| Mon 29 Sep 2008, 16:43 | | SER / SRN - Seardel Investment Corporation - Provisional Financial Statements |
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SER SRN
SER
SER / SRN - Seardel Investment Corporation - Provisional Financial Statements
For The Year Ended 30 June 2008.
Seardel Investment Corporation Limited
Registration number 1968/011249/06
The company`s shares are listed under the Consumer Goods - Personal and
Household Goods Sector of the JSE Limited.
Seardel; Seardel-N; SER: ZAE000029815 SRN: ZAE000030144
Provisional Financial Statements for the year ended 30 June 2008.
CONSOLIDATED INCOME STATEMENT
Rand thousands REVIEWED FOR AUDITED FOR
YEAR ENDED YEAR ENDED
30 JUNE 2008 30 JUNE
2007
Revenue R3 867 565 R3 793 357
Cost of revenue (3 145 843) (2 999 507)
Gross profit 721 722 793 850
Other income 90 021 133 203
Other operating income 90 021 101 661
Disposal of portion of - 31 542
division
Distribution costs (341 461) (349 642)
Administrative and (485 158) (454 006)
other expenses
Operating (loss)/profit (14 876) 123 405
before impairments and
restructuring and
retrenchment costs
Impairment of assets (108 693) (7 353)
Restructuring and (41 886) (4 384)
retrenchment costs
Operating (loss)/profit (165 455) 111 668
before finance costs
Finance income 31 134 21 494
Finance expenses (112 779) (78 572)
Share of losses from (9 181) (2 973)
joint venture
(Loss)/profit before (256 281) 51 617
taxation
Taxation 72 212 (855)
(Loss)/profit for the (184 069) 50 762
year
Attributible to:
Equity holders of the (178 842) 50 770
parent
Minority interest (5 227) (8)
(Loss)/profit for the (R184 069) R50 762
year
STATISTICS PER SHARE
In cents, 30 JUNE 2008 30 JUNE
where applicable 2007
Weighted average number of 90 048 91 015
shares in issue (`000)
Weighted average number of 90 232 91 229
diluted shares in issue
(`000)
Number of shares in issue 89 620 90 286
(Loss)/earnings (198,6) 55,8
Diluted (loss)/earnings (198,2) 55,7
Headline (loss)/earnings (111,0) 22,7
Diluted headline (110,8) 22,7
(loss)/earnings
Distribution - annual - 12,0
Distribution cover - - +1,9
headline earnings
RECONCILIATION BETWEEN
EARNINGS AND HEADLINE
EARNINGS
Rand thousands
Attributable to equity (178 842) 50 770
holders of the parent
Negative goodwill - (330)
Insurance claim - (153)
Impairment of assets 108 693 7 353
Surplus on disposal of - (31 542)
portion of division
Surplus on disposal of - (86)
investments
Surplus on disposal of (988) (12 107)
property, plant and
equipment
Profit on dilution of - (1 937)
shareholding in minority
Loss on disposal of 1 844 2 100
property, plant and
equipment
Loss on share options - 1 537
exercised
Tax effect of adjustments (30 673) 5 095
Headline (loss)/earnings (R99 966) R20 700
CONSOLIDATED BALANCE SHEET
Rand thousands REVIEWED AT AUDITED AND
30 JUNE 2008 RESTATED AT
30 JUNE
2007
ASSETS
Non-current assets 1 131 726 1 160 352
Property, plant and 1 036 413 1 071 578
equipment
Intangible assets 33 283 3 915
Interest in joint ventures 18 000 16 473
Other investments 2 405 2 352
Long-term receivables 35 189 55 504
Deferred taxation 6 436 10 530
Current assets 1 781 887 1 861 565
Inventories 848 142 788 119
Trade and other 880 733 893 225
receivables
Non-current assets held 10 146 26 743
for sale
Cash and cash equivalents 42 866 153 478
TOTAL ASSETS R2 913 613 R3 021 917
EQUITY AND LIABILITIES
Total equity 1 396 839 1 552 926
Share capital and share 6 130 6 130
premium
Treasury shares (16 250) (13 042)
Reserves 1 400 353 1 548 005
Total equity attributable 1 390 233 1 541 093
to equity holders
Minority interest 6 606 11 833
Non-current liabilities 261 941 494 576
Interest-bearing 106 409 270 356
liabilities
Post retirement medical 89 182 70 400
aid benefits
Non interest-bearing 21 998 -
liabilities
Deferred taxation 43 912 153 400
Operating lease accruals 440 420
Current liabilities 1 254 833 974 415
Interest-bearing 331 471 307 129
liabilities
Trade and other payables 654 318 528 841
Provisions 111 456 86 506
Bank overdrafts 147 143 42 357
Taxation payable 10 066 9 566
