Listed construction company Stefanutti Stocks has scaled down its operations in Botswana because its order book in that country has been dented by intense competition from Chinese contractors.
Willie Meyburgh, the group’s chief executive, said yesterday that its Botswana business had always been and remained profitable but it currently had a problem with a weak order book because Chinese contractors had “beaten us hands down” on recent work it had priced in that market.
Meyburgh said it could not do work at the prices currently submitted by Chinese contractors “so we are scaling down the business and transferring the people elsewhere until that market picks up to avoid holding costs”.
Stefanutti Stocks has operations in a number of other African countries, including Mozambique, Zambia and Namibia. Meyburgh does not anticipate Chinese contractors being a threat to its businesses in these countries.
“In the African countries where we have a presence, we normally work with private clients and also follow clients from South Africa to do specific projects. We try not to compete on public tenders where the Chinese are present because we find most of the time that our prices are just too high.”
A number of loss-making contracts, particularly in the group’s building unit, hurt the financial performance of the group in the year to February.
Normalised headline earnings a share, which excludes the payment in the previous financial year of the R323 million Competition Commission penalty for collusion contraventions, dropped by 28 percent to 67.3c from 93.5c.
Contract revenue increased by almost 5 percent to R9.42 billion from R8.98bn.
Operating profit declined by 19 percent to R176.7m from R219m and the operating margin deteriorated to 1.9 percent from 2.4 percent. A dividend was not declared.
The order book grew to R12.8bn last month from R8.5bn in February last year.
Meyburgh said the group’s marine business had recently been awarded a number of contracts valued in excess of R700m in total and more awards in this sector were expected in the short term.
He said all business units, except building and power, performed to expectations.
The previously identified problems in the building business had proved to be more extensive than at first believed but this unit had been restructured in the past 12 months to ensure these problems were addressed.
Meyburgh said the power business had suffered because of a shortage of work and had been scaled down to a division within the group’s mechanical and electrical business.
Problem areas in the building business related to the close-out of historical contracts in Mozambique that were badly managed and resulted in losses, large losses incurred by the inland business, losses suffered in the Western Cape because of an unresolved claim on a hospital contract and losses on the Kusile power station building project because of unresolved claims.
Meyburgh declined to disclose the size of these unresolved claims but was hopeful they would be resolved by the end of this year.
He said the large losses made by the inland building business related to projects priced two-and-a-half years ago at low margins and unrealistic timeframes that were also executed badly and the commercial terms poorly managed.
“We have now stabilised that business and attended to the matters and are ready to rebuild that business again to produce positive results,” Meyburgh said.
Shares gained 2.32 percent to R9.27 on the JSE yesterday.