| Tue 21 Sep 2004, 10:55 | | AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2004. |
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SEARDEL - AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2004.
Seardel Investment Corporation Limited
Registration number 1968/011249/06
SER: ZAE000029815
SRN: ZAE000030144
Audited results for the year ended 30 June 2004 prepared in accordance with
generally accepted accounting practices.
FINANCIAL CALENDAR
Annual General Meeting
25 October 2004 at 11.00 at the company`s registered office:
2nd Floor, Seardel House, Alphen Park, Constantia Main Road, Constantia 7806,
Cape Town
Dividend
- Dividend of 14 cents per share proposed and to be confirmed at the Annual
General Meeting.
- Last day to trade: cum. dividend Friday 12 November 2004.
- Ex dividend trades from Monday 15 November 2004.
- Record date: Friday 19 November 2004.
- Payment date: Monday 22 November 2004.
- Share certificates may not be dematerialised or rematerialised between
Monday 15 November 2004 and Friday 19 November 2004, both days inclusive.
Reports 2005
Interim for six months ending 31 December 2004 published February 2005. Annual
for year ending 30 June 2005 published September 2005.
Administration
Registered office: 2nd Floor, Seardel House, Alphen Park, Constantia Main Road,
Constantia 7806, Cape Town
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 Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg 2001
P O Box 1053, Johannesburg, 2000/ P.O. Box 61051, Marshalltown, 2107
Telephone: +27-11-3705000
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.
FINANCIAL HIGHLIGHTS YEAR ENDED 30 JUNE
Rand thousands
Unless otherwise indicated 2004 2003 % Change
Revenue 3 793 586 4 031 047 -5,9
Income before taxation 131 778 112 784 +16,8
Capital and reserves 1 172 668 1 111 713 +5,5
(including negative goodwill)
Total tangible assets 2 290 900 2 433 207 -5,8
(excluding cash)
Return on total tangible 7,8% 7,2%
assets
Return on shareholders` 6,8% 5,1%
interest
Inventory as a percentage of 18,9% 19,6%
revenue
Statistics per share
In cents, where applicable 2004 2003 % Change
Headline earnings 60,6 71,8 -15,6
Earnings 89,6 79,6 +12,6
Proposed dividend 14,0 14,0 -
Proposed dividend cover on 4,3 5,1 -15,6
headline earnings
Operating cash flow 195 111 +75,7
Tangible net asset value 915 866 +5,7
Market price - 30 June 2004
Ordinary 215 330
N Ordinary 215 314
Price range - High
Ordinary 335 420
N Ordinary 330 415
Price range - Low
Ordinary 185 200
N Ordinary 200 215
REPORT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER
We have pleasure in submitting our report to shareholders on the results and
activities of your group in respect of the year ended
30 June 2004. Group activities comprise textile and nonwoven textile
manufacturing (industrial products), apparel manufacturing, office automation
and consumer electronics distribution, toy distribution, and travel and property
investments.
GROUP REVENUE, CAPITAL AND EARNINGS
Revenue amounted to R3,8 billion, a decrease of 5,9% from last year. The
reduction mainly occurred in the textile division, where revenue fell by R316
million. Income before taxation increased to R131,8 million (R112,8 million last
year), an increase of 16,8%. This includes the amortisation of negative goodwill
arising from the acquisition of the Frame Textile Group. Income after taxation
amounted to R114,8 million (R91,4 million last year), an increase of 25,6%.
Seardel was negatively impacted by the strength of the Rand. However, the Sharp
Electronics and Prima Toys divisions performed substantially better than last
year as most of their products are imported. The benefit of our diversification
policy stood the group in good stead.
Finance costs of R83,0 million (R97,1 million last year) reduced by R14,1
million, resulting from the improvement in the working capital ratio.
Headline earnings per share amounted to 60,6 cents (71,8 cents last year), a
reduction of 15,6%.This was to a large extent due to the increase in the
weighted average number of shares in issue to 128,2 million from the restated
number last year of 114,8 million.
The balance sheet reflects the group`s increased strength.
