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WEA
WEA
WEA - WG Wearne Limited - Unaudited financial results for the six months
ended 31 August 2008
W G Wearne Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1994/005983/06)
(JSE code: WEA ISIN: ZAE000078002)
("Wearne" or "the company")
Revenue up 14% to R297 million
Net tangible asset value per share up 13% to 117.9
cents
UNAUDITED CONDENSED INTERIM FINANCIAL RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2008
Condensed Group Income Statements
Unaudited Reviewed Audited
6 months (1) (1)
August 6 months 12 months
2008 August February
R`000 2007 2008
R`000 R`000
Revenue 297 136 261 186 538 805
Cost of sales (207 070) (166 (368 038)
234)
Gross profit 90 066 94 952 170 767
Administration expenses (45 542) (38 224) (62 609)
Earnings before interest, tax, 44 524 56 728 108 158
depreciation and amortisation
("EBITDA")
Depreciation (20 042) (13 397) (31 557)
Profit before interest and 24 482 43 331 76 601
taxation
Other income 22 86 2 053
Net interest paid (17 078) (9 452) (23 727)
Profit before taxation 7 426 33 965 54 927
Taxation (2 138) (9 692) (14 998)
Profit attributable to ordinary 5 288 24 273 39 929
shareholders
Reconciliation of headline
earnings:
Profit attributable to ordinary 5 288 24 273 39 929
shareholders
Less loss / (profit) on 291 (1 054) (784)
disposal of property, plant and
equipment
Headline earnings attributable 5 579 23 219 39 145
to ordinary shareholders
Weighted average shares in 146 589 145 585 145 484
issue (000)
Fully diluted weighted average 151 542 150 000 150 053
shares in issue (000)
Earnings per share (cents) 3.6 16.7 27.5
Headline earnings per share 3.8 15.9 26.9
(cents)
Fully diluted earnings per 3.5 16.2 26.6
share (cents)
Fully diluted headline earnings 3.7 15.5 26.1
per share (cents)
Note:
Reclassifications were made to various items of other income,
revenue, cost of sales and operating costs with regard to the
prior period. These reclassifications were made so as to reflect
the nature of the underlying transactions in a more meaningful
manner. The reclassifications had no net impact on the profit
of the group.
Condensed Group Balance Sheets
Unaudited Reviewed Audited
August (1) February
2008 August 2008
R`000 2007 R`000
R`000
ASSETS
Non-current assets 498 031 354 587 402 120
Property, plant and equipment 483 543 344 067 390 201
Goodwill 9 186 6 636 6 710
Available for sale investments 5 302 3 884 5 209
Current assets 139 078 117 496 119 051
Inventories 33 567 21 716 28 119
Trade and other receivables 104 360 93 953 88 226
Cash and cash equivalents 1 151 1 827 2 706
Total assets 637 109 472 083 521 171
EQUITY AND LIABILITIES
Equity 186 591 162 508 179 083
Issued capital 147 146 146
Share premium 79 422 76 232 77 096
Non-distributable reserves 182 68 121
Accumulated profits 106 840 86 062 101 720
Non-current liabilities 285 874 200 399 217 976
Environmental obligation 16 737 13 854 14 664
Secured loans 44 612 26 749 29 671
Instalment sale creditors 201 672 142 451 152 817
Deferred taxation 22 853 17 345 20 824
Current liabilities 164 644 109 176 124 112
Trade and other payables 104 861 51 803 73 692
Current portion of non-current 50 547 35 218 47 436
liabilities
Taxation 1 720 5 971 2 984
Bank overdraft 7 516 16 184 -
Total equity and liabilities 637 109 472 083 521 171
Number of shares in issue 150 500 150 000 150 000
(000)
Net asset value per share 124.0 108.3 119.4
(cents)
Net tangible asset value per 117.9 103.9 114.9
share (cents)
Note:
Goodwill and secured loans were adjusted with regards to the
prior period for the effect of deemed interest on deferred
payments due on the acquisition of subsidiaries. The net effect
was a reduction in goodwill of R782 995, offset by a net
reduction in secured loans of the same amount.
