| Thu 20 May 2010, 14:43 | | SER/SRN - Seardel - Audited consolidated condensed results for the year ended 31 |
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SER SRN
SER
SER/SRN - Seardel - Audited consolidated condensed results for the year ended 31
March 2010
SEARDEL INVESTMENT CORPORATION LIMITED
("Seardel" or "the Group")
Registration number: 1968/011249/06
(Incorporated in the Republic of South Africa)
JSE share code: SER
ISIN: ZAE000029815
JSE share code: SRN
ISIN: ZAE000030144
AUDITED CONSOLIDATED CONDENSED RESULTS FOR THE YEAR ENDED 31 MARCH 2010
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
at at
31 March 31 March
Rand thousands 2010 2009
ASSETS
Non-current assets 963 056 1 031 644
Property, plant and equipment 906 162 969 526
Intangible assets 3 933 21 490
Other investments 3 026 1 442
Long-term receivables 34 760 35 412
Deferred tax asset 15 175 3 774
Current assets 1 246 895 1 558 351
Non-current assets held for sale 81 725 26 818
Inventories 501 354 754 354
Trade and other receivables 583 089 769 100
Current tax asset 44 129
Cash and cash equivalents 80 683 7 950
Total assets 2 209 951 2 589 995
EQUITY AND LIABILITIES
Total equity 1 291 949 1 409 413
Share capital and share premium 303 969 303 969
Treasury shares (14 610) (14 610)
Reserves 1 001 989 1 119 590
Total equity attributable to equity holders 1 291 348 1 408 949
Non-controlling interest 601 464
Non-current liabilities 78 466 257 099
Deferred tax liability 6 919 7 420
Post-employment medical aid benefits 65 297 80 831
Interest-bearing liabilities 1 945 168 397
Operating lease accruals 4 305 451
Current liabilities 839 536 923 483
Current tax liabilities 3 074 3 532
Post-employment medical aid benefits 4 428 4 346
Interest-bearing liabilities 186 173 40 357
Provisions 17 770 12 057
Deferred royalty payment - 45 172
Trade and other payables 431 211 558 359
Bank overdrafts 196 880 259 660
Total liabilities 918 002 1 180 582
Total equity and liabilities 2 209 951 2 589 995
Net asset value (excluding intangible assets) 1 287 415 1 387 459
Net asset value (excluding intangible assets) per
share after treasury shares (cents) 183 197
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Audited
Audited for the
for the 9 months
year ended
ended 31 March
31 March 2009
Rand thousands 2010 (restated)
Revenue 2 586 923 2 169 584
Gross profit 612 325 430 189
Operating profit/(loss) before impairments and
restructuring and retrenchment costs 42 616 (49 072)
Net impairment of assets 646 (47 510)
Restructuring and retrenchment costs (5 304) (20 730)
Operating profit/(loss) before finance costs for
continuing operations 37 958 (117 312)
Finance income 22 563 18 859
Finance expenses (58 438) (57 112)
Share of losses from joint venture - (2 503)
Profit/(loss) before taxation for continuing
operations 2 083 (158 068)
Income tax expense (1 211) 27 470
Profit/(loss) for the period from continuing
operations 872 (130 598)
Loss for the period from discontinued operations (204 328) (153 962)
Loss for the period (203 456) (284 560)
Other comprehensive income:
Fair value adjustment on available-for-sale
financial assets 2 755 (828)
Revaluation of land and buildings 81 972 (6 535)
Post-employment medical benefit - actuarial gain 1 265 5 944
Other comprehensive income/(loss) for the period 85 992 (1 419)
Total comprehensive loss for the period (117 464) (285 979)
Loss attributable to:
Equity holders of the parent (203 593) (279 344)
Non-controlling interests 137 (5 216)
(203 456) (284 560)
Total comprehensive loss attributable to:
Equity holders of the parent (117 601) (280 763)
Non-controlling interests 137 (5 216)
(117 464) (285 979)
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Audited Audited
for the for the
year 9 months
ended ended
31 March 31 March
Rand thousands 2010 2009
Net cash flow from operating activities 148 976 (162 149)
