Wrap Text
Reviewed Condensed Annual Resuls for the year ended 31st March 2014
SEARDEL INVESTMENT CORPORATION LIMITED
("Seardel" or "the Group")
Registration number: 1968/011249/06
(Incorporated in the Republic of South Africa)
JSE share code: SER ISIN: ZAE000029815
JSE share code: SRN ISIN: ZAE000030144
The company's shares are listed under the Consumer Goods - Personal and Household
Goods Sector of the JSE Limited.
REVIEWED CONSOLIDATED CONDENSED ANNUAL RESULTS for the year ended 31 March 2014
Revenue up R1 542 million to R3 387 million
Net profit up R1 million to R42 million
Headline profit per share down 2,8 cents to 0,1 cent
Headline profit from continuing operations per share up 4,7 cents to 14,1 cents
Loss per share down 7,3 cents to (1,3) cents
Earnings from continuing operations per share up 4,2 cents to 16,8 cents
NAV per share up 15 cents to 229 cents
STATEMENT OF FINANCIAL POSITION
Reviewed at Audited at
31 March 31 March
Rand thousands 2014 2013
ASSETS
Non-current assets 8 928 667 1 385 957
Property, plant and equipment 1 363 812 754 481
Plant and equipment 525 316 335 876
Owner-occupied property 838 496 418 605
Investment property 669 619 525 229
Intangible assets 2 817 234 13 030
Goodwill 3 708 837 -
Equity-accounted investees 132 698 -
Other investments 3 644 3 580
Long-term receivables 146 582 47 544
Deferred tax asset 86 241 42 093
Current assets 2 084 300 1 138 682
Non-current assets held for sale 54 536 2 295
Inventories 555 433 627 768
Programming rights 282 682 -
Trade and other receivables 1 024 750 504 788
Current tax asset 6 087 1 594
Cash and cash equivalents 160 812 2 237
Total assets 11 012 967 2 524 639
EQUITY AND LIABILITIES
Total equity 3 948 047 1 460 586
Stated capital/Share capital and share premium 1 692 429 312 156
Treasury shares (17 794) (17 794)
Reserves 1 043 334 1 166 224
Total equity attributable to equity holders 2 717 969 1 460 586
Non-controlling interest 1 230 078 -
Non-current liabilities 5 568 810 93 662
Deferred tax liability 486 583 8 400
Post-employment medical aid benefits 91 180 84 388
Interest-bearing liabilities 4 868 343 756
Share-based payment liability 122 465 -
Operating lease accruals 239 118
Current liabilities 1 496 110 970 391
Current tax liabilities 529 -
Post-employment medical aid benefits 6 280 5 045
Interest-bearing liabilities 67 161 298
Trade and other payables 861 047 460 008
Provisions 23 309 355
Bank overdrafts 537 784 504 685
Total liabilities 7 064 920 1 064 053
Total equity and liabilities 11 012 967 2 524 639
Net asset value 2 717 969 1 460 586
Net asset value per share after treasury shares (cents) 229 214
CONDENSED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Reviewed Audited
for the for the
year ended year ended
31 March 31 March
Rand thousands 2014 2013*
Revenue 3 387 121 1 845 524
Gross profit 1 294 794 454 012
Operating profit before impairments and restructuring costs 458 605 87 922
Net impairment reversal of assets - 21 885
Restructuring and retrenchment cost (2 482) (1 182)
Operating profit before finance costs 456 123 108 625
Finance income 2 080 2 909
Finance expenses (170 052) (26 627)
Loss from equity-accounted investments (5 376) -
Profit before taxation 282 784 84 907
Income tax (expense)/income (81 270) 1 117
Profit for the year from continuing operations 201 514 86 024
Loss for the year from discontinued operations (159 901) (45 173)
Income for the year 41 613 40 851
Other comprehensive income/(loss) net of related tax effects:
Fair value adjustment on available-for-sale financial assets 51 -
Revaluation of land and buildings 19 193 23 489
Post-employment medical benefit - actuarial loss (4 295) (5 733)
Exchange differences on translating foreign operations 2 431 -
Other comprehensive income for the year 17 380 17 756
Total comprehensive income for the year 58 993 58 607
Profit attributable to:
Equity holders of the parent (11 157) 40 851
Non-controlling interests 52 770 -
41 613 40 851
Total comprehensive income attributable to:
Equity holders of the parent 5 362 58 607
Non-controlling interests 53 631 -
58 993 58 607
* Restated, refer note 9.