Condensed Group Statements of Changes in Equity
Unaudited Reviewed Audited
6 months 6 months 12 months
August August February
2008 2007 2008
R`000 R`000 R`000
Balance at beginning of period 179 082 139 313 139 313
Issue of share capital and 2 326 (1 230) (365)
share issue expenses
Share-based payment reserve 61 49 102
Net profit for the period 5 288 24 273 39 929
Investment fair-value (166) 103 104
adjustment
Balance at end of period 186 591 162 508 179 083
Condensed Group Cash Flow Statements
Unaudited Reviewed Audited
6 months (1) 12 months
August 6 months February
2008 August 2008
R`000 2007 R`000
R`000
Cash flows from operating 36 694 1 879 58 346
activities
Cash flow from investing (114 998) (95 906) (161 683)
activities
Cash flow from financing 69 233 70 188 96 561
activities
Net increase in cash and cash (9 071) (23 839) (6 776)
equivalents
Cash and cash equivalents at 2 706 9 482 9 482
beginning of period
Cash and cash equivalents at (6 365) (14 357) 2 706
end of period
Note:
Minor reclassifications were made amongst cash-flow activity
types. These reclassifications were made so as to reflect
the nature of the underlying transactions in a more meaningful
manner. The reclassifications had no net impact on the net
cash flows of the group.
Segmental Reporting
Unaudited Reviewed Audited
6 months 6 months 12 months
August August February
2008 2007 2008
R`000 R`000 R`000
Revenue
Ready-mixed concrete 204 158 191 700 376 983
Aggregates 210 378 161 390 333 409
Concrete products 3 746 - 3 094
418 282 353 090 713 486
less inter-segment revenue (121 146) (91 904) (174 681)
Total revenue 297 136 261 186 538 805
Profit before interest and
taxation
Ready-mixed concrete 7 869 13 559 23 416
Aggregates 16 127 29 772 53 631
Concrete products 486 - (446)
Total profit before interest 24 482 43 331 76 601
and taxation
Property, plant and equipment
Ready-mixed concrete 115 828 78 581 98 471
Aggregates 335 054 257 046 279 332
Concrete products 24 988 4 392 5 291
475 870 340 019 383 094
Unallocated 7 673 4 048 7 107
Total property, plant and 483 543 344 067 390 201
equipment
OVERVIEW
The directors of Wearne present the unaudited interim financial
results for the six months ended 31 August 2008 ("the interim
period"), which were disappointing mainly due to the following
factors:
A dramatic increase in the fuel price which the company was
unable to pass on to its customers timeously. This situation
has improved considerably since the period end.
A slowdown in the residential market caused by rising interest
rates and the limited availability of power supply to new
developments. This slowdown specifically affected the ready
mixed concrete operation where volumes were down significantly
in the first three months of the period. Subsequently two
major contracts have commenced which has provided the critical
mass required for this business to be profitable.
A mobile crushing contract which yielded negative returns due
to slow production throughput and the escalation in the fuel
price which was not adequately recovered in the escalation
clauses. The contract was completed at the end of August 2008.
The temporary closure of the Carletonville dump crushing
operation while waiting for approvals from the National Nuclear
Regulator. These approvals have now been received.
Losses at the newly acquired Tzaneen Quarry. These losses were
caused by a lack of production by under performing mining
equipment. This equipment has now been replaced by new
equipment and the operation is now breaking even. The
directors are still positive that this acquisition will result
in enhanced earnings for the group as the prospects for
infrastructure and mining spend in the area are still good.
Start-up costs at the new pre-cast concrete factory in
Polokwane. The operation is close to full production and is
expected to break even before the end of the financial year.
An aggressive investment in plant and people. The subsequent
growth in turnover has not been realised as quickly as had been
expected however the directors believe that, even though the
environment is more challenging, the company will reap the
benefits of these investments.
The Willowsfountain Quarry acquisition was completed during the
period and was incorporated with effect from 1 May 2008. The
quarry`s performance has been satisfactory to date.
