| Tue 4 Mar 2008, 16:13 | | SRN / SER - Seardel Investment Corporation - Group |
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SRN / SER - Seardel Investment Corporation - Group Interim Report To
Shareholders For The Six Months Ended December 2007
SEARDEL INVESTMENT CORPORATION LIMITED
Registration Number 1968/011249/06
(Incorporated in the Republic of South Africa)
Share Code: SER & ISIN: ZAE000029815
Share Code: SRN & ISIN: ZAE000030144
("Seardel")
GROUP INTERIM REPORT TO SHAREHOLDERS FOR THE SIX MONTHS ENDED DECEMBER 2007
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED 31 DECEMBER
2007 2006 % Change
Rand thousands, unless (unaudited) (unaudited)
otherwise indicated
Revenue 2 030 159 2 003 392 +1,3
Profit before taxation 1 211 42 434 -97,1
Earnings per share - 4,2 37,6 -88,8
cents
Headline earnings per 4,0 31,1 -87,1
share - cents
Capital and reserves 1 538 573 1 385 839 -11,0
Total tangible assets 2 849 456 2 632 125 +8,3
(excluding cash)
Net asset value per 1 698 1 520 +11,7
share - cents
The unaudited consolidated financial statements of the group for the six months
ended 31 December 2007 with comparative figures for the corresponding period
last year, together with the audited financial statements for the financial year
ended 30 June 2007 are set out below.
INCOME STATEMENT
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
2007 2006 % Change 2007
Rand thousands (unaudited) (unaudited (audited)
& restated)
Revenue R2 030 159 R2 003 392 +1,3 R3 793 357
Gross profit 414 309 463 189 -10,6 783 816
Operating profit 42 171 67 961 -37,9 111 668
before finance costs
Finance income 12 971 10 879 21 494
Finance expenses (51 788) (35 802) (78 572)
Share of losses from (2 143) (604) (2 973)
joint venture
Profit before 1 211 42 434 -97,1 51 617
taxation
Taxation 1 441 (8 289) (855)
Profit for the 2 652 34 145 -92,2 50 762
period
Attributable to:
Shareholders 3 785 34 375 -89,0 50 770
Minority interest (1 133) (230) (8)
Profit for the R2 652 R34 145 R50 762
period
STATISTICS PER SHARE
In cents,
where applicable
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
Weighted average number 90 228 91 332 91 015
of shares in issue (000)
Weighted average number 90 427 91 702 91 229
of diluted shares in
issue (000)
Net number of shares in 90 098 90 713 90 286
issue
Earnings 4,2 37,6 -88,8 55,8
Diluted earnings 4,2 37,5 -88,8 55,7
Headline earnings 4,0 31,1 -87,1 22,7
Diluted headline earnings 4,0 31,0 -87,1 22,7
Distribution - annual - - 12,0
Distribution cover - - - 1,9
headline earnings
RECONCILIATION BETWEEN
EARNINGS AND HEADLINE
EARNINGS
Rand thousands
Income attributable to 3 785 34 375 50 770
shareholders
Negative goodwill - - (330)
Insurance claim - - (153)
Impairment of property, - - 7 353
plant and equipment
Surplus on disposal of - - (31 542)
portion of division
Surplus on disposal of - - (86)
investments
Surplus on disposal of (351) (9 369) (12 107)
property, plant and
equipment
Profit on dilution of - - (1 937)
shareholding in minority
Loss on disposal of 133 - 2 100
property, plant and
equipment
Loss on share options - 210 1 537
exercised
Tax effect of adjustments 63 3 217 5 095
Headline earnings R3 630 R28 433 R20 700
BALANCE SHEET
AS AT 31 DECEMBER YEAR ENDED
30 JUNE
2007 2006 2007
Rand thousands (unaudited) (unaudited & (audited)
restated)
ASSETS
Non-current assets 1 254 419 1 128 645 1 261 451
Property, plant and 1 072 983 941 767 1 071 578
equipment
Intangible assets 3 453 - 3 915
Interest in joint ventures 14 330 18 842 16 473
Investments 2 413 1 911 2 352
Long-term receivables 38 452 64 400 55 504
Deferred taxation 122 788 101 725 111 629
Current assets 1 787 721 1 746 511 1 861 565
Inventories 784 964 820 354 788 119
Trade and other 909 518 781 164 893 225