Group capital and reserves (including negative goodwill and the consolidation of
the staff share trust) amounts to R1 172,7 million (last year R1 111,7 million),
an increase of R61 million or 5,5%. Tangible net asset value per share, after
taking cognisance of the new accounting requirements and the increased number of
weighted shares in issue, amounts to 915 cents (866 cents last year). Interest-
bearing debt reduced to R341,1 million (R493,7 million last year), a substantial
reduction of R152,6 million. The debt to group equity ratio is now down to 29%
compared to 44% last year.
TRADING CONDITIONS AND EXPORTS
As anticipated, 2004 was a challenging year. Trading conditions for the first
eight months of the year were difficult. The strength of the Rand was a major
contributing factor. Trading has improved during the last four months to June
2004.
Local retailers used the Rand`s strength to import products directly. Exports of
apparel reduced by 13,5% to R338 million, (R391 million last year), constituting
19% of apparel business, compared to 22,7% the previous year. The group`s long-
term objective with regard to apparel exports remains at 25% of production.
Direct textile exports reduced by 46,1% to R57,1 million (last year R105,9
million).
Total exports of both clothing and textiles amounted to R395 million (R497
million last year), a reduction of 20,4%.
DIVIDEND POLICY
Positive cash flows have resulted in a significant reduction in borrowings,
which has allowed the group`s dividend cover policy to be revised to 4,3 times
on headline earnings. The board has therefore proposed the payment of an
unchanged dividend of 14 cents per share in respect of the year under review,
which proposal will require confirmation at the annual general meeting.
SOUTH AFRICAN SOCIO-ECONOMIC SCENARIO
Imports
The continued strong performance of the Rand against the currencies of our major
export markets remains a key obstacle to sustainable exports. The extraordinary
increases in the levels of imports continue unabated. Imports of clothing for
the period January to May 2004 were R1,34 billion, an increase of 59% on the
R843,9 million for the full twelve month period in 2003. Projecting this trend,
the increase of imported goods is likely to exceed the hundred percent level for
2004. This is an untenable state of affairs which will have a damaging impact on
domestic manufacturers and jobs.
During the period under review, the total volume of all textile category imports
from all countries increased by some 12%, while the value decreased by 3%.
Approximately 85% of all knitted and woven imports in volume and 73% in value
originated from China.
In volume terms, imports from China increased by 92%, totalling 53,6 million
units in the three month period from January to March 2004. Of the total value
of imports of apparel for the period January to May 2004 (R1,34 billion) China
accounts for R992,4 million. This makes its share of total garment imports to
South Africa a staggering 74,1%. The Clothing Trade Council (CloTrade) has
estimated that on an annualised basis this equates to approximately 90 000 jobs.
Although it would be unrealistic to believe all imports could be replaced, it
would still equate to at least 45 000 additional jobs if the level of imports
returned to the level of 2003. In global terms China has now increased its share
of the world apparel market in the categories released from quotas from 9% in
2001 to 65% in March 2004, whilst prices have been reduced by 48% on average.
Last year 20 000 jobs were lost in the clothing and textile industries, causing
economic hardship for up to 200 000 dependants.
It is a matter of the utmost urgency for our government and the World Trade
Organisation to implement immediate measures to deal with the pending crisis
associated with the expiry of the quotas. CloTrade has called for the
implementation of automatic and seamless transitional safeguard mechanisms to
prevent massive disruptive surges in trade from countries such as China. In this
regard the reintroduction of a minimum specific duty regime is strongly
recommended.
We welcome the remarks recently made by the Minister of Trade & Industry, Mr
Mandisi Mpahlwa: `China is already flooding the South African clothing and
textile market with goods produced by exploited workers. Jobs need to be
protected - that`s the first thing.`
Industry Bodies
The Clothing Industry Export Council (CIEC) continues to operate effectively.
CloTrade 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 an employer body
representing the industry at NEDLAC and in labour/SETA matters. Its membership
comprises the regional associations, such as the Cape Clothing Association and
the Natal Clothing Manufacturers Association.
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 wages are
brought into line.
A sensible agreement on a flexible wage model for the industry at large has now
also become a priority. All stakeholders are urged to give this matter urgent
attention as both compliance and regulated flexibility should feature in our
labour market policies.
