| Thu 17 Nov 2011, 16:48 | | SER/SRN - Seardel Investment Corporation Limited - Unaudited Group Interim |
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SER SRN
SER
SER/SRN - Seardel Investment Corporation Limited - Unaudited Group Interim
Results for the six months ended 30 September 2011
SEARDEL INVESTMENT CORPORATION LIMITED
Registration number: 1968/011249/06
("Seardel" or "the Group")
(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
UNAUDITED GROUP INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011
STATEMENT OF FINANCIAL POSITION
30 Sept 31 March
Rand thousands 2011 2011
ASSETS
Non-current assets 1 047 426 967 147
Property, plant and equipment 677 618 665 727
Intangible assets 9 278 8 812
Investment properties 285 711 224 001
Other investments 3 339 3 329
Long-term receivables 41 193 35 256
Deferred tax 30 287 30 022
Current assets 1 216 682 1 140 694
Non-current assets held for sale 14 983 16 338
Inventories 597 462 557 575
Trade and other receivables 595 979 554 995
Current tax asset 2 893 898
Cash and cash equivalents 5 365 10 888
Total assets 2 264 108 2 107 841
EQUITY AND LIABILITIES
Total equity 1 256 032 1 254 592
Share capital and share premium 304 619 303 969
Treasury shares (14 610) (14 610)
Reserves 965 413 964 623
Equity attributable to owners of the parent 1 255 422 1 253 982
Non-controlling interests 610 610
Non-current liabilities 77 237 77 759
Deferred tax 7 332 7 999
Post employment medical aid benefits 66 598 66 849
Interest-bearing liabilities 3 010 98
Operating lease accruals 297 2 813
Current liabilities 930 839 775 490
Current tax payable 334 257
Post employment medical aid benefits 4 368 4 384
Interest-bearing liabilities 129 110 131 470
Short-term provisions 2 916 2 337
Trade and other payables 469 534 418 912
Bank overdrafts 324 577 218 130
Total liabilities 1 008 076 853 249
Total equity and liabilities 2 264 108 2 107 841
Net asset value (excluding intangible assets) 1 246 144 1 245 170
Net asset value per share after treasury shares (cents) 177 177
STATISTICS PER SHARE
30 Sept 30 Sept
In cents, where applicable 2011 2010 % change
(restated)
Weighted average number of shares
in issue (`000) 703 074 702 946
Number of shares in issue (`000) 703 711 702 946
Diluted weighted average number of
shares in issue (`000) 737 493 737 346
Profit/(loss) 0,2 (10,1)
Continuing operations 1,4 0,9 55,6%
Discontinued operations (1,2) (11,0) (88,8%)
Headline earnings/(loss) 0,1 (11,3)
Continuing operations 1,4 0,5 180,0%
Discontinued operations (1,3) (11,8) (88,9%)
Diluted profit/(loss) 0,2 (9,7)
Continuing operations 1,4 0,7 100,0%
Discontinued operations (1,2) (10,4) (88,8%)
Diluted headline earnings/(loss) 0,1 (10,8)
Continuing operations 1,4 0,5 180,0%
Discontinued operations (1,3) (11,3) (88,9%)
Reconciliation between profit/(loss)
and headline earnings/(loss)
Income attributable to shareholders 1 440 (71 341)
Net impairment of assets (808) 10 632
Surplus on disposal of property, plant
and equipment (25) (16 771)
Revaluation of investment property - (1 882)
Loss on disposal of property, plant
and equipment 52 10
Total tax effect of adjustments (2) 4
Total non-controlling interest effects
of adjustments - -
Headline earnings/(loss) 657 (79 348)
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, the Listings Requirements of
the JSE Limited and the Companies Act No. 71 of 2008. These results have been
prepared by the Chief Financial Officer, Gys Wege CA(SA) and 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 2011.
3. Related party transactions
Expenses recognised in relation to the provision of managerial services received
from HCI amounted to R2 100 000.
