Depressed global and local economic conditions, the delayed awarding of private and public infrastructure investment projects, loss-making contracts, bad debts and protracted strike action in South Africa’s construction and transport sectors resulted in JSE-listed engineering and construction group Stefanutti Stocks’ operating profit for the 2013 financial year, decreasing by 35% to R234-million.

This was compared with the R359-million operating profit recorded in the previous financial year.

The group incurred a total comprehensive loss of R105.05-million for the year ended February 28, compared with income of R314.27-million the previous year.

The Competition Commission’s R323-million penalty, which was imposed following the group’s admission to collusive activities also contributed to the group’s weaker results, while late payment by clients also adversely affected the group’s cash flows.

The group’s operating margin reduced from 4.5% to 2.5%, with a loss per share of 93.2c, down from earnings a share of 153.2c in the previous financial year.

However, Stefanutti said its business fundamentals remained sound, as management actions had resulted in a much-improved second-half performance.

The group’s order book stood at R10-billion, up from R9.3-billion in May 2012.

Contract revenue increased to R9.4-billion from R8-billion in February 2012, while cash on hand of R929-million was an improvement on the R891-million cash on hand in February last year.

Post financial year-end and following the successful restructuring of the roads, pipelines and mining services (RPM) business unit, the unit continued to produce a strong performance. Contract revenue was up by 67% to R2.3-billion from the previous year, with operating profit increasing by 66% to R177-million year-on-year.

The building business unit delivered disappointing results, ending the 2013 financial year with revenue being flat at R3.6-billion and an operating loss of R40-million, a marked difference from the operating profit of R121-million recorded in the previous financial year.

Stefanutti attributed the poor performance mainly to loss-making projects caused by overruns in the Inland and Mozambique divisions and a bad debt provision in Mozambique. These projects were now complete with various actions having been instituted to recover some of the costs.

The order book for the building unit at the end of the year under review was R3.1-billion, falling from R4.1-billion the previous year.

Further, contract revenue for the full year in the mechanical, electrical and power (MEP)
business unit was R710-million, from R438-million in 2012, reporting an operating loss of R51-million, up from R37-million the year before.

This was as a result of historical nonprofitable projects in the electrical and instrumentation (E&I) division, the start-up costs for the newly formed oil and gas division and holding costs in the power division resulting from an ongoing lack of deal flow from the national energy provider.

The loss-making projects in the E&I division had been largely completed and the oil and gas division was awarded its first two projects from Sasol.

The MEP division’s order book was R472.9-million at the end of the year, an improvement on the R402.6-million order book in the previous comparable period.

OUTLOOK

The group put forward that market conditions in the South African construction market remained challenging and were expected to recover in the medium to long term, while ongoing industrial action continued to pose a threat to the industry.

“In the current market, there is a reasonable amount of work available in medium-sized projects, which will maintain the order book. Future growth will be dependent on the general health of the global and local economy and future government capital expenditure,” Stefanutti said, adding that the MEP and RPM business units would benefit, in the short term, from projects awarded in the new financial year.

The group would continue to pursue opportunities in sub-Saharan Africa, specifically in the roads, rail, marine and oil and gas markets.