| Wed 28 Sep 2005, 14:36 | | Seardel - Audited Results For The Year Ended 30 Ju |
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Seardel Investment Corporation Limited
Registration number 1968/011249/06
SER: ZAE000029815
SRN: ZAE000030144
Audited results for the year ended 30 June 2005 prepared in accordance with
South African Statements of Generally Accepted Accounting Practice.
FINANCIAL CALENDAR
Annual General Meeting
25 October 2005 at 09.00 at the company's registered office:
2nd Floor, Seardel House, Alphen Park, Constantia Main Road, Constantia 7806,
Cape Town.
Dividend
Dividend of 11 cents per share proposed.
Last day to trade: cum. dividend Friday 11 November 2005.
Ex dividend trades from Monday 14 November 2005.
Record date: Friday 18 November 2005.
Payment date: Monday 21 November 2005.
Share certificates may not be dematerialised or rematerialised between Monday 14
November 2005 and Friday 18 November 2005, both days inclusive.
Reports 2005
Interim for six months ending 31 December 2005 published February 2006. Annual
for year ending 30 June 2006 published September 2006.
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
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 2005 2004 % Change
Revenue 3 745 145 3 793 586 -1,3
Income before taxation 50 771 131 778 -61,5
Capital and reserves 1 317 325 1 217 068 +8,2
Total tangible assets (excluding 2 297 532 2 328 400 -1,3
cash)
Return on total tangible assets 4,6% 7,7%
Return on shareholders' interest 4,2% 7,4%
Inventory as a percentage of 17,9% 18,9%
revenue
Statistics per share
In cents, where applicable 2005 2004 % Change
Headline earnings 35,9 66,0 -45,6
Earnings 45,3 94,9 -52,3
Proposed dividend 11,0 14,0 -21,4
Proposed dividend cover on 3,3 4,7 -29,8
headline earnings
Operating cash flow 121 195 -37,9
Tangible net asset value 1 142 949 +20,3
Market price - 30 June 2005
Ordinary 360 215
N Ordinary 370 215
Price range - High
Ordinary 430 335
N Ordinary 425 330
Price range - Low
Ordinary 205 185
N Ordinary 181 200
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 2005. 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 decreased marginally by 1,3% to R3,7 billion as compared to R3,8 billion
last year.
Income before taxation amounted to R50,8 million (2004: R96,6 million prior to
negative goodwill amortisation), a reduction of 47,4%. This was due to the
extremely difficult trading conditions encountered, primarily resulting from the
flood of imports of cheap Chinese clothing and textiles, as well as dumped and
undervalued imports of finished goods.
Income after taxation amounted to R55,4 million (2004: R86,6 million prior to
negative goodwill amortisation), a decrease of 36%. The benefit of the group's
diversification policy was again evident in that Sharp Electronics and Prima
Toys performed well, as most of their products are imported.
Finance costs reduced substantially by R27 million to R56 million (2004: R83
million), resulting from stringent working capital management and a considerable
reduction in debt levels.
The weighted average number of shares in issue for the year under review was
122,4 million (2004: 128,2 million).
Headline earnings per share amounted to 35,9 cents (2004: 66,0 cents), a
reduction of 45,6%.
At year end, a further 5,033,188 shares were repurchased and cancelled, reducing
the number of shares in issue at 30 June 2005 to 117,397,124.
Notwithstanding the difficult trading year, the balance sheet has been
strengthened and reflects substantial cash reserves of R192 million. Group
equity increased by R97 million or 7,9%, to R1 314 million (2004: R1 217
million).
In line with the group's accounting policies, land and buildings are revalued
every five years by an independent valuer. Properties were valued at 30 June
2005 at R457,8 million (2004: R344,7 million).
The group has continued with its policy of rationalising its assets and
disposing of surplus properties and property related investments. During the
year under review, disposals realised R38,1 million.
