Wrap Text
Condensed consolidated financial results for the period ended 31 August 2016
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”)
Highlights
Improved cash flow from operating activities
Gross profit percentage up 4.4% to 25%
Condensed consolidated financial results for the period ended 31 August 2016
Condensed Interim Consolidated Statement of Financial Position
Unaudited Unaudited Audited
6 months 6 months 12 months
August 2016 August 2015 February 2016
R'000 R'000 R'000
ASSETS
Non-current assets 251,762 334,128 305,444
Property, plant and equipment 240,376 322,904 294,426
Other financial assets 6,535 5,864 6,167
Deferred taxation asset 4,851 5,360 4,851
Current assets 78,587 133,905 76,470
Inventories 19,740 37,930 27,642
Trade and other receivables 58,175 94,725 48,195
Cash and cash equivalents 672 1,250 633
Non-current asset held for sale 58,081 - 21,291
Total assets 388,430 468,033 403,205
EQUITY AND LIABILITIES
Equity 31,818 53,870 42,233
Issued capital 178,357 178,357 178,357
Reserves 1,758 1,353 1,392
Revaluation reserve 51,522 52,380 57,326
Accumulated losses (199,819) (177,220) (194,842)
Non-current liabilities 121,491 189,628 148,051
Borrowings 107,091 169,611 129,950
Deferred taxation liability 7,040 8,758 7,039
Environmental provision 7,360 11,259 11,062
Current liabilities 215,605 224,535 196,294
Borrowings 63,394 51,428 56,681
Current taxation payable 55 1,119 55
Trade and other payables 124,530 114,642 116,066
Bank overdraft 27,626 57,346 23,492
Liabilities directly associated 19,516 - 16,627
With assets in the disposal group
Classified as held for sale
Total Liabilities 356,612 414,163 360,972
Total equity and liabilities 388,430 468,033 403,205
Number of shares in issue ('000) 273,038 273,038 273,038
Net asset value per share (cents) 11.65 19.73 15.47
Net tangible asset value per
share (cents) 11.65 19.73 15.47
Condensed Interim Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months 6 months 12 months
August 2016 August 2015 February 2016
R'000 R'000 R'000
Continuing Operations
Revenue 198,963 273,783 511,859
Cost of sales (148,690) (217,430) (403,763)
Gross profit 50,273 56,353 108,096
Other income 1,542 3,640 4,292
Operating expenses (43,591) (49,648) (107,315)
Operating profit 8,224 10,345 5,073
Investment income (29) 77 196
Finance costs (12,434) (12,947) (26,670)
Loss before taxation (4,239) (2,525) (21,401)
Taxation - (223) 2,950
Loss from continuing operations (4,239) (2,748) (18,451)
Discontinued Operations
(Loss)/Profit from discontinued (738) 1,917 1,502
Operations
Taxation - - (858)
Loss for the year (4,977) (831) (17,807)
Other comprehensive income:
Items that will be reclassified
subsequently to profit or loss
Fair value adjustments: Available- 367 - 39
for-sales
Items that will not be reclassified
subsequently to profit or loss:
(Loss)/Gain on revaluation of (5,804) - 5,300
property
Total comprehensive loss (10,414) (831) (12,468)
Reconciliation of headline loss:
Loss for the year (4,977) (831) (17,807)
(Profit on sale of
property, plant and equipment (242) (609) (2,904)
Fair value adjustment of non-current
assets held for sale - - 1,745
Headline loss attributable to
ordinary shareholders (5,219) (1,440) (18,966)
Continuing operations: (1.64) (1.23) (7.82)
Headline loss per share (cents)
Discontinued operations: (0.27) 0.70 0.87
Headline loss per share (cents)
Total basic headline loss per share (1.91) (0.53) (6.95)
(cents)
Reconciliation of EBITDA:
Earnings before
Interest and taxation ("EBIT") 8,412 13,440 8,374
Depreciation 13,369 15,940 31,168
Earnings before
interest, taxation, depreciation
and amortisation ("EBITDA") 21,781 29,380 39,542
Weighted average number of 273 038 273 038 273 038
shares
in issue ('000)*
Continuing operations: Basic (1.55) (1.00) (6.76)
loss per share (cents)
Discontinued operations: Basic (0.27) 0.70 0.24
profit per share (cents)
Continuing and discontinued (1.82) (0.30) (6.52)
operations: Basic loss per
share (cents)
*There were no dilutive
instruments in issue during the
year.