CONDENSED STATEMENT OF CASH FLOWS
Reviewed Audited
for the for the
year ended year ended
31 March 31 March
Rand thousands 2014 2013
Net cash flow from operating activities 217 444 202 584
Net cash flow from investing activities (191 614) (210 751)
Net cash flow from financing activities 99 646 (45 859)
Net change in cash and cash equivalents 125 476 (54 026)
Cash and cash equivalents at the beginning of the year (502 448) (448 422)
Cash and cash equivalents at the end of the year (376 972) (502 448)
STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the parent
Stated
capital/
share
capital and Treasury Other Retained
Rand thousands premium* shares reserves income
Balance at 31 March 2012 304 620 (14 610) 284 791 836 844
Total comprehensive income - - 23 489 35 118
Profit for the year - - - 40 851
Other comprehensive income - - 23 489 (5 733)
Revaluation of land and buildings - - 23 489 -
Post-employment medical benefit
- actuarial loss - - - (5 733)
Transfers to other reserves
Reclassification of revaluation surplus - - (9 611) 9 611
Transactions with owners recognised
directly in equity
Own shares acquired - (20 790) - -
Shares cancelled (19) 17 606 - (17 587)
Share incentive scheme - - - 3 569
Share issue 7 555 - - -
Balance at 31 March 2013 312 156 (17 794) 298 669 867 555
Total comprehensive income - - 20 814 (15 452)
Profit for the year - - - (11 157)
Other comprehensive income - - 20 814 (4 295)
Fair value adjustment on available-
for-sale financial assets - - 51 -
Exchange differences on translating
foreign operations - - 1 570 -
Revaluation of land and buildings - - 19 193 -
Post-employment medical benefit
- actuarial loss - - - (4 295)
Transfers to other reserves
Reclassification of revaluation surplus - - (1 950) 1 580
Transactions with owners recognised
directly in equity
Share incentive scheme - - - (5 449)
Dividends declared - - - -
Share options exercised 10 273 - - -
Changes in ownership interest
Acquisition of subsidiary with
non-controlling interests 1 370 000 - (425) (122 008)
Balance at 31 March 2014 1 692 429 (17 794) 317 108 726 226
* Refer to note 5.
Non-
con-
trolling
Rand thousands Total interest Total
Balance at 31 March 2012 1 411 645 - 1 411 645
Total comprehensive income 58 607 - 58 607
Profit for the year 40 851 - 40 851
Other comprehensive income 17 756 - 17 756
Revaluation of land and buildings 23 489 - 23 489
Post-employment medical benefit - actuarial loss (5 733) - (5 733)
Transfers to other reserves
Reclassification of revaluation surplus - - -
Transactions with owners recognised
directly in equity
Own shares acquired (20 790) - (20 790)
Shares cancelled - - -
Share incentive scheme 3 569 - 3 569
Share issue 7 555 - 7 555
Balance at 31 March 2013 1 460 586 - 1 460 586
Total comprehensive income 5 362 53 631 58 993
Profit for the year (11 157) 52 770 41 613
Other comprehensive income 16 519 861 17 380
Fair value adjustment on available-
for-sale financial assets 51 - 51
Exchange differences on translating
foreign operations 1 570 861 2 431
Revaluation of land and buildings 19 193 - 19 193
Post-employment medical benefit - actuarial loss (4 295) - (4 295)
Transfers to other reserves
Reclassification of revaluation surplus - - (370)
Transactions with owners recognised
directly in equity
Share incentive scheme (5 449) - (5 449)
Dividends declared - (71 837) (71 837)
Share options exercised 10 273 - 10 273
Changes in ownership interest
Acquisition of subsidiary with
non-controlling interests 1 247 567 1 248 284 2 495 851
Balance at 31 March 2014 2 717 969 1 230 078 3 948 047
2014 2013
Rand thousands Reviewed Audited
Composition of other reserves
Revaluation of investments 2 913 2 861
Capital redemption reserve fund 70 440
Surplus on disposal of subsidiary and associated companies 7 923 7 923
