The six months to 30 September 2010 has seen the Seardel Investment Corporation make further progress on its turnaround journey. The Group delivered an attributable loss of R71 million (2009: R222 million loss) with continuing operations recording a profit of R2,5 million (2009: R10 million loss) and discontinuing operations recording a loss of R74 million (2009: R211 million loss).
Turnover from continuing operations was up 10% to R1,2 billion and gross margins improved by 2,6% to 24,9%. The improved gross margin reflects the improved efficiencies and better procurement practices but it must also be borne in mind that the results to September 2009 included the effects of the 12-day industry strike.
The improved gross profit margin does not result in an improved operating profit margin due to the prior year numbers including sundry income of R17 million relating to the renegotiation of the FIFA contract. In the current year the Group has also incurred costs relating to future revenue streams, mostly brands and property, ahead of the revenue being realised.
Textiles
The performance of the textile operations continue to improve with most of the business units now either profitable or well on their way to becoming profitable. The continuing textile operations delivered an operating profit of R8 million compared to a R3 million loss in the corresponding period. The challenging business units within this segment are the operations that are focused on producing textiles for the garment industry. The declining garment industry means that volumes in these businesses are likewise declining and being mostly fixed cost businesses, these declines are problematic. Work is being done to break their dependence on the garment industry.
Clothing
The clothing operations continue to be problematic with the continuing operations delivering an operating loss of R22 million (2009: R18 million). The loss is after accounting for a R7,5 million loss from the contract to supply official FIFA apparel. This contract proved to be disappointing with retail and consumer demand being well below expectations.
The problems with the clothing sector are multi-faceted but to touch on a few of the more critical areas:
The strong Rand is of major concern to the local clothing industry. As there is very little protection from logistic costs, the local industry directly competes in US Dollar terms. Hence a 35% strengthening of the Rand, which is what we have seen in the past 18 months, means a 35% increase in all Rand-based costs such as salaries, wages and rentals. This increase is over and above our own inflationary increases and cannot be passed on to the customer who have the import product as an alternative.
Seardel Investment Corporation
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