SSK
SSK - Stefanutti Stocks Holdings Limited - Reviewed condensed consolidated
results for the 12 months ended 28 February 2010
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 12 months ended 28 February 2010 ("reviewed results")
- Operating profit up 28%
- Headline earnings up 31%
- Diluted HEPS up 19%
- Final dividend of 45 cents per share (full year 70 cents up)
- Cash on hand R1,3 billion
STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
12 months 12 months
ended ended
28 February 28 February
% 2010 2009
increase R`000 R`000
Revenue 18 7 471 412 6 316 570
Contract revenue 19 7 365 023 6 212 899
Contract costs (6 255 962) (5 266 004)
Contract gross profit 1 109 061 946 895
Other income 41 276 20 784
Operating costs (493 000) (435 841)
Earnings before interest, taxation,
depreciation and amortisation
(EBITDA) 24 657 337 531 838
Depreciation (138 587) (100 896)
Amortisation and impairment of
intangible assets (18 005) (38 751)
Operating profit before investment
income 28 500 745 392 191
Investment income 85 518 74 879
Share of profits/(losses) from
associate company 973 (703)
Operating profit before finance
costs 587 236 466 367
Finance costs (25 288) (30 535)
Profit before taxation 561 948 435 832
Taxation (172 703) (116 414)
Profit for the period 389 245 319 418
Other comprehensive income (42 345) 44 724
Exchange differences on translating
foreign operations (42 345) 42 743
Gains on property revaluation - 1 981
Income tax relating to components of
other comprehensive income - (555)
Total comprehensive income for the
period 346 900 363 587
Profit attributable to:
Equity holders of the company 29 384 774 297 525
Minority shareholders 4 471 21 893
22 389 245 319 418
Total comprehensive income
attributable to:
Equity holders of the company 342 429 341 694
Minority shareholders 4 471 21 893
346 900 363 587
Earnings per share (cents) 220,14 184,27
Diluted earnings per share (cents) 204,58 173,56
Commentary to the statement of
comprehensive income
Headline earnings reconciliation
Profit after taxation attributable
to equity holders of the company 384 774 297 525
Adjusted for:
Gain on bargain purchase option (1 154) -
Loss on disposal of subsidiary 1 700 -
Loss on disposal of plant and
equipment 9 243 2 423
Goodwill impairment 1 992 -
Tax effect of adjustments (2 588) (678)
Total minority interest of
adjustments (1 852) (3)
Headline earnings 31 392 115 299 267
Normalised headline earnings
reconciliation
Headline earnings 392 115 299 267
Adjusted for:
Amortisation of intangibles 16 013 38 751
Tax effect of adjustments (4 482) (10 849)
Total minority interest of
adjustments (577) -
Normalised headline earnings 23 403 069 327 169
Number of weighted average shares in
issue 174 787 507 161 464 960
Number of diluted weighted average
shares in issue 188 080 746 171 428 947
Earnings per share (cents) 19 220,14 184,27
Diluted earnings per share (cents) 18 204,58 173,56
Headline earnings per share (cents) 21 224,34 185,35
Diluted headline earnings per share
(cents) 19 208,48 174,57
Normalised headline earnings per
share (cents) 14 230,61 202,63
Diluted normalised headline earnings
per share (cents) 12 214,31 190,85
STATEMENT OF FINANCIAL POSITION
Reviewed Audited
at at
28 February 28 February
2010 2009
R`000 R`000
ASSETS
Non-current assets 2 018 076 2 000 566
Property, plant and equipment 791 865 763 246
Investment property 34 337 -
Goodwill and intangible assets 1 126 547 1 161 544
Investment in associates 18 123 15 795
Other investments 1 901 -
Deferred taxation 45 303 59 981
Current assets 3 009 707 3 023 474
Bank balances 1 351 998 1 381 314
Other current assets 1 635 943 1 639 654
Taxation 21 766 2 506
Total assets 5 027 783 5 024 040
EQUITY AND LIABILITIES
Capital and reserves 1 683 632 1 613 258
Ordinary shareholders` interest 1 681 457 1 574 049
Minority shareholders` interest 2 175 39 209