Translation reserve 1 145 -
Surplus on revaluation of land and buildings 305 058 287 445
317 108 298 669
CONDENSED SEGMENTAL REPORT
Branded
Product
Distri-
Rand thousands Media Properties bution Textiles
2014
Segment revenue
Gross revenue 1 223 603 118 926 957 545 736 920
Less: Revenue reclassified as
discontinued operations - - - -
Less: Inter-segment revenue - (47 379) (3 622) (46 767)
Revenue as per statement of
profit or loss and other
comprehensive income 1 223 603 71 547 953 923 690 153
Segment results
Operating profit/(loss) before
finance costs 241 194 103 769 37 359 21 990
Less: Loss disclosed as discontinued
operations (excluding finance charges
and taxation) - - - -
Operating profit/(loss) before finance
costs from continuing operations 241 194 103 769 37 359 21 990
2013*
Segment revenue
Gross revenue - 93 225 795 416 689 207
Less: Revenue reclassified as
discontinued operations - - - -
Less: Inter-segment sales - (45 944) (2 460) (39 207)
Revenue as per statement of
profit or loss and other
comprehensive income - 47 281 792 956 650 000
Segment results
Operating profit/(loss) before
finance costs - 63 554 15 474 31 362
Less: Loss disclosed as discontinued
operations (excluding finance charges
and taxation) - - - -
Operating profit/(loss) before finance
costs from continuing operations - 63 554 15 474 31 362
* Restated, refer to note 9.
Rand thousands Head
Industrials Clothing office Total
2014
Segment revenue
Gross revenue 424 701 627 651 - 4 089 346
Less: Revenue reclassified as
discontinued operations - (604 457) - (604 457)
Less: Inter-segment revenue - - - (97 768)
Revenue as per statement of
profit or loss and other
comprehensive income 424 701 23 194 - 3 387 121
Segment results
Operating profit/(loss) before
finance costs 32 941 (151 304) 24 021 309 970
Less: Loss disclosed as discontinued
operations (excluding finance charges
and taxation) - 146 153 - 146 153
Operating profit/(loss) before finance
costs from continuing operations 32 941 (5 151) 24 021 456 123
2013*
Segment revenue
Gross revenue 334 988 694 611 - 2 607 447
Less: Revenue reclassified as
discontinued operations - (667 962) - (667 962)
Less: Inter-segment sales (6 350) - - (93 961)
Revenue as per statement of
profit or loss and other
comprehensive income 328 638 26 649 - 1 845 524
Segment results
Operating profit/(loss) before
finance costs 17 046 (33 845) (13 733) 79 858
Less: Loss disclosed as discontinued
operations (excluding finance charges
and taxation) - 28 767 - 28 767
Operating profit/(loss) before finance
costs from continuing operations 17 046 (5 078) (13 733) 108 625
* Restated, refer to note 9.
STATISTICS PER SHARE
Reviewed at Audited at
31 March 31 March
In cents, where applicable 2014 2013*
Weighted average number of shares in issue ('000) 884 013 685 310
Number of shares in issue ('000) 1 186 936 682 892
Diluted weighted average number of shares in issue ('000) 908 655 710 913
Basic (loss)/earnings (1,3) 6,0
Continuing operations 16,8 12,6
Discontinued operations (18,1) (6,6)
Headline earnings/(loss) 0,1 2,9
Continuing operations 14,1 9,4
Discontinued operations (14,0) (6,5)
Diluted (loss)/earnings (1,2) 5,7
Continuing operations 16,4 12,1
Discontinued operations (17,6) (6,4)
Diluted headline earnings/(loss) 0,1 2,8
Continuing operations 13,7 9,0
Discontinued operations (13,6) (6,2)
Reconciliation between profit and headline earnings
Loss attributable to equity holders of the parent (11 157) 40 851
Net impairment of assets 4 617 (21 885)
Surplus on disposal of property, plant and equipment (3 888) (2 099)
Revaluation of investment property (20 726) 2 161
Loss on disposal of property, plant and equipment 31 734 1 012
Total tax effect of adjustments 264 -
Headline earnings 844 20 040
* Restated, refer note 9.