Textile and Clothing Industry Development Council (TCDC)
The TCDC was formally established during the first quarter of this year
following lengthy deliberations between government, the Textile Federation and
the clothing industry. The main purpose of the Council is to provide a platform
for government and the sectors to jointly develop and manage sustainable
strategies for the clothing and textile industries. In accordance with the long-
standing position held by the previous Minister of Trade & Industry, Mr Alec
Erwin, the TCDC represents, for the first time, a consensus decision-making body
charged with the duty to recommend policy to the Minister for the clothing and
textile pipeline.
Customs Control
An industry forum has been created in which industry stakeholders, including
SARS, continue to meet on a regular basis. 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, and the
elimination of all concessions on second-hand clothing.
South African Customs Union (SACU)
Negotiations are ongoing with the United States with a view to establishing a
bilateral free trade agreement between the United States and the SACU. Progress
has, regrettably, been very slow and the goal of an agreement by the end of 2004
appears remote.
Africa Growth and Opportunity Act (AGOA)
It was recently announced in Washington that all parties had agreed to introduce
the AGOA Acceleration Act. This will enact the key aspects of the AGOA III
discussions. The legislation provides for the extension of AGOA`s authorisation
from 2008 to 2015.
Duty Credit Certificate Scheme (DCCS)
A special task team was established to formulate a joint textile and clothing
industry position to government on the future structure of the DCCS. The current
scheme is due to expire at the end of March 2005. The services of Dr Justin
Barnes have been retained to facilitate these deliberations. His experience in
developing the Motor Industry Development Program will be valuable in drafting
and formulating a World Trade Organisation compliant scheme to succeed the DCCS
after March 2005. This task is critical to the continued viability of our
exports. The conclusion and finality of all aspects of this scheme is a matter
of the utmost urgency, as exporters are obliged to quote prices some six to nine
months in advance. The current state of uncertainty does not encourage a long-
term view and commitment to export markets, and is potentially highly
prejudicial to the job security of significant numbers of employees.
Country of Origin Labelling
After many years of lobbying, legislation has finally been tabled which will
make it illegal for any item of clothing to be offered for sale in South Africa
without bearing a label that can be clearly seen and which indicates its country
of origin. This will apply to both imported goods as well as goods manufactured
domestically.
Importers of garments will have to ensure that all imported garments have a sewn
in label in a conspicuous position indicating the country of origin together
with their SARS Customs Importer`s registration number. Failure to meet these
requirements will result in SARS Customs detaining the goods at the port of
entry.
Proudly South African Campaign
It is pleasing to note that industry stakeholders, including organised labour,
are continuing to promote this campaign in order to counter the effects of
imported apparel.
Istanbul Declaration
The Istanbul Declaration was recently signed by textile and clothing employer
bodies from 33 different countries. The Declaration was presented to the World
Trade Organisation, requesting a three year extension to the 1st January 2005
withdrawal of quotas from China. As anticipated, the flood of cheap imports from
China threatens to swamp world trade, leading to what was recently described as
a `catastrophic transfer of wealth` and the loss of nearly 30 million jobs
worldwide. The transition to open textile and clothing markets should proceed
with caution and in a manner that serves the original WTO intent to create
conditions of fair, open and equitable trade. The Declaration specifically says
that the intent of the WTO was `...specifically to benefit developing and least
developed countries, many of which will now suffer greatly from the current
quota phase-out`. Both CloTrade and TexFed are signatories to the Declaration
and will continue to play a role in lobbying and influencing decision makers to
establish a more equitable trade policy environment.
Clothing Benchmarking and Cluster Development Initiatives
In order to counter the threats confronting the clothing industry and to
maximise the opportunities that do exist, a joint venture has been established
between the Western Cape Provincial government and regional clothing
manufacturers. The intention is to conduct benchmarks for firms in the industry,
to explore joint interventions, to enhance competitiveness and to foster greater
strategic collaboration within the industry.
A further initiative launched on 21 June 2004 was a Cape Clothing Cluster that
will follow the same principles that have been used very successfully in the
automotive industry in KwaZulu-Natal. Dr Justin Barnes is leading the
establishment of the clothing cluster initiative. At the launch in Cape Town he
emphasised that the program will not be a `quick fix` for the industry`s
problems. It will however, over a period of time, fundamentally upgrade the
competitiveness of participating firms through benchmarking, shared learning and
collective knowledge creation processes.
