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WEA - WG Wearne Limited - Reviewed condensed consolidated results for the year
ended 28 February 2011
WG WEARNE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1994/005983/06)
JSE code: WEA
ISIN: ZAE000078002
("Wearne" or "the company" or "the group")
REVIEWED CONDENSED CONSOLIDATED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2011
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2011 R`000 2010 R`000
ASSETS
Non-current assets 371 050 596 307
Property, plant and equipment 365 466 545 440
Intangible assets - 34 153
Available-for-sale investments 3 967 3 712
Deferred tax asset 1 617 13 002
Current assets 57 433 115 766
Inventories 14 281 28 658
Current tax receivable 270 1 492
Trade and other receivables 36 384 76 815
Loans to group companies - 385
Other financial assets 2 963 5 572
Cash and cash equivalents 3 535 2 844
Non-current asset held for sale 37 926 -
TOTAL ASSETS 466 409 712 073
EQUITY AND LIABILITIES
Equity 60 745 210 246
Share capital 247 246
Share premium 174 390 174 782
Non-distributable reserves 373 276
Retained earnings (114 265) 34 239
Non-controlling interest - 703
Non-current liabilities 255 275 237 564
Environmental provision 13 990 14 833
Other financial liabilities 220 377 193 882
Deferred tax liability 1 369 28 849
Trade and other payables 19 539 -
Current liabilities 150 389 264 263
Other financial liabilities 2 837 96 019
Loans to group companies 5 678 4 777
Taxation payable 1 794 2 782
Trade and other payables 64 943 90 918
Bank overdraft 75 137 69 767
Total liabilities 405 664 501 827
TOTAL EQUITY AND LIABILITIES 466 409 712 073
Number of shares in issue at year-end (`000) 246 703 245 913
Weighted average number of shares (`000) 246 486 184 661
Fully diluted weighted average number of shares (`000) 246 486 184 661
Net asset value per share (cents) 24.6 85.5
Net tangible asset value per share (cents) 24.5 78.1
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2011 R`000 2010 R`000
CONTINUING OPERATIONS
Revenue 384 548 534 932
Cost of sales (264 993) (342 481)
Gross profit 119 555 192 451
Other income 11 394 5 134
Operating expenses (120 542) (132 132)
Earnings before depreciation, amortisation,
impairments, hedging, interest and taxation 10 407 65 453
Depreciation (43 493) (52 324)
Amortisation - (2 238)
Hedging loss - (11 433)
Impairments (42 468) (17 969)
Loss before interest and taxation (75 554) (18 511)
Investment income 19 846
Finance costs (36 517) (45 855)
Loss before taxation (112 052) (63 520)
Income tax 1 539 14 096
Loss attributable to shareholders (110 513) (49 424)
Other comprehensive (loss) / income - -
Total comprehensive loss for the period (110 513) (49 424)
Loss from discontinued operation 37 992 -
Total comprehensive loss for the period (148 505) (49 424)
Loss profit attributable to:
Owners of the company (148 505) (49 382)
Non-controlling interest - (42)
(148 505) (49 424)
Total comprehensive loss attributable to:
Owners of the company (148 505) (49 382)
Non controlling interest - (42)
(148 505) (49 424)
Reconciliation of headline earnings:
Loss attributable to shareholders (148 505) (49 382)
Impairments 42 468 17 969
Fair valuing of non-current asset held for sale 56 859 -
Profit on disposal of property, plant and
equipment (2 804) (2 755)
Headline loss attributable to owners (51 982) (28 658)
Loss per share (cents) (60.25) (26.74)
Headline loss per share (cents) (21.09) (15.52)
Fully diluted loss per share (cents) (60.25) (26.74)
Fully diluted headline loss per share (cents) (21.09) (15.52)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
2011 R`000 2010 R`000
Balance as at 01 March 226 186 179 082
Reclassification of fair value adjustment - 2
Fair value adjustments on available-for-sale investments 179 (665)
Release of fair valuing on disposal 197 -
Total comprehensive (loss) / income for the period (49 382) (18 235)
Share capital issued during the year 30 252 65 409
Share issue expenses (580) (58)
Movement on treasury shares 4 530 (216)
Share-based payments - 122
Dividends paid (1 094) -
Non-controlling interest (42) (80)
Non-controlling interest acquired in business combination - 825
Balance as at 28 February 210 246 226 186
Fair value adjustments on available for sale investments 98 179
Release of fair valuing on disposal - 197
Total comprehensive (loss) / income for the period (148 505) (49 382)