NOTES TO THE REVIEWED CONSOLIDATED CONDENSED RESULTS FOR THE YEAR ENDED 31 MARCH 2014
1 BASIS OF PREPARATION
The Group's reviewed consolidated condensed results have been prepared in accordance
with International Financial Reporting Standards (IFRS) and specifically International
Accounting Standard 34: Interim Financial Reporting as issued by the Accounting
Practices Committee and Financial Reporting Pronouncements as issued by the Financial
Reporting Standards Council, the JSE Listings Requirements and the requirements of
the Companies Act, 2008.
These results have been prepared under the supervision of the Financial Director,
Gys Wege (CA)SA, and have been reviewed by the Group's auditors, KPMG Inc.
2 SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The accounting policies adopted in the preparation of the reviewed consolidated
condensed financial statements are consistent with those followed in the preparation
of the Group's annual financial statements for the year ended 31 March 2013, except
for the adoption of new standards and interpretations effective as of 1 April 2013 and
programming rights. The new standards have no impact on the reviewed consolidated
condensed financial statements and are not expected to impact the annual consolidated
financial statements.
The Group’s accounting policy for programming rights is measure at cost and are
amortised over the number of licensed broadcasting runs. For features on first run,
70% of the cost is amortised and the remaining 30% over the balance of the licensed
broadcasting runs.
The amortisation of intangible assets are based on its estimated useful life and
included in the results as follows:
Market-related intangible assets Indefinite useful life
Customer-related intangible assets 2,7 - 10 years straight line
Contract-related intangible assets Indefinite useful life
3 INDEPENDENT REVIEW
The consolidated statement of financial position at 31 March 2014 and the consolidated
condensed statement of profit or loss and other comprehensive income, consolidated
statement of changes in equity and consolidated condensed statement of cash flows,
consolidated condensed segmental report and statistics per share for the year then
ended have been reviewed by KPMG Inc. Their unmodified report is available for
inspection at the registered office of the company.
4 CAPITAL EXPENDITURE AND COMMITMENTS
Capital expenditure Contractual commitments
2014 2013 2014 2013
Rand thousands Reviewed Audited Reviewed Audited
Investment property 37 499 104 496 2 152 20 265
Land and buildings 196 65 480 168 000 -
Plant and equipment 164 978 39 225 14 578 117
Intangible assets - 6 970 11 000 1 356
Business combinations 1 406 118 - 10 000 -
1 608 791 216 171 205 730 21 738
The capital commitments are expected to be incurred during the remainder of the
current financial year.
5 STATED CAPITAL
The shareholders of the company have approved the conversion of the ordinary shares
and N ordinary shares having a par value, to ordinary shares and N ordinary shares
having no par value at a general meeting of the company held on 8 August 2013.
Share capital and share premium have therefore been restated to stated capital.
Issue and repurchase of shares
The Group acquired a 100% interest in HCI Invest 3 Holdco Proprietary Limited
("Sabido Holdco"), which holds a 63,9% interest in Sabido Investments Proprietary
Limited ("Sabido"). The acquisition was funded through a combination of R4,4 billion
of debt and 500 million shares issued at R1,60, fairly valued to R1,37 billion.
During the period 4 044 426 (2013: 5 579 925) ordinary shares were issued in terms
of the Group's share incentive scheme.
Prior period
14 513 649 ordinary shares and 11 885 606 N ordinary shares were repurchased from
the market in accordance with the settlement agreement as communicated in the
circular to shareholders dated 30 April 2012. 7 732 934 N ordinary shares were
cancelled following the repurchase.
6 DILUTED WEIGHTED AVERAGE NUMBER OF SHARES
The difference between the weighted average number of shares and the diluted weighted
average number of shares is due to the impact of the unexercised options under the
Group's share incentive scheme.
7 BUSINESS COMBINATIONS
The Group acquired 100% of the share capital of five separate legal entities during
the year. The total consideration was R1 406 million.