STRUCTURE OF THE GROUP
The majority of the textile and clothing divisions are located in KwaZulu-Natal
and the Western Cape, as is Prima Toys. Sharp Electronics primary locations are
in the Western Cape and Gauteng and Harven Manufacturing Company is based in
Bulawayo, 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 reinsured.
HUMAN RESOURCES AND EMPOWERMENT
It has always been group policy to be an equal opportunity employer. Promotion
and succession planning is therefore on merit at all levels of activity. Skills
transfer and empowerment are being addressed within this framework.
KEY SUCCESS FACTORS
The key success factors of the group are its personnel and management, combined
with excellent product ranges, emphasis on consumer service, quality and
innovative merchandise and customer relationships of long standing. 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. Management and staff are fully committed to the group`s stated
objectives, good corporate governance, its risk management philosophy and its
mission statement, all of which are published documents.
ENVIRONMENTAL ISSUES, TECHNOLOGY, RESEARCH AND DEVELOPMENT
Our textile divisions are ISO 9001/2000 accredited and continuously strive to
attain ISO 14000, a process which we hope to achieve during the year. We
continue with our initiative together with the University of Natal to meet the
concept of cleaner production and waste minimisation, and ISO 9001/2000 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 level of investment in the latest technology and new
equipment to ensure that it will sustain its high standards in its manufacturing
processes. Seardel constantly strives to ensure that its products are
environmentally friendly and non-toxic, and continues to ensure that it has the
manufacturing capacity and technological expertise to meet customer demands.
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 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.
Our commitment to enhancing the environment is evidenced by the 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 2005 FINANCIAL YEAR
The group has been actively and aggressively reorganising its manufacturing
resources during the past year. This has unfortunately led to job losses in
certain areas. Resulting from this exercise is a leaner organisation that is
better geared to take advantage of any increase in trading activity.
Notwithstanding the strength of the Rand the group is reasonably well placed for
the 2005 financial year.
The inflation targets set by the South African Reserve Bank have been attained.
Interest rates are now more realistic. Both these factors bode well for the
South African economy going forward. It is perhaps necessary to further
stimulate growth, which would create more job opportunities. Whilst the group,
in the main, performed well under difficult conditions during the year under
review, certain areas require further attention. It is essential that suitable
margins are obtained on all the group`s products. The return on total tangible
assets is still not at a satisfactory level.
We are aware that returns to stakeholders need to be improved. The achievement
of this objective will be an important focus for management and the board.
Revenue for the first two months of the 2005 financial year amounted to R643
million, an increase of 1,8% compared with last year.
ACKNOWLEDGMENTS
We would like to express our appreciation and thanks to our 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.
Our thanks 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.
NEIL LAZARUS, (Chairman)
AARON SEARLL, (Chief Executive Officer)
Cape Town, 27 September 2004
Consolidated Income Statement for year ended 30 June
Rand thousands 2004 2003
Revenue 3 793 586 4 031 047
Cost of revenue (2 901 094) (3 152 284)
Gross profit 892 492 878 763
Other operating income 109 336 131 946
Distribution costs (261 644) (280 176)
Administrative and other expenses (560 508) (555 743)
Amortisation of negative goodwill 35 135 35 135
Profit from operations 214 811 209 925
Net finance charges (83 033) (97 141)
Income before taxation 131 778 112 784
Taxation (16 945) (21 380)
Income attributable to shareholders R114 833 R91 404
Earnings per share - cents 89,6 79,6
Diluted earnings per share - cents 88,9 77,8
Headline earnings per share - cents 60,6 71,8
Diluted headline earnings per share - cents 60,1 70,2
Dividend per share - cents 14,0 15,0
Dividend cover - headline earnings 4,3 4,8
Weighted average number of shares in issue 128 215 114 795
