Wrap Text
Reviewed condensed consolidated interim results for the six months ended 31 August 2012
STEFANUTTI STOCKS HOLDINGS LIMITED
("Stefanutti Stocks" or "the company" or "the group")
(Registration number 1996/003767/06)
Share code: SSK ISIN: ZAE000123766
REVIEWED CONDENSED
CONSOLIDATED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2012
Revenue R4,9 billion
Operating profit R89 million
HEPS 27,19 cents
Cash on hand R1,1 billion
Current order book R9,4 billion
STATEMENT OF COMPREHENSIVE INCOME
Reviewed Reviewed Audited
six months six months 12 months
ended ended ended
Increase/ 31 August 31 August 29 February
(Decrease) 2012 2011 2012
% R'000 R'000 R'000
Revenue 28 4 946 040 3 859 003 8 068 483
Contract revenue 29 4 917 227 3 821 827 7 990 718
Earnings before interest, taxation,
depreciation and amortisation
(EBITDA) (28) 194 975 269 044 554 831
Depreciation (102 733) (86 575) (185 577)
Amortisation of intangible assets (3 736) (3 818) (7 589)
Impairment of assets (2 652)
Operating profit before investment
income (operating profit) (50) 88 506 178 651 359 013
Investment income 17 317 19 631 41 636
Share of profits from
associate companies 1 417 510 1 768
Operating profit before finance costs 107 240 198 792 402 417
Finance costs (30 459) (17 232) (37 919)
Profit before taxation 76 781 181 560 364 498
Taxation (25 692) (56 592) (100 257)
Profit for the period 51 089 124 968 264 241
Other comprehensive income 21 644 2 173 52 380
Exchange differences on translating
foreign operations 21 644 2 173 27 380
Gains on property revaluation 25 000
Income tax relating to components
of other comprehensive income (2 348)
Tax relating to gains
on property revaluation (2 348)
Total comprehensive income
for the period 72 733 127 141 314 273
Profit attributable to:
Equity holders of the company (59) 51 089 124 968 264 241
Total comprehensive income
attributable to:
Equity holders of the company 72 733 127 141 314 273
Earnings per share (cents) 29,45 72,67 153,23
Diluted earnings per share (cents) 27,16 66,44 140,49
Commentary to the statement of
comprehensive income
Headline earnings reconciliation:
Profit after taxation attributable
to equity holders of the company 51 089 124 968 264 241
Adjusted for:
Profit on disposal of associate (296)
Profit on disposal of plant
and equipment (5 125) (2 997) (2 858)
Impairment of assets 2 652
Tax effect of adjustments 1 490 839 306
Headline earnings (62) 47 158 122 810 264 341
Normalised headline
earnings reconciliation:
Headline earnings 47 158 122 810 264 341
Adjusted for:
Amortisation of intangibles 3 736 3 818 7 589
Tax effect of adjustments (1 042) (1 066) (2 119)
Normalised headline earnings (60) 49 852 125 562 269 811
Number of weighted average
shares in issue 173 450 262 171 969 136 172 448 040
Number of diluted weighted
average shares in issue 188 080 746 188 080 746 188 080 746
Earnings per share (cents) (59) 29,45 72,67 153,23
Diluted earnings per share (cents) (59) 27,16 66,44 140,49
Headline earnings per share (cents) (62) 27,19 71,41 153,29
Diluted headline earnings
per share (cents) (62) 25,07 65,30 140,55
Normalised headline earnings
per share (cents) (61) 28,74 73,01 156,46
Diluted normalised headline
earnings per share (cents) (60) 26,51 66,76 143,45
STATEMENT OF FINANCIAL POSITION
Reviewed Reviewed Audited
at at at
31 August 31 August 29 February
2012 2011 2012
R'000 R'000 R'000
ASSETS
Non-current assets 2 536 964 2 244 134 2 226 970
Property, plant and equipment 1 169 063 1 022 573 1 019 910
Investment property 64 527 54 001 57 673
Investment in associates 15 329 15 916 15 996
Goodwill and intangible assets 1 278 236 1 128 226 1 124 455
Other financial assets 15 933
Deferred taxation 9 809 7 485 8 936
Current assets 4 018 189 3 360 118 3 684 062
Other current assets 2 907 220 2 334 864 2 755 139
