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SER/SRN - Seardel Investment Corporation Limited - Unaudited Group Interim

Release Date: 17/11/2011 16:48
Code(s): SER SRN
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SER/SRN - Seardel Investment Corporation Limited - Unaudited Group Interim Results for the six months ended 30 September 2011 SEARDEL INVESTMENT CORPORATION LIMITED Registration number: 1968/011249/06 ("Seardel" or "the Group") (Incorporated in the Republic of South Africa) The company`s shares are listed under the Consumer Goods - Personal and Household Goods Sector of the JSE Limited. JSE share code: SER ISIN: ZAE000029815 JSE share code: SRN ISIN: ZAE000030144 UNAUDITED GROUP INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011 STATEMENT OF FINANCIAL POSITION 30 Sept 31 March Rand thousands 2011 2011 ASSETS Non-current assets 1 047 426 967 147 Property, plant and equipment 677 618 665 727 Intangible assets 9 278 8 812 Investment properties 285 711 224 001 Other investments 3 339 3 329 Long-term receivables 41 193 35 256 Deferred tax 30 287 30 022 Current assets 1 216 682 1 140 694 Non-current assets held for sale 14 983 16 338 Inventories 597 462 557 575 Trade and other receivables 595 979 554 995 Current tax asset 2 893 898 Cash and cash equivalents 5 365 10 888 Total assets 2 264 108 2 107 841 EQUITY AND LIABILITIES Total equity 1 256 032 1 254 592 Share capital and share premium 304 619 303 969 Treasury shares (14 610) (14 610) Reserves 965 413 964 623 Equity attributable to owners of the parent 1 255 422 1 253 982 Non-controlling interests 610 610 Non-current liabilities 77 237 77 759 Deferred tax 7 332 7 999 Post employment medical aid benefits 66 598 66 849 Interest-bearing liabilities 3 010 98 Operating lease accruals 297 2 813 Current liabilities 930 839 775 490 Current tax payable 334 257 Post employment medical aid benefits 4 368 4 384 Interest-bearing liabilities 129 110 131 470 Short-term provisions 2 916 2 337 Trade and other payables 469 534 418 912 Bank overdrafts 324 577 218 130 Total liabilities 1 008 076 853 249 Total equity and liabilities 2 264 108 2 107 841 Net asset value (excluding intangible assets) 1 246 144 1 245 170 Net asset value per share after treasury shares (cents) 177 177 STATISTICS PER SHARE 30 Sept 30 Sept
In cents, where applicable 2011 2010 % change (restated) Weighted average number of shares in issue (`000) 703 074 702 946 Number of shares in issue (`000) 703 711 702 946 Diluted weighted average number of shares in issue (`000) 737 493 737 346 Profit/(loss) 0,2 (10,1) Continuing operations 1,4 0,9 55,6% Discontinued operations (1,2) (11,0) (88,8%) Headline earnings/(loss) 0,1 (11,3) Continuing operations 1,4 0,5 180,0% Discontinued operations (1,3) (11,8) (88,9%) Diluted profit/(loss) 0,2 (9,7) Continuing operations 1,4 0,7 100,0% Discontinued operations (1,2) (10,4) (88,8%) Diluted headline earnings/(loss) 0,1 (10,8) Continuing operations 1,4 0,5 180,0% Discontinued operations (1,3) (11,3) (88,9%) Reconciliation between profit/(loss) and headline earnings/(loss) Income attributable to shareholders 1 440 (71 341) Net impairment of assets (808) 10 632 Surplus on disposal of property, plant and equipment (25) (16 771) Revaluation of investment property - (1 882) Loss on disposal of property, plant and equipment 52 10 Total tax effect of adjustments (2) 4 Total non-controlling interest effects of adjustments - - Headline earnings/(loss) 657 (79 348) NOTES 1. Basis of preparation The Group Interim results have been prepared in accordance with International Financial Reporting Standards (IFRS) and specifically International Accounting Standard IAS 34: Interim Financial Reporting and the AC 500 Standards as issued by the Accounting Practices Board or its successor, the Listings Requirements of the JSE Limited and the Companies Act No. 71 of 2008. These results have been prepared by the Chief Financial Officer, Gys Wege CA(SA) and have not been audited or reviewed by the Group`s auditors, KPMG Inc. 2. Significant accounting policies The Group Interim results 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 period ended 31 March 2011. 3. Related party transactions Expenses recognised in relation to the provision of managerial services received from HCI amounted to R2 100 000. Residential premises were leased to Mr A Ntuli (director) for R21 090. A bridging loan totalling R30 million was advanced by HCI Treasury which bears interest at prime. The associated interest expense is R245,075. 4. Capital expenditure and commitments Net capital expenditure during the period under review amounted to R97,3 million (2010: R37,2 million). There are further commitments in respect of contracted capital expenditure as at 30 September 2011 of approximately R83,3 million (2010: R33,1 million). 5. Restatement of prior year results The prior year statement of comprehensive income has been restated so as to separately identify the additional discontinued operations. CONDENSED STATEMENT OF COMPREHENSIVE INCOME 30 Sept 30 Sept 2011 2010
