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Seardel Investment Corporation Limited - Extracts From The Annual Report And
Audited Accounts For The Year Ended 30 June 2002
Extracts from the Annual Report and Audited Accounts for the year ended 30 June
2002
Seardel Investment Corporation Limited
Registration number 1968/011249/06
The company`s shares are listed under the Cyclical Consumer Goods -
Household Goods & Textiles Sector of the JSE Securities Exchange, South Africa.
Seardel; Seardel-N:
SER: ZAE000029815
SRN: ZAE000030144
Note: The full annual financial statements prepared in accordance with South
African statements of Generally Accepted Accounting Practice are being printed
for distribution to shareholders prior to September month end. The Audit
Certificate is available upon request.
Financial Highlights
Year Ended 30 June
Rand thousands
Unless otherwise indicated 2002 2001 %Change
Revenue 3 564 173 2 550 245 + 40
Income before taxation 142 176 61 954 + 129
Capital and reserves
(including negative goodwill) 1 027 375 959 136 + 7
Total tangible assets
(excluding cash) 2 429 234 2 284 908 + 6
Return on total tangible assets 9,0% 5,0%
Return on shareholders` interest 8,1% 3,6%
Inventory as a percentage of revenue 20,9% 27,1%
Statistics per share
Year Ended 30 June
In cents, where applicable 2002 2001 %Change
Headline earnings 75,9 33,9 + 124
Diluted headline earnings 73,9 - -
Earnings 110,3 48,6 + 127
Diluted earnings 107,3 - -
Proposed dividend 15,0 4,5 + 233
Proposed dividend cover on
headline earnings 5,1 7,5 - 32
Operating cash flow 156 73 + 114
Net asset value 959 895 + 7
Chairman`s Report
I have pleasure in submitting my report to shareholders on the results and
activities of your group in respect of the year ended 30 June 2002. Group
activities comprise textile and nonwoven textile manufacturing, apparel
manufacturing, office automation and consumer electronics distribution, toy
distribution, travel and property investments. During the year under review the
results of the Frame Textile Group, Prima Toy & Leisure Group and Seartec
Limited have all been consolidated for the first time in respect of a full
financial year.
GROUP REVENUE, CAPITAL AND EARNINGS
Revenue increased by 40% to a record R3,6 billion. Operating profit improved to
R219 million from R104 million last year, a significant improvement of 110%.
Added thereto is an amount of R35,1 million in terms of AC131, being this year`s
proportionate share of the amortisation of negative goodwill arising from the
acquisition of the Frame Textile Group. Frame has made a significant
contribution to our group results. Debt is being reduced at a planned minimum
rate of R36 million per annum. The group has made use of derivative products in
order to negate the effects of excessive rate increases in the near future.
Income before taxation amounted to R142,2 million, an increase of 129,5%.
Headline earnings per share increased to 75,9 cents from 33,9 cents last year,
an increase of 124%. Frame and Prima both reflected increased profitability in
the year under review, whilst Seartec reported a slight reduction due to the
accounting changes imposed by AC105.
Group capital and reserves (including negative goodwill) amounts to R1027,4
million (2001: R959,1 million), an increase of 7,1%, and tangible net asset
value per share increased to 959 cents from 895 cents.
EXPORTS AND TRADING CONDITIONS
It is pleasing to note that apparel exports increased to R291 million from R249
million last year and now account for 19,3% of apparel revenue. Seardel`s
compound rate of growth in apparel exports over the past five years amounts to
30,7%. Exports from the Frame textile division amounted to R70 million and are
targeted to reach R130 million in 2003. Seardel is the dominant value-added
exporter in South Africa.
At the time of writing the Africa Growth and Opportunity Act II (AGOA II) has
just been signed into law by President George Bush. This will further stimulate
exports to the United States market, particularly garments knit-to-shape, which
were previously excluded. South Africa has a huge window of opportunity before
the quota provisions of the Agreement on Textiles and Clothing fall away in
2005.