Tangible net asset value per share has increased to 1 142 cents (2004: 949
cents). Interest-bearing debt reduced to R292,2 million (2004: R341,1 million),
a reduction of R48,9 million. Interest-bearing debt has been progressively
reduced over the past four years from R619,8 million to the current level of
R292,2 million, a substantial reduction of R327,6 million. The borrowings to
group equity ratio has reduced to 22% from last year's level of 28% (65% in
2001).
TRADING CONDITIONS AND EXPORTS
As anticipated, 2005 was an extremely challenging year. Trading conditions were
particularly difficult, due mainly to the strength of the Rand and the
importation of cheap product from the East. The strength of the Rand also
impacted negatively on exports, which for the year under review amounted to R229
million or 6,1% of revenue, from last year's levels of R395 million or 10,4% of
revenue, a reduction of R166 million. Retrenchment costs incurred during the
year under review approximated R20 million. Total employees are now 15 280
(2004: 16 925).
DIVIDEND POLICY
The increased strength of the group's balance sheet and positive cash flows has
again resulted in a reduction in borrowings. This allowed the group's dividend
cover policy to be revised at 3,3 times on headline earnings. The board has
therefore proposed the payment of a dividend of 11 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
The Chinese Threat
The clothing and textile manufacturing sector has come under ever growing
pressure since 2002, and this has been extensively reported in our previous
annual reports. The threat from China is linked to a variety of factors, the
most notable including the appreciation of our currency, the termination of the
Multi-Fibre Agreement and the penetration of the domestic market by cheap and
underpriced imports. The South African clothing and textile industries are not
alone in having to defend themselves against this onslaught. The European Union
and the governments of Turkey, Brazil and the United States are on record as
having responded to this crisis with unprecedented urgency and have now invoked
a wide range of safeguard measures aimed at protecting their domestic
manufacturing interests against the threat posed by China. In this regard we
support the newly appointed Minister of Trade & Industry, Mandisi Mpahlwa, when
he says that he rejects solutions based on attempts to defend the economy from
fair competitive pressures through restrictions on trading in global markets or
handing out incentives to domestic companies.
There is broad consensus that the key contributing factors towards the
competitive advantage that China enjoys amount to a range of unfair trade
practices. These include the undervaluing of their currency, the state offering
non-performing loans for new plant and equipment at 1%-2% interest, export
incentives valued at 13% of FOB value (and payable in US$ in cash on date of
export) and a labour market regulatory environment which offends virtually every
principle enshrined in the labour statutes of constitutional democracies such as
ours. By way of an example is the fact that the Chinese work for 57 hours per
week and only take five leave days per annum. Wages are in the region of between
R100 and R200 per week. Coupled with this is the incredible work ethic of
Chinese labour, which manifests itself in their productivity levels.
During the 12 month period from May 2004 to April 2005, textile imports of
yarns, fabrics and made-up household textiles into the Republic of South Africa
increased by 17% from 157 million kilograms to 183 million kilograms, with the
value increasing by 5% to R3 867 million.
Textile imports have consistently increased over the last few years between 12%
and 18%. However, what is of even greater concern is the dramatic increase in
the volume of garment imports, which is ultimately responsible for the low
demand for fabric.
Between May 2004 and April 2005, clothing imports increased by 38% from 316,8
million units to 437,2 million units at a total value of R3 973,9 million, which
converts to a value of R9,09 per unit. Of these imports, China accounted for 86%
by volume and 75% by value.
Only a weaker Rand and the realisation by retailers that a sensible balance
between imports and local procurement ensures quick response to consumer demands
(while lowering inventory levels at retail level), will create a healthy textile
pipeline from cotton grower to retailer, and thereby maximise job opportunities,
while maintaining a consumer society with sufficient purchasing power.
Research carried out by CloTrade recently revealed that garment prices
manufactured in China are between 53% and 60% lower than anywhere else in the
world. In this regard, CloTrade pointed out in a submission to government that
fabric and trim made up between 50% and 60% of the cost of a garment. When the
selling prices are distorted by 53% to 60%, it is not possible to be
competitive, even if our employees had to tender their labour for free.
