JSE-listed construction company Stefanutti Stocks managed to generate an operating profit of R125-million in the six months ended August 31, despite a constrained construction market, which indicates a positive turnaround from the R451-million operating loss reported for the financial year ended February 28.
This was also higher than the adjusted operating profit of R110-million reported for the six months ended August 31, 2017, which excluded the acquisition-related impairment that constituted the loss.
Stefanutti reported headline earnings a share of 60.30c, compared with 41.41c reported in the prior comparable period, but declared no dividend.
CEO Willie Meyburgh said a particularly good performance from its United Arab Emirates (UAE) business had assisted the company to increase its headline earnings a share by 46% year-on-year.
He also pointed out in a statement published on Thursday that the South African construction market remained at a historic low in the reporting period, with a continued slowdown in construction activity and an aggressive contracting environment, which exacerbated pressure on operating profit margins.
To cope in a difficult trading environment – with the company’s order book having fallen to its lowest level since August 2016, at R12.8-billion, compared with the R14.3-billion order book as reported in May – Stefanutti has managed to maintain the order book beyond South Africa’s borders at 30%.
REVENUE BY AVENUE
The company’s construction and mining contract revenue increased to R2.8-billion, from R2.4-billion in the prior year, with an improved operating profit of R111-million, compared with R92-million in the prior year, at a similar operating profit margin of 3.9.
“Within this business unit, the roads and earthworks, mining services and Swaziland divisions delivered good results, with the number of tender enquiries and awards received from the mining sector increasing, while limited infrastructure work has been secured from the public sector,” said Meyburgh.
The building business unit’s contract revenue declined to R1.7-billion, compared with R2.3-billion in the prior year, with a contraction in operating profit to R6-million, compared with R22-million in the prior year. This excludes a R38-million profit generated by the equity accounted UAE operation.
“In the building business, the Mozambique and coastal divisions continued to deliver positive results. However, delayed payments from government in the social housing sector continued to negatively affect the division’s working capital,” Meyburgh pointed out.
The mechanical and electrical business unit’s turnover and operating profit increased to R581-million and R8-million, compared with R541-million and R1-million, respectively, in the prior period. The ongoing shortage of work in the traditional petrochemicals market was negatively affecting the oil and gas division’s financial performance.
This had resulted in the electrical and instrumentation division being incorporated into the mechanical division.
While the construction sector remained depressed, Meyburgh highlighted that there were short-term opportunities in the local market, which pertained to surface mining related services, selected openpit mining contracts, urban developments, petrochemicals tank farms, smaller oil and gas projects, pipelines, water and sanitation treatment plants, as well as warehouses and some design and construct opportunities within the building sector.
Stefanutti will continue to prudently consider opportunities for road and bridge construction, bulk pipelines, marine and office and commercial building projects overseas.