Seardel`s apparel divisions have no difficulty in complying with the Worldwide
Responsible Apparel Production (WRAP) programme of the American Apparel and
Footwear Association.
We congratulate the Department of Trade & Industry for the practical steps they
have taken in respect of the Duty Credit Certificate Scheme to eliminate abuse
and to make the Scheme more user-friendly. Once again, the Clothing Industry
Export Council has been most effective in the past year.
EMPOWERMENT CONSORTIUM
Shareholders in general meeting on 4 October 2001 granted an option of 26,8
million N ordinary shares to an empowerment consortium, consisting of the South
African Clothing and Textile Workers Union investment group (the investment arm
of the union), Mr Cyril Ramaphosa (representing Millennium Consolidated
Investments (Pty) Limited - a black empowerment group) and CorpCapital Limited.
This option was for a fifteen-month period terminating on 3 January 2003, at a
strike price of R1,97 per share (ex div). To date, the option has not been
exercised. It would obviously result in a dilution of earnings per share. The
potential effect is disclosed on the face of the income statement.
DIVIDEND POLICY
Because of the dramatic improvement in earnings, resulting in improved cash
flows, which in turn has had the effect of reducing borrowings, the dividend
cover has been reduced to 5,1 times on headline earnings from our previous
target of 8 times. The board has therefore proposed the payment of a dividend of
15 cents per share in respect of the year under review, which proposal will have
to be confirmed at the annual general meeting. The number of shares in issue
remains unchanged at
107 134 284.
SOUTH AFRICAN SOCIO-ECONOMIC SCENARIO
Labour Matters
With a 30% unemployment rate, South Africa`s industrial strategy must shift
decisively towards those sectors and processes that could employ large numbers
of relatively unskilled workers and semi-skilled operatives and machinists per
rand of fixed investment. The fragmentation of the formal clothing industry in
KwaZulu-Natal is due to economic forces compelling our industry to become
globally competitive. First world labour standards in an economy in transition
will not result in increased employment. Experience in the clothing industry
internationally indicates that jobs migrate to low wage areas.
In the year under review a National Bargaining Council (NBC) for the clothing
industry was gazetted. It is in the interests of all industry stakeholders that
a proper regulated structure be achieved. The ultimate success of the NBC will
be determined by the extent to which employers who do not comply with fair
labour standards are brought into line. The image of the industry cannot sustain
the sweatshop conditions exposed by the Department of Labour in Newcastle
earlier this year.
South African Development Community (SADC)
The industry was not adequately consulted by the Department of Trade & Industry
(DTI) in finalizing the SADC Free Trade Agreement. Despite having been
previously advised that two stages of product conversion was one of the bedrocks
of the SADC Free Trade Agreement, single stage conversion from Malawi,
Mozambique, Tanzania and Zambia governed by quota will be permitted for five
years. Unless these conduits are adequately policed, goods from the Far East
will continue to be trans-shipped into South Africa.
The Millenium Round of the WTO
Despite the fiascos at Seattle and Genoa, it is vital for the developing world
that the process of reducing tariffs internationally continues. I congratulate
the South African government on its attempts to create a single voice with other
developing countries and economies in transition. The developed world will never
overcome the enormous disparities in international wealth and its attendant
refugee problems unless it abolishes its protectionist practices supporting
grandfather industries such as agriculture, clothing and textiles in these
countries. It is only through trade that poorer countries will obtain the
wherewithal to lift themselves up by their own bootstraps.
Customs Control
SA Revenue Service (SARS) is to be congratulated on the enormous strides they
have made in eliminating illegal imports. Numerous points have been noted for
future action, including the shredding of confiscated goods, reduction of points
of entry, technology improvements, the elimination of all concessions of
secondhand clothing, etc. An industry forum has been created in which industry
stakeholders, including SARS, meet on a regular basis. We welcome the statement
by the Commissioner of SARS in parliament on 19 August 2002 that by the end of
the year there will be a concerted drive by the Department of Customs on the
clothing/textile pipeline. Stakeholders down the pipeline are responsible for
ensuring that their purchases have complied with customs` requirements.