Globalisation, represented by unbridled free and unfair trade, has given rise to
what was recently referred to in an editorial in the Cape Argus as "...a costly
experiment for scores of companies and their thousands of workers (in the
clothing industry) for whom cheap imports are proving deadly". The editorial
asked whether cheap goods for those who want and can buy them is a good thing
for society, or indeed for the economy. It concluded by saying that
protectionism, once a dirty word, carries risks of its own: "...yet, as we have
now learned, free trade neo liberalism is not an adequate mechanism for ensuring
market stability either".
Having regard for the growing global awareness of the so-called "triple bottom
line" (people, profits and the environment), it is imperative that the
leadership in business, labour and government designs a revised and sustainable
policy framework for global trade. This should be done with wisdom and caution,
but also with compassion, for the interests of society as a whole.
Safeguard Measure Applications and the Technical Task Team
Comprehensive applications for safeguard measures have been submitted to
International Trade Administration Commission (ITAC) by the employer industry
body CloTrade as well as the Southern African Clothing and Textile Workers Union
(SACTWU). These applications are in the process of being considered by ITAC and
follow a lengthy process of dialogue with all stakeholders within the technical
Task Team appointed by the Minister of Trade & Industry. The Task Team held its
final meeting on 5 April 2005 and was attended by SACTWU, CloTrade, S A Revenue
Service (SARS), the Department of Trade & Industry (DTI), TexFed and the South
African Footwear and Leather Industry Association.
The state of the sector was evaluated, including local production capability and
imports. Over the course of its work, the Task Team heard detailed presentations
and proposals (from labour and business) for a long-term growth and development
plan. This has been forwarded to the Minister, with whom the stakeholders are
working towards synthesising the Customised Sector Program and the TriPartite
Alliance Strategy Document. It is expected that a single and inclusive strategy
and plan for the sector will be launched soon, as a matter of extreme urgency.
The Task Team expressed its support for the Proudly South African campaign, and
welcomed the introduction of a label of origin on clothing and supported a Code
of Conduct by which retailers would support the local industry.
Government expressed confidence in the potential of the industry to survive its
current challenges and the DTI pledged its support for appropriate short, medium
and long-term safeguard measures, including a revision of the Duty Credit
Certificate programme, to reverse the job losses that approximate 32,000 people
and excessive company closures in the sector.
Africa Growth and Opportunity Act (AGOA) Review
The AGOA review conference was held in Dakar, Senegal. The key issue at stake
was access to third country fabric beyond October 2007.
It is our view that without more liberal access to third country fabric,
particularly fabrics not locally available, the South African clothing industry
will not succeed in maximising its potential as a vehicle for growth and job
creation. Of crucial importance is the need for the rules of origin for market
access under AGOA to be a single stage conversion rule of origin. This means
that the product need only be wholly assembled/manufactured in an AGOA eligible
country to qualify.
Of equal importance is the need for South Africa to be treated in the same
manner as the rest of sub-Saharan Africa, which simply means that the
categorisation of Less Developed Country (LDC) and non-LDC be removed from AGOA.
The stated purpose of AGOA was the upliftment of all sub-Saharan Africa
(including South Africa) by the creation of jobs through trade. The concept of
LDC and non-LDC was not in the original AGOA design. With the special
dispensation now applying to Mauritius, South Africa remains the only AGOA
country that does not enjoy access to third country fabrics. In the
circumstances, it is imperative that this unfair imbalance be corrected as a
matter of priority.
African Cotton, Textile and Apparel Alliance
The need to act collectively as a sub-Saharan region was identified as a key
objective in our industry strategy last year. At a conference held in
Johannesburg on 14 June 2005, the African Cotton, Textile and Apparel Trade
Alliance was formally established. CloTrade and the Export Council for the
clothing industry in South Africa were founding members together with similar
organisations in fourteen other African countries.
Key projects which have been actioned include a united African approach to the
World Trade Organisdation, motivating a re-write of the Safeguard Measure and
Anti-Dumping Duty regulations in order to make these more suitable to the needs
and circumstances of developing countries, as well as legislation to be
introduced to deal with the dumping of distressed merchandise at depressed
prices in Africa.
