JSE civil engineering and construction group, Stefanutti Stocks, demonstrated resilience in the six months to August 2010 (“the period”) and contained the negative impact of challenging economic conditions on its top and bottom line. The group reported a marginal reduction in revenue of 9%. Stefanutti Stocks currently has in hand an order book of R6,8 billion to see it through the current financial year and into the next.
Operating profit was down by 14% to R222 million. The group almost held steady its operating margin at 6,2% for the period compared to 6,5% at the same time in 2009. As a result the year-on-year fall in headline earnings per share was kept to 14%. Strict financial discipline saw Stefanutti Stocks end the period with R1,1 billion cash in hand and no significant borrowings on the balance sheet.
CEO Willie Meyburgh says that based on the group’s sound financial position, the board has declared an interim dividend of 20 cents, compared to 25 cents for the previous year.
He attributes the group’s commendable performance in difficult trading conditions to its multi-disciplinary capability, widespread geographic footprint and well-balanced client base. “Diversification is a key risk avoidance tool, enabling the group to weather regional, market and sector specific downturns.” Realistic nonetheless, he says the impact of delayed contract awards, contract cancellations and intensified competition was inevitable and reflected in the results.
The Structures business unit remains a significant driver of the business. Its civil engineering, geotechnical and marine projects were affected during the period although the business unit still managed to generate an operating margin of 7,8%. “The R2,5 billion order book in hand includes Kusile and the Ben Schoeman Dock as well as a number of large-scale infrastructure mining contracts.” Meyburgh is looking to improved confidence in the resources sector to bring new projects to book in the longer term. “In addition future growth is expected to come from our further push into the African continent.”
Building posted R1,7 billion revenue and maintained operating margins despite pricing pressure from excess capacity in the market. “South Africa by necessity has reverted to being the key focus for many local peers as international markets continue to struggle, which is serving to further squeeze margins.” However, Meyburgh says higher margin projects in Africa are proving extremely beneficial for the business unit. Operations in the Middle East remain very quiet with few prospects of an upswing there in the near future.
Roads & Earthworks did not grow as anticipated during the period. Meyburgh says the outlook in the medium to longer term is positive. “2012 should see a resurgence in spend on domestic roads as SANRAL should come to the party and address the aging infrastructure countrywide.”
The market for Mining Services grew during the period, albeit constrained by some mining houses’ inability to conclude firm offtake agreements for their minerals. In these conditions he is clearly pleased with the business unit’s growth in revenue to R366 million, but adds that tighter competition was clearly reflected in the margins. Stefanutti Stocks’ relatively new mechanical, electrical, instrumentation and power distribution capabilities (“MEIP”), also falling under this unit, should benefit from Eskom’s expansion plans now forging ahead. “Eskom’s indications of having secured funding for the roll-out of new power stations and more, hold promise for MEIP, especially in the area of power distribution.”
Public-private sector partnerships – the expertise of the Concessions business unit – are expected to realise opportunity in toll-road projects in the future.
Meyburgh says that although the market remains somewhat uncertain in some sectors, he is not all doom and gloom, and points out that the group is noting rising confidence levels in its clients, which bodes well for growth.
He concludes: “Infrastructure in South Africa and Africa has the potential to be the largest driver of future growth, provided governments can bed down the procurement and funding processes.”
Stefanutti Stocks’ share closed yesterday at R11,10.
Issued by: Nicole Katz/Michèle Mackey
(011) 325 5944/082 497 9827
On behalf of: Stefanutti Stocks Holdings Limited
Willie Meyburgh, CEO
011 571 4300
Share Code: SSK
Issue date: 10 November 2010 |