| Fri 13 Nov 2009, 14:26 | | WEA - WG Wearne Limited - Unaudited Condensed Financial Results for the Six |
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WEA
WEA
WEA - WG Wearne Limited - Unaudited Condensed Financial Results for the Six
Months Ended 31 August 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")
UNAUDITED CONDENSED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2009
INTRODUCTION
Wearne and its subsidiaries provide a comprehensive range of products to the
building and construction industry in South Africa. The major operating
divisions comprise aggregates, ready mixed concrete and the manufacture of
specialised cast concrete products.
REVIEW OF RESULTS
The group has experienced a particularly difficult six months ended 31 August
2009 ("2009 period"), resulting in a loss of R12 million for the period compared
to the R5.2 million profit reported for the six months ended 31 August 2008
("2008 period"). Despite this, the group`s cash flow from operating activities
was a positive R36.5 million for the six months. This was primarily due to the
effective management of working capital.
Intense competition in a sector that has been dominated by the slowdown in
commercial and industrial development as well as the complete collapse of the
residential housing market has seen revenue drop by 14% when compared to the
2008 period once the acquired Portland Group revenue of R35.6 million for the
six months is excluded. The hardest hit was the ready mixed concrete division
which has seen revenue for the six months decline by 18.6%. This division has
the biggest exposure to the residential housing market and caused operating
profit margins to be under severe pressure. Both the aggregates and concrete
products divisions showed promising revenue growth when compared to the 2008
period. This was mainly due to the government`s increased infrastructure spend
on roads and utilities.
Operating expenses for the 2009 period were kept in check, decreasing
marginally. The resulting group EBITDA amounted to R42.3 million versus R44.5
million for the 2008 period.
Depreciation and amortisation and net interest paid have shown significant
increases compared to the 2008 period and these have impacted negatively on
earnings. These increases arose principally as a result of the acquisition of
the Portland Group in September 2008, which has been particularly hard hit by
the decline in available work in the Western Cape and as a result has returned a
small loss for the period under review.
In November 2008 the directors decided to enter into a hedging contract to
protect the group against a possible increase in the cost of diesel and the
weakening of the rand. The consequent dramatic decrease in the international
price of crude oil and the strengthening of the rand have cost the group dearly,
contributing R8.9 million to the pretax loss for the 2009 period. The total cost
of this contract, which comes to an end in November 2009, will be in the region
of R20 million before tax.
As a consequence of the above, the group has been under considerable strain to
fund its working capital requirements. It is important to note that Wearne`s
bankers and financiers have continued to support the group by rescheduling
instalments on asset based debt and that the Wearne directors are in the final
stages of concluding a payment moratorium agreement with the banks totaling R20
million over the traditionally quiet December and January period.
Over the past few years the group increased its asset base significantly in
order to meet the demands of a growing business, however the downturn in the
economy has resulted in the group being overcapitalised and certain assets being
underutilised. Where appropriate the directors have disposed of unproductive
assets and this has resulted in year to date cash inflows of R9.6 million.
In order to permanently reduce the cost base and to complement these measures
the directors have embarked on a programme of right sizing and harmonisation of
processes as well as a corporate restructure to reduce the number of legal
entities. Wearne is reducing the number of employees both by natural attrition
and the offering of voluntary retrenchment packages. Where this does not achieve
the required reductions Wearne will consider launching a general retrenchment of
excess employees. This will be done with sensitivity and in accordance with
current labour legislation.
Although the operating results for the period were poor, the directors believe
that the worst of the downturn is now over, with a muted recovery expected in
the second quarter of 2010. The directors believe that this, combined with the
cost savings resulting from the restructuring, will see the results of the group
improve in the 2011 financial year.
As a pre-requisite to approving the rescheduling of instalment sale payments and
the payment moratorium, Wearne`s bankers requested an independent assessment of
the future profitability and cash flows of the group by one of the large
international auditing firms. The report produced was based on the forecasts and
representations of the directors and confirmed that with the support of the
banks the medium term cash flow outlook was positive.
