STEFANUTTI STOCKS HOLDINGS LIMITED - Reviewed Condensed Consolidated Results for the Year Ended 28 February 2018

Release Date: 17/05/2018 07:05
Code(s): SSK
 
Wrap Text
Reviewed Condensed Consolidated Results
for the Year Ended 28 February 2018

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 RESULTS
FOR THE YEAR ENDED 28 FEBRUARY 2018

-  Revenue R10,5 billion
-  Cash at end of year R916 million
-  Current order book R14,3 billion

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

                                                                                 Reviewed              Audited
                                                                                12 months            12 months
                                                                                    ended                ended
                                                               % Increase/    28 February          28 February
R'000                                                           (Decrease)           2018                 2017
Revenue                                                                 15     10 490 631            9 149 604
Contract revenue                                                        15     10 415 481            9 058 576
Earnings before interest, taxation, depreciation and
amortisation (EBITDA)                                                   92        400 457              209 046
Depreciation and amortisation                                                   (184 435)            (145 882)
Impairment of assets                                                            (667 114)            (169 560)
Operating loss before investment income                              (324)      (451 092)            (106 396)
Investment income                                                                  49 113               44 864
Share of profits of equity-accounted investees                                     41 388               40 893
Operating loss before finance costs                                             (360 591)             (20 639)
Finance costs                                                                    (82 842)             (85 597)
Loss before taxation                                                            (443 433)            (106 236)
Taxation                                                                         (64 606)             (43 554)
Loss for the year                                                               (508 039)            (149 790)
Other comprehensive income                                                       (45 148)             (10 998)
Exchange differences on translation of foreign operations
(may be reclassified to profit/(loss))                                           (35 697)            (118 328)
Reclassification from foreign currency translation reserve                        (9 451)                2 468
Revaluation of land and buildings (may not be reclassified to
profit/(loss))                                                                          –              104 862

Total comprehensive income                                                      (553 187)            (160 788)
Loss attributable as follows:
Equity holders of the company                                                   (503 599)            (137 068)
Non-controlling interest                                                          (4 440)             (12 722)
                                                                                (508 039)            (149 790)
                                                                                (508 039)            (149 790)
Total comprehensive income attributable to:
Equity holders of the company                                                   (545 335)            (157 099)
Non-controlling interest                                                          (7 852)              (3 689)
                                                                                (553 187)            (160 788)
Loss per share (cents)                                               (272)       (294,94)              (79,34)
Diluted loss per share (cents)                                       (267)       (267,76)              (72,88)

Commentary to the statement of profit or loss and other comprehensive income
Headline earnings reconciliation
                                                                    % Increase   Feb 2018             Feb 2017
Loss after taxation attributable to equity holders of the company               (503 599)            (137 068)
Adjusted for:       
Profit on disposal of plant and equipment                                        (12 942)             (13 377)
Tax effect                                                                          3 699                3 743
Impairment of assets                                                              667 114              169 560
Tax effect                                                                              –              (3 966)
Headline earnings                                                                 154 272               18 892
Settlement agreement charge                                                             –              138 764
Tax effect                                                                              –              (2 426)
Adjusted Headline earnings                                                        154 272              155 230
Number of weighted average shares in issue                                    170 748 789          172 750 427
Number of diluted weighted average shares in issue                            188 080 746          188 080 746
Headline earnings per share (cents)                                    726          90,35                10,94
Diluted headline earnings per share (cents)                            716          82,02                10,05
Adjusted headline earnings per share (cents)                             1          90,35                89,86
       
STATEMENT OF FINANCIAL POSITION
                                                                                 Reviewed              Audited
                                                                                       at                   at
                                                                              28 February          28 February
R'000                                                                                2018                 2017
ASSETS                     
Non-current assets                                                              2 252 024            2 548 043
Property, plant and equipment                                                   1 483 727            1 212 248
Equity-accounted investees                                                        209 181              189 860
Goodwill and intangible assets                                                    460 506            1 087 133
Deferred tax assets                                                                98 610               58 802
Current assets                                                                  4 165 393            4 019 055
Other current assets                                                            3 212 553            2 816 126
Taxation                                                                           10 786               44 496
Bank balances                                                                     942 054            1 158 433
                     
