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WEA
WEA
WEA - WG Wearne Limited - Reviewed Condensed Consolidated Financial Results: for
the year ended 28 February 2009
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
2009
CONDENSED GROUP INCOME STATEMENTS
Reviewed Audited
February February
(note 1)
2009 2008
R`000 R`000
Revenue 587 002 532 689
Cost of sales (431 499) (352 033)
Gross profit 155 503 180 656
Operating costs (95 118) (74 915)
Earnings before interest, tax, depreciation 60 385 105 741
and amortisation (EBITDA)
Depreciation (44 814) (31 557)
Profit before interest and 15 571 74 184
taxation
Other income 20 393 2 053
Net interest paid (41 039) (21 310)
(Loss) / Profit before (5 075) 54 927
taxation
Taxation 4 233 (14 998)
(Loss)/ Profit for the year (842) 39 929
Attributable to:
Equity holders of the (762) 39 929
company
Minority interest (80) -
Reconciliation of headline
earnings:
(Loss) / Profit attributable to (762) 39 929
equity holders of the company
IFRS 3 profit on purchase of (16 648) -
subsidiary
IAS 16 profit on disposal of (928) (784)
property, plant and equipment
Headline (loss) / earnings (18 338) 39 145
attributable to equity holders of
the company
Weighted average number of shares in 162 978 145 484
issue (000)
Share trust treasury shares 3 453 3 569
(000)
Purchase of subsidiary to be 1 667 1 000
settled by share issue (000)
Fully diluted weighted average 168 098 150 053
shares in issue (000)
Basic (loss) / earnings per share (0.5) 27.4
(cents)
Adjusted for -
IFRS 3 profit on purchase of (10.2) -
subsidiary (cents)
IAS 16 profit on disposal of property, (0.6) (0.5)
plant and equipment (cents)
Headline (loss) / earnings (11.3) 26.9
per share (cents)
Fully diluted (loss) / (0.5) 26.6
earnings per share (cents)
Fully diluted (loss) / headline (10.9) 26.1
earnings per share (cents)
CONDENSED GROUP BALANCE SHEETS
Reviewed Audited
February February
2009 2008
R`000 R`000
ASSETS
Non-current assets 680 648 402 120
Property, plant and equipment 595 169 390 201
Intangible assets 40 045 -
Goodwill 38 186 6 710
Investments 5 201 5 209
Deferred tax 2 047 -
Current assets 119 538 119 051
Inventories 36 463 28 119
Trade and other receivables 79 764 88 226
Taxation 1 471 -
Cash and cash equivalents 1 840 2 706
Total assets 800 186 521 171
EQUITY AND LIABILITIES
Equity 243 659 179 083
Issued capital 180 146
Share premium 142 198 77 096
Non-distributable reserves (100) 121
Retained income 100 636 101 720
Minority interest 745 -
Non-current liabilities 318 586 217 976
Environmental obligations 17 898 14 664
Secured loans 57 337 29 671
Instalment sale creditors 208 390 152 817
Deferred taxation 34 961 20 824
Current liabilities 237 941 124 112
Trade and other payables 79 561 73 692
Current portion of non-current 95 341 47 436
liabilities
Taxation 1 129 2 984
Bank overdraft 61 910 -
Total equity and liabilities 800 186 521 171
Shares in issue (`000) 182 962 150 000
Net asset value per share (cents) 133.2 119.4
Net tangible asset value per 96.5 114.9
share (cents)(excludes deferred
tax liability related to
intangible assets)
CONDENSED GROUP STATEMENTS OF CHANGES IN EQUITY
Non-
Distri- Retained Mino-
butable rity
Share Reserves Earnings Interest Total
Capital
R`000 R`000 R`000 R`000 R`000
Balance at 1 March 2007 77 607 19 61 686 - 139
312
Share capital issued 1 - - - 1
Premium on share capital 984 - - - 984
issued
Share issue expenses (1 350) - - - (1
350)
Share-based payment reserve - 102 - - 102
Profit for the year - - 39 929 - 39 929
Investment fair value - - 105 - 105
adjustment
Balance at 29 February 2008 77 242 121 101 720 - 179
083
Reclassification of fair - 322 (322) - -
value adjustment
Share capital issued 35 - 35
Share capital repurchased (1) (1)
Premium on share capital 65 376 - - - 65 376
issued
Premium on share capital (216) (216)
repurchased
Share issue expenses (58) - - - (58)
Share-based payment reserve - 122 - - 122
Loss for the year - - (762) (80) (842)
Investment fair value - (665) - - (665)
adjustment
Business combination - - 825 825
Balance at 28 February 2009 142 378 (100) 100 636 745 243
