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SEARDEL INVESTMENT CORPORATION LIMITED - FINANCIAL REPORT
Seardel Investment Corporation Limited
(Registration Number: 1968/011249/06)
JSE SHARE CODE: SER
ISIN NO: ZAE000029815
JSE SHARE CODE: SRN
ISIN NO: ZAE000030144
Group Interim Report to Shareholders
For the Six Months ended December 2003
Financial Highlights
%Change
Revenue R2016,1 million - 7,8
Profit from operations R74,9 million - 29,2
Income before taxation and negative goodwill R23,7 million - 47,6
Income before taxation R41,3 million - 34,3
Income attributable to shareholders R37,9 million - 29,3
Earnings per share 28,3 cents - 43,4
Headline earnings per share 15,2 cents - 54,8
Capital and reserves including
negative goodwill R1122,0 million + 7,1
The unaudited consolidated financial statements of the group for the six months
ended 31 December 2003 with comparative figures for the corresponding period
last year, together with the audited financial statements for the financial year
ended 30 June 2003 are set out below.
Income Statement
Six months ended 31 December Year ended 30 June
2003 2002 % Change 2003
Rand thousands (unaudited) (unaudited) (audited)
Revenue R2 016 180 R2 187 397 - 7,8 R4 031 047
Profit from operations 74 880 105 704 - 29,2 215 360
Amortisation of
negative goodwill 17 568 17 568 35 135
Income before finance
Charges 92 448 123 272 -25,0 250 495
Net finance charges ( 48 226) ( 59 164) ( 97 141)
Income before
valuation adjustments 44 222 64 108 -31,0 153 354
Valuation adjustments
on financial instruments ( 2 912) ( 1 241) ( 26 168)
Income before taxation 41 310 62 867 -34,3 127 186
Taxation ( 3 450) ( 9 345) ( 21 380)
Income attributable
to shareholders R37 860 R 53 522 -29,3 R 105 806
Statistics Per Share
In cents, where applicable
Number of shares
in issue(000) 133 918 107 134 133 918
Weighted average number
of diluted shares
in issue (000)* - 120 324 120 270
Earnings 28,3 50,0 -43,4 88,0
Headline earnings 15,2 33,6 -54,8 68,5
Headline earnings
before financial adjustments 16,7 34,4 -51,5 83,8
Diluted earnings - 44,5 _
Diluted headline earnings* - 29,9 _
Distribution - annual - - 14,0
Distribution cover
- headline earnings - - 4,9
* See note 1
RECONCILIATION BETWEEN EARNINGS AND HEADLINE EARNINGS
Income attributable to
Shareholders 37 860 53 522 105 806
Amortisation of
negative goodwill ( 17 568) ( 17 568) ( 35 135)
Impairment of plant
and machinery - - 12 000
Surplus on disposal
of fixed assets - - ( 1 082)
Tax effect of adjustments - - 829
Headline earnings 20 292 35 954 82 418
Valuation adjustments
on financial instruments 2 912 1 241 26 168
Tax effect of adjustments ( 874) ( 372) ( 7 850)
Headline earnings before
valuation adjustments
on financial instruments R 22 330 R 36 823 R 100 736
Balance Sheet
Six months ended 31 December Year Ended 30 June
2003 2002 2003
Rand thousands (unaudited) (unaudited) (audited)
ASSETS
Non-current assets 576 392 573 623 560 868
Fixed assets 840 292 846 142 840 638
Goodwill ( 316 227) ( 351 362) (333 795)
Investments 25 851 40 421 25 851
Long-term receivables 10 279 19 173 10 107
Deferred taxation 16 197 19 249 18 067
Current assets 1 694 252 1 701 763 1 689 345
Inventory 728 013 737 916 788 868
Accounts receivable 802 549 836 426 776 368
Cash and cash
Equivalents 163 690 127 421 124 109
TOTAL ASSETS R2 270 644 R2 275 386 R2 250 213
EQUITY AND LIABILITIES
Capital and reserves 805 767 696 011 786 657
Share capital 59 738 6 974 59 738
Reserves 745 915 688 923 726 805
Shareholders" interest 805 653 695 897 786 543
Outside shareholders"
Interest 114 114 114
Non-current liabilities 559 854 595 726 563 200
Interest-bearing
Liabilities 409 096 448 510 406 976
Deferred liabilities 56 376 61 300 56 334
Deferred taxation 94 382 85 916 99 890
Current liabilities 905 023 983 649 900 356
Interest-bearing loans 122 651 177 319 123 845
Accounts payable 618 351 698 517 689 499
