| Fri 26 Sep 2003, 15:19 | | Audited Results Prepared In Accordance with GAAP |
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Seardel Investment Corporation Limited - Audited Results Prepared In Accordance
With Generally Accepted Accounting Practice
SEARDEL INVESTMENT CORPORATION LIMITED
REGISTRATION NUMBER: 1968/011249/06
JSE SHARE CODE: SER
ISIN NO: ZAE000029815
JSE SHARE CODE: SRN
ISIN NO: ZAE000030144
AUDITED RESULTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRACTICE
FINANCIAL CALENDAR
ANNUAL GENERAL MEETING
The annual General meeting of the company will be held at 09h00 on 23 October
2003 at the registered office of the company
DIVIDEND
Dividend of 14 cents per share proposed
Last day to trade cum. div. Friday 7 November 2003
Ex div. trades from Monday 10 November 2003
Record date: 14 November 2003
Payment date: 17 November 2003
Share certificates may not be dematerialised or rematerialised between 10
November 2003 and 14 November 2003, both days inclusive.
Reports 2004
Interim for six months ending 31 December 2003 published February 2004.
Annual for year ending 30 June 2004 published September 2004.
Financial Highlights Year Ended 30 June
Rand thousands
Unless otherwise indicated 2003 2002 %Change
Revenue 4 031 047 3 564 173 +13,1
Income before taxation 127 186 142 176 -10,5
Capital and reserves
(including negative goodwill) 1 120 452 1 023 075 + 9,5
Total tangible assets (excluding cash) 2 441 832 2 424 820 + 0,7
Return on total tangible assets 8,8% 9,0%
Return on shareholders" interest 6,3% 8,1%
Inventory as a percentage of revenue 19,6% 20,9%
Statistics Per Share Year Ended 30 June
In cents, where applicable 2003 2002 % Change
Headline earnings 68,5 75,9 - 9,7
Headline earnings before
financial adjustments 83,8 79,1 + 5,9
Earnings 88,0 110,3 -20,2
Proposed dividend 14,0 15,0 - 6,7
Proposed dividend cover on
headline earnings 4,9 5,1 - 3,9
Operating cash flow 106 156 -32,1
Tangible net asset value 837 955 -12,4
Market price - 30 June 2003
Ordinary 330 220
N ordinary 314 240
Price range - High:
Ordinary 420 270
N ordinary 415 280
Price range - Low:
Ordinary 200 192
N ordinary 215 167
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 2003. Group
activities comprise textile and nonwoven textile manufacturing (industrial
products), apparel manufacturing, office automation and consumer electronics
distribution, toy distribution, travel and property investments.
GROUP REVENUE, CAPITAL AND EARNINGS
Revenue increased by 13,1% to a record R4,0 billion. Income before valuation
adjustments amounted to R153,4 million, an increase of 4,3%. Group results were,
however, negatively affected by the implementation of AC133, which requires the
recognition and measurement of financial instruments and is based on
International Accounting Standard 39, which is itself incomplete, creating
unnecessary volatility in our earnings.
The current interpretation and recommended practice results in a charge to
income in respect of unrealised forex losses of R26,2 million, resulting from
the revaluation of open forward exchange contracts. Including the amortisation
of negative goodwill arising from the acquisition of the Frame Textile Group,
income before taxation reduced to R127,2 million(R142,2 million last year), a
reduction of 10,5%. Income after taxation amounted to R105,8 million, a decrease
of 10,5%.
Income, after finance charges but before the amortisation of negative goodwill
and the valuation adjustment on financial instruments, amounts to R118,2 million
from R111,9 million, an increase of 5,6%.
Headline earnings per share reduced to 68,5 cents from 75,9 cents last year, a
reduction of 9,7%. Headline earnings prior to the imposition of AC133 would
have increased by 5,9% to 83,8 cents from last year"s level of 79,1 cents.
During the year under review the N ordinary share option granted to the
consortium was exercised and paid for, resulting in the issue of 26,8 million N
ordinary shares on 3 January 2003. Accordingly the total issued share capital
in respect of ordinary and N ordinary shares now totals 133,9 million shares.
The weighted average number of shares in issue in respect of the year under
review amounts to 120,3 million shares. Headline earnings per share has been
calculated using the weighted average number of shares in issue, whereas in the
previous year the actual number of shares in issue was 107,1 million.
