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Reviewed condensed consolidated financial results for the year ended 28 February 2017
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 financial results for the year
ended 28 February 2017
Reviewed Condensed Consolidated Statement of Financial
Position
Reviewed Audited
12 months 12 months
February 2017 February 2016
R'000 R'000
Assets
Non-Current Assets 263,136 305,444
Property, plant and equipment 250,524 294,426
Other financial assets 6,366 6,167
Deferred taxation asset 1,851 4,851
Trade and other receivables 4,395 0
Current assets 80,119 76,470
Inventories 17,967 27,642
Trade and other receivables 61,512 48,195
Cash and cash equivalents 640 633
Assets in disposal group 7,877 21,291
classified as held for sale
Total assets 351,132 403,205
Equity and Liabilities
Equity 10,049 42,233
Issued capital 178,357 178,357
Reserves 1,567 1,392
Revaluation reserves 52,871 57,326
Accumulated losses (222,746) (194,842)
Non-current liabilities 61,122 148,051
Other financial liabilities 43,740 129,950
Deferred taxation liability 9,497 7,039
Environmental provision 7,885 11,062
Current Liabilities 279,377 196,294
Other financial liabilities 108,972 56,681
Current taxation payable 55 55
Trade and other payables 148,006 116,066
Bank overdraft 22,344 23,492
Liabilities directly associated 584 16,627
with assets in the disposal group
classified as held for sale
Total liabilities 341,083 360,972
Total equity and liabilities 351,132 403,205
Number of shares in issue ('000)
After eliminating treasury shares 273 038 273 038
Net asset value per share (cents) 3.68 15.47
Net tangible asset value per 3.68 15.47
share (cents)
Reviewed Condensed Consolidated Statement of Comprehensive
Income
Reviewed Audited
12 months 12 months
February 2017 February 2016
R'000 R'000
Continuing Operations
Revenue 417,829 511,859
Cost of sales (347,633) (403,763)
Gross profit 70,196 108,096
Other income 23,026 4,292
Operating expenses (91,364) (107,315)
Operating profit 1,858 5,073
Investment income 182 196
Finance costs (25,585) (26,670)
Loss before taxation (23,545) (21,401)
Taxation (5,268) 2,950
Loss from continuing operations (28,813) (18,451)
Discontinued Operations
Profit from Discontinued 909 644
operations
Loss for the year (27,904) (17,807)
Other comprehensive income: Items
that will be reclassified
subsequently to profit or loss:
Fair value adjustments:
Available-for-sale 175 39
Items that will not be
reclassified subsequently to
profit or loss:
(Loss)/Gain on revaluation of (4,456) 5,300
property, plant and equipment
(net of taxation)
Total comprehensive loss for the (32,185) (12,468)
year
Weighted average number of shares 273 038 273 038
in issue ('000)*
Continuing operations: Basic loss (10.55) (6.76)
per share (cents)
Discontinued operations: Basic 0.33 0.24
profit per share (cents)
Continuing and discontinued (10.22) (6.52)
operations: Basic loss per share
(cents)
*There were no dilutive
instruments in issue during the
year.
