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W G WEARNE LIMITED - Abridged Audited Consolidated Financial Statements For the year ended 28 February 2017

Release Date: 04/10/2017 17:39
Code(s): WEA     PDF:  
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Abridged Audited Consolidated Financial Statements  
For the year ended 28 February 2017

WG Wearne Limited
(“Wearne” or “the company” or “the Group”)
(Incorporated in the Republic of South Africa)
(Registration number 1994/005983/06)
JSE Code: WEA
ISIN: ZAE000078002

                          Abridged Audited Consolidated Financial Statements
                                 For the year ended 28 February 2017


Abridged consolidated statement                      12months         12months         12months
        of financial position                       (Audited)        (Audited)        (Audited)
As at 28 February 2017                           February 2017    February 2017    February 2016
                                                        R’000            R’000            R’000
Assets
Non-Current Assets                                   263,136          263,136          305,444
Property, plant and equipment                         250,524          250,524          294,426
Other financial assets                                  6,366            6,366            6,167
Deferred taxation asset                                 1,851            1,851            4,851
Trade and other receivables                             4,395            4,395                0

Current assets                                         70,291           80,119           76,470
Inventories                                             17,967           17,967           27,642
Trade and other receivables                             51,684           61,512           48,195
Cash and cash equivalents                                  640              640              633

Assets in disposal group classified                     7,877              7,877         21,291
as held for sale

Total assets                                         341,304          351,132          403,205

Equity and Liabilities
Equity                                                 10,049           10,049           42,233
Issued capital                                         178,357          178,357          178,357
Reserves                                                 1,567            1,567            1,392
Revaluation reserves                                    52,006           52,871           57,326
Accumulated losses                                   (221,881)        (222,746)        (194,842)

Non-current liabilities                                61,123           61,122         148,051
Other financial liabilities                             43,741           43,740         129,950
Deferred taxation liability                              9,497            9,497           7,039
Environmental provision                                  7,885            7,885          11,062


Current Liabilities                                  269,548          279,377          196,294
Other financial liabilities                           108,971          108,972           56,681
Current taxation payable                                   55               55               55
Trade and other payables                              138,178          148,006          116,066
Bank overdraft                                         22,344           22,344           23,492
Liabilities directly associated with                     584              584           16,627
assets in the disposal group
classified as held for sale
Total liabilities                                    331,255          341,083          360,972
Total equity and liabilities                         341,304          351,132          360,972
Abridged Consolidated Statement
of Comprehensive Income
For the year ended 28 February 2017         12months         12months         12months
                                           (Audited)        (Audited)        (Audited)
                                        February 2017    February 2017    February 2016
                                               R’000            R’000            R’000
Continuing Operations
Revenue                                       389,429          417,829          511,859
Cost of sales                               (347,633)        (347,633)        (403,763)
Gross profit                                  41,796           70,196          108,096
Other income                                    23,026           23,026           4,292
Operating expenses                           (62,964)         (91,364)        (107,315)
Operating profit                                 1,858            1,858           5,073
Investment income                                  182              182             196
Finance costs                                (25,585)         (25,585)         (26,670)
Loss before taxation                        (23,545)         (23,545)         (21,401)
Taxation                                       (5,268)          (5,268)           2,950
Loss from continuing operations             (28,813)         (28,813)         (18,451)
Discontinued Operations
Profit from Discontinued operations               909              909             644

Loss for the year                           (27,904)         (27,904)         (17,807)
Other comprehensive income:
Items that will be reclassified
subsequently to profit or loss:
Fair value adjustments:
Available-for-sale                                175              175              39
Items that will not be reclassified
subsequently to profit or loss:
(Loss)/Gain on revaluation of                 (4,456)          (4,456)           5,300
property, plant and equipment (net of
taxation)
Total comprehensive loss for the            (32,185)         (32,185)         (12,468)
year

Weighted average number of shares            273 038          273 038          273 038
in issue ('000)*
Continuing operations: Basic loss per         (10.55)          (10.55)           (6.76)
share (cents)
Discontinued operations: Basic profit            0.33             0.33            0.24
per share (cents)