Dividend to shareholders 379 16
TOTAL LIABILITIES R1 516 774 R1 468 991
TOTAL EQUITY AND R2 913 613 R3 021 917
LIABILITIES
Net asset value (excluding R1 356 950 R1 537 178
intangible assets)
Net asset value per share 1 514 1 703
after treasury shares
(cents)
CONSOLIDATED CONDENSED CASH FLOW STATEMENT
Rand thousands REVIEWED FOR AUDITED
YEAR ENDED FOR YEAR
30 JUNE 2008 ENDED 30
JUNE 2007
Net cash flow from operating 6 023 (161 019)
activities
Net cash flow from investing (78 608) (4 629)
activities
Net cash flow from financing 57 036 117 182
activities
Net decrease in cash and cash (15 549) (48 466)
equivalents
Reclassification following (199 849) -
change in repayment terms
Cash and cash equivalents at 111 121 159 587
beginning of year
Cash and cash equivalents at (R104 277) R111 121
end of year
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
Rand thousands REVIEWED FOR AUDITED
YEAR ENDED FOR YEAR
30 JUNE 2008 ENDED 30
JUNE 2007
Revaluation of land and 34 800 165 977
buildings
Revaluation of investments 53 599
Cancellation of shares - (738)
Dilution of shareholding - 3 015
Post retirement medical aid (16 084) -
benefit
Taxation on income recognised 23 242 (15 598)
directly in equity
Income and expense recognised 42 011 153 255
directly in equity
(Loss)/profit for the year (184 069) 50 762
Total recognised income and (R142 058) R204 017
expense for the year
Attributable to:
Equity holders of the parent (136 831) 201 010
Minority interest (5 227) 3 007
Total recognised income and (R142 058) R204 017
expense for the year
CAPITAL AND RESERVES
Group
Rand thousands
Share Share Treasury Other
Capital Premium Shares Reserves
Balance 30 June 6 075 187 (4 740) 41 249
2006
As previously - - - -
stated
Reclassification - - - -
Total recognised - - - 146 546
income and
expense
Share repurchases - - (11 317) -
Cancellation of (132) - 835 -
shares
Share options - - 2 180 -
exercised
Dividend - - - -
Balance 30 June 5 943 187 (13 042) 187 795
2007
Total recognised - - - 53 591
income and
expense
Share repurchases - - (3 293) -
Share options - - 85 -
exercised
Dividend - - - -
Balance 30 June R5 943 R187 (R16 250) R241 386
2008
CAPITAL AND RESERVES (continued)
Group
Rand thousands
Retained Total Minority Total
Income Interest
Balance 30 June 1 330 434 1 373 205 9 051 1 382 256
2006
As previously - - 4 024
stated
Reclassification - - 5 027
Total recognised 54 464 201 010 3 007 204 017
income and
expense
Share repurchases - (11 317) - (11 317)
Cancellation of - 703 - 703
shares
Share options - 2 180 - 2 180
exercised
Dividend (24 688) (24 688) (255) (24 913)
Balance 30 June 1 360 210 1 541 093 11 833 1 552 926
2007
Total recognised (190 422) (136 831) (5 227) (142 058)
income and
expense
Share repurchases - (3 293) - (3 293)
Share options - 85 - 85
exercised
Dividend (10 821) (10 821) - (10 821)
Balance 30 June R1 158 967 R1 390 233 (R6 606) R1 396 839
2008
CONDENSED SEGMENTAL REPORT
Rand thousands
Business segments Textiles Apparel and Office automation and
household consumer electronics
textiles
2008
Segment revenue
External sales 1 624 819 1 692 752 203 773
Inter-segment sales (70 402) 1 322 -
(these transactions are
at arm`s length)
1 554 417 1 694 074 203 773
Segment results
Operating (loss)/profit (33 919) (162 349) 11 042
before finance costs
2007
Segment revenue
External sales 1 517 200 1 749 105 208 726
Inter-segment sales (64 375) - -
(these transactions are
at arm`s length)
1 452 825 1 749 105 208 726
Segment results
Operating (loss)/profit 34 406 33 134 18 782
before finance costs
CONDENSED SEGMENTAL REPORT (continued)
Rand thousands
Business segments Toys Industrial Total
products
2008
Segment revenue
External sales 266 579 150 044 3 937 967
Inter-segment sales - (1 322) (70 402)
(these transactions are
at arm`s length)
266 579 148 722 R3 867 565
Segment results
Operating profit 38 717 (18 946) (R165 455)
2007
Segment revenue
External sales 219 749 162 952 3 857 732
Inter-segment sales - - (64 375)
(these transactions are
at arm`s length)
219 749 162 952 R3 793 357
Segment results
