| Fri 28 Oct 2011, 17:01 | | SKY - Sea Kay Holdings Limited - Reviewed condensed annual financial |
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SKY
SKY
SKY - Sea Kay Holdings Limited - Reviewed condensed annual financial
statements for the year ended 30 June 2011 and further cautionary announcement
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 2011
AND FURTHER CAUTIONARY ANNOUNCEMENT
REVIEWED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
Year ended Year ended
30 June 30 June
2011 2010
R000 R000
Revenue 186 286 647 375
Operating (loss) (28 144) (181 361)
Investment revenue 1 051 7 928
Finance costs (16 427) (42 857)
Share of (loss) in associate (2 740) -
(Loss) before taxation (46 260) (216 290)
Taxation 15 428 10 404
Loss from continued and discontinued (30 832) (205 886)
operations
Loss from continued operation (30 832) (197 431)
Loss from discontinued operations - (8 455)
Allocated as follows:
Equity shareholders of Sea Kay (30 832) (239 173)
Minority Interest - 33 287
(30 832) (205 886)
Reconciliation of headline (loss)
(Loss) attributable to equity holders (30 832) (239 173)
Less: Profit on sale of investments (8 020) -
Less: Profit on sale of property, plant
and equipment (71) (327)
Add: Loss on sale of property, plant and
equipment 73 -
Add: Impairment of Goodwill 10 070 90 442
Add: Loss of control of subsidiary 72 -
Headline (loss) (28 708) (149 058)
Weighted average number of shares in
issue (`000) 488 864 488 864
(Loss) per share from continuing and (6,31) (48,92)
discontinued operations(cents)
Loss per share from continuing (6.31) (47.19)
operations (cents)
Loss per share from discontinued
operations(cents) - (1.73)
Headline (loss) per share from continuing (5,87) (30,49)
and discontinued operations (cents)
Headline loss per share from (5.87)
continuing operations (cents)
Headline loss per share from (28.76)
discontinued operations (cents)
- (1.73)
REVIEWED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
30 June 30 June
2011 2010
R`000 R`000
ASSETS
Non-current assets 149 855 201 972
Property, plant and equipment 18 900 111 460
Investment in associates 130 933 -
Goodwill - 90 417
Intangible assets 8 95
Deferred tax 14 -
Current assets 73 734 392 245
Inventories 3 981 11 995
Capital accounts to other vendors - 109
Construction contracts and receivables - -
Trade and other receivables 44 179 249 489
Loans and receivables - 1 913
Amounts due by customers 24 592 62 104
Cash and bank balances 982 66 635
Total assets 223 589 594 217
EQUITY AND LIABILITIES
Total equity 32 869 107 845
Issued capital 170 076 170 076
Accumulated loss (137 207) (106 376)
Minority interest - 44 145
Non-current liabilities 63 862 140 981
Loans payable 10 917 32 535
Other financial liabilities 52 945 92 499
Finance lease - 2 835
Deferred taxation - 13 112
Current liabilities 126 858 345 391
Capital accounts from other ventures - 3 274
Trade and other payables 76 034 157 101
Other financial liabilities 31 898 120 442
Current tax payable 4 563 5 275
Short-term portion loans payable 167 170
Finance lease obligation 1 082 13 691
Excess billing over work performed 13 089 33 689
Bank overdrafts 1 11 439
Lease smoothing liability 24 310
Total equity and liabilities 223 589 594 217
Net asset value per share (cents) 6,72 22,06
Net tangible asset value per share 6,72 3,57
(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
2011 2010
R`000 R`000
Balance at 1 July 107 845 326 499
Net (loss)for the year (30 832) (239 173)
Minority share in current year loss - 33 287
Loss of control of subsidiary (44 144) -
Adjustment of partial disposal of
subsidiary - (12 768)
Balance at end of year 32 869 107 845
CONDENSED REVIEWED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Audited
Year ended Year ended
30 June 30 June
2011 2010
R`000 R`000
Cash flows from operating activities 25 271 19 484
Cash flows from investment activities (31 942) (2 042)
Cash flows from financing activities (47 544) (78 219)
Total movement for the year (54 215) (60 777)
Cash and cash equivalents at beginning of
year 55 196 115 973
Cash and cash equivalents at end of year 981 55 196
CONDENSED SEGMENTAL ANALYSIS AS AT 30 JUNE 2011
Building, Civil Total
Material Engineering
Supply and
Property
Development
R000 R000 R000
Revenue 186 286 - 186 286
(Loss) before tax (46 260) - (46 260)
Total assets 223 589 - 223 117
Total liabilities 190 720 - 190 720
Property, plant and 18 908 - 18 908
equipment and intangible
assets
Total current liabilities 126 857 - 126 857
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 (286 355) 70 065 (216 290)
Total assets 223 636 370 581 594 217
Total liabilities 293 741 192 631 486 372
Property, plant and 35 397 76 063 111 460
equipment
Total current liabilities 170 434 174 957 345 391
NOTES
1. Seriso 474 (Pty) Limited ("Sedibeng Bricks") and Silver Falcon (Pty)
Limited are treated as discontinued operations as they were disposed
of on 1 July 2010.