Reconciliation of
headline(loss)/earnings:
Loss for the year (27,904) (17,807)
Profit on sale of property, plant (19,640) (2,904)
and equipment
Impairment of property, plant and 1,421
equipment
Headline loss attributable to (46,123) (18,966)
ordinary shareholders
Basic and diluted (16.89) (6.95)
headline loss per share (cents)
Reviewed Condensed Consolidated Statement of Changes in
Equity
Reviewed Audited
12 months 12 months
February 2017 February 2016
R'000 R'000
Balance at beginning of the year 42,233 54,701
Loss for the year (27,904) (17,807)
Other comprehensive income (4,281) 5,339
Balance at end of the year 10,049 42,233
Reviewed Condensed Consolidated Statement of Cash Flows (from
continuing and discontinued operations)
Reviewed Audited
12 months 12 months
February 2017 February 2016
R'000 R'000
Cash flows from operating 9,837 61,627
activities
Cash flows from investing 38,129 (22,027)
activities
Cash flows from financing (46,811) (27,586)
activities
Net increase in cash and cash 1,155 12,014
equivalents
Cash and cash equivalents at (22,859) (34,873)
beginning of the year
Cash and cash equivalents at end (21,704) (22,859)
of the year
Segmental reporting Reviewed Audited
12 months 12 months
February 2017 February 2016
R'000 R'000
External sales
Aggregates 162,796 195,719
Ready mixed concrete 220,646 256,313
Contracting 34,388 59,827
Total external sales 417,829 511,859
Inter-segment sales
Aggregates 69,529 95,780
Ready mixed concrete 34,883 7
Contracting 44,081 27,847
Total inter-segment sales 148,493 123,634
Total revenue
Aggregates 232,325 291,499
Ready mixed concrete 255,529 256,320
Contracting 78,469 87,674
Total revenue 566,323 635,493
Operating profit / (loss)
Aggregates 3,319 3,167
Ready mixed concrete 7,725 (1,368)
Contracting (9,186) 3,274
Total Operating Profit 1,858 5,073
Property, plant and equipment
Aggregates 213,241 249,157
Ready mixed concrete 21,683 26,608
Contracting 15,600 18,659
Total property, plant and 250,524 294,424
equipment
Total assets
Aggregates 231,469 303,246
Ready mixed concrete 57,475 57,923
Contracting 54,311 20,745
Total assets (excluding assets in 343,255 381,914
disposal group)
INTRODUCTION
WG Wearne Limited and its subsidiaries (“the Group”) provide a
comprehensive range of raw materials and other products to the
building and construction industry in South Africa. The major
operating divisions comprise aggregates, ready mixed concrete, and
contracting services.
CHANGES OF DIRECTORATE
The following changes in the directorate occurred during the year
under review:
1. MC Milazi resigned as the Chief Financial Officer on 31 December
2016.
2. JJ Bierman was appointed as Chief Financial Officer on 24 January
2017.
3. M Khwinana (Non-Executive Director) passed away on 16 December
2016.
4. T Chauke was appointed as a Non-Executive Director on 22 March
2017.
REVIEW OF RESULTS
The Group revenue from continuing operations, decreased by 18%(or R94
million) to R417 million for the year ended 28 February 2017. The
decrease was mainly due to a subdued construction market as well as
the closing out of the construction services business that contributed
R 59 million to turnover during the previous financial year.
Revenue in the Aggregates division decreased by R33 million to R163
million (R196 million in 2016), this resulted in an operating profit
of R3.3 million (R3.1 million in 2016) being achieved in the division.
The reduced revenue was due to the sale of the Bethlehem quarry as
well as an increase in competition in certain areas. The Ready Mix
concrete division also saw a decrease in revenue of 14% to R220
million (R256 million in 2016).Operating profit however improved to
R 7.7 million from an operating loss of R 1.3 million in 2016.This
was mainly due to a major contract secured for the supply of concrete
to a solar farm project in the Northern Cape. The contracting division
saw a decrease in revenue from R59.8 million in 2016 to R 34.3 million
in the current year. This was mainly due to closing out contracts
that were awarded to the group for construction services on the solar
farm projects.
The Group’s gross profit margins from continuing operations decreased
to 16.8% (2016: 21.1%)
The total proceeds on disposal of assets were R50 million. The Group
expanded its plant and equipment by R12 million.
The Group reflects a total comprehensive loss (including discontinued
operations) of R32.2 million (2016: R12.5 million loss).
Total liabilities decreased by R20 million to R341 million (2016:
R360 million) and R47 million in borrowings were settled during the
current year.
The current year’s performance resulted in a headline loss per share
of 16.89 cents (2016: loss of 6.95 cents) and a loss per share from
continuing and discontinued operations of 10.22 cents (2016: loss of
6.52 cents). The net asset value per share decreased to 3.68 cents
(2016: 15.47 cents).
NON CURRENT ASSETS AND LIABILITIES HELD FOR SALE
The board made a decision prior to year end to dispose of the Brandvlei
Quarry as a going concern which was announced on SENS on 04 April
2017. Brandvlei’s assets and liabilities were reclassified as a
disposal group held for sale in the statement of financial position.
