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SER SRN
SER
SER/SRN - Seardel - Group Interim Report To Shareholders For The Six Months
Ended December 2006.
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 DECEMBER 2006.
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED 31 DECEMBER
2006 2005 % Change
Rand thousands, unless (unaudited) (unaudited)
otherwise indicated
Revenue 2 003 392 1 870 185 +7,1
Profit before taxation 40 459 51 270 -21,1
Earnings per share - cents 37,6 39,5 -4,8
Headline earnings per share 31,1 36,5 -14,8
- cents
Capital and reserves 1 378 171 1 427 344 -3,4
Total tangible assets 2 673 361 2 437 092 +9,7
(excluding cash)
Net asset value per share - 1 514 1 240 +22,1
cents
The unaudited condensed consolidated financial statements of the group for the
six months ended 31 December 2006 with comparative figures for the corresponding
period last year, together with the audited financial statements for the
financial year ended 30 June 2006 are set out below.
INCOME STATEMENT SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
2006 2005 % Change 2006
Rand thousands (unaudited) (unaudited) (audited)
Revenue R2 003 392 R1 870 185 +7,1 R3 686 322
Operating profit 66 441 74 091 -10,3 152 693
before finance costs
Finance income 9 855 7 693 15 463
Finance expenses (35 837) (30 514) (61 991)
Profit before 40 459 51 270 -21,1 106 165
taxation
Taxation (7 541) (5 500) (19 366)
Profit for the period 32 918 45 770 -28,1 86 799
Attributable to:
Shareholders 34 374 45 353 -24,2 86 681
Minority interest - (1 456) 417 118
(loss)
Profit for the period R32 918 R45 770 R86 799
STATISTICS PER SHARE
In cents,
where applicable
SIX MONTHS ENDED 31 DECEMBER YEAR ENDED
30 JUNE
Weighted average number of 91 332 114 752 105 224
shares in issue (000)
Weighted average number of 91 702 115 501 105 997
diluted shares in issue (000)
Earnings 37,6 39,5 -4,8 82,4
Diluted earnings 37,5 39,3 -4,6 81,8
Headline earnings 31,1 36,5 -14,8 74,2
Diluted headline earnings 31,0 36,2 -14,4 73,6
Distribution - annual - - 27,0
Distribution cover - headline - - 2,7
earnings
RECONCILIATION BETWEEN
EARNINGS AND HEADLINE
EARNINGS
Income attributable to 34 374 45 353 86 681
shareholders
Impairment of goodwill - - 542
Insurance claim - loss of - - (34)
profits
Reversal of impairment of - - (6 190)
property, plant and equipment
Surplus on disposal of (9 369) (4 929) (12 077)
property, plant and equipment
Loss/(profit) on share 210 - (24)
options exercised
Tax effect of adjustments 3 217 1 429 9 155
Headline earnings R28 432 R41 853 R78 053
BALANCE SHEET SIX MONTHS ENDED 31 YEAR ENDED
DECEMBER 30 JUNE
2006 2005 2006
Rand thousands (unaudited) (unaudited) (audited)
ASSETS
Non-current assets 1 062 770 973 1 029 537
748
Property, plant and equipment 1 004 690 946 826 971 703
Goodwill - 542 -
Investments 1 911 1 333 1 801
Long-term receivables 46 533 15 670 49 153
Deferred taxation 9 636 9 377 6 880
Current assets 1 775 384 1 740 751 1 650 455
Assets held for disposal 3 687 85 597 27 741
Inventory 828 593 631 757 736 921
Trade and other receivables 787 947 750 799 703 923
Taxation receivable - 5 110 -
Cash and cash equivalents 155 157 267 488 181 870
TOTAL ASSETS R2 838 154 R2 714 499 R2 679 992
EQUITY AND LIABILITIESs
Capital and reserves 1 378 171 1 427 344 1 370 789
Share capital and share 6 130 6 766 6 262
premium
Treasury shares (9 441) (1 917) (4 740)
Reserves 1 376 687 1 418 1 366 071
865
Total equity attributable to 1 373 376 1 423 714 1 367 593
equity holders
Minority interest 4 795 3 630 3 196
Non-current liabilities 568 713 400 306 484 809
Interest-bearing liabilities 338 166 180 925 256 619
Deferred liabilities 68 554 63 500 68 074
Deferred taxation 155 426 155 881 154 303
Operating lease accruals 6 567 - 5 813
Current liabilities 891 270 886 849 824 394
Interest-bearing loans 256 886 220 719 217 496
Trade and other payables 431 789 456 779 497 355
Provisions 39 748 27 345 79 351
Bank overdrafts 153 710 181 989 22 159
Taxation payable 9 120 - 8 016
Dividend to shareholders 17 17 17
TOTAL EQUITY AND LIABILITIES R2 838 154 R2 714 499 R2 679 992
Net asset value (excluding 1 373 376 1 423 172 1 367 593
intangible assets)
Net asset value per share - 1 514 1 240 1 496
cents
RATIOS SIX MONTHS ENDED YEAR ENDED