- 000`s
Consolidated Balance Sheet at 30 June
Rand thousands 2004 2003
ASSETS
Non-current assets 560 048 552 243
Property, plant and equipment 814 672 840 638
Negative goodwill (298 660) (333 795)
Interest in subsidiary companies
Investments 25 782 25 866
Long-term receivables 2 623 1 467
Deferred taxation 15 631 18 067
Current assets 1 659 972 1 689 345
Inventory 716 867 788 868
Trade and other receivables 730 956 776 368
Cash and cash equivalents 212 149 124 109
TOTAL ASSETS R2 220 020 R2 241 588
EQUITY AND LIABILITIES
Capital and reserves 874 008 778 032
Share capital 59 738 59 738
Treasury shares (10 121) (9 426)
Reserves 824 391 727 606
Shareholders` interest 874 008 777 918
Outside shareholders` interest - 114
Non-current liabilities 565 108 563 200
Interest-bearing liabilities 399 669 406 976
Deferred liabilities 61 885 56 334
Deferred taxation 103 554 99 890
Current liabilities 780 904 900 356
Interest-bearing liabilities 135 504 123 845
Trade and other payables 614 187 685 866
Bank overdrafts 18 094 86 956
Taxation payable 13 081 3 633
Dividend to shareholders 38 56
TOTAL EQUITY AND LIABILITIES R2 220 020 R2 241 588
Net asset value (including intangible 1 172 668 1 111 713
assets)
Net asset value per share - cents 915 866
Consolidated Cash Flow Statement for year ended 30 June
Rand thousands 2004 2003
Net cash flow from operating activities 232 075 111 943
Cash generated from operations 246 393 343 116
Working capital changes 91 106 (114 051)
Net finance charges (83 033) (97 141)
Taxation paid (1 397) (2 126)
Dividend paid (17 982) (15 333)
Contributions for post employment medical (3 109) (2 846)
benefits
Investment income 97 324
Net cash flow from investing activities (78 830) (109 627)
Acquisitions of property, plant and (81 548) (113 556)
equipment
Proceeds on disposal of plant, property and 3 874 5 126
equipment
Increase in long-term receivables (1 156) (1 380)
Decrease in investments - 183
Net cash flow from financing activities 3 657 (49 215)
Decrease in long-term borrowings (7 307) (70 681)
Increase/(decrease) in short-term 11 659 (31 298)
borrowings
Proceeds from issue of shares - 52 764
Increase in treasury shares (695) -
Net increase/(decrease) in cash and cash 156 902 (46 899)
equivalents
Cash and cash equivalents at beginning of 37 153 84 052
year
Cash and cash equivalents at end of year R194 055 R37 153
*Operating cash flow per share - cents 195 111
* Net cash flow from operating activities plus dividend paid, divided by the
weighted average number of shares in issue.
CONSOLIDATED CHANGES IN EQUITY STATEMENT (first section)
Share Share Treasury
Capital Premium Shares
Balance 30 June 2002 6 974 - (8 873)
As previously reported -
Change in accounting policy (8 873)
Impairment of listed investments
Issue of N ordinary shares 67 52 697
Share repurchases (654)
As previously stated -
Change in accounting policy (654)
Share options exercised 101
As previously stated -
Change in accounting policy 101
Net income for the year
Net income for the year as previously
stated
Prior year adjustment
Dividend
Dividend as previously reported
Change in accounting policy
Balance 30 June 2003 7 041 52 697 (9 426)
Impairment of listed investments
Share repurchases (907)
Share options exercised 212
Net income for the year
Dividend
Balance 30 June 2004 R7 041 R52 697 (R10 121)
CONSOLIDATED CHANGES IN EQUITY STATEMENT
(second section of table, showing totals)
Other Retained
Reserves Income Total
Balance 30 June 2002 29 777 617 280 645 158
As previously reported
Change in accounting policy
Impairment of listed investments (9 988) (9 988)
Issue of N ordinary shares 52 764
Share repurchases (654)
As previously stated
Change in accounting policy
Share options exercised 101
As previously stated
Change in accounting policy
Net income for the year 91 404 91 404
Net income for the year as previously 105 806
stated
Prior year adjustment 14 402 (14 402) 14 402
Dividend (15 269) (15 269)
Dividend as previously reported (16 070)
Change in accounting policy 801
Balance 30 June 2003 34 191 693 415 777 918
Impairment of listed investments (84) (84)
Share repurchases (907)
Share options exercised 212
Net income for the year 114 833 114 833
Dividend (17 964) (17 964)
Balance 30 June 2004 R34 107 R790 284 R874 008
RECONCILIATION OF EARNINGS AND HEADLINE EARNINGS
2004
Income Weighted average Per share
R000`s number of shares cents
000`s
Weighted average number of shares 128 215
Number of shares in issue 133 917
Treasury shares (5 702)
Diluted weighted average number of 129 240