The following table summarises the consideration paid for the entities, the assets
acquired and the liabilities assumed at the acquisition dates:
2014
Rand thousands Reviewed
Cash 23 440
Contingent consideration 12 678
Own shares issued 1 370 000
Total consideration 1 406 118
Recognised amounts of identifiable assets acquired and liabilities assumed:
Property, plant and equipment 671 543
Long-term receivables 19 835
Investments 131 364
Inventories 29 336
Programming rights 390 599
Intangible assets 2 805 210
Deferred tax asset 9 340
Trade and other receivables 600 982
Current tax asset 12 658
Cash and cash equivalents 87 327
Non-current loan (1 576 851)
Preference shares (3 105 764)
Deferred liabilities (3 707)
Deferred tax liability (489 056)
Share-based payment liability (122 465)
Trade and other payables (559 774)
Current loans (63 967)
Current tax liabilities (8 780)
Bank overdrafts (4 698)
Foreign currency translation reserve 425
Total identifiable net assets (1 176 443)
Less: Non-controlling interest (1 248 284)
Goodwill 3 708 837
Goodwill directly to equity as transaction with owners 122 008
Total consideration 1 406 118
Cash flow from this investing activity
Cash considered transferred (23 440)
Less: Cash and cash equivalents in the business acquired 87 327
Add: Overdraft in the business acquired (4 698)
Net cash inflow from investing operations 59 189
8 DISCONTINUED OPERATIONS
The apparel manufacturing business has over the years been ravaged by the flood of
cheap imports that have entered the market. To combat this the business has
undertaken a number of restructuring initiatives to significantly reduce costs,
improve trading margins and increase efficiencies. Despite these efforts the
business has continued to make losses.
The directors resolved to exit the Seardel Group's apparel manufacturing
business through the closure of its Western Cape and KwaZulu-Natal operations.
Further to the notification of the proposed closures, and in an effort to protect
local manufacturing capacity and the loss of over 2 000 jobs, Seardel sold the
apparel manufacturing business to an associate company of SACTWU. The sale consisted
of all plant, equipment and inventory within the business. The effect of the
discontinued operations on the financials is noted below:
2014 2013
Rand thousands Reviewed Audited
Revenue 604 457 667 962
Operating loss before once-off expenses (66 659) (27 704)
Impairment of assets (4 617) -
Restructuring and retrenchment costs (43 617) (1 063)
Loss on sale of plant, equipment and inventory (31 260) -
Operating loss before finance costs (146 153) (28 767)
Net finance costs (13 748) (16 406)
Loss before taxation (159 901) (45 173)
Income tax expense - -
Loss for the period from discontinued operations (159 901) (45 173)
9 CHANGE IN COMPARATIVES
The results of discontinued operations have been separately disclosed on the face
of the statement of comprehensive income. Where practical, the prior year results
have been restated accordingly.
10 LITIGATION
During the current year the final aspect of the settlement of the litigation
against former directors and officers of the company and entities controlled by
them were implemented. As detailed in the SENS announcement released on 10 May 2013,
Erf 27412, Observatory, with a market value of R38,7 million was transferred to a
subsidiary of the company.
11 RELATED PARTY TRANSACTIONS
Transactions between Group companies
During the year, in the ordinary course of business, certain companies within the
Group entered into transactions with one another. These intra-group transactions
have been eliminated on consolidation.
Transactions with Hosken Consolidated Investments Limited ("HCI") (ultimate holding
company), entities in which HCI has an interest and SACTWU (shareholder in Seardel)
Transaction values Balance outstanding
for the year as at 31 March
ended 31 March Balance receivable/
Income/(Expense) (owing)
2014 2013 2014 2013
Rand thousands Reviewed Audited Reviewed Audited
SACTWU - disposal of apparel
manufacturing operation (31 260) - 107 588 -
SACTWU - loan advance relating
to the disposal of the apparel
manufacturing operation (957) - (30 957) -
SACTWU - loan relating to the
acquisition of Sabido (33 138) - (1 363 860) -
HCI - preference shares relating to
the acquisition of Sabido (77 341) - (3 183 105) -
HCI - working capital loan advanced
during the year (2 499) (1 744) - -
Loans and interest in associates
Cape Town Film Studio - - 63 685 -
Dreamworld Management - - 10 313 -
Global Media Alliance - - 63 544 -
Management fees paid
HCI - managerial and secretarial
services (4 200) (4 342) (10 195) (8 692)
Management fees received
Formex Industries (a subsidiary of HCI) 1 296 600 - -
HCI - risk and internal audit services 617 142 - -
Disposal of apparel manufacturing operation to SACTWU
Seardel disposed of its South African apparel manufacturing operation and advanced
on loan account an amount equal to the purchase price to SACTWU. The loan attracts
interest at prime and will be repaid out of any cash payments or distributions
receivable by SACTWU from Seardel and HCI.