Non-current liabilities 176 729 227 107
Interest-bearing liabilities 108 477 160 953
Deferred taxation 68 252 66 154
Current liabilities 3 167 422 3 183 675
Bank overdraft 4 394 47 437
Other current liabilities 1 658 686 1 870 555
Provisions 1 449 735 1 172 207
Taxation 54 607 93 476
Total equity and liabilities 5 027 783 5 024 040
Total number of net shares in issue 172 476 565 175 859 983
Net asset value per share (cents) 974,89 895,06
STATEMENT OF CASH FLOWS
Reviewed Audited
12 months 12 months
ended ended
28 February 28 February
2010 2009
R`000 R`000
Cash generated from operations 792 052 1 142 717
Interest received 83 838 74 879
Finance costs (25 288) (30 535)
Dividends paid (159 409) (1 487)
Dividends received 1 680 1 510
Taxation paid (192 930) (152 980)
Secondary tax on companies paid (18 936) (1 064)
Cash flows from operating activities 481 007 1 033 040
Expenditure to maintain operating capacity (16 226) (343 187)
Expenditure for expansion (310 447) (121 564)
Cash flows from investing activities (326 673) (464 751)
Cash flows from financing activities (92 611) 65 995
Net increase in cash for period 61 723 634 284
Effect of exchange rate changes on cash and
cash equivalents (47 996) 36 610
Cash at beginning of period 1 333 877 662 983
Net cash at end of period 1 347 604 1 333 877
SEGMENT INFORMATION
Roads and Other
Structures Building Earthworks segments Total
28 February 2010 R`000 R`000 R`000 R`000 R`000
Revenue 2 135 288 3 746 433 1 117 006 472 685 7 471 412
Intersegment
contract
revenues 63 720 - 46 508 81 337 191 565
Reportable
segment profit 135 390 136 359 104 713 12 783 389 245
28 February 2009
Revenue 2 154 285 2 783 972 764 258 614 055 6 316 570
Intersegment
contract
revenues 75 023 3 303 84 297 14 130 176 753
Reportable
segment profit 132 351 103 217 85 329 (1 479) 319 418
STATEMENT OF CHANGES IN EQUITY
Issued Foreign
capital Share- currency
and based translation Revaluation
premium payments reserve surplus
R`000 R`000 R`000 R`000
Balance at 1 March
2008 audited 424 365 10 905 (113) 3 571
Premium on issue of
ordinary shares 675 323 - - -
Effect of
consolidating the
trusts and treasury
shares (43 691) - - -
Employee share
options - 21 118 - -
Realisation of
share-based payment
reserve - (446) - -
Dividends paid by
subsidiary to
outside
shareholders - - - -
Minority interest
acquired - - - -
Adjustment
resulting from PPA
finalisation - - - -
Total comprehensive
income - - 42 743 1 426
Profit for the
period - - - -
Translation of
foreign subsidiary - - 42 743 -
Revaluation of land
and buildings - - - 1 426
Redemption of
shares - - - -
Settlement of Share
Trust Investments - - - -
Balance at 28
February 2009 1 055 997 31 577 42 630 4 997
audited
Effect of
consolidating the
trusts and treasury
shares (35 379) - - -
Employee share
options - 16 240 - -
Realisation of
share-based payment
reserve - (87) - -
Total comprehensive
income - - (42 345) -
Profit for the
period - - - -
Translation of
foreign subsidiary - - (42 345) -
Minority interest
acquired - - - -
Dividends paid - - - -
Balance at 28
February 2010
reviewed 1 020 618 47 730 285 4 997
Ordinary Minority Capital
Retained shareholders` shareholders` and
earnings interest interest reserves
R`000 R`000 R`000 R`000
Balance at 1 March
2008 audited 151 954 590 682 25 091 615 773
Premium on issue of
ordinary shares - 675 323 - 675 323
Effect of
consolidating the
trusts and treasury
shares - (43 691) - (43 691)
Employee share
options - 21 118 - 21 118
Realisation of
share-based payment
reserve 446 - - -
Dividends paid by
subsidiary to
outside
shareholders (1 487) (1 487) - (1 487)
Minority interest
acquired (11 242) (11 242) (10 767) (22 009)
Adjustment
resulting from PPA
finalisation - - 2 992 2 992
Total comprehensive
income 297 525 341 694 21 893 363 587
Profit for the
period 297 525 297 525 21 893 319 418
Translation of