In addition, Wearne is finalising a rights issue at 40c per share to raise a
maximum of approximately R31 million, of which a substantial portion has already
been committed. A further announcement in this regard will be released in due
course.
PROSPECTS
The 500 basis point decrease in interest rates since June 2008 will
significantly reduce the group`s interest bill as well as stimulate the demand
for new builds in the residential sector. Some positive signs have already
started to come through and indications are that this market will start to
improve by July next year. Government`s infrastructure spend is still ongoing,
although certain projects have been delayed due to funding constraints. The
group`s current focus is to increase its exposure to this side of the
construction market. Spending on RDP housing has been delayed but the prospects
for next year looks a lot better with the appointment of the new Minister of
Human Settlements.
The group`s order book is currently growing but due to the short term nature of
the contracts it is very difficult to predict for any period longer than six
months. The view of the directors is that margins will still be under pressure
until the middle of next year when it is anticipated that the commercial and
residential market will start to recover.
GOING CONCERN
The going concern basis has been adopted in preparing these interim 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
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 and standards used to prepare these interim
financial statements are consistent with those applied in the prior interim
period and at the previous year-end, except for the application of IAS 1
(revised): Presentation of Financial Statements.
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.
DIVIDENDS
In line with past practice, no dividend has been declared for the period.
By order of the board
13 November 2009
S J Wearne
Chairman and Chief Executive Officer
A W Bruens
Chief Financial Officer
Condensed group statements Unaudited Unaudited Audited
of comprehensive income 6 months 6 months 12 months
August August February
2009 2008 2009
R`000 R`000 R`000
Revenue 291,991 297,136 587,002
Operating expenses (249,612) (252,612) (521,620)
Earnings before interest, 42,379 44,524 65,382
tax, depreciation and
amortisation ("EBITDA")
Depreciation and (27,466) (20,042) (44,814)
amortisation
Operating profit 14,913 24,482 20,568
Other income 1,514 22 20,393
Net interest paid (26,009) (17,078) (41,040)
(Loss) / profit before (9,582) 7,426 (79)
taxation
Taxation 5,708 (2,138) 4,233
(Loss) / profit for the (3,874) 5,288 4,154
period
Other comprehensive (loss) /
income:
Hedging loss (8,962) - (4,996)
Other comprehensive (losses) (8,962) - (4,996)
/ income for the period
Total comprehensive (loss) / (12,836) 5,288 (842)
income for the period
Total comprehensive (loss) /
income attributable to:
Owners of the parent (13,022) 5,288 (762)
Non-controlling interests
186 - (80)
(Loss) / profit for the (12,836) 5,288 (842)
period
Reconciliation of headline
earnings:
Comprehensive (loss) / (13,022) 5,288 (762)
income attributable to
ordinary shareholders
(Profit) / loss on disposal (215) (291) (928)
of property plant and
equipment
IFRS 3 profit on purchase of - - (16,648)
subsidiary
Headline (loss) / earnings (13,237) 5,579 (18,338)
attributable to ordinary
shareholders
Weighted average number of 183,301 145,585 162,978
shares in issue ( `000)
Fully diluted weighted 206,400 151,542 168,097
average number of shares (
`000)
(Loss) / earnings per share (7.10) 3.60 (0.47)
(cents)
Headline (loss) / earnings (7.22) 3.80 (11.25)
per share (cents)
Fully diluted (loss) / (6.31) 3.50 (0.45)
earnings per share (cents)
Fully diluted headline (6.41) 3.70 (10.91)
(loss) / earnings per share
(cents)
Condensed group statements of Unaudited Unaudited Audited
financial position August August February
