| Fri 3 Mar 2006, 9:36 | | Seardel - Group interim report for the six months |
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SER SRN
SER
Seardel - Group interim report for the six months ended 31 December 2005
Seardel Investment Corporation Limited
Registration no. 1968/011249/06
(Incorporated in the Republic of South Africa)
JSE Code: SER & ISIN Code: ZAE000029815
JSE Code: SRN & ISIN Code: ZAE000030144
("Seardel")
GROUP INTERIM REPORT TO SHAREHOLDERS FOR THE SIX MONTHS ENDED 31 DECEMBER 2005.
FINANCIAL HIGHLIGHTS SIX MONTHS ENDED 31 DECEMBER
Rand thousands, unless otherwise 2005 2004 % Change
indicated
(unaudited) (unaudited
& restated)
Revenue 1 922 476 2 045 517 -6,0
Income before taxation 51 687 50 903 +1,5
Headline earnings per share - 36,8 32,5 +13,2
cents
Earnings per share - cents 39,9 32,5 +22,8
Capital and reserves 1 489 215 1 364 645 +9,1
Total tangible assets (excluding 2 465 884 2 583 944 -4,6
cash)
Net asset value per share - cents 1 294 1 163 +11,3
Ratio of borrowings to capital 21% 32% -34,4
and reserves
The unaudited consolidated financial statements of the group for the six months
ended 31 December 2005 with restated comparative figures for the corresponding
period last year, together with the audited and restated financial statements
for the financial year ended 30 June 2005, are set out below, see note 2. It is
expected that the effective tax rate at 30 June 2006 will be higher than the
current rate though the quantum is currently unknown.
INCOME STATEMENT (condensed)
SIX MONTHS ENDED 31 YEAR ENDED
DECEMBER 30 JUNE
Rand thousands 2005 2004 % Change
(unaudited) (unaudited &
restated)
Revenue R1 922 476 R 2 045 517 -6,0
Profit from operations before 74 508 85 922 -13,3
finance charges
Finance income 7 693 5 536
Finance charges (30 514) (40 555)
Income before taxation 51 687 50 903 +1,5
Taxation (5 500) (9 763)
Income after taxation 46 187 41 140 +12,3
STATISTICS PER SHARE
In cents, where applicable
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
Weighted average number of 114 752 126 568 122 362
shares in issue (000)
Weighted average number of 115 501 127 593 123 013
diluted shares in issue (000)
Headline earnings 36,8 32,5 +13,2 55,5
Earnings 39,9 32,5 +22,8 60,4
Diluted headline earnings 36,6 32,2 +13,7 55,2
Diluted earnings 39,6 32,2 +23,0 60,0
Dividend - annual - - 14,0
RECONCILIATION BETWEEN EARNINGS
AND HEADLINE EARNINGS
Income attributable to 45 770 41 140 73 850
shareholders
Impairment of goodwill - - 1 000
Impairment of property, plant & - - 2 314
equipment
Reversal of impairment of - - (12 000)
property, plant & equipment
BALANCE SHEET
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
2005 2004 2005
Rand thousands (unaudited) (unaudited & (audited &
restated) restated)
ASSETS
Non-current assets 1 007 650 1 064 708 1 108 049
Property, plant & equipment 984 028 1 047 026 1 090 372
Goodwill 542 - 542
Investments 1 333 964 1 332
Long-term receivables 12 370 3 518 1 644
Deferred taxation 9 377 13 200 14 159
Current assets 1 735 641 1 771 478 1 567 909
Assets held for disposal 85 597 - -
Inventory 631 757 716 475 666 156
Trade and other receivables 750 799 815 961 710 071
Cash and cash equivalents 267 488 239 042 191 682
TOTAL ASSETS R2 743 291 R2 836 186 R2 675 958
EQUITY AND LIABILITIES
Capital and reserves 1 489 215 1 364 645 1 458 184
Share capital 6 766 24 347 6 906
Treasury shares (1 917) (8 357) (5 420)
Reserves 1 480 736 1 348 655 1 453 485
Shareholders" interest 1 485 585 1 364 645 1 454 971
Outside shareholders" interest 3 630 - 3 213
Non-current liabilities 376 679 579 406 428 888
Interest-bearing liabilities 180 925 357 018 231 140
Deferred liabilities 63 500 61 975 63 331
Deferred taxation 132 254 160 413 134 417
Current liabilities 877 397 892 135 788 886
Interest-bearing loans 222 535 137 874 229 109
Trade and other payables 470 966 562 226 535 257
Bank overdrafts 181 989 185 176 23 618
Taxation payable 1 890 6 834 879
Distribution to shareholders 17 25 23
RATIOS
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
Profitability
Profit from operations as 3,9% 4,2% 3,5%
percentage of revenue
Income before taxation as 2,7% 2,5% 2,0%