Share capital issued during the year 1 500 30 252
Share issue expenses (5) (580)
Movement on treasury shares (1 886) 4 530
Dividends paid - (1 094)
Non-controlling interest (703) (42)
Balance as at 28 February 60 745 210 246
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
2011 R`000 2010 R`000
Cash flows from operating activities
Loss attributable to shareholders (148 505) (49 424)
Non cash flow adjustments 188 348 120 344
Cash flow adjustments - (11 433)
Operating profit before working capital movements 39 843 59 487
Decrease in inventories 5 106 5 973
Decrease in trade and other receivables 29 375 2 950
Increase in trade and other payable 805 13 916
Decrease in current portion of loans and borrowings - 678
Cash flows from operations 75 129 83 004
Investment income 96 1 424
Finance costs (38 094) (45 855)
Dividends received 19 65
Taxation paid (1 176) (717)
Net cash from operating activities 35 974 37 921
Cash flows from investing activities
Acquisition of property, plant and equipment
Replacement (8 220) (6 498)
Expansion (295) (3 316)
Proceeds on disposal of property, plant and equipment 16 189 8 201
Acquisition of intangible assets - (1 127)
Movement on other financial asset (10) -
Proceeds on disposal of available-for-sale assets - 1 489
Movement on external loans 2 932 (257)
Net cash from investing activities 10 596 (1 508)
Cash flows from financing activities
Proceeds from the issue of share capital (391) 29 672
Dividend paid - (1 094)
Net repayment of loans and borrowings (50 858) (71 844)
Net cash used in financing activities (51 249) (43 266)
Decrease in cash and cash equivalents (4 679) (6 853)
Opening cash and cash equivalents (66 923) (60 070)
Closing cash and cash equivalents (71 602) (66 923)
CONDENSED CONSOLIDATED SEGMENTAL REPORT
2011 R`000 2010 R`000
Revenues
External sales
Aggregates 188 472 308 862
Readymix concrete 170 984 208 143
Concrete manufactured products 25 092 17 927
384 548 534 932
Internal sales
Aggregates 41 520 37 926
Readymix concrete 4 129 2 153
Concrete manufactured products - 110
45 649 40 189
Total revenue
Aggregates 229 992 346 788
Readymix concrete 175 113 210 296
Concrete manufactured products 25 092 18 037
430 197 575 121
Earnings before depreciation, amortisation,
impairments, hedging, interest and taxation
Aggregates 8 940 69 731
Readymix concrete (3 194) (6 398)
Concrete manufactured products 4 661 2 120
10 407 65 453
Property, plant and equipment
Aggregates 277 692 389 991
Readymix concrete 61 820 105 399
Concrete manufactured products 25 954 50 050
365 466 545 440
INTRODUCTION
Wearne and its subsidiaries provide a comprehensive range of products to the
building and construction industry in South Africa. The major operating
divisions comprise aggregates, ready mixed concrete and the manufacture of
specialised cast concrete products.
SALE OF THE PORTLAND HOLDINGS GROUP ("PORTLAND")
In an announcement dated 15 October 2010, Wearne advised that it had entered
into a related party transaction in terms of which it would dispose of
Portland in exchange for the cancellation of 56,616,370 of its shares owned by
the purchasers. Portland would in addition acquire a property for an amount of
R30 million from Wearne.
The transaction was classified as a related party transaction as the
purchasers were and are directors and major shareholders of Wearne.
Consequently shareholder approval was required in terms of the JSE Listings
Requirements and this was obtained at a general meeting held on 21 February
2011.
The effective date of the sale was recorded as 1 October 2010. However this
was subject to a number of suspensive conditions which were only fulfilled
subsequent to the financial year end. In terms of International Financial
Reporting Standards ("IFRS"), the transaction had not been completed as at 28
February 2011 and because the intention was to dispose of this investment, the
provisions of IFRS 5: Non-current Assets Held for Sale and Discontinued
Operations, have been applied.
As a consequence of this, the preliminary results for the group for the year
ended 28 February 2011 are not directly comparable with the reported results
for the group for the prior year. This is because Portland is accounted for as
a non-current asset held for sale and discontinued operation and therefore is
disclosed as a separate line item on the face of the statement of financial
position and the statement of comprehensive income.