The results, assets and liabilities of the disposal group are set
out below.
Reviewed Audited
Year ended Year ended
30 June 30 June
2011 2010
R000 R000
Results of discontinued
operations
Revenue - 18 799
Operating loss - (5 259)
Investment revenue - 407
Other income - 949
Finance cost - (4 336)
Loss before tax - (8 239)
Taxation - (216)
Loss after tax - (8 455)
Assets and liabilities
Assets of disposal groups
Property, plant and 8 659 8 732
equipment
Goodwill - 982
Deferred taxation - -
Inventory 3 605 3 606
Trade and other 8 143 8 205
receivables
Cash and cash equivalents 21 21
Total 20 428 21 546
Liabilities of disposal
groups
Loans payable 8 179 8 192
Deferred taxation 572 578
Finance lease obligation 900 909
Other financial 728 732
liabilities
Operating lease liability 264 264
Current tax payable - -
Trade and other payables 7 720 7 743
Bank overdraft 2 476 2 500
Total 20 839 20 918
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 71 of 2008), as
amended, the presentation and disclosure requirements of International
Accounting Standards (IAS 34: Interim Financial Reporting), the Listings
Requirements of the JSE Limited and the AC500 Standards as issued by the
Accounting Practices Board or its successor. 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 Inc has issued a qualified review opinion on the results for the period
ended 30 June 2011, which opinion is available for inspection at the company`s
registered office.
The review opinion contains the following paragraph:
"The ability of the group to honour its commitments and provide adequate
working capital to sustain its operations are dependent on a combination of
factors including, procuring additional funds and/or refinancing certain
operations as well as a return to profitability."
INTRODUCTION
Sea Kay operates in the construction and development of mass housing and
community facilities through its operational subsidiaries in Gauteng, Western
Cape and recently in KZN. The civil engineering specialist associate, Lonerock
Construction (Pty) Limited ("Lonerock"), constructs and installs township
services, constructs roads and freeways and undertakes civil engineering
projects.
Sea Kay focuses on the development and construction of subsidised, affordable
(GAP or credit linked) and bonded housing. During the year, as in the recent
past, Government projects represented the vast majority of the Group`s
turnover (approximately 91%), with private sector projects accounting for 9%
of the turnover.
With the 2010 Soccer World Cup and the huge infrastructure projects such as
the upgrading of the airports, soccer stadiums, Gauteng freeway improvements
and Gautrain successfully completed, Government spending on infrastructure
visibly slowed down and negatively impacted on the revenue of Lonerock and to
a lesser extent on Sea Kay. The negative impact of the global credit crunch
also continued to affect the housing delivery market and resulted in the
continuation of the downward trend in the delivery in the housing market
(entry level bonded houses) directly impacting on the revenue of Sea Kay.
