Stefanutti Stocks : Shareholders Information 2023

Vision

If you can dream it, we can construct it.

Mission

Excellence in execution

CIDB contractor

Category 9

B-BBEE contributor

Level 1

South African employees

2 707

Group workforce

6 405

Values

Candour

Frank and respectful discussions with the objective of finding positive outcomes.

Accountability

Taking personal responsibility for one's actions and the resultant outcomes.

People relations

The value, which results in people treating one another fairly and with respect, and always being mindful of the human dignity of others.

Professionalism

The application of a competent, disciplined and meticulous approach to all aspects of business, resulting in performance of high quality and reliability.

Excellence

A passionate mindset that puts quality at the forefront of all business activity.

Dynamic

Embracing openness and flexibility of mind and an energetic, proactive solution-driven attitude.

  Inland

  Coastal

  Western Cape   Africa

The group operates throughout South Africa and sub-Saharan Africa with multi-disciplinary expertise including concrete structures, specialist concrete repairs, piling, geotechnical services, roads and earthworks, renewable energy, bulk pipelines, materials handling, tailings management, all forms of building works, mechanical, electrical and piping.

Stefanutti Stocks is registered with the Construction Industry Development Board (CIDB) as a Category 9 Contractor, with no restrictions on the size of projects for which the group can tender. The group is ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 certified.

The group's operational footprint on the African continent spans South Africa and sub-Saharan Africa, including Botswana, Eswatini, Malawi, Mauritius, Namibia, Zambia and Zimbabwe in both the private and public sectors.

Regional operations in Africa

Shaded countries on the map indicate the group's operational footprint

Clients include governments, state-owned companies, local authorities, large industrial entities, mining corporations, financial institutions and property developers.

The group's workforce is 6 405 including 2 707 South African employees, with its head office based in Kempton Park, Gauteng.

The group has a values-driven culture with which underpins sustainable partnerships with all stakeholders.

The above is achieved by setting and meeting measurable key objectives to support sustainable earnings growth and, at the same time, maintaining a sound financial position while implementing key non-financial objectives to support Stefanutti Stocks's strategy.

Commentary

Basis of preparation and accounting policies

The extract from the audited condensed consolidated annual financial statements for the year ended 28 February 2023, which was issued on 19 June 2023, ("results and/or reporting period") have been prepared in accordance with framework concepts and the measurement and recognition requirements of International Financial Reporting Standards ("IFRS"),

the SAICA Financial Reporting Guides, as issued by the Accounting Practices Committee and the Financial Reporting Pronouncements issued by the Financial Reporting Standards Council. The report contains the information required by International Accounting Standard IAS 34: Interim Financial Reporting and is in compliance with the Listings Requirements of the JSE Limited and the requirements of the South African Companies Act 71 of 2008. The accounting policies as well as the methods of computation used in the preparation of the results for the year ended 28 February 2023 are in terms of IFRS and are consistent with those applied in the audited annual financial statements for the year ended 28 February 2022.

There is no significant difference between the carrying amounts of financial assets and liabilities and their fair values. The fair value measurements for land and buildings are categorised as a level 3, based on the valuation method of income capitalisation or direct comparable sales using unobservable inputs such as market capitalisation rates and income/expenditure ratio. Plant and equipment, and transport and motor vehicles included within non-current assets held for sale have been categorised as a level 3 fair value based on significant unobservable inputs to the valuation technique used. These assets are measured using the comparable sales method. This entails the use of quoted prices for identical or similar assets in the market.

The results are presented in Rand, which is Stefanutti Stocks' functional currency.

The company's directors are responsible for the preparation and fair presentation of the summarised condensed consolidated results, which have been compiled under the supervision of the Chief Financial Officer, Y du Plessis, CA(SA).

Auditor's report

The summarised report is extracted from audited information but is not itself audited by Stefanutti Stocks's external auditor. The unmodified independent auditors' report, with an emphasis of matter paragraph, can be found on page 11

of the consolidated annual financial statements, as well as on Stefanutti Stocks's website.

The auditor's report contained the following emphasis of the matter: We draw attention to note 2 of the consolidated financial statements, which indicates that at 28 February 2023 the group's current liabilities exceeded its current assets by R1 141 million (2022: R1 462 million), and as of that date, the group's total liabilities exceed its total assets by R66 million (2022: R90 million). The group had an accumulated loss of R1 209 million (2022: R1 225 million). As stated in note 2 these events and conditions, along with other matters as noted, indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Group profile

Stefanutti Stocks operates throughout South Africa and sub-Saharan Africa with multi-disciplinary expertise including concrete structures, specialist concrete repairs, piling, geotechnical services, roads and earthworks, renewable energy, bulk pipelines, materials handling, tailings management, all forms of building works, mechanical, electrical and piping.

Restructuring Plan update

The group hereby provides shareholders with an update on the Restructuring Plan as reported in the Reviewed Condensed Consolidated Results for the 12 months ended 28 February 2023, issued on 25 May 2023.

As previously reported, the Restructuring Plan has been approved by both the company's board of directors and the Lenders and envisages, inter alia:

• the sale of non-core assets;
• the sale of underutilised plant and equipment;
• the sale of identified operations;
• a favourable outcome from the processes relating to the contractual claims and compensation events on certain projects; and
• evaluation of the capital structure including the potential of raising new equity.