Taxation 4 403 4 628 5 579
Bank balances 1 106 566 1 020 626 923 344
Total assets 6 555 153 5 604 252 5 911 032
EQUITY AND LIABILITIES
Capital and reserves 2 174 072 1 944 853 2 113 696
Ordinary shareholders' interest 2 174 072 1 944 853 2 113 696
Non-current liabilities 486 119 279 147 281 770
Other financial liabilities Interest-bearing 403 390 209 979 213 073
Other financial liabilities Non-interest-bearing 5 653 7 032 7 493
Deferred taxation 77 076 62 136 61 204
Current liabilities 3 894 962 3 380 252 3 515 566
Other current liabilities* 2 240 173 2 089 521 1 934 859
Provisions 1 600 430 1 242 238 1 501 990
Taxation 54 322 40 710 46 199
Bank balances 37 7 783 32 518
Total equity and liabilities 6 555 153 5 604 252 5 911 032
* including interest-bearing liabilities of 245 631 192 627 146 737
STATEMENT OF CASH FLOWS
Reviewed Reviewed Audited
six months six months 12 months
ended ended ended
31 August 31 August 29 February
2012 2011 2012
R'000 R'000 R'000
Cash generated from operations 377 413 84 798 96 059
Interest received 17 254 19 493 41 486
Finance costs (30 459) (17 232) (37 919)
Dividends paid (20 973) (43 061) (63 798)
Dividends received 1 015 138 950
Taxation paid (33 722) (37 505) (78 821)
Secondary tax on companies paid (4 703) (6 960)
Cash flows from operating activities 310 528 1 928 (49 003)
Expenditure to maintain operating capacity (37 029) (43 175) (67 664)
Expenditure for expansion (360 254) (183 197) (210 158)
Cash flows from investing activities (397 283) (226 372) (277 822)
Cash flows from financing activities 281 704 159 719 124 696
Net increase/(decrease) in cash for period 194 949 (64 725) (202 129)
Effect of exchange rate changes
on cash and cash equivalents 20 754 (591) 14 796
Cash at beginning of period 890 826 1 078 159 1 078 159
Cash and cash equivalents
at end of period 1 106 529 1 012 843 890 826
SEGMENT INFORMATION
Roads,
Pipelines Re-
& concil-
Mining ing
R'000 Structures Building Services MEP segments Total
31 August 2012
Contract revenue 1 473 070 1 890 639 1 104 277 449 241 4 917 227
Intersegment contract
revenues 19 774 9 107 30 064 58 945
Reportable segment
profit/(loss) 55 144 (16 900) 52 777 (25 062) (14 870) 51 089
Reportable segment
assets 1 753 393 1 810 911 1 204 625 476 228 1 309 996 6 555 153
31 August 2011
Contract revenue 1 207 129 1 652 846 726 992 234 860 3 821 827
Intersegment contract
revenues 30 779 235 1 369 32 383
Reportable segment
profit/(loss) 70 398 46 906 29 150 (15 275) (6 211) 124 968
Reportable segment
assets 1 532 570 1 783 337 864 765 228 495 1 195 085 5 604 252
29 February 2012
Contract revenue 2 530 908 3 640 922 1 380 472 438 416 7 990 718
Intersegment contract
revenues 60 546 4 150 44 721 6 243 115 660
Reportable segment
profit/(loss) 144 326 91 813 72 256 (25 165) (18 989) 264 241
Reportable segment
assets 1 484 150 2 127 290 815 569 279 857 1 204 166 5 911 032
bridging your expectations
STATEMENT OF CHANGES IN EQUITY
Share Share- Foreign Revalua- Ordinary
capital based currency tion share-
and payments translation surplus Retained holders'
R'000 premium reserve reserve reserve earnings interest
Balance at 1 March 2011 audited 1 011 195 56 306 (37 087) 4 997 818 160 1 853 571
Treasury shares disposed 5 668 5 668
Employee share options 1 403 1 403
Realisation of share-based payment reserve (7) 7
Total comprehensive income 2 173 124 968 127 141
Profit for the period 124 968 124 968
Exchange differences on translating foreign operations 2 173 2 173
Dividends paid (42 930) (42 930)
Balance at 31 August 2011 reviewed 1 016 863 57 702 (34 914) 4 997 900 205 1 944 853
Treasury shares disposed 2 980 (1 779) 1 201
Employee share options 1 255 1 255
Realisation of share-based payment reserve (14 625) 14 625
Total comprehensive income 25 207 22 652 139 273 187 132
Profit for the period 139 273 139 273