Group capital and reserves (including negative goodwill) amounts to R1 120,5
million (2002: R1 023,1 million), an increase of R97,4 million or 9,5%. Tangible
net asset value per share, because of the increased number of shares in issue,
reduced from 955 cents last year to 837 cents.
EXPORTS AND TRADING CONDITIONS
Trading conditions for the first nine months of the year were fairly buoyant,
but deteriorated during the last three months to June 2003. The strength of the
Rand had a negative compounding impact on group results.
Local retailers used the Rand"s strength to import products direct.
Notwithstanding the above, exports of apparel expanded by 34,5% to R391 million,
constituting 22,7% of apparel business, compared to 19,3% the previous year. The
compounded growth of apparel exports over the past five years is 30,5%. The
group"s objective with regard to apparel exports remains at 25% of production.
Direct exports of textile products grew by 51% to R106 million, whilst indirect
exports are estimated to be R185 million. The combined total of R291 million
represents 16% of the Frame Textile Group"s turnover. Total direct exports
amounted to R497 million.
DIVIDEND POLICY
Positive cash flows have resulted in a significant reduction in borrowings,
which has allowed the group"s dividend cover policy to be maintained at
approximately 5 times on headline earnings. The board has therefore proposed
the payment of a dividend of 14 cents per share in respect of the year under
review. This proposal will require confirmation at the annual general meeting.
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 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.
Industry Bodies
The Clothing Industry Export Council (CIEC) continues to operate effectively.
In the past year two new bodies have been formed:
* The Clothing Trade Council (Clo-Trade) represents the industry at
government levels. It deals only with trade and tariff issues. It is a
member driven organisation constituted similarly to the CIEC.
* The South African Clothing Employers Federation (SACLEF) is a virtual
organisation representing the industry at NEDLAC and in labour/SETA
matters. Its membership comprises the regional associations, such as the
CCA/NCMA.
The National Bargaining Council (NBC) for the clothing industry, which has been
in existence for one year, provided a vehicle for the successful conclusion of
this year"s wage negotiations. The ultimate success of the NBC will be
determined by the extent to which employers who do not pay legislated or agreed
wages are brought into line. The compliance function is making progress in this
regard.
South African Development Community (SADC)
The Department of Trade & Industry (DTI) once again engaged in negotiations on
quota adjustments with Malawi, Mozambique, Tanzania and Zambia (MMTZ countries)
without prior adequate discussions having been undertaken with the clothing
industry.
Second-hand / Donated Clothing
The clothing industry has been destroyed in numerous African countries that
allowed the importation of second-hand/ donated clothing at the expense of
thousands of jobs. We urge the DTI to continue to resist this practice due to
the potential enormous loss of jobs in South Africa.
Customs Control
SARS is to be congratulated on the enormous strides they continue to make 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 second-hand
clothing, etc. An industry forum has been created in which industry
stakeholders, including SARS, meet on a regular basis.
It should be noted, however, that the under-declaration of the value of imports
is common practice and adds to the problems associated with the introduction of
already low priced imports into the country.
Current Issues
The South African Customs Union (SACU) is currently engaged with the United
States in discussions that will probably lead to the creation of a bilateral
Free Trade Agreement by the end of 2004. Clothing and textiles will be on the
agenda. This agreement will cast in stone the advantages available under AGOA,
which might terminate in due course.
The South African Clothing and Textile Workers Union (SACTWU) recently filed a
Section 77 notice at Nedlac to engage with clothing retailers and the investment
community on their perception that jobs were being lost in the organised
clothing industry to imports and non-compliant clothing manufacturers paying
wages below legislated minimums. Sweatshops are intolerable in our industry and
every effort should be made to ensure that there is compliance with fair labour
standards.
Country of Origin Labelling
All stakeholders agree that the sooner Country of Origin Labelling is
instituted, the better. This has been on the agenda of the DTI for at least
seven 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.
Imports
Resulting from the strengthened Rand, which has gained more than 30% against the
United States Dollar since September 2002, imports of apparel, textiles and yarn
have increased substantially, and this is a matter of great concern. The
strength of the Rand is hurting the domestic textile and apparel industries, and
import duties have further compounded the problem, having reduced by another
30%. The combined negative effect of the above on the apparel and textile
industries is unacceptable, and has already caused massive job losses. For the
period January to May 2003 statistics reveal that apparel imports amounted to
R844 million, which is an increase of 6,4% on the same period last year but
substantially more in volume terms. Imported yarns and fabrics amounted to R1,4
billion, slightly down on last year but up by a huge 31% in volume terms.