Total assets                                                                    6 417 417            6 567 098
EQUITY AND LIABILITIES                     
Capital and reserves                                                            1 880 833            2 442 378
Share capital and premium                                                       1 013 379            1 021 737
Other reserves                                                                    110 401              181 515
Retained earnings                                                                 760 779            1 235 000
Equity holders of the company                                                   1 884 559            2 438 252
Non-controlling interest                                                          (3 726)               4 126
Non-current liabilities                                                           480 320              370 912
Financial liabilities                                                             478 659              346 460
Deferred tax liabilities                                                            1 661               24 452
Current liabilities                                                             4 056 264            3 753 808
Other current liabilities*                                                      2 186 120            2 079 542
Excess billings over work done                                                  1 092 801            1 197 743
Provisions                                                                        657 470              420 400
Taxation                                                                           93 710               56 121
Bank balances                                                                      26 163                    2
                     
Total equity and liabilities                                                    6 417 417            6 567 098
* Including interest-bearing liabilities of                                       278 600              328 794
Commentary to the statement of financial position                     
Total number of net shares in issue                                           169 485 204          172 241 569
Net asset value per share (cents)                                                1 111,93             1 415,60
Net tangible asset value per share (cents)                                         840,22               784,43
                     
STATEMENT OF CASH FLOWS                     
                                                                                 Reviewed              Audited
                                                                                12 months            12 months
                                                                                    ended                ended
                                                                              28 February          28 February
R'000                                                                                2018                 2017
Cash generated from operations                                                    322 410              616 297
Interest received                                                                  48 379               44 862
Finance costs                                                                    (49 157)             (30 906)
Dividends received                                                                 21 805               21 138
Taxation paid                                                                    (56 747)            (102 580)
Cash flows from operating activities                                              286 690              548 811
Expenditure to maintain operating capacity (net of proceeds)                       10 381             (29 921)
Proceeds from non-current assets held for sale                                          –               87 334
Expenditure for expansion                                                        (85 798)             (54 562)
Cash flows from investing activities                                             (75 417)                2 851
Treasury shares acquired                                                          (8 358)              (5 366)
Movements in long- and short-term financing                                     (415 042)            (159 336)
Cash flows from financing activities                                            (423 400)            (164 702)
Net (decrease)/increase in cash                                                 (212 127)              386 960
Effect of exchange rate changes on cash and cash equivalents                     (30 413)             (79 535)
Cash and cash equivalents at the beginning of the year                          1 158 431              850 940
Cash at the beginning of the year – discontinued operation                              –                   66
Cash and cash equivalents at the end of the year                                  915 891            1 158 431
               
SEGMENT INFORMATION
R'000                                      Construction                             Reconciling
28 February 2018                               & Mining     Building          M&E     segments*          Total
Contract revenue                              4 973 719    4 419 165    1 022 597             –     10 415 481
Intersegment contract revenues                    2 764            –       61 325             –         64 089
Reportable segment profit/(loss)                 82 098       34 229        9 875   (634 241)**      (508 039)
Reportable segment assets                     3 714 429    1 594 533      520 964       587 491      6 417 417
28 February 2017     
Contract revenue                              3 964 177    3 959 633    1 134 766             –      9 058 576
Intersegment contract revenues***                72 148            –       33 872             –        106 020
Reportable segment profit/(loss)                130 646       55 263       34 357     (370 056)      (149 790)
Reportable segment assets                     3 204 089    1 701 128      593 344     1 068 537      6 567 098
*   Other segments comprise segments that are primarily centralised in nature i.e. the group's headquarters
**  Includes impairment of goodwill and intangible assets of R667 million
*** Restated due to combination of RPM and Structures business units. 

excellence in execution

STATEMENT OF CHANGES IN EQUITY                
                                                                                         Foreign              
                                                                       Share-based      currency   Revaluation
                                                       Share capital      payments   translation       surplus
R'000                                                    and premium       reserve       reserve       reserve
Balance at 29 February 2016 audited                        1 027 103        28 145       158 069        17 181
Treasury shares acquired                                     (5 366)             –             –             –
Realisation of reserve                                             –             –             –       (1 849)
Total comprehensive income                                         –             –     (124 893)       104 862
Loss                                                               –             –             –             –
Other comprehensive income                                         –             –     (124 893)       104 862
                