Continuing and discontinued                  (10.22)          (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)         (27,904)         (27,904)
Profit on sale of property, plant and        (19,640)         (19,640)          (2,904)
equipment
Impairment of property, plant and               1,421            1,421
equipment
Headline loss attributable to                (46,123)         (46,123)         (18,966)
ordinary shareholders
Basic and diluted headline loss per           (16.89)          (16.89)           (6.95)
share (cents)
Reviewed Condensed                         12months        12months        12months
Consolidated Statement of                 (Audited)       (Audited)       (Audited)
Changes in                             February 2017   February 2017   February 2016
Equity                                        R’000           R’000           R’000
For the year ended 28 February 2017
Balance at beginning of the year              42,233          42,233          54,701
Loss for the year                           (27,904)        (27,904)        (17,807)
Other comprehensive income                   (4,281)         (4,281)           5,339
Balance at end of the year                    10,049          10,049          42,233

Reviewed Consolidated Statement            12months        12months        12months
of Cash Flows (from continuing            (Audited)       (Audited)       (Audited)
and discontinued operations)           February 2017   February 2017   February 2016
                                              R’000           R’000           R’000
Cash flows from operating activities          23,860           9,837          61,627
Cash flows from investing activities          18,643          38,129        (22,027)
Cash flows from financing activities        (41,348)        (46,811)        (27,586)
Net increase in cash and cash                  1,155           1,155         12,014
equivalents

Cash and cash equivalents at               (22,859)        (22,859)        (34,873)
beginning of the year
Cash and cash equivalents at end           (21,704)        (21,704)        (22,859)
of the year

Segmental reporting                        12months        12months        12months
                                          (Audited)       (Audited)       (Audited)
                                       February 2017   February 2017   February 2016
                                              R’000           R’000           R’000
External sales
Aggregates                                  142,396         162,796         195,719
Ready mixed concrete                        212,646         220,646         256,313
Contracting                                  34,387          34,388          59,827
Total external sales                       389,429         417,829         511,859

Inter-segment sales
Aggregates                                   69,529          69,529          95,780
Ready mixed concrete                         34,883          34,883               7
Contracting                                  44,081          44,081          27,847
Total inter-segment sales                  148,493         148,493         123,634

Total revenue
Aggregates                                  232,325         232,325         291,499
Ready mixed concrete                        255,529         255,529         256,320
Contracting                                  78,469          78,469          87,674
Total revenue                              566,323         566,323         635,493

Operating profit / (loss)
Aggregates                                     3,319           3,319           3,167
Ready mixed concrete                           7,725           7,725         (1,368)
Contracting                                  (9,186)         (9,186)           3,274
Total Operating Profit                         1,858           1,858           5,073
Aggregates                                  231,469         231,469         303,246
Ready mixed concrete                          57,475          57,475          57,923
Contracting                                   54,311          54,311          20,745
Total assets (excluding assets in          343,255         343,255         381,914
disposal group)
   NOTES TO THE FINANCIAL INFORMATION

1. 1. Restatement of reviewed results for the year ended 28 February 2017

          The reviewed financial results for the year ended 28 February 2017 which was released on SENS
          on 3 July 2017 has been restated. The reviewed financial results for the period ended 28
          February 2017 have been restated due to the following items:
       1. Revenue decreased from R417,829 to R389,429 due to the elimination of Intercompany
          administrative charges resulting in a decrease in Gross Profit to R41,769. The restatement of
          Revenue has no impact on the comprehensive loss for the year under review of R32,185 (2016:
          R12,468)
       2. A decrease in Operating expenses to R62,964 due to the re-classification of Intercompany
          expenses previously recognised.
       3. A decrease in both Trade Payables and Receivables of R9,828 due to the elimination of
          intercompany Sundry Debtors and Creditors.

            There were no changes to the Statement of Changes in Equity and hence there was no change to
            any of the key indicators that relate to this, including the Earnings per Share and Headline
            Earnings per share. The effect on the individual line items are contained in the notes below:

 1.1 1.1    Revenue

                                                      28 February 2017      28 February 2017          Difference
                                                               (Audited)           (Reviewed)
                                                                   R’000                 R’000             R’000
       Revenue                                                   389,429               417,829          (28,400)
       Gross Profit                                               41,796                70,196          (28,400)
       Operating expenses                                        (62,964)              (91,364)         (28,400)

            Intercompany administration charges were erroneously not eliminated from the Consolidated
            figures, after review from management and auditors this mistake was detected and subsequently
            corrected.

    1.2     Trade Receivables
                                                       28 February 2017           28 February         Difference
                                                                                        2017
                                                               (Audited)          (Reviewed)
                                                                    R’000                R’000             R’000
       Trade receivables                                           51,684               61,512            (9,828)

           The decrease in Trade receivables were due to the elimination of sundry debtors that was
           erroneously not eliminated at Consolidation level. The error was detected by management after the
           reviewed result were released on 3 July 2017 and subsequently corrected.
1. 3      Trade Payables
                                                     28 February 2017             28 February          Difference
                                                                                        2017
                                                              (Audited)           (Reviewed)
                                                                  R’000                  R’000              R’000
     Trade Payables                                              138,178               148,006             (9,828)


       The decrease in Trade Payables were due to the elimination of sundry creditors that was
       erroneously not eliminated at Consolidation level. The error was detected by management after the
       reviewed result were released on 3 July 2017 and subsequently corrected.

