Stefanutti Stocks Holdings plunged deep into the red in the six months to August 31. Photo: Simphiwe Mbokazi/African News Agency (ANA)
CAPE TOWN – Leading construction group Stefanutti Stocks Holdings plunged deep into the red in the six months to August 31, due to provisions made on a large contract dispute and the slump in construction activity in South Africa.

The share price slumped more than 58 percent yesterday morning on the JSE, but recovered to the opening level of 12 cents by the time of closing.

Russell Crawford, who took over as chief executive from Willie Meyburgh in August, said: “The continuing adverse market conditions, combined with the impact of a large public sector power project reduced contract revenue from operations to R4.4 billion, with the group reporting an operating loss of R973 million”.

He said that “the client’s intractable approach” on the power project had led to an additional provision of R462m being raised for potential unrecoverable measured works to completion.

“We have recently engaged with this client's top management and since then constructive and encouraging meetings have been taking place continuously with the client’s site management teams,” Crawford said.

He anticipated the dispute might be resolved by interim 2021.

Adding to the group's woes, a report this week alleged that the group was involved in payments to a slush fund for Eskom officials, relating to work on Kusile, to which Crawford replied that they had evidence, including photographs, that the funds they had provided had been used for a school, as part of a corporate social initiative.

Revenue was 13 percent lower at R4.44bn. The headline loss per share was 607.72 compared with 60.30c at the same time last year.

A restructuring team had been appointed to plot a turnaround and to assist in securing additional short- and long-term funding. Discussions with lenders were under way.

The group had received R120m in additional finance in July, while lenders provided a further R391m on November 5. These funds had been used for short-term liquidity requirements.

The restructuring plan would include an assessment of the sale of non-core assets, including divisions and subsidiaries; the possibility of raising new equity, and internal restructuring to optimise operational and financial performance.

Adverse construction industry conditions had also reduced contract revenue.

The R973m operating loss, versus a R125m operating profit at the same time last year, included the R462m provision, a R331m for slow paying trade receivables, R260m on specific project losses, a R22m goodwill impairment and a R43m provision for a Kenya tax liability.

The group order book stood at R11.2bn, of which R3.3bn was from work beyond South Africa’s borders.

Contributing to the adverse market were delays in payments from clients, which affected cash flow.

The cash position fell to R396m from R881m at the February year-end.

Disruptive and unlawful activities by certain communities and informal business forums in South Africa continued to negatively affect some contracts.

Crawford said the firm was seeing slightly improved tender activity generally in South Africa and there were fewer tenderers on projects they had tendered for.

The Construction & Mining division's contract revenue fell to R2.6bn from R2.8bn, with an operating loss of R421m versus an operating profit of R111m in 2018.

“Sanral has released a number of tender inquiries for road rehabilitation in KwaZulu-Natal and the Eastern Cape. In addition, the upgrading of the Cape Town- and Oliver Tambo International Airports will offer opportunities for the Roads & Earthworks and Civils divisions,” said Crawford.

Port upgrades in Durban and Cape Town would offer opportunities for the Marine and Civils divisions, while opportunities existed in water and transport infrastructure in South Africa, eSwatini and Botswana.

“Mining infrastructure opportunities continue to present themselves to the benefit of this business.”

“In South Africa, the building sector has recently experienced an increase in tender activity, offering a number of opportunities in Gauteng and Western Cape.

"There are also opportunities in the private sector for commercial, leisure, warehouse and factory developments in KwaZulu-Natal and Western Cape,” said Crawford.

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