STRUCTURE OF THE GROUP
The group's structure and trading divisions are detailed in the annual report.
The majority of the textile and clothing divisions are located in KwaZulu-Natal
and the Western Cape. Prima Toys and Sharp Electronics are also located in
Gauteng and Harven Manufacturing Company is based in Bulawayo, Zimbabwe.
ASSET PROTECTION PROGRAM
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 have been revalued this year in line with the group's
accounting policy of ensuring that all its properties 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 the annual report.
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 ISO14000, 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 textile production and waste minimisation, and ISO9001/2000 is now an
integral part of our management culture.
In order to preserve its leadership role in the areas in which it operates,
Seardel has maintained its high level of investment in the latest technology and
new equipment. This in turn guarantees that it will sustain its high standards
in its manufacturing processes. The group also constantly strives to ensure that
its products are environmentally friendly and non-toxic, and 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.
Seardel's 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.
PROSPECTS FOR THE 2006 FINANCIAL YEAR
Due to the difficult trading conditions encountered during the past year, the
group has once again been forced to actively restructure and re-organise its
manufacturing resources, resulting in concomitant job losses, particularly in
the textile industry. Having reprioritised certain divisions and further
developed our own areas of expertise in the niche markets in which we operate,
we believe that we are ready to meet the challenges anticipated for the 2006
financial year. The Rand would appear to be retreating gradually from its
position of strength and the group is well placed to take advantage of any
benefits resulting therefrom. Notwithstanding the above, the continued flood of
imports of apparel and textiles from China will inhibit growth in revenue.
However, the South African economy remains on an extremely positive path and
this bodes well for the creation of new job opportunities. Seardel continues to
strive towards obtaining suitable margins for its products in order to attain a
satisfactory return on its total assets. The board is well aware that it needs
to improve its return to stakeholders and this remains an urgent group
objective.
Revenue for the first two months of the 2006 financial year amounted to R590,6
million, a decrease of 8,8% compared with last year.
ACKNOWLEDGMENTS
We would like to express our appreciation and thanks to our past and present
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 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.
NEIL LAZARUS, (Chairman)
AARON SEARLL, (Chief Executive Officer)
Cape Town, 28 September 2005
Consolidated Income Statement
For year ended 30 June
Rand thousands 2005 2004
Revenue 3 745 145 3 793 586
Cost of revenue (2 884 928) (2 889 390)
Gross profit 860 217 904 196
Other operating income 92 527 109 336
Distribution costs (258 616) (261 644)
Administrative and other expenses (565 553) (560 508)
Retrenchment costs (21 774) (11 704)
Amortisation of goodwill - 35 135
Profit from operations before finance 106 801 214 811
charges
Finance income 12 176 13 330
Finance charges (68 206) (96 363)
Income before taxation 50 771 131 778
Taxation 4 566 (10 045)
Income after taxation 55 337 121 733
Loss attributable to outside shareholders 98 -
of subsidiary company
Income attributable to shareholders R55 435 R121 733
Earnings per share - cents 45,3 94,9
Headline earnings per share - cents 35,9 66,0
Diluted earnings per share - cents 45,1 94,2
Diluted headline earnings per share - cents 35,7 65,4
Consolidated Balance Sheet
At 30 June
Rand thousands 2005 2004
ASSETS
Non-current assets 933 189 560 048
Property, plant and equipment 915 512 814 672
Goodwill 542 (298 660)
Investments 1 332 25 782
Long-term receivables 1 644 2 623
Deferred taxation 14 159 15 631
Current assets 1 570 726 1 697 472
Inventory 669 256 716 867
Trade and other receivables 709 788 768 456
Cash and cash equivalents 191 682 212 149
TOTAL ASSETS R2 503 915 R2 257 520
EQUITY AND LIABILITIES
Capital and reserves 1 317 325 918 408
Share capital and share premium 6 906 59 738
Treasury shares (5 420) (10 121)
Reserves 1 312 626 868 791
Shareholders' interest 1 314 112 918 408
Outside shareholders' interest 3 213 -
Non-current liabilities 405 345 558 208