The board adopted a restructuring plan through a turn-around strategy that has
been partially implemented during the financial year and has already yielded
positive results. As part of the plan, lower operational and head office costs
and increased operational efficiency lead to a substantial decrease in the
previous year`s loss by R174 million, from R205 million to R31 million,
reflecting a positive movement of 85%. The discontinuation of operational
activities at Silver Falcon and Sedibeng Bricks from 1 July 2010 prevented a
further strain on the cash-flow position and represent the movement away from
the previous vertical integration model to a return to the core business of
construction.
The implementation of the balance of the turn-around strategy will continue
into the next financial year (current) and will require additional working
capital to be acquired before it can be completed and thereafter should yield
further positive results. Areas concerned in this regard include:
- The finalisation of the restructuring of the BEE partnership for Sea Kay
(including key appointments on the board of directors);
- Increased operational activity on sites;
- Sourcing of projects and contracts outside of Gauteng and Western Cape
including commercial and across border opportunities; and
- Improving operational structures, accountability and financial controls
on sites and increased alignment between financial and operational
departments to improve interaction with clients to ensure timeous
contractual payments.
Financial overview
Despite very difficult trading circumstances due to low levels of working
capital and constrained cash-flow, Sea Kay (excluding Lonerock) managed to
improve revenue by 16% from R161 million to R186 million. However, the results
for the year ended 30 June 2011 are not comparable to those of the prior
period presented, as previously announced in the interim results to 30
December 2010. During the year Sea Kay`s shareholding in Lonerock decreased
from 50.01% to 49.99%, and consequently the results of Lonerock were not
consolidated during the year as was the case in the prior years, but rather
equity accounted. Lonerock also constituted the entire civil engineering
component of the segmental report in prior years.
The assets and liabilities of Lonerock that have been derecognised due to the
deconsolidation are as follows:
R000
NON-CURRENT ASSETS 165 537
Property, plant and equipment 76 063
Goodwill 89 474
Current assets 224 516
Inventory 1 470
Trade and other receivables 145 101
Loans and receivables 109
Current tax receivable 19 471
Other financial assets 1 913
Cash and bank balances 56 452
Total assets 390 053
Non-current liabilities 17 675
Loans payable 3 274
Interest- bearing loans 1 806
Deferred taxation 12 595
Current liabilities 194 428
Trade and other payables 64 169
Other financial liabilities 79 971
Current portion of finance lease obligation 7 674
Excess billing over work performed 33 689
Bank overdraft 8 925
Building and Housing construction - Sea Kay
Under the said difficult trading activities the group managed to increase
revenue from R161 million to R186 million, mainly due to Sea Kay Western
Cape`s contribution of R70 million. Cash flow still remains under pressure,
due to slow building activities. However the debtors` days of the building
group have dramatically improved to 87 days, compared to 237 days last year.
Operating loss improved by 76.4% from R195.9 million (excluding goodwill
impaired) to an operating loss of R46,3 million, resulting in the operating
margin improving to negative 24.83% in comparison to a 121.65% negative
operating margin in the 2010 year.
The decrease in operating loss was a result of moderate increased building
revenue, cuts in overhead costs and improved site management, discontinuation
of the disposed subsidiaries and increased operational site activities.
However, the increased revenue and slow building activities, arising from cash
flow constraints, still negatively impacts the operating margins. Quick
turnaround times are considered essential to maintain good operating margins.
Civil Engineering - Lonerock
Lonerock achieved revenue of R440,1 million, which is slightly less than last
year`s revenue of R486,6 million and a loss after tax of R5,329 million
compared to a profit after tax of R70,5 million last year, of which Sea Kay`s
share of the loss is included in the year end results as share of loss from an
associate. The loss incurred by Lonerock results from: Goodwill of R20,1
million has been impaired and a loss of R50.4 million incurred on the Kusile
project, mainly due to excessive labour unrest experienced by the main
contractor resulting in extended time delays and penalties charged. Although
some damages have been recovered through claims lodged with the client some
indirect damages could not be recovered. Sea Kay`s share of 49.99% is included
in the share of loss results.
