ON THE SPOT
As the going gets even tougher, the tough turn to turnaround strategies
Consolidated Infrastructure Group (CIG) must be thanking its lucky stars that Steinhoff’s implosion and EOH’s unfolding stock market collapse have stolen the limelight this week. Until Steinhoff’s meltdown, CIG was this year’s corporate train wreck as losses in its Conco power division began seeping out. Business Day asked the construction firm’s CEO, Raoul Gamsu, whether it was actually possible to have a handle on multiyear, multicountry infrastructure projects.
I think that we should have known, we should have had greater insight. We take it on the chin, we’ve grown too fast, too hard ... but until you do final contract assessment it’s difficult.
You’ve set out a remedial plan that implies massive micromanagement — can you pull it off?
We can. Firstly, outside of isolated occurrences, the contracts aren’t losing money.
But it takes a cultural shift, it takes us improving all aspects around management, information. Our build-up of work in progress and how we funded our clients over the last three to four years is not acceptable.
So, why didn’t you change your approach sooner?
We started the process about a year ago. The first thing you stop doing is bringing creditors into the system, but when you’ve got a long tail of work in progress, it doesn’t change overnight. There’s no quick fix for that — as you filter out the older, poor-performing working capital-intensive contracts and bring in the newer better ones we’ll get an improvement.
Is it possible to change your business model?
We have to.
You’ve had a stay of grace from your lenders until February, but some reckon you’re going bankrupt. I’d say it’s rubbish.
On what grounds?
We’ve got cash on hand, we’ve given our lenders cash flows which demonstrate that we can service interest payments, redeem the debt as it comes due, and we have one problem child.
So why did you take out a R150m loan against Conlog, for example?
We put an element of gearing into the structure to optimise our returns. In fact, if you look at what we did, I think it’s probably excessively light. We could have done 50-50 debt equity with that kind of business and we’ve done probably 17%.
Might you have to sell assets to satisfy your bankers?
Well, the bankers looked at the group and they didn’t come back with that view. The view was that we could carry on doing what we’re doing, pay our debt in the normal course of events, we have cash, we have assets that are cash-generative … that allow us to continue as a successful going concern.
Have you made any management changes at Conco? And if not, why not?
We need to improve the commercial skills dramatically, there’s no doubt about that. By bringing Jannie [Jannie Hooman, head of Building Materials and chair of CIG’s "war room"] in there, we’ve got someone who’s a tough, no-nonsense, no-bulls**t decision maker and we’re not going to rush into stupid people decisions.
You’re very pessimistic about trading conditions, so how on earth are finances going to look better in 2018 ?
We’re saying of our R6.1bn [order book] in Conco, we’re only going to execute about 25% in the first six months. So very hard to not be pessimistic.
But the pipelines look quite nice internationally, there’s quite a lot of potential for non-government-related work in SA, so ... we just have to ride out the cycle and we’ve got to get our costs down.
"We also don’t have the benefit of the AES business that pre-2017 was delivering at the top end of the cycle.
Is AES business ever going to come back?
We don’t believe you need to get back to the 20 rigs in the market at the top of the cycle but we certainly think that at 10 to 12 rigs, we’ve got a fantastic business in Angola. They’re at about four rigs at the moment, I think two aren’t even operating, so you’re at a really low ebb.
But one of the key attributes in this industry is that if you don’t have continual drilling, your base of production drops continually. If the country doesn’t invest in new drilling, its whole oil business goes bust.
It’s not going to be quick, and I don’t expect any change until the middle of 2018.
You’re understandably sceptical about the renewables business in SA?
It’s impossible to figure out what’s happening. Our clients are optimistic but who knows.
You said if you hadn’t had work outside SA, Conlog would have been down 50%. What happened in SA?
In our space, [we’ve had] three ministers of energy, four CEOs of Eskom, take the DA municipalities: SA’s electrical power infrastructure is gridlocked. There ain’t nothing happening. So it filters through into every aspect of doing business in the sector. It can’t sustain itself: that’s why substations blow up. We were at the epicentre of complete ... chaos.