| Fri 25 Feb 2005, 8:44 | | Group Interim Report |
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Seardel Investment Corporation Limited - Group Interim Report To Shareholders
For The Six Months Ended December 2004
SEARDEL INVESTMENT CORPORATION LIMITED
(Registration Number 1968/011249/06)
(Incorporated In The Republic Of South Africa)
(The company`s shares are listed under the Cyclical Consumer Goods - Household
Goods & Textiles Sector of the JSE Securities Exchange, South Africa)
ISIN NUMBER: ZAE 000029815: SHARE CODE SER
ISIN NUMBER: ZAE 000030144: SHARE CODE SRN
SEARDEL; SEARDEL-N
GROUP INTERIM REPORT TO SHAREHOLDERS FOR THE SIX MONTHS ENDED DECEMBER 2004.
Directors: N N Lazarus* (Chairman), A Searll (CEO), K A G Blumberg*, A D
Jacobson, M C Ramaphosa*, W Simeoni (Austrian). (*Indicates Non-Executive.)
Secretary and Registered Office:
L A Clohessy, 2nd Floor, Seardel House, Alphen Park,
Constantia Main Road, Constantia 7806, Cape Town, South Africa.
Transfer Secretaries:
Computershare, 70 Marshall Street, Johannesburg 2001.
P O Box 61051, Marshalltown 2107. Telephone: +27-11-3705000
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/
Auditors: KPMG Inc.
Attorneys: Sonnenberg Hoffmann & Galombik Inc.
FINANCIAL HIGHLIGHTS SIX MONTHS ENDED 31 DECEMBER
% Change
Revenue R2 045,5 million +1,5
Profit from operations R72,8 million +1,2
Income before taxation and R37,8 million +59,3
negative goodwill
Income before taxation R37,8 million -8,4
Headline earnings per share 22,3 cents +42,9
Earnings per share 22,3 cents -23,1
Capital and reserves R1 150,0 million +3,4
The unaudited consolidated financial statements of the group for the six months
ended 31 December 2004 with comparative figures for the corresponding period
last year, together with the audited financial statements for the financial year
ended 30 June 2004, are set out below.
INCOME STATEMENT
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
2004 2003 % Change 2004
Rand thousands (unaudited) (unaudited) (audited)
Revenue R2 045 517 R2 016 180 +1,5 R3 793 586
Profit from 72 844 71 968 +1,2 179 676
operations
Amortisation of - 17 568 35 135
negative goodwill
Income before 72 844 89 536 -18,6 214 811
finance charges -
Note 1(b)
Net finance charges (35 019) (48 226) (83 033)
Income before 37 825 41 310 -8,4 131 778
taxation - Note 1(b)
Taxation (9 540) (3 450) (16 945)
Income attributable R28 285 R37 860 -25,3 R114 833
to shareholders -
Note 1(b)
STATISTICS PER SHARE
In cents,
where applicable
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
Weighted average number 126 568 130 443 128 215
of shares in issue (000)
Weighted average number 127 593 132 130 129 240
of diluted shares in
issue (000)
Headline earnings 22,3 15,6 +42,9 60,6
Earnings 22,3 29,0 -23,1 89,6
Diluted headline earnings 22,2 15,4 +44,2 88,9
Diluted earnings 22,2 28,7 -22,6 60,1
Distribution - annual - - 14,0
Distribution cover - - - 4,3
headline earnings
RECONCILIATION BETWEEN
EARNINGS AND HEADLINE
EARNINGS
Income attributable to 28 285 37 860 114 833
shareholders
Amortisation of negative - (17 568) (35 135)
goodwill
Surplus on disposal of - - (2 037)
fixed assets
Headline earnings R28 285 R20 292 R77 661
BALANCE SHEET
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
2004 2003 2004
Rand thousands (unaudited) (unaudited) (audited)
ASSETS
Non-current assets 816 445 883 193 858 708
Fixed assets 798 763 840 292 814 672
Investments - 25 851 25 782
Long-term receivables 4 482 853 2 623
Deferred taxation 13 200 16 197 15 631
Current assets 1 737 280 1 694 252 1 659 972
Inventory 719 875 728 013 716 867
Trade and other 778 363 802 549 730 956
receivables
Cash and cash equivalents 239 042 163 690 212 149
TOTAL ASSETS R2 553 725 R2 577 445 R2 518 680
EQUITY AND LIABILITIES
Capital and reserves 1 149 994 1 112 568 1 172 668
Share capital 24 347 59 738 59 738
Treasury shares (8 357) (9 426) (10 121)
Reserves - Note 1(b) 1 134 004 1 062 142 1 123 051
Shareholders` interest 1 149 994 1 112 454 1 172 668
Outside shareholders` - 114 -
interest
Non-current liabilities 518 628 559 854 565 108
Interest-bearing 357 018 409 096 399 669
liabilities
