Seardel feels World Cup pressure

On Monday, Seardel - currently in the throes of a rescue rights issue - reported a massive R256m pre-tax loss for the year to end June.

While the loss included once off costs like a R109m asset impairment charge as well as restructuring/retrenchment costs of R43m, Seardel directors described trading conditions as the worst in the group's 40-year history.

Seardel had its trading margins ripped up as sales of R3.9bn was transformed into an operating loss of R15m.

Probably most disturbing for Seardel shareholders - who have received regular dividend payouts over the past five years - was that net finance charges shot up from R25m to R82m in the period as additional borrowings were needed to fund operations.

Seardel directors noted that the group's main customer extended its payment terms - a development that had a serious impact on working capital levels. The cash flow statement showed that Seardel's positive cash balance of R11m at the end of June 2007 was reversed into an overdraft position of R104m.

Further evidence of the financial squeeze was seen in Seardel's admission that it was making arrangements with its bankers around securing the group's borrowings.

These obligations would be secured through an issue of mortgage bonds over immovable property as well as a cession of trade debtors and an issue of a general notarial bond over movable property.

Seardel has a sprawling property portfolio, which largely underpins the group's net asset value of around 1 500c/share or R1.35bn.

Basically this means Seardel's overdrafts and short term interest-bearing liabilities of R195m become long-term liabilities with the banks and lenders committing to maintaining existing facilities to at least mid-2010.

The financial pressure - which should be alleviated somewhat when the proceeds of a proposed R300m rights issue are brought to book - has even impacted on Seardel's potentially lucrative contracts to manufacture and supply apparel for the Fifa World Cup in 2010.

The group had agreed to pay royalties linked to revenues.

Directors said that while a portion of this minimum payment had already been paid further instalments were due through to June 2010.

Seardel has an obligation to provide guarantees or letters of credit in respect of these payments, which understandably would impact on the group's already stretched banking facilities.

Directors said Seardel hoped to renegotiate the terms of the World Cup 2010 contracts to eliminate this obligation.

Textiles flounder

Turning back to the results, a divisional review showed that the clothing and household textiles division was again the poor performer. This division - which includes some of SA's best known clothing brands - produced a R162m loss from turnover of R1.7bn.

The textile division, which was profitable in financial 2007, also slipped into the red - reporting a R34m loss from turnover of R1.6bn.

A turnaround plan revolves mainly around a group reorganisation to reduce costs and promote better co-operation between divisions as well as a focus on reducing working capital levels and improving production efficiencies.

In line with the turnaround, there has been a shake-up at board level with three new directors - Michael Jacobson (non-executive director), Anthony Dixon-Seager (executive director) and Stuart Queen (CFO) - appointed.

Earlier this year, Seardel founder and major shareholder Aaron Searll stepped down as CEO and was replaced by Walter Simeoni (who previously headed the group's textile division).

- Fin24.com