Rotary suffers S$46m cost over-run

One cause was the civil subcontractors’ failure to cope with schedule, and more were subsequently appointed at higher costs.

OCBC Investment Research noted:

Rotary Engineering Limited was hit by an unexpected S$46m cost over-run for its SATORP project, resulting in a gross loss of S$5.9m for 2Q12.

As the losses occurred mainly on its 51%-owned joint venture company, Rotary’s 2Q12 net profit after deducting minority interest was S$1.0m, down 90% YoY from S$10.2m in the year-ago period.

Excluding the SATORP cost overruns, management said that its gross margin will still be lower at 15% (2Q11: 21%) due to margin pressure from recent contracts.

The S$46m cost over-run for the SATORP project resulted from several inter-related issues.

The original civil subcontractors responsible for the construction work were unable to cope with the schedule and more subcontractors had to be appointed at higher costs. There were also changes to engineering design that resulted in major civil re-work.

In addition, piping and electrical and instrumentation activities were also affected due to work sequencing.

Rotary is currently rectifying the issues but gave no guidance on additional cost going forward.