Balance at 28 February 2017 audited                        1 021 737        28 145        33 176       120 194
Treasury shares acquired                                     (8 358)             –             –             –
Realisation of reserves                                            –      (28 145)             –       (1 233)
Total comprehensive income                                         –             –      (41 736)             –
Loss                                                               –             –             –             –
Other comprehensive income                                         –             –      (41 736)             –
                
Balance at 28 February 2018 reviewed                       1 013 379             –       (8 560)       118 961
                
                                                                        Attributable
                                                                           to equity          Non-
                                                            Retained      holders of   controlling       Total
R'000                                                       earnings     the company      interest      equity
Balance at 29 February 2016 audited                        1 370 219       2 600 717         7 815   2 608 532
Treasury shares acquired                                           –         (5 366)             –     (5 366)
Realisation of reserve                                         1 849               –             –           –
Total comprehensive income                                 (137 068)       (157 099)       (3 689)   (160 788)
Loss                                                       (137 068)       (137 068)      (12 722)   (149 790)
Other comprehensive income                                         –        (20 031)         9 033    (10 998)
                
Balance at 28 February 2017 audited                        1 235 000       2 438 252         4 126   2 442 378
Treasury shares acquired                                           –         (8 358)             –     (8 358)
Realisation of reserves                                       29 378               –             –           –
Total comprehensive income                                 (503 599)       (545 335)       (7 852)   (553 187)
Loss                                                       (503 599)       (503 599)       (4 440)   (508 039)
Other comprehensive income                                         –        (41 736)       (3 412)    (45 148)
                
Balance at 28 February 2018 reviewed                         760 779       1 884 559       (3 726)   1 880 833

BASIS OF PREPARATION AND ACCOUNTING POLICIES
The reviewed condensed consolidated results for the year ended 28 February 2018 (results for the year)
have been prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee. The report contains the information required by
International Accounting Standard (IAS) 34: Interim Financial Reporting, and are in compliance with the
Listings Requirements of the JSE Limited. The accounting policies as well as the methods of computation
used in the preparation of the results for the year ended 28 February 2018 are in terms of IFRS and are
consistent with those applied in the audited annual financial statements for the year ended 28 February
2017. There is no significant difference between the carrying amounts of financial assets and liabilities and
their fair values. The fair value measurement for land and buildings are categorised as a level 3, based
on the valuation method of income capitalisation using unobservable inputs i.e. market capitalisation rates
and income/expenditure ratio. The results are presented in Rand, which is Stefanutti Stocks' reporting currency.

The company's directors are responsible for the preparation and fair presentation of the reviewed
condensed consolidated results. These results have been compiled under the supervision of the Chief
Financial Officer, AV Cocciante, CA(SA).

Auditors' review
The 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 is a construction company operating throughout South Africa, sub-Saharan Africa and the
United Arab Emirates with multi-disciplinary expertise including concrete structures, marine construction,
piling and geotechnical services, roads and earthworks, bulk pipelines, open pit contract mining and
surface mining related services, all forms of building works, including affordable housing, and mechanical
and electrical installation and construction.

OVERVIEW OF RESULTS
The Board of Directors report that the group's performance reflects the impact of operating within a
demanding trading environment which includes an impairment of assets.

Contract revenue from operations of R10,4 billion increased by R1,3 billion compared to the previous
year (Feb 2017: R9,1 billion). The group tests goodwill for impairment at each reporting period or when
there is an indicator of impairment. At 28 February 2018 goodwill and intangible assets of R667 million
has been impaired, predominantly relating to the goodwill that arose from the Stocks Limited acquisition.
Consequently the operating loss increased from R106 million in the previous year to R451 million in
the current year. Should this impairment be excluded, the operating profit is R216 million, which is an
improvement over the R202 million adjusted operating profit reported in the previous year.

The United Arab Emirates operation has contributed R48 million towards the share of profits of equity-
accounted investees, which in total has remained consistent at R41 million as a result of losses incurred
by other equity-accounted investees.

As a result of the factors mentioned above, earnings per share is reported as a loss of 294,94 cents
(Feb 2017: 79,34 cents loss). With the reversal of impairment charges relating to assets, headline earnings
per share is reported as a profit of 90,35 cents (Feb 2017: 10,94 cents profit). This is a slight improvement
on the adjusted headline earnings per share of 89,86 cents reported in the previous year.
The group's order book is currently R14,3 billion of which R4,9 billion arises from work beyond South
Africa's borders.