Bank overdrafts 163 979 107 700 86 956
Distribution to
Shareholders 42 113 56
TOTAL EQUITY AND
LIABILITIES R2 270 644 R2 275 386 R2 250 213
Net asset value
(including
intangible assets) 1 121 880 1 047 259 1 120 338
Net asset value
per share - cents 838 978 837
Ratios
Profitability
Profit from operations
as percentage of revenue 3,7% 4,8% 5,3%
Income before taxation
as percentage of revenue 2,0% 2,9% 3,2%
Income after taxation
as percentage of revenue 1,9% 2,4% 2,6%
Return on total tangible
assets excluding cash 6,5% 9,9% 8,8%
Return on shareholders"
Interest 6,0% 8,9% 6,3%
Leverage
Ratio of debt to
capital and reserves 103% 125% 106%
Ratio of borrowings
to capital and reserves 47% 58% 44%
Liquidity
Current ratio 1,9 1,7 1,9
Net finance charges cover 1,9 2,1 2,6
Consolidated Abridged Cash Flow
Six months ended 31 December Year ended 30 June
2003 2002 2003
Rand thousands (unaudited) (unaudited) (audited)
Internal cash flow 74 709 84 593 232 852
Interest and
taxation paid ( 51 982) ( 59 348) ( 99 298)
Transactions with
Shareholders ( 18 763) ( 16 077) 36 630
Cash retained from
operating activities 3 964 9 168 170 184
Investment and
financing activities ( 42 332) ( 66 528) ( 115 100)
(Increase)decrease in
net borrowings (R 38 368) (R 57 360) R 55 084
Changes in Equity Statement
For the 6 months ended 31 December 2003
Rand thousands
Share Share Other Retained Total
Capital Premium Reserves Income
Balance 31
December 2002 6 974 - 29 777 654 732 691 483
Opening other reserves
as previously reported 34 191
Change in accounting policy ( 4 414)
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 share 67 52 697 52 764
Income attributable
to shareholders 52 284 52 284
Balance 30 June 2003 7 041 52 697 19 789 707 016 786 543
Income attributable
to shareholders 37 860 37 860
Distribution ( 18 750) ( 18 750)
Balance 31
December 2003 R7 041 R52 697 R19 789 726 126 R805 653
2002
Composition of other reserves
Impairment of
listed investments ( 14 402) ( 4 414)
Capital redemption
reserve fund 440 440
Surplus on disposal of
subsidiary and
associated companies 664 664
Surplus on revaluation
of land and buildings 33 087 33 087
R 19 789 R 29 777
Segmented Reporting
Textiles Apparel and
Segment household textiles
Six months ended 31 December 2003 2002 2003 2002
Revenue % 38 45 47 42
Profit from operations % 41 63 26 19
Total assets % 55 58 33 30
Segmented Reporting
Office automation & Toys
Segment consumer electronics
Six months ended 31 December 2003 2002 2003 2002
Revenue % 7 6 5 4
Profit from operations % 17 9 12 5
Total assets % 8 7 2 2
Segmented Reporting
Segment Industrial products
Six months ended 31 December 2003 2002
Revenue % 3 3
Profit from operations % 4 4
Total assets % 2 3
Comment on Results
The segmented analysis detailed above is self-explanatory.
Shareholders are referred to the Chairman"s Report contained in the 2003
financial statements under the heading Prospects for the 2004 Financial Year,
wherein Dr Aaron Searll stated that the period currently under review was going
to be difficult and should be viewed with caution. He also stated that the
appreciation of the Rand was encouraging huge imports of apparel, yarn and
textiles, and that profit margins on exports would be under pressure.
These earlier predictions of tough market conditions have unfortunately
materialised, resulting in group revenue decreasing by 7,8% to R2016,1 million
(2002: R2187,4 million).
Pre-tax profit prior to the amortisation of negative goodwill reduced to
R23,7 million (2002: R45,3 million), a decrease of 47,6%. After the amortisation
of negative goodwill, pre-tax income reduced to R41,3 million (2002: R62,9
million), a decrease of 34,3%.
Income after taxation reduced to R37,9 million (2002: R53,5 million), a decrease
of 29,3%.
Headline earnings per share amounted to 15,2 cents, a reduction of 54,8% from
last year"s level of 33,6 cents.
