It was a collapse that stunned many — so what went wrong for RCR Tomlinson?


November 24, 2018 05:38:34

It was a collapse that stunned many in the investing world.

Just three months after one of the oldest engineering names in Australia raised $100 million from shareholders to buffer itself after taking a big hit on two solar farm projects, the company has gone into administration.

So what went wrong for RCR Tomlinson?

The company, which was first founded by brothers Ernest and Edward Tomlinson, has been a successful mining engineering business for 120 years, riding the highs and lows of the mining game.

But it was an aggressive move into a new form of technology, the solar industry, that burned them.

RCR ran at the solar power movement hard and has been involved in building farms across the country, but it was a $57-million write-down on the value of two of its Queensland projects that got it in trouble and should have raised red flags.

“It got itself into problems — it must have known quite some time ago that it had problems and it simply did not tell anyone how bad it was,” business commentator Tim Treadgold said.

“I think it’s another example of an engineering company which bit off more than it could chew, didn’t understand the costs involved with some of the projects it was doing and maybe didn’t understand the technology.

“I don’t think it’s ever built a solar farm before, and obviously there are issues with solar farms and old-fashioned mining engineering firm just didn’t understand.”

Among the solar projects left in limbo after RCR’s collapse is an expansion of Synergy’s Greenough River Solar Farm in WA’s Mid West.

The energy utility said it was reviewing its options to complete the project, which is only 45 per cent finished.

Capital, contracts and conundrums

After announcing the Queensland write-down in August, RCR’s board went to shareholders for fresh capital in September and raised $100 million, underwritten by Macquarie Capital, in a move that was meant to resolve its woes.

But when the company needed more capital this week, the banks refused, leading many in investor circles to question what the board had not been telling its shareholders.

“It’s very hard to tell who was told what, where and when, but there will be a lot of people looking at their position and saying: ‘When did I know this company had a problem?'” Mr Treadgold said.

“You have seen a number of senior people leave [and] not really explain why, and yet still they went out and raised extra money, so it is the extra money that is going to cause them real problems.”

Fundamentally, many analysts say the company ran too hard at the solar game without knowing enough about it, and also found itself in an environment of rising equipment costs, increasing wages and a lack of workers skilled in the renewable energy space.

It also underestimated the time it could take to gain grid approval from the nation’s electricity regulator, the Australian Energy Market Operator (AEMO), which has toughened its testing regime to ensure reliability of the network.

AEMO has since issued a warning to new entrants “to discuss early with network businesses and AEMO their proposed projects prior to making commercial commitments”, so as to “avoid delays during project development, registration and commissioning”.

“They didn’t allow for the fact they had to get permission to connect their solar farm to electricity grid, which is a dramatic oversight on their part,” Mr Treadgold said.

“They did not allow for the fact that there was a shortage of skilled solar farm workers in Australia. They bit off more than they could chew.

“But the more accurate way to describe it is they did not know what they were doing. They bid on contracts they couldn’t complete, they underbid in order to win contracts.”

Subcontractors feeling the effects

Picton Civil director Michael Cross has worked in the industry for 50 years and said while he had been hit by the collapse of contractors before, the past two years had been the worst.

“The prices have been steadily eroded and we’ve been asked to do more work for a lower rate. It just seems to be endemic throughout the whole construction industry,” he said.

“We’ve seen a lot more companies [collapsing], several around the South West in recent months.

Two or three we’ve been quite badly affected with, but this RCR one is quite a bad one.”

Mr Cross said he had lost around $250,000 this year alone, including more than $100,000 he was owed from a State Government sewerage project his company was working on for RCR.

“We’re working at Two Rocks north of Perth, we’ve got several pieces of plant up there and personnel, we’ve been up there for about 12 months,” he said.

“The payments have been coming through quite regularly, except the last few months where they’ve slowed right down.”

A fight for survival and a call for help

Underbidding on contracts to win work is becoming an increasingly common story across the country, and is not isolated to RCR.

“We’re actually coming through a period where there’s not been a lot of work available, so certainly we’ve seen those big contractors really underbidding on jobs to keep their employees busy and employed … then they’re squeezing subcontractors,” Subcontractors WA chairwoman Louise Stewart said.

“The knock-on effect to subcontractors is massive. There would be at least 150 subcontractors that are going to be impacted by this.

“As a result of bigger companies going into administration, it quite often results in a number of smaller subcontractors also not surviving, so I would say the figure is well over 100 companies this year … in the construction industry alone.”

Ms Stewart has been campaigning for better protections for subcontractors at a state level.

“The [WA] Government went to the last election promising payment protections to subcontractors,” she said.

“A fair bit of time has passed by, subcontractors still don’t have the promised project trust accounts in place. I think it’s urgent, the industry cannot withstand this level of insolvency.”

While she has been advised there was movement on the protections, she said it had taken too long.

“It’s still a long road ahead to get those reforms in place. We’ve had the Commonwealth Government already deliver a review back in May, all the recommendations are laid out in black and white, ” Ms Stewart said.

“Why can’t we just get to the job of implementing them?”

Help is on the way: Minister

In a statement to the ABC, WA’s Minister for Commerce and Industrial Relations Bill Johnston said he hoped to have “legislation drafted by Christmas”.

“The Industry Advisory Group will be giving the industry a period of time to work with the McGowan Government to develop laws that deal with improving security of payments for subcontractors,” he said.

“The McGowan Government is actively considering options in relation to its own projects and will look at measures that improve payment outcomes for subcontractors.”

Meanwhile, RCR Tomlinson’s share price crash and last week’s trading halt has prompted lawyers Quinn Emanuel Urquhart and Sullivan to file a class action on behalf of investors in the NSW Supreme Court.

The lawyers said investors paid too much for their shares because the market was not informed of the problems the company was having with solar.

Administrators will be looking for buyers in the coming days.










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