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.