The group, on 28 February 2023, reached agreement with the Lenders to extend the current capital repayment profile of the loan as well as its duration to 29 February 2024.

With respect to the final award of R90,9 million with regards to the Mechanical project termination, a capital repayment of R51 million has been made subsequent to year-end.

The loan bears interest at prime plus 3,9%, including arranging and facility fees, and is secured by special and general notarial bonds over movable assets, continuous covering mortgage bonds over immovable assets and various cessions. The loan does not contain any financial covenants but rather imposes certain information and general undertakings.

The Lenders continue to provide guarantee support for current and future projects being undertaken by the group.

The purpose of the Restructuring Plan is to put in place an optimal capital structure and access to liquidity to position the group for long-term growth.

The Restructuring Plan is anticipated to be implemented over the financial year ending February 2024 and, to the extent required, shareholder approval will be sought for certain aspects of the Restructuring Plan. The group will continue to update shareholders on the progress of the various aspects of the Restructuring Plan.

Going concern

The directors consider it appropriate that the group's results for the year be prepared on the going-concern basis, taking into consideration:

• the current order book;
• imminent project awards;
• continuing operations executing the group's order book profitably;

Commentary continued

• the availability of short- and mid-term projects;
• reaching a favourable outcome on contractual claims and compensation events on certain projects;
• continued support from the Lenders; and
• successfully implementing the Restructuring Plan.

The funding provided by the Lenders has assisted with the group's liquidity, even though as at 28 February 2023 the group's current liabilities exceed its current assets by R1 141 million (Feb 2022: R1 462 million) and the group's total liabilities exceed its total assets by R66 million (Feb 2022: R90 million). The group had an accumulated loss of R1 209 million (Feb 2022: R1 225 million). The group believes it remains commercially solvent based on the cash flow projections included in the Restructuring Plan. However, the matters as noted above including uncertainties surrounding the contingent liabilities as stated in note 26 of the group's Consolidated Annual Financial Statements for the year ended 28 February 2023, continue to indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern, and as a consequence could impact on the group's ability to realise its assets and discharge its liabilities in the ordinary course of business.

Kusile power project update

As previously highlighted to shareholders in numerous announcements and updates since late 2018, the group continues to pursue a number of contractual claims and compensation events on the Kusile power project.

Since August 2021, the group has secured payment of a combined total of R110 million for measured work and the Dispute Adjudication Board ("DAB") rulings. Substantial variations are still being agreed with Eskom. The outcome thereof will determine whether further certification will be secured for measured works or whether the variations will be referred to the DAB.

Stefanutti Stocks and Eskom ("the parties") have entered into an "Interim Arrangement for the Purposes of Agreeing or Determining the Contractor's Claims and Facilitating the Dispute Resolution Process" in February 2020, for all delay events up to the end of December 2019. This process involves the appointment of independent experts ("the experts") to evaluate the causes, duration and quantification of delays.

Further to the above, the parties and the DAB have signed a memorandum of understanding ("MOU") as set out below:

• The DAB will issue decisions confirming entitlements, which entitlements the experts have agreed to, which will then be binding on the parties;
• The DAB will rely on the experts for the narrowing of the issues and information to be considered in its assessments;

Non-current assets held for sale

• The DAB will continue to make interim decisions on the narrowed issues and information, in a progressive manner which will be binding on the parties;
• The DAB will issue such interim decisions for duration and quantification; and
• At the end of the process the DAB will issue a final binding decision in terms of the contract with respect to duration and quantification, at which point either party may issue a notice of dissatisfaction and refer the dispute to arbitration.

The group has submitted the following provisional claims

to the experts after taking into account all payments received to date on the project:

1. an overarching preliminary and general cost claim of R337 million;
2. a subcontractor overarching preliminary and general cost claim of R194 million;
3. a construction cost claim of R438 million; and
4. a finance cost claim of R171 million.

Therefore, the total of all provisional claims submitted to the experts is R1,140 billion. In terms of the process as outlined above the experts will review all claims, draft agreements and narrow issues of difference for referral to the DAB for a decision. The ongoing process will address the final phase of the delay analysis in the coming months. Once this is concluded, the group will submit its final consolidated claims, which will include the commissioning and interest costs soon thereafter.

The group envisages that the DAB will issue its binding decision before the end of the February 2024 financial year, at which point either party may issue a notice of dissatisfaction and refer the dispute to arbitration.

At this stage, the group's claims team is unable to quantify the value of the potential awards nor the exact timing thereof, as the claims must follow due process. Therefore, these provisional claims have not been recognised in the financial statements as the outcome of the process remains uncertain.

Overview of results

A number of non-core assets, underutilised plant and equipment and identified operations earmarked for sale have been reclassified in terms of IFRS 5: Non-current Assets Held for Sale and Discontinued Operations. Current market conditions resulted in the delay of these disposals. The group remains committed to the sale processes as envisaged in the Restructuring Plan.

Non-current assets held for sale

The following items of property, plant and equipment are classified as non-current assets held for sale: