| Fri 19 Nov 2010, 10:54 | | SER/SRN - Seardel - Group interim results for the six months ended 30 September |
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SER SRN
SER
SER/SRN - Seardel - Group interim results for the six months ended 30 September
2010
SEARDEL INVESTMENT CORPORATION LIMITED
Registration number: 1968/011249/06
(Incorporated in the Republic of South Africa)
JSE share code: SER
ISIN: ZAE000029815
JSE share code: SRN
ISIN: ZAE000030144
("Seardel" or "the Group")
GROUP INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010
COMMENTARY
The six months to 30 September 2010 has seen the Group make further progress on
its turnaround journey. The Group delivered an attributable loss of R71 million
(2009: R222 million loss) with continuing operations recording a profit of R2,5
million (2009:R10 million loss) and discontinuing operations recording a loss of
R74 million (2009: R211 million loss).
Turnover from continuing operations was up 10% to R1,2 billion and gross margins
improved by 2,6% to 24,9%. The improved gross margins do reflect improved
efficiencies and better procurement practices but it must also be borne in mind
that the results to September 2009 included the effects of the 12-day industry
strike.
The improved gross profit margin does not result in an improved operating profit
margin due to the prior year numbers including sundry income of R17 million
relating to the renegotiation of the FIFA contract. In the current year the
Group has also incurred costs relating to future revenue streams, mostly brands
and property, ahead of the revenue being realised.
Textiles
The performance of the textile operations continue to improve with most of the
business units now either profitable or well on their way to becoming
profitable. The continuing textile operations delivered an operating profit of
R8 million compared to a R3 million loss in the corresponding period. The
challenging business units within this segment are the operations that are
focused on producing textiles for the garment industry. The declining garment
industry means that volumes in these businesses are likewise declining and being
mostly fixed cost businesses, these declines are problematic. Work is being done
to break their dependence on the garment industry.
Clothing
The clothing operations continue to be problematic with the continuing
operations delivering an operating loss of R22 million (2009: R18 million). The
loss is after accounting for a R7,5 million loss from the contract to supply
official FIFA apparel. This contract proved to be disappointing with retail and
consumer demand being well below expectations.
The problems with the clothing sector are multi-faceted but to touch on a few of
the more critical areas:
- The strong Rand is of major concern to the local clothing industry. As there
is very little protection from logistic costs, the local industry directly
competes in US Dollar terms. Hence a 35% strengthening of the Rand, which is
what we have seen in the past 18 months, means a 35% increase in all Rand-based
costs such as salaries, wages and rentals. This increase is over and above our
own inflationary increases and cannot be passed on to the customer who have the
import product as an alternative;
- Although the local garment industry is protected by 45% import duties, this
protection is greatly diminished by the levels of garments that arrive in our
stores without duties having been paid at all or reduced duties through the
under-declaration of values. This scourge not only robs the local industry of
many thousands of jobs but an industry study has estimated this to cost the
South African taxpayer over R2,5 billion in lost tax revenue. To eliminate this
will require more stringent policing and harsher penalties for those associated
with this practice;
- The current list of fabrics and trims that are subject to import duties is too
wide and results in imported fabrics and trims being 22% more expensive than
those of our international competitors. A more focused solution is required that
will enable garment manufacturers to source fabrics and trims at competitive
prices without sounding the death knell for the remaining textile producers;
- Finally, the central bargaining process is unworkable if some employers are
simply able to undercut the legal minimum wages. It is simply not possible for
compliant manufacturers to sustainably compete with those who illegally undercut
the minimum wage. This issue needs to be urgently addressed and will require the
co-operation of all stakeholders if a workable solution is to be found.
Toys, stationery and electronics
The businesses within this sector have performed satisfactorily during the
period under review. Turnover is up 8% to R206 million, but pressure on margins
has meant that operating profit has remained static at R10 million. These
businesses are highly seasonal with the majority of their earnings typically
being made in the second half of the financial year.
Properties
We have previously reported that the Group intended to redevelop and lease the
properties which housed the discontinued Frame vertical pipeline. It is
anticipated that when the redevelopment is complete, the Group will have around
150 000 m2 of rental space available which should provide the Group with a
meaningful revenue stream.