31 DECEMBER 30 JUNE
Profitability
Profit from operations as percentage 3,3% 4,0% 4,1%
of revenue
Profit before taxation as percentage 2,0% 2,7% 2,9%
of revenue
Profit after taxation as percentage of 1,6% 2,4% 2,4%
revenue
Return on total tangible assets 5,4% 4,8% 6,1%
(excluding cash)
Return on total equity attributable to 5,5% 5,4% 6,3%
equity holders
Leverage
Ratio of debt to capital and reserves 78% 56% 66%
Ratio of net borrowings (interest 43% 22% 23%
bearing debt) to capital and reserves
Liquidity
Current ratio 2,0 2,0 2,0
Net finance charges cover 2,6 3,2 3,3
CONDENSED CASH FLOW STATEMENT SIX MONTHS ENDED 31 YEAR ENDED
DECEMBER 30 JUNE
2006 2005 2006
Rand thousands (unaudited) (unaudited) (audited)
Net cash flow from operating (210 514) (19 485) 116 817
activities
Net cash flow from investing (66 609) (6 291) (1 844)
activities
Net cash flow from financing 118 859 (74 209) (140 746)
activities
Net decrease in cash and cash (158 264) (99 985) (25 773)
equivalents
Cash and cash equivalents at 159 711 185 484 185 484
beginning of period
Cash and cash equivalents at R1 447 R85 499 R159 711
end of period
STATEMENT OF CHANGES IN EQUITY
Rand thousands
Share Capital Share Premium Treasury Shares
Balance 30 June 2005 6 719 187 (5 420)
Cancellation of shares (140) 2 884
Share options 619
exercised
Profit for the period
Dividend
Balance 31 December R6 579 R187 (R1 917)
2005
Balance 30 June 2006 6 075 187 (4 740)
Dilution of interest
in subsidiary
Revalued amount
released
Cancellation of shares (132) 835
Share repurchases (5 834)
Share options 298
exercised
Profit for the period
Dividend
Balance 31 December R5 943 R187 (R9 441)
2006
CHANGES IN EQUITY STATEMENT (CONTINUED)
Rand thousands
Other Retained Minority Total
Reserves Income Interest
Balance 30 June 2005 70 534 1 322 762 3 213 1 397 995
Cancellation of (7 181) (4 437)
shares
Share options 619
exercised
Profit for the 45 353 417 45 770
period
Dividend (12 603) (12 603)
Balance 31 December R70 534 R1 348 331 R3 630 R1 427
2005 344
Balance 30 June 2006 41 249 1 324 822 3 196 1 370 789
Dilution of interest 1 896 3 055 4 951
in subsidiary
Revalued amount (4 432) 4 432 -
released
Cancellation of (738) (35)
shares
Share repurchases (5 834)
Share options 298
exercised
Profit for the 34 374 (1 456) 32 918
period
Dividend (24 916) (24 916)
Balance 31 December R36 817 R1 339 870 R4 795 R1 378
2006 171
2006 2005
Composition of other reserves
Revaluation of investments 753 284
Capital redemption reserve fund 440 440
Surplus on disposal of subsidiary and associated 7 923 7 923
companies
Surplus on revaluation of land and buildings 27 701 61 887
R36 817 R70 534
SEGMENTAL REPORT Textiles Apparel and Office
household automation
Rand thousands textiles and consumer
2006 electronics
Segment revenue
External sales 722,498 979,351 112,902
Inter-segment sales (35,007) - -
(these transactions are
at arms length)
687,491 979,351 112,902
Segment results
Operating profit 26,764 13,557 15,858
2005
Segment revenue
External sales 696,116 928,853 107,464
Inter-segment sales (41,508) - -
(these transactions are
at arms length)
654,608 928,853 107,464
Segment results
Operating profit 35,018 17,659 11,366
SEGMENTAL REPORT Toys Industrial Total
(CONTINUED) products
Rand thousands
2006
Segment revenue
External sales 141,709 81,939 2,038,399
Inter-segment sales - - (35,007)
(these transactions are
at arms length)
141,709 81,939 2,003,392
Segment results
Operating profit 12,028 (1,766) 66,441
2005
Segment revenue
External sales 101,064 78,196 1,911,693
Inter-segment sales - - (41,508)
(these transactions are
at arms length)
101,064 78,196 1,870,185
Segment results
Operating profit 7,012 3,036 74,091
COMMENT ON RESULTS AND CORPORATE ACTIONS
Revenue increased by 7,1% to R2,003 billion. The substantial imports
of apparel and textiles continued growing at an alarming rate. Imports of
apparel for the period January to November 2006 totalled
R6,11 billion, up 35,2% on last year`s imports of R4,52 billion, which itself
was up 35,1% on 2004 imports. Imports of textiles for the period January to
November 2006 amounted to R1,9 billion, up by 28,7% on the previous year. China
remains far and away the major source of imports of apparel, accounting for
77,6% of total imports by value.
