Shares in Stefanutti Stocks plunged 58%, from 12c to 5c a share early on Thursday.
This was after the JSE-listed construction group released wretched interim results and a media investigation unit published details of how the group allegedly, along with other companies, made payments to what it claimed was a slush fund to enrich top Eskom officials.
The group has launched a restructuring plan that will entail assessing the sale of non-core assets, including divisions/subsidiaries; capital structure analysis, including the possibility of raising new equity; and internal restructuring initiatives required to restore optimal operational and financial performance.
The group’s share price recovered later on Thursday to close unchanged at 12c a share.
The exposé of the alleged slush fund payment was published here by Scorpio, a sister publication of the Daily Maverick. It alleges that R75 million was paid by Stefanutti and three other companies, including the local subsidiary of multinational Tenova Takraf, to Babinatlou Business Services.
Senior executives in Stefanutti declined via the group’s communication company to grant any media interviews despite the group hosting a teleconference on its financial results early on Thursday.
Contractual disputes – relating to what Stefanutti refers to as a “public sector power project” and unnamed loss-making contracts in each of its oil and gas and mechanical divisions – contributed to the group reporting an operating loss of R973 million for the six months to August, from a R124.8 million profit in the previous corresponding period.
The building, mechanical and electrical, and construction and mining business units all reported operating losses.
Russell Crawford, who took over as chief executive from Willie Meyburgh in August this year, attributed the operating loss to the continuing adverse market conditions, combined with the impact of the public sector power project.
These factors reduced contract revenue from operations by 13% to R4.4 billion from R5.1 billion, he said.
Listen to Nompu Siziba’s May 30 interview with former Stefanutti CEO Willie Meyburgh on SAfm Market Update with Moneyweb:
Stefanutti reported a headline loss per share of 607.72c, compared with a profit of 60.30c in the prior period.
Crawford said the operating loss was impacted by:
- A R462 million provision for future costs for the public sector power project
- A R331 million provision for slow-paying trade receivables
- R260 million in specific project losses
- R22 million for impairment of goodwill, and
- A R43 million provision for a tax liability in Kenya.
“Contributing to the adverse market conditions are the well-documented delays in payments from clients, which had a significant impact on the group’s trade and other receivables, as well as payments to suppliers and sub-contractors,” he said.
Stefanutti did not name the public power sector project for which it has made the provision for future costs, but it is believed to be the Kusile Power Station, where it has geotechnical piling and civil works contracts.
‘Intractable’ public sector client
In an obvious reference to Eskom, Stefanutti said the client’s intractable approach on the public sector power project with respect to certification of applications for work done, has led to an additional provision of R462 million being raised for potential unrecoverable measured works to completion.
This is in addition to the provision of R263 million raised in February this year.
“This project has placed an additional burden on the group, increasing the initial funding requirement of R400 million to approximately R986 million,” said Crawford.
“We recently engaged with this client’s top management and since then constructive and encouraging meetings have been taking place continuously with the client’s site management teams.”
Crawford added that in terms of the funding plan, the first tranche of R120 million was received in July and the second additional tranche of R391 million was received earlier this month from a lender grouping.
Stefanutti said this allows more time for the group to resolve its contractual claims on the public sector power project and to simultaneously explore and evaluate longer-term cost-effective funding solutions.
The group did not comment on where or when it plans to get the additional funding required for the project, only stating: “Stefanutti Stocks remains in discussions with its lenders to secure additional tranches of funding, with funds from the first and second tranches having been used to meet the group’s short-term liquidity requirements.”
The group has an order book of R11.2 billion, of which R3.3 billion relates to work beyond South Africa’s borders.
Looking ahead, Crawford said the focus will be on resolving the liquidity pressure, developing a restructuring plan and returning the group to profitability.