Operating profit/(loss) before finance costs from
continuing operations 37 958 (117 312)
Operating loss before finance costs from
discontinued operations (182 081) (124 580)
Loss for the period before finance costs (144 123) (241 892)
Adjustments for:
Depreciation and amortisation 47 250 46 011
Net unrealised foreign exchange losses 11 458 15 822
Negative goodwill on acquisition of subsidiary - (926)
Loss/(surplus) on disposal 18 066 (2 586)
Net impairment of assets 29 599 82 522
Post-employment medical aid benefit (13 695) 4 251
Waiver of liability (18 897) -
Net finance costs (53 611) (67 869)
Taxation paid (10 768) (12 865)
Net changes to working capital 283 697 15 383
Net cash flow from investing activities 7 173 (56 507)
Additions of property, plant and equipment (50 115) (73 811)
Proceeds on disposal 56 520 19 823
Change in non-current receivables 652 (223)
Investment income 116 234
Advances to joint venture - (20)
Business combinations - (2 510)
Net cash flow from financing activities (20 636) 71 223
Change in borrowings (20 636) (134 835)
Reclassification of short-term loan to bank
overdraft - (91 781)
Rights issue - 297 839
Net change in cash and cash equivalents 135 513 (147 433)
Cash and cash equivalents at beginning of period (251 710) (104 277)
Cash and cash equivalents at end of period (116 197) (251 710)
AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Treasury
Rand thousands capital premium shares
Balance 30 June 2008 5 943 187 (16 250)
Total comprehensive income
Acquisition of minority interest
Share issue 153 264 144 575
Share disposals 1 640
Balance 31 March 2009 159 207 144 762 (14 610)
Total comprehensive income 84 727
Release reserve held for available
financial assets for sale
Balance 31 March 2010 159 207 144 762 (14 610)
Other Retained
Rand thousands reserves income Total
Balance 30 June 2008 241 386 1 158 967 1 390 233
Total comprehensive income (7 363) (273 400) (280 763)
Acquisition of minority interest -
Share issue 297 839
Share disposals 1 640
Balance 31 March 2009 234 023 885 567 1 408 949
Total comprehensive income 84 727 (202 328) (117 601)
Release reserve held for available
financial assets for sale (731) 731 -
Balance 31 March 2010 318 019 683 970 1 291 348
Minority
Rand thousands interest Total
Balance 30 June 2008 6 606 1 396 839
Total comprehensive income (5 216) (285 979)
Acquisition of minority interest (926) (926)
Share issue 297 839
Share disposals 1 640
Balance 31 March 2009 464 1 409 413
Total comprehensive income 137 (117 464)
Release reserve held for available financial
assets for sale -
Balance 31 March 2010 601 1 291 949
Audited Audited
for the for the
year 9 months
ended ended
31 March 31 March
Rand thousands 2010 2009
Composition of other reserves
Revaluation of investments 2 601 577
Capital redemption reserve fund 440 440
Surplus on disposal of subsidiary and
associated companies 7 923 7 923
Surplus on revaluation of land and buildings 307 055 225 083
318 019 234 023
AUDITED CONDENSED SEGMENTAL REPORT
Toys, office
automation
and
Rand thousands consumer
Business segments Textiles Clothing electronics
2010
Segment revenue
External revenue 933 881 1 283 060 423 616
Inter-segment revenue (these
transactions are at arm`s length) (52 712) - (1 263)
881 169 1 283 060 422 353
Segment results
Combined operating (loss)/profit
before finance costs (139 927) (83 817) 42 514
Disclosed as discontinued
operations (excluding finance
charges and taxation) 157 558 29 150 -
Operating profit/(loss) before
finance costs from continuing
operations 17 631 (54 667) 42 514
Net finance costs - - -
Profit/(loss) before taxation
from continuing operations 17 631 (54 667) 42 514
Segment assets 666 959 598 536 241 633
Segment liabilities 273 246 147 990 69 783
2009
Segment revenue
External revenue 718 606 1 120 000 373 249
Inter-segment revenue (these
transactions are at arm`s length) (42 408) - -
