| Thu 5 Nov 2009, 17:00 | | SER - Seardel Investment Corporation - Unaudited Group Interim Report to |
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SER
SER - Seardel Investment Corporation - Unaudited Group Interim Report to
Shareholders for the Six Months Ended 30 September 2009
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" or "the Group")
UNAUDITED GROUP INTERIM REPORT TO SHAREHOLDERS FOR THE SIX MONTHS ENDED 30
SEPTEMBER 2009
STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED
30 September 31 December % Change
2009 2008
Rand thousands (unaudited) (unaudited &
restated)
Revenue 1 295 658 1 667 082 - 22,3%
Gross profit 266 029 315 769 - 15,8%
Operating loss before impairments (14 175) (40 973)
and restructuring and retrenchment
costs and
restructuring and retrenchment
costs
Impairment of assets (4 200) (20 364)
Restructuring and retrenchment (2 343) (18 229)
costs
Operating loss before finance costs (20 718) (79 566) - 74,0%
Finance income 4 374 6 743 - 35,1%
Finance expenses (34 665) (60 202) - 42,4%
Share of losses from joint venture - (2 503)
Loss before tax (51 009) (135 528) - 62,4%
Income tax expense 1 310 (3 747)
Loss for the period from continuing (49 699) (139 275) - 64,3%
operations
Loss for the period from (171 936) (49 288)
discontinued operations
LOSS FOR THE PERIOD (221 635) (188 563) 17,5%
Other comprehensive income:
Fair value adjustments on available- 179 (790)
for-sale financial assets
Income tax relating to components - -
of other comprehensive income
Other comprehensive income for the 179 (790)
period, net of tax
TOTAL COMPREHENSIVE LOSS FOR THE (221 456) (189 353) 17,0%
PERIOD
Attributable to:
Owners of the parent (221 698) (183 450) 20,8%
Non-controlling interests 63 (5 113)
(221 635) (188 563)
Total comprehensive loss
attributable to:
Owners of the parent (221 519) (184 240) 20,2%
Non-controlling interests 63 (5 113)
(221 456) (189 353)
STATISTICS PER SHARE
30 September 31 December % Change
2009 2008
In cents,
where applicable
Weighted average number of shares 702 946 316 229
in issue (000)
Number of shares in issue 702 946 702 946
Loss (31,5) (58,0) - 45,6%
Continuing operations (7,0) (42,4) - 83,3%
Discontinued operations (24,5) (15,6) 56,9%
Headline loss (23,4) (53,3) - 56,2%
Continuing operations (5,8) (37,7) - 84,7%
Discontinued operations (17,6) (15,6) 13,0%
RECONCILIATION BETWEEN LOSS AND
HEADLINE LOSS
Income attributable to shareholders (221 698) (183 450) 20,8%
Impairment of assets 48 143 20 364
Impairment of investments 4 200 -
Surplus on disposal of property, - (5 052)
plant and equipment
Profit on acquisition of minority - (926)
interest
Loss on disposal of property, plant 5 035 429
and equipment
Total tax effect of adjustments - -
Total non-controlling interest - -
effects of adjustments
Headline loss (164 320) (168 635) - 2,6%
STATEMENT OF FINANCIAL POSITION AT
Rand thousands 30 September 31 March
2009 2009
ASSETS
Non-current assets 858 219 1 031 644
Property, plant and equipment 799 924 969 526
Intangible assets 19 276 21 490
Other investments 1 1 442
Long-term receivables 35 269 35 412
Deferred tax 3 749 3 774
Current assets 1 349 279 1 558 351
Non-current assets held for sale 123 602 26 818
Inventories 551 851 754 354
Trade and other receivables 641 461 769 100
Current tax asset 136 129
Cash and cash equivalent 32 229 7 950
TOTAL ASSETS 2 207 498 2 589 995
EQUITY AND LIABILITIES
TOTAL EQUITY 1 187 957 1 409 413
Share capital and share premium 303 969 303 969
Treasury shares (14 610) (14 610)
Reserves 898 071 1 119 590
Equity attributable to owners of 1 187 430 1 408 949
the parent
Non-controlling interests 527 464
Non-current liabilities 97 081 257 099
Deferred tax 6 610 7 420
Post employment medical aid 81 913 80 831
benefits
Interest-bearing liabilities 4 696 168 397
Operating lease accruals 3 862 451
Current liabilities 922 460 923 483
Current tax payable - 3 532
Post employment medical aid 4 346 4 346
benefits
Interest-bearing liabilities 191 218 40 357
Short-term provisions - 12 057
Deferred royalty payment - 45 172
Trade and other payable 412 066 558 359
