SSK
SSK - Stefanutti Stocks Holdings Limited - Reviewed condensed consolidated
interim results for the six months ended 31 August 2011
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 2011
- Revenue R3,8 billion
- Operating profit R179 million
- HEPS 71,4 cents
- Cash on hand R1 billion
STATEMENT OF COMPREHENSIVE INCOME
Reviewed Reviewed Audited
six months six months 12 months
ended ended ended
% 31 August 31 August 28 February
Increase/ 2011 2010 2011
(decrease) R`000 R`000 R`000
Revenue 6 3 859 003 3 631 933 6 998 207
Contract revenue 7 3 821 827 3 581 030 6 896 418
Earnings before (9) 269 044 295 626 598 185
interest, taxation,
depreciation and
amortisation
(EBITDA)
Depreciation (86 575) (69 571) (147 654)
Amortisation of (3 818) (4 219) (8 202)
intangible assets
Operating profit (19) 178 651 221 836 442 329
before investment
income (operating
profit)
Investment income 19 631 34 111 61 591
Share of profits 510 267 2 712
from associate
companies
Operating profit 198 792 256 214 506 632
before finance
costs
Finance costs (17 232) (12 447) (25 270)
Profit before 181 560 243 767 481 362
taxation
Taxation (56 592) (77 876) (148 351)
Profit for the 124 968 165 891 333 011
period
Other comprehensive 2 173 (22 958) (37 372)
income
Exchange 2 173 (22 958) (37 372)
differences on
translating foreign
operations
Total comprehensive 127 141 142 933 295 639
income for the
period
Profit attributable
to:
Equity holders of (25) 124 968 165 891 333 011
the company
Total comprehensive
income attributable
to:
Equity holders of 127 141 142 933 295 639
the company
Earnings per share 72,67 96,26 193,55
(cents)
Diluted earnings 66,44 88,20 177,06
per share (cents)
Commentary to the
statement of
comprehensive
income
Headline earnings
reconciliation
Profit after 124 968 165 891 333 011
taxation
attributable to
equity holders of
the company
Adjusted for:
(Profit)/loss on (2 997) (746) (2 646)
disposal of plant
and equipment
Tax effect of 839 209 741
adjustments
Headline earnings (26) 122 810 165 354 331 106
Normalised headline
earnings
reconciliation
Headline earnings 122 810 165 354 331 106
Adjusted for:
Amortisation of 3 818 4 219 8 202
intangibles
Tax effect of (1 066) (1 179) (2 291)
adjustments
Normalised headline (25) 125 562 168 394 337 017
earnings
Number of weighted 171 969 136 172 335 918 172 051 492
average shares in
issue
Number of diluted 188 080 746 188 080 746 188 080 746
weighted average
shares in issue
Earnings per share (25) 72,67 96,26 193,55
(cents)
Diluted earnings (25) 66,44 88,20 177,06
per share (cents)
Headline earnings (26) 71,41 95,95 192,45
per share (cents)
Diluted headline (26) 65,30 87,92 176,04
earnings per share
(cents)
Normalised headline (25) 73,01 97,71 195,88
earnings per share
(cents)
Diluted normalised (25) 66,76 89,53 179,19
headline earnings
per share (cents)
STATEMENT OF FINANCIAL POSITION
Reviewed Reviewed Audited
at at at
31 August 31 August 28 February
2011 2010 2011
R`000 R`000 R`000
ASSETS
Non-current assets 2 244 134 2 069 122 2 111 249
Property, plant and equipment 1 022 573 855 266 901 671
Investment property 54 001 45 474 55 422
Goodwill and intangible assets 1 128 226 1 135 119 1 132 044
Investment in associates 15 916 18 598 14 539
Other financial assets 15 933 2 367 -
Deferred taxation 7 485 12 298 7 573
Current assets 3 360 118 2 908 341 2 960 137
Bank balances 1 020 626 1 150 918 1 082 471
Other current assets 2 334 864 1 741 710 1 857 651
Taxation 4 628 15 713 20 015
Total assets 5 604 252 4 977 463 5 071 386
EQUITY AND LIABILITIES
Capital and reserves 1 944 853 1 731 291 1 853 571
Ordinary shareholders` interest 1 944 853 1 731 291 1 853 571
Non-current liabilities 279 147 168 124 196 644
Interest-bearing liabilities 209 979 118 558 133 710
Non-interest bearing liabilities 7 032 4 762 9 173
Deferred taxation 62 136 44 804 53 761
Current liabilities 3 380 252 3 078 048 3 021 171
Bank overdraft 7 783 25 533 4 312
Other current liabilities* 2 089 521 1 696 526 1 812 132