The property, plant and equipment of Brandvlei were revalued to their
fair value less costs to sell of R7.8 million.
CHANGE IN ACCOUNTING POLICY
During the current year the directors have not changed any accounting
policies.
PROSPECTS
The group again experienced a tough financial year as the ongoing
over supply of cement and lack of infrastructure spend by government
caused intense competition in the markets that the group is involved
in.
The board’s decision to sell some non-core assets and focus on areas
where synergies between the aggregate and ready mixed concrete
businesses could be achieved resulted in the sale of the Bethlehem
quarry as well as the Wearne Precast business. The result of these
sales was that approximately R15 million’s worth of long term debt
was settled and working capital was improved by R35 million.
The prospects of the ready mixed concrete division improved
significantly during the latter part of the year through the award
of an R126 million contract for the supply of concrete to a solar
farm project in the Northern Cape. The project is estimated to finish
in August 2019. The rest of the concrete business also improved its
performance from the previous year but gross profit margins are still
under pressure due to intense competition between current players in
the market. Current conditions are set to continue for the foreseeable
future as growth in cement sales is forecast to be minimal for the
2017 calendar year. The division will however seek to secure further
contracts outside the urban areas where competition is less fierce.
The aggregate division turnover declined further due to the sale of
the Bethlehem quarry as well as subdued turnover in the Limpopo
province. Prospects for the year look significantly better though due
to increased road infrastructure spend by Limpopo Roads Agency as
well as a turnaround in the fortunes of the Pietermaritzburg quarry.
Further capital expenditure is envisaged at this quarry as current
demand is exceeding the supply capacity. The board is reviewing
options on how to fund this capital expenditure.
The contracting division experienced an operating loss of R9.2
million. This was mainly caused by a loss making contract crushing
project in the Northern Cape. This contract has now been closed out
and the group is in the process of selling some of the mobile crushing
equipment. No further contract crushing will be entered into until
all the older plant has been sold and replaced with new equipment.
MATERIAL UNCERTAINTY RELATED TO GOING CONCERN
The ability of the Group to fund short term operations in the
foreseeable future is largely dependent on the continued support of
the Group’s funders, the return to profitable trading and the ability
to generate sufficient cash flows to honor commitments made to SARS
in respect of deferral agreement concluded post year end.
The financial 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.
While management are aware of the cash-flow pressures and significant
liquidity uncertainty at year-end, they continue to assess the
situation as one whereby the group is able to service its debts that
will become due in the next 12 months and also fund operational losses
that may arise. Management has developed and implemented a re-
structuring plan in 2016 and will continue rolling out the plan.
The first phase of the re-structuring process was implemented with
the sale of the Bethlehem quarry and the Precast Division during this
financial year. Subsequent to year end the sale of the Brandvlei sand
quarry was also concluded. The aim of the process is to reduce the
cash flow pressures of the group and improve liquidity and solvency
of the individual subsidiaries. The group is optimistic that once the
re-structure plan has been implemented in full, a viable and
profitable business will emerge.
These conditions, indicate that a material uncertainty exists that
may cast significant doubt on the group’s ability to continue as a
going concern.
Solvency and Liquidity
The Group is currently technically solvent with a net asset value of
R10.05 million. Current liabilities of R287.4 million exceed current
assets of R80.1 million by R207.3 million.
At year end the IDC loans in the amount of R68.75 million as well as
Nedbank loans of R9.2 million were reclassified as Current.
These long term liabilities were reclassified from Non-Current to
Current in compliance with the International Financial Reporting
Standards (IAS 1) which requires an entity to classify a liability
as current when the entity is in breach of a provision of a loan
arrangement on or before the end of the reporting period with the
effect that the liability becomes payable on demand even if the lender
agreed, after the reporting period and before the authorisation of
the financial statements for issue, not to demand payment as a
consequence of the breach.
The IDC has indicated that it is unlikely that they will call up
their loans within the next 12 months.