Interest-bearing liabilities 231 140 399 669
Deferred liabilities 63 331 61 885
Deferred taxation 110 874 96 654
Current liabilities 781 245 780 904
Interest-bearing liabilities 229 109 135 504
Trade and other payables 527 616 614 187
Bank overdrafts 23 618 18 094
Taxation payable 879 13 081
Dividend to shareholders 23 38
TOTAL EQUITY AND LIABILITIES R2 503 915 R2 257 520
Net asset value (excluding intangible 1 314 112 1 217 068
assets)
Net asset value per share - cents 1 142 949
Consolidated Cash Flow Statement for year ended 30 June
Rand thousands 2005 2004
Net cash flow from operating activities 130 506 232 075
Cash generated from operations 200 906 246 393
Working capital changes 34 171 91 106
Net finance charges (56 030) (83 033)
Taxation paid (27 372) (1 397)
Dividend paid (18 034) (17 982)
Investment income 97 97
Contributions for post employment medical (3 232) (3 109)
benefits
Net cash flow from investing activities (33 399) (78 830)
Additions of property, plant and equipment (80 921) (81 548)
Proceeds on disposal of property, plant and 23 811 3 874
equipment
Decrease/(increase) in long-term 1 301 (1 156)
receivables
Proceeds on disposal of investments 24 818 -
Acquisition of interest in (2 408) -
subsidiary/division
Net cash flow from financing activities (123 098) 3 657
Decrease in long-term borrowings (168 533) (7 307)
Increase in short-term borrowings 93 566 11 659
Proceeds on share options exercised 7 585 212
Share repurchases (2 884) (907)
Cancellation of shares (52 832) -
Net (decrease)/increase in cash and cash (25 991) 156 902
equivalents
Cash and cash equivalents at beginning of 194 055 37 153
year
Cash and cash equivalents at end of year R168 064 R194 055
Operating cash flow per share - cents 121 195
Net cash flow from operating activities plus distribution 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 2003 7 041 52 697 (9 426)
Retained income as previously
reported
Prior year adjustment
Impairment of listed investments
Share repurchases (907)
Share options exercised 212
Change in accounting policy
Share options exercised
Net income for the year
Net income for the year as
previously stated
Prior year adjustment
Dividend
Balance 30 June 2004 7 041 52 697 (10 121)
Prior year adjustment
Dilution of interest in
subsidiary
Revaluation of land and buildings
Revaluation of listed investments
Share repurchases (2 884)
Cancellation of shares (322) (52 510)
Share options exercised 7 585
Net income for the year
Dividend
Balance 30 June 2005 R6 719 R187 (R5 420)
CONSOLIDATED CHANGES IN EQUITY STATEMENT
(second section of table, showing totals)
Other Retained Outside Total
Reserves Income Shareholder'
Interest
Balance 30 June 2003 34 191 730 915 815 418
Retained income as 693 415
previously reported
Prior year adjustment 37 500
Impairment of listed (84) (84)
investments
Share repurchases (907)
Share options exercised 212
Net income for the year 121 733 121 733
Net income for the year 114 833
as previously stated
Prior year adjustment 6 900
Dividend (17 964) (17 964)
Balance 30 June 2004 34 107 834 684 918 408
Prior year adjustment 298 660 298 660
Dilution of interest in 7 259 3 311 10 570
subsidiary
Revaluation of land and 100 132 100 132
buildings
Revaluation of listed 368 368
investments
Share repurchases (2 884)
Cancellation of shares (52 832)
Share options exercised 7 585
Net income for the year 55 435 (98) 55 337
Dividend (18 019) (18 019)
Balance 30 June 2005 R141 866 R1 170 760 R3 213 R1 317 325
RECONCILIATION OF EARNINGS AND HEADLINE EARNINGS
2005
Income Weighted Per share
R000's average cents
number of
shares 000's
Net number of shares in issue 115 035
Number of shares in issue - 30 117 397
June 2005
Number of treasury shares in (2 362)
issue - 30 June 2005
Weighted average number of 122 362
shares
Diluted weighted average 123 013
number of shares
Weighted number of shares 122 362
Share options granted, not yet 651
exercised
Basic earnings
Income attributable to 55 435 122 362 45,3
shareholders
Diluted earnings
Income attributable to 55 435 123 013 45,1
shareholders
Headline earnings
Reconciliation between
earnings and headline earnings
Income attributable to 55 435
shareholders
Impairment of goodwill 1 000
Impairment of property, plant 2 314
and equipment
Reversal of impairment of (12 000)
plant and equipment
Surplus on disposal of (3 536)
property, plant and equipment
Tax effect of adjustments 675
Headline earnings 43 888 122 362 35,9
Diluted headline earnings 43 888 123 013 35,7
RECONCILIATION OF EARNINGS AND HEADLINE EARNINGS (continued)
2004
