Group Interim Report to shareholders

for the six months ended 31 December 2008

Results
The 6 months to December 2008 saw Seardel record an attributable loss of some R183 million compared to a R4 million profit in the corresponding period. Included in the loss to December 2008 are the following nonrecurring items:

• The Group’s excess inventory has historically been disposed of through its factory stores and to bulk purchasers. The current market conditions have depressed the prices that can be achieved in these markets. In addition, the Group’s focus on cash generation has meant that inventory sales have been more aggressive. This has resulted in the Group selling inventory at below carrying value. In order to bring inventory values to better approximate current net realisable values, inventory provisions have been raised by some R36 million;
• A R20 million impairment of asset expense was realised of which R10m relates to the write down of the intangible asset recognised with respect to the Fifa contract. The latest forecasts for this contract reflect sales well below those anticipated when the contract was signed. A further 8 million of the impairment relates to a write down of the Group’s interest in Sustainable Fibre Solutions (Pty) Ltd (“SFS”) a company which produces fibre from Kenaf plant. During the 6 months under review SFS required a further R15 million of funding. Seardel did not follow its rights and its interest in SFS has been diluted from 33% to just below 30%;
• R18 million worth of restructuring and retrenchment costs were recognised during the period;
• The severe and rapid depreciation of the Rand resulted in foreign exchange losses of R18 million being recorded. After adjusting for the non-recurring items, Seardel recorded a core loss of approximately R91 million despite a marginal increase in turnover. This loss is almost entirely due to the deterioration of gross margins and increased finance costs. Excluding the R36 million of increased inventory obsolescence provision mentioned above, gross margins have decreased from 20.4% for the 6 months to December 2007 to 16.2% in the current period. This 4.2% eterioration translates into an R86 million reduction in gross profit. The decreasing margins are reflective of the Group’s inability to pass on input cost increases particularly within the textile and clothing divisions.