Provisions 1 242 238 1 319 519 1 154 475
Taxation 40 710 36 470 50 252
Total equity and liabilities 5 604 252 4 977 463 5 071 386
* included interest-bearing 192 627 135 456 115 604
liabilities
STATEMENT OF CASH FLOWS
Reviewed Reviewed Audited
six months six months 12 months
ended ended ended
31 August 31 August 28 February
2011 2010 2011
R`000 R`000 R`000
Cash generated from operations 84 798 115 159 265 416
Interest received 19 493 32 051 61 393
Finance costs (17 232) (12 447) (25 270)
Dividends paid (43 061) (77 660) (111 856)
Dividends received 138 2 060 3 024
Taxation paid (37 505) (69 461) (115 577)
Secondary tax on companies paid (4 703) (8 463) (12 225)
Cash flows from operating 1 928 (18 761) 64 905
activities
Expenditure to maintain operating (43 175) (65 519) (36 928)
capacity
Expenditure for expansion (183 197) (107 615) (264 012)
Cash flows from investing (226 372) (173 134) (300 940)
activities
Cash flows from financing 159 719 (4 864) 1 542
activities
Net decrease in cash for period (64 725) (196 759) (234 493)
Effect of exchange rate changes on (591) (25 460) (34 952)
cash and cash equivalents
Cash at beginning of period 1 078 159 1 347 604 1 347 604
Cash and cash equivalents at the 1 012 843 1 125 385 1 078 159
end of the period
SEGMENT INFORMATION
R`000 Roads and
Earth-
Structures Building works
31 August 2011
Contract revenue 1 207 129 1 652 846 484 843
Intersegment contract revenues 30 779 235 1 369
Reportable segment profit/(loss) 70 398 46 906 24 798
Reportable segment assets 1 532 570 1 783 337 595 109
31 August 2010
Contract revenue 966 840 1 729 279 518 295
Intersegment contract revenues 56 387 - 52 547
Reportable segment profit/(loss) 62 024 56 660 41 796
Reportable segment assets 1 188 652 1 870 177 488 962
28 February 2011
Contract revenue 2 072 757 3 276 132 845 556
Intersegment contract revenues 127 024 - 156 179
Reportable segment profit/(loss) 146 341 94 472 70 967
Reportable segment assets 1 253 165 1 871 899 479 802
R`000
Mining Other
Services segments Total
31 August 2011
Contract revenue 477 009 - 3 821 827
Intersegment contract revenues - - 32 383
Reportable segment profit/(loss) (10 923) (6 211) 124 968
Reportable segment assets 498 151 1 195 085 5 604 252
31 August 2010
Contract revenue 366 616 - 3 581 030
Intersegment contract revenues 9 201 30 180 148 315
Reportable segment profit/(loss) 13 512 (8 101) 165 891
Reportable segment assets 425 031 1 004 641 4 977 463
28 February 2011
Contract revenue 701 973 - 6 896 418
Intersegment contract revenues 72 133 32 112 387 448
Reportable segment profit/(loss) 22 811 (1 580) 333 011
Reportable segment assets 408 682 1 057 838 5 071 386
STATEMENT OF CHANGES IN EQUITY
Share Share- Foreign
capital based currency Revaluation
and payments translation surplus
R`000 premium reserve reserve reserve
Balance at 1 March 1 020 618 47 730 285 4 997
2010 audited
Treasury shares (9 335) - - -
acquired
Employee share options - 4 698 - -
Total comprehensive - - (22 958) -
income
Profit for the year - - - -
Translation of foreign - - (22 958) -
subsidiaries
Non-controlling - - - -
interests acquired
Dividends paid - - - -
Balance at 31 August 1 011 283 52 428 (22 673) 4 997
2010 reviewed
Treasury shares (88) - - -
acquired
Employee share options - 3 991 - -
Realisation of share - (113) - -
based payment reserve
Total comprehensive - - (14 414) -
income
Profit for the year - - - -
Translation of foreign - - (14 414) -
subsidiaries
Dividends paid - - - -
Balance at 28 February 1 011 195 56 306 (37 087) 4 997
2011 audited
Treasury shares sold 5 668 - - -
Employee share options - 1 403 - -
Realisation of share - (7) - -
based payment reserve
Total comprehensive - - 2 173 -
income
Profit for the year - - - -
Translation of foreign - - 2 173 -
subsidiaries
Dividends paid - - - -
Balance at 31 August 1 016 863 57 702 (34 914) 4 997
2011 reviewed
Ordinary Non-
Retained shareholders` controlling
R`000 earnings interest interests Total
