Ste­fanutti warns of pos­si­ble cuts

Dis­mal con­di­tions in lo­cal con­struc­tion sec­tor leave firm strug­gling to find enough work as or­der book falls 9%

Business Day - - FRONT PAGE - Siseko Njobeni In­dus­trial Writer njobe­nis@busi­nesslive.co.za

Listed con­struc­tion firm Ste­fanutti Stocks on Thurs­day flagged the pos­si­bil­ity of fur­ther re­struc­tur­ing and re­trench­ments if the sub­dued con­di­tions in the lo­cal con­struc­tion in­dus­try per­sisted. The pos­si­ble job losses again shine the spot­light on the dif­fi­cul­ties some con­struc­tion com­pa­nies face amid dwin­dling work from SA’s pri­vate and pub­lic sec­tors.

Listed con­struc­tion firm Ste­fanutti Stocks on Thurs­day flagged the pos­si­bil­ity of fur­ther re­struc­tur­ing and re­trench­ments if the sub­dued con­di­tions in the lo­cal con­struc­tion in­dus­try per­sist.

The pos­si­ble job losses once again shine the spot­light on the dif­fi­cul­ties some con­struc­tion firms face amid dwin­dling work from pri­vate and pub­lic sec­tors.

Since Fe­bru­ary 2018, Ste­fanutti’s or­der book has fallen by 9%. “That is the low­est the or­der book has been in two years. What do you do if the or­der book is down? You do not have work for all the peo­ple. You need to right-size.

“Un­for­tu­nately, the peo­ple are al­ways the ca­su­alty of the fact there is not enough work,” said CEO Wil­lie Mey­burgh.

In re­sponse to lim­ited in­vest­ments, Ste­fanutti has in the past scaled down op­er­a­tions. “We need to scale down in terms of man­age­ment and to­tal work­force — from the labourer up to se­nior man­age­ment. It is not nice but be­cause of the state of the econ­omy we have [re­duced the size] of the build­ing and struc­tures busi­nesses. Re­cently, we [re­duced the size] of our elec­tri­fi­ca­tion and in­stru­men­ta­tion busi­ness,” he said.

The re­duc­tion of the busi­ness units en­tailed about 1,500 job cuts out of a work­force of 12,500 in the past 18 months. “It is sad that peo­ple are los­ing their jobs be­cause there is not suf­fi­cient work to sus­tain the con­struc­tion sec­tor,” Mey­burgh said.

He said the com­pany was not plan­ning ma­jor re­struc­tur­ing in the next eight to 12 months. “But if the or­der book con­tin­ues to de­cline, we have to re­visit that.”

Ac­cord­ing to Mey­burgh late pay­ment from some clients ex­ac­er­bated the dif­fi­cult con­di­tions in the lo­cal in­dus­try. He cited the gov­ern­ments of Nige­ria and Zam­bia as well as de­vel­op­ers work­ing for SA’s depart­ment of hu­man set­tle­ments among the slow pay­ers. Un­col­lected debt amounted to R300m.

“The late pay­ments are re­ally af­fect­ing our work­ing cap­i­tal. At the mo­ment we are fund­ing a lot of our clients’ projects be­cause they are not pay­ing us in time.”

With the SA mar­ket de­pressed, the firm has in­creased the amount of work from out­side the coun­try. For the last five years, more than 30% of the com­pany’s turnover came from out­side SA. At the end of Fe­bru­ary 2018, more than 50% of the com­pany’s profit came from out­side the coun­try. In the six months ended Au­gust, 56% of the firm’s op­er­at­ing profit was from non-SA op­er­a­tions.

In the six months, the com­pany’s con­tract rev­enue fell to R5.1bn from R5.2bn , while op­er­at­ing profit in­creased from R110m to R125m. Earn­ings per share in­creased by 41% to 61.76c and head­line earn­ings per share were up 46% to 60.30c.

The firm re­duced cap­i­tal ex­pen­di­ture from R500m to R34m. As in 2017, Ste­fanutti did not de­clare a div­i­dend. The com­pany last de­clared a div­i­dend in 2011.

“We are sat­is­fied with the half-year per­for­mance in the cur­rent mar­ket con­di­tions, es­pe­cially with the op­er­at­ing profit, which went up,” Mey­burgh said.

The com­pany ben­e­fited from im­proved per­for­mance in the United Arab Emi­rates. “I do not think it will be re­peated in the sec­ond half,” Mey­burgh said.

Source: IRESS

Graphic: DOROTHY KGOSI Pic­ture: FI­NAN­CIAL MAIL/RUS­SELL ROBERTS

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