RCR Tomlinson has revealed the details of a $57 million write-down at one of its solar projects, with the contractor today announcing a $16.1 million loss for the 2018 financial year and a $100 million capital raising to help cover the cost overruns.
Managing director Paul Dalgleish resigned earlier this month when the company announced it was investigating the cost blowout.
The company said today the investigation had uncovered a number of issues relating to a $315 million engineering, procurement and construction (EPC) contract at the co-located Daydream and Hayman solar farm projects in northern Queensland.
“The project has experienced significant cost overruns due to several compounding project-specific issues, including external delays and materially worse sub-surface ground conditions than were allowed for in the tender estimate, as well as adverse weather conditions,” RCR said in a statement to the ASX.
“As a result of these cost overruns that arose over the life of the project, RCR has realised cumulative write-downs of $57 million from the tendered margin on the project.
“A large proportion of the write-downs experienced were only recently identified.
“This was due to the on-site procedures adopted by a limited number of site personnel which had the effect of circumventing RCR’s standard processes and project level systems relating to procurement commitments.”
RCR has signalled its intention to focus on less-risky alliance style contracts in the wake of its investigation into the solar project contract.
“In the last 12 months, RCR’s revenue has been largely derived from fixed price EPC contracts, which expose RCR to potential risks including project delays, unanticipated increases in the cost of delivering the project and high working capital requirements in the later stages of the project,” the company said.
RCR said alliance style contracts involved higher working capital requirements but offer a more favourable risk allocation to the contractor, allowing for a higher degree of margin predictability.
The company said it would also move towards a lower risk profile by consolidating its existing operations, increasing exposure to rail and transport projects, and selectively pursuing opportunities in the renewables sector.
The contractor posted a net loss of $16.1 million, compared with a $25.7 million profit last year.
Underlying earnings before interest, taxes, depreciation and amortisation fell from $41.2 million last year to a loss of $4.2 million in 2018, which was attributed largely to the cost blowout at the Daydream and Hayman solar farm projects in Queenlsand.
The company reported a 58 per cent increase in revenue to $2 billion.
RCR said it currently has an order book of $1.1 billion, down 21 per cent on last year, and is expecting revenue to be lower than last year due to the timing of a number of projects and the shift to a lower risk profile.
Meanwhile, the company has also announced a $100 million entitlement offer to strengthen its balance sheet and address the financial impacts of the cost overruns.
RCR will issues shares at $1 each as part of the 1 for 1.65 pro-rate accelerated non-renounceable entitlement offer.
The company said it has also secured an increase in its working capital facilities of $25 million.
RCR’s shares last changed hands at $2.80 each.
