SSK
SSK - Stefanutti Stocks Holdings Limited - Reviewed Condensed Consolidated
Interim Results For The Six Months Ended 31 August 2008
STEFANUTTI STOCKS HOLDINGS LIMITED
(formerly Stefanutti and Bressan Holdings Limited)
("Stefanutti Stocks" or "the company" or "the group")
(Registration number 1996/003767/06)
Share code: SSK and ISIN: ZAE000123766
Reviewed Condensed Consolidated Interim Results For The Six Months Ended 31
August 2008
- Revenue up 131%
- Operating profit up 126%
- Headline earnings up 116%
- EPS up to 89,77 cents
- Cash generated from operations R425,9 million
- Integration of acquisitions progressing well
CONDENSED GROUP INCOME STATEMENT
Reviewed Reviewed Audited
6 months ended 6 months ended 12 months ended
31 August 2008 31 August 2007 29 February 2008
R`000 R`000 R`000
Revenue 2 570 080 1 113 300 2 587 859
Contract revenue 2 536 374 1 100 308 2 544 923
Contract costs (2 145 486) (950 075) (2 139 915)
Gross profit 390 888 150 233 405 008
Other income 1 998 130 4 440
Operating costs (172 932) (59 171) (192 132)
Earnings before 219 954 91 192 217 316
interest, taxation,
depreciation and
amortisation
(EBITDA)
Depreciation (40 905) (13 350) (30 925)
Amortisation of (2 770) - (2 087)
intangible assets
Operating profit 176 279 77 842 184 304
Investment income 34 309 12 862 41 130
Finance costs (11 905) (9 713) (18 476)
Share of profits 729 1 132 1 409
from associate
company
Profit before 199 412 82 123 208 367
taxation
Taxation (56 750) (24 840) (63 949)
Profit for the 142 662 57 283 144 418
period
Attributable to:
Equity holders of 131 043 55 311 134 919
the company
Minority 11 619 1 972 9 499
shareholders
142 662 57 283 144 418
Headline earnings
reconciliation
Profit after 131 043 55 311 134 919
taxation
attributable to
equity holders of
the company
Adjusted for:
Loss/(profit) on 1 292 (863) 818
disposal of plant
and equipment
Tax effect of (362) 242 (237)
adjustments
Total minority 29 (6) (90)
interest of
adjustments
Headline earnings 132 002 54 684 135 410
Normalised headline
earnings
reconciliation
Headline earnings 132 002 54 684 135 410
Adjusted for:
Amortisation of 2 770 - 2 087
intangibles
Tax effect of (775) - (584)
adjustments
Total minority (257) - -
interest of
adjustments
Normalised headline 133 740 54 684 136 913
earnings
Number of weighted 145 980 140 130 634 200 130 634 200
average shares in
issue
Number of diluted 155 159 576 135 970 022 135 970 022
weighted average
shares in issue
Earnings per share 89,77 42,34 103,28
(cents)
Diluted earnings 84,46 40,68 99,23
per share (cents)
Headline earnings 90,42 41,86 103,65
per share (cents)
Diluted headline 85,08 40,22 99,59
earnings per share
(cents)
Normalised headline 91,62 41,86 104,81
earnings per share
(cents)
Diluted normalised 86,20 40,22 100,69
headline earnings
per share (cents)
CONDENSED GROUP CASH FLOW STATEMENT
Reviewed Reviewed Audited
6 months ended 6 months ended 12 months ended
31 August 2008 31 August 2007 29 February 2008
R`000 R`000 R`000
Cash generated from 425 932 193 982 464 267
operations
Interest received 34 309 12 862 41 130
Finance costs (11 905) (9 713) (18 476)
Dividends paid (1 487) (30 255) (30 255)
Taxation paid (45 604) (8 220) (49 218)
Secondary tax on (64) - -
companies paid
Cash flows from 401 181 158 656 407 448
operating
activities
Expenditure to (233 575) (86 894) (154 632)
maintain operating
capacity
Expenditure for (87 577) (11 827) (97 098)
expansion
Cash flows from (321 152) (98 721) (251 730)
investing
activities
Cash flows from 124 388 237 673 301 705
financing
activities
Net increase in 204 417 297 608 457 423