foreign subsidiary - 42 743 - 42 743
Revaluation of land
and buildings - 1 426 - 1 426
Redemption of
shares (12 163) (12 163) - (12 163)
Settlement of Share
Trust Investments 13 815 13 815 - 13 815
Balance at 28
February 2009
audited 438 848 1 574 049 39 209 1 613 258
Effect of
consolidating the
trusts and treasury
shares - (35 379) - (35 379)
Employee share
options - 16 240 - 16 240
Realisation of
share-based payment
reserve 87 - - -
Total comprehensive
income 384 774 342 429 4 471 346 900
Profit for the
period 384 774 384 774 4 471 389 245
Translation of
foreign subsidiary - (42 345) - (42 345)
Minority interest
acquired (56 464) (56 464) (41 324) (97 788)
Dividends paid (159 418) (159 418) (181) (159 599)
Balance at 28
February 2010
reviewed 607 827 1 681 457 2 175 1 683 632
COMMENTARY
Introduction
The directors are pleased to present the reviewed results for the twelve
months ended 28 February 2010 ("the year"), which reflect a continued strong
performance by the group in the face of continued tough trading conditions.
The group`s diversified services and product offering successfully assisted in
mitigating the cyclical nature in specific sectors in the wake of the
international economic uncertainty.
Basis of preparation
The reviewed condensed consolidated results have been prepared in accordance
with the framework concepts and the measurement and recognition requirements
of the International Financial Reporting Standards and containing information
required by IAS 34: Interim Financial Reporting and in the manner required by
the Companies Act. The reviewed results are prepared on the historical cost
basis, with the exception of certain financial instruments which are measured
at fair value. The accounting policies and method of measurement and
recognition applied in preparation of the reviewed results are consistent with
those applied in the group`s audited annual financial statements for the
previous year ended 28 February 2009, except for the application of IFRS 8:
Operating Segments and IAS 1: Presentation of Financial Statements - Revised.
IFRS 8 replaces IAS 14: Segment Reporting and requires an entity to adopt a
"management approach" to reporting the financial performance of its segments.
In accordance with the requirements of IFRS 8 the segmental reporting is now
prepared based on the business units as reported internally by management and
has changed due to the reclassification of segments. The group has complied
with the revised naming conventions as required by IAS 1 and reports one
Statement of Comprehensive Income. In terms of IAS 1 certain items reported in
the Statement of Changes in Equity are now disclosed in the Statement of
Comprehensive Income.
The preparation of the reviewed condensed consolidated results required 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 these estimates.
Auditor`s review
The condensed consolidated results for the year have been reviewed by the
group`s auditors, Mazars. Their unqualified review opinion is available for
inspection at the company`s registered office.
Group profile
Stefanutti Stocks operates throughout South Africa, Southern Africa and the
Middle East with expertise across various disciplines including concrete
structures, marine construction, piling and geotechnical services, roads and
earthworks, mine residue disposal facilities (mainly tailings dams), open-pit
contract mining, building works and mechanical, electrical and power line
transmission and distribution construction. In addition the group has
established skills to participate in projects on a Public-Private-Partnership
(PPP) basis. These disciplines are formally structured into the following
business units: Structures, Building (incorporating the Middle East), Roads and
Earthworks, Mechanical, Electrical and Power ("MEP"), Mining Services and
Concessions.