2009 2008 2009
R`000 R`000 R`000
ASSETS
Non-current assets 660,365 498,031 680,648
Property, plant and equipment 572,585 483,543 595,169
Intangible assets 38,749 - 40,045
Goodwill 38,186 9,186 38,186
Available for sale 3,584 5,302 5,201
investments
Deferred tax asset 7,261 - 2,047
Current assets 111,332 139,078 119,538
Inventories 30,643 33,567 36,463
Trade and other receivables 77,010 104,360 79,764
Loans receivable 2,542 - -
Taxation receivable 869 - 1,471
Cash and cash equivalents 268 1,151 1,840
Total assets
771,697 637,109 800,186
EQUITY AND LIABILITIES
Equity 243,992 186,591 243,659
Issued capital 181 147 179
Share premium 146,164 79,422 142,198
Non-distributable reserves 97 182 (99)
Shareholders equity 9,005 - -
contribution
Accumulated profits 87,614 106,840 100,636
Non-controlling interest 931 - 745
Non-current liabilities 288,455 285,874 318,586
Environmental obligation 18,564 16,737 17,898
Secured loans 65,708 44,612 77,953
Instalment sale creditors 169,463 201,672 187,774
Deferred tax liability 34,720 22,853 34,961
Current liabilities 239,250 164,644 237,941
Trade and other payables 94,076 104,861 79,561
Loans payable 5,313 - -
Current portion of long term 83,038 50,547 95,341
liabilities
Taxation payable - 1,720 1,129
Bank overdraft 56,823 7,516 61,910
Total equity and liabilities 771,697 637,109 800,186
Number of shares in issue 183,962 150,500 182,962
(`000)
Net asset value per share 133 124 133
(cents)
Net tangible asset value per 97 118 97
share (cents)
Condensed group statements of Unaudited Unaudited Audited
changes in equity 6 months 6 months 12
August August months
2009 2008 February
2009
R`000 R`000 R`000
Balance at beginning of 243,659 179,082 179,082
period
Issue of share capital and 3,966 2,326 65,351
share issue expense
Share-based payment reserve - 61 122
(Loss) / profit for the (13,022) 5,288 (762)
period
Investment fair-value 197 (166) (663)
adjustment
Shareholders equity raised 9,005 - -
Non-controlling interest 186 - 745
Treasury shares 1 - (216)
Balance at end of period 243,992 186,591 243,659
Condensed group statements Unaudited Unaudited Audited
of cash flows 6 months 6 months 12 months
August August February
2009 2008 2009
R`000 R`000 R`000
Cash flows from operating 36,591 36,694 30,111
activities
Cash flows from investing (3,857) (114,998) (266,226)
activities
Cash flows from financing (29,220) 69,233 166,658
activities
Net increase / (decrease) in 3,514 (9,071) (69,457)
cash and cash equivalents
Cash and cash equivalents - - 6,681
acquired in business
combination
Cash and cash equivalents at (60,069) 2,706 2,706
beginning of period
Cash and cash equivalents at (56,555) (6,365) (60,070)
end of period
Segmental reporting Unaudited Unaudited Audited
6 months 6 months 12 months
August August February
2009 2008 2009
R`000 R`000 R`000
Revenue
Ready-mixed concrete 166,166 204,158 420,369
Aggregates 243,520 210,378 411,013
Concrete products 7,331 3,746 10,588
417,017 418,282 841,970
less inter-segment revenue (125,026) (121,146) (254,968)
Total revenue 291,991 297,136 587,002
Operating profit
Ready-mixed concrete (4,655) 7,869 6,886
Aggregates 20,758 16,127 15,716
Concrete products (1,190) 486 (2,034)
Total operating profit 14,913 24,482 20,568
Property, plant and
equipment
Ready-mixed concrete 140,703 115,828 142,917
Aggregates 389,634 335,054 398,894
Concrete products 42,248 24,988 46,482
572,585 475,870 588,293
Unallocated - 7,673 6,876
Total property, plant and 572,585 483,543 595,169
equipment
CORPORATE INFORMATION
Non-executive directors: B Mkhonto, E Moloi, M M Patel, H W P Scholtz
Executive directors: S J Wearne (Chairman and CEO); J C Wearne; A W Bruens; N
Heyns
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: 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: 13/11/2009 14:26:02 Produced by the JSE SENS Department.
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