Residential premises were leased to Mr A Ntuli (director) for R21 090.
A bridging loan totalling R30 million was advanced by HCI Treasury which bears
interest at prime. The associated interest expense is R245,075.
4. Capital expenditure and commitments
Net capital expenditure during the period under review amounted to R97,3 million
(2010: R37,2 million). There are further commitments in respect of contracted
capital expenditure as at 30 September 2011 of approximately R83,3 million
(2010: R33,1 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.
CONDENSED STATEMENT OF
COMPREHENSIVE INCOME 30 Sept 30 Sept
2011 2010
Rand thousands (restated) % change
Revenue 1 207 947 1 177 020 2,6%
Gross profit 229 021 278 683 (17,8%)
Operating profit before
impairments and restructuring and
retrenchment costs 30 879 17 904 72,5%
Net impairment of assets 192 - -
Net restructuring and retrenchment costs (5 521) (1 441) -
Operating profit before finance costs 25 550 16 463 55,2%
Finance income 3 451 1 888 -
Finance expenses (17 842) (11 177) -
Profit before tax 11 159 7 174 55,5%
Income tax expense (1 095) (1 486) -
Profit for the period from
continuing operations 10 064 5 688 76,9%
Loss for the period from discontinued
operations (8 624) (77 029) -
TOTAL COMPREHENSIVE PROFIT/
(LOSS) FOR THE PERIOD 1 440 (71 341) -
Profit/(loss) attributable to:
Owners of the parent 1 440 (71 341) -
Non-controlling interests - - -
1 440 (71 341) -
Total comprehensive profit/(loss)
attributable to:
Owners of the parent 1 440 (71 341) -
Non-controlling interests - - -
1 440 (71 341) -
CONDENSED STATEMENT OF CASH FLOWS
30 Sept 30 Sept
Rand thousands 2011 2010
Net cash flow from operating activities (19 581) (16 118)
Net cash flow from investing activities (92 941) 33 291
Net cash flow from financing activities 552 (47 629)
Net decrease in cash and cash equivalents (111 970) (30 456)
Cash and cash equivalents at beginning of period (207 242) (116 197)
Cash and cash equivalents at end of period (319 212) (146 653)
STATEMENT OF CHANGES IN EQUITY
Share Share Treasury Other
capital premium shares reserves
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
Balance at 1 April 2011 159 207 144 762 (14 610) 264 064
Total comprehensive profit
for the period - - - -
Shares issued 191 459 - -
Share incentive scheme
adjustments - - - -
Balance at 30 September 2011 159 398 145 221 (14 610) 264 064
Non-
control-
Retained ling Total
income Total interest equity
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
Balance at 1 April 2011 700 559 1 253 982 610 1 254 592
Total comprehensive profit
for the period 1 440 1 440 - 1 440
Shares issued - 650 - 650
Share incentive scheme
adjustments (650) (650) - (650)
Balance at 30 September 2011 701 349 1 255 422 610 1 256 032
30 Sept 30 Sept
Composition of other reserves 2011 2010
Revaluation of investments 2 861 2 601
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 252 840 307 055
264 064 318 019
CONDENSED SEGMENTAL REPORT
Toys,
stationery
and
Rand thousands Textiles Clothing electronics
30 Sept 2011
Segment revenue
External sales 542 887 496 743 209 737
Inter-segment sales (these
transactions are at arms length) (20 763) - -
522 124 496 743 209 737
Less: Revenue attributable to
discontinued operations - (29 606) -
Revenue as per statement of
comprehensive income 522 124 467 137 209 737
Segment results
Operating profit/(loss) from operations 34 223 (55 614) 13 159
Less: operating profit/(loss) from
discontinued operations 517 (7 792) -
Operating profit/(loss) from
continuing operations 33 706 (47 822) 13 159
30 Sept 2010
Segment revenue
External sales 533 022 617 529 206 618
Inter-segment sales (these
transactions are at arms length) (31 158) (24 007) (976)
501 864 593 522 205 642
Less: Revenue attributable to
discontinued operations (53) (126 368) -
Revenue as per statement of
comprehensive income 501 811 467 154 205 642
Segment results
Operating profit/(loss) from operations 8 451 (86 120) 10 428
Less: operating profit/(loss) from
discontinued operations 418 (65 890) -
Operating profit/(loss) from
continuing operations 8 033 (20 230) 10 428
Head
Rand thousands Properties office Total
2011
Segment revenue