659
CONDENSED GROUP CASH FLOW STATEMENT
Reviewed Audited
February February
(note 1)
2009 2008
R`000 R`000
Cash flows from operating 30 108 57 348
activities
Cash generated from operating 76 536 84 628
activities
Net interest and dividends paid (40 896) (21 207)
Taxation paid (5 532) (6 073)
Cash flows from investing (266 226) (162 557)
activities
Purchase of property, plant and (237 477) (169 530)
equipment
Proceeds on disposals of property, plant 12 676 12 774
and equipment
Purchase of intangible (10 702) -
assets
Movement in investments 8 (1 510)
Investment in outside 745 -
shareholders` interest
Goodwill purchased (31 476) (4 291)
Cash flows from financing 166 660 98 433
activities
Share capital 2 1
Share premium 1 834 (366)
Net borrowings raised 164 824 98 798
Net cash outflows (69 458) (6 776)
Cash acquired on business 6 682 -
combination
Cash and cash equivalents at 2 706 9 482
beginning of year
Cash and cash equivalents at end (60 070) 2 706
of year
CONDENSED GROUP SEGMENTAL
ANALYSIS
Business segments
Ready - Aggre- Concrete Elimina- Conso-
mixed gates products tions / lidated
Concrete Unallo-
cated
R`000 R`000 R`000 R`000 R`000
2009
Revenue 420 369 411 013 10 588 (254 968) 587 002
Gross profit 68 663 84 330 2 510 155 503
Profit before interest 6 885 10 720 (2 034) 15 571
and taxation
Property, plant and 142 918 398 894 46 482 6 875 595 169
equipment
2008
Revenue 373 752 330 551 3 067 (174 681) 532 689
Gross profit 74 091 106 055 510 180 656
Profit before interest 22 677 51 939 (432) 74 184
and taxation
Property, plant and 98 471 279 332 5 290 7 108 390 201
equipment
Note 1: Reclassifications have been made to various revenue items, cost of
sales and operating costs in 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. The table below sets out the relevant items reclassified and the quantum
thereof:
Previously Net
stated Restated Change
Income statement R`000 R`000 R`000
Revenue 538 805 532 689 (6 116)
Cost of sales (368 038) (352 033) 16 005
Operating costs (62 609) (74 915) (12 306)
Net interest paid (23 727) (21 310) 2 417
Profit before taxation -
Cash flow statement
Cash generated from 87 043 84 628 (2 415)
operating activities
Net interest and dividends (23 622) (21 207) 2 415
paid
Cash flows from operating -
activities
Overview
The directors hereby present the reviewed condensed financial results for the
year ended 28 February 2009. The year under review has been one of the most
challenging years experienced in the ninety nine year history of the group.
The second half of the financial year was especially difficult as the group
experienced a major downturn in demand for its products. The reasons for the
lack of sales in the different divisions are largely attributed to the
following:
-The international credit crisis and the subsequent collapse of commodity
prices caused several mining projects to be put on hold or completely
cancelled. This had a direct effect on demand for the company`s products in
the Limpopo and North West Provinces.
-The rising interest rate environment and subsequent collapse of the
residential market severely affected demand for building materials especially
in Gauteng and the Western Cape.
-The cancellation of the contract to supply ready mixed concrete to the
Houghton Golf Estate Development. The project was stopped due to non payment
by the developer and resulted in a loss of further revenue from this project
of approximately R20 million. The group has been fully paid by the
contractor.
-The slow delivery of RDP houses in Gauteng caused by a delay in payment by
Government.
This decline in sales volumes has resulted in a strain on the group`s cash
resources and a decision was taken to place the loss-making operations on
"care and maintenance". This relates specifically to two sand operations on
the West Rand. The group also has excess capacity in its ready mixed concrete
fleet. Certain of the older vehicles were sold and further vehicles will be
sold to bring the fleet in line with the forecast requirements for the next
twelve months.
