Ac­counts anony­mous

Finweek English Edition - - COMPANIES & MARKETS - MARC HASEN­FUSS marc.hasen­fuss@fin­

RAIL AND ELEC­TRI­CAL en­gi­neer­ing group Racec man­aged in 2010 to do what very few small com­pa­nies that dab­ble in the broader in­fras­truc­tural seem to man­age: a swift turn­around in for­tunes. Un­der­stand­ably, chair­man Mike Uys can be for­given for veer­ing close to “told you so” ter­ri­tory in Racec’s lat­est an­nual re­port when he re­minds share­hold­ers that last year he cited some large rail con­tracts pend­ing award that could lead to a sig­nif­i­cant change in its for­tunes.

In­deed, that did ma­te­ri­alise and Racec not only turned around 2009’s losses but also re­versed an in­terim loss of R2m into af­ter-tax prof­its of al­most R13m.

That, quite frankly, is damned good chug­ging in the sec­ond half – a pe­riod that, Racec CEO Gary Har­rod re­minds us, was still char­ac­terised by de­lays in con­tract awards. He adds Racec’s Rail seg­ment se­cured 95% of its turnover bud­get, with its gross profit mar­gins beat­ing bud­get by 185%. But if we were to look crit­i­cally at Racec’s come­back then per­haps the cash con­ver­sion rate could come un­der ques­tion.

The com­pany posted nearly R30m in net op­er­at­ing prof­its but only banked R11m its cash flow state­ment showed.

En­gi­neer­ing con­tracts aren’t ex­actly about cash on the bar­rel-head and longer projects ob­vi­ously take months to set­tle. Some­times it can be an un­com­fort­able wait… and Racec, which had to dash out a rights is­sue to raise work­ing cap­i­tal last year, prob­a­bly knows that all too well. So it’s rather com­mend­able then that Racec does pro­vide a break­down of its ma­jor trade cred­i­tors as at end-Septem­ber 2010 in its an­nual re­port. It may be re­as­sur­ing to share­hold­ers wor­ried about cash flows to see ex­actly who owes what.

The bills to Eskom and Transnet – two ob­vi­ous clients – re­duced sig­nif­i­cantly to R1,6m each (from R6m and R3,7m re­spec­tively in its 2009 fi­nan­cial year).

But Racec’s biggest trade debtor – per­haps a lit­tle dis­con­cert­ingly – isn’t iden­ti­fied. A trade debt of more than R18m is la­belled “anony­mous” – with the an­nual re­port not­ing: “The name of this com­pany is not dis­closed due to a sen­si­tive stage of ne­go­ti­a­tions.”

Make of that what you will…

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