Rand thousands (restated) % change Revenue 1 207 947 1 177 020 2,6% Gross profit 229 021 278 683 (17,8%) Operating profit before impairments and restructuring and retrenchment costs 30 879 17 904 72,5% Net impairment of assets 192 - - Net restructuring and retrenchment costs (5 521) (1 441) - Operating profit before finance costs 25 550 16 463 55,2% Finance income 3 451 1 888 - Finance expenses (17 842) (11 177) - Profit before tax 11 159 7 174 55,5% Income tax expense (1 095) (1 486) - Profit for the period from continuing operations 10 064 5 688 76,9% Loss for the period from discontinued operations (8 624) (77 029) - TOTAL COMPREHENSIVE PROFIT/ (LOSS) FOR THE PERIOD 1 440 (71 341) - Profit/(loss) attributable to: Owners of the parent 1 440 (71 341) - Non-controlling interests - - - 1 440 (71 341) - Total comprehensive profit/(loss) attributable to: Owners of the parent 1 440 (71 341) - Non-controlling interests - - - 1 440 (71 341) -
CONDENSED STATEMENT OF CASH FLOWS 30 Sept 30 Sept Rand thousands 2011 2010 Net cash flow from operating activities (19 581) (16 118) Net cash flow from investing activities (92 941) 33 291 Net cash flow from financing activities 552 (47 629) Net decrease in cash and cash equivalents (111 970) (30 456) Cash and cash equivalents at beginning of period (207 242) (116 197) Cash and cash equivalents at end of period (319 212) (146 653) STATEMENT OF CHANGES IN EQUITY Share Share Treasury Other capital premium shares reserves
Balance at 1 April 2010 159 207 144 762 (14 610) 318 019 Total comprehensive loss for the period - - - - Balance at 30 September 2010 159 207 144 762 (14 610) 318 019 Balance at 1 April 2011 159 207 144 762 (14 610) 264 064 Total comprehensive profit for the period - - - - Shares issued 191 459 - - Share incentive scheme adjustments - - - - Balance at 30 September 2011 159 398 145 221 (14 610) 264 064 Non-
control- Retained ling Total income Total interest equity Balance at 1 April 2010 683 970 1 291 348 601 1 291 949 Total comprehensive loss for the period (71 341) (71 341) - (71 341) Balance at 30 September 2010 612 629 1 220 007 601 1 220 608 Balance at 1 April 2011 700 559 1 253 982 610 1 254 592 Total comprehensive profit for the period 1 440 1 440 - 1 440 Shares issued - 650 - 650 Share incentive scheme adjustments (650) (650) - (650) Balance at 30 September 2011 701 349 1 255 422 610 1 256 032 30 Sept 30 Sept Composition of other reserves 2011 2010 Revaluation of investments 2 861 2 601 Capital redemption reserve fund 440 440 Surplus on disposal of subsidiary and associated companies 7 923 7 923 Surplus on revaluation of land and buildings 252 840 307 055 264 064 318 019 CONDENSED SEGMENTAL REPORT Toys, stationery
and Rand thousands Textiles Clothing electronics 30 Sept 2011 Segment revenue External sales 542 887 496 743 209 737 Inter-segment sales (these transactions are at arms length) (20 763) - - 522 124 496 743 209 737
Less: Revenue attributable to discontinued operations - (29 606) - Revenue as per statement of comprehensive income 522 124 467 137 209 737 Segment results Operating profit/(loss) from operations 34 223 (55 614) 13 159 Less: operating profit/(loss) from discontinued operations 517 (7 792) - Operating profit/(loss) from continuing operations 33 706 (47 822) 13 159 30 Sept 2010 Segment revenue External sales 533 022 617 529 206 618 Inter-segment sales (these transactions are at arms length) (31 158) (24 007) (976) 501 864 593 522 205 642
Less: Revenue attributable to discontinued operations (53) (126 368) - Revenue as per statement of comprehensive income 501 811 467 154 205 642 Segment results Operating profit/(loss) from operations 8 451 (86 120) 10 428 Less: operating profit/(loss) from discontinued operations 418 (65 890) - Operating profit/(loss) from continuing operations 8 033 (20 230) 10 428 Head Rand thousands Properties office Total 2011 Segment revenue External sales 29 681 - 1 279 048 Inter-segment sales (these transactions are at arms length) (20 732) - (41 495) 8 949 - 1 237 553 Less: Revenue attributable to discontinued operations - - (29 606) Revenue as per statement of comprehensive income 8 949 - 1 207 947 Segment results Operating profit/(loss) from operations 31 740 (5 233) 18 275 Less: operating profit/(loss) from discontinued operations - - (7 275) Operating profit/(loss) from continuing operations 31 740 (5 233) 25 550 2010 Segment revenue External sales 33 255 - 1 390 424 Inter-segment sales (these transactions are at arms length) (30 842) - (86 983) 2 413 - 1 303 441 Less: Revenue attributable to discontinued