Johannesburg, 30 July 2020 – Stefanutti Stocks (JSE code: SSK) – a level 1 B-BBEE contributor with a Black Economic Interest score of 58,1% operating throughout South Africa, sub-Saharan Africa and the United Arab Emirates – today announced results for the year ended 29 February 2020, reporting contract revenue from operations of R8,6 billion (Feb 2019: R9,9 billion), an operating loss of R1 033 million (Feb 2019: R158 million) and cash on hand of R741 million.
“During the reporting period Eskom adopted an adverse approach to authorising certificates for work done on the Kusile building project, requiring a substantial increase of internal funding for this project. This increased the group’s total funding requirement from R400 million to approximately R986 million, excluding the impact of COVID-19,” said Stefanutti Stocks CEO, Russell Crawford.
“Consequently, in addition to the provision of R263 million raised in February 2019 for potential unrecoverable preliminary and general costs, we raised a further provision of R462 million for potential unrecoverable monthly measured works to complete the Kusile building project.”
Crawford added that the continued adverse market conditions, as well as the substantial impact of the Kusile building project, had substantially reduced contract revenue. The operating loss takes into account the following:
|Provision for future costs – Kusile building project
|| R462 million
|Specific provisions for slow paying trade receivables
|Specific project losses
|Impairment of goodwill
|Provision for Kenya tax liability
Earnings and headline earnings per share are reported as a loss of 640,35 cents (Feb 2019: 65,99 cents) and a loss of 622,48 cents (Feb 2019: 70,12 cents) respectively.
The group’s order book stands at R8,5 billion, R4,2 billion of which arises from work beyond South Africa’s borders.
“Contributing to the adverse market conditions facing the industry are the well documented and ongoing delays in payments from clients. This has had a significant impact on the group’s trade and other receivables and, consequently, payments to suppliers and sub-contractors” said Crawford, adding that this had resulted in an increase in working capital of R437 million (Feb 2019: R246 million decrease) negatively impacting on cash consumed from operations by R751 million (Feb 2019: R361 million cash generated from operations). The group’s overall cash position decreased to R741 million (Feb 2019: R881 million).
Crawford also updated shareholders in respect of the funding and restructuring plan, which has now been fully developed and approved by the company’s board of directors and its Lenders, including taking into account the potential impact of COVID-19 on the group and its business.
“The purpose of the plan is to put in place an optimal capital structure and access to liquidity to position the group for long-term growth in this dynamic environment,” said Crawford, going on to say that funding amounting to R1 252 million had been received from the groups lenders. “Including the estimated impact of COVID-19 and the additional funding required for the Kusile building project, the total funding requirement for the group was estimated at R1 256 million.”
In line with the restructuring plan he said that management had started to reconfigure the group’s organisational structure to improve operational performance and decrease overhead costs, including a reduction of the overall headcount. “The restructuring plan is anticipated to be implemented over the financial years ending February 2021 and February 2022 and, to the extent required, shareholder approval will be sought for relevant aspects of the plan. We will also continue to update shareholders on progress on various aspects of the plan.” Crawford referred shareholders to the full results announcement on the group’s website for more detail.
All of the group’s businesses are now operating under the revised level 3 restrictions within the required protocols. “Our priority continues to be the health and safety of our employees, and we remain committed to supporting the initiatives that the governments have implemented in the various countries in which we operate. Importantly, we maintain our close working relationships with clients and key stakeholders to mitigate the extensive impact of COVID-19 and reduce the long-term effects on the business.”
As part of its response to the virus, Crawford said a special task team had been constituted to monitor, provide guidance and immediately respond to the continuously changing environment, adding that the unknown future impact of the COVID-19 pandemic, together with the various protocols available to governments, has created an unpredictable business environment. “It is, therefore, not possible to obtain an accurate assessment of the future impact this may have on the group and its markets going forward. However, we will continue to update stakeholders of material developments in this regard.”
Review of operations
Construction & Mining’s contract revenue decreased to R5,1 billion (Feb 2019: R5,3 billion) with an operating loss of R418 million (Feb 2019: operating profit of R112 million). “The operating loss includes provisions raised for slow paying trade receivables and losses incurred on projects in the Road & Earthworks, Civils and Mining Services divisions, with the material loss-making projects in each of the Roads & Earthworks and Civils divisions now complete, and material loss-making projects in Mining services terminated.”
Crawford said that port upgrades in Durban and Cape Town offer opportunities for the Marine and Civils divisions, with additional opportunities in water and transport infrastructure in South Africa, Swaziland and Botswana. “Mining infrastructure opportunities also continue to present themselves to the benefit of this business unit, and the government’s proposed National Development Plan will offer potential opportunities.”
Construction & Mining’s order book at February 2020 was R4,6 billion (Feb 2019: R6,5 billion), the reduction in order book is as a result of the termination of two loss making contract mining projects.
The Building business unit’s contract revenue decreased to R2,6 billion (Feb 2019: R3,4 billion) with the operating loss increasing to R490 million (Feb 2019: operating loss of R251 million). “This includes the provision raised for future costs on the Kusile building project as noted, and a project loss in the Gauteng division, which is now complete. The profit of the equity-accounted United Arab Emirates operation is excluded from this result.”
“This business unit should also potentially benefit from the National Development Plan, together with commercial, leisure, warehouse and factory opportunities in the private sector, in KwaZulu-Natal and Western Cape.”
The Mozambique, KwaZulu-Natal and Western Cape divisions continue to deliver positive results.
Crawford said that the Mozambique division’s order book is currently under pressure, impacted by the delay in the northern province gas fields expansion projects, but that the division is pursuing opportunities in the office, residential, factory and surface mine infrastructure in the private sector.
Building’s order book at February 2020 was R2,3 billion (Feb 2019: R2,7 billion) excluding the United Arab Emirates order book of R658 million (Feb 2019: R808 million).
Mechanical & Electrical’s contract revenue decreased to R897 million (Feb 2019: R1,2 billion) with an operating loss of R25 million (Feb 2019: operating loss of R19 million). The operating loss has been impacted by project losses incurred on a project in each of the Oil & Gas and Mechanical divisions. Both loss-making projects were completed during the year.
“Opportunities in the traditional petrochemical sector for the Oil & Gas division have substantially reduced due to the current global uncertainties negatively impacting on the oil price. The impact of the pandemic on economic growth is negatively affecting the demand for commodities, which has limited the investment into surface mining plant infrastructure projects, negatively affecting the Mechanical and Electrical & Instrumentation divisions’ order book, both locally and cross border.”
Mechanical & Electricals’ order book at February 2020 was R328 million (Feb 2019: R537 million).
In summary, Crawford said the group’s main focus is the successful implementation of the restructuring plan and to pursue a favourable outcome relating to the group’s contractual rights and compensation events on the Kusile power projects. “In addition, we will continue to drive the collection of the slow-paying receivables, focus on reducing loss-making projects and return the group to profitability.”
– Ends –
Stefanutti Stocks Holdings Limited
Russell Crawford (CEO)
011 552 4215
Issued and released by:
Keyter Rech Investor Solutions
087 351 3816 / 076 650 4155