Review of operations
Structures
Structures encompasses the group`s civil engineering, geotechnical and marine
capabilities and remains the largest contributor to the group`s operating
profit. During the year important milestones were achieved on major projects:
the geotechnical grouting for Gautrain was completed; the civils contract for
the new interchange at the King Shaka Airport in Durban was successfully
handed over on time and Berth 601 of the joint venture marine project of the
Ben Schoeman Dock in Cape Town was completed as were both platinum mining
projects in Zimbabwe. Major works still in progress include large-scale
infrastructure projects across all three disciplines. Notable is the Kusile
Power Station where both the joint venture piling and main civils contracts
are in progress. Focus on niche marine contracts is paying off with work
having started on the remaining berths at the Ben Schoeman Dock while the
Chemical Berth in Richards Bay and the Malonga Jetty in Angola are almost
complete. Structures entrenched Stefanutti Stocks` footprint in Mozambique
when it successfully completed five geotechnical projects during the year.
Looking ahead focus will be on further geographic expansion into other
countries in Africa.
Building
Building operates throughout South Africa and Southern Africa servicing the
full scope of building construction from commercial and industrial through to
residential and leisure. Year-end marked the end of the business unit`s first
full trading year in the post merger structure. Notwithstanding a hard-hit
market the business unit performed very well. New projects secured in Gauteng,
KwaZulu-Natal and Mozambique are helping to offset the depleted markets in the
Western Cape and Botswana. To drive growth Building is aggressively pursuing
contract work in Africa, leveraging its existing footprint and targeting new
regions. The Major Projects division timeously handed over the R1,4 billion
Cape Town International Airport joint venture project during the year. This
division offers another avenue for future growth.
Middle East
Despite the current collapse of this regional market due to the global
financial crisis, the group anticipates this area to be a future growth
market. To this end Stefanutti Stocks will maintain its presence there, albeit
with smaller contracts in the interim.
Roads and Earthworks
Roads and Earthworks operates in the construction of roads, bulk earthworks,
landfill sites, golf course developments, terraces for new developments and
municipal services throughout Southern Africa. The business unit maintained
its solid performance with double-digit top and bottom line growth, supported
by the establishment of a new Asphalt division and the award of several large
road rehabilitation contracts. Looking ahead Roads and Earthworks is facing
aggressive tendering and depressed margins due to both the economic downturn
and current mega-projects coming to an end. Possible tenders in the toll road
arena offer some growth opportunity. Africa also presents prospects for
additional growth.
MEP
This business unit provides mechanical, electrical instrumentation and
powerline construction services to the industrial, mining, manufacturing and
petrochemical sectors throughout Southern Africa. MEP suffered project
cancellations, declining margins and a scarcity of available contracts during
the year, the latter especially affecting the Electrical and Instrumentation
operation. However, the Mechanical operation experienced buoyant demand for
its water treatment plant capability and intends to leverage this for growth
in the year ahead. The recently formed Power Division is expected to generate
future growth through construction of high voltage overhead lines, substations
and reticulation and electrification. The division is well-positioned to
benefit from Eskom`s infrastructure expansion programme.
Mining Services
The business unit specialises in mine residue disposal facilities (mainly
tailings dams) and open-pit contract mining across South Africa. During the
year Mining Services experienced contract delays and cancellations, and an
increasingly competitive tendering environment with reduced margins. Recently
Mining Services has secured new contracts in the coal market. The Tailings
operation has a potential pipeline of projects in hand on which Stefanutti
Stocks has been appointed the `preferred contractor`. These could also offer
downstream opportunities to engage the group`s full multi-disciplinary
services offering. The Design and Construction operation, which during the year
outperformed expectations, has good growth prospects from a number of large
projects awarded during the year.