operations - - (126 421) Revenue as per statement of comprehensive income 2 413 - 1 177 020 Segment results Operating profit/(loss) from operations 23 911 (5 679) (49 009) Less: operating profit/(loss) from discontinued operations - - (65 472) Operating profit/(loss) from continuing operations 23 911 (5 679) 16 463 COMMENTARY Despite the difficult trading conditions experienced in the period under review, most of the Group`s business segments made good progress with operating profit growth being shown in the Textiles, Property as well as the Toys, Stationery & Electronics segments. However, the good work done in these areas was blighted by the very disappointing performance of the Clothing Segment which saw its operating loss worsen significantly in the current period. The Group as a whole managed to return to the black for the six months ended 30 September 2011, posting an attributable profit of R1,4 million compared to an attributable loss of R71,3 million in the corresponding period. The main reason for the improvement was the cessation of the operations that were reported in the discontinuing line in the prior year. Turnover from continuing operations was up 3% due mainly to increases in raw material prices rather than increased volume. The Group`s gross margins came under severe pressure being down 4,7% from 23,6% in the prior period to 18,9% in the current period. Although margin pressures were experienced across all the Group`s business segments, the most severe effects were felt in the apparel manufacturing business where increases in raw material and production costs were unable to be passed on to customers while reduced volumes also meant reduced overhead absorption. Although the Group`s gross margin was down, operating profit was up R17,9 million (72,5%) to R30,9 million on the back of a combination of cost savings and the recognition of some R46 million of production incentive in the current year. We did not recognise any production incentive in the comparative period as there was no certainty on the incentive scheme at the time. Income from the production incentive is recognised in accordance with the strict requirements of the relevant accounting standard, which amongst other things requires us to match the income and expenses associated with the incentive wherever possible. Textiles The performance of the Textiles segment continues to improve, with all but one of the business units within this sector now being profitable. Operating profit grew from R8,0 million in the prior period to R33,7 million although this does include benefits from the production incentive. If one excludes the effects of the production incentive entirely, operating profit grew by an impressive 29%. The improvement in these business units is particularly pleasing given that it has been achieved under difficult trading conditions. Most of the business units within this segment are running at well below capacity and remain primed to take advantage of any improvements in the economic conditions. Clothing The clothing operations continue to be problematic with the continuing operations delivering an operating loss of R50 million (2009: R20 million). Although undoubtedly the apparel manufacturing business is still plagued by all the issues that have weighed down the entire sector for a number of years, the losses incurred cannot be entirely ascribed to the industry woes. There are a number of areas that are under our direct control where significant improvements can and need to be made. There are a number of improvement measures at various stages of completion that are taking place to address the poor performance of this business, most notably: - a complete revamp of the IT backbone that will ensure that reliable and timely information is received in order to enhance decision-making processes. This has now largely been completed; - the material resource planning system has been upgraded and now runs off a central platform to: enable greater visibility of material flow throughout the operations, improve production planning and ensure better delivery performance; - rationalisation of the product portfolio to remove unnecessary complexity in the business and ensure that margins can be maintained; - finalising the centralisation process to reduce fixed overheads. Until the centralisation process is completed, the Group is incurring costs in maintaining additional production and administration facilities; and - a continuous focus of productivity improvements. Unfortunately, the turnaround of the clothing division has been slower than we first anticipated. Any improvements that have been made have been lost to reduced margins and declining volumes. Our production facilities in the high- wage metro areas are of particular concern as over time these factories have