676 198 1 120 000 373 249
Segment results
Combined operating (loss)/profit
before finance costs (157 025) (102 127) 46 658
Disclosed as discontinued
operations (excluding finance
charges and taxation) 104 499 20 081 -
Operating (loss)/profit before
finance costs from continuing
operations (52 526) (82 046) 46 658
Net finance costs
(Loss)/profit before taxation
from continuing operations (52 526) (82 046) 46 658
Segment assets 1 080 137 719 573 224 898
Segment liabilities 328 896 229 287 45 734
Head
office
and con-
Rand thousands solidation
Business segments Properties entries Total
2010
Segment revenue
External revenue 53 674 - 2 694 231
Inter-segment revenue (these
transactions are at arm`s length) (53 333) - (107 308)
341 - 2 586 923
Segment results
Combined operating (loss)/profit
before finance costs 38 141 (5 661) (148 750)
Disclosed as discontinued
operations (excluding finance
charges and taxation) - 186 708
Operating profit/(loss) before
finance costs from continuing
operations 38 141 (5 661) 37 958
Net finance costs - (35 875) (35 875)
Profit/(loss) before taxation
from continuing operations 38 141 (41 536) 2 083
Segment assets 585 991 161 832 2 209 951
Segment liabilities 471 426 512 918 002
2009
Segment revenue
External revenue 33 385 - 2 245 240
Inter-segment revenue (these
transactions are at arm`s length) (33 248) - (75 656)
137 - 2 169 584
Segment results
Combined operating (loss)/profit
before finance costs 30 990 (62 891) (244 395)
Disclosed as discontinued
operations (excluding finance
charges and taxation) - 124 580
Operating (loss)/profit before
finance costs from continuing
operations 30 990 (62 891) (119 815)
Net finance costs (38 253) (38 253)
(Loss)/profit before taxation from
continuing operations 30 990 (101 144) (158 068)
Segment assets 532 850 32 537 2 589 945
Segment liabilities 13 646 563 019 1 180 582
STATISTICS PER SHARE
Audited Audited
for the for the
year 9 months
ended ended
31 March 31 March
In cents, where applicable 2010 2009
Net number of shares in issue (`000) 702 946 702 946
Weighted average number of shares 702 946 443 253
Diluted weighted average number of shares 737 346 443 253
Basic loss per share (29.0) (63.0)
Continuing operations 0.1 (28.3)
Discontinued operations (29.1) (34.7)
Diluted loss per share (27.6) (63.0)
Continuing operations 0.1 (28.3)
Discontinued operations (27.7) (34.7)
Headline loss per share (22.2) (45.6)
Continuing operations - (18.7)
Discontinued operations (22.2) (26.9)
Diluted headline loss per share (21.2) (45.6)
Continuing operations - (18.7)
Discontinued operations (21.2) (26.9)
Headline loss
Reconciliation between loss and headline loss
Loss attributable to equity holders of the parent (203 593) (279 344)
Impairment of assets 62 313 82 522
Reversal of impairment of assets (32 714) -
Insurance claim for capital asset (74) (55)
Surplus on disposal of property, plant and equipment (4 045) (7 733)
Negative goodwill - (926)
Loss on disposal of property, plant and equipment 22 111 3 616
Headline loss (156 002) (201 920)
NOTES
1. Basis of preparation
These consolidated condensed results are prepared in accordance with the
recognition and measurement requirements of IFRS, the AC 500 standards, the
disclosure requirements of IAS 34 and the Listings Requirements of the
JSE Limited.
2. Accounting policies
The accounting policies adopted are in all respects consistent with those
applied in the preparation of the Group`s annual financial statements for the
period ended 31 March 2009, except for the revised IAS 1, IFRS 8, IAS 23 and
Circular 3/2009 (the revised headline earnings per share circular). The
presentation of the financial statements (IAS 1) and operating segment
disclosures (IFRS 8) are changed accordingly, with no adjustment necessary on
the adoption of Circular 3/2009. The adoption of IAS 23 had no impact on the
results.