Concessions
This business unit procures contracts by facilitating property development and
partnerships with government for the provision of facilities or services
through concession contracts (PPPs). The South African market is currently
showing some signs of growth in the increasing number of PPPs listed by
National Treasury. However, the number of projects actually coming to market
remains limited. Concessions is nonetheless making good progress in terms of
horizontal integration in line with group strategy, having identified a number
of complex projects requiring the full multi-disciplinary services offering of
Stefanutti Stocks. In Africa toll road tender enquiries are reflecting the
potential for widespread infrastructure upgrades through the Concessions-
route.
B-BBEE
The group has achieved its objective of an improved B-BBEE platform with a
`Level 3` rating. Stefanutti Stocks continues to address all aspects of the B-
BBEE scorecard to further improve its rating.
Acquisitions
As previously reported with effect from 3 August 2009, the company acquired
100% of the business operations of Waste Energy Recovery and Management (Pty)
Limited ("WERM"). In terms of IFRS 3: Business Combinations the Purchase Price
Allocation (PPA) has been completed.
During the year the group also increased its shareholding in Ubuntu Building
Ikapa (Pty) Limited ("Ubuntu"), formerly an associate company, to result in
Ubuntu becoming a subsidiary of the group.
Stefanutti Stocks further acquired certain business operations of RGF Power
Projects CC ("RGF"), effective 12 April 2010.
Ubuntu WERM RGF
Acquisition date 1 March 2009 3 August 2009 12 April 2010
Voting equity % 100 100 100
Number of shares issued - - -
At acquisition values R`000 R`000 R`000
Non-current assets acquired 1 785 30 890 3 688
Current assets 4 750 - -
Non-current liabilities
assumed - (26 845) -
Current liabilities assumed (6 531) (4 045) -
Net asset value 4 - 3 688
Cost of acquisition - - 5 875
Intangibles arising on
acquisition - - -
Goodwill arising on
acquisition - - 2 187
Negative goodwill arising on
acquisition (1 154) - -
Cash paid - - 5 875
Revenue for the period 3
August 2009 to 28 February
2010 - 19 887 -
Revenue for the period 1 2 453 - -
March 2009 to 28 February
2010
Profit/(loss) after taxation 6 714 (2 983) -
since acquisition
Profit/(loss) for the period 6 714 - -
1 March 2009 to 28 February
2010
Revenue and losses of WERM are reported from the date of acquisition. It is
impracticable to report from 1 March 2009 as not all the business operations
were then acquired.
The net asset value of receivables acquired equals their fair value.
These acquisitions were conducted to expand the group`s capacity.
With effect from 1 January 2010 the group no longer controls Maropeng a`Afrika
Leisure (Pty) Limited, and therefore does not account for it as a subsidiary.
In line with current strategy the group also acquired the remaining minority
interests in Stefanutti Stocks Building W Cape (Pty) Limited (formerly
Stefanutti and Bressan Building Western Cape (Pty) Limited), Civil and Coastal
Construction (Pty) Limited and Skelton and Plummer Investment Holding Company
(Pty) Limited.
Financial results
Group revenue for the year rose 18% to R7,5 billion (2009: R6,3 billion).
Operating profit was up 28% to R500,7 million (2009: R392,2 million) while net
profit after tax increased by 22% to R389,2 million (2009: R319,4 million).
Earnings per share grew by 19% to 220,14 cents (2009: 184,27 cents). Headline
earnings of R392,1 million (2009: R299,3 million) translated into headline
earnings per share ("HEPS") of 224,34 cents (2009: 185,35 cents). A share-
based incentive scheme expense of R16,2 million (2009: R21,1 million), as
required by IFRS 2: Share-based Payments, and amortisation costs of R16,0
million (2009: R38,8 million) are included in earnings for the year.
Normalised HEPS, which excludes amortisation costs, equates to 230,61 cents
(2009: 202,63 cents).
