ICONIC ‘rag trade’ conglomerate Seardel, quite bizarrely, will soon house a controlling stake in free-to-air television broadcaster The transaction – initiated by Seardel’s parent company HCI – does change traditional operating channel for the clothing and textile company. After all, which is tucked away in offices just off Cape Town’s trendy Kloof Street, spins incredible profits from its broadcasting bouquet.

But Epping-based Seardel’s more colourful prospects going forwards still depend, to a fair degree, on ensuring the sprawling clothing and textile interests remain viable against unrelenting competition from imported products. There should be no doubts that Seardel’s executives are tackling the issue of improving returns from the traditional business with vigour. In this regard it is significant the company has split up its operations into five new segments – industrial, branded products, clothing, textiles and property.

In terms of pure assets, Seardel’s properties carry the most value – although much of the portfolio is rented by the company’s own operations. Still, there was a heartening 40% increase in revenue to R93m due to the various phases of the property development being completed and let. Significantly revenue from external tenants almost doubled to R47m and now represents more than 50% of total revenue.

In terms of turnover the textile division – despite substantial closures three years ago – is now the second biggest business in Seardel. But it remains by far the biggest profit contributor. The division includes manufacturers of high quality fabric and household textiles, including well-known businesses like Romatex, Frame Knitting Manufacturers, Berg River Textiles and Hextex. In the year to end March Seardel’s textile operations suffered tough trading conditions in the first half, reporting a turnover slip of 4% to R689m. But operating profit shifted up 13% to R32m – albeit with the held of impairment reversals of R23m due to previous loss-making businesses returning to profitability. If the impairments were stripped out the textile division’s underlying operating profit was R9m, and well down on the previous year’s R28m.

Seardel CEO Stuart Queen said the current year’s results were affected by a number of extenuating circumstances – most notably the liquidation of an external steam supplier, which cost the company some R9m in increased energy costs. This prompted Seardel to opt for commissioning a coal-powered boiler during the last quarter of 2012, which has subsequently seen energy costs returning to normal levels.

While the overall result may not seem too encouraging, Queen notes that the second half of the financial year saw a much stronger performance from this segment with the textile division recording an operating profit (excluding the impairment reversal) of R16m. Seardel’s threadbare Clothing division – the third largest division by revenue – is by far the company’s biggest operational headache.

The Clothing division sells to retailers locally and abroad, offering garments from design houses such as Bibette, Bonwit, Dermar, Monviso and Little Number. The Clothing segment – arguably bearing the brunt of cheap imports from mainly the East – reported turnover down 19% to R695m. Queen explained this reduction was anticipated and was in line with the restructuring completed in the prior financial year.

He argued the reduced capacity allowed Seardel to eliminate lower margin product, which allowed overall gross margins to be raised. Queen said streamlined overhead structures also resulted in improved efficiencies. The results of these actions are apparent at operating level, where Seardel saw operating losses reduced from R101m to a much more acceptable R34m.

“Although the improvement is substantial, we recognise that continued losses in any business are unsustainable. We are considering a number of strategies to further improve the situation and we anticipate that the next financial year will remain challenging as these strategies are implemented.”

Seardel’s ‘new’ Industrial segment – which comprises specialised industrial products for the building, automotive, paint and bedding industries – endured a tough trading period, but remains a sturdy segment with growth potential in specialised markets. Some of the businesses in this segment include Gold Reef Speciality Chemicals, Brits Automotive Systems, Brits Non-Woven and Frame Polypropylene. While revenue was down 2% to R335m, a marked improvement in margins saw operating profit soaring 61% to R17m.

But what could turn out to be the saving grace for Seardel’s traditional manufacturing base is the recent launch of its Branded Product Distribution (BPD), which sources and distributes a variety of well known branded products. The businesses operating in this segment include Prima Toys, Prima Interactive, The Empire Group, Seartec and Brand ID. Brands that are distributed include 466/64, Microsoft X-Box, Butterfly stationery, Sharp consumer electronics, Speedo swimming and active wear and a large variety of well-known toys.

This segment also includes Seardel’s promising start-up Brand-ID business. Queen emphasised Brand-ID was still in an investment phase. “We remain at least 12 months away from a breakeven position within this business.”

Queen stressed the overall performance of the BPD segment was key to the revitalisation of Seardel’s overall performance and remained an area of strategic focus. BPD notched up sprightly revenue growth of 20% to R795m – which means this vibrant segment is now Seardel’s largest by turnover.

Unfortunately operating profits – which came in at R15.5m – were negatively affected by a R7m foreign exchange loss (remembering much of the products distributed by Prima and Seartec are imported.) In the previous year the division enjoyed a substantial forex gain. Queen, however, pointed out that if the currency fluctuations were stripped out, then the underlying operating profit was up 12% year on year. Queen said Seardel would continue to invest in marketing and building the BPD’s distribution platforms “with much of this investment being ahead of expected future revenue growth”.

Source: Cape Business News