Country of Origin Labelling
All stakeholders agree that the sooner Country of Origin Labelling is produced,
the better. This has been on the agenda of the DTI for at least six years with
no discernable result. This will enable consumers to identify clothing in terms
of the "Proudly South African" campaign agreed to at the Jobs Summit. It will
also help in policing illegal imports.
CSIR
We are gratified at the strategic study being instituted by the CSIR to address
strategic bottlenecks that are inhibiting long-term growth in the
clothing/textile pipeline. The initial focus for our industry will be on world-
class educational institutions and the logistics necessary to speed our exports
into first world markets.
STRUCTURE OF THE GROUP
The group`s structure and trading divisions are listed elsewhere in this
document. The majority of these are located in KwaZulu-Natal and the Western
Cape, with Sharp Electronics based in Gauteng and Harven Manufacturing Company
in Zimbabwe.
ASSET PROTECTION PROGRAMME
The group complies with all the provisions of the Occupational Health & Safety
Act (OHSACT). In terms of group policy, the insured value of the group`s assets
is constantly revised in order to ensure that they are fully protected against
loss. Land and buildings are revalued every five years by an independent valuer.
The group`s insurance brokers professionally monitor its self-insurance and risk
management programme, and all major catastrophic risks are re-insured. The group
philosophy relating hereto is detailed on the inside back cover.
HUMAN RESOURCES
A detailed report on this important aspect of group activity appears under its
own heading in this document. It has always been group policy to be an equal
opportunity employer. Promotion is therefore on merit at all levels of
activity, and affirmative action is being addressed within this framework.
KEY SUCCESS FACTORS
The key success factors of the group remain its personnel and management,
combined with excellent product ranges, emphasis on consumer service, quality
and innovative merchandise and customer relationships of long standing.
Management and staff are fully committed to the group`s stated objectives, risk
management philosophy and its mission statement, all of which are published
documents. Employees are encouraged to increase their skills level by attending
courses at technikons and universities, for which bursaries are available, and
are helped to release their full potential in a challenging and invigorating
working environment.
ENVIRONMENTAL ISSUES, TECHNOLOGY, RESEARCH AND DEVELOPMENT
The group has high standards with regard to its manufacturing processes. New
equipment and the latest technology ensures that it maintains its leadership
role in areas in which it operates. Seardel strives to ensure wherever possible
that its products are environmentally friendly and non-toxic.
The group`s long-term planning and investment programme ensures that it has
access to the cutting edge of technology and that it is able to manufacture
products that are not harmful to the environment. All new equipment is designed
to exceed international environmental impact parameters and, with this in mind,
existing plant and equipment is constantly upgraded. The group`s commitment to
preservation of the environment is evidenced by its donations policy and its
investment in the Conservation Corporation of Africa.
Seardel continues to ensure that it has the manufacturing capacity and
technological expertise to meet customer demands.
PROSPECTS FOR THE 2003 FINANCIAL YEAR
Prime lending rates have increased during the year under review and are at
unacceptably high levels. Inflation needs to be controlled, which will allow a
reduction to more acceptable financing costs. There are certain areas in the
group that are as yet not performing satisfactorily in terms of return on
investments and these are the subject of management attention. In order to meet
its financial targets, the group must ensure that at all times suitable margins
are obtained on its products. There are huge challenges facing industrial
companies worldwide. Turnaround times, which are customer-driven, are
shortening. Low wage countries are spawning new competitors constantly. Cyclical
retail markets tend to increase input costs. These are recognised, and new and
innovative ways of meeting and effectively dealing with them are constantly
being sought. Seardel is fortunate to have proven management and, with its
excellent product ranges, will strive to maintain its market share. We are ever
mindful that every effort must be made to improve the group`s returns to its
stakeholders. Revenue for the first two months of the 2003 financial year has
increased by 21,8% over the previous year. It is anticipated that there will be
a reasonable increase in profitability in the 2003 financial year.
