NOMPU SIZIBA: Construction firm Stefanutti Stocks has come out with their interim results. For the six months ended August the company reported headline earnings per share up 46% at 60.3 cents, compared to the same period last year, citing its operations in the United Arab Emirates [UAE] as having helped to lift this number. But it notes that the local construction sector remains lacklustre, reporting a 1% dip in its total contract revenue to R5.1 billion.
To give us the back-story to the results I’m joined on the line by Willie Meyburgh, the CEO of Stefanutti Stocks. Willie, thanks for coming on the show. You’ve got a mixed bag of numbers there; a good headline earnings per share number, and your operating profit was also up about 14% at R125 million. But your contract revenues dipped slightly. So, before we go into sector by sector, geography by geography, just broadly what’s been happening?
WILLIE MEYBURGH: Well, I think as a whole we are reasonably satisfied with our performance in the current market condition. As you mentioned, operating profit went up slightly. I think the nice thing is that the investment that we made some time ago with our geographical split, with our business in the Middle East, in the UAE – in Dubai in particular – produced a good result for us for the six months of the year. I don’t think it’s going to be repeated for the second month [half?]. That money is all tax free, and it helped to contribute towards headlines and the share – a nice improvement of over 40%.
NOMPU SIZIBA: Mm. While we are still on it, just tell us about that investment that you made in the UAE – the nature of the work there.
WILLIE MEYBURGH: Well, that was way back in 2002, when we bought the Stocks & Stocks company – that was part of their makeup. They did sit-out work in the Middle East. Just to give you an idea of the type of work they do, they are currently busy with quite a large project in terms of about 350 million dirham [about US$27 million] – to refurbish the Atlantis Hotel. That’s also quite a successful project for us.
NOMPU SIZIBA: Excellent. So it looks like it’s been tough on the local construction front, and we know that for some in the game it’s been touch-and-go. So what’s been your experience? I see that your order book has fallen to the lowest level it has been at since August 2016. Just tell us about that.
WILLIE MEYBURGH: The local market is extremely competitive. Since the World Cup projects in 2010, the infrastructure spend has been on a steady decline, and over the last years there were hardly any infrastructure projects. Not having infrastructure projects in the public sector also gets to the private-sector level of confidence. But we still see a steady flow of tenders coming through from the mining sector, and also from the industrial sector. So that has helped us to at least get a good-quality order book. The fact that we are down to R12.8 billion, which is, as you have mentioned, the lowest in two years – that’s not good news. But at least the order book that we currently have – and it’s a solid order book, it’s a quality order book – if we can maintain that at least for the next year or so, then I think we will be okay.
NOMPU SIZIBA: You operate in other parts of Africa. How are operations doing there, and which are your highlights and your lowlights?
WILLIE MEYBURGH: We’ve been in the rest of Africa, on the continent, for many years. For the past five or six years the turnover from outside our borders has been about 30%. But it’s quite interesting that in February this year, when we closed for the financial year-end, our operating profit was more than 50% coming from outside the country. And, with out results now for August, 56% of the operating profit is from outside the country. And, if you add the profit from the UAE, 66% of this company’s profit is from outside the country.
So I think we’ve been very successful in working outside the country on the continent, and also in the UAE. There are opportunities currently still in the rest of Africa, in sub-Sahara, which we are following, and we try to see how we can grow the order book and keep it at least at 30%-plus. But ja, we are getting good returns.
Also, I think locally, as I mentioned, from the mining houses there is still a continuing flow of tenders. We would like to believe that there is a particular tender in open-pit mining, where we are doing very well that will come out way within the next couple of months – and that will boost our three-year-and-beyond order book. That’s what we are looking for. We are looking for a strong order book for the future.
NOMPU SIZIBA: Tell me, Willie, are you hopeful or optimistic now that a lot of the right noises have been made by government around this R400 billion infrastructure fund, and in even wanting to get the private sector involved in investing in infrastructure. Does it give you some hope that it’s going to be good for your area of work?
WILLIE MEYBURGH: I think it’s positive news. There are some positive things happening in the country, and the president is very prominent in that. When we look at the investment conference that was held here, a lot of money was promised or pledged from the private sector. We are as a matter of fact working on one of those projects already for Mercedes-Benz in East London, where we are doing a R1.2 billion [project] for them; it is a design-and-construct for their body shop.
Then Amazon also promised some investment, and we’ve recently priced their distribution centres in Cape Town. So yes, we can see some of those things happening. We are positive about that, and I’m sure, as was mentioned by the Minister of Finance in the medium-term budget policy statement, that R92.5 billion is going to be allocated for infrastructure. We don’t know where and when yet, but that’s positive news. We would like to believe that the full budget might have an even bigger portion allocated.
So yes, we are positive.
NOMPU SIZIBA: There are a lot of unknowns in terms of where government is going to be spending, and you can’t really predict what’s going to happen in the next couple of months. Based on your order book and based on what’s happening right now for you, what’s your outlook for the balance of your financial year?
WILLIE MEYBURGH: I think there are opportunities still out there. I mentioned that in the mining sector. And there are also some road opportunities cross-border. There are marine opportunities along the east coast of Africa. There are still building opportunities. So we don’t see that the market has totally dried up. It’s just a very competitive market and the margins are quite aggressive. So, if we can go through the full year and still achieve what we achieved by the end of August – not the best but at least a good positive result at 2.4% after the profit margin – and we can go to the end of the year and maybe achieve something similar or slightly better, we would be comfortable in this sort of market. Hopefully, when things start to pick up, we can maybe start to improve on that.
But at the moment we are getting almost a viable mode in the industry. We managed to get a positive return on our operating profit, good returns from our investment cross-border, and we’d like to continue to make sure that that’s in place going forward.
NOMPU SIZIBA: Thanks to Willie Meyburgh of Stefanutti Stocks.