REVIEW OF RESULTS
The group experienced another particularly difficult year, which is reflected
in the headline loss of R51,9 million for the year compared to the R28,6
million headline loss reported for the prior year.
Intense competition in the light of decreased opportunities in this sector
has seen year on year revenue decrease by 28% (17% including Portland). The
hardest hit sector was the aggregates division, where revenues declined year
on year by 39% (32% including Portland), followed by the ready-mix concrete
division where the revenue decline was 18% (3% including Portland). The cast
concrete products division has shown a gratifying revenue growth year on year
of 40% (65% including Portland).
Group profitability continues to be squeezed as margins come under pressure.
This was however compensated for by a reduction in operating expenses. The
resulting group EBITDA before impairments amounted to R10,4 million vs.
R65,4 million for the same period last year. The 2010 figures stated exclude
hedging loss of R11,4 million which did not occur in 2011.
Depreciation, amortisation and net finance costs have decreased year-on-year
and this has impacted positively on earnings. These decreases have arisen
as a result of a decision by the directors to dispose of excess and
unproductive assets. These assets consist of vehicles which are no longer
required as a result of decreased volumes and land where obsolete plants
have been shut down because the original business opportunity has ceased
to be profitable. The proceeds of these disposals have been applied to long
term borrowings where appropriate and this together with the impact of normal
monthly instalment payments has resulted in a pleasing decrease in finance
costs. Despite the experiencing significant cash flow pressure, the group
still managed to repay R50,8 million in loans and borrowings during the
financial year under review.
During the year under review the following actions were taken by the directors
to streamline the business and reduce costs:
- the group`s various operations were rationalised into three operating
divisions - aggregates, ready-mix and cast concrete products - which has
resulted in a significant decrease in unproductive administration and cost;
- shared services and centralised administration functions have been
implemented to achieve greater purchasing synergies and administrative
efficiencies; and
- staff numbers and the monthly payroll costs have been reduced by 20%
year-on-year through a planned retrenchment process and natural attrition;
- unproductive and surplus assets were disposed of - the proceeds from which
amounted to R16,2 million for the financial year under review vs. R8,2 million
in the prior year.
IMPAIRMENTS AND REVAULATIONS
In accordance with the provisions of IFRS 5, the group has fair valued the Non-
current Assets Held for Sale and as a result the carrying value has been
impaired by R56,8 million which has been disclosed as part of the loss from
discontinued operations.
Furthermore, the directors have reviewed the remaining assets and in instances
where the recoverable amount was considered to be less than the carrying
value, the directors impaired the assets to the recoverable amount.
STATEMENT OF GOING CONCERN
The comprehensive loss, negative liquidity and large amount of borrowings have
called into question the ability of the group to continue as a going concern.
In order to address these matters, the directors of Wearne have secured a
creditors and bank moratorium and funding from the IDC. A turnaround CEO has
also been appointed to devise and implemented a turnaround plan to return the
company to sustainable profitability.
The moratoriums will give the company a payment holiday on certain of the
unsecured and portion of the secured creditors payments and this together with
the funds injected by the IDC will give the company the time it needs to
implement operational restructuring and asset maintenance in addition to the
sale of unproductive and non-core assets. The proceeds from the sale of assets
will be applied to the reduction of any associated debt.
The company continues to work closely with its bankers who are assisting with
the management of day to day working capital. In accordance with strict
financial discipline, costs are being closely managed and assets are being
utilised so as to ensure the maximum efficiencies are extracted.
As a result of the actions and plans presented above, the reviewed condensed
consolidated results have been prepared on the going concern basis as the
directors are of the view that the Group has adequate resources in place to
continue in operation for the foreseeable future.
SCHEME OF ARRANGEMENT IN TERMS OF SECTION 311 OF THE COMPANIES ACT
In a circular to the secured and concurrent creditors of the company dated 15
February 2011, notice was given of a meeting to be convened on 1 March 2011 in
order to consider and accept a Scheme of Arrangement under Section 311 of the
Companies Act (1973) for Wearne, Wearne Aggregates (Pty) Limited, Wearne Ready
Mix (Pty) Limited and Wearne Precast (Pty) Limited.