ACKNOWLEDGEMENTS
I would like to express my appreciation and thanks to my colleagues on the
board, executives, managing directors and their management teams, and all
employees for their efforts, loyalty, co-operation and support during the past
year. These are both recognised and appreciated.
My thanks go to our customers and suppliers for their support, our bankers for
their co-operation, assistance and service, and our auditors, legal advisors and
consultants for conscientiously carrying out their duties.
Aaron Searll
Chairman
Cape Town
Income Statements
for year ended 30 june
Group Company
Rand thousands 2002 2001 2002 2001
Revenue 3 564 173 2 550 245
Cost of revenue (2 711 242) (1 950 059)
Gross profit 852 931 600 186
Other operating income 110 852 85 296
Distribution costs (248 893) (213 583)
Administrative and other expenses (495 941) (367 881)
Profit from operations 218 949 104 018
Amortisation of negative goodwill 35 135 17 935
Income before finance charges 254 084 121 953 40 122 90 500
Net finance charges (111 908) (70 269) (1 492) (10 014)
Attributable earnings of
associated companies - 10 270
Income before taxation 142 176 61 954 38 630 80 486
Taxation (24 020) (9 890)
Income after taxation 118 156 52 064 38 630 80 486
Loss attributable to outside shareholders
of subsidiary companies - (46)
Retained income R118 156 R52 018 R38 630 R80 486
Earnings per share - cents 110,3 48,6
Headline earnings per
share - cents 75,9 33,9
Diluted earnings per
share - cents 107,3 -
Diluted headline earnings
per share - cents 73,9 -
Proposed dividend per
share - cents 15,0 4,5
Proposed dividend cover -
headline earnings 5,1 7,5
Weighted average number of
shares in issue - 000 107 134 107 134
Balance Sheets
at 30 june
Group Company
Rand thousands 2002 2001 2002 2001
ASSETS
Non-current assets 543 122 517 878 239 181 204 723
Fixed assets 842 839 841 212
Goodwill (368 930) (412 515)
Interest in subsidiary companies 230 138 199 492
Investments 40 421 41 173 49 309
Long-term receivables 9 543 12 985 8 994 4 922
Deferred taxation 19 249 35 023
Current assets 1 657 667 1 527 742 30 -
Inventory 745 691 690 610
Accounts receivable 790 740 698 928 30 -
Cash and cash equivalents 121 236 138 204
TOTAL ASSETS R2 200 789 R2 045 620 R239 211 R204 723
EQUITY AND LIABILITIES
Capital and reserves 658 559 546 735 228 888 195 079
Share capital 6 974 11 100 6 974 11 100
Reserves 651 471 535 521 221 914 183 979
Shareholders` interest 658 445 546 621 228 888 195 079
Outside shareholders` interest 114 114
Non-current liabilities 619 356 656 101
Interest-bearing liabilities 477 657 532 847
Deferred liabilities 141 699 123 254
Current liabilities 922 874 842 784 10 323 9 644
Interest-bearing loans 155 143 191 734
Accounts payable 730 427 617 425 44 9 440
Bank overdrafts 37 184 33 421 10 159 -
Distribution to shareholders 120 204 120 204
TOTAL EQUITY AND LIABILITIES R2 200 789 R2 045 620 R239 211 R 204 723
Net asset value
(including intangible assets) 1 027 375 959 136
Net asset value per share - cents 959 895
Cash Flow Statements
for year ended 30 june
Group Company
Rand thousands 2002 2001 2002 2001
Net cash flow from operating
activities 162 632 71 438 24 299 83 536
Cash generated from operations 326 390 160 973 40 122 139