We can report that good progress has been made in this regard with some 30 000
m2 having been let as at the reporting date with the development work in
progress.
Brand Identity
We have previously mentioned that branded products would be an area of renewed
focus for the Group. We can announce that a new division, Brand ID (www.brand-
identity.co.za), has been formed to focus on the development of lifestyle
brands.
Our anchor Speedo brand is being launched as a lifestyle brand offering and our
first concept store has recently been opened in Cape Town. Our Men`s Brands of
Azzaro, Brooksfield, BF and Jontys have been refreshed for the new season.
In terms of new brands, we have recently launched some innovative new lingerie
brands into the local market including: Elle Macpherson Intimates, After Eden
and Maidenform. Our commitment to South Africa and local production has been
affirmed in our launch of the Love SA brand which encompasses the most unique
South African designs with home-grown product and focuses on sustainable job
creation.
Discontinued operations
During the period under review we announced the closure of our Intimate Apparel
operation which predominantly made lingerie. The products made within this
division were uncompetitive when compared to imports. The discontinued clothing
operations have recorded an operating loss (before interest) of R64 million for
the six months to September 2010. The loss reflects the costs associated with
closing this division down including ongoing operating losses while we work
through the orders on hand, retrenchment costs and onerous contracts.
In addition, we continue to incur costs relating to the dismantling and shipping
of the Frame vertical pipeline assets. Fortunately, during the period under
review we recovered more for the assets sold than their book values and hence
made a profit on sale, which assisted the discontinuing textile operations to
record an operating profit of R0.5 million.
Further costs associated with these discontinued operations will be incurred in
the second half of the financial year but very little is expected post the
financial year end.
Outlook
The seasonality of the Group`s results mean that all other things being equal,
the second half of the financial year is typically stronger than the first.
However, the continued Rand strength and the volatile cotton prices will have an
influence on the second half. World cotton prices have more than doubled since
the start of the year and are now at record levels.
The introduction of the Production Incentive scheme is welcomed and the Group
stands to benefit from this scheme in the second half of the year. The benefit
that will accrue to the Group is not insignificant but is dependent on the Group
incurring qualifying expenditure and so cannot be reliably estimated at this
point.
On behalf of the board
Stuart Queen Gys Wege
Chief Executive Officer Chief Financial Officer
Cape Town
15 November 2010
STATEMENT OF FINANCIAL POSITION
Unaudited Audited
30 Sept 31 March
Rand thousands 2010 2010
ASSETS
Non-current assets 961 715 963 056
Property, plant and equipment 859 490 906 162
Intangible assets - 3 933
Investment properties 52 316 -
Other investments 3 026 3 026
Long-term receivables 35 813 34 760
Deferred tax 11 070 15 175
Current assets 1 110 827 1 246 895
Non-current assets held for sale 32 212 81 725
Inventories 543 954 501 354
Trade and other receivables 522 634 583 089
Current tax asset 2 989 44
Cash and cash equivalents 9 038 80 683
Total assets 2 072 542 2 209 951
EQUITY AND LIABILITIES
Total equity 1 220 608 1 291 949
Share capital and share premium 303 969 303 969
Treasury shares (14 610) (14 610)
Reserves 930 648 1 001 989
Equity attributable to owners of the parent 1 220 007 1 291 348
Non-controlling interests 601 601
Non-current liabilities 79 154 78 466
Deferred tax 6 743 6 919
Post-employment medical aid benefits 66 702 65 297
Interest-bearing liabilities 1 691 1 945
Operating lease accruals 4 018 4 305
Current liabilities 772 780 839 536