Balance at 1 March 607 827 1 681 457 2 175 1 683 632
2010 audited
Treasury shares - (9 335) - (9 335)
acquired
Employee share options - 4 698 - 4 698
Total comprehensive 165 891 142 933 - 142 933
income
Profit for the year 165 891 165 891 - 165 891
Translation of foreign - (22 958) - (22 958)
subsidiaries
Non-controlling (10 804) (10 804) (2 175) (12 979)
interests acquired
Dividends paid (77 658) (77 658) - (77 658)
Balance at 31 August 685 256 1 731 291 - 1 731 291
2010 reviewed
Treasury shares - (88) - (88)
acquired
Employee share options - 3 991 - 3 991
Realisation of share 113 - - -
based payment reserve
Total comprehensive 167 120 152 706 - 152 706
income
Profit for the year 167 120 167 120 - 167 120
Translation of foreign - (14 414) - (14 414)
subsidiaries
Dividends paid (34 329) (34 329) - (34 329)
Balance at 28 February 818 160 1 853 571 - 1 853 571
2011 audited
Treasury shares sold - 5 668 - 5 668
Employee share options - 1 403 - 1 403
Realisation of share 7 - - -
based payment reserve
Total comprehensive 124 968 127 141 - 127 141
income
Profit for the year 124 968 124 968 - 124 968
Translation of foreign - 2 173 - 2 173
subsidiaries
Dividends paid (42 930) (42 930) - (42 930)
Balance at 31 August 900 205 1 944 853 - 1 944 853
2011 reviewed
COMMENTARY
Overview of results
The directors are pleased to present the reviewed condensed consolidated
interim results ("reviewed results") for the six months ended 31 August
2011 ("the period").
Given the prevailing market conditions, the group has delivered a credible
performance in line with the trading statement issued on 23 August 2011.
Although contract revenue increased slightly to R3,8 billion (August 2010:
R3,6 billion), operating profit reduced by 19%, reflecting the escalation
in competitive trading conditions, plus the effect of some loss making
projects and restructuring costs within one of the business units.
With the intensified competition currently being experienced within South
Africa, the group has taken advantage of opportunities outside the borders
of South Africa and increased its contract revenue to 26% from 22% over the
comparable period.
Earnings per share and diluted headline earnings per share reduced by 25%
and 26%, respectively. The group`s operating profit margin reduced to 4,7%
(August 2010: 6,2%) producing an operating profit of R179 million (August
2010: R222 million).
During the period, the group incurred additional capital expenditure of
R217,3 million which was funded mainly under instalment sale agreements.
Consequently, property, plant and equipment increased to R1,0 billion from
R0,9 billion, and total interest-bearing debt increased by 62% to R410,4
million from R253,6 million.
Difficult trading conditions characterised by increases in accounts
receivable and work in progress balances during the period resulted in
generally lower cash balances, with the associated reduction in investment
income. Notwithstanding this, the group`s financial position at the end of
August 2011 remains sound, with cash on hand of R1,0 billion which exceeds
total interest-bearing debt, resulting in a nil net gearing position.
An interim dividend of 12,0 cents per share (August 2010: 20,0 cents) has
been declared.
As at 31 August 2011, Stefanutti Stocks` order book stood at a satisfactory
R8,2 billion (February 2011: R6,4 billion).
Basis of preparation
The reviewed results have been prepared in accordance with and containing
the information required by IAS 34 - Interim Financial Reporting, the AC
500 standards as issued by the Accounting Practice Board and in compliance
with the Listings Requirements of the JSE Limited. The interim review has
not been performed in terms of the requirements of the Companies Act No 71
of 2008, as amended.
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 2011.
The reviewed results have been prepared under the supervision of the Chief
Financial Officer, D Quinn, CA(SA), BScEcon.