cash for period
Cash at beginning 662 983 205 560 205 560
of period
Net cash at end of 867 400 503 168 662 983
period
CONDENSED GROUP BALANCE SHEET
Reviewed at Reviewed at Audited at
31 August 2008 31 August 2007 29 February 2008
R`000 R`000 R`000
ASSETS
Non-current assets 1 926 956 339 581 545 728
Property, plant and 703 926 260 895 358 129
equipment
Intangible assets 1 183 115 73 639 155 950
Investment in 15 097 - -
associates
Long-term loan 964 - -
receivable
Deferred taxation 23 854 5 047 31 649
Current assets 2 444 951 996 662 1 286 701
Bank balances 873 418 503 168 662 983
Other current 1 570 431 493 494 619 227
assets
Taxation 1 102 - 4 491
Total assets 4 371 907 1 336 243 1 832 429
EQUITY AND
LIABILITIES
Ordinary 1 405 012 504 925 590 682
shareholders`
interest
Minority 36 173 4 182 25 091
shareholders`
interest
Capital and 1 441 185 509 107 615 773
reserves
Non-current 223 836 87 732 136 719
liabilities
Other financial 187 940 63 542 69 893
liabilities
Vendors for - - 37 545
acquisition
Deferred taxation 35 896 24 190 29 281
Current liabilities 2 706 886 739 404 1 079 937
Bank overdraft 6 018 - -
Other current 1 824 179 499 134 603 568
liabilities
Provisions 770 647 185 223 390 561
Taxation 106 042 55 047 85 808
Total equity and 4 371 907 1 336 243 1 832 429
liabilities
Number of net 177 912 105 139 380 867 139 380 867
shares in issue
Number of total 188 080 746 148 355 867 148 355 867
shares in issue
Net asset value per 789,72 362,26 423,79
share (cents)
Net tangible asset 124,72 309,43 311,90
value per share
(cents)
Diluted net asset 747,03 340,35 398,15
value per share
(cents)
Diluted net 117,98 290,71 293,03
tangible asset
value per share
(cents)
SEGMENTAL REPORTING
Primary Kwa-Zulu Western Outside
segments
31 August 2008 Gauteng Natal Cape South Total
(R`000) Africa
Contract 1 645 511 372 182 260 516 258 165 2 536 374
revenue
Profit for the 85 960 17 971 16 886 21 845 142 662
year
GROUP STATEMENT OF CHANGES IN EQUITY
Issued Foreign
capital Share currency
and based translation
R`000 premium payments reserve
Balance at 1 September 2006 126 256 - -
unaudited
Net profit for the period - - -
Premium on issue of 60 000 - -
preference shares
Share buy-back (8 311) - -
Revaluation of land and - - -
buildings
Translation of foreign - - (78)
subsidiary
Dividends paid - - -
Balance at 1 March 2007 177 945 - (78)
audited
Premium on issue of ordinary 349 937 - -
shares
Less listing expenses written (9 000) - -
off against share premium
account
Less capital distribution (30 000) - -
from share premium account
Effect of consolidating the (61 850) - -
SandB Share Incentive Trust
Employee share options - 2 054 -
Net profit for the period - - -
Dividends paid - - -
Balance at 1 September 2007 427 032 2 054 (78)
reviewed
Premium on issue of ordinary 63 - -
shares
Less listing expenses written (2 730) - -
off against share premium
account
Employee share options - 8 851 -
Net profit for the period - - -
Translation of foreign - - (35)
subsidiary
Minority interest acquired - - -
Balance at 29 February 2008 424 365 10 905 (113)
audited
Premium on issue of ordinary 675 323 - -
shares
Employee share options - 10 217 -
Net profit for the period - - -
Dividends paid - - -
Translation of foreign - - 1 702
subsidiary
Minority interest acquired - - -
Allocation of minority - - -
interest of intangibles
Balance at 31 August 2008 1 099 688 21 122 1 589
reviewed
Ordinary
Revaluation Retained shareholders`
R`000 surplus earnings interest
Balance at 1 September 2006 2 585 67 087 195 928
unaudited
Net profit for the period - 2 618 2 618