percentage of revenue
Income after taxation as 2,4% 2,0% 2,0%
percentage of revenue
Return on total tangible assets 4,8% 4,2% 5,2%
excluding cash
Return on shareholders" 5,3% 3,7% 6,7%
interest
Leverage
Ratio of debt to capital and 53% 74% 57%
reserves
Ratio of borrowings to capital 21% 32% 20%
and reserves
Liquidity
Current ratio 2,0 2,0 2,0
Net finance charges cover 3,3 2,5 2,3
CASH FLOW STATEMENT (condensed)
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
2005 2004 2005
Rand thousands (unaudited) (unaudited & (audited)
restated)
Net cash flow from operating (19 485) (58 528) 130 506
activities
Net cash flow from investing (6 291) (8 537) (33 399)
activities
Net cash flow from financing (56 789) (73 124) (123 098)
activities
Net decrease in cash and cash (82 565) (140 189) (25 991)
equivalents
Cash and cash equivalents at 168 064 194 055 194 055
beginning of period
Cash and cash equivalents at R85 499 R53 866 R168 064
end of period
CHANGES IN EQUITY STATEMENT
Rand thousands Share Share Treasury Other
Capital Premium Shares Reserves
Balance 31 December 2004 7 012 17 335 (8 357) 34 191
As previously reported 34 107
Prior year adjustments - as -
previously reported
Prior year adjustment - Note -
4.1
Prior year adjustment - Note -
4.2
IFRS adjustments at 84
transition date
Cancellation of shares (293) (17 148)
Share options exercised 2 937
Dilution of interest in 7 259
subsidiary
Income attributable to
shareholders
Income before adjustments
Prior year adjustment - Note
4.1
IFRS adjustments
Revaluation of land & 41 047
buildings
As previously reported 100 132
IFRS adjustments (59 085)
Balance 30 June 2005 6 719 187 (5 420) 82 497
Cancellation of shares (140) 2 884
Share options exercised 619
Distribution
Income attributable to
shareholders
Balance 31 December 2005 R6 579 R187 (R1 917) R82 497
CHANGES IN EQUITY STATEMENT
(CONTD.)
Rand thousands Retained Outside Total
Income Share-
holders"
Interest
Balance 31 December 2004 1 314 464 - 1 364 645
As previously reported 1 099 897
Prior year adjustments - as 44 400
previously reported
Prior year adjustment - Note (7 032)
4.1
Prior year adjustment - Note 3 700
4.2
IFRS adjustments at 173 499
transition date
Cancellation of shares (17 441)
Share options exercised 2 937
Dilution of interest in 3 311 10 570
subsidiary
Income attributable to 56 524 (98) 56 426
shareholders
Income before adjustments 23 439
Prior year adjustment - Note (609)
4.1
IFRS adjustments 33 694
Revaluation of land & 41 047
buildings
As previously reported
IFRS adjustments
Balance 30 June 2005 1 370 988 3 213 1 458 184
Cancellation of shares (7 181) (4 437)
Share options exercised 619
Distribution (11 338) (11 338)
Income attributable to 45 770 417 46 187
shareholders
Balance 31 December 2005 R1 398 239 R3 630 R1 489 215
2005 2004
Composition of other reserves
Six months 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
ended 31
December
Revenue % 37 40 48 46 6 6 5 5 4 3
Profit from 47 46 24 27 15 16 10 8 4 3
operations %
Total assets % 53 56 35 32 6 6 3 3 3 3
Capital redemption reserve fund 440 440
Surplus on disposal of subsidiary and 7 923 664
associated companies
Surplus on revaluation of land and 74 134 33 087
buildings
R82 497 R34 191
Segment Textiles Apparel Office Toys Industrial
and automation products
household and
textiles consumer
electronics
SEGMENTED REPORTING
COMMENT ON RESULTS AND CORPORATE ACTIONS
The group"s results have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and comparative figures have been
restated accordingly.
Revenue reduced by 6% to R1 922 million, due to the substantial imports of
apparel and textiles from China having increased by 40% and 36,7% respectively.
However, it is pleasing to note that China has agreed to a voluntary cut-back of
goods to South Africa, negotiated by the Department of Trade & Industry. There
is a political will by both parties to structure a deal. Details, however, are
urgently required to stem the job losses already amounting to 55 000 since
January 2003. Apparel exports, due to the strength of the Rand, have declined
during the six month period under review by 35% to R57 million compared to last
year.