Income Weighted Per share
R000's average cents
number of
shares 000's
Net number of shares in issue 128 215
Number of shares in issue - 30 133 917
June 2004
Number of treasury shares in (5 702)
issue - 30 June 2004
Weighted average number of 128 215
shares
Diluted weighted average 129 240
number of shares
Weighted average number of 128 215
shares
Share options granted, not yet 1 025
exercised
Basic earnings
Income attributable to 121 733 128 215 94,9
shareholders
Diluted earnings
Income attributable to 121 733 129 240 94,2
shareholders
Headline earnings
Reconciliation between
earnings and headline earnings
Income attributable to 121 733
shareholders
Amortisation of negative (35 135)
goodwill
Surplus on disposal of (2 037)
property, plant and equipment
Headline earnings 84 561 128 215 66,0
Diluted headline earnings 84 561 129 240 65,4
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, except
for land and buildings and financial instruments classified as available for
sale assets, 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.
Dilution of interest in subsidiary
Profits or losses on dilution of shareholding is taken directly to other
reserves.
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
All business combinations are accounted for by applying the
purchase method.
Goodwill represents amounts arising on acquisition of subsidiaries, associates
and joint ventures and is the difference between the cost of the acquisition and
the fair value of the identifiable assets and liabilities acquired.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash-generating units and is no longer amortised but is tested
annually for impairment.
In the prior year, negative goodwill was accounted for as stated below. Negative
goodwill arising on an acquisition represented 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 related 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 was recognised in the income statement when the
future losses and expenses were recognised. Any remaining negative goodwill, not
exceeding the fair values of the non-monetary assets acquired, was 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 was
recognised immediately in the income statement.
In order to comply with AC140, Business Combinations, the group derecognised the
balance on negative goodwill with a corresponding adjustment to the opening
balance of retained income, on 1 July 2004.
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 is comprised of 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 the assets.
IMPAIRMENT OF ASSETS
At each balance sheet date, the group reviews the carrying value of its tangible
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, except to the extent that
the reversal relates to revaluations previously recorded in other reserves. The
recoverable amount of an asset is the higher of its selling price and value in
use. The net selling price is the fair value less costs to sell, 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, except to the extent that the reversal relates
to revaluations previously recorded in other reserves.
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.
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 at 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.
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 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, 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.
TREASURY SHARES
Shares in the company held by group entities are classified as treasury shares.
These shares are treated as a deduction from the weighted average number of
shares and the cost price of the shares is deducted from equity in the statement
of changes in equity. Dividends received on treasury shares are eliminated on
consolidation.
BORROWING COSTS
Borrowing costs are expensed as incurred.
SEGMENTAL REPORTING
The group's main activities are the manufacture of textiles and men's, women's
and children's apparel. Its other activities are comprised of the distribution
of toys and consumer electronics. It also has travel and property investment
interests related to its manufacturing divisions. On a primary basis the group
is organised into five major operating divisions:
Textiles, comprising the manufacture of woven and knitted fabrics;
Apparel, comprising the manufacture of clothing and household textiles;
Office automation and consumer electronics, comprising the distribution of
office automation products and consumer electronic products;
Toys, comprising the distribution of toys;
Industrial products.