Premium on issue of - - 60 000
preference shares
Share buy-back - - (8 311)
Revaluation of land and 986 - 986
buildings
Translation of foreign - - (78)
subsidiary
Dividends paid - (37 670) (37 670)
Balance at 1 March 2007 3 571 32 035 213 473
audited
Premium on issue of ordinary - - 349 937
shares
Less listing expenses written - - (9 000)
off against share premium
account
Less capital distribution - - (30 000)
from share premium account
Effect of consolidating the - - (61 850)
SandB Share Incentive Trust
Employee share options - - 2 054
Net profit for the period - 55 311 55 311
Dividends paid - (15 000) (15 000)
Balance at 1 September 2007 3 571 72 346 504 925
reviewed
Premium on issue of ordinary - - 63
shares
Less listing expenses written - - (2 730)
off against share premium
account
Employee share options - - 8 851
Net profit for the period - 79 608 79 608
Translation of foreign - - (35)
subsidiary
Minority interest acquired - - -
Balance at 29 February 2008 3 571 151 954 590 682
audited
Premium on issue of ordinary - - 675 323
shares
Employee share options - - 10 217
Net profit for the period - 131 043 131 043
Dividends paid - (1 487) (1 487)
Translation of foreign - - 1 702
subsidiary
Minority interest acquired - (2 468) (2 468)
Allocation of minority - - -
interest of intangibles
Balance at 31 August 2008 3 571 279 042 1 405 012
reviewed
Minority Capital
shareholders` and
R`000 interest reserves
Balance at 1 September 2006 1 560 197 488
unaudited
Net profit for the period 782 3 400
Premium on issue of - 60 000
preference shares
Share buy-back - (8 311)
Revaluation of land and 103 1 089
buildings
Translation of foreign (235) (313)
subsidiary
Dividends paid - (37 670)
Balance at 1 March 2007 2 210 215 683
audited
Premium on issue of ordinary - 349 937
shares
Less listing expenses written - (9 000)
off against share premium
account
Less capital distribution - (30 000)
from share premium account
Effect of consolidating the - (61 850)
SandB Share Incentive Trust
Employee share options - 2 054
Net profit for the period 1 972 57 283
Dividends paid - (15 000)
Balance at 1 September 2007 4 182 509 107
reviewed
Premium on issue of ordinary - 63
shares
Less listing expenses written - (2 730)
off against share premium
account
Employee share options - 8 851
Net profit for the period 7 527 87 135
Translation of foreign (40) (75)
subsidiary
Minority interest acquired 13 422 13 422
Balance at 29 February 2008 25 091 615 773
audited
Premium on issue of ordinary - 675 323
shares
Employee share options - 10 217
Net profit for the period 11 619 142 662
Dividends paid - (1 487)
Translation of foreign - 1 702
subsidiary
Minority interest acquired (3 529) (5 997)
Allocation of minority 2 992 2 992
interest of intangibles
Balance at 31 August 2008 36 173 1 441 185
reviewed
COMMENTARY
Introduction
The directors are pleased to present the reviewed condensed consolidated interim
results for the six months ended 31 August 2008 ("the period") which confirm the
continued strong growth as reflected in results at the previous year-end.
Following the successful conclusion of the acquisition of construction group
Stocks Limited ("Stocks") during the period ("the Stocks merger"), the group has
been repositioned as a major competitor in the first-tier construction sector.
Stefanutti Stocks now has a geographical footprint across South Africa, Southern
Africa and the Gulf region. Stocks has been included in the reviewed condensed
consolidated interim results for one month (see `Acquisitions` below) from 31
July 2008, the effective date of the merger.
