Stefanutti Stocks to extend its restructuring plan

Russell Crawford, CEO of Stefanutti Stocks
Russell Crawford, CEO of Stefanutti Stocks.

Stefanutti Stocks has published its results for the six months ended August 2022, reporting a decrease in its contract revenue from continuing operations to R2.9 billion (restated August 2021: R3.2 billion) with an improved operating profit of R54 million (restated August 2021: R9 million).

Excluding restructuring costs and abnormal legal fees, the group’s operating profit would have been R82 million.

Earnings and headline earnings per share for total operations declared was 5.53 cents (August 2021: 112.69 cents loss per share) and 25.02 cents loss per share (August 2021: 67.12 cents loss per share) respectively.

The group’s order book is currently R6.3 billion of which R1.6 billion arises from work outside of South Africa.

“We continue to see numerous opportunities across sectors including mine, transport and civil infrastructure, water and wastewater treatment plants, renewable energy, industrial plants, oil and gas, pipelines, and dams to name but a few. We remain poised to take advantage of these opportunities as they present themselves,” commented Stefanutti Stocks’ CEO Russell Crawford.

With reference to its restructuring plan, the group is currently in negotiations with its lenders to extend the capital repayment profile of the loan, as well as its duration to February 2024, due to further delays, beyond the group’s control, in resolving contractual claims and compensation events on certain projects; the slower than anticipated sale of identified operations; and the non-implementation of the materials handling and tailings management sub-divisions transaction.

“The benefit of the extended restructuring period provides a greater degree of confidence in anticipated cash flows, which will ultimately result in a reduction of the previously stated residual loan balance of R420 million,” said Crawford.

The transaction relating to the disposal of the group’s 49 % interest in the United Arab Emirates operation became unconditional on the 18th of July 2022. Regarding the sale of the Mozambican operation, the requisite approval of shareholders was obtained on the 22nd of November 2022. This transaction remains conditional and is subject to the fulfilment of remaining conditions precedent.

In completion of the internal restructuring initiatives, from the 1st of March 2022 its mechanical electrical piping business forms part of the ‘Inland Region’ and consequently the results for the comparative period have been restated.

Inland’s contract revenue was R1 billion (restated August 2021: R1.2 billion), with an operating profit of R37 million (restated August 2021: R6 million). The reduction in revenue is attributable to the mechanical and piping disciplines having slow starts to the year due to late awards and delayed contract starts.

The civils and roads and earthworks disciplines are profitable and performing to expectation. However, the results of the materials handling and tailings management disciplines continue to be negatively impacted by the failed sale process and the group is refocusing and rebuilding these operations,” he said.

Inland’s order book as at August 2022 was R3,2 billion (restated August 2021: R1.9 billion).

The Coastal Region’s contract revenue was R650 million (August 2021: R491 million) with an operating profit of R1 million (August 2021: R2 million operating loss). Crawford stated that these results were negatively impacted by the devastating floods. Coastal’s order book as at August 2022 was R1.5 billion (August 2021: R1 billion).

The Western Cape’s contract revenue was R306 million (August 2021: R677 million) with an operating profit of R15 million (August 2021: R22 million). According to Crawford, the building discipline is profitable and meeting expectation. The region’s order book as at August 2022 was R845 million (August 2021: R555 million).

The Africa Region’s contract revenue was R875 million (August 2021: R744 million) with an operating profit of R60 million (restated August 2021: R42 million). “Eswatini and Zambian operations reported good results with Botswana performing as expected.” Africa’s order book as at August 2022 was R1 billion (August 2021: R1.7 billion).

Kusile Power Project update

As previously highlighted to shareholders in numerous announcements and updates since late 2018, the group continues to pursue a number of contractual claims and compensation events on the Kusile power project.

Since August 2021, the group has secured payment of a combined total of R110 million for measured work and the Dispute Adjudication Board (DAB) rulings. Substantial variations are still being agreed with Eskom. The outcome thereof will determine whether further certification will be secured for measured works or whether the variations will be referred to the DAB.

Stefanutti Stocks and Eskom entered into an “Interim Arrangement for the Purposes of Agreeing or Determining the Contractor’s Claims and Facilitating the Dispute Resolution Process” in February 2020; for all delayed events up to the end of December 2019. This process involves the appointment of independent experts to evaluate the causes, duration, and quantification of delays.

Further to the above, the parties and the DAB have signed a memorandum of understanding (MOU) as set out below:

  • the DAB will issue decisions confirming entitlements, which entitlements the experts have agreed to, which will then be binding on the parties.
  • the DAB will rely on the experts for the narrowing of the issues and information to be considered in its assessments.
  • the DAB will continue to make interim decisions on the narrowed issues and information, in a progressive manner which will be binding on the parties.
  • the DAB will issue such interim decisions for duration and quantification; and
  • at the end of the process the DAB will issue a final binding decision in terms of the contract with respect to duration and quantification, at which point either party may issue a notice of dissatisfaction and refer the dispute to arbitration.

To date, the group has submitted the following provisional claims to the experts after considering all payments received to date on the project:

  1. an overarching preliminary and general cost claim of R337 million; and
  2. a subcontractor overarching preliminary and general cost claim of R194 million.

It is intended that the group will submit the remaining claims relating to construction costs, commissioning costs and interest and finance costs to the experts by December 2022. The experts will review all claims, draft agreements, and narrow issues of difference for referral to the DAB for a decision as per the MOU.

The group envisages that the DAB will issue its final binding decision during the second quarter of 2023, noting that either party has the right to appeal as set out above.

“At this stage, the group’s claims team is unable to quantify the value of the potential awards as the claims must follow due process. Therefore, these provisional claims have not been recognised in the financial statements,” concluded Crawford.

Stefanutti’s Board elected not to declare a dividend for the reporting period (August 2021: nil).