Challenging conditions weigh on Stefanutti

Posted On Wednesday, 25 May 2011 02:00 Published by Commercial Property News
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Challenging industry conditions have weighed on civil engineering and construction group Stefanutti Stocks, with the group reporting a 16% decline in earnings for the year ending in February

Willie Meyburgh Stefanutti StocksThe group said that, given the prevailing market conditions, it had delivered a "commendable performance" in line with the trading statement issued in April. Reduced top- and bottom-line growth reflected a market defined by competitive trading conditions, delayed contract awards and contract cancellations, it said.

Diluted headline earnings per share were down 16% to 179.19c, from 214.31c a year ago. Revenue was 7% lower at R6.998 billion and operating profit before investment income declined 11.7% to R442.3 million. Profit for the year fell to R333.0 million from R389.2 million before.

A final dividend of 25c per share was declared, for a total dividend of 45c, compared with a total dividend of 70c a year ago. Due to existing and future growth opportunities, the board had adopted a prudent dividend policy, it said.

Nonetheless, the group's order book stands at a robust R8.2 billion and the group's financial position remains sound, with cash on hand of R1.1 billion and nil net gearing.

CEO Willie Meyburgh said the group felt the impact of competitive trading conditions as well as delays and postponements on existing contracts. However, he noted that certain business units nonetheless performed well and a number of sizable new contracts have been awarded recently.

Structures maintained a good performance, with revenue at R2.1 billion, and it increased its operating margin to 8.5% from 7.9%.

Project highlights included work for Kumba at the Sishen Iron Ore Mine, surface infrastructure for Exxaro on the Grootgeluk Medupi Expansion Project and water pipeline projects for Trans Caledonian Tunnel Authority.

Meyburgh said expansion into Sierra Leone also added to progress. "An order book of R2.4 billion stands structures in good stead for the year ahead, which is still expected to see a difficult civils market," he added.

Building delivered a good performance under current trading conditions and held the year-on-year drop in revenue to R400 million to return R3.3 billion in total. 

"Government has started to become a contributor to building's 2.7 billion rand order book. In addition to select hospital projects for certain provinces, the business unit is actively pursuing commercial, industrial and mass housing projects for the private sector and looking cross-border," noted Meyburgh.

Roads and earthworks "did not do too badly", with consistently high profit margins, despite a fall in revenue from R1.1 billion to R846 million, he continued.

New road upgrade projects, work for Kumba at Sishen and fibreoptic infrastructure roll-out make up the R700 million order book.

"Work which must inevitably flow from the need to upgrade our aging roads network should help boost the order book in the medium to long term," he said.

Mining services was the hardest hit of the group's business units, despite raising revenue from 474 million rand to R702 million. It holds the smallest order book at R600 million. Margins dropped into single digits, with a number of problem contracts impacting on the generally competitive market scenario. 

Meyburgh said the mechanical, electrical, instrumentation and powerline operations should bolster prospects.

"The mechanical operations have a good order book capitalising on an increasingly active minerals sector, and the hope is that the electrical division will follow suit in time. The power market is a growth node and we have built capacity to accommodate future work."

Meyburgh is cautious for the short- to medium-term prospects. "Margin squeeze should continue for some time, with competition remaining tight. Further, government bottlenecks have historically stopped the trillion-rand commitment to infrastructure from translating into work and would need to be overcome for this to become a growth driver."

He added that the group had recently been awarded work from TCTA, Kusile Power Station and the Eastern Cape provincial government.

The private sector looks better than the public sector in the immediate future, with the resources sector in particular showing some signs of recovery, he noted.

Looking to the longer term, the group sees infrastructure development being the key to prospects.

According to World Bank forecasts, at least US$93 billion is required in sub-Saharan Africa to meet conservative targets for infrastructure development by 2015.

Meyburgh concluded that Stefanutti Stocks was well-positioned to secure work from these projects with the competitive advantage of its diversified business model, comprehensive services and well-spread target markets, footprint and client-base.

Last modified on Friday, 28 June 2013 01:19

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