Capital expenditure for the year amounted to R500 million (Feb 2017: R272 million). R369 million
(Feb 2017: R87 million) was incurred in expanding capacity, of which R275 million relates to requirements
from the Mining Services operation on the back of contracts awarded during the year. The increased
capital expenditure resulted in an increase in depreciation to R176 million (Feb 2017: R138 million) and an
increase in total interest-bearing liabilities to R783 million (Feb 2017: R675 million).

The increase in trading activities resulted in an increase in other current assets, trade payables and
provisions compared to February 2017, whilst excess billings over work done reduced to R1,1 billion
(Feb 2017: R1,2 billion). The group continues to experience delays in the award and commencement
of contracts, as well as delayed payments from clients. All these factors contributed to a reduction in
cash generated from operations to R322 million (Feb 2017: R616 million). This includes an investment in
working capital of R293 million (Feb 2017: R274 million inflow). As a consequence, the group's overall cash
position at year-end has decreased to R916 million (Feb 2017: R1 158 million).

The company, through a subsidiary, repurchased 2 756 365 of its own shares at an average price of
R3,03 per share in terms of a resolution passed at the company's Annual General Meeting. These shares
will not be cancelled and will be accounted for as treasury shares.

The effect of the strengthening of the Rand on the translation of certain foreign operations resulted in
R36 million loss (Feb 2018: R118 million) being recognised in other comprehensive income.

Review of operations
In line with the group's strategic intent to achieve greater synergy, optimise available resources and
reduce costs, a decision was taken to combine the Roads, Pipelines & Mining Services with the Structures
business units effective 1 January 2018. The new business unit is called Construction & Mining.

Construction & Mining
Contract revenue of the newly combined business unit is R5,0 billion (Feb 2017: R4,0 billion) with an
operating profit of R175 million (Feb 2017: R188 million) at an operating profit margin of 3,5% 
(Feb 2017: 4,7%).

Whilst the Roads & Earthworks and Swaziland divisions delivered good results, the former Structures
business unit continued to underperform resulting in the reported reduction in operating profit for
Construction & Mining compared to the previous year.

Supported by an increase in tender activity Mining Services returned good results for the year and secured
a strong order book. Management is selective in the projects pursued as cash collections can be protracted
in the junior mining sector where revenue often stems from a single mine.

Long outstanding amounts due from the governments of Zambia and Nigeria continue to be a source of
concern. However, discussions with the government authorities are ongoing and periodic payments are
being received. The outstanding amounts are not in dispute. In Zambia work will only recommence on
affected contracts once all outstanding amounts have been received. Limited work has resumed on the
road projects in Nigeria.

Limited infrastructure work has been secured from the public sector. However, the number of tender
enquiries and awards received from the mining sector has increased. As a consequence of less public
infrastructure spend, combined with a policy of increased fragmentation of civil contracts designed to
facilitate project work being awarded to smaller construction companies, the former Structures business
unit's order book and operating profit margins are under pressure.

Construction & Mining's order book at February 2018 was R9,0 billion (Feb 2017: R7,3 billion).

Building
The Building business unit's contract revenue increased to R4,4 billion (Feb 2017: R4,0 billion) with an
improvement in operating profit to R41 million (Feb 2017: loss of R2 million) at an operating profit margin
of 1,0%. The profit of the equity accounted United Arab Emirates operation is excluded from the operating profit.

The Mozambique and Coastal divisions delivered good results.
With the ongoing reduction in available work in the local building market, emanating from the current
negative outlook in the public and private building sector, a significant portion of the goodwill relating to the
Stocks Limited acquisition had to be impaired.

Unexpected losses on two social housing projects combined with delayed payments in the public sector,
have put considerable strain on the business unit's cash resources.

The business unit is also attending to significant contractual claims and compensation events on a large
public sector project in South Africa.

Building's order book at February 2018 was R3,3 billion (Feb 2017: R4,7 billion) excluding the United Arab
Emirates order book of R1,0 billion (Feb 2017: R1,0 billion).

Mechanical & Electrical
Despite good returns from cross-border operations and recently awarded surface mining related contracts
in the Mechanical division, Mechanical & Electrical's turnover and operating profit reduced to R1,0 billion
(Feb 2017: R1,1 billion) and R13 million (Feb 2017: R40 million) respectively.