Proudly South African Campaign
It is pleasing to note that the respective unions are promoting this campaign in
order to counter the effects of imported apparel.
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"s risk management philosophy and risk management strategy can be found on
the inside back cover of this report.
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, good
corporate governance, risk management philosophy and its mission statement, all
of which are published documents. Employees are encouraged to increase their
skills levels by attending courses at technikons and universities, for which
bursaries are available, and are helped to realise their full potential in a
challenging and invigorating working environment.
ENVIRONMENTAL ISSUES, TECHNOLOGY, RESEARCH AND DEVELOPMENT
Our textile divisions continuously strive to attain ISO14000, a process which we
hope to achieve during the 2004 financial year. We continue with our initiative
together with the University of Natal to meet the concept of cleaner production
and waste minimisation, and ISO9001/2000 is now an integral part of our
management culture.
In order to maintain its leadership role in the areas in which it operates the
group has maintained its investment in the latest technology and new equipment.
This ensures that it will maintain its high standards with regard to its
manufacturing processes. Seardel constantly strives to ensure that its final
products are environmentally friendly and non-toxic, and continues to ensure
that it has the manufacturing capacity and technological expertise to meet
customer demands.
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 these causes is evidenced by its donations policy,
which provides funds amongst others to the African Institute for Mathematical
Sciences, the Fairest Cape Association, the Endangered Wildlife Trust and the
World Wildlife Foundation, and its investment in the Conservation Corporation of
Africa.
PROSPECTS FOR THE 2004 FINANCIAL YEAR
The next six months trading is going to be difficult, and is to be viewed with
caution. As mentioned above, the appreciation of the Rand is encouraging huge
imports of apparel, yarn and textiles, and profit margins on exports will be
under pressure.
The inflation targets set by the South African Reserve Bank are now more
attainable than ever before. Interest rates would appear to be in a reducing
cycle, and both these factors bode well for the South African economy going
forward. It is perhaps necessary to increase the rate of reduction in order to
stimulate growth, which would create more job opportunities. Whilst the group,
in the main, performed well during the year under review, certain divisions
require further attention and it is essential that suitable margins are obtained
on all the group"s products, as the return on total tangible assets is still not
at a satisfactory level.
With the South African currency maintaining its current strong levels, we are
constantly seeking ways of effectively dealing with this new phenomenon. We will
at all times strive to maintain our market share by exploiting to the full our
proven management and excellent product ranges. We are aware that returns to
stakeholders need to be improved.
Revenue for the first two months of the 2004 financial year amounted to R631
million, a reduction of 9% over the previous 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,
25 September 2003
Consolidated Income Statement for year ended 30 June
Rand thousands 2003 2002
Revenue 4 031 047 3 564 173
Cost of revenue (3 126 116) (2 706 342)
Gross profit 904 931 857 831
Other operating income 131 946 110 852
Distribution costs (280 176) (248 893)
Administrative and other expenses (541 341) (495 941)
Profit from operations 215 360 223 849
Amortisation of negative goodwill 35 135 35 135
Income before finance charges 250 495 258 984
Net finance charges (97 141) (111 908)
Income before valuation adjustments 153 354 147 076
Valuation adjustments on financial
Instruments (26 168) (4 900)
Income before taxation 127 186 142 176
Taxation (21 380) (24 020)
Income attributable to shareholders 105 806 118 156
Earnings per share - cents 88,0 110,3
Headline earnings per share - cents 68,5 75,9
Headline earnings per share before
valuation adjustments
on financial instruments - cents 83,8 79,1
Diluted headline earnings per share - cents 68,5 73,9
Proposed dividend per share - cents 14,0 15,0
Proposed dividend cover - headline earnings 4,9 5,1
Weighted average number of shares in
issue - 000 120 270 107 134
Consolidated Balance Sheet at 30 June
Rand thousands 2003 2002
ASSETS
Non-current assets 560 868 538 708
Property, plant and equipment 840 638 842 839
Goodwill (333 795) (368 930)
Investments 25 851 36 007
Long-term receivables 10 107 9 543
Deferred taxation 18 067 19 249
Current assets 1 689 345 657 667
Inventory 788 868 745 691
