Sea Kay earnings loss R18.3m vs loss R8.7m

Mass housing construction group Sea Kay Holdings' (SKY) headline loss for the six months ended December more than doubled compared to the loss for the previous comparable half-year, from R8.7 million to R18.3 million, which the group attributed to a lack of proper working capital.

This translated into a headline loss per share of 3.74 cents compared with a loss of 1.79 cents previously.

"Due to the fact that the Group suffered from extremely slow payments from Government during late 2007 to the end of 2009 as well as the completion of two unprofitable projects during the same period, the Lonerock vendors could not be paid in full and the Lonerock investment on the balance sheet had to be disposed of, after the options to repurchase their Lonerock shares have been exercised.

"Those actions conclude this chapter in the Company and in line with the restructuring and turn-around strategy previously announced the company will now refocus its efforts to the new initiatives partially successfully completed to replace and remedy the negative financial effect left with the departure of Lonerock from the Group," the group explained.

However, it added that although Government spending on infrastructure had generally declined since the large world cup and related projects during 2008 to 2010, the smaller construction companies had seen good investment by Government in the low cost housing sector.

"The GAP market (affordable housing for the household income group of between R3,501 to R10,000 per month) has seen some improvement and the growing demand is assisted by banks that are slowly easing the lending criteria. The backlog of and need for housing in the low cost and Gap market is widely accepted to be growing and in the region of approximately 2 million and 500 to 800 thousand units respectively. These factors will benefit the Company going forward provided that access to proper working capital can be achieved," the group stated.

On its prospects, Sea Kay said management was looking to stabilize the company and create sustainability through an increased pipeline of work supported by adequate working capital.

"Government spending on housing and housing infrastructure is expected to grow aggressively during the next two years as the public protest about the lack of service delivery is reaching alarming levels supported by Governments' expressed intention to address the backlog in the low cost and GAP market sector.

"In line with the turn-around strategy management also recognised the need to diversify operations to commercial and private sector developments to ensure that the dependency of the Company on Government related work is decreased. With this diversification management is confident that Government' housing and infrastructure initiatives can better be assisted while the overall risk profile of the Company will decrease accordingly," the group stated.

Post half year end the company had concluded an agreement to acquire a large commercial and residential property development in the private sector. This transaction represented the firs t step towards achieving a sustainable pipeline outside of Government work and would substantially increase the net asset value of the balance sheet.

The company also announced the negotiations with two other property development owners regarding the acquisition of an upmarket retirement village development in Cape Town and a lifestyle property development in KwaZulu-Natal.

"The aim is to increase and complement the larger property development already secured with a short to medium term commercial and residential pipeline of work in both the property development and the construction sectors," Sea Kay said.

It added that once the need for adequate working capital had been satisfied through a fund raising process that the pipeline of Government and commercial private sector work could be complemented by selective contracts across border into neighbouring countries.