| Fri 29 Oct 2010, 15:42 | | SKY - Sea Kay - Reviewed Condensed Annual Financial Statements for the year |
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SKY
SKY
SKY - Sea Kay - Reviewed Condensed Annual Financial Statements for the year
ended 30 June 2010
Sea Kay Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/004967/06)
JSE code: SKY
ISIN: ZAE000102380
("Sea Kay" or "the company" or "the group")
REVIEWED CONDENSED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
REVIEWED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
Year ended Year ended
30 June 30 June
2010 2009
R000 R000
Revenue 647 375 841 389
Operating (loss)/ profit (60 131) 101 394
Investment revenue 7 928 8 922
Finance costs (42 857) (52 578)
(Loss)/ profit before taxation (95 060) 57 738
Taxation 10 404 (16 097)
Comprehensive (loss)/ profit (84 656) 41 641
Allocated as follows:
Equity shareholders of Sea Kay (117 943) 25 183
Minority Interest 33 287 16 458
(84 656) 41 641
Reconciliation of headline (loss)/
earnings
(Loss)/ earnings (117 943) 25 183
Less: profit on sale of property, plant
and equipment (327) (521)
Headline (loss)/ earnings (118 270) 24 662
Weighted average number of shares in
issue (`000) 488 864 488 336
(Loss)/ earnings per share (cents) (24.13) 5.16
Headline (loss) / earnings per share (24.19) 5.05
(cents)
REVIEWED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
30 June 30 June
2010 2009
R`000 R`000
ASSETS
Non-current assets 292 414 328 418
Property, plant and equipment 111 460 123 628
Goodwill 180 859 202 167
Intangible assets 95 244
Deferred tax - 2 379
Current assets 423 034 610 631
Inventories 13 754 20 117
Capital accounts to other vendors 109 495
Trade and other receivables 278 519 364 406
Loans and receivables 1 913 1 915
Amounts due by customers 62 104 103 869
Cash and bank balances 66 635 119 829
Total assets 715 448 939 049
EQUITY AND LIABILITIES
Total equity 229 075 326 499
Issued capital 170 076 170 076
Retained earnings 14 853 149 252
Minority interest 44 146 7 171
Non-current liabilities 49 223 81 581
Loans payable 32 535 29 067
Other financial liabilities 740 1 311
Finance lease 2 836 16 752
Deferred taxation 13 112 34 451
Current liabilities 437 150 530 969
Capital accounts from other vendors 3 274 3 126
Trade and other payables 157 101 176 952
Other financial liabilities 212 201 252 057
Current tax payable 5 275 11 585
Short-term portion loans payable 170 1 734
Finance lease obligation 13 691 18 477
Excess billing over work performed 33 689 62 917
Bank overdrafts 11 439 3 856
Lease smoothing liability 310 265
Total equity and liabilities 715 448 939 049
Net asset value per share (cents) 46.86 66.79
Net tangible asset value per share 9.84 25.43
(cents)
Number of shares in issue at year end 488 864 488 864
(`000)
CONDENSED REVIEWED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Reviewed Audited
Year ended Year ended
30 June 30 June
2010 2009
R`000 R`000
Balance at 1 July 326 499 275 629
Shares issued - 16 977
Ordinary dividends - (7 748)
Net (loss)/ profit for the year (117 943) 25 183
Minorities share in current year profit 33 287 16 458
Adjustment of partial disposal of
subsidiary (12 768) -
Balance at end of year 229 075 326 499
CONDENSED REVIEWED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Audited
Year ended Year ended
30 June 30 June
2010 2009
R`000 R`000
Cash flows from operating activities 19 484 10 836
Cash flows from investment activities (2 042) (40 822)
Cash flows from financing activities (78 219) 82 847
Total movement for the year (60 777) 52 861
Cash and cash equivalents at beginning of
year 115 973 63 112
Cash and cash equivalents at end of year 55 196 115 973
CONDENSED SEGMENTAL ANALYSIS AS AT 30 JUNE 2010
Building, Civil Total
Material Engineering
Supply and
Property
Development
R000 R000 R000
Revenue 160 794 486 581 647 375
(Loss) / profit before tax (165 125) 70 065 (95 060)
Total assets 264 703 450 745 715 448
Total liabilities 293 741 192 632 486 373
Property, plant and 35 493 76 063 111 556
equipment and intangible
assets
Total current liabilities 258 920 178 230 437 150
CONDENSED SEGMENTAL ANALYSIS AS AT 30 JUNE 2009
Building, Civil Total
Material Engineering
Supply and
Property
Development
R000 R000 R000
Revenue 379 757 461 632 841 389
(Loss)/profit before tax (1 484) 59 222 57 738
Total assets 458 340 480 709 939 049
Total liabilities 319 433 293 117 612 550
Property, plant and 41 571 82 057 123 628
equipment
Total current liabilities 270 682 260 287 530 969
BASIS OF PREPARATION AND ACCOUNTING POLICIES
These reviewed results have been prepared in accordance with the framework
concepts and the recognition and measurement requirements of International
Financial Reporting Standards (IFRS), the Companies Act (Act 61 of 1973), as
amended, the presentation and disclosure requirements of International
Accounting Standards (IAS 34: Interim Financial Reporting), and the Listings
Requirements of the JSE Limited. The accounting policies and standards applied
in the preparation of these reviewed results comply with IFRS and are consistent
with those applied in the comparative year, except for statements, amendments
and interpretations that came into effect this year, which have no impact on Sea
Kay.