Condensed Interim Consolidated Statement of Changes in Equity
Unaudited Unaudited Audited
6 months 6 months 12 months
August 2016 August 2015 February 2016
R'000 R'000 R'000
Balance at beginning of period 42,233 54,701 54,701
Total comprehensive (loss) / profit
for the period (4,977) (831) (17,801)
Other comprehensive income (5,437) - 5,339
Movement treasury shares - - -
Balance at end of period 31,819 53,870 42,233
Condensed Interim Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
6 months 6 months 12 months
August 2016 August 2015 February 2016
R'000 R'000 R'000
Cash flows from operating activities
Cash generated/(used) in operations 23,470 18,532 89,901
Interest income 29 - 140
Dividends received 19 - 56
Finance costs (13,360) (14,126) (28,470)
Net cash from operating activities 10,158 4,406 61,627
Cash flows from investing activities
Purchase of property, plant and (1,017) (23,242) (27,984)
Equipment
Sale of Property, plant and equipment 2,281 4,054 6,179
Increase in other financial assets - - 222
Net cash from investing activities 1,265 (19,189) (22,027)
Cash flows from financing activities
Repayment of borrowings (14,965) (6,071) (27,586)
Net cash from financing activities (14,965) (6,071) (27,586)
Net cash flows from (3,543) (20,854) 12,014
operations
Cash and cash equivalents
beginning of period (23,229) (35,243) (35,243)
Cash and cash equivalents at end
of period (26,772) (56,097) (23,229)
Segmental reporting
Unaudited Unaudited Audited
6 months 6 months 12 months
August 2016 August 2015 February 2016
R'000 R'000 R'000
Revenue: External sales
Aggregates 68,561 110,003 195,719
Readymix concrete 117,539 142,197 256,313
Concrete manufactured products - 11,774 -
Contracting 12,864 34,192 59,827
Total revenue: External sales 198,963 298,166 511,859
Revenue: Inter-segment sales
Aggregates 51,501 48,664 95,780
Readymix concrete 308 387 7
Concrete manufactured products - - -
Contracting 8,485 16,485 27,847
Total revenue: Inter-segment sales 60,294 65,536 123,634
Revenue: Total sales
Aggregates 120,062 158,667 291,499
Readymix concrete 117,847 142,584 256,320
Concrete manufactured products - 11,774 -
Contracting 21,348 50,677 87,674
Total revenue: Total sales 259,257 363,702 635,493
Property, plant and equipment
Aggregates 202,418 251,072 249,157
Readymix concrete 23,178 30,201 26,608
Concrete manufactured products - 21,595 -
Contracting 14,782 20,036 18,659
Total property, plant and equipment 240,378 322,904 294,424
Total assets
Aggregates 244,301 302,295 303,246
Readymix concrete 53,052 86,898 57,923
Concrete manufactured products - 25,287 -
Contracting 32,996 53,903 20,745
Total assets 330,349 468,382 381,914
*The concrete manufactured products segment was classified as a discontinued
operation in the prior year hence revenue and operating profits have been
excluded from the segmental report. The related assets and liabilities of the
segment are accounted for under “Assets in disposal group classified as held for
sale” and “Liabilities directly associated with assets in the disposal group
classified as held for sale” in the statement of financial position.
INTRODUCTION
The Group provides a comprehensive range of products and contracting services
to the building and construction industry in South Africa. The major operating
divisions comprise aggregates, ready mixed concrete, the manufacture of precast
concrete products and contracting services.