Group
Loss per share and headline loss per share decreased by 87.1% and 80.74% to
6.31c per share (2010: 48.92c cents per share) and 5.87c per share (2010:
30.49c per share), respectively.
The group`s net cash position decreased by R54,2 million. The decrease was
mainly as a result of Lonerock`s cash taken out of group results, excess
billings to complete contracts, repayment of loans, payment of finance leases
and operating losses.
The group`s debtor days improved to 87 days compared to 141 days last year.
Taxation for the period represents a reversal of a provision for taxation
which arose in a prior period.
OPERATIONAL OVERVIEW
Through accelerated payment processes employed by the Gauteng Department of
Housing, Sea Kay settled the outstanding payments (totaling R51 million) that
were due to the NHFC during January to March 2011 and the remaining debt was
consolidated in a term loan effectively moving the majority of the outstanding
amount of R65 million from current to non-current liabilities. This, however,
constrained the already limited working capital of Sea Kay and led to slower
construction delivery than could have been the case with adequate working
capital.
Although the rate of payments received from the Gauteng operations improved
from January 2011 there were still some remaining projects with beneficiary
administration problems that negatively impacted on the release of retention
and completion claims that resulted in further strain on the cash-flow.
The Group operates its construction activities through separate entities in
Gauteng, the Western Cape and in (subsequent to the financial year-end) KZN.
While the Gauteng operation has various projects in various stages it is
envisaged that final completion of all those projects will only occur during
the next financial year. The Western Cape operations had their first full year
of operations and management have managed to hand over 980 completed housing
units and Sea Kay is now well established as an important contributor to low
cost housing delivery in this region.
The financial dispute between Sea Kay Western Cape (through Ibuyile) and the
implementing agent on the N2 Gateway project in the Cape (Thubelisha, which
was wound down by Government during 2009), has gone through the mediation
procedure but Ibuyile has subsequently instituted a review process in the High
Court of the Western Cape which process should be finalized during the current
financial year. The outcome is not expected to have a negative impact on
Ibuyile`s and Sea Kay`s business in the Western Cape.
Some good progress has been made in the restructuring of the debtors and cash
management systems to ensure timeous payments and consistent cash flow. The
concerns and challenges around Government`s payment terms vary from Province
to Province but there are definite improvements and in some instances
acceptable payment time-frames have been achieved through proper interaction
between Sea Kay and its clients.
The general credit crunch continued to negatively impact on the GAP and entry
level bonded housing market and conditions for new business in that sector
remain very difficult.
CORPORATE GOVERNANCE AND MOVEMENTS ON THE BOARD OF DIRECTORS
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 a challenge but the board
of directors are in the process of addressing all outstanding issues relating
to corporate governance compliance according to the guidelines set by the King
III report.
During September 2010, Sea Kay experienced the untimely and sad passing away
of the previous CEO, Aaref Osman. He was replaced by Pieter van der Schyf in
an acting capacity. The board of directors was strengthened with Landiwe
Mahlangu who joined Sea Kay on 12 December 2010 in the capacity as non-
executive chairman. Stef Greeff joined the board in February 2011 as chief
financial officer.
Sea Kay for the first time embarked on a formal training program through the
Construction SETA and "Nomasojabula Training Centre" was appointed by Sea Kay
through the Skills Development Facilitator, "Skillsco.", to facilitate the
training in National Certificate in Community House Building NQF Level 2. The
enrolled number of learners was 15, of which 13 trainees successfully
completed the course. The training commenced on 2 August 2010 at the Sea Kay
Head office in Vereeniging and ended on 31 March 2011. The training was
offered in three phases namely classroom facilitation, workshop practice and
workplace training. Currently a new application for training has been
submitted but the application was extended to include some of the Western Cape
labour force. The board of directors and executive management are looking to
extend and expand the training of as many employees and sub-contractors as
possible in the near future.