REVIEW OPINION
SAB&T Incorporated, the group`s independent auditor, have reviewed the condensed
financial results contained in this provisional report, and have expressed an
unqualified report, with an emphasis of matter thereon. Their review report is
available for inspection at the company`s registered office.
The emphasis of matter paragraph states that without qualifying their opinion,
they draw attention to Directors` Commentary which indicates the existence of
certain material uncertainties, the outcomes of which are based on the outcome
of negotiations and mediation matters relating to certain receivables and
liabilities and the potential fund raising which may cast significant doubt on
the company`s ability to continue as a going concern.
INTRODUCTION
Sea Kay currently operates in the construction of mass housing through Sea Kay
Engineering (Pty) Limited and through Lonerock Construction (Pty) Limited
("Lonerock"), through which the group installs township services, constructs
roads and freeways and undertakes civil engineering projects.
Civils showed a modest growth of 5% in turnover - the increase in its
contribution was thus mostly as a result of the significantly reduced turnover
in Sea Kay Engineering.
Sea Kay focuses on the development and construction of subsidised, affordable
(GAP or credit linked) and bonded housing. During the year, Government projects
represented 90% of the Building, Material Supply and Property Development
division`s turnover, with private sector projects accounting for 10% of the
turnover.
The global credit crunch and the resultant local impact thereof shrank
Government`s tax base more than anticipated. This, together with spending on the
2010 Soccer World Cup, exacerbated the already slow delivery in the housing
market. Certain provinces, such as Gauteng, continued to also experience
budgetary issues, which had a negative impact on awards, payment processes and
delivery of subsidised housing in general. The general decline in the local
economy also resulted in the housing market (entry level bonded houses) slowing
down drastically.
The board and the executive team took action to address these losses and
embarked on restructuring and re-aligning the business to lower operational and
head office costs and increase operational efficiency. As part of the
restructuring process, Aaref Osman led the group until his untimely death on 14
September 2010.
Currently, the executive chairperson, Mr Pieter van der Schyf is also the acting
chief executive officer. He is assisted by Mr Mike Fischer, recently appointed
as chief operating officer.
The restructuring programme embarked on included:
Senior management changes and reduced headcount to ensure increased
effectiveness and cost savings;
Improving operational structures, accountability and financial controls on
sites;and
Increased alignment between financial and operational departments to improve
interaction with Government to ensure timeous payments for contracts.
Currently the Board oversees all the matters pertaining to an Audit Committee,
while in the process of restructuring. Attracting and retaining new non-
executive directors at this point has proved to be problematic.
Financial overview
Group revenue decreased by 23,06% from R841,3 million to R647,4 million, mainly
due to Government decreasing its spending on subsidised housing for the 2010
year and cash flow pressures experienced due to very slow payment from most of
the company`s clients.
Operating profit was down by 159.3% from R101,4 million to an operating loss of
R60,1 million, resulting in the operating margin declining to negative 9.3%
(2009: 12%).
The decrease in operating profit was mainly due to reduced building activity
arising from cash flow constraints experienced. These impacted very negatively
on margins as quick turnaround times are considered essential to maintain good
operating margins. In addition, losses were incurred in the building, material
supply and property development division together with the impairment of trade
receivables and loans.
(Loss)/earnings per share and headline (loss)/ earnings per share decreased by
568% to (24.13)c per share (2009: 5.16c cents per share) and (24.19)c per share
(2009: 5.05c per share), respectively.
The group`s net cash position decreased by R60,8 million. The decrease was
mainly as a result of excess billings to complete contracts, repayment of loans
and payment of finance leases.
The group`s debtor days remained fairly constant at 158 days (2009: 157 days).
The effective tax rate was lower than the South African statutory tax rate of
28% due to the combined effects of certain accelerated allowances and other
timing differences relating mainly to capital assets and construction contracts
in progress.
OPERATIONAL OVERVIEW
BUILDING, MATERIAL SUPPLY AND PROPERTY DEVELOPMENT
Sea Kay Engineering Services (Pty) Limited operates through separate entities in
Gauteng and the Western Cape. During the year, the Gauteng operations addressed
serious internal management issues to ensure that losses incurred on certain
projects do not re-occur. Operational and management re-structuring also
received high priority by top management and forms part of an on-going process
to ensure high quality profitable projects.
