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STEFANUTTI STOCKS HOLDINGS LIMITED - Unaudited condensed consolidated results for the 6 months ended 31 August 2019

Release Date: 28/11/2019 07:05
Code(s): SSK     PDF:  
Wrap Text
Unaudited condensed consolidated results for the 6 months ended 31 August 2019

STEFANUTTI STOCKS HOLDINGS LIMITED
(Registration number 1996/003767/06)
Share code: SSK ISIN: ZAE000123766
("Stefanutti Stocks" or "the company" or "the group")


UNAUDITED CONDENSED CONSOLIDATED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2019


FINANCIAL RESULTS                                                                              
                                                                                                              UNAUDITED      UNAUDITED             
                                                                                                              31 AUGUST      31 AUGUST            %
                                                                                                                   2019           2018       CHANGE
Contract revenue (R'000)                                                                                      4 449 540      5 095 398         (13)
Operating (loss)/profit before investment income (R'000)                                                      (973 379)        124 809        (880)
(Loss)/profit for the period (R'000)                                                                        (1 040 777)        104 099      (1 100)
Earnings per share (cents)                                                                                     (622,35)          61,76      (1 108)
Headline earnings per share (cents)                                                                            (607,72)          60,30      (1 108)

BASIS OF PREPARATION AND ACCOUNTING POLICIES
 
The unaudited condensed consolidated results for the period ended 31 August 2019 (results for the period) have been prepared in accordance with and 
containing the information required by International Accounting Standard (IAS) 34: Interim Financial Reporting, the SAICA Financial Reporting Guides 
as issued by the Accounting Practices Committee and the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council 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 period ended 31 August 2019 are in terms of International Financial Reporting Standards (IFRS) and are consistent 
with those applied in the audited annual financial statements for the year ended 28 February 2019. Additional IFRS 9: Financial Instruments disclosures
relating to the 28 February 2019 annual financial statements can be found on the company's website.

FUNDING PLAN UPDATE

On 26 July 2019 shareholders were advised that R120 million (first tranche) had been received by the group as specific ring-fenced project funding 
through the first component of the Funding Plan. Further to this, the group embarked on a process with its primary banker and guarantee providers 
(Lenders), whereby the Lenders have provided the group with additional secured short-term funding amounting to R391 million (second tranche) on 
5 November 2019. The group remains in discussions with the Lenders to secure additional tranches of funding. The funds received from the first and 
second tranches have been utilised to meet the group's short-term liquidity requirements, which allows more time for the group to resolve its 
contractual claims on the public sector power project, and to simultaneously explore and evaluate longer term cost effective funding solutions.

A strategic restructure team has been appointed to develop and assist with the implementation of detailed turnaround interventions for the group
('Restructuring Plan'), including the securing of any requisite additional short- and long-term funding.

The short-term funding carries the normal terms and conditions applicable to loans of this nature, and the successful conclusion thereof is a 
pre-requisite to obtain the required long-term funding.

The Restructuring Plan will include an assessment of:

-  the sale of non-core assets including divisions/subsidiaries; and
-  capital structure analysis including the possibility of raising new equity; and
-  internal restructuring initiatives required to restore optimal operational and financial performance.

Once finalised, the Restructuring Plan will be considered by the board of directors for approval. Thereafter, shareholders will be updated as to the
Restructuring Plan and the anticipated timing of the implementation thereof.

On the basis of successfully achieving:

-  the implementation of the Restructuring Plan; and
-  a favourable outcome from the processes being undertaken on the large public sector power project; and
-  the raising of the necessary additional short- and long-term funding,

the directors consider it appropriate that the group's results for the period be prepared on the going-concern basis.

OVERVIEW OF RESULTS

Public Sector Power Project

During the current reporting period, the client has adopted a more intractable approach to authorisation of certificates for work done on the large 
public sector power project, which has led to a substantial increase of internal funding required for this project. Although the group has initiated 
a dispute process with the client to pursue its contractual rights and recover the amounts owing to it, this has placed an additional burden on the 
group, increasing the initial funding requirement of R400 million to approximately R986 million. Consequently, in addition to the provision of 
R263 million raised at February 2019 for the potential unrecoverable preliminary and general costs, the group has now raised a further provision of 
R462 million for potential unrecoverable monthly measured works to complete the project.

