RCR Tomlinson suffers $57 million write-down on two solar farms

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Sydney-based EPC contractor RCR Tomlinson has announced its FY18 results, disclosing a significant net loss largely driven by write-downs, which has pushed the company to launch capital raising and scrap dividends.

The engineering company reported a $57 million write-down on 150 MW Daydream and the 50 MW Hayman Solar Farms located in Northern Queensland that appear to have run into major obstacles.

“Daydream and Hayman Solar Farm projects 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,” the company said in a statement.

RCR was awarded a $315 million contract to build and operate the two solar farms, located near Collinsville in northern Queensland, for Edify Energy in mid-2017. Construction of the projects is substantially complete, and energization and commissioning has commenced, the company reported.

According to the EPC provider, a large portion of the write-downs were only recently identified due to the on-site procedures adopted by a limited number of site personnel, which had the effect of circumventing RCR’s processes and project level systems relating to procurement commitments.

“This is the only site that had this circumvention of our procedures,” RCR Tomlinson interim chief executive Bruce James told The Australian Financial Review, adding that RCR’s “misjudgment” of the ground conditions beneath the farms led to problems installing equipment for 2.2 million solar panels, causing delays.

The farms’ former project manger circumvented RCR’s processes to try to finish on time, and did not put sufficient information on sub-contractor payments in company databases, making it difficult to assess the costs of delays, James said.

AFR reports, the farms’ former project manager and three other staff have left RCR.

In its FY18 statement, RCR Tomlinson says it is raising $100 million from investors to strengthen its balance sheet and address the financial impacts of cost overruns. In addition, it announces it will not pay a final dividend in 2017-18 compared with a 6 cents per share dividend a year earlier.

It also warns a large number of its other projects are experiencing “some variance to tendered margins”.

On August 1, RCR requested a voluntary suspension in the trading of its shares while it carried out a review of cost overruns on its 2018 earnings. One week later, it requested an extension of that suspension, and announced that its Managing Director and CEO Paul Dalgleish was stepping down. Last week, RCR Tomlinson missed the indicative date it had given for the delivery of its full-year results.

Being a publicly listed company, its difficulties are laid bare, but RCR Tomlinson is far from being alone. In addition to the squeezed margins in the highly competitive EPC market, project developers and EPCs are under pressure of newly enforced strenuous requirements by AEMO that have led to additional costs, construction delays, and added complexity.

Although RCR identifies “project-specific” delays as the reason behind the write-downs that have led to a $16 million net loss, the company is nonetheless planning to distance itself from the solar sector.

It has announced its intention to shift focus to the rail and transport industries, and only “selectively pursue“ renewables opportunities. 

In addition, RCR plans to move from fixed-price contracts to “alliance-style”contracting models, which are more working capital intensive, but offer a more favorable risk allocation with clients.