Stefanutti Stocks: Operating profit up 18%

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10-11-2017
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Moneyweb
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Problems with sluggish payments in Zambia and Nigeria – CEO Willie Meyburgh.

NASTASSIA ARENDSE: Stefanutti Stocks, which is a construction company, reported a 15% drop in interim headline earnings per share, partly due to a higher tax rate. This is the conversation Warren Thompson had with CEO Willie Meyburgh.

WILLIE MEYBURGH: Certainly in quite a difficult market we improved the operating profit by 18%, and while it’s not shooting the lights out at least, the market is difficult at this stage. And we feel going forward that for the full year we’ll improve our operating profit as well.

WARREN THOMPSON: Okay, so that’s certainly going to be of interest to investors. Just a little bit there – the headline earnings declined, you said, because of the increasing effect of tax rates, and an increase in minorities. Can you just give us a bit more colour there?

WILLIE MEYBURGH: The tax rate last year was lower than the normal tax rate. We operate in different countries. For example in the UAE we don’t pay any tax at all, so that’s reducing the tax rate. But also some of the operations came from our Mauritius business, where the tax rate is also lower.

And then also there was some non-deductible expenditure in different countries which we took into account last year, which made the tax rate lower. But full year it worked itself out. Then the normal tax rate was applied, which is the case also now in the August results.

WARREN THOMPSON: I think a key feature of the results certainly for me was the increase, the ongoing investment in your ability to expand capacity. You said capital expenditure for the period amounted to R255 million. Of the total capital expenditure R219 million was incurred to expand capacity. It appears a bit of a contradiction if you say that conditions are quite challenging and yet you are investing quite heavily to expand your capacity. Where and what sort of capacity are you increasing, and where do you expect to see that growth?

WILLIE MEYBURGH: We’ve been awarded a number of open-pit mining contracts recently and at the moment there is a bit of an uptick in the mineral market, with the result that we had to buy some more equipment. Our mining division is currently our most profitable division in the group and we cannot find that heavy equipment freely available in the market. That is why we invested primarily in the mining services in open-pit mining where we could achieve returns – and we spent the capex on mining services. We have spent little money over the last few years on other parts of the business, apart from our roads and earthworks which are also doing well. But in this instance it was primarily spent on the mining services business, where we get good returns.

WARREN THOMPSON: That’s very interesting – that capacity in that equipment has been taken up. Certainly a sign of the improved prospects in the mining industry there.

You had a few problems. Your roads business is doing very well but you have had one or two problems with payments in Zambia and Nigeria. Overall, is that one of the areas where you expect to continue to grow?

WILLIE MEYBURGH: The payment problem in Zambia and Nigeria is not a new problem. It’s been around for some time. We have stopped work in Zambia until we receive the full payment. But it’s not that the Zambian government is not paying, it’s just taking a while for them to pay. It’s a bit of sluggishness in paying. And in Nigeria they’ve also owed us money for some time and I think that was partly as the result of the drop in the oil price. But how we are operating in Nigeria is that we resume work now and again, as they pay us. We use some of the money to complete the project, and we use a large percentage of the money then to retain for ourselves when they pay the debt off.

NASTASSIA ARENDSE: That was the CEO of Stefanutti Stocks, Willie Meyburgh.