Pre-tax profit has increased marginally to R51,7 million (2004: R50,9 million),
an increase of 1,5%. This reflects the reduction in finance costs due to the
decrease in interest-bearing debt of R123 million compared to last year,
emanating from the improvement in asset management. Earnings attributable to
shareholders increased by 11,3% to R45,8 million (2004: R41,1 million). The
group"s strategy of strengthening its balance sheet and improving its financial
ratios has resulted in the ratio of borrowings to capital and reserves reducing
to 21% (2004: 32%).
Earnings per share increased to 39,9 cents (2004: 32,5 cents), an increase of
22,8%.
Headline earnings per share increased to 36,8 cents (2004: 32,5 cents), an
increase of 13,2%.
During the period under review the group repurchased 549,581 ordinary shares and
964,100 N ordinary shares. These shares have been cancelled. This reduced the
shares in issue at 31 December 2005 to 115,9 million (25,4 million ordinary
shares and 90,5 million N ordinary shares). Treasury shares amount to 1,2
million.
Tangible net asset value per share is 1294 cents per share based on 114,7
million shares (2004: 1163 cents per share based on 117,4 million shares).
The group"s clothing and textile divisions have, where necessary, been
restructured and streamlined in order to remain competitive. It has concentrated
on its strengths, i.e. top quality garments, service levels to local customers,
short lead times, and innovative sourcing of product from Eastern suppliers to
our specifications and quality control.
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.
At the annual general meeting held in October 2005 the group announced its
intention of disposing of non-core property investments. This is expected to
realise approximately R108 million prior to the financial year end. These funds
have been allocated to the costs of repurchasing approximately 20 million shares
from Claus Daun & Cie AG in January 2006. Full details of this specific
repurchase were contained in a circular to shareholders dated 15 December 2005.
These shares were subsequently cancelled and delisted. From January 2006 this
will have the effect of reducing the net number of shares in issue to 92,4
million. Net asset value therefore increases to 1 499 cents.
COMMENTARY ON CLOTHING AND TEXTILE INDUSTRIES
The Safeguard Measure applications of both CloTrade and The Southern African
Clothing and Textile Workers Union were rejected by the Department of Trade and
Industry (DTI) in favour of voluntary bi-lateral discussions with the Chinese
government. This process has resulted in the conclusion of the China Self
Restraint Agreement with the South African government.
However, whilst this is a positive development, there is increasing frustration
with the lack of details, transparency and communication from the DTI, as well
as the implementation thereof.
A similar situation presents itself in regard to the industry"s export incentive
program, the DCCS. This program came to an end in March 2005. Although a
replacement for the DCCS was negotiated with the DTI for both the clothing and
textile sectors in November of 2004, this has, to date, not been implemented by
government. Those exporters who acted in good faith and in the national interest
by continuing with their exports on the expectation that the interim program
would be implemented in 2005 have paid a costly price in terms of cash flow and
administrative complications.
The dramatic decline in exports is therefore not unexpected, as this could have
been addressed had the trade policy obligations of the DTI been discharged in an
effective and timeous manner. The inability of the DTI to serve industry within
the ambit of the World Trade Organisation"s policy framework is worrying and
must now be addressed as a matter which is in the national interest.
The African Cotton and Textiles Federation (ACTIF) was recently brought into
being. To the best of our knowledge, we are the first industry sector to talk
with one voice for the continent of Africa. Its first success was a united
approach to Washington to negotiate changes to AGOA (African Growth and
Opportunity Act) on behalf of all sub-Saharan countries. A significant part of
ACTIF"s presentation was to simplify the rules of origin to allow continued
access to third country fabrics up to 2015.
Another positive development has been the establishment of clothing clusters in
the Western Cape and KwaZulu Natal. This initiative promotes co-operation among
companies to work together, measure and compare performances locally and
internationally, benchmark themselves against international best practice and
then work to a specific plan to achieve world class manufacturing standards.
A series of fact finding study missions to China are also being planned. These
are aimed primarily at building partnerships, joint ventures and best practice
benchmarks.
OUTLOOK TO JUNE 2005
Until such time as the government, through the Department of Trade & Industry,
announces details of the restrictions on imports of Chinese clothing and
textiles, it is difficult to make a meaningful forecast for the next six months.
Matters have not been made any easier by the recent spate of power failures in
the Western Cape, which have played havoc with factory planning schedules. On
the positive side, the fiscal budget is expansionary. The economy is estimated
to increase by 5% - 6%.