Geographical markets are reported on a secondary basis.
Segment results include revenue and expenses directly attributable to a segment,
and head office expenses that can be allocated on a reasonable basis to a
segment.
Segment assets comprise those operating assets that are directly attributable to
the segment or can be allocated to the segment on a reasonable basis.
Segment liabilities comprise those operating liabilities that are directly
attributable to the segment on a reasonable basis. Segment assets and
liabilities do not include income tax items.
Capital expenditure represents the total costs incurred during the year to
acquire segment assets that are expected to be used during more than one period,
i.e. property, plant and equipment.
SEGMENTED REPORTING (First section of table)
Audited
Rand thousands Textiles Apparel & Office
household automation &
textiles consumer
electronics
2005
BUSINESS SEGMENTS
Revenue
External sales 1 572 108 1 724 034 225 789
Inter-segment sales (66 501)
1 505 607 1 724 034 225 789
Segment results
Profit from operations 19 353 43 418 26 034
Segment assets 1 231 675 778 814 151 219
Property, plant and equipment 641 317 247 177 4 890
Investments 1 332
Long-term receivables - 293 -
Inventory 296 354 275 593 48 034
Trade and other receivables 294 004 254 419 98 295
Segment Liabilities 275 131 240 484 33 612
Deferred liabilities 63 071 - 260
Trade and other payables 212 060 240 484 33 352
Depreciation 69 302 28 927 3 101
Capital expenditure 42 076 32 676 1 128
GEOGRAPHICAL SEGMENTS BASED ON
LOCATION OF CUSTOMERS
Revenue
South Africa 1 451 124 1 549 445 225 789
Direct exports 54 483 174 589 -
1 505 607 1 724 034 225 789
SEGMENTED REPORTING (Second section of table, showing totals)
Audited
Rand thousands Toys Industrial Total
products
2005
BUSINESS SEGMENTS
Revenue
External sales 145 015 144 700 3 811 646
Inter-segment sales (66 501)
145 015 144 700 3 745 145
Segment results
Profit from operations 11 925 6 071 106 801
Segment assets 59 517 76 307 2 297 532
Property, plant and equipment 2 666 19 462 915 512
Investments 1 332
Long-term receivables - 1 351 1 644
Inventory 22 651 26 624 669 256
Trade and other receivables 34 200 28 870 709 788
Segment Liabilities 19 563 22 157 590 947
Deferred liabilities - - 63 331
Trade and other payables 19 563 22 157 527 616
Depreciation 614 3 735 105 679
Capital expenditure 732 4 309 80 921
GEOGRAPHICAL SEGMENTS BASED ON
LOCATION OF CUSTOMERS
Revenue
South Africa 145 015 144 700 3 516 073
Direct exports - - 229 072
145 015 144 700 3 745 145
AUDITORS' REPORT
Report of the independent auditors to the members of Seardel Investment
Corporation Limited.
We have audited the annual financial statements and group annual financial
statements of Seardel Investment Corporation Limited for the year ended 30 June
2005. These financial statements are the responsibility of the company's
directors. Our responsibility is to express an opinion on these financial
statements based on our audit. We have also examined the segmented reporting
analysis for the year ended 30 June 2005.
In our opinion, this statement has been properly prepared.
SCOPE
We conducted our audit in accordance with International Standards on Auditing.
Those Standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
AUDIT OPINION
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the company and of the group as of 30 June
2005, and of the results of their operations and cash flows for the year then
ended in accordance with South African Statements of Generally Accepted
Accounting Practice, and in a manner required by the Companies Act of South
Africa.
KPMG INC
Registered Accountants and Auditors
Chartered Accountants (SA)
Cape Town
28 September 2005
Date: 28/09/2005 02:00:57 PM Produced by the JSE SENS Department