Operating (loss)/profit 29 025 (3 679) R111 668
before finance costs
COMMENT ON RESULTS AND CORPORATE ACTIONS
The group is reporting provisional results for the year ended 30 June 2008. The
group`s provisional results comply with IFRS, which was first adopted for the
year ended 30 June 2006.
The year under review has been the most difficult in the group`s forty year
history. The main reasons for this were:
- The general economic downturn in the economy which put pressure on the
operations generally with volumes being lower than expected compounded by
increased input costs being experienced;
- The downturn also put pressure on the retailers resulting in them not drawing
inventory in accordance with the schedules which led to the group carrying
higher inventory levels;
- In order to protect margins, retailers have also looked to import a greater
proportion of garments and fabrics;
- Seardel`s main customer extended its payment terms which also had a
significant effect on its working capital levels.
These factors put pressure on the operations of the group which has been
exasperated by net increases in working capital and resultant increases in
interest bearing debt. The net increase in interest-bearing debt and rising
interest rates resulted in net finance charges increasing by R24,6 million to
R81,6 million (2007: R57 million). The results were further impacted by
substantial asset impairments of R108,7 million (2007: R7,3 million),
restructuring and retrenchment costs of R41,8 million (2007: 4,4 million) and a
cost of R15,2 million in respect of the surplus apportionment exercise conducted
in the Seardel Group Pension Fund being recognised in the current year.
Revenue increased marginally by 2% to R3,9 billion (2007: R3,8 billion).
Attributable losses amounted to R178,8 million from a R50,8 million profit in
the previous year. The weighted average number of shares in issue during the
year amounted to 90 million (2007: 91 million). Losses per share (`LPS`)
amounted to 198,6 cents compared to earnings of 55,8 cents last year.
Similarly, headline losses per share are 111 cents compared to earnings of 22,7
cents last year.
During the period May to July 2008 the group experienced severe cash flow
constraints, with banking facilities regularly being exceeded. At a meeting
convened with its lenders, Seardel proposed that it would undertake a rights
offer to recapitalise the group by raising an amount of approximately R300
million. Hosken Consolidated Investments Limited (`HCI`) agreed to provide R200
million of loan capital that could be converted to equity as part of the rights
offer. This will result in HCI becoming a significant shareholder of the group
and most likely becoming the controlling shareholder. The proposal was
acceptable to the group`s lenders provided that they were secured by cession of
group assets and they agreed to maintain their level of facilities for a period
of two years to allow sufficient time for the group to restructure itself to
address challenges currently being faced. The necessary security is in the
process of being provided to the group`s lenders.
Subsequent to year end a shareholders meeting was held, which approved, by
approximately 99%, the required resolutions to give effect to the above and the
rights offer, which is being underwritten by an amount of R300 million (R250
million by HCI and R50 million by Grawood Investments (Pty) Ltd, a company
controlled by Dr Searll). The rights offer is being implemented with the
permission of all the regulatory authorities and is expected to reach finality
by end October 2008. The capital raised will be used to reduce the group`s
borrowing levels and interest cost burden.
In an attempt to return the group to profitability, the board is in the process
of implementing a turnaround plan, the main thrusts of which will be:
- A group reorganisation which will reduce costs and promote better cooperation
between divisions;
- A focus on reducing working capital levels; and
- Improved production efficiencies.
