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Stefanutti Stocks auditors raise ‘going concern’ doubt

After group incurs net loss of R290m, with current liabilities exceeding current assets by R1.3bn.
The group's order book for continuing operations has shrunk by 35%. Image: Shutterstock

Mazars, the auditors of JSE-listed construction group Stefanutti Stocks, has cast doubt about the group’s ability to continue as a going concern.

In an emphasis of matter that is included in Stefanutti Stocks’s financial results for the year to end-February 2021, Mazars said: “We draw attention to the disclosure included in this announcement, which indicates that the group incurred a net loss of R290 million for the year ended 28 February 2021 and, as of that date, the group’s current liabilities exceeded its current assets by R1 358 million.

“As disclosed, these events and conditions, along with other matters as noted, including the uncertainties surrounding the Covid-19 pandemic and contingent liabilities, indicate that a material uncertainty exists that may cast significant doubt with respect to the group’s ability to continue as a going concern.”

Mazars added that to address these issues, the group has implemented a restructuring plan.

“Based on the successful implementation of the restructuring plan, the directors consider it appropriate that the group’s condensed consolidated results be prepared on the going-concern basis. Therefore, our opinion is not modified in respect of this matter,” Mazars said.

Restructuring progress

Stefanutti Stocks CEO Russell Crawford said on Thursday (May 27) the group continues to progress the implementation of the restructuring plan, the purpose of which is to put in place an optimal capital structure and access to liquidity to position the group for long term growth.

Crawford said the plan is focused on the sale of non-core assets, underutilised plant and equipment and of certain operations, as well as internal restructuring initiatives required to restore optimal operational and financial performance.

The restructuring plan, which was published in November 2020 following the disposal of four properties in Clayville to Clayville Nutritionals for R34.5 million, also involved:

  • The securing of additional short term funding of R430 million, of which R270 million related to the negative effects of the national Covid-19 lockdown in March/April 2020;
  • A favourable outcome from the processes related to the contractual claims and compensation events on the Kusile power project;
  • The restructuring of the short term funding received to date from the lenders into a term loan; and
  • An evaluation of an optimal business model going forward and associated capital structure analysis, including the potential of raising new equity.

Stefanutti Stocks last month announced the disposal of its mining services division, comprising the Materials Handling and Tailings Management subdivisions but excluding the contract mining subdivision, to Akhona Mining Services for R80 million.

Crawford said shareholder approval was received for the sale of the Clayville properties and the Materials Handling and Tailings Management subdivisions.

He added that in accordance with the plan, the lenders have provided the requisite funding and converted the short term funding agreement into a term loan on July 1, 2020, with this loan terminating on February 28, 2022.

Crawford further advised shareholders that the group reached an agreement on May 25, 2021 with the lenders to extend the current capital repayment profile of the loan.

“Management has made considerable progress in reconfiguring the group’s organisational structure to improve operational performance and decrease overhead costs, including reducing headcount by 26%,” he said.

“This is an ongoing process which continues as the aspects of the plan are being implemented.”

Read: Construction firm Stefanutti Stocks hit by cyberattack (Sep 2020)

The group’s latest financial results statement said its United Arab Emirates operation, which reported a profit of R6 million for the period to June 2020 compared to R48 million in the previous year, has from July 2020 been classified as held for sale.

Provisions

Stefanutti Stocks, which is involved in a dispute with Eskom and implicated in alleged irregular payments to officials at the power utility, in July 2020 disclosed that it had raised R1.183 billion in provisions for future costs, project losses and a tax liability in Kenya.

Read: Stefanutti Stocks breaks silence on alleged payments to enrich Eskom officials (Dec 2019)

These provisions included a further R462 million provision for potential unrecoverable monthly measured works to complete a controversial building project at the Kusile Power Station.

These provisions contributed towards Stefanutti Stocks reporting a loss of more than R1 billion in the year to end-February 2020.

Stefanutti Stocks on Thursday reported a narrowing of the group’s net loss to R290.18 million in the year to end-February 2021 from R1.072 billion in the previous year.

Contract revenue from continuing operations slumped by 30% to R5.04 billion from R7.2 billion, which Crawford attributed to continued adverse market conditions and the substantial impact of Covid-19.

Headline earnings per share loss improved to a loss of 155.13 cents from the 622.48 cents loss in the previous year.

The group’s order book for continuing operations has shrunk by 35% to R5.5 billion, of which R2.1 billion relates to work beyond South Africa’s borders, compared to the group’s order book of R8.5 billion in the previous year, of which R4.2 billion related to work beyond South Africa’s borders.

A dividend was not declared.

Shares in Stefanutti Stocks rose 4.65% on Thursday to close at R0.45.

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Who writes these speeches for CEOs ?
Do they come from 101 ways to avoid the facts manual?
Time for us mere mortals to brace ourselves for yet higher bank fees to cover the unavoidable outcome here….

These articles are from those and by those and for those who fail to grasp the real intricacies of the sector being cyclical.
Rumour has it Mozambique operation also up for sale for ± R80 Mil
The real concern here is the decrease in work load, but that’s applicable to entire sector with exception of the “pad-makkers”
On the above CEO observation, Russel is solid unfortunately came in with sour baggage
As for Mazars bla, bla, bla, nothing but self-preservation, the R1.3Bil deficit in value is worth 2 to 3 years of gross income and that’s how long investors will have to continue waiting for a turn around.
Aveng have been in similar shoes for the same period (3 years) and will soon swing the tide around.

Ja, Russell is clever and hard working (so was Mike Lomax; G5 & Tubular; now a wanted man). So my bet is that Russell is ok himself financially; Stefstocks shareholders; screw them.

prediction engine : leveraged management buyout

End of comments.

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