Cape Town - Clothing and textile conglomerate Seardel Investment Corporation, now controlled by empowerment group Hosken Consolidated Investments (HCI), on Thursday announced its first major operational cull.
Seardel, which racked up sizeable operational losses in the six months to end-December 2008, will close down several divisions of the Frame Textile group in a bid to return the group to profitability.
The decision will affect about 1 400 employees, many of whom are members of the SA Clothing and Textile Workers Union (Sacwtu). Sactwu's investment arm, ironically, is a major shareholder in HCI and Seardel.
Divisions set for closure include Frame's so-called vertical pipeline, which comprises the company's spinning, weaving, finishing and denim divisions.
These divisions are involved in converting raw cotton into yarn. This is made into woven fabric for use in garments, linen and curtains.
The closures are significant, and signal that HCI will not hesitate to cut deep into the group's core businesses to restore operational viability at beleaguered Seardel.
Frame Spinning is the largest producer of cotton-spun yarns in the southern African region, while Frame Woven Fabrics is a vertically integrated operation that can produce more than 33 million metres of fabric per annum.
Frame Denim specialises in the production of indigo denim for the local and export garment industry.
Seardel stressed that with no indication of any trading improvement in the textile sector, the company was left with no choice but to close the Frame divisions.
The local textile industry has been under huge pressure over the last few years, with cheap imported products strangling trading margins and massive hikes in input costs.
Seardel's textile division notched up a R49m loss from turnover of R908m in the half year to end-December 2008.
'All but impossible to compete'
Seardel also argued that textile operations faced unfair competition from international manufacturers and suppliers.
The group noted that internationally, the textile industry attracted significant subsidies with many international firms being state-owned.
"Even in the local market, the textile divisions are required to compete with enterprises that attract state funding through the [Industrial Development Corporation] IDC."
Seardel reckoned structural deficiencies with respect to the incentive schemes in the clothing sector also hampered the local industry.
"These factors make it all but impossible to compete as a purely commercial enterprise. The pressures experienced have translated into significant ongoing losses being incurred."
Seardel said it had looked at every possible avenue to remedy the situation, including major reorganisation and restructuring and downsizing operations.
Seardel shareholders will be wondering what value can be salvaged from the sale of the affected assets after the company spent about R360m on plant and machinery over the last 10 years to raise efficiency levels.
Seardel sounded ominous when pointing out it had become clear that improved efficiencies alone would not be sufficient to compensate for the structural issues faced by the industry.
Seardel said it had made representations to various government agencies for decisive and urgent positive intervention to assist the textile industry. "Unfortunately all of these actions have been to no avail."
- Fin24.com