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Audited results for the year ended 30 June 2005

28 September 2007

• Revenue +36%
• Operating profit +69%
• Earnings per share +93%

Overview

The past financial year has been a mix of good results in the group in generaland an unexpected poor result from the food trading division. There has been particularly strong performance in the catering equipment business, Foodserv, as well as the parking business, Interpark. Foodserv has made every effort to bolster its production capabilities and has a full order book for the remainder of the year. Interpark has thoroughly applied best practice to reduce unnecessary costs and streamline the business into an effective and efficient professional parking management business nationally. The Housewares division continues to perform well with Goldenmarc achieving good results.

The main disappointment for this past financial year has been Ibiza Trading, the group’s food trading division comprising the Alpine Importers, Fruti Flow and HSNuts businesses. It came to the attention of the group shortly after the financial year end that certain irregularities had occurred at the Ibiza Trading division and as a consequence thereof it was decided that a change in the management team of Ibiza Trading was necessary. Despite these unforeseen events,the consequences of which will unfold on a legal level over the next few months,the outlook for the food trading division is positive under the leadership of the new management team who emanate from within the Excellerate group. With new management in Ibiza Trading and prospects of a positive result in the 2006 financial year coupled with good performance in the rest of the group, 2006 promises to present more opportunities for good results and continued growth.

Exceptional events

The HS Nuts business of Ibiza Trading appeared to be achieving good results during the first half of the financial year, but after the end of the financial year in July 2005 it was discovered that inappropriate expenditure had been incurred and irregular transactions had been conducted during the course of the financial year and thereafter up to the date of discovery. These matters have been subjected to a forensic investigation. Upon being confronted with these matters, the former senior management resigned. All avenues are being explored to recover funds that have been inappropriately applied, including perfecting the securities held by the group and all other avenues available to the group.The group has suffered the loss of an estimated R8,5 million (of which R1,2 million will impact the 2006 financial year) due to these events. Recovery of the shortfall between actual losses and a profit warranty of R8,0 million given by the vendor is still under investigation. The 49,5% shares as well as the loan accounts that stood to the credit of the vendor company have since been ceded back to the group whilst the remainder of the claim is being formulated.

Review of operating results

The group’s revenue increased by 36,2% to R535,9 million largely due to the inclusion of HS Nuts’ turnover from 1 July 2004. Operating profits increased by 68,7% to R28,3 million compared to R16,8 million in 2004. This increase was due largely to the improved trading results and cost–cutting exercises but was before an impairment for accounting purposes to recognise potential non–recovery of losses incurred in Ibiza Trading.

The Housewares trading division comprising Goldenmarc, Hypertrade, Louis Smiedt and Ferrengi, performed well. Goldenmarc acquired the business of Travelscene, supplying luggage and related products under some powerful brand names including the AA and the Bad Boy and Bad Girl trademarks. Goldenmarc also acquired the furniture kits business of Gaflax to add to its range of similar products. The full benefits of these acquisitions will only be felt for the first time in 2006 as sales orders start to achieve full potential. The manufacturing concern of Ferrengi producing pot scourers and steel wool products has increased its production capacity with the acquisition of additional plant and continues to have a strong demand for its products.

Foodserv continues to grow its manufacturing and import trading activities at an exceptional rate with several exciting projects in the pipeline to come on stream in 2006. With the acquisition of new capital equipment during 2005, the business has seen a rapid expansion of its production capabilities and continues to experience a very healthy demand for its products. Foodserv acquired the business of Outdoor Cooling during the second half of the financial year, which is likely to start yielding financial benefits early in the 2006 financial year. Interpark has improved its results significantly through cost–cutting and improving on its service delivery by providing a professional and streamlined parking management service to its clients. Interpark’s challenge will be to continue to be the service provider of choice, which it has achieved due to its sophisticated controls which ensure its clients achieve the best parking management results in the industry.

Levingers had a good year, opening three new stores in the Pretoria and Johannesburg areas. In addition it took over the remaining two franchise stores and now consists completely of corporate stores. The new accounting interpretation to amortise lease rentals on a straight–line basis over the term of the lease has adversely impacted on the accounting result for 2005. There area number of interesting projects currently under way for Levingers to grow its business in 2006.

Sterikleen, together with Autoclenz and working hand–in–hand with Katanga Property Care and Katanga Autocare, its BEE partners, has managed to stay ahead despite strong competition. The business has won the award of a contract for a large client country–wide which is due to be rolled out in October 2005. The office plant rental business, Greenmachine, has been turned into a professionally run operation with very promising prospects looking forward. Ibiza Trading has, as noted above, had its fair share of challenges. The acquisition of the HS Nuts business effective 1 July 2004 increased the division’s revenue significantly and has created greater critical mass in the business, but rationalisation of this business with the Alpine Importers and Fruti Flow businesses has taken longer than expected and the combined business has yet to achieve its potential. In October 2005 the entire division will relocate its various operations into one common warehouse which is expected to accelerate the integration of the businesses and lead to greater cost reductions and efficiencies. Prices in the retail sector were kept under pressure resulting in lower absolute margins. Higher commodity prices adversely affected margins in the trading of tree nuts during the second half of the financial year. The new management team is in the process of implementing plans to ensure that trading results are improved in the division and that the business is properly positioned for growth.

Other factors affecting results

Earnings per share increased by 93,0% due largely to the new accounting statements that discontinue the amortisation of certain intangible assets, while headline earnings only increased marginally. The new interpretation of accounting for operating lease rentals resulted in an adverse prior year adjustment to the extent of R0,7 million after deferred tax and current year’s income was reduced by R0,3 million after deferred tax. These amounts will reverse out in future years.

Black economic empowerment

In line with the latest draft Code of Good Practice on Broad–Based Black Economic Empowerment issued by the Department of Trade and Industry, the group is actively pursuing negotiations with a consortium of very promising black entrepreneurs. On 7 September 2005, the group published an announcement in this regard. It is expected that on the successful conclusion of a BEE transaction, the new partners will provide real economic benefits to the group over the years to come.

Future prospects

The outlook for the next financial year is positive across the group’s various divisions and the food trading business’ problems that have persisted over the past two years in various forms still leave some challenge to completely resolve in the months ahead with the restructuring that is currently under way under the new management team.

Effective 1 July 2005, the group sold its interests in Securipark, a small part of the parking business, as it was not considered core to the group and not in line with the group’s strategy. There are several prospects for acquisitions looking forward and every opportunity will be rigorously pursued to achieve sound growth for the group to the benefit of all stakeholders.

Changes to the board

On 5 May 2005, the board appointed Mr. Michael Mohohlo as an independent non–executive director in line with its objectives to have greater representation by independent directors. Michael comes with a great wealth of experience and wisdom and will no doubt contribute to the group through his insight into business.

Dividends

Congruent with the group’s current strategy, no dividend has been declared in light of the group’s desire to utilise its resources to achieve the operational objectives of organic growth, to finance selective acquisitions as well as to service the current working capital requirements of the group.

For and on behalf of the board
C Hall
Chief Executive Officer
20 September 2005

For more information, please see Audited results for the year ended 30 June 2005 (PDF – 62KB)