Photo by: Duane Daws
JSE-listed multidisciplinary construction group Stefanutti Stocks’ operating profit increased 5% year-on-year to R170-million for the six months ended August 31, but its revenue from continuing operations remained unchanged from the previous year at R5.3-billion.
When compared with the first half of the prior financial year, the impact of the group's finance costs, combined with an equity accounted loss of R9-million arising from the Middle East operations, adversely impacted a consistent trading performance, resulting in the profit after tax reducing to R105-million from R110-million in the prior comparable period.
Earnings a share from continuing operations also decreased from 62.3c in the first half of 2014 to 59.1c in the period under review.
The company noted in a results statement on Thursday that it had been facing a market increasingly characterised by delayed payments and reductions in advance payments received from clients, which necessitated an increase in interest bearing borrowings to R466-million.
“This, together with the deemed interest on the third and fourth instalment of the Competition Commission penalty, has negatively affected the group's finance costs for the period,” it said.
A further reduction in advance payments received during the period resulted in cash generated from operations decreasing to R142-million from R310-million in the comparative period.
Notwithstanding these challenges, Stefanutti Stocks’ cash balance improved by R152-million to R967-million, owing to the weak rand having a positive effect on the translation of foreign cash balances and equity accounted investees.
The company further noted that its structures and civils division would remain under pressure, owing to a declining infrastructure market and limited infrastructure spend.
“The number of large projects available in the market remains limited and work is being secured predominantly from medium-sized projects. We foresee this trend continuing in the medium term,” the company said, adding that it would continue with its cost cutting measures as it aligned itself to market conditions.
Meanwhile, it pointed out that its roads, pipelines and mining services continued to perform well, but that it was facing an increasingly competitive market. This resulted in contract revenue remaining constant at R1.5-billion, but operating profit reducing to R100-million. It still continued to experience delays in contract awards.
“With the existing exceptionally low levels of business confidence in the private sector and reduced capital expenditure in the government sector, the South African construction market continues to be extremely challenging. The high levels of competition for available work may negatively impact operating profit margins going forward,” it stressed.
However, the group continued to see potential growth in certain sectors of the economy, which provided opportunities for its roads and earthworks, building, oil and gas and electrical and instrumentation operations.
In other sectors, the group was well positioned to take advantage of the medium-sized projects coming to the marketplace to maintain its order book.
The group’s order book, which comprised mainly medium-sized projects, stood at R12.5-billion, R4.2-billion of which was from work outside South Africa.