are coming in to the business - It’s young, energetic and dynamic. We like to call ourselves lean and mean. Our overhead structure compared to other rail businesses is fairly small and literally a handful of key players direct the business. It means we can move quickly, react to and grasp opportunities expeditiously and I think that’s key. We’re also a sustainable business and an aligned team, now that we’re focused on our core business. “Moving forward we’ll look to act quickly on tangible, low risk opportunities as they present themselves. They’re not there for long and you have to make sure you capitalise while the going is good.” RACEC starts a new project in Ghana in January. END To learn more visit www.racec.co.za. www.southafricamag.com

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