The group entered into a fuel hedge on fifty percent of the annual usage. The
instrument utilised is a zero cost collar and the range of the collar is
between R6.45 and R7.71 per litre of the ICE Gasoil price. The hedge has been
entered into for a period of twelve months beginning 1 November 2008. The
reasoning behind the hedge was to protect the group from sharp upward
movements in the fuel price as experienced in the first half of the financial
year when the oil price peaked at 140 US$ per barrel. Unfortunately the sharp
decline in commodity prices was not expected and the hedge resulted in a loss
of R5 million before taxation for the 2009 financial year.
Other once-off start up costs in the Concrete Products division amounted to
losses of R5 million before taxation. The precast pipe factory in Polokwane
is currently breaking even and the hollow core slab factory in Cape Town
began sales of its products in March 2009. The directors believe that the
prospects for this factory are exciting due the niche market it serves.
Financial results
Group revenue increased by 10% to R587.0 million (2008: R532.6 million).
Gross profit decreased by 14% to R155.5 million (2008: R180.7 million). Gross
profit margins reduced to 26%, due to intense competition in a declining
market. The reduction in gross profit, combined with higher operating costs
as well as the higher depreciation charge for the larger asset base, and an
increased finance cost caused by higher interest rates and the increase in
long term debt resulted in the group reporting a headline loss per share of
11.3 cents for the year compared to a headline profit of 26.9 cents per share
in 2008.
The segmental report reflects a 12% increase in revenue for the Ready Mixed
Concrete division but a reduction in gross margins to 16%.
The Aggregate division showed an increase in revenue of 24%. This can largely
be attributed to the acquisition of the Portland quarry ("Portland" or
"Portland group") in the Western Cape which was included in the 2009
financial results from 1 September 2008. There was a reduction in gross
profit margins to 21% due to lack of demand and a more aggressive pricing
strategy.
The Concrete Products division increased turnover to R10.6 million from R3.0
million in 2008. This was as a result of the additional pipe factory coming
on line during the year. A satisfactory gross profit margin of 24% was
achieved.
The group generated R76.5 million in cash from operating activities during
the year compared to R84.6 million in 2008. Purchase of property, plant and
equipment amounted to R261 million (of which R23.5 million is attributable to
the Portland acquisition) during the year. This was largely due to the
Portland acquisition as well as the investment in the pipe factory in
Polokwane. Certain capital expenditure on vehicles and plant in the Ready
Mixed Concrete division had already been committed prior to the downturn in
the market.
Business combinations
Wearne acquired the following two businesses during the year:
On 1 May 2008, a quarry operation located in Pietermaritzburg, from
Willowsfountain Quarry (Pty) Limited was effected for R3 000 000.
This business contributed revenue of R27 million and after-tax losses of R1.8
million to the group for the period. Goodwill in respect of 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.
Effective from 1 September 2008, the Portland group of companies (Portland
Holdings (Pty) Limited and its subsidiaries), located in the Western Cape.
Wearne also acquired the property from which the Portland group operates, for
R40.5 million, settled in cash.
The purchase price of the Portland acquisition was settled by way of the
allotment of 32 461 617 Wearne shares at R1.95 per share, on 1 September
2008.
The purchase price was as R`000
follows:
Value of shares allotted 63 300
Transaction costs 2 708
66 008
Allocated as follows (net
of tax):
Purchase of loans from 30 446
vendors
Intangible assets acquired 29 343
Fair value adjustments to tangible 445
assets acquired
Net tangible assets 23 247
acquired
83 481
Excess of tangible and intangible
assets over purchase price
17 473
Allocated as follows:
Profit on purchase of 16 648
subsidiary
Minority interests 825
The Portland group contributed revenue of R42 million and a net loss after
tax of R3.9 million for the six months from the effective date of acquisition
on 1 September 2008.
Prospects
While the operating results for the period were poor and the general
conditions in the commercial and residential construction markets remain
weak, the increased spend on roads and infrastructure by the Government
continue to create opportunities for the group. The group`s quarries except
for the Portland quarry in the Western Cape have major road contracts in
close proximity which should see the volumes increase from the current
financial year. There are also a number of potential new projects for the
mobile crushing and drill and blast divisions which are currently running at
full capacity.