REVIEW OF RESULTS
Group revenue from continuing operations decreased by 27% (or R75 million) to
R199 million (2015: R274 million) for the six months ended 31 August 2016 (“2016
period”). The ready-mixed concrete division sales decreased by 17% (or R24.7
million) to R117.5 million (2015: R142.2 million). The Group’s aggregates and
contracting division’s revenue decreased by a 44% or R62.8 million period-on-
period (the current year revenue excludes revenue of R10.1 million from
discontinued operations that formed part of the segment) to R81.4 million (2015:
R144.2 million). The subdued economy and lack of infrastructure spend roll out
had a negative impact on the group’s results over the last six months.
The Group’s gross profit margins increased to 25% (2015: 20.6%) due to the new
solar farm project in the ready mixed concrete division that was initiated
towards the end of the second quarter. Margins remained fairly consistent in the
aggregates and contracting divisions.
The Group’s EBITDA decreased by 25.2% or R7.4 million to R22 million (2015:
R29.4 million).
The current period performance resulted in a headline loss per share of 1.91
cents (2015: loss of 0.53 cents) and a loss per share from continuing
operations of 1.55 cents and loss per share from discontinued operations of
0.27 cents (2015: loss of 0.3 cents from continuing and discontinuing
operations). The net asset value per share decreased to 11.65 cents (2015:
19.73 cents).
DISCONTINUED OPERATIONS
The board’s plans to dispose of non-core assets and operations bore fruition in
the last six months as a decision was made to sell two additional quarries in
conjunction with the Precast Business which was re-classified as a discontinued
operation on 29 February 2016.
Plans to dispose of the Bethlehem quarry and ancillary businesses as a going
concern were announced on SENS on 7 July 2016. The sale has been finalised and
the majority of the proceeds from the disposal were received in October 2016.
Total proceeds of R30 million are expected from the sale.
The sale of the Precast Business was finalised in October 2016 and proceeds of
R19.6 million were received from the sale.
The board is currently well along with its plans to dispose of an additional
quarry in the Gauteng region. The measurement of the fixed assets of the quarry
to their fair value resulted in a downward revaluation of R5.8 million.
CHANGE IN COMPARATIVES
The results of discontinued operations have been separately disclosed on the
face of the statement of comprehensive income.
PROSPECTS
The group experienced a decline in performance as a result of low economic
growth.
The Group’s strategy of focusing on key operational areas and the monitoring
of individual business units continues to drive the business’s turnaround
initiatives. The board took a decision to sell all non-core assets and focus
on areas where synergies can be achieved between the aggregate and ready mix
concrete divisions. The sale of the Bethlehem Quarry and Precast Business form
part of the restructure plan which has been in full swing over the last six
months.
The ready-mixed concrete division saw a decline in its results during the six
months under review. Margins continued to be subdued over the six months due to
the over-supply of cement in the industry resulting in increased margin
pressures. The division was awarded a contract worth R78 million in the solar
farm market in the Northern Cape. This is expected to improve the turnover of
the division in the ensuing six months.
The Aggregates business continued to experience tough trading conditions in
the last six months contributed by low economic growth and increased levels of
competition.
The results of the contracting division declined during the six months under
review as most contracts in the division came to end. In addition, more focus
will be placed on the group’s core business of the production and selling of
ready mixed concrete and aggregates.
GOING CONCERN
During the interim period ended 31 August 2016, the Group incurred a headline
loss of R5.2 million (2015: Loss R1.4 million). The disappointing performance
is a reflection of the difficult trading conditions currently experienced in the
industry. The continued viability of the Wearne Group and its ability to continue
as a going concern is dependent upon the Group being successful in its efforts
to focus on core operations and sale of non-core operations.
As a result there is material uncertainty regarding the ability of the Group to
continue as a going concern and therefore, whether it will realise its assets
and settle its liabilities in the normal course of business and at the amounts
stated in the financial statements. This is emphasised further by the Group`s
negative liquidity position and high gearing. However the directors believe that
the group will be successful in the above matters and have prepared the interim
results on a going concern basis.