Investment income 180 159 - 90 361
Working capital changes (20 448) 16 220 (9 426) 9 453
Finance costs paid (111 908) (70 269) (1 492) (10 014)
Taxation paid (25 166) (30 753)
Distributions paid (4 905) (6 403) (4 905) (6 403)
Foreign currency (1 511) 1 511
Net cash flow from
investing activities (91 582) (424 944) (34 458) (83 536)
Investment to maintain operations (91 582) 4 900 (34 458) (83 536)
Replacement of fixed assets (103 512) (57 978)
Proceeds on disposal of fixed assets 7 736 100 616
Increase/(decrease) in long-term
receivables 3 442 (7 265) (4 072) (918)
Decrease/(increase) in investments 752 (29 808) 260 (309)
Increase in investments in
subsidiary companies (30 646) (82 309)
Net cash transactions with
outside shareholders (665)
Investment to expand operations (429 844)
Additional investment in
subsidiary company (8 810)
Acquisition of interest in
subsidiaries (421 034)
Net cash flow from financing
activities (91 781) 407 267
Increase in long-term borrowings (55 190) 341 248
Increase in short-term borrowings (36 591) 66 019
Net increase in cash and cash
equivalents (20 731) 53 761 (10 159) -
Cash and cash equivalents at
beginning of year 104 783 51 022
Cash and cash equivalents
at end of year R84 052 R104 783 (R10 159) -
*Operating cash flow per
share - cents 156 73
* Net cash flow from operating activities plus distribution paid, divided by the
weighted average number of shares in issue.
Key comparative figures can be found in the seven year review.
Changes in Equity Statements
FOR THE YEAR ENDED 30 june
Rand thousands Group
Share Share Non- Distributable Total
capital premium distributable reserves
reserves
Balance 30 June 2000 6 974 10 554 74 251 399 929 491 708
Opening retained
earnings as
previously reported 415 197
Change in accounting
policy (see note 3) (15 268)
Net gains and losses
not recognised in the
income statement 9 323 9 323
Premium on acquisition
of subsidiaries
taken to goodwill 7 324 7 324
Revaluation of land
and buildings 488 488
Foreign currency
translation reserve 1 511 1 511
Net income for the year 52 018 52 018
Net income as previously stated 55 447
Change in accounting policy
(see note 3) (3 429)
Distribution (6 428) (6 428)
Balance 30 June 2001 6 974 4 126 83 574 451 947 546 621
Net gains and losses
not recognised in the
income statement (49 383) 47 872 (1 511)
Revaluation of interest
in associated companies (47 872) 47 872 -
Foreign currency
translation reserve (1 511) (1 511)
Net income for the year 118 156 118 156
Distribution (4 126) (695) (4 821)
Balance 30 June 2002 R6 974 R- R34 191 R617 280 R658 445
Company
Balance 30 June 2000 6 974 10 554 24 744 78 749 121 021
Opening balance as
previously reported 4 126
Change in accounting
policy (see note 3) 6 428
Distribution as restated (6 428) (6 428)
Opening distribution (4 126)
Change in accounting
policy (see note 3) (2 302)
Net income for the year 80 486 80 486
Balance 30 June 2001 6 974 4 126 24 744 159 235 195 079
Net income for
the year 38 630 38 630
Distribution (4 126) (695) (4 821)
Balance 30 June 2002 R6 974 R- R24 744 R197 170 R228 888
Group Company
2002 2001 2002 2001
Composition of non-distributable
reserves
Foreign currency translation
reserve - 1 511
Capital redemption reserve
fund 440 440 440 440
Surplus on disposal of