shares
Weighted average number of shares 128 215
Share options exercised, not yet 1 025
delivered
Basic earnings
Income attributable to shareholders 114 833 128 215 89,6
Diluted earnings
Income attributable to shareholders 114 833 129 240 88,9
Headline earnings
Reconciliation between earnings and
headline earnings
Income attributable to shareholders 114 833
Amortisation of negative goodwill (35 135)
Surplus on disposal of plant and (2 037)
equipment
Headline earnings 77 661 128 215 60,6
Diluted headline earnings 77 661 129 240 60,1
RECONCILIATION OF EARNINGS AND HEADLINE EARNINGS (continued)
2003
Income Weighted average Per share
R000`s number of shares cents
000`s
Weighted average number of shares 114 795
Number of shares in issue 120 270
Treasury shares (5 475)
Diluted weighted average number of 117 482
shares
Weighted average number of shares 114 795
Share options exercised, not yet 2 687
delivered
Basic earnings
Income attributable to shareholders 91 404 114 795 79,6
Diluted earnings
Income attributable to shareholders 91 404 114 795 77,8
Headline earnings
Reconciliation between earnings and
headline earnings
Income attributable to shareholders 91 404
Amortisation of negative goodwill (35 135)
Impairment of investment 14 402
Impairment of plant and equipment 12 000
Surplus on disposal of plant and (1 082)
equipment
Tax effect adjustments 829
Headline earnings 82 418 114 795 71,8
Diluted headline earnings 82 418 117 482 70,2
ACCOUNTING POLICIES
The financial statements are prepared in accordance with South African
Statements of Generally Accepted Accounting Practice and the requirements of the
South African Companies Act.
The financial statements have been prepared on the historical cost basis, and
incorporate the following principal accounting policies, which are consistent
with those applied in the previous year, other than where stated.
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
Investment in subsidiaries
Subsidiaries are those entities over whose financial and operating policies the
group has the power to exercise control, so as to obtain benefits from their
activities.
The group financial statements incorporate the assets, liabilities and results
of the operations of the company and its subsidiaries. The results of
subsidiaries acquired and disposed of during a financial year are included from
the effective dates of acquisition and to the effective dates of disposal. Where
necessary, the accounting policies of subsidiaries are changed to ensure
consistency with the policies adopted by the group.
In view of the uncertainty relating to the group`s investment in its Zimbabwean
subsidiary, the directors maintain their decision not to consolidate its results
or financial position. Income is accounted for on a cash dividend received basis
and the investment in the subsidiary has been written down to a nominal value.
As the company controls the employee incentive scheme, this entity has been
consolidated into the group financial statements for the first time this year.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains arising from
intra-group transactions, are eliminated in preparing the consolidated financial
statements.
Goodwill and negative goodwill
Goodwill is any excess of the cost of an acquisition over the group`s interest
in the fair value of the identifiable assets and liabilities acquired.
Goodwill is carried at cost, less accumulated amortisation and accumulated
impairment losses. Goodwill is amortised on a straight-line basis over its
estimated useful life.
The calculation of the gain or loss on disposal of an entity includes the
unamortised balance of the goodwill relating to the entity disposed of.
Negative goodwill arising on an acquisition represents any excess of the fair
value of the group`s share of the identifiable net assets acquired over the cost
of the acquisition. To the extent that negative goodwill relates to an
expectation of future losses and expenses that are identified in the plan of
acquisition and can be measured reliably, but which do not represent
identifiable liabilities at the date of acquisition, it is recognised in the
income statement when the future losses and expenses are recognised. Any
remaining negative goodwill, not exceeding the fair values of the non-monetary
assets acquired, is recognised in the income statement over the useful life of
12,5 years. The balance of negative goodwill in excess of the fair values of the
non-monetary assets acquired is recognised immediately in the income statement.