Exchange differences on translating foreign operations 25 207 25 207
Gains on property revaluation 22 652 22 652
Dividends paid (20 745) (20 745)
Balance at 29 February 2012 audited 1 019 843 44 332 (9 707) 27 649 1 031 579 2 113 696
Treasury shares disposed 9 046 (405) 8 641
Realisation of share-based payment reserve (11 213) 11 213
Total comprehensive income 21 644 51 089 72 733
Profit for the period 51 089 51 089
Exchange differences on translating foreign operations 21 644 21 644
Dividends paid (20 998) (20 998)
Balance at 31 August 2012 reviewed 1 028 889 33 119 11 937 27 649 1 072 478 2 174 072
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The reviewed condensed consolidated interim results for the period ended 31 August 2012 ("interim results") have been
prepared in accordance with and contains information required by International Accounting Standard ("IAS") 34: Interim
Financial Reporting, as well as the AC 500 series as issued by the Accounting Practices Board, the Listings Requirements
of the JSE Limited and the South African Companies Act, 71 of 2008, as amended. The accounting policies as well as the
methods of computation used in the preparation of the interim results for the period ended 31 August 2012, are in terms
of the International Financial Reporting Standards ("IFRS") and are consistent with those applied in the audited annual
financial statements for the year ended 29 February 2012, except for the standards and amendments to standards that
became effective on 1 January 2012: IAS 12 Income Taxes (Amendment: Rebuttable presumption introduced that an
investment property will be recovered through sale). The adoption of this amendment has not affected the interim results,
nor has it required any restatement of the interim results. The interim results are presented in Rand, which is Stefanutti
Stocks' presentation currency.
These interim results have been compiled under the supervision of the Chief Financial Officer, D Quinn, CA(SA), B.Sc.Econ.
Auditor's review
The interim results have been reviewed by the group's auditors, Mazars. Their unqualified review opinion is available
for inspection at the company's registered office. Their review was conducted in accordance with ISRE 2410 "Review of
interim financial information performed by the independent auditor of the entity".
Group profile
Stefanutti Stocks, a leading construction company, operates throughout South Africa, sub-Saharan Africa and the
Middle East with multi-disciplinary expertise including concrete structures, marine construction, piling and geotechnical
services, all building works including affordable housing, roads and earthworks, bulk pipelines, mine residue disposal
facilities (mainly tailings dams), open pit contract mining, mechanical and electrical installation and construction,
as well as power line transmission and distribution construction. Stefanutti Stocks holds a Grade 9 rating from the
South African Construction Industry Development Board ensuring unlimited tender capability. The group is currently a
Level 2 B-BBEE contributor.
COMMENTARY
Overview of results
The board of Stefanutti Stocks hereby presents the group's interim results for the six months ended 31 August 2012
("the period").
In line with the trading statement issued on 19 October 2012, the group hereby reports its interim results reflecting
a decline in overall profitability. This is mainly as a result of loss-making contracts, the ongoing volatility surrounding
the global and local economies, combined with delayed private and public infrastructure investment projects. This has
negatively impacted activity levels in the South African construction sector for a number of years now and has led to
aggressive competition amongst contractors, as evidenced by low margin projects throughout the industry.
