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Unaudited results for the six months ended 31 December 2008

23 march 2009

For more information, please see

• SENS announcement (PDF – 27KB)

GENERAL OVERVIEW

The past six months has been both exciting and challenging as the Group continued to focus on organic growth, integrating the recent acquisitions and cautiously considering new opportunities. Continued focus on sound cash management and quality revenue has resulted in positive performance in both of these areas. This has been achieved despite the current depressed consumer and corporate spending environment which affected the economy during the latter stages of the reporting period. The diverse nature of the Group has the benefit of cushioning some of the pressures being experienced by the trading and distribution divisions through the consistent performance of the service orientated companies. The economic and commercial climate is likely to remain negative for the foreseeable future, but the Board is confident that the Group is well placed to manage through this period given the anticipated performance of group companies, low current debt levels and continued positive cash generation. The Group will continue to seek value enhancing acquisitions, but will apply stringent valuation methodologies appropriate to the current economic environment in assessing new opportunities.

FINANCIAL RESULTS

The Board is pleased to report to shareholders an improved performance for the six month period from July to December 2008, in comparison with both the previous six months and the comparative period for the prior year.

Revenue for the six months rose by R53,5 million or 17,9%, to R351,9 million. Net profit attributable to shareholders increased to R18,0 million, an increase of 15,2% over the comparative period.

Diluted basic earnings and diluted headline earnings per share increased by 15,9% to 8,0 cents per share.

Positive cash flows generated from operating activities amounted to R8,3 million compared to a cash utilisation of R21,2 million in the prior period. This has been achieved, in part, through focused management of inventory and debtors levels. The cyclical nature of the trading businesses should precipitate a further reduction in the Group’s investment in working capital to June 2009.

Cash flows utilised in investing activities amounted to R39,9 million (prior period R9,5 million). The majority (R32,1 million) of this cash flow related to the acquisition of the Vital group of companies and Delawood Designs. No external funding was required for these investments. Additions to property, plant and equipment for the period was R7,7 million (prior period R6,1 million). The overall effect of these items, along with R8,0 million utilised in financing activities and R6,8 million in dividends declared in respect of the year ended June 2008, was a decrease in cash and cash equivalents amounting to R46,2 million resulting in a closing balance of R3,7 million.

REVIEW OF OPERATIONS

Trading – Distribution

The Trading and Distribution division comprises Goldenmarc, Foodserv, Sunkist and Ferrengi.

Revenue in the Trading and Distribution division decreased by R18,7 million (8,4%) from R221,8 million to R203,1 million. Profit before tax decreased by R3,1 million (21,1%) to R11,7 million.

Foodserv continued to show strong revenue and profit growth and the outlook for Foodserv remains very positive. Goldenmarc has experienced both volume and margin pressure indicative of the current weak retail environment. This has resulted in material reductions in their revenue and profitability for the period. Management continues to focus on achieving improved volumes and margins but these are largely dependent on the improvement in trading conditions. In addition, Goldenmarc’s management is implementing measures to significantly reduce fixed overheads.

The restructuring of Sunkist is largely completed with a few sales categories still to be eliminated or disposed off. As a result of this process, Sunkist’s revenue decreased by 61,4% or R17,7 million for the period. Sunkist is now relatively small within the trading and distribution division and management continues to explore ways of optimising shareholder value in this business.

Services

The Services division comprises Interpark, Sterikleen, Vital Distribution, Vital Fleet, Staffing Logistics, Chattels, Delawood and Levingers.

Revenue in the Services division increased by R76,8 million (92,8%) to R159,5 million and profit before tax improved by R7,3 million (59,3%) to R19,6 million.

The significant growth in revenues and profitability is due to the introduction of the new acquisitions as well as solid performances of the existing business units in the current period. Vital is only included in these results from 1 October 2008, whilst Delawood Designs is included from 1 November 2008. Initial results indicate that these companies are performing as anticipated and should continue to do so for the coming six months to June 2009.

Due to lower than expected industry activity, Chattels did not achieve anticipated revenues to December. However the cyclical nature of the business and the strong order book to June 2009 should result in a solid annual performance. In addition, Chattels is currently pursuing significant growth opportunities which if successful will have a meaningful positive impact on future performance.

Interpark and Sterikleen continue to achieve positive sustainable results. The continued focus of management in these companies is on cost and margin maintenance, which is even more relevant in the current economic environment. Both Interpark and Sterikleen have been actively developing innovative revenue opportunities within the core businesses, which are now beginning to deliver results. This will be a continued focus of management to maximise revenue growth.

