THE South African Clothing and Textile Workers Union’s (Sactwu’s) efforts to sew up struggling clothing manufacturing operations has seen it sacrifice dividend flows in a bid to retain jobs.
The union acquired several well-known — but loss-making — clothing operations from Seardel Investment Corporation in 2013. The operations, which have racked up losses in recent years, were set for closure.
Part of the deal saw Sactwu taking a R76m loan from Deneb Investments, the industrial holding firm split off from Seardel — which now focuses exclusively on media assets — last year.
The loan has no fixed repayment period. But as security, Sactwu had to agree last year to cede its valuable future dividend flows in empowerment investment conglomerate Hosken Consolidated Investments (HCI) and new-look Seardel.
Sactwu holds a 32.1% stake in HCI and 30% in Seardel, which has free-to-air television broadcaster e.tv as its main asset.
Deneb CEO Stuart Queen said that the outstanding amount of R76m was expected to be fully paid before the end of next year.
The Seardel assets are now housed in Trade Call Investments Apparel (TCIA), a company owned by Sactwu.
"Although there are no fixed payment terms for the loan, and Sactwu stands surety for it, TCIA is still bound by our payment terms — which are the prime interest payments and the capital amount," said Mr Queen.
He said that TCIA would not want to default on the payment terms. "In the event that the amount is not paid, the interest fees will be extended and the loan value will go up."
Sactwu general secretary Andre Kriel said that the union had been reducing the loan amount through the dividends it has been receiving from HCI.
"We are also paying the prime interest rates on the acquisition loan and will carry on until the loan terms are fully paid," he said.
The acquisition of Seardel by Sactwu was prompted by threats of closing the loss-making operations, which would have seen 2,260 jobs lost.
Local clothing manufacturing operations have struggled to compete for the past two decades with an influx of cheaper imports.
But certain niche operations have managed to show profits. Empowerment investment company Brimstone reported recently that its House of Monatic clothing manufacturing subsidiary had managed small increases in turnover and showed profits in the year to the end of December.
Fred Robertson, executive chairman of Brimstone, said House of Monatic had concentrated on building its house brands. "We also got used to navigating around challenges faced by the industry.
"However, local retailers have become supportive and are now realising the benefits of manufacturing locally."
Under the new Sactwu-TCIA management, the old Seardel manufacturing operation now employs 2,930 staff and still serves local retailers such as Woolworths, Truworths, Edcon and the Foschini Group.
Alec Abrahams, senior equity analyst at Sasfin Securities, said there was definitely a move by local retailers to have their designs made locally.
He said this would see retailers increasingly supporting local clothing operations more as this was the "fast fashion approach" taken by big department stores such as Zara.
"It is still cheaper to manufacture in China. But with the move towards fast fashion where designs have to keep up with the speed of current fashion trends, it is more effective to have production hubs closer."