The integration of all of the group`s acquisitions to date is progressing well
and synergies are beginning to reflect in economies of scale. In addition the
comprehensive re-branding exercise to rename the group following the Stocks
merger has been successfully undertaken (see `Name change` below).
Basis of preparation
The reviewed condensed consolidated interim financial statements for the period
have been prepared in accordance with IAS 34: Interim Financial Reporting and in
compliance with the South African Companies Act, 1973. The reviewed condensed
consolidated interim financial statements are prepared on the historical cost
basis, with the exception of certain financial instruments which are measured at
fair value. The results for the period are not necessarily indicative of the
results for the entire year, and these reviewed financial statements should be
read in conjunction with the audited financial statements for the year ended 29
February 2008. The accounting policies and method of measurement and recognition
applied in preparation of the reviewed condensed consolidated interim financial
statements are consistent with those applied in the group`s most recent audited
annual financial statements for the year ended 29 February 2008.
The preparation of the reviewed condensed consolidated interim financial
statements requires the use of estimates and assumptions that affect the values
of assets and liabilities at the reporting date, as well as the determination of
revenue and expenses during the reporting periods. Although these estimates are
based on management`s best knowledge of current events and actions that the
group may undertake in the future, actual results may differ from those
estimates.
Auditor`s review
The reviewed condensed consolidated interim financial statements for the period
have been reviewed by the company`s auditors, Mazars Moores Rowland. Their
unmodified review opinion is available for inspection at the company`s
registered office.
Group profile
Stefanutti Stocks operates throughout South Africa, Southern Africa and the Gulf
region with expertise spanning concrete structures and rehabilitation, roads and
earthworks, piling and geotechnical services, mine residue disposal facilities
(tailings dams), opencast contract mining, building works and mechanical,
electrical and marine construction.
The spectrum of projects ranges across industrial and petrochemical plants,
power stations, mine infrastructure, dams, roads, bridges, water and effluent
treatment plants, township infrastructure and industrial and commercial
buildings as well as affordable housing for government and select private sector
corporations. In addition the group has established skills to participate in
projects on a Public-Private-Partnership (PPP) basis.
Review of operations
Concrete Structures
Concrete Structures operates throughout South Africa and Southern Africa
providing reinforced concrete works for mine infrastructure, industrial and
petrochemical plants, power stations, storage silos, bridges, marine works and
effluent and water treatment plants. The division incorporates the previous
acquisition of Civil and Coastal Construction (Pty) Limited, a specialist marine
and civil rehabilitation contractor.
Concrete Structures continues to perform well and in line with expectations.
Presently the majority of the work is derived from the mining industry,
government infrastructure, petrochemical and industrial markets both in South
Africa and cross-border.
Locally, government spend on infrastructure is expected to continue driving
growth. In Africa the group is targeting oil-rich Angola through established
international clients. It will also look to capitalise on increased investment
in power generation on the continent.
Stefanutti Stocks` piling and geotechnical operations have delivered substantial
year-on-year growth to date and the group is focusing on expansion opportunities
locally in the Cape region and in Mozambique.
Roads and Earthworks
Roads and Earthworks is engaged in the construction of roads, bulk earthworks,
landfill sites and urban development projects throughout South Africa as well as
in Mozambique and Swaziland.
With strong margins Roads and Earthworks reflected pleasing results for the
period, particularly in the South African operations. The group benefited to a
large extent from significantly increased demand for road rehabilitation
services. Funds earmarked by government and municipalities for the upgrade of
local road systems should provide further growth opportunity. Infrastructure
projects are expected to continue beyond 2010.
Mining Services
The division specialises in mine residue disposal facilities, particularly
tailings dams, and opencast contract mining across South Africa. Mechanical and
electrical activities include surface and underground material handling systems
and the construction of processing plant and equipment. Mining Services includes
the previous acquisitions of Environmental, Civil and Mining Projects (Pty)
Limited ("ECMP") and Skelton and Plummer Investment Holding Company (Pty) Limited.
