B&W Instrumentation and Electrical on Monday reported a headline loss for the six months ended February 28, 2013, of R40.79-million, on the back of a unsatisfactory Madagascar-based mining project settlement and acute market contraction.

The company, which was approaching the end of a two-year consolidation phase, reported lost revenue opportunities of some R186-million as a result of delays or postponements to major projects, as well as continued delays in existing orders totalling R383-million.

But it was the debt write-off of R33.3-million related to a contract for the electrical engineering of a mining process plant in Madagascar that most negatively impacted on the interim results, CEO Brian Harley said, admitting that the company had been “naïve” in its dealings.

“We outgrew ourselves too rapidly and were, perhaps, too eager to have the final works wrapped up without ensuring that we had the financial control we needed,” he commented.

B&W would not be drawn on the name of the client in question.

A strategic decision was taken to settle the outstanding debt on the project for R12.5-million, in light of the “questionable long-term sustainability of the debtor  and cost estimates to pursue the debtor legally.”

Harley said the client had informed B&W of its inability to make payment on the contract owing to a lack of funds.

This came as the company questioned the client’s ability to remain operational over the following two years, as it was operating at below break-even capacity.

The client indicated that B&W would need to seek legal restitution should it want the full account settled, which would necessitate an estimated legal expenditure for B&W of between R20-million and R24-million over several years.

Moreover, owing to current cash flow constraints, B&W would have had to raise additional capital to fund the legal action and the company believed that, even if the judgment were in its favour, it would still carry the majority of the costs.

“We viewed the client’s attitude as unreasonable and, as a result, decided to write off the debt and walk away,” he said.

Meanwhile, B&W reported weak overall financial results for the period, with revenue contracting by 32.2% to R185.1-million from R272.9-million in the prior-year comparative period.

The loss of R40.79-million was a considerable decline from a profit of R296 000 achieved in the prior year’s period, which equated to a loss a share of 20c compared to earnings a share of 0.1c in the comparative year-ago six months.

Lower project volumes depressed operating expenses, which totalled R62-million.

Prospects
Despite a weak first-half performance, the company said it was confident that it would recover over the medium term and expected a substantial claw-back on the current loss by the year-end.

It had reduced fixed costs by some R3.6-million – which included a 20% reduction in Harley’s salary ¬– and which should be reflected in the second half of the year.

B&W financial director Danie Evert added that the group would only accept potential projects that offered a minimum profit margin threshold.

The company aimed to place renewed focus on local, as opposed to regional opportunities, and would continue to push its small projects division, while driving improved project diversification across all industries in which it was active.

“We want to establish a revenue base across all sectors and not rely on the mining industry as heavily as we have in the past,” Evert commented.

B&W would continue its five-year strategic plan, with target measurables based on the number of projects rather than revenue.