Provision for closure costs - 64 647 -
Discontinued operations
Bank overdrafts 250 183 259 660
TOTAL LIABILITIES 1 019 541 1 180 582
TOTAL EQUITY AND LIABILITIES 2 207 498 2 589 995
Net asset value (excluding 1 168 154 1 387 459
intangible assets)
Net asset value per share after 166 197
treasury shares (cents)
CONDENSED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED
Rand thousands 30 September 31 December
2009 2008
Net cash flow from operating 5 849 (232 355)
activities
Net cash flow from investing 40 747 (28 331)
activities
Net cash flow from financing (12 840) 85 606
activities
Net decrease in cash and cash 33 756 (175 080)
equivalents
Cash and cash equivalents at (251 710) (104 277)
beginning of period
Cash and cash equivalents at end of (217 954) (279 357)
period
STATEMENT OF CHANGES IN EQUITY
Rand thousands Share Share Treasury Other
Capital Premium Shares Reserves
Balance at 1 July 2008 5 943 187 (16 250) 241 386
Acquisition of minority
interest
Shares issued net of 153 264 144 575
share issue expenses
Share disposals 1 640
Total comprehensive loss (790)
for the period
Balance at 31 December 159 207 144 762 (14 610) 240 596
2008
Balance at 1 April 2009 159 207 144 762 (14 610) 234 023
Total comprehensive loss
for the period
Release reserve on (577)
realisation of
investment
Balance at 30 September 159 207 144 762 (14 610) 233 446
2009
STATEMENT OF CHANGES IN EQUITY (continued)
Rand thousands Retained Total Non- Total
Income Controlling
Interests
Balance at 1 July 2008 1 158 967 1 390 233 6 606 1 396 839
Acquisition of minority - (926) (926)
interest
Shares issued net of 297 839 297 839
share issue expenses
Share disposals 1 640 1 640
Total comprehensive loss (183 450) (184 240) (5 113) (189 353)
for the period
Balance at 31 December 975 517 1 505 472 567 1 506 039
2008
Balance at 1 April 2009 885 567 1 408 949 464 1 409 413
Total comprehensive loss (221 519) (221 519) 63 (221 456)
for the period
Release reserve on 577 - -
realisation of
investment
Balance at 30 September 664 625 1 187 430 527 1 187 957
2009
30 September 31 December
2009 2008
Composition of other reserves
Revaluation of investments - 615
Capital redemption reserve fund 440 440
Surplus on disposal of subsidiary and associated 7 923 7 923
companies
Surplus on revaluation of land and buildings 225 083 231 618
233 446 240 596
CONDENSED SEGMENTAL REPORT
Rand thousands Textiles Clothing Discontinued
2009
Segment revenue
External sales 525 144 680 495 271 025
Inter-segment sales (these (29 462) (6 210) (64 169)
transactions are at arm`s length)
495 682 674 285 206 856
Less: Revenue attributable to
discontinued operations
Revenue as per statement of
comprehensive income
Segment results
Operating (loss)/profit 10 441 (46 181) (171 936)
2008
Segment revenue
External sales 588 223 887 270 385 015
Inter-segment sales (these (25 572) (65 606)
transactions are at arm`s length)
562 651 887 270 319 409
Less: Revenue attributable to
discontinued operations
Revenue as per statement of
comprehensive income
Segment results
Operating (loss)/profit 271 (70 258) (49 288)
CONDENSED SEGMENTAL
REPORT(CONTINUED)
Other Total
2009
Segment revenue
External sales 189 860 1 666 524
Inter-segment sales (these transactions are at (99 841)
arm`s length)
189 860 1 566 683
Less: Revenue attributable to discontinued (271 025)
operations
Revenue as per statement of comprehensive income 1 295 658
Operating (loss)/profit 15 022 (192 654)
2008
Segment revenue
External sales 282 767 2 143 275
Inter-segment sales (these transactions are at (91 178)
arm`s length)
282 767 2 052 097
Less: Revenue attributable to discontinued (385 015)
operations
Revenue as per statement of comprehensive income 1 667 082
Segment results
Operating (loss)/profit (9 579) (128 854)
Notes
1. Basis of preparation
The Group interim results have been prepared in accordance with International
Financial Reporting Standards (IFRS) and specifically International Accounting
Standard IAS34: Interim Financial Reporting. These results have not been audited
or reviewed by the Group`s auditors, KPMG Inc.
