Embattled former Eskom contractor Stefanutti's shares pick up along with profits

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  • Embattled construction firm Stefanutti managed to grow its operating profits in half-year to end-August, while its order book has also picked up.
  • The firm's current liabilities continue to outstrip its current assets, and it's eyeing both asset sales as well as a resolution to a protracted dispute over its work at Kusile power station for Eskom.
  • But the firm says it's also poised to grab opportunities for new work, and its order book stands at R6.6 billion.
  • For more financial stories, go to the News24 Business front page.

Shares of construction and engineering group Stefanutti Stocks, which is still battling to survive after controversial past projects, lifted more than 6% on Thursday, after it said it had managed to grow its operating profits, even as it suffered a decline in continuing revenue.

Contract revenue from continuing operations fell by almost double digits to R2.9 billion in the six months to end-August, but operating profits jumped to R54 million from R9 million. Much of this effect is due to restructuring and abnormal legal fees, which fell to R28 million from R58 million previously.

The firm's shares were up 6.19% to R1.03 in afternoon trade on Thursday, having doubled so far in 2022, but having still lost more than 60% over the past five years. Click here for details on Stefanutti's shares and other info.

Stefanutti, like its industry peers, was hit by a downturn in SA's construction market that followed the 2010 FIFA World Cup, while it also had to settle with the City of Cape Town over alleged collusion related to stadium construction. It has also been embroiled in a lengthy dispute with Eskom over work done during the construction of Kusile power station.

Eskom had said in 2020 that Stefanutti had been overpaid by R1 billion for work related to Kusile, but Stefanutti disputed this, saying Eskom instead owed it money. 

The group said on Thursday that amid a dispute resolution process with Eskom, it had secured payment of a total of R110 million since August 2021. It has also submitted an overarching preliminary and general cost claim of R337 million, as well as a R194 million subcontractor claim to independent experts.

Eskom, Stefanutti, and the body of independent experts have signed a memorandum of understanding, with the experts set to issue a final binding decision. This is expected during the second quarter of 2023, although either party can appeal.

"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," the group's results read. "Therefore, these provisional claims have not been recognised in the financial statements."

Stefanutti said on Thursday its revenue had come under some pressure as the weakened post-Covid-19 economy has been further exacerbated by the Russia and Ukraine conflict. Higher input costs, inflation and interest rates, together with continuous power supply disruptions and disruptive floods in KwaZulu-Natal, took its toll both on the group’s operations and that of its customers.

Restructuring

Stefanutti, which is valued at R182 million on the JSE, is in the midst of a restructuring plan, but its current liabilities exceeded current assets by about R300 million at the end of August. However, it says it believes it remains commercially solvent, based on projected cash flows from its plan, though there is still material uncertainty over its ability to operate as a going concern.

Stefanutti had total interest-bearing liabilities of R1.4 billion at the end of August, down almost R50 million amid positive cash generation, but it has also faced delays to its restructuring, and is currently in talks with lenders to extend repayment terms. The group said these delaying factors were out of its control, and include "solving contractual claims and compensation events on certain projects" slower-than-expected sales of some of its assets, as well as unrealised asset sales. In August 2021, an R80 million sale of its mining services division had fallen through.

The firm has identified numerous items for sale, including underutilised plant and equipment, and sold R33.2 million in non-core assets during its half year to end-September, the vast majority of this from the sale of an industrial commercial fabrication workshop in Isando.

The firm had also announced the sale of its stake in Emirati interior-fittings firm Al Tayer, and said on Thursday the final purchase consideration of approximately R85 million is expected to be paid in "due course." The group received R92 million in November 2021 and R11 million in May 2022.

Stefanutti said on Thursday it had an order book of R6.6 billion, and it reported a book of R4.6 billion for its half-year to end August 2021.

"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," said CEO Russell Crawford in a statement.

"We remain poised to take advantage of these opportunities as they present themselves."

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