Something nasty is about to befall engineering contractor and services group, RCR Tomlinson. The company’s shares were suspended at its own request this week until August 8 to allow it to do detailed work on an unidentified project that has gone bad.
RCR said it was reviewing cost overruns recently discovered on the unidentified project. That sound ominously like it has discovered a whacking great loss and block hole of the sort that damaged or brought down other services group, such as Forge, WDS and Briety in recent years, while UGL was weakened by overruns on an LNG project and eventually takeover by CIMIC for a song.
RCR said in a letter to the ASX that the blowout is ”expected to have a material negative impact on FY18 earnings. "
“Given the materiality of the cost overruns and the need to undertake further work to assess the likely financial impact, the company is not yet in a position to make an announcement regarding this matter,” RCR said in a statement to the stock exchange.
"The Company considers it appropriate that it enters into a voluntary suspension so that it can manage its continuous disclosure obligations and to avoid the market trading in RCR securities on a basis that is not reasonably informed,” RCR said in the statement.
RCR’s shares last traded at $2.80, down 30% this year. The company is valued at around $460 million, down from nearly $600 million at the start of the year.
The contractor reported a $9.7 million net profit in the first half from record revenue of $940 million.
In February it tipped revenue and earnings growth for fiscal 2018 and into fiscal 2019.
At the time it had an order book worth $1.2 billion.
In the year to June 2017, RCR reported revenue of $1.2 billion and a net profit after tax of $25.7 million and Earnings Before Interest and Tax of $35 million.
Obviously reaching that level looks impossible given the warning this week.
The question is how big the loss from the problem?