Also included in Current Liabilities is an amount of R40 million due
to SARS. Subsequent to year end the group has entered into a deferment
agreement with SARS which resulted in the majority portion becoming
long term (R36.4 million), as long as the current and deferral
payments remain up to date.
Cash flow
The group generated cash flows from operating activities of R9.8
million. The group will continue to maintain its strict cash flow
management policy as cash flow management remains key in this
challenging period. Cash resources are expected to improve with the
full implementation of the restructure plan.
Continued focus
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 financial statements. The directors have no reason
to believe that the Group or any company within the Group will not
be a going concern in the foreseeable future.
BASIS OF PREPARATION
Fair value of the Group`s main property assets is estimated based on
appraisals performed by independent, professionally-qualified
property valuators. The significant inputs and assumptions are
developed in close consultation with management. The valuation
processes and fair value changes are reviewed by the board of
directors and audit committee at each reporting date.
Fair value of available for sale financial instruments is considered
level 2 in terms of IFRS 13 and is carried at R6.3 million. The
investments are held in various funds to spread the risk related to
returns and maximise the return to the Group for the purposes of
rehabilitating the land upon which quarrying operations are
performed.
The condensed reviewed consolidated financial results have been
prepared under the supervision of the Chief Financial Officer, JJ
Bierman CA (SA).
REVIEW CONCLUSION
Auditors' conclusion
These provisional condensed consolidated financial statements for the
year ended 28 February 2017 have been reviewed by Grant Thornton.
Their Conclusion and Emphasis of Matter is detailed below:
Conclusion
Based on our review, nothing has come to our attention that causes
us to believe that the condensed consolidated financial statements
of WG Wearne Limited for the year ended 28 February 2017 are not
prepared, in all material respects, in accordance with the
requirements of the JSE Limited Listings Requirements for provisional
reports, and the requirements of the Companies Act of South Africa.
Emphasis of matter – Going Concern
We draw attention to the material uncertainty related to going concern
paragraph in the condensed consolidated financial results. The Group
incurred a headline loss of R 46.1 million for the year ended 28
February 2017 and as of that date, the Group’s current liabilities
exceeds its current assets by R 207 million and that the Group’s
ability to fund its short-term liquidity requirements is dependent
on the financial support of the funders, the return to profitable
trading and the ability to generate sufficient cash flows to honor
the commitments made to SARS in respect of payment deferral agreements
concluded post year end. This indicates the existence of a material
uncertainty that may cast significant doubt on the group's ability
to continue as a going concern.
A copy of the auditors' review report on the reviewed condensed
consolidated financial statements is available for inspection at the
company's registered office.
Basis of preparation and accounting policies
The provisional condensed consolidated financial statements are
prepared in accordance with the requirements of the JSE Limited
Listings Requirements for provisional reports and the requirements
of the Companies Act of South Africa. The Listings Requirements
require provisional reports to be prepared in accordance with the
framework concepts and the measurement and recognition requirements
of International Financial Reporting Standards (IFRS) and the SAICA
Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council and to also, as a minimum, contain the
information required by IAS 34 Interim Financial Reporting. The
accounting policies applied in the preparation of the condensed
consolidated financial statements are in terms of IFRS and are
consistent with those applied in the previous consolidated annual
financial statements.
There has been no material effect on the results of the Group as a
result of the adoption of new standards and amendments apart from
some additional disclosure.
These results have been complied under the supervision of the Chief
Financial Officer, JJ Bierman CA(SA).
DIVIDENDS
In line with the past practice, no dividend has been declared for
the period. By order of the board.
3 July 2017
S J Wearne
Chief Executive Officer
JJ Bierman
Chief Financial Officer
CORPORATE INFORMATION
Non-executive directors: MM Patel (Chairman); WP van der Merwe
Executive directors: SJ Wearne; JJ Bierman
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: Trifecta Capital Services (Pty) Ltd
Designated Adviser: Exchange Sponsors (2008) (Pty) Ltd
These results and an overview of Wearne are available at
www.wearne.co.za
Date: 03/07/2017 07:30:00 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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