Solvency and Liquidity
The Group currently has a net asset value of R37.6 million. Current liabilities
of R233.1 million (including current portion of borrowings of R63.4 million)
exceed current assets of R121.1 million by R112 million. The group encountered
cash flow pressures over the last six months. A restructure plan was authorised
by the board of directors on 31 May 2016 and a committee making up the non-
executive directors was formed to monitor the implementation of the plan, which
includes the selling off of non -core assets. The implementation of the plan is
expected to improve the solvency and liquidity of the group. In addition the
Group was in breach of one of its bank covenants, however the breach was condoned
by the financial institution.
Cash Flow
The group generated cash flows from operations of R10 million and maintained
fairly consistent working capital levels. The group maintained its strict cash
flow management policy, however due to cash flow pressures delays were
encountered in meeting working capital obligations. Cash flow management
remains key in this challenging period. Cash resources are expected to improve
with the sale of non- core and underperforming assets. The group maintains the
support of its financiers.
Continued Focus
Management will continue to focus on core operations and implementation of the
re-structure plan. The Group will continually seek ways in which the synergies
between the Ready-mix and Aggregates division can be achieved and market share
improved. The full implementation of the restructure plan will result in
operations being more strategically located and allow for an appropriate amount
of resources and management focus to be allocated to these operations. The sale
of non- core assets will not only assist in the profitability of the Group going
forward but improve the gearing thereof. Proceeds of R49,6 million are expected
to be received from the sale of the Bethlehem Quarry and Wearne Precast. The
group is highly geared due to historical debt, hence part of the proceeds
received from the sale of the businesses will be allocated towards settling this
debt. This will place the group in a more favourable position in the future as
cash will be freed up for working capital requirements.
In addition to the re-structuring plan, management continues to review all
aspects of the business in order to ensure that resources are being utilized
effectively. This ensures that all cost areas are closely monitored in order to
reduce expenditure and relieve cash reserves for the Group’s working capital.
In light of the above, the going concern basis has been adopted in preparing
these interim financial statements. Accordingly no adjustments have been made
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might be necessary should
the group not continue as a going concern. The directors do not believe that
the Group or any company within the Group (with the exception of the Precast
division which will be dormant after the sale) will not be a going concern in
the foreseeable future.
BASIS OF PREPARATION
These interim results have been prepared in accordance with and contain the
information required in terms of International Financial Reporting Standards
(“IFRS”), the Companies Act of South Africa(Act 71 of 2008), as amended, and
International Accounting Standards (IAS 34 : Interim Financial Reporting), the
SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Reporting Pronouncements as issued by the Financial
Reporting Standards Council ,the requirements of the Companies Act of South
Africa and in compliance with the Listings Requirements of the JSE Limited.
All accounting policies applied by the Group in the preparation of these
condensed consolidated interim financial statements are consistent with those
applied by the Group in its consolidated financial statements as at and for
the year ended 29 February 2016.
These condensed interim consolidated financial statements incorporate the
financial information of the company and its subsidiaries that, in substance,
are controlled by the Group. Results of subsidiaries are included from the
effective date of acquisition or up to the effective date of disposal. All
significant transactions and balances between group enterprises are eliminated
on consolidation.
The directors take full responsibility for the preparation of the provisional
report.
The interim financial results have been prepared under the supervision of the
Group Financial Director, Ms MC Milazi(CA) SA. These condensed consolidated
interim financial results have not been audited or reviewed by the Group’s
auditors.
DIVIDENDS
In line with past practice, no dividend has been declared for the period.
By order of the board
30 November 2016
S J Wearne
Chief Executive Officer
MC Milazi
Chief Financial Officer
CORPORATE INFORMATION
Non-executive directors: M M Patel (Chairman); M C Khwinana; WP van der Merwe
Executive directors: S J Wearne; MC Milazi
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 and Statutory Solutions (Pty) Ltd
Telephone: (011) 459 4500 • Facsimile: (011) 478 5481
Transfer secretaries: Computershare Investor Services (Pty) Limited
Designated Adviser: Exchange Sponsors
These results and an overview of Wearne are available at www.wearne.co.za
Date: 30/11/2016 04:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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