The schemes for Wearne and Wearne Aggregates (Pty) Ltd were accepted and
subsequently ratified by the South Gauteng High Court. In terms of the
schemes, the Court has approved a moratorium on the repayment of all existing
debt at 31 December 2010 for a period of eight months from 1 January 2011 to
31 August 2011 for concurrent creditors and for a period of 24 months from 1
February to 31 January 2013 in respect of the secured creditors. Thereafter
the existing debt of the concurrent creditors will be repaid in 19 equal
instalments. The group will continue to pay interest on all the existing debt
of the secured creditors.
INVESTMENT BY THE INDUSTRIAL DEVELOPMENT CORPORATION ("IDC")
Subsequent to the financial year end, the IDC approved a financial rescue
package totalling R85,2 million. The funds will be introduced into the company
through a combination of debt and equity. The equity stake, which is subject
to shareholder approval, will comprise a direct investment of 15% and an
indirect investment of an additional 15% through a workers trust resulting in
a total combined investment of 30% of the issued share capital of the company.
A total of R34 million in debt funding has already been advanced to the
company and once the share subscription has been concluded, the balance of the
funds will flow.
REVIEW OPINION
RSM Betty & Dickson (Johannesburg), the group`s independent auditors, have
reviewed the condensed consolidated financial results for the year ended 28
February 2011 and have expressed a modified review opinion which contains the
following emphasis of matter: "Without qualifying our conclusion, we draw
attention to the reviewed condensed results which indicate that the group
incurred a total comprehensive loss of R148,505,000 during the year ended 28
February 2011 and as of that date the group`s current liabilities exceeded its
assets by R92,956,000. These conditions along with other matters as set out in
the results commentary, indicated the existence of a material uncertainty that
may cast significant doubt about the group`s ability to continue as a going
concern. The review report is available for inspection at the company`s
registered office.
BASIS OF PREPARATION
The reviewed condensed consolidated results for the year have been prepared in
accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards ("IFRS"), the AC
500 standards as issued by the Accounting Practices Board or its successor,
IAS 34: Interim Financial Reporting, the Companies Act No. 61 of 1973, as
amended and the Listings Requirements of the JSE.
The accounting policies used to prepare these financial statements are also in
accordance with IFRS and are consistent with those applied for the group`s
annual financial statements in 2010. No new or revised IFRS standards have
been adopted.
PROSPECTS
Although the economy is experiencing a gradual recovery, conditions in the
building and construction industry are expected to remain under pressure for
the rest of 2011, with stronger improvement only anticipated in 2012.
The group restructure and turnaround initiatives that have been implemented
are expected to result in more focus on the core businesses of the group and
entrench greater cost and operational efficiencies.
Wearne has seen a pleasing increase in demand for on-site crushing and has
secured a number of new contracts around the country. New contracts in ready-
mix and cast concrete products have also been secured.
Capital expenditure has been significantly curtailed in line with increased
focus on financial discipline and accountability. A comprehensive repairs and
maintenance programme has however been authorised and initiated in order to
ensure that all plants meet the required operating and safety standards and
are well placed to take advantage of any new projects.
CHANGES TO THE BOARD
During the year under review Mr Mfanyana Salanje was appointed as an
independent non-executive director and member of the audit committee and
Messrs Ernest Moloi and Nico Heyns resigned as non-executive and executive
directors respectively. Subsequent to the financial year end Messrs Helenus
Scholtz and Bonke Mkhonto resigned as non-executive directors. The board
wished to express its appreciation for the contributions made by these
departing directors.
DIVIDENDS
In line with past practice, no dividend has been declared for the year.
APPRECIATION
We thank our management and staff for their efforts and continued commitment
throughout a difficult trading year. We also thank our advisors, customers and
stakeholders for their ongoing support.
By order of the Board
31 May 2011
R Devereux
Chief Executive Officer
A W Bruens
Chief Financial Officer
CORPORATE INFORMATION
Non-executive directors: S J Wearne (Chairman), M M Patel, M Salanje
Executive directors: R Devereux (CEO), A W Bruens (CFO)
Registration number: 1994/005983/06
Registered address: 3 Kiepersol House, Stone Mill Office Park,
300 Acacia Road, Cresta, 2195
Postal address: PO Box 1674, Cresta, 2118
Company secretary: Ithemba Governance & Statutory Solutions (Pty) Limited
Transfer secretaries: Computershare Investor Services (Pty) Limited
Designated adviser: Vunani Corporate Finance
These results and an overview of Wearne are available at
www.wearne.co.za
Date: 31/05/2011 11:54:01 Supplied by www.sharenet.co.za
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