EVENTS AFTER THE REPORTING DATE
The financial director, Stef Greeff, resigned with effect from 1 August 2011
to pursue other avenues. Until a new appointment is made, the duties of the
Financial Director will be attended to by Mrs K van der Vyver (B.Comm (Acc),
Professional Accountant (SA)), in a "caretaker capacity" assisted by Mr. M
Fischer (CA (SA)). In line with the board`s restructuring plans, preference
will be given to securing a Financial Director from a designated population
group in order to better reflect the population demographics of the RSA and it
is therefore expected that such an appointment may take some time to finalise.
The accepted change in business strategy by the board of directors relating to
the easing of the cash flow burden through the sale of subsidiaries, Seriso
474 (Pty) Limited trading as Sedibeng Bricks and Silver Falcon Trading 487
(Pty) Limited as well as certain equipment, was submitted to shareholders for
approval on 19 October 2011, and was approved by a 99% majority approval being
obtained.
Sea Kay established an operational subsidiary in KwaZulu-Natal with offices in
Ballito during the last part of the financial year which became operational
during August 2011. Well-qualified and experienced management were sourced
from companies operating in the area and a pipeline of contracts has already
been created.
PROSPECTS
Sea Kay is currently in the process of applying for a loan facility at a bank
to increase its working capital and is negotiating with substantial material
supply companies for increased facilities to ensure proper material supply to
accelerate construction and delivery that will lead to profitability on
existing and new projects.
The recent establishment of Sea Kay in KZN (Sea Kay Engineering Services
KwaZulu-Natal "SKESKZN") has potential to grow aggressively and healthy
relationships have already been established with other stakeholders in the
Province. There is potential for strategic joint ventures with some
construction companies that have already been identified. The individual
members of the top-management of SKESKZN have been working in the Province for
a substantial period of time and in this market and understand the local
conditions and customs. A pipeline of work has already been established and
the board of directors will ensure that it will grow in a controlled way
organically and by way of acquisitions or joint ventures.
The general outlook in the low-cost and affordable housing sector remains
positive and should benefit Sea Kay`s business strategy during the current
financial year. It remains 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.
There are a number of across border opportunities that have arisen in
neighboring countries for mass housing projects. In this regard the new
empowerment partners that have been identified to participate in the envisaged
re-structuring of the BEE partnership component of Sea Kay have done some
important work to establish relationships with the relevant stakeholders in
those countries. Besides the fact that there is evidence of potential
lucrative large projects or contracts it forms part of the turn-around
strategy to mitigate the risk of only one or two clients from whom the company
is dependent on prompt payment. The board of directors is in the process of
adopting a strategic plan to enter this market.
During the coming year, Sea Kay will focus strongly on its turn-around
strategy to improve cash-flow and working capital levels. Site management
controls have been addressed and will be implemented on all new projects to
ensure it is effectively structured for anticipated increases in operational
activities. The ratio of the operational expenses against revenue have been
brought in line with other construction companies operating in the same sector
and should lead to improved results for the core business.
The board of directors remains 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 in both South Africa and the
neighboring countries.
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 process to address the uncertainties identified by management and alluded
to in the auditor`s review opinion that the board of directors embarked on
during the previous financial year has not been concluded and will carry on
into the next financial year.. This process previously reported to include the
review and restructuring of receivables and payables processes to ensure that
the group will be in a position to operate adequately has been addressed to
some extent but need some further work before completion. The fund-raising
exercise with a financial institution has been addressed and an outcome of the
application is expected within the next few weeks. The reviewed annual
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.
FURTHER CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the advice to exercise caution when dealing in
the company`s securities contained in the announcement dated 16 September 2011
and are advised to continue exercising caution when dealing in the company`s
securities until further notice.
Vereeniging
28 October 2010
Directors:
L Mahlangu (non-executive chairman)*, P van der Schyf, (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
Company secretary:
MN Hatting
Transfer secretaries:
Link Market Services South Africa (Pty) Limited
Auditors:
SAB&T Incorporated, Registered Auditors,
Chartered Accountants (SA)
Sponsor:
Vunani Corporate Finance
Date: 28/10/2011 17:00:59 Produced by the JSE SENS Department.
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