Accounts receivable 776 368 790 740
Cash and cash equivalents 124 109 121 236
TOTAL ASSETS R2 250 213 R2 196 375
EQUITY AND LIABILITIES
Capital and reserves 786 657 654 145
Share capital 59 738 6 974
Reserves 726 805 647 057
Shareholders" interest 786 543 654 031
Outside shareholders" interest 114 114
Non-current liabilities 563 200 619 356
Interest-bearing liabilities 406 976 477 657
Deferred liabilities 56 334 55 254
Deferred taxation 99 890 86 445
Current liabilities 900 356 922 874
Interest-bearing liabilities 123 845 155 143
Accounts payable 689 499 730 427
Bank overdrafts 86 956 37 184
Distribution to shareholders 56 120
TOTAL EQUITY AND LIABILITIES R2 250 213 R2 196 375
Net asset value (including intangible
assets) 1 120 338 1 022 961
Net asset value per share - cents 837 955
Consolidated Cash Flow Statement for year ended 30 June
Rand thousands 2003 2002
Net cash flow from operating activities 111 142 161 702
Cash generated from operations 300 579 325 460
Investment income 324 180
Working capital changes (74 360) (20 448)
Net finance costs paid (97 141) (111 908)
Taxation paid (2 126) (25 166)
Distributions paid (16 134) (4 905)
Foreign currency - (1 511)
Net cash flow from investing activities (108 826) (90 652)
Acquisitions of property, plant and equipment(113 556) (103 512)
Proceeds from disposal of property, plant and
equipment 5 126 8 666
(Increase)/decrease in long-term receivables (564) 3 442
Decrease in investments 168 752
Net cash flow from financing activities (49 215) (91 781)
Decrease in long-term borrowings (70 681) (55 190)
Decrease in short-term borrowings (31 298) (36 591)
Proceeds from issue of shares 52 764 -
Net decrease in cash and cash equivalents (46 899) (20 731)
Cash and cash equivalents at beginning
of year 84 052 104 783
Cash and cash equivalents at end of year R37 153 R84 052
*Operating cash flow per share - cents 106 156
Net cash flow from operating activities plus distribution paid, divided by the
weighted average number of shares in issue.
Consolidated Changes in Equity Statement
Rand thousands
Share Share Other Retained
Capital Premium Reserves Income Total
Balance 30 June 2001 6 974 4 126 79 160 451 947 542 207
Opening other reserves as
previously reported 83 574
Change in accounting policy (4 414)
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)
Income attributable to
Shareholders 118 156 118 156
Distribution (4 126) (695) (4 821)
Balance 30 June 2002 6 974 - 29 777 617 280 654 031
Net gains and losses not
recognised in the income
statement (9 988) (9 988)
Impairment of listed
investments (9 988) (9 988)
Issue of N ordinary shares 67 52 697 52 764
Income attributable to
Shareholders 105 806 105 806
Distribution (16 070) (16 070)
Balance 30 June 2003 R7 041 R52 697 R19 789 R707 016 R786 543
Reconciliation of earnings and headline earnings
EARNINGS PER SHARE
The calculation of earnings per share is based on income attributable to
shareholders of R105,8 million (2002: R118,1 million) and 120,2 million (2002:
107,1 million) weighted average shares in issue throughout the year ended 30
June 2003. There were no dilutive shares at year end.
2003
Weighted average Earnings
Income number of shares per share
R000"s 000"s Cents
Basic earnings
Net profit available to
Shareholders 105 806 120 270 88,0
Headline earnings
Reconciliation between earnings and headline earnings
Income attributable to
shareholders 105 806
Amortisation of negative
goodwill (35 135)
Impairment of plant and
machinery 12 000
Surplus on disposal of fixed
assets (1 082)
Tax effect of adjustments 829
Headline earnings 82 418 120 270 68,5
Valuation adjustments on
financial instruments 26 168
Tax effect of adjustments (7 850)
Headline earnings before valuation adjustments on financial instruments
100 736 120 270 83,8
Diluted headline earnings 82 418 120 270 68,5
2002
Basic earnings
Net profit available to
Shareholders 118 156 107 134 110,3
Add: Assumed exercise of
share options granted
(weighted from date of issue) 2 942
Diluted earnings 118 156 110 076 107,3
Headline earnings
Reconciliation between
earnings and headline earnings
Income attributable to
Shareholders 118 156
Amortisation of negative
Goodwill (35 135)
Closure of operation 743
Surplus on disposal of fixed
assets (3 379)
Tax effect of adjustments 930
Headline earnings 81 315 107 134 75,9
Valuation adjustments on
financial instruments 4 900
Tax effect of adjustments (1 470)
Headline earnings before
valuation adjustments on
financial instruments 84 745 107 134 79,1
Diluted headline earnings 81 315 110 076 73,9
The financial statements have been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice. The accounting policies
that have been adopted are consistent with those of the previous financial year
except for the change in accounting policy set out below. The report of the
independent auditors is available for inspection at the registered offices of
the company.
