A strategic restructuring team has been appointed to develop and assist with the implementation of detailed turnaround interventions for construction engineering company Stefanutti Stocks, including securing any requisite additional short- and long-term funding, the company reported on Thursday.

The short-term funding carries the normal terms and conditions applicable to loans of this nature, and the successful conclusion thereof was a pre-requisite to obtaining long-term funding, the company explained.

The update came after shareholders were advised, in July, that the first tranche of R120-million had been received by Stefanutti as specific ring-fenced project funding through the first component of its funding plan.

The company has since embarked on a process with its primary banker and guarantee providers, in terms of which the lenders have provided the group with additional secured short-term funding of R391-million on November 5.

Discussions were under way with lenders to secure additional tranches of funding, the company said, adding that the funds received from the first and second tranches had been used to meet short-term liquidity requirements.

Additionally, the restructuring plan would include an assessment of the sale of noncore assets and capital structure analysis, as well as internal restructuring initiatives.

Once finalised, the plan will be considered by the board of directors for approval.

RESULTS OVERVIEW

During the six months ended August 31, Stefanutti Stocks' public sector power project client adopted a more intractable approach to authorisation of certificates for work done on the project, which had led to a substantial increase in internal funding required for the project.

Although Stefanutti has initiated a dispute process to pursue its contractual rights and recover the amounts owed to it, this has placed an additional burden on the group, increasing the initial funding requirement to about R986-million, compared with R400-million previously.

Consequently, in addition to the provision of R263-million raised in February for the potential unrecoverable preliminary and general costs, Stefanutti has now raised a further provision of R462-million for the potentially unrecoverable monthly measured works to complete the project.

The company’s remaining operations continue in adverse market conditions, the company said, adding that this included the substantial impact of the power project, and had reduced revenue from operations to R4.4-billion, compared with R5.1-billion in the six months to August 31, 2018.

The group incurred an operating loss of R973-million after taking into account the provision for future costs for the power project (R462-million), provision for slow paying trade receivables (R331-million), specific project losses (R260-million), as well as the impairment of goodwill (R22-million) and provision for the Kenya tax liability (R43-million).

The United Arab Emirates operation contributed R15-million towards the share of profits of equity-accounted investees, which is said to be a reflection of normalised trading conditions.

Stefanutti reported losses and headline losses a share of 622.35c and 607.72c, respectively.

The group's order book is currently R11.2-billion, of which R3.3-billion arises from work beyond South Africa's borders.

Capital expenditure for the period amounted to R70-million.

Payment delays from clients continued to contribute to adverse market conditions, and had a significant impact on the group’s trade and other receivables, as well as payments to suppliers and subcontractors. This resulted in an increase in working capital to R379-million, which negatively impacted on cash consumed from operations of R503-million.

The group's overall cash position had decreased to R396-million.

As a result of the first tranche of the funding plan of R120-million and the impact of International Financial Reporting Standard 16, interest-bearing liabilities have increased to R774-million, while the effect of the weakening rand on the translation of certain foreign operations resulted in R43-million profit, recognised in other comprehensive income.