PROPERTY, PLANT AND EQUIPMENT
Land is not depreciated while buildings are depreciated over 50 years. Land and
buildings are revalued by an independent valuer every five years.
Other items of property, plant and equipment are stated at historical cost less
accumulated depreciation and accumulated impairment losses.
Where an item of property, plant and equipment comprises major components with
different useful lives, the components are accounted for as separate items of
property, plant and equipment. For plant and equipment, depreciation is provided
on a straight line basis over the estimated useful lives of assets.
IMPAIRMENT OF ASSETS
At each balance sheet date, the group reviews the carrying value of its tangible
and intangible assets to determine whether there is any indication that those
assets have suffered an impairment loss.
Whenever the carrying amount of an asset exceeds its recoverable amount, an
impairment loss is recognised in the income statement. The recoverable amount of
an asset is the higher of its selling price and value in use. The net selling
price is the amount obtainable from the sale of an asset in an arm`s length
transaction while value in use is the present value of estimated future cash
flows expected to arise from the continuing use of an asset and from its
disposal at the end of its useful life. Recoverable amounts are estimated for
individual assets, or if this is not possible, for the cash-generating unit.
Impairment losses recognised in prior years are reversed when there is an
indication that these losses no longer exist or have decreased. This reversal is
recorded in the income statement.
TAXATION
Current tax comprises tax payable calculated on the basis of the expected
taxable income for the year, using the tax rates enacted at the balance sheet
date, and any adjustment of tax payable for previous years.
Deferred tax is provided using the balance sheet liability method, based on
temporary differences. Temporary differences are differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
their tax base. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets and
liabilities using tax rates enacted or substantively enacted at the balance
sheet date. Deferred tax is charged to the income statement except to the extent
that it relates to a transaction that is recognised directly in equity, or a
business combination that is an acquisition. The effect on deferred tax of any
changes in tax rates is recognised in the income statement, except to the extent
that it relates to items previously charged or credited directly to equity.
A deferred tax asset is recognised to the extent that it is probable that future
taxable profits will be available against which the associated unused tax losses
and deductible temporary differences can be utilised. Deferred tax assets are
reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Secondary Tax on Companies (STC) paid on net dividends paid is recognised as a
tax charge in the year it is incurred.
INVENTORY
Raw materials, work-in-progress and finished goods are stated at the lower of
cost and net realisable value. Cost is determined on the first-in, first-out
basis and includes direct material costs together with appropriate allocations
of labour and overheads.
PROVISIONS
Provisions are recognised when the group has a present legal or constructive
obligation as a result of past events, for which it is probable that an outflow
of economic benefits will occur, and where a reliable estimate can be made of
the amount of the obligation. Where the effect of discounting is material,
provisions are discounted. The discount rate used is a pre-tax rate that
reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
BANK BALANCES
Actual bank balances, debit or credit, are reflected. Outstanding cheques and
deposits are included in trade and other payables and cash resources,
respectively.
FINANCIAL INSTRUMENTS
Measurement
Financial instruments are initially measured at cost, which includes transaction
costs. Subsequent to initial recognition these instruments are measured as
follows:
Investments
Listed investments classified as available-for-sale financial assets are carried
at market value, which is calculated by reference to stock exchange quoted
selling prices at the close of business on the balance sheet date. Unlisted
investments are shown at fair value, unless their fair value cannot be reliably
determined, in which case they are shown at cost less accumulated impairment
losses.
Investments that meet the criteria for classification as held-to-maturity
financial assets are carried at amortised cost.
The revaluation differences are taken directly to reserves.
Trade and other receivables
Trade and other receivables originated by the group are stated at cost less
provision for doubtful debts.
Cash and cash equivalents
Cash and cash equivalents are measured at fair value.
Financial liabilities
Non-derivative financial liabilities are recognised at amortised cost,
comprising original debt less principal payments and amortisations.
Derivative instruments
Derivative instruments are measured at fair value.
Gains and losses on subsequent measurement
Gains and losses from measuring the hedging instruments relating to a fair value
hedge at fair value are recognised immediately in net profit or loss.