Deferred liabilities 61 975 56 376 61 885
Deferred taxation 99 635 94 382 103 554
Current liabilities 885 103 905 023 780 904
Interest-bearing loans 137 874 122 651 135 504
Trade and other payables 562 028 618 351 627 268
Bank overdrafts 185 176 163 979 18 094
Distribution to 25 42 38
shareholders
TOTAL EQUITY AND R2 553 725 R2 577 445 R2 518 680
LIABILITIES
Net asset value 1 149 994 1 112 454 1 172 668
Net asset value per share 909 853 915
- cents
RATIOS
Profitability
Profit from operations as percentage of revenue 3,6% 3,7% 4,7%
Income before taxation as percentage of revenue 1,8% 2,0% 3,5%
Income after taxation as percentage of revenue 1,4% 1,9% 3,0%
Return on total tangible assets excluding cash 7,8% 6,5% 7,8%
Return on shareholders` interest 5,6% 6,0% 6,8%
Leverage
Ratio of debt to capital and reserves 86% 103% 83%
Ratio of borrowings to capital and reserves 38% 47% 29%
Liquidity
Current ratio 2,0 1,9 2,1
Net finance charges cover - before negative 2,1 1,5 2,2
goodwill
CONSOLIDATED ABRIDGED CASH FLOW STATEMENT
SIX MONTHS ENDED 31 YEAR ENDED
DECEMBER 30 JUNE
2004 2003 2004
Rand thousands (unaudited) (unaudited) (audited)
Internal cash flow 11 396 74 709 334 487
Interest and taxation paid (51 790) (51 982) (84 430)
Transactions with shareholders (18 132) (18 763) (17 982)
Cash (utilised)/retained from (58 526) 3 964 232 075
operating activities
Investment and financing (41 382) (42 332) (79 525)
activities
(Increase)/decrease in net (R99 908) (R38 368) R152 550
borrowings
CHANGES IN EQUITY STATEMENT
Rand thousands
Share Capital Share Premium Treasury Shares
Balance 31 7 041 52 697 (9 426)
December 2003
As previously -
reported
Change in (9 426)
accounting
policy
Prior year
adjustment
Impairment of
listed
investments
Treasury shares (695)
Income
attributable to
shareholders
Balance 30 June 7 041 52 697 (10 121)
2004
Repurchase of N (29) (35 362)
shares
Goodwill on
acquisition
Treasury shares 1 764
Income
attributable to
shareholders
Distribution
Balance 31 R7 012 R17 335 (R8 357)
December 2004
CHANGES IN EQUITY STATEMENT (CONTINUED)
Rand thousands
Other Reserves Retained Income Total
Balance 31 19 789 1 042 353 1 112 454
December 2003
As previously 726 126
reported
Change in 316 227
accounting policy
Prior year 14 402 (14 402) -
adjustment
Impairment of (84) (84)
listed
investments
Treasury shares (695)
Income 60 993 60 993
attributable to
shareholders
Balance 30 June 34 107 1 088 944 1 172 668
2004
Repurchase of N (35 391)
shares
Goodwill on 787 787
acquisition
Treasury shares 1 764
Income 28 285 28 285
attributable to
shareholders
Distribution (18 119) (18 119)
Balance 31 R34 107 R1 099 897 R1 149 994
December 2004
2004 2003
Composition of other reserves
Impairment of listed investments (84) (14 402)
Capital redemption reserve fund 440 440
Surplus on disposal of subsidiary and 664 664
associated companies
Surplus on revaluation of land and buildings 33 087 33 087
R34 107 R19 789
SEGMENTED REPORTING
Segment Textiles Apparel Office Toys Industrial
and automation products
household and
textiles consumer
electronics
Six months 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
ended 31
December
Revenue % 40 38 46 47 6 7 5 5 3 3
Profit 39 41 28 26 19 17 10 12 4 4
from oper-
ations %
Total 54 55 33 33 8 8 3 2 2 2
assets %
COMMENT ON RESULTS
The segmented analysis detailed above is self-explanatory.
Revenue increased marginally by 1,5% to R2 045,5 billion, notwithstanding the
sharp decrease in export revenues arising from the strength of the Rand.
Operating income increased to R72,8 million, slightly ahead of last year.
The new accounting statement relating to negative goodwill requires that the
full remaining amount thereof is credited to equity. In order to compare like
with like, the comparative figure for 2003 of R17,6 million has not been taken
into account in respect of the following:
Pre-tax profit has increased to R37,8 million (2003: R23,7 million), an increase
of 59,3%. This reflects the substantial reduction in finance costs due to the
decrease in interest-bearing debt of R91 million compared to last year,
emanating from the improvement in asset management and trading efficiencies.