Acquisition of HCI Invest 3 Holdco Proprietary Limited ("Sabido Holdco")
During the year Seardel acquired a 100% interest in Sabido Holdco, which holds a
63,9% interest in Sabido. The Group acquired 70% of Sabido Holdco on 1 October 2013
and the remaining 30% on 1 February 2014. The acquisition was funded by way of
500 million shares issued at R1,60, fairly valued to R1 370 million and
R4 436 million of interest-bearing debt. The equity was settled by the issued of
350 million N ordinary shares to HCI and 150 million N ordinary shares to SACTWU
and the debt consisted of R1 330 million loan from SACTWU and R3 106 million loan
from HCI.
On 30 January 2014 the loan of R3 106 million from HCI was settled by the issue of
1 000 000 redeemable convertible preference shares of no par value by Sabido Holdco
and which attracts a dividend equal to 72% of the prime rate. The preference shares
were redeemed on 25 April 2014 on conclusion of the rights issue as described in
note 12.
HCI working capital loan
Working capital loan from HCI attracted interest at prime.
Loans to associates
Loans from associates are disclosed as equity-accounted investees on the face of
the statement of financial position.
Transactions with companies with common directors
Transaction values Balance outstanding
for the year as at 31 March
ended 31 March Balance receivable/
Income/(Expense) (owing)
2014 2013 2014 2013
Rand thousands Reviewed Audited Reviewed Audited
Sale of goods and services
Zenzeleni Clothing Proprietary Limited -
a company of which J Copelyn,
K Govender and A Ntuli are directors 8 930 - 2 053 -
12 SUBSEQUENT EVENTS
Subsequent to year-end the authorised share capital of the company was increased
from 200 million N shares to 10 550 million N shares of no par value to enable the
company to undertake a rights offer to shareholders in terms of which each
shareholder was given the right to subscribe for 258,93 new N shares for every
100 shares held. Pursuant to the rights offer 3 125 million new N shares were
issued at R1,60 per rights offer share and R5 billion cash was raised.
The proceeds of the rights offer was utilised to settle the preference share debt
of Sabido Holdco to HCI, totalling R3,1 billion and repaying the loan of Sabido
Holdco to SACTWU totalling R1,3 billion. The remainder was utilised to reduce
bank debts.
13 DIVIDEND
The directors have resolved not to declare a dividend for the year ended
31 March 2014 (2013: Nil).
COMMENTARY
The year ended 31 March 2014 has been a transformative year for the Group, with two
very significant events being reflected in the financial results as presented:
- Firstly, the Group acquired a 63,9% interest in Sabido Investments Proprietary
Limited ("Sabido"). Sabido is the investment vehicle that houses e.tv, eSat.tv,
Yfm and Sasani Studios amongst others. The acquisition was funded through a
combination of R4,4 billion of debt and R800 million of equity. The equity portion
was settled by the issue of 350 million N ordinary shares to Hosken Consolidated
Investments Limited ("HCI") and 150 million N ordinary shares to SACTWU. Subsequent
to the financial year-end, the Group successfully concluded a R5 billion rights
issue, the proceeds of which have gone to reducing the Group's debt, including
repayment of the debt associated with the Sabido acquisition.
- Secondly, the Group disposed of its apparel manufacturing business to an associate
company of SACTWU. The effect of the transaction on the current year's results is
a R160 million loss which is reflected as a loss from discontinued operations.
In addition to the above transactions, the businesses themselves are also going
through transformative periods. The most notable of which being Sabido/e.tv, which is
transitioning from a single channel to a multi-channel business. Some of the non-media
businesses of Seardel are also transitioning themselves from a defensive turnaround
phase into a growth phase. These transitional initiatives will require increased costs
being absorbed, ahead of future benefit.