3. Segmentation of the group
The basis of segmentation has been changed to reflect the definition of an
operating segment as contained in IFRS 8. To this effect, the segments
previously referred to as textiles, apparel and household textiles, office
automation, toys and other, are now reflected as textiles, clothing, toys and
office automation, properties, and head office and consolidation entries. The
comparative results have been restated accordingly.
4. Change in comparatives
As explained in note 3, Segmentation of the group, the basis of segmentation has
been changed. During the year the Group announced the closure of certain
divisions, namely the Spinning, Weaving, Finishing and Denim textile division
and the Men`s Suit factory. The results of these divisions have been separately
disclosed as discontinued operations. The comparative results have been restated
accordingly.
5. Independent audit
These consolidated condensed results have been audited by our auditors KPMG
Inc., who have performed the audit in accordance with International Standards on
Auditing. A copy of the unqualified audit report is available for inspection at
the registered office of the company.
6. Related party transactions
During the year the Group incurred the following related party expenditure:
* Managerial services received from HCI - R4 232 740
* Professional services for recruitment of staff from Isilumko Staffing (Pty)
Ltd - R630 858
* Professional services rendered by Mr Neil Lazarus, deputy chairman of Seardel
- R31 136
* Professional services rendered by Mr Yunis Shaik - R75 000
7. Capital expenditure and commitments
Net capital expenditure during the year under review amounted to R50.1 million.
There are further commitments in respect of contracted capital expenditure as at
31 March 2010 of R11.6 million.
8. Dividends
The directors have resolved not to declare a dividend for the year ended 31
March 2010.
COMMENTARY
The period to the end of March 2010 represents 17 months since Seardel completed
its rights issue and began implementing its turnaround strategies. We have been
consistent in our message that there are no quick fixes in turning around a
Group of this size. The fact that since the rights issue, we have suffered a
global recession and have seen a period of significant Rand strength has not
aided the turnaround cause. Against this backdrop, we are pleased with the
progress made to date. Operationally, we believe that the Group has made great
strides forward and although the numbers do not yet reflect the full benefit of
the turnaround strategies, the improvements are starting to show.
Indeed, the second half of the financial year has been profitable.
During the period under review the Group was required to close down certain of
its underperforming operations after it became apparent that there was little
that could be done within management`s control that would see these businesses
return to profitability. We reported in April 2009 the closure of certain of the
textile divisions, namely Spinning, Weaving, Finishing and Denim and towards the
end of this financial year we have also announced the closure of our Men`s Suit
factory in Durban. The results of these operations are reflected as discontinued
operations.
Out of necessity, the Group has undergone significant change in a very short
period of time which brings with it the inevitable insecurities and teething
problems. We believe that we are now at a point where the major reorganisational
initiatives have largely been completed which will allow management to focus on
improving the performance of the individual business units. In the ensuing year
we expect further progress on our journey of continuous improvement and not only
do we expect to see further efficiency improvements, but also improvements in
service delivery and quality metrics.
Results
The results to 31 March 2010 are not directly comparable with those to
March 2009 due to the March 2009 results only being for a nine-month period.
The group recorded a loss of R204 million for the year ended 31 March 2010 with
the full loss attributable to the discontinuing operations. The fact that
continuing operations managed to report a breakeven situation was particularly
pleasing as these operations had reported a R50 million loss in the first six
months. If one adjusts for certain reclassifications that took place during the
second half of the year then, on a like-for-like basis, continuing operations
delivered an attributable net profit of R29 million for the second half.
On an annualised basis, the Group`s turnover from continuing operations declined
by 11% on the back of weaker demand. The turnover reduction was countered by a
7% improvement in gross margin of which 2% is attributable to a non-recurring
increase in the provision for Obsolescence in 2009. The remaining 5% improvement
is down to better efficiencies and improved procurement practices. The Group`s
administration expenses were cut back by 9%, saving some R35 million on an
annualised basis before taking into account inflationary effects.
Although the attributable loss amounted to R204 million, the net asset value of
the Group only declined by R117 million due largely to an R82 million upward
revaluation of land and buildings which is accounted for directly in equity.