2. Significant accounting policies
The Group interim results 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 period
ended 31 March 2009, except for the revised IAS1, IFRS 8, IAS 23 & Circular
3/2009. The effect of these have been taken into account in the Group interim
results.
3. Change of year end
During the prior year, the directors resolved to change the financial year end
from 30 June to 31 March in order to coincide with the year end of the new
ultimate holding company, Hosken Consolidated Investments Limited ("HCI").
Accordingly, these interim results are for the 6 months ended 30 September 2009,
and the comparative period is the 6 months ended 31 December 2008.
4. Segmentation of group
The segmental report has been amended in line with the changes in internal
reporting to management. The segments previously known as "office automation &
consumer electronics", "toys" and "other" have been combined into one segment
known as "other". Results of the discontinued operations have been removed from
their original segmental classifications and are reported separately. The
segment previously referred to as "apparel & household textiles" is now known as
"clothing". Comparative figures have been restated accordingly.
5. Related party transactions
Expenses relating to the provision of managerial services received from HCI
amounted to R2 132 740. Expenses relating to the provision of staff received
from Isilumko Staffing (Pty) Ltd, an associate of HCI, amounted to R391 548.
Expenses relating to the provision of services received from Neil Lazarus,
Deputy Chairman of Seardel, amounted to R15 000. Expenses relating to the
provision of advisory services received from Yunis Shaik, a director of Seardel,
amounted to R75 000.
6. Capital expenditure and commitments
Net capital expenditure during the period under review amounted to R17,0 million
(31 December 2008: R45,7 million). There are further commitments in respect of
contracted capital expenditure as at 30 September 2009 of approximately R4,9
million (31 December 2008: R5,9 million).
7. Restatement of prior year results
The prior year statement of comprehensive income has been restated so as to
separately identify the discontinued operations.
COMMENT ON RESULTS AND CORPORATE ACTIONS
Overview
As was reported in the results for Seardel Investment Corporation Limited
("Seardel" or "the Group") for the nine months ended 31 March 2009, there are no
quick fixes to a group of this size, particularly when the macro-economic
environment is as unfavourable as the one currently being experienced. The
global recession and strong Rand have certainly slowed the rate of progress and
given the long lead times, will continue to have an effect for the remainder of
the year. However, despite this, we believe that the Group has made some
tremendous steps forward operationally and significant costs have been cut out
of the business. The results for the first six months do not reflect the full
benefits of the turnaround, but we are confident that we will be able to report
improved results for the second half of this financial year.
During the period under review, the Group took the significant decision to close
certain of its textile divisions namely, Spinning, Weaving, Finishing and Denim
("the Affected Divisions") after it became apparent that there was little that
could be done within management`s control that would see these Affected
Divisions returning to profitability. The financials reflect the results of
these operations as part of the discontinuing operations disclosure.
The other significant event of the period under review was the 12 day clothing
industry strike which cost the Group around R16 million. It is acknowledged that
in order to survive, the local industry has to have efficiency levels that are
world class. This has been the focus of Seardel and we have seen marked
improvement in efficiency levels. However, the high absenteeism levels
experienced by the Group, particularly in the Western Cape, are a major
stumbling block in the attainment of world class efficiencies on a consistent
basis. The wage offer made by employers during this year`s negotiations
represented an increase of 8% with certain conditions aimed at reducing
absenteeism. The union rejected this offer on the grounds that it represented a
downward variation in employment conditions. The strike was eventually settled
on terms that effectively gave workers in the metro areas an increase of 7%
without any significant changes to the terms of employment. However, the union
has acknowledged the problem of absenteeism and have stated a commitment to
working with the industry to find a solution to the problem. We hope that the
commitment expressed by the parties translates into a positive action.
In addition to the industry strike, the period under review also incorporated a
metro rail and taxi strike which also had an adverse effect on the reported
results.
Results
The Group recorded an attributable loss of R222 million for the six months to 30
September 2009. The discontinued operations accounted for R172 million of this
loss whilst continuing operations accounted for a further R50 million loss.