The effect of the above renders any year-on-year comparisons meaningless and the results
are best analysed within the segmental results. Having said that, the following items
reflected in the results, are important considerations in analysing the overall financial
performance for the year ended 31 March 2014:
a) The Group recorded a R160 million loss attributable to its apparel manufacturing
business, disclosed as a loss from discontinued operations.
b) Financing expenses include R110 million relating to the debt assumed on the
acquisition of Sabido. This debt was fully repaid on 25 April 2014.
c) Accounting convention dictates that on the acquisition of a new business, certain
intangible assets need to be identified, valued and then amortised against the cost
of the acquisition in future years. The amortisation of the intangible assets
included for the six-month period that Sabido has been owned by the Group amounted
to R40 million.
d) R7 million of transaction costs associated with the Sabido transaction were expensed
during the current financial year.
e) The current period's results include non-recurring income of R38 million relating
to the final piece of the litigation with former directors as disclosed in the SENS
announcement of 10 May 2013.
MEDIA
This is the first year that the Group is reporting on the Sabido numbers. Therefore, as
can sometimes be the case, particularly in the first year of reporting, accounting
convention often makes it difficult to reconcile the numbers as reported back to the
underlying performance of the business acquired. We believe that users of these
financial statements will benefit from some information on Sabido's full-year performance,
before commenting on what has ultimately been reported in the Group numbers.
Sabido performance
In the year ended 31 March 2014 Sabido has undergone significant expansion. The
investments into this expansion, which consisted primarily of investments into
Platco Digital's free-to-view Openview HD platform, e.tv's new multi-channel offering
and the online news business, enca.com, has had a negative effect on the profits in the
current year. However, these businesses will assist Sabido, over time, to transition
from a single-channel business to a multi-channel business operating across multiple
platforms.
Sabido's full-year profit after taxation from continuing operations was R447 million,
which is down from R499 million in the previous year. If the impact of the expansion
operations was to be excluded, the profit from continuing operations would have
increased by 19% from R508 million in the prior year, to R604 million in the current
year. The improved performance was achieved by a 12% increase in revenue, on the back
of continued advertising and subscription revenue growth. On the EBITDA line Sabido
delivered R763 million in the current year, down from R820 million in the previous
year. However, if the impact of the expansion operations was to be excluded, EBITDA
would have increased by R98 million to R926 million.
Sabido numbers as reflected in the Group numbers
Using the R447 million profit after taxation recorded by Sabido as a starting point,
Seardel has made the following adjustments in arriving at its own numbers:
- R266 million were pre-acquisition profits and hence not accounted for in the
Seardel numbers.
- R110 million of finance costs were incurred relating to acquisition debt. Following
the rights issue, this debt has been repaid in full on 25 April 2014.
- R33 million of amortisation costs (net of taxation) was recorded, being the
amortisation of the intangible assets identified on acquisition. This amortisation
cost is for the six months since the effective date of the acquisition.
- R7 million of transaction costs, associated with the Sabido transaction, were
expensed during the current period.
SEARDEL NON-MEDIA
The results of the continuing Seardel non-media businesses were pleasing, with good
growth being shown across all the segments. Revenue was up 17% to R2,2 billion,
whilst gross margins improved by 900 basis points to 25,5%. The combination of revenue
growth and improved margins resulted in operating profit before interest improving by
98% to R215 million. Excluding the effects of the non-recurring items (once-off
settlement income, revaluation of investment properties and impairment reversals),
operating profit before interest increasing by 72% to R154 million.
What is encouraging is that despite what remain very challenging economic times,
collectively these non-media businesses, have been on a consistent growth path for
the past few years. However, their performance was often overshadowed by the poor
results of the apparel manufacturing division.
Property segment
The Property segment results exclude Sabido properties valued at R504 million, which
are accounted for under the Media segment.
Overall property values increased by 6% to R1 005 million from R944 million in the
prior year. The increase is driven by R37 million spent on redevelopments, R39 million
on property acquisitions, R39 million in upward revaluations at year-end, less
disposals and transfers to assets held for sale of R54 million.
