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Audited results for the year ended 30 june 2006 and further cautionary announcement

6 October 2006

Overview

The overall results for the year under review are disappointing compared to the normal potential of the group. All but one of the group's business units have performed satisfactorily and continue to grow organically into new products and markets. The food trading division which saw a change of management in July 2005 incurred a R27,5 million loss before tax largely due to poor trading decisions which had an effect through to the latter half of the current 2006 financial year and also due to costs incurred in rationalising the business and moving it into a single location. A tremendous amount of energy has been put into turning the food trading division around with the result that the business has been significantly rationalised to a much smaller operation that is near break-even point. As a result, the group expects its results for 2007 to improve significantly.

Review of operating results

Aside from the food trading division, revenue in the group increased by 9,8% to R391,9 million and operating profits increased by 11,4% to R36,2 million compared to R32,4 million in 2005. The food trading division's revenue declined by 34,8% to R116,8 million and its operating losses before interest and capital losses climbed from R4,1 million in 2005 to R24,0 million in 2006, leaving the group with an overall reduction in revenue of 5,1% to R508,7 million and a decline in group profits by 37,2% to R9,3 million. The Housewares trading division comprising Goldenmarc, Hypertrade, Louis Smiedt and Ferrengi, showed continued growth for the year. The Goldenmarc management also took on the responsibility of managing the groceries business of Sunkist Distributors since March 2006, which started to contribute positively by the end of the year and shows good promise for the year ahead. Foodserv achieved excellent organic growth with revenue increasing by 26,2% and operating results increasing by 46,9% compared to 2005.

Interpark has shown very good results, increasing revenue by 18,3%, excluding Securipark which was disposed of at the beginning of the financial year. Operating profits, including the results of associate Katanga, increased by 24,3%.

Levingers had a very good year increasing its operating profits by 82,4%. Levingers was awarded the best dry cleaner award recently and continues to seek to open new stores to grow operations and provide new customer services. Sterikleen, including Autoclenz, together with the Katanga cleaning division, has done well over the past year with operating profits increasing by an overall 21,8%.

Sunkist Distributors has received the full attention of the group in an effort to reverse its poor performance. During the past year a large team effort was made to install strict discipline over trading and the company has managed to eliminate most of the fixed costs that were excessive to the business" needs. A large retrenchment exercise was carried out and new reporting systems implemented to manage the individual profit centres in the business. Orders that were placed as far back as early 2005 for the purchase of nut stock in advance had to be traded out at much lower commodity prices, resulting in insufficient margin to sustain the high level of fixed costs. These are now fully cleared through the system and the business is slowly starting to make a recovery in the market place. Cash flow consumed in operations for the year amounted to R14,5 million. The performance of this business is under constant review to ensure the losses of the past are not repeated. In order to focus attention on ongoing business, the group has recently settled the matter relating to the claim against the former management of the business.

Other factors affecting results

The profit on disposal of the Securipark business of R1,2 million is included in earnings before tax. The full adoption of International Financial Reporting Standards ("IFRS") for the first time has led to a restatement of prior year figures, with property, plant and equipment being the main item that was affected. The net result of the adoption of IFRS and prior year adjustments was to increase 2005 results by R0,7 million and to increase prior years" retained income by R1,2 million. Property, plant and equipment scrapped and disposed of, mainly in Sunkist, resulted in a loss on disposal of R1,0 million.

During the year, the group disposed of 1 000 000 treasury shares held in its subsidiary company for the purpose of meeting share option obligations. The shares were sold at an average price of 69 cents each and the group received an average of 40 cents per share in terms of the share options that were issued.

Black economic empowerment

On 19 May 2006 the group announced the conclusion of an agreement with Akenton Services as a BEE partner to take up a 25% shareholding in the operating subsidiaries of the group. The deal had been valued on information available to the directors at the time. Subsequent to that date, the group concluded its budgets and forecasts for 2007 and beyond and decided to revise significantly upwards the terms and conditions of the deal it had signed with Akenton Services. On 11 August 2006 the group published a cautionary announcement in this regard and all indications are that revised contracts will be signed in early October 2006. Akenton Services represents an important step for the group in securing its markets, particularly in the Services segment in the immediate future but also in the Trading-Distribution segment in the years ahead. The board is of the view that Akenton Services will add significant value, not only as a BEE partner but also for their innovative and dynamic outlook on business.

Future prospects

Notwithstanding a more challenging economic outlook for 2007, the group is well placed to continue its organic growth into new products and markets, and to selectively identify acquisitions to enhance group earnings. This, along with the stemming of losses in the food trading division, creates a positive outlook for the group in 2007.

In addition, the group is pursuing various projects to improve its operational efficiencies including introducing new internal reporting formats and the possible merger of various legal entities to reduce costs.

Changes to senior management

In November 2005 the group appointed Rob Owens as the group's Chief Financial Officer. Rob is a Chartered Accountant with many years" experience in financial management and has added significantly to strengthening the team at head office. On 23 February 2006, the board appointed Gordon Hulley as Chief Operating Officer of the group. Gordon has, in the short span of time he has been with the group, made a valuable contribution in stemming the losses at the food trading division as well as introducing various new initiatives. He will utilise his extensive experience to improve the overall efficiency of the group's operations. On 21 July 2006, Chris Hall announced his resignation as Chief Executive Officer of the group in order to pursue personal interests. His resignation is to take effect on 31 December 2006. A replacement for the Chief Executive Officer has not yet been identified by the board and an announcement in that regard will follow in due course.

Dividends

The board has decided not to declare any dividend at this time as the group continues to plan expansion by acquisition to the overall economic benefit of shareholders and will utilise its cash resources for that purpose and for meeting the working capital requirements of the group.

For and on behalf of the board
C Hall
Chief Executive Officer
Sandton 5 October 2006

For more information, please see Audited results for the year ended 30 June 2006 (PDF – 83KB)