A quota dispensation was gazetted on 20 October 2006, following a formal bi-
lateral agreement between South Africa and China, which became effective on 1
January 2007. Under the regulations, importers had to apply for Special Import
Permit Certificates. These specify
the quotas across specific textile and garment categories, which a registered
importer would qualify for. A special committee, operating under the auspices of
the Department of Trade and Industry has been established to monitor the
implementation of the quotas. This monitoring committee consists of labour,
business and government and will, where required, make recommendations to the
Minister of Trade and Industry in the course of the administration of these
measures. This, combined with the requirement of Country of Origin labelling
already in place, is expected to have the effect of slowing down the
unacceptable rate of import increases. After many years of effort and pressure
the gazetting of the Country of Origin labelling legislation, in spite of
considerable resistance from retail and import agents, will greatly assist SARS
Customs in establishing a paper trail in respect of under invoicing, round-
tripping and general illegal trade practices. The expected benefits are yet to
be realised. Clothing PPI now stands at 0,8% against the overall manufacturing
PPI index of 9,9%.
The level of Seardel`s exports declined by 2% to R72,5 million.
Profit before taxation amounted to R40,5 million (2005: R51,3 million), a
decrease of 21,1%. A contributing factor was that the Frame textile division
experienced continuous pressure on prices, especially polyester and wool, which
had a significant impact on margins. There were also major delays in the
relocation of some of the spinning mills, which has had an effect on costs.
Finance costs increased by R3,2 million because of the increase in interest-
bearing debt from June 2006 of R279 million, due partly to the consolidation of
debt of R89 million to fund the initial costs of R3,2 million written off and
assets amounting to R78 million in Sustainable Fibre Solutions (Pty) Limited
(SFS). This is because of Seardel`s management control position in the company,
notwithstanding our one third investment in the equity of this company. The
Industrial Development Corporation owns the remaining two thirds of the equity.
It should also be noted that debtor payments of R53 million, due on
31 December 2006, were, because of the New Year weekend, only received on the
2nd or 3rd of January 2007. Finished goods, produced for orders, were held
pending delivery instructions from customers at December 2006. This impacted
negatively on inventory levels and cash flows. These are expected to return to
normality in the second half of the financial year and liquidity will improve
accordingly. Earnings attributable to shareholders amounted to R34,4 million
(2005: R45,3 million), a decrease of 24,2%.
Earnings per share amounted to 37,6 cents (2005: 39,5 cents),
a decrease of 4,8%.
Headline earnings per share amounted to 31,1 cents (2005:
36,5 cents), a decrease of 14,8%.
The main contributing factors were a reduction in operating profit, the increase
in interest rates and a R2 million higher tax charge. However, both Seartec
(Sharp) and Prima Toys posted substantial increases in operating profit. These
businesses source their products offshore. The diversification of the group`s
investment policy has again shown positive results.
During the period under review the group repurchased 37,837 ordinary and 708,952
N ordinary shares. An additional 528,494 ordinary shares were cancelled and
delisted during this period. This reduced
the shares in issue at 31 December 2006 to 92,1 million (23,1 million ordinary
shares and 69 million N ordinary shares). Treasury shares amount to 1,3 million.
Tangible net asset value per share is 1514 cents based on 90,7 million shares
(2005 : 1240 cents per share based on 114,7 million shares).
The group`s clothing and textile divisions have, where necessary, been
restructured and streamlined in order to remain competitive, thereby enabling
the divisions to concentrate on their strengths, i.e. top quality garments,
service levels to local customers, short lead times, and innovative sourcing of
certain product from Eastern suppliers to our specifications and quality
control.
The Charmfit division manufactures, amongst other products, Triumph underwear
under licence. Negotiations are currently under
way to sell the distribution, sales and marketing functions to Triumph
International, but to retain the production unit.
Seardel has entered into a joint venture with the Industrial Development
Corporation through the SFS vehicle. This business, situated in the Winterton
area of the KwaZulu Natal Midlands, is partnering with selected farmers in the
area to grow and process kenaf for industrial use as a natural product
replacement of plastic in the building and motor industries. Funding of the
plant is in proportion to shareholding. A trust fund has been set up to
facilitate empowerment ownership. SFS will initially provide product mainly for
export and also to the local market when production is ramped up.