There has been strong emphasis on working capital management, which has already
resulted in an improvement in this ratio and which is expected to continue,
notwithstanding the uncertainty of market conditions and economic trends.
The group has entered into a contract with respect to the manufacture and/or
supply of apparel for the World Cup in 2010. In terms thereof, the group has
agreed to pay royalties linked to revenues with a minimum payment being agreed.
A portion of this minimum payment has been paid already with the remainder due
in instalments through to June 2010. The group has an obligation to provide
guarantees or letters of credit in respect of the minimum payment which will
have an effect on the group`s banking facilities. The group is hoping to
renegotiate the terms of the contract to eliminate this obligation.
The board has subsequently performed a formal review of the group`s ability to
continue trading as a going concern in the foreseeable future and, based on this
review, considers that the presentation of the financial statements on this
basis is appropriate.
The audited annual results will be published as soon as these are available.
Changes to the board
Dr Aaron Searll has stepped down as chief executive officer of the group and has
been elected to the position of non-executive chairman. His contribution to the
group over a 40 year time span and to the industry over 50 years is acknowledged
with appreciation and thanks.
Mr Walter Simeoni has been appointed chief executive officer.
At financial year end the board consisted of three non-executive directors, two
of whom are independent, and three executive directors.
In terms of the company`s articles of association, non-executive directors
Messrs J A Copelyn and R A Upton retire at the forthcoming annual general
meeting and, being eligible, Mr J A Copelyn offers himself for re-election. Mr R
A Upton will be retiring at the date of the annual general meeting. The board
thanks him for his past contributions, both to the company and as chairman of
the Audit Committee, and wishes him well in his retirement. Mr Arthur Jacobson
will retire in October 2008 after 32 years with the group, 16 of them as
financial director. The board thanks him for his valued input over the years and
wishes him well in his retirement.
It is anticipated that on Tuesday, 7 October 2008 there will be an additional
three appointments to the board of Seardel Investment Corporation Limited,
namely Messrs Michael Jacobson (non-executive director), Anthony Dixon-Seager
(executive director) and Stuart Queen (executive director and chief financial
officer). These appointments will need to be ratified at the next annual general
meeting of the company.
There are no service agreements with any of the directors of Seardel at the date
hereof which impose any abnormal notice periods on the company.
Notes
1. Basis of preparation
These provisional 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`). KPMG Inc., the company`s independent auditor, has reviewed
the provisional financial statements contained in this provisional report and
has expressed an unmodified conclusion on the provisional financial statements.
Their review report is available for inspection at the company`s registered
office.
2. Change in accounting policy
During the year the group changed its accounting policy for recognising
actuarial gains or losses in respect of the defined benefit medical plan as
provided for in IAS 19 as such gains and losses are not reflective of operating
results. Previously the policy was to recognise these items as income or expense
in the year in which they arose. No actuarial valuation was undertaken in the
prior year and no adjustment is therefore necessary to the comparative figures.
The accounting policies adopted are in all other respects 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 transactions. These
intra-group transactions have been eliminated on consolidation.
Acquisition of shares: A subsidiary company acquired 19 500 ordinary shares and
660 700 `N` ordinary shares from the market for a total consideration of R 3,3
million.
Transactions with entities controlled by directors: 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 R7 556 089 for the year
ended 30 June 2008 (2007: R8 151 090).
A subsidiary company has a loan owing to Grawood Investments (Pty) Ltd, a
company of which Dr A Searll is the sole shareholder. This loan bears interest
at prime less 1%. The monetary value of the loan at 30 June 2008 was R97 990 000
(2007: R87 590 000) and the related interest for the year ended 30 June 2008 was
R12 415 332 (2007: R9 713 032).
The company engaged the services of Searay BD100 Charters, a partnership in
which Dr A Searll has a 5% interest. The related expense was R387 975 (2007:
R498 167).
The company engaged the services of Owenair (Pty) Ltd, a company in which Dr A
Searll has a 51% interest and Mr A Jacobson has a 49% interest. The related
expense was R30 218 (2007: RNil).
The group engaged the services of Crystal River Consultants, an entity owned by
a family member of Dr A Searll. The related expense was R798 228 (2007: R906
822).
