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SEARDEL FINDING PROFITABLE THREAD

Epping-based industrial holding company, Seardel Investment Corporation is no longer stitched together tenuously by its traditional operations in the clothing and textile sector.

Recently, Seardel’s remaining (and consistently loss-making) clothing operations were sold off to the investment arm of the SA Clothing and Textile Workers Union (SACTWU) and the textile operations were re-focussed on more profitable (and mainly industrial) endeavours.

The biggest changes, however, transpired earlier this year when parent company HCI reversed its holding in highly profitable Sabido Investments–which owns e-tv and other media assets – into Seardel, and then underwrote a massive R5bn rights issue to clear Seardel of any significant debt. These changes might support a theory that Seardel’s ‘older’ businesses in textiles, industrial products, toys, consumer electronics and property are being supplanted by considerably more profitable media assets.

But the latest results to end March certainly suggest Seardel’s older businesses have been successfully right-sized and look surprisingly robust. Seardel CEO Stuart Queen noted that some of the company’s non-media businesses were ‘transitioning’ from a defensive turnaround phase into a growth phase. But he did warn that these transitional initiatives would require increased costs being absorbed, ahead of future benefit. In the year to end March revenue was up 17% to R2,2bn, with operating profit shifting up 72% to R154m. The branded product segment saw feisty revenue growth of 20% to R958m, while operating profit climbed 141% to R37m.

But operating margins still remain low at a rather threadbare 3,9%. Queen said Seardel continued to invest in the Branded Product segment’s marketing and distribution platforms. “We expect operating margins to improve once these businesses find the requisite traction.” What will help enormously in these endeavours is that Seardel has concluded a transaction to acquire the distribution rights for a number of sporting brands – Canterbury, Mizuno, Skins, Karrimor, Dunlop and Slazenger.

Queen said these brands would be housed within the Brand ID business and the revenue generated would allow for a better amortisation of the fixed costs. The Textile segment saw tough trading conditions, but managed revenue growth of 7% and a 20% increase in operating profits to R20m. Queen cautioned, though, that although the improve profitability was pleasing, operating margins – at a little over 2,5% – were extremely thin.

“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.”

The industrial segment also showed encouraging signs. Queen reported that during the financial year Seardel snagged the operations of a bulk bag manufacturer, which helped grow segmental revenue by 27% to R425m. More encouraging was that the revenue growth saw operating margins widened from 5,1% to a thicker 8,3% – which caused operating profit to more than double to R33m.

Source: Cape Business News – Jenni McCann