Current tax payable - 3 074
Post-employment medical aid benefits 4 523 4 428
Interest-bearing liabilities 138 798 186 173
Short-term provisions 12 545 17 770
Trade and other payables 461 223 431 211
Bank overdrafts 155 691 196 880
Total liabilities 851 934 918 002
Total equity and liabilities 2 072 542 2 209 951
Net asset value (excluding intangible assets) 1 220 007 1 287 415
Net asset value per share after treasury shares (cents) 174 183
STATISTICS PER SHARE
Unaudited Unaudited
for the for the
six months six months
ended ended
30 Sept 30 Sept
In cents, where applicable 2010 2009 % change
Weighted average number of shares in
issue (`000) 702 946 702 946
Number of shares in issue (`000) 702 946 702 946
Diluted weighted average number of
shares in issue (`000) 737 346 702 946
Loss (10,1) (31,5) (67,8)
Continuing operations 0,4 (1,4) (128,6)
Discontinued operations (10,5) (30,1) (65,1)
Headline loss (11,3) (23,4) (51,7)
Continuing operations 0,1 (0,2) (150,0)
Discontinued operations (11,4) (23,2) (51,0)
Diluted loss (9,7) (31,5) (69,3)
Continuing operations 0,3 (1,4) (121,4)
Discontinued operations (10,0) (30,1) (66,7)
Diluted headline loss (10,8) (23,4) (54,0)
Continuing operations - (0,2) (100,0)
Discontinued operations (10,8) (23,2) (53,3)
Reconciliation between loss and
headline loss
Loss attributable to shareholders (71 341) (221 698) (67,8)
Net impairment of assets 10 632 48 143
Impairment of investments - 4 200
Surplus on disposal of property, plant
and equipment (16 771) -
Revaluation of investment property (1 882) -
Loss on disposal of property, plant and
equipment 10 5 035
Total tax effect of adjustments 4 -
Total non-controlling interest effects
of adjustments - -
Headline loss (79 348) (164 320) (51,7)
STATEMENT OF COMPREHENSIVE
INCOME
Unaudited
Unaudited (Restated)
for the for the
six months six months
ended ended
30 Sept 30 Sept
Rand thousands 2010 2009 % change
Revenue 1 201 870 1 088 306 10,4
Gross profit 299 214 242 442 23,4
Operating profit before impairments
and restructuring and retrenchment costs 16 081 14 470 11,1
Net impairment of assets - (4 200) (100,0)
Net restructuring and retrenchment costs (1 441) (2 343) (38,5)
Operating profit before finance costs 14 640 7 927 84,7
Finance income 1 888 4 424 (57,3)
Finance expenses (12 544) (23 816) (47,3)
Profit/(loss) before tax 3 984 (11 465) (134,7)
Income tax expense (1 486) 1 310 (213,4)
Profit/(loss) for the period from
continuing operations 2 498 (10 155) (124,6)
Loss for the period from discontinued
operations (73 839) (211 480) (65,1)
Loss for the period (71 341) (221 635) (67,8)
Available-for-sale financial assets - 179 (100,0)
Other comprehensive income for
the period, net of tax - 179 (100,0)
Total comprehensive loss for the period (71 341) (221 456) (67,8)
Loss attributable to:
Owners of the parent (71 341) (221 698) (67,8)
Non-controlling interests - 63 (100,0)
(71 341) (221 635) (67,8)
Total comprehensive loss
attributable to:
Owners of the parent (71 341) (221 519) (67,8)
Non-controlling interests - 63 (100,0)
(71 341) (221 456) (67,8)
STATEMENT OF CASH FLOWS
Unaudited Unaudited
for the for the
six months six months
ended ended
30 Sept 30 Sept
Rand thousands 2010 2009
Net cash flow from operating activities (16 118) 5 849
Net cash flow from investing activities 33 291 40 747
Net cash flow from financing activities (47 629) (12 840)
Net decrease in cash and cash equivalents (30 456) 33 756
Cash and cash equivalents at beginning of period (116 197) (251 710)
Cash and cash equivalents at end of period (146 653) (217 954)
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 IAS 34 Interim Financial Reporting and the AC 500 Standards as issued
by the Accounting Practices Board or its successor. 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 2010.
3. Related party transactions
Expenses recognised in relation to the provision of managerial services rendered
by HCI amounted to R2 100 000. Expenses relating to the provision of services
rendered by Neil Lazarus, deputy chairman of Seardel, amounted to R70 000.
