Stefanutti Stocks encounters difficulties in implementing its restructuring plan

Current liabilities exceeded current assets by R1.46bn at end-February.
Progress has been made in decreasing the group’s overhead costs, including a reduction of its overall headcount. Image: Shutterstock

JSE-listed construction group Stefanutti Stocks has experienced difficulties in implementing some elements of its restructuring plan, which aims to put in place an optimal capital structure and access to liquidity to position the group for long-term growth.

The group reported on Thursday that the slower than anticipated sale of certain operations, the non-implementation of the Material Handling and Tailings Management sub-divisions transaction, and further delays in resolving contractual claims and compensation events on certain projects “resulted in capital loan repayments envisaged to commence from April 2022 not materialising”.

The group said it is currently in negotiations with the lenders to extend the capital repayments of the loan to January and February 2023, with the residual loan balance remaining at about R420 million.

Guarantee 

It added the lenders have agreed to provide continued guarantee support for current and future projects being undertaken by the group while management has made considerable progress in reconfiguring the group’s organisational structure to improve operational performance and decrease overhead costs, including the reduction of the group’s overall headcount.

“This is an ongoing process which continues as the various aspects of the restructuring plan are being implemented,” it said.

Implementation of the restructuring plan is scheduled to be concluded by February 2023.

Stefanutti Stocks on February 21 reached an agreement with the lenders to extend the loan duration, on standard terms and conditions applicable to this type of funding, to February 28 2023.

It said this funding has assisted in relieving the group’s liquidity pressures even though total liabilities exceed total assets at February 28, representing technical insolvency.

However, it said the group remains commercially solvent based on the cash flow projections included in the restructuring plan and the continued support provided by the lenders.

Auditors’ note

The review of the group’s latest financial results by its auditors Mazars included an emphasis of matter in which Mazars drew attention to the fact that Stefanutti Stocks incurred a net loss of R415 million for the year to end-February 2022 and, as of that date, the group’s current liabilities exceeded its current assets by R1.462 billion, and the group’s total liabilities exceeded its total assets by R90 million.

Mazars said the group had an accumulated loss of R1.225 billion, adding that these events and conditions, together with other matters, 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 said Stefanutti Stocks has implemented the restructuring plan to address these issues.

Difficulties

Difficulties encountered by the group included it reporting in August 2021 that not all conditions precedent related to the sale of the Material Handling and Tailings Management disciplines had been fulfilled or waived and the disposal could consequently not be implemented.

These disciplines have now been retained and reclassified as part of continuing operations.

The group said it is continuing to pursue a number of contractual claims and compensation events on the Kusile power project.

The disputes with Eskom follow allegations by the power utility that it had overpaid almost R4 billion to various contractors at Kusile Power Station, including an estimated R1 billion to two Stefanutti Stocks joint ventures.

Read: Stefanutti Stocks makes slow progress with Eskom claims and disputes

The company said on Thursday that due to the complexity of the claims, the processes remain ongoing.

Stefanutti Stocks CEO Russell Crawford said in November 2021 the parties were on track to substantially resolve the disputes by February 2022.

Successes

There have been some successes with the implementation of the restructuring plan, with Crawford reporting that a number of non-core assets had been sold for a total of R56.2 million by end-February , including:

  • One of the group’s formwork yards in Midrand for R28 million;

  • A residential property in Sasolburg for R500 000;

  • The remaining units of the Northern Views residential development in Pretoria, with net proceeds of R24.4 million;

  • Vacant industrial land in George for R1.4 million; and

  • An industrial property in Kempton Park for R1.9 million.

Crawford added that an industrial commercial fabrication workshop in Isando is in the process of being sold for R33 million.

The group reported that the disposal of Al Tayer Stocks LLC in the United Arab Emirates remains conditional but the initial purchase consideration of R92 million was received.

It received a non-binding offer of $13.5 million after its financial year-end to purchase a foreign entity but negotiations are ongoing and no terms have been agreed.

Results

Stefanutti Stocks on Thursday reported a headline loss per share of 97.07 cents for the year to end-February 2022 compared with earnings of 155.13 cents in the previous year.

Contract revenue from continuing operations increased to R6 billion from R4.7 billion but the operating loss widened to R99 million from the restated R55 million loss in the previous financial year.

Crawford said the group delivered an improved performance on a normalised basis in what remains a difficult trading environment.

He said the normalised operating profit of R198 million excludes abnormal and non-operational items, such as restructuring costs, legal fees, fair value adjustments and impairments of assets as well as a provision relating to the City of Cape Town claim settlement.

Read:

Stefanutti Stocks, WBHO and Aveng last week agreed to settle the long-standing multi million rand civil damages claim against them by the City of Cape Town for collusion and bid-rigging on the Green Point Stadium ahead of the 2010 Fifa World Cup.

Read: Stefanutti, WBHO and Aveng settle multi-million-rand civil damages claim

In terms of the settlement, each company will pay R31.3 million over the next three years.

Stefanutti Stocks had an order book of R5.3 billion at year-end, of which R1.7 billion is for work beyond South Africa’s borders.

Shares in Stefanutti Stocks dropped by 1.75% on Thursday to close at 56 cents per share.

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Similar saga to the Aveng and M&R scenarios they will survive give it “short-time” of 2 or 3 financials. Very diff case of the other bunch of G5, Esor, Basil Read + few privates who adventured into projects where commercial managers did not know the diff between pricing and estimating, worse guess-timated.
On diff wavelength, even the mighty WBHO is about to enter or might be half way through similar phase by letting some of the ex-G5 coolever dudes go kangaroo free-range in Australia.

End of comments.

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