Levingers is highly geared on an operating level, which combined with lower volumes due to a weaker retail environment has resulted in Levingers performing below growth expectations for the reporting period. However, aggressive cost management has resulted in continuing profitability, and any improvement in the retail environment will see significant improvements in results. In addition, management are currently pursuing opportunities to reduce the operational gearing within the company.

ACQUISITIONS

During the period under review, two previously announced transactions were implemented as follows:

• Effective 1 October 2008, Excellerate acquired 37,4% of Vital Distribution Solutions (Pty) Limited, 50% of Staffing Logistics (Pty) Limited and 50% of Vital Fleet (Pty) Limited, collectively (“the Vital Transaction”); and
• Effective 1 November 2008, Excellerate acquired 50% of an entity which has acquired the business of DLJ Interiors CC, carried on under the name Delawood Designs (“the Delawood Transaction”).

The total cost of the Vital Transaction was R34,9 million of which R25,8 million was attributable to tangible net assets acquired, with the balance of R9,1 million attributed to goodwill and other intangible assets. From 1 October 2008 to 31 December 2008, the Vital Transaction contributed R4,4 million to the Group’s profit after tax, after taking into account R1,0 million of pre-taxation financing costs related to the transaction.

The total cost of the Delawood Transaction was R9,4 million of which R3,4 million was attributable to tangible net assets, and the balance of R6,0 million attributed to goodwill and other intangible assets. From 1 November 2008 to 31 December 2008, the Delawood Transaction contributed R0,8 million to the Group’s profit after tax, after taking into account R0,1 million of pre-taxation financing costs related to the transaction.

PROSPECTS

The Group continues to look for investment opportunities, but is adopting a more conservative approach to valuations consistent with the current economic environment. It is the view of the Board that recent opportunities considered have not yet fully discounted the inherent risks associated with local and global markets, and consequently it has been difficult to agree value with sellers during the current reporting period. More recently, however, the expectation gap appears to be narrowing, and the Group is well positioned to make acquisitions as appropriate opportunities arise.

There has also been a major effort to source innovative and material growth opportunities for the Group’s current operating businesses, and this effort is expected to start yielding positive results going forward.

BASIS OF PREPARATION OF RESULTS

The condensed consolidated financial results for the six months ended 31 December 2008 have been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards, its interpretations adopted by the International Accounting Standards Board, the presentation as well as the disclosure requirements of International Accounting Standards 34 – Interim Financial Reporting, the Listing Requirements of the JSE Limited and in the manner required by the South African Companies Act, No 61 of 1973.

The accounting policies applied in the presentation of the financial results are consistent with those applied for the year ended 30 June 2008.

The results for 31 December 2007 have been restated in accordance with the restatement of the results for the year ended 30 June 2008. The Group has adopted the policy to proportionately consolidate joint ventures. This policy was also applied to those joint ventures classified previously as associates.

The condensed consolidated balance sheet at 31 December 2008 and the related condensed consolidated income statement, statement of changes in equity and cash flow for the six months then ended have not been reviewed or reported on by the Group’s auditors.

DIVIDEND

As is consistent with the Group’s policies regarding the payment of interim dividends, 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
23 March 2009

DIRECTORS

Gordon Hulley	Chief executive officer
Harold Bloch	Executive director
Peter Kramer	Executive director
Alan Lipchin	Executive director
Athol Stewart	Executive director
Rob Owens	Executive director
Rudi Stumpf	Non-executive director
Graham Davel	Non-executive director
Clive Howell	Non-executive director
(alternate to Graham Davel)
Michael Mohohlo	Non-executive director

SHARE TRANSFER SECRETARY

Computershare Investor Services (Pty) Limited
70 Marshall Street
Johannesburg 2001
PO Box 61051
Marshalltown 2107
Tel: (+27 11) 370 5000
Fax: (+27 11) 688 7721

COMPANY SECRETARY

ER Goodman Secretarial Services CC
(represented by E Goodman)
2nd Floor, Palm Grove, Grove City
196 Louis Botha Avenue
Houghton
Tel: (+27 11) 728 0742
Fax: (+27 11) 728 4226
email: ergoodmn@netactive.co.za

REGISTERED OFFICE

1st Floor
Atholl Square
Corner Katherine Street and Wierda Road East
Sandown 2196
PO Box 785448, Sandton 2146
Tel: (+27 11) 523 2980
Fax: (+27 11) 523 2990
email: info@excellerate.co.za

Sponsor:
Barnard Jacobs Mellet Corporate Finance (Pty) Ltd