subsidiary and associated
companies 664 664 4 329 4 329
Surplus on revaluation of
land and buildings 33 087 33 087
Surplus on revaluation of
interest in subsidiary 19 975 19 975
Revaluation of interest
in associated companies - 47 872
R34 191 R83 574 R24 744 R24 744
Segmented Reporting
AUDITED
Rand thousands 2002 % 2001 % 2000 % 1999 %
Revenue
Textiles 1 615 214 45 718 527 28 - - - -
Apparel 1 484 098 42 1 421 006 56 1 537 078 81 1 390 686 80
Office a
utomation
and consumer
electronics 238 933 7 231 382 9 251 564 13 253 550 15
Toys 110 423 3 65 581 3 - - - -
Nonwoven
textiles 115 505 3 113 749 4 106 636 6 93 422 5
R3 564 173 100 R2 550 245 100 R1 895 278 100 R1 737 658 100
Total Tangible
Assets
(excluding
cash
Textiles 1 420 510 59 1 331 324 58 - - - -
Apparel 732 981 30 710 694 31 710 003 68 671 512 68
Office automation and
consumer
electronics 143 542 6 124 155 5 126 930 12 135 380 14
Toys 59 640 2 61 817 3 - - - -
Nonwoven
textiles 72 561 3 56 918 3 60 145 6 54 129 6
Associated
companies - - - - 152 531 14 121 094 12
R2 429 234 100 R2 284 908 100 R1 049 609 100 R 982 115 100
Profit from
Operations
(incorporating
attributable
earnings of
associated
companies)
Textiles 141 611 65 83 518 73 - - - -
Apparel 53 992 24 6 223 5 51 115 53 40 966 55
Office automation and
consumer
electronics 14 837 7 16 052 15 3 493 4 13 552 18
Toys 5 735 3 3 470 3 - - - -
Nonwoven
textiles 2 774 1 5 025 4 8 972 9 4 913 7
Associated
companies - - - - 32 654 34 15 204 20
R218 949 100 R114 288 100 R96 234 100 R74 635 100
Return on Total Tangible Assets %
Textiles 10 6 - -
Apparel 7 1 7 6
Office a
utomation and
consumer
electronics 10 13 3 10
Toys 10 6 - -
Nonwoven
textiles 4 9 15 9
Associated
companies - - 21 13
9 5 9 8
Textiles and apparel segments include their related properties
Seardel Group Financial Calendar
ANNUAL GENERAL MEETING
24 October 2002
dividend
A dividend of 15 cents per share for the year has been proposed by the Directors
and is to be approved at the Annual General Meeting.
Last day to trade cum. Dividend Friday 8 November 2002
Share trade ex dividend from Monday 11 November 2002
Record date Friday 15 November 2002
Payment date Monday 18 November 2002
Share certificates may not be dematerialised or rematerialised between 11
November 2002 and 15 November 2002, both days inclusive.
Reports 2003
Interim for six months ending 31 December 2002 published February 2003
Annual for year ending 30 June 2003 published September 2003
ADMINISTRATION
Registered office
2nd Floor, Seardel House, Alphen Park
Constantia Main Road
Constantia 7806
Cape Town
Registration number: 1968/011249/06
Postal address: Private Bag X8, Constantia 7848
Telephone: 27-21-7943600
Telefax: 27-21-7942009
E-mail: LyndaC@seardel.co.za or aj@seardel.co.za
Internet: http://www.seardel.co.za/
Transfer secretaries
Computershare
11 Diagonal Street
Johannesburg 2001
P O Box 1053 Johannesburg 2000
Telephone: 011-3705000
Auditors
Arthur Andersen & Co.
Attorneys
Sonnenberg Hoffmann & Galombik Inc.
Secretary and registered address
L A Clohessy
2nd Floor, Seardel House, Alphen Park, Constantia Main Road
Constantia 7806, Cape Town
Contacts at Seardel: Ms Lynda Clohessy, Mr Arthur Jacobson.
Seardel.doc
Date: 12/09/2002 04:19:55 PM Produced by the JSE SENS Department