The group's order book currently stands at R9,4 billion (May 2012: R9,3 billion).
Revenue of R4,9 billion (Aug 2011: R3,9 billion) shows an increase of 28,2% over the previous period. However, the
competitive trading environment combined with a number of problematic contracts, and a bad debt write-off, saw
operating profit drop 50,5% to R89 million (Aug 2011: R179 million). Operating margin decreased from 4,7% to 1,8%.
The group's interest-bearing liabilities have increased to R649 million from R360 million (Feb 2012) due to additional
funding required for the acquisition of Cycad Pipelines, property finance and capital expenditure mainly by the Roads,
Pipelines & Mining Services business unit. This has resulted in an increase in depreciation and finance costs over the
previous period.
The increase in provisions arose from increased contracting activities, the nature of certain contracts and the receipt of
advance payments.
Earnings per share of 29,5 cents (Aug 2011: 72,7 cents) and diluted headline earnings per share of 25,1 cents
(Aug 2011: 65,3 cents) decreased by 59,4% and 61,6% respectively.
Capital expenditure, including own infrastructure spend, for the first six months was R185 million (Aug 2011: R217 million).
The group generated cash of R377 million (Aug 2011: R85 million) from operations during the period of which R89 million
(Aug 2011: R266 million consumed) was generated from improved working capital movements in trade payables and
work-in-progress balances. Cash on hand of R1,1 billion (Aug 2011: R1,0 billion) exceeds total interest-bearing debt,
resulting in a nil net gearing position being maintained.
Goodwill and intangible assets have increased to R1,3 billion from R1,1 billion mainly as a result of the Cycad Pipelines
acquisition.
Review of operations
Structures
Given the prevailing market conditions the Structures business unit has delivered a satisfactory performance in terms of
earnings with its activities encompassing civil engineering, geotechnical and marine capabilities.
Year-on-year contract revenue increased by 22% to R1,5 billion (Aug 2011: R1,2 billion). The profit margin of Structures
declined from 7,1% to 5,0% over the same comparative period, mainly as a result of the competitive trading conditions,
and one project where ongoing commercial issues are still to be resolved.
Structures' order book at the end of August 2012 was R2,1 billion (Feb 2012: R2,3 billion). The potential award of a
number of medium-size projects in the water treatment, transport, rail and marine industries are expected to support the
order book over the short term.
With the current lack of large concrete projects in South Africa tender margins are still under pressure. This is expected
to continue into the next financial year.
In the short term, infrastructure work in marine and rail projects offer opportunities in neighbouring countries. In the
medium term opportunities lie in oil and gas and marine projects, both locally and in neighbouring countries.
With its strong technical capability, combined with multi-disciplinary project capacity, this business unit remains well
positioned to enter large projects throughout sub-Saharan Africa.
Roads, Pipelines & Mining Services (RPM)
With effect from 1 March 2012, Roads & Earthworks, Mining Services and the newly acquired Cycad Pipelines were
merged to form this business unit. RPM operates in the construction of roads, terraces for new developments, municipal
services, mining infrastructure and rehabilitation, fibre optic cable trenching, bulk pipelines, mine residue disposal
facilities and open pit contract mining. The August 2011 segmental figures have been restated in order to compare the
results for the six months ended 31 August 2012 to the six months ended 31 August 2011.
This business unit produced a strong performance, and contract revenue for the RPM business unit was up by 52% to
R1,1 billion (Aug 2011: R727 million), with the operating profit increasing by 40% to R77 million (Aug 2011: R55 million).
These results are commendable in view of the fact that market conditions in this sector remain competitive and both the
revenue and operating profit were affected by delayed contract awards.
Despite reduced tender opportunities especially in the public sector infrastructure project area, the order book of RPM at
the end of August 2012 was R2,9 billion (Feb 2012: R1,8 billion). This gives the RPM business unit a strong base from
which to grow.