The results of both companies were included for the full six months and
contributed to top and bottom line growth in line with expectations.
The division is currently undertaking a number of large mine infrastructure
projects for major mining companies and performed well during the period.
Notwithstanding a potential short-term decline in certain areas of this market,
the division intends to participate in the anticipated expansion by mining
companies over the next three years.
Building
The division services contracts across commercial, industrial, institutional
housing and leisure fields and operates throughout South Africa, Southern Africa
and the Gulf region. The division does not participate to any significant extent
in the private residential sector.
The Building division has performed in line with expectations. While margins
remain slightly below the full year target at this stage, they nonetheless
reflect an improvement from the previous year-end at February 2008.
The increase in public sector spend for hospitals, education, offices and
prisons has offset to a large extent the slowdown in private sector development
following successive interest rate hikes and power shortages. Should the need
arise, resources within this division can be re-deployed into infrastructure-
related projects.
The group is also pursuing increasing opportunities in the PPP arena as a
further avenue for growth.
Gulf
Following the Stocks merger the group now has an established presence in a Dubai
Free Trade Zone. Stefanutti Stocks will leverage this base for expansion across
the Middle East region where significant opportunities have been identified.
Capital expenditure
Stefanutti Stocks` capital expenditure for the full year to February 2009 is
expected to be R373 million. During the period the group acquired property,
plant and equipment to the value of R239,3 million (2007: R76,2 million) and
disposed of assets with a book value of R7,0 million (2007: R8,6 million). The
bulk of capital expenditure commitments has forward cover and is not affected by
the recent Rand volatility.
Skills shortage
To stimulate skills development locally an accredited Training Centre has been
established. This enables the group to respond efficiently to capacity
requirements of lower level technical staff, which comprise the largest
component of Stefanutti Stocks` work force. In addition the group has an
established bursary scheme in which previously disadvantaged candidates are
participating.
Stefanutti Stocks has also implemented a recruitment initiative covering
candidates from the African continent and internationally to address the high
demand for middle-to-senior management project staff.
Acquisitions
Prior to listing, with effect from 3 April 2007, the company acquired 100% of
the shareholding in ECMP. The acquisition has been fully integrated into the
group`s Mining Services operations.
With effect from 31 July 2008 the company acquired 100% of the issued share
capital of Stocks. In terms of IFRS 3: Business Combinations the initial
accounting for the acquisition of Stocks has only been determined provisionally
as the Purchase Price Allocation has not been completed.
Further adjustments to the fair values of assets and liabilities recorded on
acquisition date are anticipated up to 28 February 2009 and will result in
further adjustments being made to the fair values of these items and goodwill.
ECMP Stocks
Acquisition date 3 April 2007 31 July 2008
Voting equity % 100 100
Number of shares issued at R17,00 per - 39 724 879
share
At acquisition values R`000 R`000
Non-current assets 55 624 362 106
Current assets 44 272 902 456
Non-current liabilities (19 042) (47 070)
Current liabilities (69 430) (973 640)
Net asset value acquired 11 424 243 852
Cost of acquisition 69 325 1 087 272
Intangible arising on acquisition 6 261 -
Goodwill arising on acquisition 51 640 843 420
Cash paid 29 489 411 949
Revenue for the period (six months) 222 768 1 238 157
Profit after taxation for the period 18 175 42 878
(six months)
Profit after taxation since 50 371 13 078
acquisition
After 31 March 2009, a final payment for ECMP will be made based on an average
profit after taxation over the previous three years, estimated and accrued for
at R39,8 million.
In line with current strategy, the group acquired the remaining minority
interest in Stefanutti Stocks Building Gauteng (Pty) Limited (formerly
Stefanutti and Bressan Building Inland (Pty) Limited). A further 8% in Stefanutti
Stocks Building KZN (Pty) Limited (formerly Stefanutti and Bressan Building (Pty)
Limited) was acquired taking the group`s stake in this company to 89%. Further
acquisitions of minority interests in subsidiaries are being considered.