2.     STATEMENT OF COMPLIANCE, BASIS OF PREPARATION AND AUDIT REPORT

     The summary consolidated financial statements are prepared in accordance with the requirements of
     the JSE Limited Listings Requirements for abridged reports, and the requirements of the Companies Act
     applicable to summary financial statements. The Listings Requirements require abridged 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
     the 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
     consolidated financial statements from which the summary consolidated financial statements were
     derived are in terms of International Financial Reporting Standards and are consistent with those
     accounting policies applied in the preparation of the previous consolidated annual financial statements

3.      AUDITOR’S REPORT

     This summarised report is extracted from audited information, but is not itself audited. The annual
     financial statements were audited by Grant Thornton, refer to emphasis of matter as per the Auditors
     report in the Financial Statements. The audited annual financial statements and the auditor’s report
     thereon are available for inspection at the company’s registered office.

     The directors take full responsibility for the preparation of the abridged report and that the financial
     information has been correctly extracted from the underlying annual financial statements.

4.     PREPARER

     These results were prepared under the supervision of JJ Bierman CA(SA), the Chief Financial Officer.


5.     GOING CONCERN

     The Group incurred a loss from continuing operations for the 2017 financial period of R28.8 million
     (2016: R18.5 million). At year end the Group’s Current liabilities of R270 million (2016: R196 million)
     exceed current assets of R70 million (2016: R76 million) by R200 million (2016: R120 million). This
     highlights a material uncertainty casting significant doubt regarding the Group’s ability to continue as a
     going concern.

     The Group is currently technically solvent with a net asset value of R10 million (2016: R42 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.
     Despite these breaches the Group still enjoys the support of both the IDC and Nedbank. Neither has
     condoned the breaches and have reserved their rights. Also included in Current Liabilities is an amount
   of R40 million due to SARS. The group has entered into a repayment agreement with SARS but the
   agreement was only finalized and signed subsequent to year end. This resulted in the majority portion
   (R36.4 million) only becoming long term after the financial year end.

   The Group still generated cash flows from operating activities of R18 million (2016: R55 million) and
   R5,6 million (2016: R6.5 million) from discontinued operations. The Group continued to maintain its
   strict cash flow management policy, however due to cash flow pressures delays were encountered in
   meeting working capital obligations. Cash flow management still remains key in this challenging period.

   Although the Group experienced a positive first quarter of the new financial year the slowdown in the
   economy in the second quarter resulted in a significant decrease in revenue compared to the first
   quarter. This had a negative impact on the Group’s cash flow resulting in the Group not being able to
   meet some of its obligations as it became due. Repayments on the ABSA term loan were 3 months in
   arrears and ABSA issued a letter instructing the group to rectify the situation within 10 working days
   failing which ABSA will end the agreement rendering all amounts payable. The last of these arrear
   payments were made in September 2017. The decrease in cash flow from operations also resulted in
   the group currently being in arrears with its VAT and PAYE obligations as well as the Pension/Provident
   Fund contributions.

   The IDC loan repayment arrears are in excess of R 30 million at the end of September 2017. The IDC’s
   Workout & Restructuring Team is currently considering recommending further restructuring of the
   existing facilities on condition that we commit to a payment arrangement still to be agreed upon. The
   IDC has not taken a decision to terminate the facilities but in the absence of a formal (revised)
   restructuring agreement between the IDC and WG Wearne, the IDC’s rights in terms of the loan
   agreements are reserved. Forecasted repayments to the IDC for the period March 2018 to Aug 2018
   are expected to be R 3 million instead of the current contractual R12 million. Management meets with
   all its funders on a quarterly basis and all funders are aware of the Group’s current position.

   The Dankocom Solar Project in Upington contributed significantly to the group’s revenue for the year
   but unfortunately it ties up a significant amount in retentions being R10 million at the end of September
   2017 and R12.6 million by the end of February 2018. We are forecasting that the project will finish by
   February 2018 at which point the R12.6 million will become due.

   The group has also entered into a joint venture agreement with Right Gold Machinery (Pty) Ltd in July
   2017. Right Gold will be constructing a new crushing plant which will double the current production
   capacity and allow the operation to take full advantage of the growth in the market in Kwa-Zulu Natal.