Looking ahead, the market is expected to remain competitive over the short to medium term. Some possible medium
size project awards in the transport and mineral sectors, plus a sizeable contract award for an open pit mining contract
are expected during the next six months.
The business unit is actively pursuing opportunities in sub-Saharan Africa.
Building
The Building business unit operates throughout Southern Africa servicing the full scope of building construction from
commercial and industrial through to residential and leisure.
This business unit experienced an unsatisfactory six months. The poor performance was mainly as a result of certain
loss-making projects due to overruns in the Inland, Housing and Mozambique divisions, which had a negative impact
on the business unit's margins. Various remedial actions have been instituted to deal with the loss-making projects, but
some of these projects will only be completed during the second half of the financial year.
In addition to the competitive market conditions, where margins have been under continuous pressure, the group also
made a decision to write off a debt deemed non-recoverable in Mozambique.
The business unit contract revenue for the first six months was R1,9 billion (Aug 2011: R1,7 billion) but generated a
disappointing operating loss of R28 million (Aug 2011: operating profit of R66 million).
The order book for Building at the end of August 2012 was R3,9 billion (Feb 2012: R4,1 billion). Competition will remain
tight and consequently profit margins are likely to remain under pressure in the short to medium term.
Despite the recent contractual problems in Mozambique, the group still sees this as a potential growth area. Namibia
and Botswana are other areas in the SADC region where the Building business unit intends to increase its geographical
footprint.
The group will retain its presence in the Middle East and plans to gradually expand its current offering. There are signs of
an upturn in the Dubai market and the market in Qatar is expected to improve during the next financial year.
Mechanical, Electrical & Power (MEP)
This business unit includes mechanical, electrical, instrumentation and power line transmission and distribution
operations. It operates in Southern Africa within the mineral, industrial, oil and gas and power generation markets.
For financial reporting purposes, as of 1 March 2012, the MEP business consists of the Mechanical & Electrical business
unit and the Power business unit.
Contract revenue for the first half of the year in the business unit was R449 million (Aug 2011: R235 million) but continued
to produce an operating loss of R35 million (Aug 2011: R22 million loss). The loss is mainly as a result of historical loss-
making projects in the Electrical & Instrumentation division that will only be completed by the financial year-end, together
with holding costs in the Power business unit resulting from a lack of deal flow from the National energy provider.
The order book of MEP as at 31 August 2012 was R504,4 million (Feb 2012: R402,6 million). Looking ahead, there are
positive signs that market conditions should improve in the power generation sector with the recent commitment from
Eskom that a substantial number of power line transmission and distribution projects will be on offer from March 2013
onwards. The newly formed Oil & Gas division is now established and will offer good opportunity over the medium term.
With the recently announced anticipated reduction in capital expenditure from mining clients in South Africa competitive
tendering will continue in this sector.
Health and safety
Management is committed to elevate safety standards for all employees, contractors and other stakeholders across all
disciplines. The group continues to place effort on further improving its Health and Safety Management Systems and
raising safety standards throughout the group.
During the period the group achieved a Disabling Injury Frequency Rate ("DIFR") of 0,22 (Aug 2011: 0,22).
Acquisitions
With effect from 1 March 2012, the group acquired 100% of Cycad Pipelines Proprietary Limited, a specialised pipeline
infrastructure construction company and its related operations ("Cycad Pipelines"), at a cost of R261 million. This
acquisition is in line with the group's growth strategy to broaden its service offering in the construction sector.
In terms of IFRS 3: Business Combinations, the initial accounting for the acquisition has only been determined provisionally,
as the Purchase Price Allocation including the final purchase consideration has not been completed. The carrying value
of assets and liabilities, as noted in the table below, are based on audited amounts and approximate the fair value of
assets and liabilities before acquisition:
Cycad Pipelines
Acquisition date 1 March 2012
Voting equity 100%
Fair value
At acquisition values R'000
Non-current assets 118 140
Current assets 88 222
Non-current liabilities (22 126)
Current liabilities (48 713)
Net asset value 135 523
Cost of acquisition 261 030
Cash paid 261 030
Goodwill arising on acquisition 125 507
Revenue since acquisition included in results 135 593
Profit before tax since acquisition included in results 17 406
Acquisition-related costs 2 810
The goodwill arising from the acquisition is attributable to the ability to access the pipeline construction market in which
the group did not have a presence, as well as acquiring a well-established and reputable company with a skilled and
specialised workforce.