The Oil & Gas and Electrical & Instrumentation divisions' performance was negatively impacted by the
cancellation of a significant contract in the petrochemical market. This cancellation is being contractually
challenged and at this stage the financial impact thereof cannot be quantified.

Cross-border and local work in the surface mining related environment is gradually improving for both
the Mechanical and Electrical & Instrumentation divisions. However, the reduction in opportunities in the
petrochemical sector will affect the Mechanical & Electrical's combined order book and operating margins.

Mechanical & Electrical's order book at February 2018 was R790 million (Feb 2017: R780 million).

Safety
Management and staff remain committed to enhanced health and safety policies and procedures, and
together strive to constantly improve the group's safety performance. The group's Lost Time Injury
Frequency Rate (LTIFR) at February 2018 was 0,11 (Feb 2017: 0,10) and the Recordable Case Rate
(RCR) was 0,54 (Feb 2017: 0,70).

Outlook and strategy
As highlighted in previous reporting periods, the South African construction market remains extremely
competitive due to an ongoing lack of public infrastructure spend. Even though business confidence levels
seem to be improving in some sectors of the economy, construction activities and margins are expected to
remain under pressure in the short to medium term.

With the increased local requirements relating to Broad-Based Black Economic Empowerment, the group
is assessing various options to improve its position in this regard.

The group's order book remains relatively constant at about R14 billion. In the short term there are potential
pockets of growth in the local market which include surface mining related services, selected open pit
mining contracts, petrochemical tank farms, water and sanitation treatment plants as well as residential,
warehouses and design and construct opportunities in the building sector. Cross border opportunities exist
in road and bridge construction, marine and mixed-use building projects.

Our multi-disciplinary and geographically diversified business structure continues to enable the group
to remain a strong competitor in the markets in which it operates. The group also continues to seek
opportunities both in Southern Africa and, on a more selective basis, further afield in sub-Saharan Africa.
With the challenges being experienced in the construction markets, management constantly reviews and
aligns each business unit and its respective divisions to ensure their ongoing sustainability.

Industry related matters
The legal process relating to the civil claim received from the City of Cape Town (Green Point Stadium) is
ongoing, which the group is confident it can defend.

Dividend declaration
Notice is hereby given that no dividend will be declared (Feb 2017: Nil).

Subsequent events
Other than the matters noted above, there were no other material reportable events which occurred
between the reporting date and the date of this announcement.

Changes to the board of directors
In addition to the changes as reported in the August 2017 interim announcement, Ms Bharti Harie and
Ms Busisiwe Silwanyana have been appointed as independent non-executive directors with effect from
13 April 2018.

The board welcomes Bharti and Busisiwe to the group and look forward to their valuable insights and contributions.

Appreciation
We would like to thank the board, the management team and all of our employees for their continuous
commitment and dedication in this challenging environment. We also express our gratitude to our
customers, suppliers, service providers and shareholders for their ongoing support.

On behalf of the board

Kevin Eborall                                         Willie Meyburgh
Chairman                                              Chief Executive Officer

Published on 17 May 2018

Directors
Non-executive directors
KR Eborall# (Chairman), HJ Craig#, ZJ Matlala#, ME Mkwanazi#, B Harie#, B Silwanyana#,
J Poluta (alternate to ME Mkwanazi), DG Quinn
#Independent

Executive directors
W Meyburgh (Chief Executive Officer), AV Cocciante (Chief Financial Officer) 

Registered office
Protec Park, Corner Zuurfontein Avenue and Oranjerivier Drive, Chloorkop, 1619
(PO Box 12394, Aston Manor, 1630)

Corporate advisor and sponsor
Bridge Capital Advisors Proprietary Limited
50 Smits Road, Dunkeld, Illovo, 2196
(PO Box 651010, Benmore, 2010)

Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
(PO Box 61051, Marshalltown, 2107)

Auditors
Mazars
Mazars House, 54 Glenhove Road, Melrose Estate, Johannesburg, 2196
(PO Box 6697, Johannesburg, 2000)

Company secretary
W Somerville
20 Lurgan Road, Parkview, 2193 

This announcement together with the investor presentation is available on the company's website.

www.stefanuttistocks.com



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