The strong focus on cash generation in the year meant that net interest-bearing
borrowings have declined by R156 million improving the net interest-bearing debt
to equity ratio by 9% from 33% as at 31 March 2009 to 24% at the end of the
current year.
Operational Review
Textiles
The performance of the continuing textile operations was pleasing. Despite a 3%
reduction in turnover on an annualised basis, these operations delivered an
operating profit before interest of R18 million for the year to March 2010.
This compares to a R53 million loss for the nine months to March 2009, a R71
million turnaround. The turnaround reflects the benefits of our strategy to
realign the textile division around product clusters as well as the strength and
dedication of the management teams within these divisions.
There are still weak areas within the textile operations and these areas are
receiving attention. We are confident that the underperforming divisions can be
fixed and will become contributors in the future.
Clothing
Although improvements have been made, the performance of the clothing operations
remains disappointing with them delivering an operating loss of R55 million in
the current year compared to an R82 million loss for the nine months ended March
2009.
Our restructuring and turnaround initiatives have managed to reduce annual fixed
costs by some R25 million before adjusting for the effects of inflation.
However, the benefit of these savings has been off-set by the declining volumes,
with turnover down 14% on an annualised basis. These operations carry a
significant portion of fixed cost and are hence sensitive to volume declines.
The current year`s results have been affected by a number of factors. Not only
have we struggled against the global recession and relatively strong Rand we
also endured the 12-day industry-wide strike. The direct cost of the strike on
the continuing operations was some R13 million. In addition to our own industry
strike we have also had to endure Metrorail and taxi industry strikes during the
year. The vast majority of our employees depend on public transport to get to
work and hence, any disruption to these services has a significant effect on the
business.
It is well known that the clothing industry as a whole has been under tremendous
pressure for a number of years. Job losses continue unabated as retailers source
an ever-increasing amount of their needs offshore or from our neighbouring
states. Certainly the macroeconomic problems facing the industry are not new and
although the economic environment of the past 12 months has not helped matters,
the problems with the local industry are long-standing and multi-faceted.
Despite the troubles being experienced, we still believe that there is a place
for local manufacture in the value chain. Whilst it`s true that the higher cost
base locally makes certain products unviable, we do believe that if we can
improve on all the areas within our control, the clothing operations can
survive.
A focus area for the ensuing year is to better leverage off branded apparel
opportunities. Existing licensed and proprietary brands like Speedo and
Brooksfield will receive renewed focus. The Group has also secured some new
licences for international brands which it intends launching into the local
market.
The Department of Trade and Industry have recently announced a production
incentive programme to benefit the local industry. We are yet to work through
the finer details of the scheme and cannot quantify the level of assistance
available to the Group. However, clearly any assistance is welcomed and sorely
needed. Although we remain encouraged by the work being done on curbing illegal
imports and non-compliance with local labour laws, these problems are still
widespread and will require a concerted effort to eliminate.
Toys, office automation and electronics
The businesses within this segment, namely Prima and Seartec, are both importers
and distributors of branded products. The products that these companies sell are
largely of a discretionary nature and therefore highly sensitive to economic
conditions. As would be expected, given the prevailing economic environment,
both turnover and gross margins have come under pressure in the current year.
Fortunately, the effects of this were mitigated by the stronger Rand and strict
cost containment. Fixed costs within both these businesses were reduced by 15%
in nominal terms.
Prima continued to grow its market share of branded products and during the
course of the financial year it secured the rights from Disney Interactive
Studios for the distribution of computer and console games. Whilst the impact
for the current year is not significant, this acquisition represents a major
opportunity to expand Prima`s product footprint and affords an entree to the
world of interactive electronic games. Additional products and brands will be
added to the overall offering.
Prima will continue to concentrate on the right product at the right price. The
achievement of this goal - and the growth of the market share - is dependent on
the retention and the securing of additional meaningful international principals
and licensing contracts. Management has been successful in this endeavour and
has secured a number of prestigious international brands such as Meccano and
Crayola in addition to that of Disney Interactive Studios.
With regard to Seartec, turnover in most office automation products was
substantially down whilst microwave ovens and calculator sales were more
resilient. Seartec, like Prima, is actively pursuing complementary products to
market through its strong distribution network.