receivables
Non-current assets held 26 743 3 687 26 743
for sale
Taxation receivable 53 - -
Cash and cash equivalents 66 443 141 306 153 478
TOTAL ASSETS R3 042 140 R2 875 156 R3 123 016
EQUITY AND LIABILITIES
Capital and reserves 1 538 573 1 385 839 1 547 899
Share capital and share 6 130 6 130 6 130
premium
Treasury shares (14 200) (9 441) (13 042)
Reserves 1 540 970 1 382 341 1 548 005
Total equity attributable 1 532 900 1 379 030 1 541 093
to equity holders
Minority interest 5 673 6 809 6 806
Non-current liabilities 622 148 593 868 600 702
Interest-bearing 294 891 274 602 275 383
liabilities
Deferred liabilities 70 400 68 554 70 400
Deferred taxation 253 472 244 145 254 499
Operating lease accruals 3 385 6 567 420
Current liabilities 881 419 895 449 974 415
Interest-bearing 207 625 256 886 307 129
liabilities
Trade and other payables 495 035 438 482 528 841
Provisions 50 436 39 763 86 506
Bank overdrafts 109 634 153 710 42 357
Taxation payable 18 674 6 591 9 566
Dividend to shareholders 15 17 16
TOTAL EQUITY AND R3 042 140 R2 875 156 R3 123 016
LIABILITIES
Net asset value (excluding R1 529 447 R1 379 030 R1 537 178
intangible assets)
Net asset value per share 1 698 1 520 1 703
after treasury shares -
cents
RATIOS
SIX MONTHS ENDED YEAR ENDED
31 DECEMBER 30 JUNE
Profitability
Operating profit as percentage 2,1% 3,4% 2,9%
of revenue
Profit before taxation as 0,1% 2,1% 1,4%
percentage of revenue
Profit after taxation as 0,1% 1,7% 1,3%
percentage of revenue
Return on total tangible 2,9% 5,4% 3,8%
assets excluding cash
Return on shareholders` 1,3% 5,5% 3,3%
interest
Leverage
Ratio of net borrowings 36% 39% 31%
(interest bearing debt) to
capital and reserves
Ratio of debt to capital and 72% 75% 71%
reserves
Liquidity
Current ratio 2,0 2,0 1,9
Net finance charges cover 1,1 2,7 2,0
CONDENSED CASH FLOW STATEMENT
SIX MONTHS ENDED 31 YEAR ENDED
DECEMBER 30 JUNE
2007 2006 2007
Rand thousands (unaudited) (unaudited & (audited)
restated)
Net cash flow from operating (52 641) (219 394) (161 019)
activities
Net cash flow from investing (20 517) (23 094) (4 629)
activities
Net cash flow from financing (81 154) 70 497 117 182
activities
Net decrease in cash and cash (154 312) (171 991) (48 466)
equivalents
Cash and cash equivalents at 111 121 159 587 159 587
beginning of period
Cash and cash equivalents at (R43 191) (R12 404) R111 121
end of period
STATEMENT OF CHANGES IN EQUITY
Rand thousands
Share Capital Share Premium Treasury Shares
Balance 30 June 6 075 187 (4 740)
2006
Dilution of
interest in
subsidiary
Revalued amount
released
Cancellation of (132) 835
shares
Share (5 834)
repurchases
Share options 298
exercised
Profit for the
period
Dividend
Balance 31 R5 943 R187 (R 9 441)
December 2006
Balance 30 June 5 943 187 (13 042)
2007
Share (1 158)
repurchases
Profit for the
period
Dividend
Balance R5 943 R187 (R14 200)
31 December 2007
CHANGES IN EQUITY STATEMENT (CONTINUED)
Rand thousands
Other Retained Minority Total
Reserves Income Interest
Balance 41 249 1 330 434 4 024 1 377 229
30 June 2006
Dilution of 1 937 3 015 4 952
interest in
subsidiary
Revalued amount (4 432) 4 432 -
released
Cancellation of (738) (35)
shares
Share repurchases (5 834)
Share options 298
exercised
Profit for the 34 375 (230) 34 145
period
Dividend (24 916) (24 916)
Balance R36 817 R1 345 524 R6 809 R1 385 839
31 December 2006
Balance 30 June 187 795 1 360 210 6 806 1 547 899
2007
Share repurchases (1 158)
Profit for the 3 785 (1 133) 2 652
period
Dividend (10 820) (10 820)
Balance 31 R187 795 R1 353 175 R5 673 R1 538 573
December 2007
2007 2006
Composition of other reserves
Revaluation of investments 1 352 753
Capital redemption reserve fund 440 440
Surplus on disposal of subsidiary and 7 923 7 923
