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Send  Print  Share  RSS  Twitter  10 Nov 2010

JSE Results: Stefanutti Stocks

Johannesburg, Nov 10 (I-Net Bridge) - Construction and civil engineering group Stefanutti Stocks (SSK) on Wednesday reported a 15% decline in diluted headline earnings per share to 87.92 cents for the six months ended August 2010 from 103.66 cents a year ago.

The group declared an interim dividend of 20 cents per share, compared with 25 cents a year ago.

Revenue declined 9% to 3.632 billion rand, while operating profit before investment income was down 14% to 221.8 million rand.

The company said reduced top and bottom line growth reflect competitive trading conditions, delayed contract awards and contract cancellations. Notwithstanding these factors the group has delivered a commendable performance in the current economic environment, in line with the trading statement released in October.

The group achieved an operating margin of 6.2% compared with August 2009's 6.5%. Its financial position has remained sound with 1.1 billion rand cash on hand and nil net gearing.

Stefanutti Stocks' order book stands at 6.8 billion rand from 6.2 billion rand a year ago.

The Structures division, which includes the group's civil engineering, geotechnical and marine capabilities, saw contract revenue decline from 1.2 billion rand in the comparative period to 0.9 billion rand, with an anticipated improvement in the next period.

The group said that looking to the longer term, the resources sector is showing signs of growth as evidenced in increasing feasibility studies for mining houses. As a result a number of long-lead projects are expected to come to tender. Structures intends to continue its geographical expansion into Africa, Stefanuuti said.

Large-scale projects underway include Kusile Power Station (Stefanutti Stocks - Geotechnical and Civils combined portion - 658 million rand), with the potential for future work. The Ben Schoeman Dock project (Stefanutti Stocks portion 253 million rand) is on track and completion is expected in 2012. Work on the 577 million rand Grootegeluk Coal Mine contract is in the initial phase.

Building, which services the full scope of building construction, reported a 7% drop in contract revenue to 1.7 billion rand, but improved operating margins to 3.9% from 3.7% at August 2009, despite competitive trading conditions in South Africa. These conditions were offset to an extent by securing more profitable work in the rest of Africa. However increasing competition in traditional tender markets, exacerbated by returning capacity in the wake of the global economic downturn, will contribute to margin squeeze.

During the period the Inland operations successfully completed, amongst other projects, the I'Langa Shopping Mall in Nelspruit and the A-grade office block for FNB in Johannesburg. Construction is currently underway on the Shoprite distribution centre in Centurion and pharmaceutical facilities for Adcock Ingram in Midrand. In the Coastal operations a 220-room Southern Sun Hotel was successfully concluded during the period while work on the Unilever packaging plant and a Shoprite Distribution Centre is progressing well. Building continues to leverage its existing footprint across Africa to achieve growth. Recent contract awards in Malawi, Mozambique and Botswana are successfully offsetting declining revenue in South Africa.

For its International division, market conditions in the Middle East remain difficult with limited activity resulting in fewer new contracts and fierce competition.

Roads and Earthworks also saw contract revenue slow down to 518 million rand from 572 million rand with a reduction in margin to 12.3% from 13.8%. The Optimum Water reclamation project is nearing completion while work on the Lusip Tertiary Distribution and the Kusile Power Station contract is progressing well.

The ageing roads infrastructure countrywide will continue to demand rehabilitation and expansion. SANRAL expenditure is, however, expected to dip temporarily in 2011/12 before recovering. Roads and Earthworks will look to counter increased competition in South Africa with expansion into Africa.

Mining Services increased contract revenue to 366 million rand from 276 million rand. Due to increasing competition in a contracting market, operating profit reduced from 34 million rand to 24 million rand. Challenges in securing new contracts, due mainly to client delays as well as inability to conclude firm contract mining offtake agreements resulted in a negative impact on performance.

Major projects currently underway include the Khumani Iron Ore Expansion contract for Assmang and the Burnstone Tailings Storage contract for Great Basin Gold. MEIP is expected to benefit from Eskom's expansion, specifically related to power distribution.

In its Concessions unit, despite government's intention to spend 27.5 billion rand on infrastructure PPPs over the next three years, very little has found its way into the market. Consequently the group is exploring possible expansion into the rest of Africa and participation in toll-road projects.

In line with its acquisition strategy the group acquired the remaining minority interests in S and B Construcoes (Moc) Lda, certain business operations of RGF Power Projects CC (RGF) and a 100% shareholding in Apollo E and I Construction.

These acquisitions were conducted to expand the group's capacity and the net asset value of receivables acquired equals their fair value.

Looking ahead the group said with its firm cash position, healthy order book and broad services offering the group is well-positioned to withstand uncertainty in the current market and capitalise on improving conditions.

"Our short- to medium-term outlook (12-18 months) for the construction sector remains conservative. However, current tender activity, enquiries and interaction with clients indicate gradually improving confidence levels which is encouraging for the sector. Growth opportunities will be driven by public sector demand for infrastructure in water, electricity, roads, harbours, rail and petrochemical in both South Africa and Africa, provided procurement and payment bottlenecks can be overcome," it said.

The group's client base is widely spread over the public and private sector, thereby avoiding over-dependence on any one segment. Further, Stefanutti Stocks' multi-disciplinary services offering and geographic footprint position the group to counter regional and sector specific downturns.

I-Net Bridge, Tel: +27-11-280-0644,

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