Related party transactions
The group has no material related party transactions. Transactions between
group companies are conducted on an arm`s-length commercial basis.
Directorate
As previously indicated in the 2009 annual financial statements, Biagino
Stefanutti has changed his board status to non-executive Chairman with effect
from 1 March 2010. Effective on the same date Schalk Johannes Ackerman was
appointed as an executive director. Mafika Mkwanazi has been appointed as lead
independent director effective 1 March 2010.
Post balance sheet events
Subsequent to year-end and in line with strategy (see `Acquisitions` above),
the group acquired the remaining minority interests in SandB Construcoes (Moc)
Lda, and acquired certain business operations of RGF effective 12 April 2010.
With effect from 1 March 2010 the South African business operations were
restructured, in terms of which previous subsidiaries will now operate as
divisions.
Prospects
Emerging out of a good construction cycle the industry is experiencing a
reduction in projects, especially large-scale, high value contracts. Pressure
on releasing tenders to market is coming from the public and private sectors,
including the mining houses. These delays and postponements of projects have
further depressed the industry, consequently profit margins are likely to
remain under pressure in the short to medium term.
Indications point to a recovery in the domestic construction economy towards
the end of 2010, with continued demand for public infrastructure and private
sector development. The latest economic research indicates that an upswing in
the global economy is gradually gaining momentum and that emerging markets
such as Africa are accelerating in growth. 2011 is generally expected to be a
year of recovery with real GDP growth in South Africa anticipated to gain
traction. In the interim the group will continue to place emphasis on
achieving efficiencies in its structures and processes.
Africa remains a major focus area. Stefanutti Stocks intends to expand its
entrenched presence in existing markets in Africa while also targeting
expansion into other regions.
Further focus will be placed on growing the higher-margin business units
including Roads and Earthworks, Mining Services and MEP. The group`s increasing
penetration of better performing domestic mining sectors as well as expansion
in Africa bode well for growth. Within MEP previous capital investment is
beginning to realise benefits and the business unit is strengthening its
presence in its markets.
The group`s strong financial position should enable it to withstand the
challenges of the current economic climate. This competitive advantage enables
Stefanutti Stocks to offer innovative contract and funding structures to
secure further business.
Stefanutti Stocks` order book stood at R6,2 billion at year-end.
Dividend declaration
Notice is hereby given that a final dividend for the year of 45,0 cents (full
year: 70,0 cents; 2009: 58,0 cents) per share has been declared on 18 May
2010.
Last day to trade cum dividend Friday, 18 June 2010
Shares trade ex dividend Monday, 21 June 2010
Record date Friday, 25 June 2010
Payment date Monday, 28 June 2010
Share certificates may not be dematerialised or rematerialised between Monday,
21 June 2010 and Friday, 25 June 2010, both dates inclusive. Secondary
Taxation on Companies is expected to amount to R8,5 million.
Appreciation
We extend our appreciation to our management and staff for their hard work and
commitment which have contributed to the group`s performance in a difficult
economy. We also thank our business associates, customers and shareholders for
their ongoing support.
On behalf of the board
Gino Stefanutti Willie Meyburgh
Chairman Chief Executive Officer
18 May 2010
Directors:
B Stefanutti* (Chairman)
W Meyburgh (Chief Executive Officer)
D Quinn (Chief Financial Officer)
S Ackerman
S Pell
N Canca*#K Eborall*#
H Mashaba*
M Mkwanazi*#
B Sithole*
J Fizelle* (alternate to B Sithole)
*Non-executive director
Irish
#Independent
Registered office:
Protec Park, Cnr Zuurfontein Ave and Oranjerivier Drive, Kempton Park, 1619
(PO Box 12394, Aston Manor, 1630)
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:
W Somerville
20 Lurgan Road, Parkview, 2193
www.stefanuttistocks.com
Date: 18/05/2010 07:05:27
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