This results in the ratio of borrowings to capital and reserves reducing to 38%
(2003: 47%). Similarly, income after taxation increased to R28,3 million (2003:
R20,3 million), an increase of 39,4%.
Headline earnings per share increased to 22,3 cents (2003: 15,6 cents), an
increase of 42,9%.
Headline earnings, earnings per share and net asset value have been restated for
December 2003 to take cognisance of the accounting requirements relating to
treasury shares and the effect they have on the weighted average number of
shares.
During the period under review the group repurchased 11,5 million N ordinary
shares out of share premium for a consideration of R35,4 million. These shares
have been cancelled. There has been a reduction in the listed number of shares
to 122,4 million (27,1 million ordinary shares and 95,3 million N ordinary
shares). The weighted number of shares in issue at 31 December is 126,6 million.
Tangible net asset value per share is 909 cents based on 126,6 million shares
(2003: 853 cents per share based on 130,4 million shares).
Import substitution from China continues unabated, impacting on margins. The
clothing and textile divisions of the group have partly countered this by
producing innovative, value-added goods with short lead times, enhancing service
levels to local customers, maintaining high quality levels and being innovative
in sourcing product, where necessary, from the East. A further positive
development is the establishment of a government task team which will endeavour
to put a short term safety net for the industry into place, as well as
strategising on medium to long term plans for the industry.
Divisions that source product exclusively offshore have benefited from the
firmer Rand. This is particularly apparent in the Seartec/Sharp Electronics and
Prima Toys divisions.
Exports, due to the strength of the Rand, reduced substantially to R118,6
million (2003: R219,6 million). Of this amount, apparel exports amount to R88,1
million (2003: R189,5 million), a reduction of 53,5%. Apparel exports now
account for 9,2% of total apparel revenue (2003: 19,9%). Textile exports
increased marginally to R30,5 million (2003: R30,1 million), an increase of
1,3%.
Since June 2004 to date hereof, the group has disposed of non-core property and
property related investments amounting to R45 million.
COMMENTARY
The period under review has been characterised by ever-mounting challenges for
the clothing manufacturing sector. A very welcome development has been the
extension of the Duty Credit Certificate Scheme (DCCS) beyond March 2005. The
new scheme will be known as the Interim Clothing Industry Development Scheme,
which will operate for a period of two years, ending March 2007. It is intended
that this be replaced by a WTO compliant industry development program. More
welcome news is the recent announcement that legislation governing Country of
Origin labelling will take effect from 23 May 2005. From this date every garment
entering South Africa must have a country of origin label together with the
importer`s registration number permanently affixed.
However, two critical areas of immediate concern require urgent finalisation.
First is the removal of duties on fabrics and trim not available in South
Africa. In this regard it is necessary that the required mechanisms and
regulatory infrastructure be put in place for those specific trims and fabrics
to enter South Africa free of duty by April 2005, in time for the next summer
season.
The second priority relates to the surge of imports, both legal and illegal,
from mainland China. Clotrade has formally called on government for the
reintroduction of specific duties and a revised method of valuation of imports
based on benchmark reference prices. Decisive and urgent action from government
is now required in order to prevent further job losses. In this regard,
submissions must now be forwarded to the WTO without delay, detailing SARS
Customs data on under-invoicing and the dumping of distressed garments from
China.
In addition, it is imperative that all duties on cotton lint for purchases
outside the SADC region are removed in order to enable spinners to buy cotton
from both the southern and northern hemispheres in short intervals, which will
remove the financial risk associated with highly fluctuating international
commodity prices.
OUTLOOK TO JUNE 2005
It is anticipated that the next six months trading period is likely to be
difficult, particularly in the textile division. Accordingly, it is doubtful
that the increase achieved in headline earnings per share will be sustained.
DISTRIBUTION ANNOUNCEMENT
In keeping with past practice, a single distribution will be considered at the
end of the financial year.
NOTES
1. Accounting Policies
(a) 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 2004 and in terms of AC127.
(b) Negative goodwill is now credited in full to equity in terms of the revised
accounting requirements. This results in an unavoidable distortion of the
relative comparative figures, as an amount of R17,6 million was credited to
earnings per share in the previous reporting period.
2. Capital expenditure and commitments
Net capital expenditure during the period under review amounted to R34 million
(2003: R45,3 million). There are further commitments in respect of contracted
capital expenditure as at 31 December 2004 of R24 million (2003: nil). It is
envisaged that this capital expenditure will be funded from internal cash
resources and, if deemed necessary, external resources.
Signed for and on behalf of the board in Cape Town on 24 February 2005.
Adv. N N Lazarus SC
CHAIRMAN
Dr. A Searll DBA
CHIEF EXECUTIVE OFFICER