4. Capital expenditure and commitments
Net capital expenditure during the period under review amounted to R37,2 million
(2009: R17,0 million). There are further commitments in respect of contracted
capital expenditure as at 30 September 2010 of approximately R33,1 million
(2009: R4,9 million).
5. Restatement of prior year results
The prior year statement of comprehensive income has been restated so as to
separately identify the additional discontinued operations.
STATEMENT OF CHANGES IN EQUITY
Share Share Treasury Other
Rand thousands capital premium shares reserves
Balance at 1 April 2009 159 207 144 762 (14 610) 234 023
Total comprehensive loss
for the period
Release reserve on
realisation of investment (577)
Balance at 30 September
2009 159 207 144 762 (14 610) 233 446
Balance at 1 April 2010 159 207 144 762 (14 610) 318 019
Total comprehensive loss
for the period
Balance at 30 September
2010 159 207 144 762 (14 610) 318 019
Non-
Retained controlling Total
Rand thousands income Total interest equity
Balance at 1 April 2009 885 567 1 408 949 464 1 409 413
Total comprehensive loss
for the period (221 519) (221 519) 63 (221 456)
Release reserve on
realisation of investment 577 - -
Balance at 30 September
2009 664 625 1 187 430 527 1 187 957
Balance at 1 April 2010 683 970 1 291 348 601 1 291 949
Total comprehensive loss
for the period (71 341) (71 341) - (71 341)
Balance at 30 September
2010 612 629 1 220 007 601 1 220 608
Unaudited Unaudited
for the for the
six months six months
ended ended
30 Sept 30 Sept
Rand thousands 2010 2009
Composition of other reserves
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 309 656 225 083
318 019 233 446
SEGMENTAL REPORT
Toys,
stationery
and
Rand thousands Textiles Clothing electronics
2010
Segment revenue
Total sales 533 022 617 529 206 618
Inter-segment sales (these
transactions are at arm`s length) (31 158) (24 007) (976)
External sales 501 864 593 522 205 642
Less: Revenue attributable to
discontinued operations (53) (101 518) -
Revenue as per statement of
comprehensive income 501 811 492 004 205 642
Segment results
Operating profit/(loss) from
continuing operations 8 033 (22 053) 10 428
Operating profit/(loss) from
discontinued operations 418 (64 067) -
2009
Segment revenue
Total sales 780 397 709 957 189 860
Inter-segment sales (these
transactions are at arm`s length) (29 462) (6 210) -
External sales 750 935 703 747 189 860
Less: Revenue attributable to
discontinued operations (271 025) (285 316) -
Revenue as per statement of
comprehensive income 479 910 418 431 189 860
Segment results
Operating (loss)/profit from
continuing operations (2 791) (17 536) 10 725
Operating loss from discontinued
operations (171 936) (28 645) -
Head
Rand thousands Properties office Total
2010
Segment revenue
Total sales 33 255 - 1 390 424
Inter-segment sales (these
transactions are at arm`s length) (30 842) - (86 983)
External sales 2 413 - 1 303 441
Less: Revenue attributable to
discontinued operations - - (101 571)
Revenue as per statement of
comprehensive income 2 413 - 1 201 870
Segment results
Operating profit/(loss) from
continuing operations 23 911 (5 679) 14 640
Operating profit/(loss) from
discontinued operations - - (63 649)
2009
Segment revenue
Total sales 27 168 - 1 707 382
Inter-segment sales (these
transactions are at arm`s length) (27 063) - (62 735)
External sales 105 - 1 644 647
Less: Revenue attributable to
discontinued operations - - (556 341)
Revenue as per statement of
comprehensive income 105 - 1 088 306
Segment results
Operating (loss)/profit from
continuing operations 19 162 (1 633) 7 927
Operating loss from discontinued
operations - - (200 581)
CORPORATE INFORMATION
The company`s shares are listed under the Consumer Goods - Personal and
Household Goods Sector of the JSE Ltd.
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 D T 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
Date: 19/11/2010 10:54:01 Produced by the JSE SENS Department.
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