Seartec Industries (Pty) Limited is in the process of concluding a transaction
to sell a 25,1% interest in its business to a BBBEE entity, Thesele Group.
Outlook to June 2007
The economy is expected to increase by about 4% during the next six months. The
continuity of electricity supplies is in doubt. The group has therefore invested
in power generating machinery in order to maintain continuity of production
schedules at its various manufacturing plants. Order books are considered to be
reasonable at this stage. It is anticipated that the slow down in imports should
reflect positively on the group in the medium term.
Notes
1. Accounting policies
The condensed financial statements have been prepared in accordance with
International Accounting Standard IAS34: Interim Financial Reporting. They are
also compliant with International Financial Reporting Standards (IFRS). These
results have not been audited or reviewed by the company`s auditors.
2. Significant accounting policies
The condensed financial statements have been prepared under the historical cost
convention, except for the revaluation of certain properties and financial
instruments.
The accounting policies adopted are consistent with those followed in the
preparation of the group`s annual financial statements for the year ended 30
June 2006.
3. Related parties
Transactions between group companies
During the year, in the ordinary course of business, certain companies within
the group entered into intra-group transactions which have been eliminated on
consolidation.
Acquisition of shares
Seardel Investment Corporation Limited acquired 528,494 ordinary shares from the
Seardel Investment Corporation Employee Incentive Scheme 2001 at R8,05 per
share. These shares were subsequently cancelled.
Transactions with entities controlled by directors
Mr J Copelyn is a non-executive director of Mettle Limited. Group companies have
entered into financial transactions with the Mettle Group as set out in note 33
of the 2006 financial statements.
Subsidiary companies within the group have entered into property lease
transactions with Dr A Searll or entities controlled by him or in which he has
part ownership. The monetary value of these transactions is approximately R2,8
million for the period under review. A subsidiary company has a loan owing to
Grawood Investments (Pty) Limited, a company of which Dr A Searll is the sole
shareholder. This loan bears interest at a rate of prime minus 1%. The monetary
value of the loan at 31 December 2006 is R85,3 million and the related interest
for the six months ended 31 December 2006 is R4,2 million. The group engages the
services of Searay BD100 Charters, a partnership in which Dr A Searll has a 30%
interest. The related expense is R286,700. The group engages the services of
Crystal River Consultants, an entity owned by a family member of Dr A Searll.
The related expense is R475,000.
Remuneration of key management personnel
Key management personnel are directors and those executives
having authority and responsibility for planning, directing and
controlling the activities of the group. The remuneration paid by the group to
its key management personnel amounted to R9,5 million as at 31 December 2006.
Shares held by directors and their related entities
The percentage of shares held by directors of the company and their related
entities at the balance sheet date are disclosed in the directors` report on
page 35 of the 2006 financial statements. There has been no material change to
date hereof.
Related parties
All subsidiaries qualify as related parties and all subsidiaries are listed on
page 56 of the 2006 financial statements.
4. Capital expenditure and commitments
Net capital expenditure during the period under review amounted
to R74,4 million (2005: R12,3 million), of which SFS accounted for
R37 million. There are further commitments in respect of contracted capital
expenditure as at 31 December 2006 of approximately
R27 million (2005: R13 million).
5. Contingent liabilities
The company is jointly and severally liable in respect of third party
liabilities incurred by subsidiary companies.
There are uncertainties about the probability of outflows of resources and about
the amount of possible obligations with regard
to the "improper use" of the surplus funds in terms of amendments
to the Pension Funds Act No 24 of 1956. Based on legal advice taken, the
directors do not believe that such outflows are likely to materialise.
Signed for and on behalf of the board in Cape Town on 1 March 2007.
Adv. N N Lazarus SC
CHAIRMAN
Dr. A Searll DBA
CHIEF EXECUTIVE OFFICER
The company`s shares are listed under the Consumer Goods - Personal and
Household Goods sector of the JSE Limited.
DIRECTORS: N N Lazarus* (Chairman), A Searll (CEO), J Copelyn*, A D Jacobson, W
Simeoni (Austrian), R Upton*.
(*indicates non-executive.)
Transfer Secretaries:
Computershare Investor Services 2004 (Pty) Ltd, 70 Marshall Street, Johannesburg
2001. P O Box 61051, Marshalltown 2107.
Reports 2007
Interim for six months ending 31 December 2006 published March 2007. Annual for
year ending 30 June 2007 published September 2007.
Administration
Secretary and registered office:
L A Clohessy, 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
Internet: http://www.seardel.co.za
Auditors: KPMG Inc.
Date: 01/03/2007 14:00:01 Produced by the JSE SENS Department.