Auditor`s review
The reviewed results for the period have been reviewed by the company`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 operates throughout South Africa, Southern Africa, West
Africa and the Middle East with multi-disciplinary expertise including
concrete structures, marine construction, piling and geotechnical services,
all building works, concessions (Public Private Partnerships), roads and
earthworks, mine residue disposal facilities (mainly tailings dams), open-
pit contract mining, structural steel, mechanical, electrical,
instrumentation and piping, as well as power line transmission and
distribution construction. These disciplines are formally structured into
the following business units: Structures; Building (incorporating
International and Concessions); Roads and Earthworks; and Mining Services
(incorporating Mechanical, Electrical, Power and Mining). The group is
currently a level 3 B-BBEE contributor.
Review of operations
Structures
The Structures business unit encompasses the group`s civil engineering,
geotechnical and marine capabilities and remains the largest contributor to
the group`s operating profit. The business unit performed well despite
difficult trading conditions with contract revenue increasing to R1,2
billion from R1,0 billion over the comparative period. The operating margin
reduced to 7,1% from 7,8%.
Despite reduced tender opportunities, the business unit has secured a
number of reasonably sized projects and is on track to achieve full year
targets, albeit at lower operating margins.
The civil works at the Kusile Power Station are progressing well following
a period of industrial action that resulted in disruptions to the contract.
A project in Sierra Leone was successfully completed and work for Kumba at
the Sishen Iron Ore Mine is expected to gain momentum early in the new
year.
The market is expected to remain extremely competitive in the short to
medium term with very few major projects coming to the market. As a result
we expect ongoing pressure on margins for the rest of this year and the
next financial year.
Structures` order book at the end of August 2011 remains strong at R2,5
billion (February 2011: R2,4 billion). A number of medium size tenders in
the resource sector as well as projects in the water treatment and water
pipeline industry are expected to support the order book going forward.
Looking ahead, our focus will be on further geographical expansion into the
rest of Africa where mine surface infrastructure opportunities exist.
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.
Despite fierce competitive trading conditions, especially in South Africa,
the business unit produced a commendable performance for the period,
supported by more profitable work in neighbouring countries.
Building reported a 4% drop in contract revenue to R1,7 billion. Despite
relentless local margin pressure, the unit`s operating margin increased
slightly to 4,0% from 3,9% over the comparative period, largely as a result
of closing out old projects. However, throughout all geographical areas,
projects continue to be secured at very competitive margins which will have
an adverse impact on the business unit`s margins going forward.
During the period under review some of the projects that were awarded
locally include the Cecilia Makiwane Hospital in the Eastern Cape, Menlyn
Corner and Corobay Corner in Gauteng.
In South Africa, Building is targeting a number of industrial building
projects, as well as mass housing projects for large institutions. It is
also pursuing opportunities for hospital projects for various provincial
governments. The business unit will continue to seek opportunities in
African countries where the group has an existing footprint, to achieve
growth and better returns to offset declining revenues and margins in South
Africa.
Although market conditions in the Middle East remain difficult, the group
retains its presence as it views this region as important for future
growth.
At the end of August 2011, Building had an order book of R4 billion
(February 2011: R2,7 billion).
Roads and Earthworks
The Roads and Earthworks business unit operates in the construction of roads,
bulk earthworks, landfill sites, terraces for new developments and
municipal services.
As expected, market conditions continue to be challenging with the scaling
back of SANRAL projects culminating in a resource oversupply in the local
road market.
Growth targets in the business unit have not been met and turnover is down
to R485 million from R518 million when compared to the same period last
year. Operating margins are also significantly down to 9,6% from 12,3%.
Encouragingly, the order book at the end of August 2011 was R980 million
(February 2011: R700 million). Optic fibre infrastructure roll-outs and
mining surface infrastructure projects still offer solid opportunities. The
business unit will continue to pursue cross-border growth.
Mining Services
This business unit includes mine residue disposal facilities and open pit
contract mining and structural steel, mechanical, electrical,
instrumentation and power line transmission and distribution operations.
These businesses experienced an unsatisfactory six months. A competitive
market was further exacerbated by restructuring costs and the completion of
certain problem contracts resulting in the business unit achieving
disappointing results, significantly lower than August 2010.
In Mining, the poor performance was mainly as a result of two contracts
which have negatively impacted on the division`s margins. These contracts
are now complete and have been fully accounted for. The Electrical and
Instrumentation division did not perform to expectation and additional
costs were incurred to restructure this division.