Remaining operations

The continued adverse market conditions, including the substantial impact of the above power project, has reduced contract revenue from operations 
to R4,4 billion (Aug 2018: R5,1 billion).

The group incurred an operating loss of R973 million (Aug 2018: operating profit of R125 million) after taking into account:

Provision for future costs - public sector power project                                                        R462 million
Provision for slow paying trade receivables                                                                     R331 million
Specific project losses                                                                                         R260 million
Impairment of goodwill                                                                                           R22 million
Provision for Kenya tax liability                                                                                R43 million

The United Arab Emirates operation contributed R15 million (Aug 2018: R38 million) towards the share of profits of equity-accounted investees. This
year's contribution is a reflection of normalised trading conditions.

The group has not provided for a deferred tax asset on the losses for the current period.

Earnings and headline earnings per share are reported as a loss of 622,35 cents (Aug 2018: profit of 61,76 cents) and a loss of 607,72 cents 
(Aug 2018: profit of 60,30 cents) respectively.

The group's order book is currently R11,2 billion of which R3,3 billion arises from work beyond South Africa's borders.

Capital expenditure for the period amounted to R70 million (Feb 2019: R180 million). The reduced prior year's capital expenditure, has resulted in 
a decrease in depreciation to R106 million (Aug 2018: R116 million) and finance costs to R41 million excluding the interest accrual for the Kenyan 
tax of R18 million (Aug 2018: R50 million).

Contributing to the adverse market conditions facing the industry, are the well documented delays in payments from clients. This has had a significant 
impact on the group's trade and other receivables as well as payments to suppliers and sub-contractors. This resulted in an increase in working capital
to R379 million (Aug 2018: R103 million) negatively impacting on cash consumed from operations of R503 million (Aug 2018: R218 million cash generated).
The group's overall cash position has decreased to R396 million (Feb 2019: R881 million).

As a result of the first tranche of the funding plan of R120 million and the impact of IFRS 16, interest-bearing liabilities have increased to 
R774 million (Feb 2019: R637 million).

The effect of the weakening Rand on the translation of certain foreign operations resulted in R43 million profit (Aug 2018: R111 million) being 
recognised in other comprehensive income.

BROAD-BASED BLACK ECONOMIC EMPOWERMENT (B-BBEE)

The group is a level 1 B-BBEE contributor measured in terms of the Construction Sector scorecard with a Black Economic Interest score of 58,1%.

INDUSTRY RELATED MATTERS

With respect to the civil claim received from the City of Cape Town (Green Point Stadium), a trial date had been set for the first quarter of 2020, 
however, this has been postponed. The group remains confident it can defend this claim.

The group continues to be negatively affected through disruptive and unlawful activities by certain communities and informal business forums in 
certain areas of South Africa.

DIVIDEND DECLARATION

Notice is hereby given that no dividend will be declared (Aug 2018: Nil).

FURTHER INFORMATION

These results have been compiled under the supervision of the Chief Financial Officer, AV Cocciante, CA(SA).

This announcement is an extract of the full unaudited condensed consolidated announcement which has been published on SENS on 28 November 2019. This
extract has not been reviewed by the auditors. This extract, which is the responsibility of the directors, does not contain full or complete details
and any investment decision by investors and/or shareholders should be based on the consideration of the full announcement published on SENS, the 
webcast together with the investor presentation which is available on the company's website at www.stefstocks.com.

The full announcement is available for inspection, at no charge at the registered office of the company and at the office of Bridge Capital Advisors
(Pty) Ltd, during normal business hours. Copies of the full announcement may also be requested by contacting the company secretary.

The full announcement can be referred on https://senspdf.jse.co.za/documents/2019/jse/isse/ssk/FY2020H1.pdf

Published on 28 November 2019

www.stefanuttistocks.com



Date: 28-11-2019 07:05:00
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