NOTES
1. Accounting Policies
The unaudited condensed consolidated financial statements of the group have been
prepared on the historical cost basis except for land and buildings, which are
revalued in terms of group policy, in accordance with International Financial
Reporting Standards (IFRS), using the accounting policies detailed in the annual
report for the year ended 30 June 2005 and in terms of IAS34. Diluted earnings
are provided for in terms of IAS33.
2. Transition to International Financial Reporting Standards
These are the first results that have been provided under IFRS, which has the
effect of changing the presentation and format of the financial accounts.
However, they have no impact on the actual cash flows of the business or its
strategic direction.
The accounting policies in note 1 have been applied in preparing the condensed
consolidated interim financial statements for the six months ended 31 December
2005, the comparative information for the six months ended 31 December 2004, the
financial statements for the year ended 30 June 2005 and the preparation of an
opening IFRS balance sheet at 1 July 2004 (the group"s date of transition).
In preparing its opening IFRS balance sheet, comparative information for the six
months ended 31 December 2004 and the financial statements for the year ended 30
June 2005, the group has adjusted amounts reported previously in financial
statements prepared in accordance with previous GAAP.
An explanation of how the transition from previous GAAP to IFRS has affected the
group"s financial position, financial performance and its financial statements
is contained in note 3 below.
3. IFRS impact on financial statements
3.1 On balance sheet Effect on Effect on Effect on
assets liabilities equity
Transition date - 1 July 2004
Property, plant and 233 726 - 233 726
equipment
Inventory (3 100) - (3 100)
Trade and other 267 - 267
receivables
Deferred tax - (69 268) (69 268)
R230 893 (R69 268) R161 625
Interim period ended 31 December 2004
Property, plant and 248 263 - 248 263
equipment
Inventory (3 400) - (3 400)
Trade and other 98 - 98
receivables
Deferred Tax - (73 488) (73 488)
R244 961 (R73 488) R171 473
Year ended 30 June 2005
Property, plant and 174 860 - 174 860
equipment
Inventory (3 100) - (3 100)
Trade and other 283 - 283
receivables
Deferred Tax - (49 893) (49 893)
R172 043 (R49 893) R122 150
3.2 On reported results Income Taxation Attributable
before profit
taxation
Interim period ended 31 December 2004
Property, plant and 14 537 (4 361) 10 176
equipment
Inventory (300) 90 (210)
Trade and other (169) 51 (118)
receivables
R14 068 (R4 220) R9 848
Year ended 30 June 2005
Property, plant and 24 352 (7 062) 17 290
equipment
Inventory - - -
Trade and other 16 (5) 11
receivables
Deferred tax - change - 2 309 2 309
in rate
R24 368 (R4 758) R19 610
4. Prior year adjustments
4.1 Operating leases
In accordance with guidance provided by Circular 7/2005 released by SAICA
operating lease expenses are recognized on a straight line basis over the term
of the lease. The effect on the current period was to decrease income by
R509,000 before taxation. The effect on the comparative period was to decrease
income by R990,000 before taxation. The effect on the year ended 30 June 2005
was to decrease income by R1,6 million before taxation.
4.2 Deferred taxation
A provision for deferred tax of R3,7 million was made at December 2004 based on
information available at the time. Subsequent thereto, this provision was
considered superfluous and was therefore not included in the 30 June 2005
taxation calculation.
5. Capital expenditure and commitments
Capital expenditure during the period under review amounted to R12,3 million
(2004: R34 million). There are further commitments in respect of contracted
capital expenditure as at 31 December 2005 of approximately R13 million (2004:
R24 million).
6. Contingent liabilities
There are contingent liabilities in respect of guarantees furnished by the
company and/or its subsidiaries for bank facilities, leases and normal business
commitments of subsidiary companies. Signed for and on behalf of the board in
Cape Town on 2 March 2006.
Adv. N N Lazarus SC
CHAIRMAN
Dr. A Searll DBA
CHIEF EXECUTIVE OFFICER
The company"s shares are listed under the Consumer Goods - Personal Goods Sector
of the JSE Limited.
DIRECTORS Adv N N Lazarus* SC (Chairman), Dr A Searll DBA (CEO), J A Copelyn*
BA(Hons), A D Jacobson CA(SA) CFA MCT(SA), W Simeoni (Austrian), R A Upton*
CA(SA). *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:
TRANSFER SECRETARIES Computershare Investor Services 2004 (Pty) Ltd., 70
Marshall Street, Johannesburg 2001. P O Box 61051, Marshalltown 2107. Telephone:
+27-11-3705000
Reports 2006
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/
Auditors: KPMG Inc.
Attorneys: Sonnenberg Hoffmann & Galombik Inc.
Date: 03/03/2006 09:36:32 AM Produced by the JSE SENS Department