The number of shares in issue at 31 December 2003 has increased to 133,9
million, consisting of 27,1 million ordinary shares of 25 cents each and 106,8
million N ordinary shares of 0,25 cents each.
Tangible net asset value is 838 cents per share based on 133,9 million shares
(2002: 978 cents, based on 107,1 million shares).
Exports have, because of the above, reduced to R220 million (2002: R254 million)
for the period under review. Of this amount, apparel exports amount to R190
million (2002: R196 million), a reduction of 3,1%. This represents 20,0% of
apparel turnover compared with 21% last year. Textile exports reduced to
R30 million (2002: R58 million), a decrease of 48%.
The strength of the Rand over the reporting period has been a major contributing
factor towards the decline in profitability. It has impacted negatively on
exports, for obvious reasons, and has caused substantial import substitution,
resulting in low margins being experienced for the company"s products. This is
especially apparent in the Frame Textile Group, where revenues amounted to R769
million, which is 21% lower than last year.
This resulted in Frame"s operating income amounting to R29,4 million, a
reduction of 63%. Apparel revenues reflected a marginal increase albeit at very
tight margins.
Divisions that source product offshore benefited from the firmer Rand. This
resulted in increased profit contributions from Seartec/ Sharp Electronics and
Prima Toys.
Commentary
Whilst most retailers have signed up to the Proudly South African concept, and
have agreed to source at least 75% from South African manufacturers, margins are
under pressure. The Department of Trade & Industry needs to urgently address the
implementation of the Country of Origin labelling programme and also needs to
impose higher customs duties to coincide with its original agreement with the
World Trade Organisation. We are currently far ahead of the requirements of that
body. This would enable us to protect local industry and its labour force.
Outlook to June 2004
Whilst interest rates have reduced to more acceptable levels and would appear to
be maintaining these levels for the remainder of the 2004 calendar year, the
volatility of the value of the Rand against the currencies of our main trading
partners, specifically the United States dollar, is severely impacting on
profitability. Until such time as the Rand reduces its level of volatility, and
once again gradually depreciates against the usual basket of currencies, it will
inhibit Seardel from achieving acceptable returns.
Separation of Chief Executive Officer and Chairperson
In terms of the new JSE Securities Exchange Listings Requirements, it is
necessary to separate the duties of the Chief Executive Officer and Chairperson.
In order to comply with this requirement the board is pleased to announce the
appointment of Mr Neil Lazarus SC, a non-executive director, as Chairperson of
the group, with Dr Aaron Searll retaining the portfolio of Chief Executive
Officer.
Notes
1. Accounting policies
The unaudited consolidated financial statements of the group have been prepared
on the historical cost basis in accordance with South African statements of
Generally Accepted Accounting Practice and the requirements of the South African
Companies Act using the accounting policies detailed in the annual report for
the year ended 30 June 2003 and in terms of AC127. Diluted earnings in respect
of the prior year are provided for in terms of AC104.
2. Capital expenditure and commitments
Net capital expenditure during the period under review amounted to R45,3 million
(2002: R56,9 million). There are no further commitments in respect of contracted
capital expenditure as at 31 December 2003 (2002: R75,0 million).
3. Contingent liabilities
There are contingent liabilities in respect of guarantees furnished by the
company and/or its subsidiaries for mortgage bonds, surety bonds, housing loans,
bank facilities, leases and normal business commitments of subsidiary companies.
Signed for and on behalf of the board in Cape Town
DR A SEARLL D.B.A. D JACOBSON C.A.(S.A.)
Chief Executive Officer Financial Director
26 February 2004
Registration No. 1968/011249/06.
Incorporated in the Republic of South Africa.
Seardel: SER: ZAE000029815 SRN: ZAE000030144
The company"s shares are listed under the Cyclical Consumer Goods - Household
Goods and Textiles Sector of the JSE Securities Exchange, South Africa.
Directors N N Lazarus** (Chairman), A Searll (C.E.O.), K A G Blumberg**, T
Eboka**, A D Jacobson, M C Ramaphosa**, W Simeoni. (** indicates non-executive)
Secretary and Registered office L A Clohessy, 2nd Floor, Seardel House, Alphen
Park, Constantia Main Road, Constantia 7806, Cape Town
Transfer secretaries Computershare, 70 Marshall Street, Johannesburg 2001 (P O
Box 1053 Johannesburg 2000)
Date: 26/02/2004 02:09:56 PM Produced by the JSE SENS Department
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