Revenue increased 28% to R119 million as the developed properties were either completed
during the year or accounted for a full twelve-month period, as opposed to a portion
of the corresponding period. Revenue from external tenants increased by 51% to
R72 million and now represents 60% of the total revenue for this segment.
Operating profit before finance costs increased by 61% to R104 million, up from
R64 million in the prior period. However, it should be noted that the current year's
profit number includes a R21 million upwards revaluation of investment properties,
whilst the prior period included a downward revaluation of R2 million. Excluding the
effects of the revaluations sees operating profit up 26%.
Branded Product segment
The Branded Product segment recorded pleasing revenue growth of 20% to R958 million
while operating profit before finance costs climbed 141% to R37 million, admittedly off
a low base in the prior year. Although the growth in operating profit is pleasing,
operating margins remain low at 3,9%.
We have previously mentioned that we were continuing to invest in marketing and
building our distribution platforms in this segment, with much of this investment
being ahead of expected future revenue growth. This remains the case, particularly
within our office automation business and Brand ID. We expect operating margins to
improve once these businesses find the requisite traction. To aid in this, post the
year-end we have concluded a transaction to acquire the distribution rights for a
number of sporting brands, most notably Canterbury, Mizuno, Skins, Karrimor, Dunlop
and Slazenger. These brands will be housed within the Brand ID business and the
revenue they generate will allow for a better amortisation of the fixed costs.
Textile segment
Although trading conditions for the businesses within this sector remained tough
throughout the current financial period, the businesses managed to achieve revenue
growth of 7%.
To compare the current year's operating profit to the prior year, the non-recurring
items from the prior period need to be excluded. These non-recurring items included a
R23 million impairment reversal, as well as R9 million of extra energy costs due to
liquidation of an external steam supplier. Adjusting for these items sees operating
profits on a normalised basis climb 20% to R20 million.
Although the improved profitability is pleasing, operating margins at a little over
2,5% are extremely thin, especially considering that they include the benefits derived
from the government's production incentive scheme. The thin margins reflect the
vulnerability of these businesses despite them having, in our view, very able and
committed management teams. Our challenge over the next few years will be to guide
and transition these businesses into areas where they can glean higher margins.
Industrial segment
The manufacturing businesses within the industrial sector continue to deliver pleasing
growth. During the course of the current financial year the Group completed an
acquisition of a bulk bag manufacturer, which helped grow segmental revenue by 27%
to R425 million.
The revenue growth enabled operating margins to be widened from 5,1% in the prior
period to 8,3% in the current period, which resulted in operating profit more than
doubling to R33 million.
DISCONTINUED APPAREL MANUFACTURING
The Group has disposed of its loss-making apparel manufacturing business to an
associate company of SACTWU. The R160 million loss reflected in the discontinued
operations line includes the operating losses through to 30 September 2013 of
R46 million, the discount on the assets sold of R105 million as well as associated
closure costs.
APPRECIATION
We would like to take this opportunity to thank all our employees for their concerted
efforts during the past financial year. The improvements reflected in this report are
as a direct result of the commitment shown by our management teams and all the staff
that support them.
On behalf of the board
Stuart Queen Gys Wege
Chief Executive Officer Financial Director
Cape Town
22 May 2014
Registration number: 1968/011249/06 (Incorporated in the Republic of South Africa)
JSE share code: SER ISIN: ZAE000029815
JSE share code: SRN ISIN: ZAE000030144
Registered office: 1 Moorsom Avenue, cnr Bofors Circle and Moorsom Avenue,
Epping Industria II 7460. PO Box 524, Eppindust 7475, South Africa
Directors: J A Copelyn* (Chairman), M H Ahmed*^ (Lead Independent Director), D Duncan,
T G Govender*, A M Ntuli, S A Queen (Chief Executive Officer), Y Shaik*, R Watson*^,
G D T Wege (Financial Director) (* Non-executive ^ Independent)
Company secretary: HCI Managerial Services Proprietary Limited
Transfer secretaries: Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg 2001. PO Box 61051, Marshalltown 2107
Auditors: KPMG Inc.
Sponsors: Investec Bank Limited
www.seardel.co.za
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