Gains and losses from remeasuring the hedging instruments relating to a cash
flow hedge to fair value are initially recognised directly in equity. If the
hedged firm commitment or forecast transaction results in the recognition of an
asset or a liability, the cumulative amount recognised in equity up to the
transaction date is adjusted against the initial measurement of the asset or
liability.
Where the hedging instrument or hedge relationship is terminated but the hedged
transaction is still expected to occur, the cumulative unrealised gain or loss
at that point remains in equity and is recognised in accordance with the above
policy when the transaction occurs. If the hedged transaction is no longer
expected to occur, the cumulative unrealised gain or loss is recognised in the
income statement immediately.
Offset
In the instance that the group has a legal right to apply an amount due from a
third party against the amount due to a creditor, provided that there is an
agreement among the three parties that clearly establishes the contractual right
to set-off, and the group intends either to settle on a net basis, or to realise
the asset and settle the liability simultaneously, the related amounts are
offset and the net amounts reported in the balance sheet.
REVENUE
Revenue comprises, in the main, net invoiced sales excluding value added tax,
and is stated net of transactions with group companies.
Revenue recognition
Turnover is recognised when the significant risks and rewards of ownership have
been transferred to the buyer.
Interest income is accrued on a time basis, by reference to the principal
amounts outstanding and at the interest rate applicable.
Dividend income from investments is recognised when the right to receive payment
is established.
Dividend income from Harven Manufacturing Company (Pvt) Limited is accounted for
only when received, due to the difficulties in remitting dividends from
Zimbabwe.
Duty Credit Certificate income is recognised as income in the same period as the
related exports.
EARNINGS PER SHARE
Earnings per share is based on earnings attributable to shareholders and is
calculated on the weighted average number of shares in issue during the
financial year. Headline earnings per share is based on earnings attributable to
shareholders, excluding any non-trading and capital items and the tax effect
thereon, and is calculated as above.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are recorded at the rate of exchange ruling
at the transaction date. Monetary assets and liabilities in foreign currencies
are translated into South African currency at rates of exchange ruling at the
balance sheet date. Translation gains and losses, whether realised or
unrealised, are taken to income.
LEASES
Finance leases
Leases that transfer substantially all the risks and rewards of ownership of the
underlying asset to the group are classified as finance leases. Assets acquired
in terms of finance leases are capitalised at the lower of fair value and the
present value of the minimum lease payments at inception of the lease, and
depreciated over the estimated useful life of the asset. The capital element of
future obligations under the leases is included as a liability in the balance
sheet. Lease payments are allocated using the effective interest rate method to
determine the lease finance cost, which is charged against income over the lease
period, and the capital repayment, which reduces the liability to the lessor.
Operating leases
Leases where the lessor retains the risks and rewards of ownership of the
underlying asset are classified as operating leases. Payments made under
operating leases are charged against income on a straight line basis over the
period of the lease.
EMPLOYEE BENEFITS
Short-term employee benefits
The cost of all short-term employee benefits is recognised during the period in
which the employee renders the related service.
The provisions for employee entitlements to wages, salaries, annual and sick
leave represent the amount that the group has a present obligation to pay as a
result of employees` services provided to the balance sheet date. The provisions
have been calculated at undiscounted amounts based on current wage and salary
rates.
Retirement fund
The group contributes to several defined contribution plans. Contributions to
defined contribution funds are charged against income as incurred.
Medical aid
Where the group has an obligation to provide post retirement medical aid
benefits to employees, the group recognises the costs of these benefits in the
year in which the employees render the service.
Actuarial gains or losses in respect of the defined benefit medical plan are
recognised as income or expense.
Past service costs are recognised as an expense on a straight line basis over
the average period until the benefits become vested. To the extent that the
benefits are already vested, past service costs are recognised immediately.
Equity compensation benefits
The group grants share options to certain employees under
an employee share plan. Other than costs incurred in administering the schemes,
which are expensed as incurred, the scheme does not result in an expense to the
group.
DIVIDENDS TO SHAREHOLDERS
Dividends and related STC charges are accounted for in the period in which the
dividends are declared.
COMPARATIVE FIGURES
Where necessary, comparative figures have been restated to accord with current
year classifications and as a result of changes in accounting policies.
The valuation adjustments on financial instruments, separately disclosed on the
face of the income statement in the prior year, has been reclassified to cost of