lost more and more of the long-run work without which factory efficiencies suffer. This has resulted in further restructuring being required in these areas. However, there are a number of positive initiatives taking place in the industry including: - the advent of the production incentive which has provided a level of stability and enables the business to invest in necessary equipment upgrades and process improvements; - the new wage dispensation that has been agreed which provides for lower wages for new entrants into the industry is a positive step and should benefit the industry generally. However, it`s a moot point whether this dispensation is of benefit to the more established manufacturers with a large number of existing employees. We believe that there may be benefit to this in the longer term and that if it assists the local industry generally to grow employment there will be positive spin-offs in time; - the weakening Rand will be of assistance; - the current discussions around duty rebates on fabrics not locally produced are encouraging, although there is a genuine concern from the textile manufacturers that if this process is not carefully managed it will have significant negative consequences on this important sector; and - the local procurement initiatives in both the public and private sectors. The internal issues that are being addressed and the more positive external factors give us hope that this business will show improvements in time. However, we expect that any improvements that may come will not materialise in the short term and conditions in the second half of this financial year are likely to remain challenging. Brand Identity We have previously mentioned that branded products would be an area of focus for the Group and that a new division, Brand ID (www.brand-identity.co.za), had been formed to concentrate on the development of lifestyle brands. Of particular note was the launch of the 46664 fashion label during the period. Early indications for the brand are very positive. We are investigating launching the brand internationally in due course and are currently evaluating potential partners to assist in specific regions. We will also shortly be launching an on-line retail store (www.46664fashion.com) which is the Group`s first real foray into e-retailing. Toys, stationery and electronics The businesses within this segment continue to perform solidly. Although turnover only grew by 1,5% to R210 million, good cost controls and some assistance from the stronger Rand resulted in operating profit growing by 26% to R13 million. The performance of the electronics business in particular was pleasing with some of the longer-term strategies that were put in place to make this business more competitive starting to take effect. Properties The Group`s property development continues at pace with some 86 000 m2 of lettable space either having already been developed or nearing completion. As at 30 September 2011, we have signed up tenants for approximately 71 000 m2 of this space with good interest being shown in the last 15 000 m2. The Group`s has an additional 61 000 m2 which will be developed in time, provided we have sufficient tenants signed up. Although it was anticipated that the operating profit for the properties segment would be down on the prior year given the amount of space under construction, a once-off income item of R14 million helped lift operating profit, by 33% to R31,7 million (2010: R23,9 million). Material litigation The litigation against former directors has proceeded to arbitration hearings which have been completed, other than for final argument which is scheduled to be heard in the first quarter of 2012. On behalf of the board Stuart Queen Gys Wege Chief Executive Officer Chief Financial Officer Cape Town 17 November 2011 CORPORATE INFORMATION Registration number: 1968/011249/06 (Incorporated in the Republic of South Africa) The company`s shares are listed under the Consumer Goods - Personal and Household Goods Sector of the JSE Limited. JSE share code: SER ISIN: ZAE000029815 JSE share code: SRN ISIN: ZAE000030144 Directors: J A Copelyn* (Chairman), Adv N N Lazarus* (Deputy Chairman), M H Ahmed*, T G (Kevin) Govender*, A M Ntuli, S A Queen (Chief Executive Officer), Y Shaik*, N Teladia*, R Watson*, G D T Wege (Chief Financial Officer) (* indicates Non-executive) Company secretary: HCI Managerial Services (Pty) Ltd Registered Office: 1 Moorsom Avenue, cnr Bofors Circle and Moorsom Avenue, Epping Industria II 7460 PO Box 524, Eppindust 7475, South Africa Transfer secretaries: Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown 2107 Auditors: KPMG Inc. Sponsors: Java Capital Date: 17/11/2011 16:48:02 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). 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