The results were also impacted by:
A financial dispute between Sea Kay Western Cape (through Ibuyile) and the
implementing agent on the N2 Gateway project in the Cape (Thubelisha, which has
subsequently been wound down by Government), which significantly downscaled
construction activity on the project. A mediation agreement has been entered
into with the Provincial Government in the Western Cape, and it is expected that
the dispute will be resolved by the end of the calendar year.
The Gauteng Department of Housing`s budgetary constraints during 2008 to 2009,
which partially resulted in slow payments from July 2009, together with
continued slow payment processing and inspections, resulted in serious cash flow
issues for the group`s projects in Gauteng. These factors further slowed
Breaking New Ground ("BNG") projects. The company is making progress on
resolving issues surrounding slow payments.
The general credit crunch also impacted on the GAP and entry level bonded
housing market, making new business in that sector very difficult.
CIVIL ENGINEERING
The Civil Engineering Services sector benefited from Government`s
infrastructural spending and contributed stronger than expected results. During
the year, this division was involved in several road projects, such as the
SANRAL bus route in Johannesburg and the Gauteng freeway improvement project.
Other contracts included the Paarl Eco Estate and Heineken Breweries.
While the re-structuring negotiations mentioned below are being conducted with
Lonerock, further synergies between Sea Kay Engineering and Lonerock will be
explored during the next financial year to maximise group resources, increase
turnover and curb expenses.
As a result of the decline in the infrastructure/civil engineering sector, post
the 2010 World Cup, and increased competition on each project in the sector, the
results for this business could be impacted over the short term.
EVENTS AFTER THE REPORTING DATE
There was a change in business strategy relating to the easing of the cash flow
burden through the proposed sale of subsidiaries, Seriso 474 (Pty) Limited
trading as Sedibeng Bricks and Silver Falcon Trading 487 (Pty) Limited, which
disposal has not as yet been submitted to shareholders for approval.
Due to the current strained trading circumstances and related uncertainties, the
company is engaged in negotiations to restructure its investment in Lonerock
whereby the control of this subsidiary might be temporarily lost.
PROSPECTS
The recent decreases in interest rates, Government`s expected shift away from
the large World Cup-related projects to housing and the expected global economic
stabilisation, should result in an increase in low-cost housing development for
the coming year.
It is generally accepted in the housing market that the back-log in the so-
called GAP market (dwellings in the R200k to R380k range) is between 500 000 and
800 000 units countrywide.
Due to affordability levels in this market starting to increase slowly, sales in
this sector are expected to start to recover slightly during 2010 and accelerate
into 2011. This, together with commitment from financial institutions to spend
in this sector and the Government`s increased focus on delivering sustainable
integrated human settlements, should result in a sustainable pipeline of work
for the core business of the group.
Although some progress has been made regarding the restructuring of the debtors
and cash management systems to ensure timeous payments and consistent cash flow,
concerns and challenges remain around Government`s payment terms. Continued high
level engagement with Government therefore remains a priority. Receiving
payment within 30 days of statement still remains a huge challenge. The need for
regular and prompt monthly payments has again been recognised and acknowledged
by Government, although the practical implementation thereof remains uncertain.
The operational subsidiary of the group operating in the Western Cape Province,
Sea Kay Engineering Services Western Cape (Pty) Limited, is currently fully
operational and executing a number of projects to the value of just over R200
million. It is in the process of commencing with its second turn-key project in
the Western Cape since the inception of the N2 Gateway project. This project is
called "Nuwe Begin" where approximately 1 800 housing units ranging from BNG to
GAP housing are being developed in a 50% partnership with another local property
development group. The business has great potential and will in the next
financial year positively contribute towards the financial position of the
group. This should further strengthen the Western Cape operations as well as the
group`s property development capabilities.
During the coming year, Sea Kay will focus strongly on its restructuring plan to
improve efficiencies and controls and to ensure it is effectively structured for
anticipated increases in operational activities. The ratio of the operational
expenses against revenue will be brought in line with other construction
companies operating in the same sector and should lead to improved results for
the core business. Sea Kay management is confident that there is potential for
long-term growth in the group in all three spheres, namely infrastructure,
housing construction and property development due to the continued significant
need for housing and integrated housing projects.
DIVIDEND
In line with Sea Kay`s prevailing policy, no dividend has been declared in
respect of the year under review.
STATEMENT OF GOING CONCERN
The directors embarked on a process to address the uncertainties identified by
management and alluded to in the auditor`s review opinion. This process
incorporates the review and restructuring of receivables and payables processes
to ensure that the group will be in a position to operate adequately and
includes a potential fund-raising exercise where a potential initial funder has
been identified. The condensed financial statements have accordingly been
prepared on the going concern basis, as the directors have every reason to
believe that the group has adequate resources in place to continue operating.
Vereeniging
29 October 2010
Directors:
P van der Schyf, (executive chairman and acting CEO), BW Marais*, AV Green*
*independent non-executive
Registered office and postal address:
7 Patton Street, Duncanville, Vereeniging, 1939
PO Box 925, Meyerton, 1960
Website: www.seakay.co.za
Date: 29/10/2010 15:42:01 Produced by the JSE SENS Department.
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