Properties
The closure of the Frame vertical pipeline will, once the assets associated with
these operations have been sold and shipped, result in the properties becoming
available over the course of the next financial year. It is our intention to
rent these buildings to outside tenants, thereby opening up a further revenue
stream for the Group. The properties were largely purpose built and hence will
need to be redeveloped. Subject to tenants` requirements we anticipate that the
area available to be rented out will be in excess of 150 000 m2. Negotiations
with prospective tenants are progressing.
Funding arrangements
We previously reported that the Group`s commercial funders, who have combined
facilities in excess of R750 million, had agreed to leave their facilities in
place until 30 June 2010. We can now report that we are far advanced in our
negotiations with the funders to retain these facilities although the Group is
projecting to only require R450 million for the ensuing year.
Forensic issues
We have previously reported that the Group had launched an action consisting of
various substantial claims for relief against former directors of Seardel which
claims are being defended. As the matter is sub judice we have nothing further
to report on this matter at this time. We will keep our shareholders appraised
when it is appropriate to do so.
Outlook
We have made good progress with our turnaround initiatives. We believe that the
business has come through its crises stage and large parts of the business are
standing on far more solid foundations than was the case 17 months ago.
We have significantly reduced the fixed cost base of most of our businesses,
reduced gearing, improved efficiencies and released additional capacity. We have
continued to invest in the businesses where justified and have spent over
R50 million on new plant and equipment. We have also made progress in adding a
property leg to the business which, when completed, will lend some stability to
future earnings. Although much work is still required before we will be
satisfied with the operations, we believe that the business is well positioned
to take advantage of any improvements in the economy.
We remain committed to saving as many local jobs as commercially possible as we
believe that the current unemployment levels in the country are simply
unsustainable. Any local business with a long-term vision needs to have job
creation as one of its core focus areas - the consequence of not doing so does
not bear contemplation. However, at the risk of stating the obvious, the other
side of the coin is that salary and wage demands have to be realistic and
commensurate with output.
Appreciation
Turnarounds by their very nature require a level of commitment and dedication
that goes far beyond the normal. Working in an environment of constant change
and pressure can take its toll. The directors would like to thank the management
and staff of Seardel for their dedication and commitment during what has been
trying times. We could not have made the improvements reflected
without their support.
Condolence
Dr Aaron Searll, the Group`s founder, has recently passed away. Having acquired
a small business in 1957 that made nurses` caps and bras he grew Seardel into a
business that at its peak had over 15 000 employees with a turnover in excess of
R4 billion. His contribution not only to Seardel, but to the South African
clothing and textile industry in general, was significant. We wish to express
our condolences to his family.
On behalf of the board
Stuart Queen Gys Wege
Chief Executive Officer Chief Financial Officer
Cape Town
20 May 2010
CORPORATE INFORMATION
Registration number: 1968/011249/06
(Incorporated in the Republic of South Africa)
The company`s shares are listed under the Consumer Goods - Personal and
Household Goods Sector of the JSE Limited.
JSE share code: SER
ISIN: ZAE000029815
JSE share code: SRN
ISIN: ZAE000030144
Directors:
J A Copelyn* (Chairman), Adv N N Lazarus* (Deputy Chairman), M H Ahmed*,
A E Dixon-Seager (Chief Operating Officer), T G (Kevin) Govender*, A M Ntuli,
S A Queen (Chief Executive Officer), Y Shaik*, N Teladia*, R Watson*, G Wege
(Chief Financial Officer)
(* indicates Non-executive)
Company secretary:
HCI Managerial Services (Pty) Ltd
Registered Office:
1 Moorsom Avenue, cnr Bofors Circle and Moorsom Avenue, Epping Industria II 7460
PO Box 524, Eppindust 7475, South Africa
Transfer secretaries:
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Auditors:
KPMG Inc.
Sponsors:
Java Capital (Pty) Ltd
Annual General Meeting
Information in respect of the Annual General Meeting will be communicated to the
shareholders in due course.
Date: 20/05/2010 14:43:02 Produced by the JSE SENS Department.
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