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Cape Town - Clothing and textile conglomerate Seardel Consolidated Investments - now controlled by Hosken Consolidated Investments (HCI) - has placed a huge cost on plans to close certain manufacturing entities in Frame Textile Group.
Earlier this year, Fin24.com reported that the decision by struggling Seardel to close Frame's spinning, weaving, finishing and denim divisions could cost up to 1 400 jobs.
At the weekend Seardel, CEO designate Stuart Queen said it was regrettable that the local economy would lose Frame's production capability and capacity "as to recreate it from start-up would require an investment of approximately R1.5bn".
Queen disclosed that the Frame divisions generated an operating loss of R98m in the nine months to end March 2009 - including asset impairments of R35m and increased inventory provisions of R12m.
He said after a number of restructuring alternatives were stress tested, it became clear that there was little that could be done - within management's control - to return the Frame divisions to profitability.
"However, it was apparent that even at budgeted efficiencies that are considered world class, these divisions were still predicting losses."
He said the closing of the Frame divisions would affect the results to end-March 2010 - estimating that retrenchment costs, provisions for onerous contracts and ongoing operating losses during the shutdown period to top R165m.
Queen said negotiations with interested parties - including the South African Clothing and Textile Workers Union (Sactwu) - were continuing.
"We expect to bring this matter to finality shortly."
While the closure of the Frame divisions is bad news for workers, there is some potential upside for Seardel shareholders (which ironically include Sactwu Investments).
Queen said that despite the closure costs at Frame there would be a release of working capital and that the subsequent sale of the plant and equipment would ensure closure was cash positive to Seardel.
He reckoned the Frame closures could see a net cash inflow of some R250m. But a large chunk of this windfall would only flow once the plant and equipment were sold which, Queen cautions, could "take somewhere between 18 and 36 months given the current economic climate".
According to Seardel's results for the nine months to end-March, the textile division racked up losses of R136m off turnover of R1.2bn and the clothing-manufacturing arm posted a R102m loss off turnover of R1.3bn.
Only Seardel's small operations - office automation division (an operating profit of R7m) and Prima Toys (R39m) - were profitable during the reporting period.
Queen said the textile division had been realigned around product clusters - which had seen Romatex Home Textiles, Desire Quilted Products and Frame Manchester now all falling under household textile cluster.
No quick fixes
On the clothing side, Queen noted that Seardel was far advanced in the consolidation of the Charmfit, Cygnet and Cape Underwear divisions into a composite lingerie and swimwear division. This was expected to be fully operational as a single facility by next month.
Looking ahead, Queen reiterated there were no quick fixes for a group of Seardel's size.
Given the costs relating to the closure of the Frame divisions, he said Seardel would "almost certainly" record a further loss for the 12 months ending March 2010.
"However, we are pleased with the progress made to date and remain optimistic that a turnaround will be achieved."
- Fin24.com