FINANCIAL RESULTS
Group revenue increased by 14 % to R297.1 million (2007: R261.2
million). Gross profit decreased by 5% to R90.0 million (2007:
R95.0 million). Gross profit margins reduced to 30%, for the
reasons described above. The reduction in gross profit,
combined with a higher depreciation charge for the larger asset
base, and an increased finance cost due to higher interest
rates for financed assets, resulted in lower headline earnings
per share to 3.8 cents for the period (2007:15.9 cents).
The segmental report shows marginally increased revenue for
ready mixed concrete, despite reduced volumes for the reasons
described above. This is largely attributable to the
completion of large volume contracts at lower prices, which
were completed for the full comparative period. The aggregates
division shows large volume and revenue increases, which were
dampened by the negative effects of the factors described under
the overview commentary.
The company managed its cash-flows well during this difficult
period, generating R36.7 million from operating activities and
a further R69.2 million from financing activities. These
amounts have largely been applied to the acquisition of
property, plant and equipment, on which R118.0 million was
spent during the period.
PROSPECTS
While the operating results for the period were poor and the
general meltdown of financial markets across the world will
certainly slow the growth of the South African economy, the
directors believe that the need by and will of the Government
to improve the country`s infrastructure will create many
opportunities for the group.
The directors believe that the second half of the year will
reflect a much improved financial performance, having regard to
the reduction in the fuel price and an increase in volumes in
all the businesses. The group also concluded value-enhancing
acquisitions, creating critical mass that will benefit
stakeholders. Specifically, the acquisition in the Western
Cape of the Portland Holdings (Pty) Limited ("Portland") group
of companies has now been completed, the effective acquisition
date being 1 September 2008.
The brick plant joint venture has performed well, making a
profit within its first year of operation. Through these
additions, the group is extending its geographical footprint so
as to position itself as a national supplier of aggregates,
ready-mixed concrete and concrete products. No major capital
expenditure will be spent in the second half of the year as the
group now has spare capacity in all the businesses and will
focus on exploiting these assets.
BUSINESS COMBINATIONS
The acquisition of the quarry assets in Willowsfountain,
Pietersmaritzburg, became effective on 1 May 2008. That
business contributed revenue of R9.5 million and after-tax
profits of R240k to the group for the period. Goodwill
acquired on this acquisition, after an adjustment for deemed
finance costs on deferred payments, amounted to R2.5 million.
Intangible assets acquired that cannot be measured reliably are
reflected as goodwill.
POST BALANCE SHEET EVENTS
Shareholders are referred to the announcements, dated 4 June
2008 and 7 August 2008, relating to the acquisition of Portland
and the minority interests in certain of its subsidiaries which
was concluded on 1 September 2008. The purchase of the related
Vissershok property, on which the stone quarry is located, was
concluded after the interim period-end. The acquisition is
expected to make a significant contribution to the group`s
results in the future.
BASIS OF PREPARATION
The interim results have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), the
Companies Act (Act 61 of 1973), as amended, and International
Accounting Standards (IAS 34 : Interim Financial Reporting).
The accounting policies used to prepare these interim financial
statements are consistent with those applied in the prior
interim period and at previous year-end, except where the group
has adopted new or revised IFRS standards.
These consolidated interim financial statements incorporate the
financial statements of the company, its subsidiaries and
special purpose entities 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 group adopted the following new or revised accounting
standards in the current period, which did not have a material
impact on the reported results:
IAS 23: Borrowing Costs (early adopted)
IFRS 8: Operating Segments (early adopted)
IFRIC 14: The limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
DIVIDEND POLICY
In line with group policy no dividend has been declared for
the period.
By order of the Board
5 November 2008
S J Wearne O J G Harvey
Chief Executive Officer Chief Financial
Officer
CORPORATE INFORMATION
Non executive directors: B Mkhonto; E Moloi; H
W P Scholtz
Executive directors: S J Wearne (Chairman and CEO);
J C Wearne; O J G Harvey; N Heyns
Registration number: 1994/005983/06
Registered address: 3 Kiepersol House,
Stonemill Office Park, 300 Acacia Road,
Cresta,2195
Postal address: PO Box 1674, Cresta, 2118
Company secretary: O J Le Roux
Telephone: (011) 459 4500
Facsimile: (011) 478 5481
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: 05/11/2008 14:24:01 Produced by the JSE SENS Department.
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