associated companies
Surplus on revaluation of land and buildings 178 080 27 701
R187 795 R36 817
SEGMENTAL REPORT
Textiles Apparel and Office automation
household and consumer
Rand thousands textiles electronics
2007
Segment revenue
External sales 792 264 931 017 109 985
Inter-segment sales (45 330) - -
(these transactions are
at arms length)
746 934 931 017 109 985
Segment results
Operating profit 22 949 (134) 8 103
2006
Segment revenue
External sales 722 498 979 351 112 902
Inter-segment sales (35 007) - -
(these transactions are
at arms length)
687 491 979 351 112 902
Segment results
Operating profit 26 764 13 557 15 858
SEGMENTAL REPORT (CONTINUED)
Rand thousands Toys Industrial Total
2007 products
Segment revenue
External sales 163 142 79 081 2 075 489
Inter-segment sales - - (45 330)
(these transactions are
at arms length)
163 142 79 081 R2 030 159
Segment results
Operating profit 16 842 (5 589) R42 171
2006
Segment revenue
External sales 141 709 81 939 2 038 399
Inter-segment sales - - (35 007)
(these transactions are
at arms length)
141 709 81 939 R2 003 392
Segment results
Operating profit 12 028 (246) R67 961
COMMENT ON RESULTS AND CORPORATE ACTIONS
The six month period ending 31 December 2007 has been a difficult one for the
group.
Revenue increased by a marginal 1,3% to R2,03 billion. Operating profit amounted
to R42,2 million (2006: R68 million), a decrease of 37,9%. Pre-tax profit
amounted to R1,2 million (2006: R42,4 million), a decrease of 97,1%.
Attributable earnings to shareholders amounted to R3,8 million (2006: R34,4
million), a decrease of 89%.
The strength of the balance sheet has been enhanced. Share capital and reserves
now amount to R1,5 billion compared to R1,38 billion last year. Tangible net
asset value per share is 1698 cents based on 90,1 million shares (2006: 1520
cents per share based on 90,7 million shares).
Earnings per share amounted to 4,2 cents (2006: 37,6 cents), a decrease of
88,8%.
Headline earnings per share amounted to 4,0 cents (2006: 31,1 cents), a decrease
of 87,1%.
A contributing factor to the decline in profitability was the increase in net
finance charges of R13,9 million when compared to the same period last year.
This was as a result of an increase in interest rates. Rental income from group
properties decreased by R1,2 million due to the disposal of certain properties
not occupied by group entities.
In the first three working days of January 2008 the group received R23,3 million
cash from debtors, which amount was due on 31 December 2007. As was the case in
the comparative period, finished goods produced for orders were held pending
delayed delivery instructions from customers at half year end. These factors
combined to negatively impact on inventory levels and cash flows for the
reporting period. Delivery schedules are expected to return to normality in the
second half of the financial year.
The main contributing factors to these poor results were a marginal increase in
revenue, a reduction in operating profit reflecting the pressure on margins and
the substantial increase in interest rates. These factors were prevalent
throughout the clothing and textile sectors. However, Prima Toys posted a very
pleasing and substantial increase in operating profit. Seartec (Sharp
Electronics), which is now fully BBBEE compliant, was faced with highly
competitive pricing from Korean manufacturers, buying market share, which had
the effect of reducing operating profit by R7,7 million. This led to a review of
their product offering and, with the advent of the emergence of solar power as
an addition to ESKOM generated power, they expect to increase profitability in
the medium term. These two businesses source their products offshore.