Sales amounting to R578 017 were made to Lining and Textiles Distributors CC, a
company in which Dr Searll/Dr Searll`s family has a 20% interest.
Mr J Copelyn is a non-executive director of Mettle Limited and the chief
executive officer of HCI. Group companies have entered into financial
transactions with the Mettle Group as set out in note 37 of the group financial
statements for the year ended 30 June 2007. As at the balance sheet date HCI had
advanced R100 million to the group to fund the group`s immediate working capital
requirements. This loan bears interest at prime.
Remuneration 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 R27,4 million (2007: R28,7 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 in the group annual financial
statements for the year ended 30 June 2007 and have remained unchanged to date
hereof.
4. Securitisation of assets
The group is in the process of finalising security arrangements with the group`s
lenders in terms of which group companies will secure their obligations to the
lenders through, inter-alia, an issue of mortgage bonds over immovable property,
a cession of trade debtors and an issue of a general notarial bond over movable
property in favour of the lenders. On the basis of the security arrangements
being finalised, the overdrafts and short term interest-bearing liabilities
amounting to R195 million will become long term liabilities, as the lenders have
committed to maintaining existing facilities to at least 30 June 2010.
5. Non-current assets held for sale
Subsequent to year end the group disposed of Erf 16202 together with
improvements thereon located at 125 Cecil Road, Salt River for a consideration
of R5 050 000 (excl VAT).
6. Revaluations
Land and buildings were revalued by R34,8 million effective 30 June 2008 to fair
value by independent valuers, David Newham Property Management Co. (Pty) Ltd and
reflect a carrying value of R549 million. In arriving at the fair value of the
land and buildings, consideration was given to their rental producing capacity
taking into account their location, structure and the rental producing capacity
of similar buildings in similar locations.
7. Impairments
Rand thousands 2008 2007
The following categories
of assets were impaired:
Plant and equipment 87 852 7 353
Intangible assets 16 813 -
Interest in joint venture 4 028 -
108 693 7 353
8. Intangible assets
During the year the group concluded an agreement to manufacture and distribute
certain clothing products for the 2010 FIFA World Cup. In terms of this
agreement a guaranteed minimum royalty is payable to the licensee. This royalty
has been recognised as an intangible asset. Based on current projections this
asset has been impaired as shown above.
9. Deferred taxation
Deferred tax assets in respect of computed tax losses in Seardel Group Trading
(Pty) Ltd, Val Hau et Cie (Pty) Ltd and Frame Industrials (Pty) Ltd continue to
be recognised. The directors have considered the future profitability of these
three operating entities and on the basis that they are projected to produce
taxable income in the foreseeable future, these deferred tax assets are
considered fully recoverable. Deferred tax asset and liability balances in the
prior year have been restated to show the aggregate positions as reflected in
the underlying legal entities. Previously the allocation was based on the nature
of the temporary difference.
10. Change in comparatives
A subordinated shareholder loan to a subsidiary has been reclassified as being
part of the minority interest in the group. Deferred tax asset and liability
balances have been restated as mentioned above.
11. Non interest-bearing liabilities
The non interest-bearing liability represents the portion of the minimum royalty
referred to above not due for payment in the next 12 months.
12. Changes in contingent liabilities from the latest reporting period
The group has recognised an expense of R15,2 million in respect of surplus
apportionment for the Seardel Group Pension Fund. This amount was in the
previous reporting period recognised as a contingent liability.
13. Material events subsequent to the end of the reporting period
The rights offer circular in terms of which shareholders will be offered 6.66
ordinary shares for each ordinary or `N` ordinary share is expected to be posted
to shareholders on 6 October 2008.
DIRECTORS: A Searll* (Chairman), N N Lazarus* (Deputy Chairman), J Copelyn*, A D
Jacobson, W Simeoni (CEO) (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 2009
Interim for six months ending 31 December 2008 published March 2009.
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.
Sponsors: Java Capital (Proprietary) Limited
Signed for and on behalf of the board in Cape Town.
Dr. A Searll DBA
CHAIRMAN
Mr. A D Jacobson
FINANCIAL DIRECTOR
29 September 2008
Date: 29/09/2008 16:43:31 Produced by the JSE SENS Department.
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