Continuing operations
For the period under review, the Group recorded an operating loss before finance
costs from continuing operations of R21 million. Included in this loss are the
following non-recurring or non-core items:
- The Group`s policy is to cover forward its foreign exchange exposure and in
a strengthening Rand environment, this meant that the Group recorded forex
losses of R19 million for the period, R18 million of which were unrealised
losses at the reporting date;
- The strike action is estimated to have cost the Group some R16 million;
- A R4 million asset impairment charge was raised relating to a write down of
the Group`s minority interest in Sustainable Fibre Solutions (Pty) Ltd;
- A R2.3 million charge relating to retrenchment and relocation costs was
processed; and
- The results were positively affected by the renegotiation of the 2010 World
Cup contract which resulted in a R17 million reduction in the total
liability.
The reduced debt levels and lower interest rates have reduced the net interest
paid from R54 million in the 6 months to 31 December 2008 to R30 million in the
current period.
Discontinued operations
During the period under review, the loss from the discontinued operations was
R172 million. This loss comprises a R58 million operating loss and closure costs
of R114 million. The closure costs include:
- R35 million in respect of retrenchment costs;
- R31 million provision for onerous contracts; and
- R48 million in respect of an asset impairment charge.
R21 million of the asset impairment charge relates to the strengthening Rand as
these assets are likely to be sold offshore with the proceeds being US$
denominated. The remainder of the impairment charge was required to take into
account the current depressed market conditions for assets of this sort.
We had previously reported that the loss from discontinued operations would be
in the region of R165 million but this estimate did not include the asset
impairment charge. As there are still costs to be incurred in the Affected
Divisions until the assets are sold and shipped, which is expected to only be
completed by the end of the next financial year, we believe that the estimate of
R165 million (before accounting for the impairment charge) is still reasonably
accurate.
Operational review
Textiles
The performance of the continuing textile operations showed an improvement and
delivered an operating profit of R10 million after accounting for a R4 million
foreign exchange loss and retrenchment and restructuring costs of R2 million.
The restructuring initiatives have, in the main, been completed with the
formation of clusters for the knitting, home textile and non-woven products. The
full benefits of these reorganisations will only be felt in the second half of
this financial year. There are still some weaker areas within the textile
divisions and these are being addressed.
The textile division has made significant progress in the implementation and
adoption of the various world class management and manufacturing disciplines and
structures we are applying across the Group. Some of the benefits that these
world class systems will bring are already being realised in a number of
operations. Based on the interventions mentioned, we anticipate an improvement
in the performance of this division over the next six months. If the
fundamentals of our economic environment improve, we believe this improvement
could be meaningful. However, the strong Rand and the extraordinary utility cost
increases we are facing, are a massive undermining factor in our more capital
intensive operations.
Clothing
The results for the clothing division were disappointing with it delivering an
operating loss of some R46 million. This has been affected by a number of non-
core or non-recurring items most notably:
- The strike action which is estimated to have cost the Group R16 million;
and
- Some R11 million of forex losses.
We have made further progress in the consolidation of the various clothing
divisions with the bulk of the work now having been completed. We have also
appointed senior executives to take functional responsibility for production,
quality, procurement and supply chain management. These new appointments all
come from the motor industry and are proponents of world class manufacturing
principles. We look forward to their contributions to these critical areas.
The benefits of this reorganisation should start to be seen in the next 6 months
when we hope to report that these divisions are profitable on an operating
level. Although we remain optimistic that this goal can be achieved, the
clothing divisions are being severely affected by a loss of volume to imports
from the East (exacerbated by the strong Rand) and even more worryingly, by a
shift from the retailers to procure more product from our neighbouring SACU
states where wage rates are far lower than our own and against whom we have no
tariff protection. To counter this threat, it may require a change in government
policy that allows local producer`s better protection or support to enable them
to be competitive.
Toys, stationery and games
The tough economic times experienced in the first quarter of 2009 and referred
to in the Director`s Report for the nine months ended 31 March 2009 continued to
impact on Prima`s trading for the period under review. The past six months have
been one of the most difficult periods in Prima`s history.
Retailer confidence has been at an all-time low and they have put much of their
efforts into controlling their stock levels with the concomitant impact on
Prima`s turnover. Notwithstanding this, Prima has managed to trade profitably
albeit on a lower level delivering an operating profit of R12 million.