Imports of clothing and textiles totalled R13 billion for the period January to
November 2007, compared to R12,7 billion for the same period in 2006. The China
quota dispensation which came into effect on 1 January 2007 has thus far
delivered mixed results. In total, 395,8 million garments and 22,4 million
kilograms of apparel were imported compared to last year`s 483,2 million
garments and 20,4 million kilograms of apparel.
The greatest impact on the whole apparel and textile value chain came from
massive imports, of which about 75% of the volume - being 314 million units, and
62% of the value of all garment imports, being R5,84 billion - came from China.
More pertinent is the fact that China accounted for just under half (40% by
value, which amounts to R5,17 billion) of all textile and clothing imports into
South Africa.
Whilst these figures reflect a decline, it should be noted that between 38,5
million and 42 million imported garments were brought forward for delivery in
November/December 2006 from January to March 2007, ahead of the introduction of
the quotas.
The achievements of the first two Imbizos, and the active involvement of the
major retailers in the Cape and KwaZulu-Natal clusters have created a platform
where the stakeholders can address the key competitive issues impacting on the
domestic clothing supply chain. This is particularly important given the
imminent termination of the Chinese quotas at the end of 2008.
Notwithstanding these challenges, the stakeholders within the clothing value
chain continue to engage with one another in order to find solutions and
increase competitiveness.
The level of Seardel`s exports declined by 16% to R61,2 million during the six
months period under review, which is 3% of total group revenue.
During the period under review the group repurchased 400 ordinary and 201,767 N
ordinary shares. This reduced the net shares in issue at 31 December 2007 to
90,1 million after treasury shares (22,9 million ordinary shares and 67,2
million N ordinary shares) (2006: 90,7 million shares, comprising 23 million
ordinary shares and 67,7 million N ordinary shares). Treasury shares amount to
1,952,369 (2006: 1,337,189).
The advent of power outages has impacted detrimentally on production planning
and increased rejection rates, especially in respect of textiles. The
installation of power generating equipment has increased operating costs due to
the expenses incurred in running these generators and the constant surges in
power have played havoc with computerised equipment in the factory environment.
The clothing and textile divisions constantly realign their business practices
to meet the current demands of the market place. They will continue to enhance
their niche market strengths, which are excellent service levels to local
customers, short lead times, short production runs, enhanced quality of garments
and innovative sourcing of product to group specifications and quality control.
Outlook to June 2008
Due to the problems encountered by ESKOM the South African economy is now only
expected to increase by about 3,5% during the next six months. This slow growth
rate is expected to continue over the next few years until such time as power
generating capacity is increased to meet anticipated demand.
Order books are satisfactory at this stage, but margins remain under pressure.
The group will continue to cut costs wherever possible and to restructure
manufacturing operations, especially in the textile sector. A number of Frame
Textile Group`s employees, being a part of the vertical pipeline, will, in
accordance with an agreement with the South African Clothing & Textile Workers
Union, be subject to new baseline employment conditions. This will necessitate a
one off cost of approximately R32 million, which will have a negative impact on
the second half results of the 2008 financial year. However this initiative,
supported by appropriate capital investments, will ensure that the company`s
conversion costs can beat inflationary pressures and show a positive financial
performance in the 2009 financial year. The group also has further plans to stay
ahead of the ever changing dynamics within the textile value chain.
In the medium term, the quantum of imports may slow down due to the weakening of
the Rand.
Notes
1. Basis of preparation
The condensed financial statements have been prepared in accordance with
International Accounting Standard IAS34: Interim Financial Reporting. They are
also compliant with International Financial Reporting Standards (IFRS). These
results have not been audited or reviewed by the company`s auditors, KPMG Inc.
2. Significant accounting policies
The condensed financial statements have been prepared under the historical cost
convention, except for the revaluation of certain properties and financial
instruments.
The accounting policies adopted are consistent with those followed in the
preparation of the group`s annual financial statements for the year ended 30
June 2007.
3. Related parties
Transactions between group companies
During the year, in the ordinary course of business, certain companies within
the group entered into intra-group transactions. These transactions have been
eliminated on consolidation.
