On­go­ing con­cern


is oc­ca­sion­ally ac­cused of be­ing too cyn­i­cal when it comes to turn­around sto­ries. How­ever, we do have one house rule: if a com­pany re­leases its an­nual re­sults the day be­fore Christ­mas then we’re go­ing to take what it re­ports with a pinch of salt. In this case, trou­bled con­struc­tion firm Sea Kay Hold­ings did the dirty deed.

It was a tough year for the com­pany as it has bat­tled to ob­tain cash from Govern­ment and lost rel­a­tively new CEO Aaref Os­man, who died in Septem­ber 2010.

While the news hasn’t been pretty and its share price has been pun­ished, Sea Kay has tried to cut an up­beat pic­ture in the face of op­po­si­tion. In De­cem­ber it an­nounced the ap­point­ment of Landiwe Mahlangu, from the Devel­op­ment Bank of South Africa (DBSA), who it said could “pro­vide strong lead­er­ship and di­rec­tion to the group to pro­mote fu­ture growth”. The com­pany also man­aged to ap­pease the Na­tional Hous­ing Fi­nance Cor­po­ra­tion, which had brought a liq­ui­da­tion ap­pli­ca­tion against one of it sub­sidiaries that threat­ened the group’s fu­ture. How­ever, the sub­sidiary still owes the NHFC R52m (plus in­ter­est) and that on its own will take up a healthy chunk of the cash in the bank.

For a busi­ness that gen­er­ated just R10m in cash in the past fi­nan­cial year from R379m in rev­enue, some tough ques­tions are go­ing to have to be asked about its sus­tain­abil­ity. Au­di­tors SAB&T noted (with the re­lease of its re­sults): “With­out qual­i­fy­ing our opin­ion, we draw at­ten­tion to the go­ing con­cern note in the group con­sol­i­dated fi­nan­cial state­ments, which in­di­cates the com­pany is ex­pe­ri­enc­ing sig­nif­i­cant cash flow prob­lems. These con­di­tions, as set forth in the go­ing con­cern note, in­di­cate the ex­is­tence of a ma­te­rial un­cer­tainty that may cast sig­nif­i­cant doubt about the com­pany’s abil­ity to con­tinue as a go­ing con­cern.”

Con­struc­tion is a tough game in South Africa and while low-cost hous­ing of­fers plenty of op­por­tu­ni­ties, the in­abil­ity of Sea Kay to get paid timeously ap­pears to have fi­nally caught up with it. While there may be quite a few turn­around op­por­tu­ni­ties on the JSE, Fin­week doesn’t be­lieve this is one of them.

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