Prima has maintained its market share during this difficult period. This has
been achieved by its continued focus on the appropriate mix of product and
attention to detail on the shop floor. New character license agreements have
been concluded which will supplement the existing business.
Prima continues to explore opportunities that fit into its profile and expertise
of distribution of branded FMCG. This will be in the area of new business
opportunities outside of toys and games or for new licenses and
distributorships. To this end, Prima has recently created a new trading division
- Prima Interactive. Prima Interactive specialises in the distribution of
electronic games for the major console offerings and personal computers.
Electronics
The performance of our electronics division was severely affected by the current
economic climate with copier and calculator sales below the levels achieved in
the previous corresponding period and margins being put under pressure. This has
resulted in the division delivering an operating loss of R1.3 million after
accounting for some R2.5 million of forex losses.
We anticipate that the copier and calculator markets will show some improvement
from the second quarter of 2010 and are planning accordingly. The current
challenges remain trying to balance the weaker sales and margins with the
reduction of fixed expenses whilst maintaining our sales and marketing efforts.
We anticipate that this division will be profitable for the second half of this
financial year.
Forensic issues
The board has commissioned an extensive forensic audit of the past conduct in
the Group. In consequence, the Group has launched an action consisting of
various substantial claims for relief against former directors of Seardel and
its subsidiaries. The total value of these claims is in excess of R300 million
and primarily relate to property transactions, which opportunities we believe
ought to have been presented to the Group. These actions are being defended and
are likely to continue for some time.
Changes to the board
During the period under review, the following appointments were made to the
board:
- Mr Gys Wege was appointed Chief Financial Officer;
- Ms Nazeema Teladia and Ms Rachel Watson were appointed as non-executive
directors.
Outlook
Although significant challenges still need to be overcome, both within Seardel
and within the industry in general, we remain optimistic that a turnaround can
be achieved. We are pleased with the operational progress made to date and
although the benefits of these actions are yet to reflect in the numbers, we do
foresee improved results for the 6 months to 31 March 2010.
However, the Rand strength is of significant concern as it has the effect of
reducing the cost of imported product thereby rendering the local industry
uncompetitive. Furthermore, the anticipated increases in electricity charges
will also play a role in determining the viability of the local industry as the
import threat will ensure that these cost increases will not be able to be
passed on to the customer.
Liquidity is usually the factor that determines whether a turnaround will be
successful or not. On this score we have implemented strict working capital
controls and these together with the closure of the Affected Divisions has
resulted in working capital levels reducing by some R248 million in the 6 months
to September 2009. This has given us some space within which to work.
Appreciation
The difficulties experienced in turning around a group of this size,
particularly in the current economic environment, requires high levels of
dedication and commitment from our employees. The directors and management of
Seardel would like to take this opportunity to thank the staff of the Group for
their continued efforts.
Signed for and on behalf of the board in Cape Town on 4 November 2009.
S A Queen
Chief Executive Officer - Designate
G Wege
Chief Financial Officer
The company`s shares are listed under the Consumer Goods - Personal and
Household Goods Sector of the JSE Limited.
DIRECTORS: J A Copelyn BA(Hons) BProc (Chairman), Adv N N Lazarus SC (Deputy
Chairman), W Simeoni* (Chief Executive Officer) (Austrian), M H Ahmed BSc
(Accounting), A E Dixon-Seager DipBus M(Hons) (Chief Operating Officer), T G
(Kevin) Govender, A M Ntuli, S A Queen CA(SA) (Chief Executive Officer -
Designate), Y Shaik BProc, N Teladia, R Watson, G Wege CA(SA).
( indicates Non-Executive)
Transfer Secretaries:
Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg
2001. P O Box 61051, Marshalltown 2107.
Annual Report 2010
The Annual Report for the year ending 31 March 2010 to be published during June
2010.
Administration
Secretary and registered office: HCI Managerial Services (Pty) Ltd, 1 Moorsom
Avenue, corner Bofors Circle and Moorsom Avenue, Epping Industria II, Cape Town
7460
Postal address: P O Box 524 Eppindust 7475
Telephone: +27-21-5055261
Telefax: +27-21-5350045
Internet: http://www.seardel.co.za
Auditors: KPMG Inc.
Sponsors: Java Capital (Pty) Ltd
Date: 05/11/2009 17:00:01 Produced by the JSE SENS Department.
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