Transactions with entities controlled by directors
Mr J Copelyn is a non-executive director of Mettle Limited. Group companies have
entered into financial transactions with the Mettle Group as set out in note 37
of the 2007 financial statements.
Subsidiary companies within the group have entered into property lease
transactions at market related rentals with Dr A Searll or entities controlled
by him or in which he has part ownership. The monetary value of these
transactions is approximately R4 million for the period under review. A
subsidiary company has a loan owing to Grawood Investments (Pty) Limited, a
company of which Dr A Searll is the sole shareholder. This loan bears interest
at a rate of prime minus 1%. The monetary value of the loan at 31 December 2007
is R93 million and the related interest for the six months ended 31 December
2007 is R5,7 million. The group engages the services of Searay BD100 Charters, a
partnership in which Dr A Searll has a 20% interest. The related expense is
R231,800. The group engages the services of Crystal River Consultants, an entity
owned by a family member of Dr A Searll. The related expense is R298,500.
Remuneration of key management personnel
Key management personnel are directors and those executives having authority and
responsibility for planning, directing and controlling the activities of the
group. The remuneration paid by the group to its key management personnel
amounted to R9,7 million as at 31 December 2007 (2006: R9,5 million).
Shares held by directors and their related entities
The percentage of shares held by directors of the company and their related
entities at the balance sheet date are disclosed in the directors` report on
page 35 of the 2007 financial statements. There has been no material change to
date hereof.
Related parties
All subsidiaries qualify as related parties and all subsidiaries are listed on
page 56 of the 2007 financial statements.
4. Acquisition of shares
A subsidiary company acquired 400 ordinary shares and 201,767 N ordinary shares
through the market for a total consideration of R1,2 million.
5. Prior year adjustments
The comparative figures for the period ended 31 December 2006 have been restated
in line with the prior year adjustments referred to in the group`s annual
financial statements for the year ended 30 June 2007.
6. Capital expenditure and commitments
Net capital expenditure during the period under review amounted to R42,8 million
(2006: R37,5 million). There are further commitments in respect of contracted
capital expenditure as at 31 December 2007 of approximately R27,1 million (2006:
R27 million).
7. Contingent liabilities
The company is jointly and severally liable in respect of certain third party
liabilities incurred by subsidiary companies.
There are uncertainties about the probability of outflows of resources and about
the amount of possible obligations with regard to the "improper use" of surplus
funds in terms of amendments to the Pension Funds Act No 24 of 1956. The
directors are obtaining legal advice on the possibility of such outflows and the
quantum thereof.
A subsidiary company has a contingent liability in the amount of R3 million
relating to the payment of back pay following the dismissal of certain
employees. This matter is subject to an appeal to be heard in the Labour Appeal
Court. Based on legal advice taken the directors do not consider that this
liability is likely to materialise.
Signed for and on behalf of the board in Cape Town.
Adv. N N Lazarus SC
CHAIRMAN
Dr. A Searll DBA
CHIEF EXECUTIVE OFFICER
4 March 2008
DIRECTORS: N N Lazarus* (Chairman), A Searll (CEO), J Copelyn*, A D Jacobson, W
Simeoni (Austrian), R Upton*.
(*indicates non-executive.)
Transfer Secretaries:
Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg
2001. P O Box 61051, Marshalltown 2107.
Reports 2007
Interim for six months ending 31 December 2006 published March 2007. Annual for
year ending 30 June 2007 published September 2007.
The company`s shares are listed under the Consumer Goods - Personal and
Household Goods Sector of the JSE Limited.
Administration
Secretary and registered office:
L A Clohessy, 2nd Floor, Seardel House, Alphen Park, Constantia Main Road,
Constantia 7806, Cape Town.
Registered office: 2nd Floor, Seardel House, Alphen Park,
Constantia Main Road, Constantia 7806, Cape Town
Postal address: Private Bag X8, Constantia 7848
Telephone: +27-21-7943600. Telefax: +27-21-7942009
E-mail: lyndac@seardel.co.za
Internet: http://www.seardel.co.za
Auditors: KPMG Inc.
Sponsor
Java Capital (Proprietary) Limited
Date: 04/03/2008 16:13:35 Produced by the JSE SENS Department.
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