Change in accounting policy
In order to comply with AC 133, the group changed its accounting policy on 1
July 2002 with respect to the treatment of financial instruments. Listed
investments are now valued at market value.
Comparative figures have been restated in the Changes in Equity Statements.
Gross Taxation Net
Effect on other reserves 2003 (14 402) - (14 402)
2002 (4 414) - (4 414)
Segmented Reporting
BUSINESS SEGMENTS
Rand thousands 2003 % 2002 % 2001 % 2000 %
Revenue
Textiles 1 821 726 45 1 615 214 45 718 527 28 - -
Apparel and
household textiles 1 701 039 43 1 484 098 42 1 421 006 56 1 537 078 81
Office automation
and consumer
electronics 252 688 6 238 933 7 231 382 9 251 564 13
Toys 124 660 3 110 423 3 65 581 3 - -
Industrial products 130 934 3 115 505 3 113 749 4 106 636 6
R4 031 047 100 R3 564 173 100 R2 550 245 100 R1 895 278 100
Total Tangible Assets (excluding cash)
Textiles 1 401 743 57 1 416 096 59 1 331 324 58 - -
Apparel and
household textiles 755 344 31 732 981 30 710 694 31 710 003 68
Office automation
and consumer
electronics 148 415 6 143 542 6 124 155 5 126 930 12
Toys 61 314 3 59 640 2 61 817 3 - -
Industrial products 75 016 3 72 561 3 56 918 3 60 145 6
Associated companies - - - - - - 152 531 14
R2 441 832 100 R2 424 820 100 R2 284 908 100 R1 049 609 100
PROFIT FROM OPERATIONS AFTER VALUATION ADJUSTMENTS
Textiles 115 435 61 141 611 65 83 518 73 - -
Apparel and
household
textiles 33 084 17 53 992 24 6 223 5 51 115 53
Office automation
and consumer
electronics 21 762 12 14 837 7 16 052 15 3 493 4
Toys 11 200 6 5 735 3 3 470 3 - -
Industrial products 7 711 4 2 774 1 5 025 4 8 972 9
Associated companies - - - - - - 32 654 34
R189 192 100 R218 949 100 R114 288 100 R96 234 100
The profit from operations in the textile segment is stated after an impairment
of R12 million.
Return on Total Tangible Assets %
Textiles 8 10 - -
Apparel and household textiles 4 7 1 7
Office automation and consumer electronics 15 10 13 3
Toys 18 10 - -
Industrial products 10 4 9 15
Associated companies - - - 21
9 9 5 9
GEOGRAPHICAL SEGMENTS
Revenue
South Africa 3 534 231 88 3 203 795 90 2 235 304 88 1 646 001 87
Direct exports 496 816 12 360 378 10 314 941 12 249 277 13
R4 031 047 100 R3 564 173 100 R2 550 245 100 R1 895 278 100
Textile and apparel segments include their related properties.
ADMINISTRATION
Registered office
2nd Floor, Seardel House, Alphen Park
Constantia Main Road
Constantia 7806
Cape Town
Registration number: 1968/011249/06
Postal address: 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
70 Marshall Street
Johannesburg 2001
P O Box 61051 Marshalltown 2107
Telephone: 011-3705000
Auditors
KPMG Inc.
Attorneys
Sonnenberg Hoffmann & Galombik Inc.
Secretary and registered office
L A Clohessy
2nd Floor, Seardel House, Alphen Park, Constantia Main Road, Constantia 7806,
Cape Town
Date: 26/09/2003 03:05:19 PM Produced by the JSE SENS Department
