| Thu 9 Apr 2009, 9:00 | | SER / SRN - Seardel Investment Corporation - Announcement Regarding The Closure |
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SER SRN
SER
SER / SRN - Seardel Investment Corporation - Announcement Regarding The Closure
Of Certain Divisions Within The Frame Textile Group`s Vertical Pipeline
SEARDEL INVESTMENT CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1968/011249/06)
Share code: SER ISIN Code: ZAE000029815
Share code: SRN ISIN Code: ZAE000030144
("Seardel" or "the Company")
ANNOUNCEMENT REGARDING THE CLOSURE OF CERTAIN DIVISIONS WITHIN THE FRAME TEXTILE
GROUP`S VERTICAL PIPELINE
1. Introduction
Shareholders are advised that the board of directors of the Company has, as part
of its turnaround plan, embarked upon a process of restructuring the Group with
a view to returning it to profitability. In the process of implementing the
board`s turnaround plan, it has made a decision in principle, subject to the
outcome of the required consultation process with interested parties, to close
certain of the operating divisions that comprise the Frame Textile Division`s
vertical pipeline being the spinning, weaving, finishing and denim divisions
("the Affected Divisions").
2. Nature of the Affected Divisions business
The Affected Divisions convert raw cotton into yarn, the majority of which is
then converted into woven fabric for use in garment manufacture as well as
finished textile products such as bed linen and curtains.
Spinning: Frame Spinning is the largest producer of cotton spun yarns in the
Southern African region, comprising state of the art spinning mills. The
division boasts an installed capacity of approximately 53 000 Ring Spindles and
5 000 Open End Rotors, yielding in excess of 25 900 tons of short staple yarn
per annum.
Weaving and finishing: Frame Woven Fabrics is a vertically integrated operation
producing in excess of 33 million linear metres of fabric per annum.
Denim: Frame Denim is a vertically integrated operation specialising in the
production of indigo denim supplying fabric to the local and export garment
industry.
3. Reasons for the decision
It has been well documented that the South African Textile Industry is and has
been under tremendous pressure for a number of years for the following reasons:
- Ongoing pressure on selling prices from cheap imported products, sourced
both legally and illegally, has undermined the local manufacturing base;
- Internationally the textile industry attracts significant subsidies with
many international firms being state owned. Even in the local market, the
textile divisions are required to compete with enterprises that attract state
funding through the IDC;
- Structural deficiencies with respect to the DCC scheme, SACU and SADC
arrangements have had a severe negative effect on the local industry;
- Massive hikes in input costs, such as electricity, have been experienced
with an inability to pass these on to customers; and
- Non-compliance in applying the prescribed minimum conditions of employment
as determined in the Bargaining Council Agreements by local competitors.
These factors make it all but impossible to compete as a purely commercial
enterprise.
The pressures experienced have translated into significant ongoing losses being
incurred in the Affected Divisions. The Company, over a number of years, has
looked at every possible avenue to remedy this situation including major
reorganisations, restructuring and downsizing of the operations. Over the past
10 years over R360 million has been spent on plant and machinery in order to
raise efficiency levels but it has become clear that improved efficiencies alone
will not be sufficient to compensate for the structural issues facing the
industry.
The Company has, also over this period made, directly and via the Textile
Federation, representations to the various Government agencies for decisive and
urgent positive interventions to assist the industry. Unfortunately all of these
actions have been to no avail.
As there is no indication that there will be any improvement in the trading
conditions or performance of the Affected Divisions in the foreseeable future
we, regrettably, are left with no alternative but to close these divisions and
sell the assets.
The Affected Divisions employ approximately 1 400 people and consultations with
the Trade Union (SACTWU) on behalf of the respective Bargaining Units and
Individual Employees, who are not represented by the respective Bargaining
Units, have begun.
Timing
Subject to the consultation process with the interested parties, it is
anticipated that the first of the Affected Divisions will be closed in early
July 2009. Every effort will be made to ensure that the closure is handled in a
responsible manner in order to minimise potential disruptions to the supply
chain.
9 April 2009
Sponsor
Java Capital (Proprietary) Limited
Date: 09/04/2009 09:00:03 Produced by the JSE SENS Department.
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