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Unaudited results for the six months ended 31 December 2007

28 February 2008

For more information, please see

• SENS announcement (PDF – 29KB)
• Advertisement (PDF – 475KB)

Financial overview

The Board is pleased to report to shareholders much improved results for the six month period from July to December 2007, both in comparison with the previous six months and the comparative period for the prior year. This is notwithstanding the prevailing slower retail trading conditions during this time.

Revenue for the six months rose by R12,6 million or 4,6%, to R285,3 million. Revenue at Sunkist decreased by R10,9 million for the period as further marginal trading lines were eliminated. Improving margins together with sound cost management resulted in net profit attributable to shareholders showing a pleasing increase to R15,5 million, 39,6% above the comparative period. Consequently, headline earnings rose by 39,2% over the comparative period to R15,5 million.

Fully diluted earnings per share increased by 38% to 6,9 cents per share, whilst fully diluted headline earnings per share increased by 35,3% to 6,9 cents per share.

Cash flows generated by operations amounted to R23,4 million (R19,3 million for the comparative period) before taking into account working capital expansion of R37,2 million (R29,3 million comparative period). Whilst significant working capital expansion is expected in the group’s peak trading cycle, slower trading conditions resulted in higher-than-anticipated stock levels at the end of December. This position is expected to be significantly improved within the next six months.

Cash flows utilised in investing activities amounted to R9,3 million, most of which was used for the acquisition of property, plant and equipment. The overall effect of these items, along with R4,5 million generated by financing activities and tax and interest payments of R4,0 million and R1,6 million respectively, was a decrease in cash and cash equivalents amounting to R24,2 million since 30 June 2007. It is expected that cash generation will be stronger in the second half of the financial year.

Operational review

Trading-Distribution

Revenue in the Trading-Distribution segment of the business increased by R9,5 million to R217,1 million despite the decrease in sales in Sunkist. Profit before tax increased by 7,2% to R14,9 million, before the elimination of inter-company administration fees and interest.

Foodserv and Goldenmarc achieved moderate sales growth in less buoyant trading conditions. However, both units expect improved revenues in the second half. Foodserv incurred some facility expansion costs which affected profitability for the period under review. The expanded capacity is expected to yield revenue growth and cost efficiencies going forward.

Sunkist achieved modest trading profits although some costs were incurred in the further elimination of unprofitable lines. The further reduction of risk in Sunkist is a continual focus for management.

Services

Revenue in the Services segment of the business increased by R3,1 million to R68,2 million, although profit before tax improved by 25% to R12,4 million. This result is calculated prior to the elimination of inter-company administration fees and interest and before the effect of taxation on income from associates. This was due mainly to strong cost management at both Interpark and Sterikleen. Levingers incurred significant costs in centralising its dry cleaning factory operation which should result in longer-term cost savings due to lower rentals and elimination of duplicated overheads.

Acquisitions

During the period under review, the Excellerate Group acquired the retail operations of VIP, Pro Clean and BC dry cleaners, and a 50% interest in a light infrastructure solutions company, Chattels, at a cost of R6 million and R9,9 million respectively.

The VIP acquisition has more than doubled the retail outlets operated by Levingers (from 30 to 63), and the addition of these stores is expected not only to generate additional revenue, but also to result in economies of scale.

Based in Cape Town, Chattels is a significant infrastructure solutions company in Africa, specialising in flexible infrastructure projects. The company recently designed and constructed the facilities for the ANC Polokwane conference and the A1 Grand Prix in Durban, amongst other notable events. Significant business development and growth is envisaged as the company is integrated within the Excellerate Group.

The VIP transaction has an effective date of 1 February 2008, whilst the Chattels transaction has an effective date of 1 November 2007, but is subject to obtaining Competition Commission approval as a resolutive condition. Consequently the financial effects and benefits associated with these acquisitions will only be accounted for in the results for the year ended June 2008.

Black Economic Empowerment

Excellerate continues to benefit from its association with its empowerment partners Akenton, the Katanga Group of companies and Ikamva Labantu.

Prospects

Notwithstanding the slower trading environment experienced during the period under review, our existing business units are well positioned for organic growth going forward. In addition, it is expected that the current economic environment will present excellent opportunities for well-priced acquisitions, and the group intends to aggressively continue its drive growth that fits the group’s strategic profile.

Contingent liability

As stated in the annual report at 30 June 2007, a contingent liability has been noted for several years in respect of amounts claimed by SARS as owing by Excellerate in respect of SARS disallowing certain trademark allowances against taxable income. It was further stated that Excellerate had made a proposal to SARS for reaching a financial settlement. The Board is pleased to advise that a final settlement in this matter is imminent. The Company has fully provided for an amount which it believes appropriate in the circumstances. The remainder of the disputed amount will continue to be disclosed as a contingency until the matter is finalised.

Accounting policies

The condensed interim financial statements for the six months ended 31 December 2007 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) applying IAS34: Interim Financial Reporting. The accounting policies used to prepare the interim results are consistent with those applied in the previous period.

Dividend

As the group pursues opportunities to grow by acquisition and reduce interest-bearing borrowings, the directors have decided not to declare a dividend at this time.

For and on behalf of the Board

G Hulley
Chief Executive Officer

Sandton
28 February 2008