The carrying value of trade receivables at acquisition date, amounting to R52 million, approximates their fair value and
the group is of the opinion that the outstanding amounts are recoverable.
Acquisition-related costs were recognised in the statement of comprehensive income as an expense within EBITDA.
To the extent that Cycad Pipeline's profit after tax for the financial year ending 28 February 2013 exceeds R50 million, the
excess will become payable to the sellers, limited to a maximum amount of R30 million.
Subsequent events
No material events have occurred between the reporting date and the date of this announcement.
Outlook and strategy
Market conditions in the South African construction market remain challenging and are only expected to improve in the
medium term. There are a number of medium size projects continuously coming to the market to maintain the order
book. However, larger projects such as the Government's infrastructure investment and renewable energy programs, the
proposed development of the large natural gas deposits in Mozambique and the clean fuels project in South Africa are
required to stimulate the construction sector.
The RPM business unit should benefit in the short term from projects expected to be awarded in the pipeline and open
pit contract mining sector. The Power business unit will also benefit from Eskom's imminent power line distribution and
transmission roll out plan.
The group will continue to explore opportunities to expand its footprint in Southern Africa in areas where it already has an
established presence. Opportunities in sub-Saharan Africa will also be pursued, especially where Stefanutti Stocks has
a strong relationship with existing clients.
There are some corrective actions that are being implemented in some of the divisions. With the slow growth in the
economy it will allow the group to attend to these actions. Overall, the group is well positioned to take advantage of several
anticipated opportunities as they occur.
Competition Commission
The investigation by the Competition Commission into anti-competitive behaviour by companies within the construction
sector is currently ongoing. Stefanutti Stocks is co-operating fully with the Competition Commission and all regulatory
authorities. It has submitted the requisite documentation in this regard, and is currently in discussions with the
Commissioner.
No provision has yet been made for possible penalties payable to the Competition Commission pursuant to its
investigation, as discussions regarding the scope of a potential settlement are at an early stage. Accordingly, no reliable
estimate can be made as to the quantum of any obligation to the group.
Dividend declaration
Notice is hereby given that no interim dividend will be declared.
Appreciation
We thank our management and staff for their unwavering and continued commitment during these challenging and
demanding times. We also extend our appreciation to all our customers, suppliers, service providers and shareholders
for their continued support.
On behalf of the board
Gino Stefanutti Willie Meyburgh
Chairman Chief Executive Officer
13 November 2012
Directors:
Non-executive Directors: B Stefanutti (Chairman), N Canca#, Z Matlala#, K Eborall#, H Mashaba#, M Mkwanazi#
B Sithole, J Fizelle (alternate to B Sithole)
Executive Directors: W Meyburgh (Chief Executive Officer), D Quinn (Chief Financial Officer), S Ackerman
SD Pell (Resigned 31 March 2012)
Irish # Independent
Registered office:
Protec Park, Corner Zuurfontein Avenue and Oranjerivier Drive, Kempton Park, 1619
(PO Box 12394, Aston Manor, 1630)
Corporate advisor and sponsor:
Bridge Capital Advisors Proprietary Limited
(2nd Floor, 27 Fricker Road, Illovo Boulevard, Illovo, 2196 (PO Box 651010, Benmore, 2010)
Transfer secretaries:
Computershare Investor Services Proprietary Limited
(70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107)
Auditors:
Mazars
Mazars House, 5 St Davids Place, Parktown, 2193
(PO Box 6697, Johannesburg, 2000)
Company secretary:
W Somerville, 20 Lurgan Road
Parkview, 2193
www.stefanuttistocks.com
Date: 13/11/2012 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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