External sales 29 681 - 1 279 048
Inter-segment sales (these
transactions are at arms length) (20 732) - (41 495)
8 949 - 1 237 553
Less: Revenue attributable to
discontinued operations - - (29 606)
Revenue as per statement of
comprehensive income 8 949 - 1 207 947
Segment results
Operating profit/(loss) from operations 31 740 (5 233) 18 275
Less: operating profit/(loss) from
discontinued operations - - (7 275)
Operating profit/(loss) from
continuing operations 31 740 (5 233) 25 550
2010
Segment revenue
External sales 33 255 - 1 390 424
Inter-segment sales (these
transactions are at arms length) (30 842) - (86 983)
2 413 - 1 303 441
Less: Revenue attributable to
discontinued operations - - (126 421)
Revenue as per statement of
comprehensive income 2 413 - 1 177 020
Segment results
Operating profit/(loss) from operations 23 911 (5 679) (49 009)
Less: operating profit/(loss) from
discontinued operations - - (65 472)
Operating profit/(loss) from
continuing operations 23 911 (5 679) 16 463
COMMENTARY
Despite the difficult trading conditions experienced in the period under review,
most of the Group`s business segments made good progress with operating profit
growth being shown in the Textiles, Property as well as the Toys, Stationery &
Electronics segments. However, the good work done in these areas was blighted by
the very disappointing performance of the Clothing Segment which saw its
operating loss worsen significantly in the current period.
The Group as a whole managed to return to the black for the six months ended 30
September 2011, posting an attributable profit of R1,4 million compared to an
attributable loss of R71,3 million in the corresponding period. The main reason
for the improvement was the cessation of the operations that were reported in
the discontinuing line in the prior year.
Turnover from continuing operations was up 3% due mainly to increases in raw
material prices rather than increased volume. The Group`s gross margins came
under severe pressure being down 4,7% from 23,6% in the prior period to 18,9% in
the current period. Although margin pressures were experienced across all the
Group`s business segments, the most severe effects were felt in the apparel
manufacturing business where increases in raw material and production costs were
unable to be passed on to customers while reduced volumes also meant reduced
overhead absorption.
Although the Group`s gross margin was down, operating profit was up R17,9
million (72,5%) to R30,9 million on the back of a combination of cost savings
and the recognition of some R46 million of production incentive in the current
year. We did not recognise any production incentive in the comparative period as
there was no certainty on the incentive scheme at the time. Income from the
production incentive is recognised in accordance with the strict requirements of
the relevant accounting standard, which amongst other things requires us to
match the income and expenses associated with the incentive wherever possible.
Textiles
The performance of the Textiles segment continues to improve, with all but one
of the business units within this sector now being profitable. Operating profit
grew from R8,0 million in the prior period to R33,7 million although this does
include benefits from the production incentive. If one excludes the effects of
the production incentive entirely, operating profit grew by an impressive 29%.
The improvement in these business units is particularly pleasing given that it
has been achieved under difficult trading conditions. Most of the business units
within this segment are running at well below capacity and remain primed to take
advantage of any improvements in the economic conditions.
Clothing
The clothing operations continue to be problematic with the continuing
operations delivering an operating loss of R50 million (2009: R20 million).
Although undoubtedly the apparel manufacturing business is still plagued by all
the issues that have weighed down the entire sector for a number of years, the
losses incurred cannot be entirely ascribed to the industry woes. There are a
number of areas that are under our direct control where significant improvements
can and need to be made.