Mining Services increased contract revenue to R477 million from R367
million, over the comparative period. However, as a result of the problem
areas identified above, operating profit reduced to a loss of R13 million
from a profit of R24 million.
Various actions have been instituted to deal with the loss making projects
and to monitor the restructuring process within the business unit. The
group`s emphasis is to ensure a solid operational platform exists going
forward.
The Power division increased its capacity and is well positioned in the
power transmission and distribution market. The Mechanical division`s order
book stretches well into the next financial year and positive results are
expected in the new financial year for the Electrical and Instrumentation
division as a result of the new divisional structure.
The order book for the business unit at the end of August 2011 was R700
million (February 2011: R600 million). Negotiations are well advanced in
the Mining division on a number of projects. The successful awards thereof
will have a positive impact on this business unit`s future results.
Health and safety
Our "Zero Harm" philosophy continues to show dividends with our Disabling
Injury Frequency Rate ("DIFR") down to 0,22 in August 2011 (August 2010:
0,29). Much effort has gone into further improving our Health and Safety
Management Systems and raising safety standards throughout the group. We
will continue our drive to ensure that we operate in a safe working
environment.
Cycad Pipelines (Pty) Limited - acquisition update
Further to the terms announcement dated 20 June 2011 and the latest
financial statements, shareholders are advised that the transaction remains
subject to the fulfilment of certain conditions precedent including
approval by the Competition Commission and the required pre-acquisition
restructuring of the Cycad group of companies. Further announcements will
be made once the transaction becomes unconditional and the financial
effects of the transaction have been determined.
Outlook
Looking forward, the current market weakness is expected to extend for
longer than was previously anticipated. Therefore our short to medium-term
outlook (12 to 18 months) for the construction sector remains cautious and
conservative. With the lack of deal flow on larger projects, challenging
times lie ahead for the construction sector. The lack of tenders coming to
the market, especially from the public sector, is also contributing towards
the depressed market conditions.
The group`s strong financial position, solid order book, diversified
service offering and broad geographical footprint should enable us to
withstand and counter some of the challenges of the current economic
climate.
The group sees particular opportunities within the mining sector where
capital expenditure is planned on surface infrastructure and open pit
mining. The renewable energy sector will also offer opportunities over the
medium term. This will create opportunities for all the operations in the
Stefanutti Stocks group.
Geographic expansion remains a focus with an emphasis on increasing the
group`s footprint in Africa, particularly in those regions where we already
have a strong presence. Further afield opportunities are also being closely
followed where the group has strong ties with existing clients. Over the
medium to long term, the Middle East should also present an avenue for
further growth.
Competition Commission
The investigation by the Competition Commission into anti-competitive
behaviour by construction companies within the construction sector is
currently ongoing and the group`s application to engage with the
Competition Commission, and all relevant regulatory authorities, regarding
a settlement is in the process of being assessed by the Competition
Commission.
The outcome may result in the imposition of an administrative penalty to
Stefanutti Stocks, but current indications are that the outcome of this
process will only be known in 2012 and therefore no provision has been made
in this regard during this period.
Subsequent events
No material events have occurred between the reporting date and the date of
this announcement.
Dividend declaration
Notice is hereby given that an interim dividend of 12,0 cents per share
(August 2010: 20,0 cents) has been declared.
Last day to trade cum dividend Friday, 2 December 2011
Shares trade ex dividend Monday, 5 December 2011
Record date Friday, 9 December 2011
Payment date Monday, 12 December 2011
Share certificates may not be dematerialised or rematerialised between
Monday, 5 December 2011 and Friday, 9 December 2011, both dates inclusive.
Secondary Taxation on Companies is expected to amount to R2,3 million.
Appreciation
We appreciate that the group`s ongoing success is largely attributable to
our management and staff and we thank them for their unwavering commitment
during these challenging times. We also extend our appreciation to business
associates, 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
15 November 2011
Directors:
B Stefanutti (Chairman)*
W Meyburgh (Chief Executive Officer)
D Quinn (Chief Financial Officer)
S Pell (Chief Operating Officer)
S Ackerman
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 Avenue and Oranjerivier Drive
Kempton Park, 1619
(PO Box 12394, Aston Manor, 1630)
Corporate adviser 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)
Company secretary:
W Somerville
20 Lurgan Road, Parkview, 2193
www.stefanuttistocks.com
Date: 15/11/2011 07:05:27
Supplied by www.sharenet.co.za
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