   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 operations and the
   Precast Division during this financial year. Subsequent to year end the sale of the Brandvlei sand quarry
   was also concluded. This sale will result in a reduction in the ABSA Term Loan installments of R200 000
   per month.

   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.

   The board has initiated the following cost cutting processes:
1. Reduction in Employment Costs of R500 000 per month, this should be fully implemented by November
   2017.
2. Restructuring the sand supply chain for the Ready Mixed Concrete business which will result in a R200
   000 a month reduction in Raw Material Cost and a further R100 000 a month saving in Transport Costs.
   This has been implemented from September 2017.
3. The relocation of the Group’s Head Office to Randfontein which will result in a R100 000 a month saving.
   The Head office will be relocated by December 2017.
4. Reduction in vehicle rental of R100 000 a month by reducing the LDV fleet from November 2017.
5. With the closure of the Mobile Crushing Division non-core mobile crushing equipment will also be sold.
   This should result in an inflow of R2 million.

     The Group has signed a funding commitment letter with Milost Global Inc (“Milost”) on 21 September
     2017 for equity and debt funding of up to R300 000 000, in terms of which Milost will, subject to certain
     terms and conditions:
-    invest R50 million in Wearne for the subscription of ordinary shares in Wearne; and
-    lend and advance R250 million in convertible notes.


     Up until the 27th September 2017 Milost has acquired 3 428 130 shares on the open market to indicate
     their support and commitment. Final agreements still need to be concluded before funds will flow.
     Management expects that the agreements will be concluded by the middle of October 2017. Funds are
     expected to flow within 14 days after the agreements have been concluded. The Group may at any stage
     issue a draw down notice but the equity tranches may not exceed R5 million. There are no set limits
     between drawdowns. The equity drawdown is priced at the 5 day VWAP of the Group’s shares as traded
     on the JSE on the business day preceding the drawdown notice plus a 275% premium on each equity
     draw down.

     In the event of the “Milost funding projected cash flow” not materializing, the board has resolved to
     consider business rescue proceedings in the best interest of all stakeholders.
     The first drawdown in October will be utilized to settle the current SARS and Pension Fund arrears
     amounting to approximately R8.5 million.

     The directors have considered the operational budget and cash flow forecasts for the ensuing year which
     are based on the current expected economic and market conditions. The board has adopted the going
     concern basis in the preparation of the annual financial statements subject to the following material
     uncertainties casting significant doubt about the Group’s ability to continue as a going concern:
1.   The continued support from the Group’s funders, specifically the IDC;
2.   The successful conclusion of final agreements and the timeous drawdowns on the Milost Facility;
3.   Receiving the contractual retention from Dankocom in February or March 2018; and
4.   The successful implementation of the overhead reduction measures implemented by the board.

6. EVENTS SUBSEQUENT TO PERIOD END

     The directors are not aware of any significant events, other than noted above, that have occurred
     between the year ended 28 February 2017 and the date of this report that may materially affect the
     results of the Group for the year or its financial position as at 28 February 2017.
7.   ISSUE OF AUDITED ANNUAL FINANCIAL STATEMENTS

     Shareholders are advised that the audited consolidated financial
     statements and the notices of the annual general meetings for Wearne Limited
     have been sent to shareholders. The Wearne Limited Integrated Report and the audited consolidated
     financial statements for 2017 are available online on the group’s website (www.wearne.co.za).

8.   ANNUAL GENERAL MEETING


     Record date for posting Wednesday, 04 October 2017.

     Notice of annual general meeting posted to shareholders Wednesday, 5 October 2017

     Last date to trade in order to be eligible to vote at the annual general meeting Monday, 24 October 2017

     Record date in order to vote at the annual general meeting Friday, 27 October 2017

     Form of proxy to be lodged by no later than 10h00 on Monday, 30 October 2017
In compliance with section 3.22 of the JSE Listing Requirements shareholders are advised that the
annual general meeting of the shareholders of Wearne will be held on Friday 3 November 2017 at 10h00
at 3 Kiepersol House; Stone Mill Office Park; 300 Acacia Road; Cresta to deal with the business as set
out in the notice of annual general meeting forming part of the annual report.




04 October 2017

S J Wearne
Chief Executive Officer
JJ Bierman
Chief Financial Officer

CORPORATE INFORMATION

Non-executive directors: MM Patel (Chairman); WP van der Merwe; Terrence Chauke
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: 04/10/2017 05:39:00 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
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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,
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