Name change
With effect from 19 September 2008, the company formally changed its name to
Stefanutti Stocks Holdings Limited.
Financial results
Group revenue for the period rose 131% to R2,6 billion (2007: R1,1 billion).
Operating profit was up 126% to R176,3 million (2007: R77,8 million) while net
profit after tax ("NPAT") increased by 149% to R142,7 million (2007: R57,3
million).
Earnings per share ("EPS") has increased by 112% to 89,77 cents (2007: 42,34
cents). Growth in EPS was affected to an extent by the additional 39 724 879
ordinary shares issued for the Stocks acquisition. Headline earnings of R132,0
million for the period translated into headline earnings per share of 90,42
cents (2007: 41,86 cents).
A share-based incentive scheme expense of R10,2 million (2007: R2,1 million) as
required by IFRS 2: Share-based Payments and a customer related intangible
amortisation cost of R2,0 million (2007: Nil) as required by IFRS 3: Business
Combinations, are included in the earnings for the period.
Cash on hand increased to R867,4 million.
Related party transactions
The group has no material related party transactions other than those with group
companies which are conducted on an arm`s-length commercial basis.
Directorate
Following the conclusion of the Stocks merger, Stephen Pell (former CEO of
Stocks) was appointed as an executive director and Herman Mashaba (former non-
executive Chairman of Stocks) was appointed as a non-executive director to the
board of Stefanutti Stocks.
Prospects
Stefanutti Stocks is well-aligned within the infrastructure, mining,
petrochemical and power generation markets and will continue to benefit from
expected government and parastatal spend on infrastructural projects.
It is anticipated that public and private infrastructure work will continue
offering opportunities for growth to beyond 2010, with a number of projects in
power generation, road infrastructure, Department of Water Affairs and
Department of Public Works still to be awarded from government`s committed
spend. The inclusion of Stocks for the full six months to February 2009 is
expected to further boost results for the year. Both Southern Africa and the
Gulf region continue to present attractive expansion prospects.
However, the group will continue to monitor the impact on client expenditure
programmes in light of the current uncertainty in global financial markets.
Stefanutti Stocks` order book stood at R6,6 billion at the end of the interim
period.
Dividend policy
In line with group policy set out in the pre-listing prospectus, an annual
dividend will be declared on finalisation of results for the current financial
year ending 28 February 2009.
Appreciation
We thank all our employees for their hard work and dedication and welcome the
new employees that have joined the group following the acquisitions. We also
thank our business partners and advisors for their ongoing support and our
fellow directors for their wise counsel.
On behalf of the board
Gino Stefanutti Willie Meyburgh
Executive Chairman Chief Executive Officer
11 November 2008
Directors:
B Stefanutti (Executive Chairman)
W Meyburgh (Chief Executive Officer)
D Quinn+ (Financial Director)
S Pell; N Canca*; K Eborall*; H Mashaba*
M Mkwanazi*; B Sithole*
J Fizelle*+ (alternate to B Sithole)
*Non-executive director +Irish
Registered office:
Protec Park, Cnr Zuurfontein and Oranjerivier Drive, Kempton Park, 1619 (PO Box
12394, Aston Manor, 1630)
Auditors:
Mazars Moores Rowland, 5 St Davids Place, Parktown, 2193 (PO Box 6697,
Johannesburg, 2000)
Corporate advisor and sponsor:
Bridge Capital Advisors (Pty) Limited
2nd Floor, 27 Fricker Road, Illovo Boulevard, Illovo, 2196
(PO Box 651010, Benmore, 2010)
Transfer secretaries:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Company secretary:
A Cocciante, Protec Park,
Cnr Zuurfontein and Oranjerivier Drive, Kempton Park, 1619
(PO Box 12394, Aston Manor, 1630)
www.stefanuttistocks.com
Date: 11/11/2008 07:05:07
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