The major concern at present is the Ready Mixed Concrete division where the
prospects for the year ahead remain weak. This business is currently being
right-sized to ensure the discontinuation of all the loss-making operations.
The company is also pricing several infrastructure-related projects. The
Soccer City contract was successfully concluded at the end of April 2009 and
has not been replaced. Focus will be given to capturing more of the RDP
housing market as this, together with the infrastructure sector, are the only
areas identified for growth in the year ahead for this division.
Prospects for the Concrete Products division look fairly good as a result of
this division operating in niche markets where the general downturn in
building activity has not had a major effect.
The recent aggressive lowering of interest rates will have a major positive
effect on the profitability of the group going forward as interest is
currently one of the major expenses. This is also expected to stimulate the
general economy even though a positive effect will probably not be felt in
the building sector in the current financial year.
No major capital expenditure is planned for the year ahead as the group is
not running at full capacity and plans to reduce debt levels significantly
during the year. The only capital expenditure will be to maintain plant and
equipment and this is not expected to exceed R15 million for the year.
Borrowings February February
2009 2008
R`000 R`000
Secured loans 57 337 29 671
Instalment sale finance providers 303 731 200 253
Bank overdraft 61 910 -
422 978 229 924
The group`s borrowings increased for various reasons, including:
The purchase of the Portland group in the Western Cape, specifically
including the Hollowcore division, the largest portion of which was
financed.
The purchase of the property from which the Portland group operates.
The purchase of the Wemmer Pan property in central Johannesburg, on
which a ready mix concrete operation is located.
The commissioning of the Precast business in Limpopo, the largest
portion of which was financed.
The group further acquired other items of property, plant and
equipment during the year, all of which were financed.
The company remains within the borrowing powers allowed by its
articles and memorandum.
Post balance sheet events
The cash flow of the group has deteriorated during the 2009 financial year
and the group is therefore considering a rights issue of R30 million to R35
million for which commitments to underwrite the rights offer have been
received from the major shareholders(which include management)for
approximately R23 million. The terms of the rights offer will be announced
in due course and the rights offer will be finalised towards the end of
August 2009.
Statement on going concern
The condensed financial statements have been prepared on the going-concern
basis since the directors have every reason to believe that the company has
adequate resources in place to continue in operation for the foreseeable
future.
Basis of preparation
The reviewed condensed financial results for the year ended 28 February 2009
have been prepared in accordance with the recognition and measurement
criteria of International Financial Reporting Standards ("IFRS") and the
presentation and disclosure requirements of IAS 34: Interim Financial
Reporting. The accounting policies used to prepare the financial statements
are consistent with those applied in the prior year and are in accordance
with IFRS, except where the group has adopted new or revised IFRS standards.
The group adopted the following new or revised accounting standards in the
current year, which did not have a material impact on the reported results:
IAS 23: Borrowing Costs (early adopted)
IFRS 8: Operating Segments (early adopted)
The reviewed condensed consolidated financial statements incorporate the
financial statements of the company, its subsidiaries, joint ventures 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.
Reviewed opinion
RSM Betty & Dickson (Johannesburg), the group`s independent auditors, have
reviewed the condensed consolidated financial results for the year ended 28
February 2009 and have expressed an unmodified review opinion. The review
report is available for inspection at the company`s registered office.
Dividend policy
In line with group policy, no dividend has been declared for the period.
Human capital
The board of directors would once again like to thank all management and
staff for their contribution during past financial year. It certainly has
been a very challenging year and the commitment and loyalty displayed is
highly appreciated. Signs of a positive recovery are emerging and even though
the group has not been profitable during the year, the directors are
continuously building the brand and working towards the goal of becoming the
leading concrete products and aggregate supplier in the country.
For and on behalf of the
board
SJ Wearne OJG Harvey
Chairman and CEO CFO
28 May 2009
CORPORATE INFORMATION
Non executive directors: B Mkhonto, E Moloi, HWP Scholtz, MM Patel
Executive directors: SJ Wearne (Chairman and CEO), JC Wearne, OJG 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: OJ Le Roux
Telephone: (011) 459 4500
Facsimile: (011) 478 5481
Transfer secretaries: Computershare Investor Services (Pty)
Limited
Designated Adviser: Vunani Corporate Finance
Date: 28/05/2009 09:00:01 Produced by the JSE SENS Department.
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