There are a number of improvement measures at various stages of completion that
are taking place to address the poor performance of this business, most notably:
- a complete revamp of the IT backbone that will ensure that reliable and timely
information is received in order to enhance decision-making processes. This has
now largely been completed;
- the material resource planning system has been upgraded and now runs off a
central platform to: enable greater visibility of material flow throughout the
operations, improve production planning and ensure better delivery performance;
- rationalisation of the product portfolio to remove unnecessary complexity in
the business and ensure that margins can be maintained;
- finalising the centralisation process to reduce fixed overheads. Until the
centralisation process is completed, the Group is incurring costs in maintaining
additional production and administration facilities; and
- a continuous focus of productivity improvements.
Unfortunately, the turnaround of the clothing division has been slower than we
first anticipated. Any improvements that have been made have been lost to
reduced margins and declining volumes. Our production facilities in the high-
wage metro areas are of particular concern as over time these factories have
lost more and more of the long-run work without which factory efficiencies
suffer. This has resulted in further restructuring being required in these
areas.
However, there are a number of positive initiatives taking place in the industry
including:
- the advent of the production incentive which has provided a level of stability
and enables the business to invest in necessary equipment upgrades and process
improvements;
- the new wage dispensation that has been agreed which provides for lower wages
for new entrants into the industry is a positive step and should benefit the
industry generally. However, it`s a moot point whether this dispensation is of
benefit to the more established manufacturers with a large number of existing
employees. We believe that there may be benefit to this in the longer term and
that if it assists the local industry generally to grow employment there will be
positive spin-offs in time;
- the weakening Rand will be of assistance;
- the current discussions around duty rebates on fabrics not locally produced
are encouraging, although there is a genuine concern from the textile
manufacturers that if this process is not carefully managed it will have
significant negative consequences on this important sector; and
- the local procurement initiatives in both the public and private sectors.
The internal issues that are being addressed and the more positive external
factors give us hope that this business will show improvements in time. However,
we expect that any improvements that may come will not materialise in the short
term and conditions in the second half of this financial year are likely to
remain challenging.
Brand Identity
We have previously mentioned that branded products would be an area of focus for
the Group and that a new division, Brand ID (www.brand-identity.co.za), had been
formed to concentrate on the development of lifestyle brands.
Of particular note was the launch of the 46664 fashion label during the period.
Early indications for the brand are very positive. We are investigating
launching the brand internationally in due course and are currently evaluating
potential partners to assist in specific regions. We will also shortly be
launching an on-line retail store (www.46664fashion.com) which is the Group`s
first real foray into e-retailing.
Toys, stationery and electronics
The businesses within this segment continue to perform solidly. Although
turnover only grew by 1,5% to R210 million, good cost controls and some
assistance from the stronger Rand resulted in operating profit growing by 26% to
R13 million.
The performance of the electronics business in particular was pleasing with some
of the longer-term strategies that were put in place to make this business more
competitive starting to take effect.
Properties
The Group`s property development continues at pace with some 86 000 m2 of
lettable space either having already been developed or nearing completion.
As at 30 September 2011, we have signed up tenants for approximately 71 000 m2
of this space with good interest being shown in the last 15 000 m2. The Group`s
has an additional 61 000 m2 which will be developed in time, provided we have
sufficient tenants signed up.
Although it was anticipated that the operating profit for the properties segment
would be down on the prior year given the amount of space under construction, a
once-off income item of R14 million helped lift operating profit, by 33% to
R31,7 million (2010: R23,9 million).
Material litigation
The litigation against former directors has proceeded to arbitration hearings
which have been completed, other than for final argument which is scheduled to
be heard in the first quarter of 2012.
On behalf of the board
Stuart Queen Gys Wege
Chief Executive Officer Chief Financial Officer
Cape Town
17 November 2011
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*, 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: 17/11/2011 16:48:02 Produced by the JSE SENS Department.
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