IFR Capital: Sales and Ebitda are in line with expectations

Nicosia / CY. (ifr) International Food Retail Capital PLC (IFR Capital), the investment company focused on consolidation opportunities in the European food retail sector, last week announced its interim results for the six months ended June 2008. Highlights:

• Strong growth in sales from acquisitions and organic growth
• Operating Ebitda (pre exceptional items) of 15,5 million EUR (2007: 5,0 million EUR) on revenue of 374,0 million EUR (2007: 164,3 million EUR)
• Successful internationalisation of Nordsee franchise
• Integration of Homann / Hamker faster than expected
• High Court proceedings between IFR Capital and ACP stayed until end of November
• Structure of IFR Capital balance sheet needs to be improved; third party offer made to ACP for all of its investment (Equity, Preferred Equity, Debt)

Operational and Financial Review

The results for the period include full six month contributions from Nordsee GmbH, Homann Chilled Food GmbH, Bastian´s GmbH and a circa five month period for Hamker Lebensmittel Beteiligungs GmbH + Co. KG. The Hamker acquisition was completed at the end of January 2008.

IFR Capital´s revenues for the six months ended 30 June 2008 were 374,0 million EUR (H1/2007: 164,3 million EUR), while Ebitda before exceptional items amounted to 15,5 million EUR (H1/2007: 5,0 million EUR). Both sales and Ebitda are in line with the Board´s expectations. Taking the seasonality of the business into account, the Board expects the Company to achieve sales of 763 million EUR and an operating Ebitda of 52 million EUR for the full year ending December 2008. The equity to total asset ratio at the end of the period was 29,4 percent. IFR currently has 163 million EUR of long term interest bearing debt and 107 million EUR of preferred equity in issue (including accrued interest).

Operational efficiencies at the Nordsee division in Germany and Austria improved Ebitda by 2,0 million EUR to 8,6 million EUR from 6,6 million EUR. Divisional Ebitda margin increased from 4,3 percent to 5,6 percent in the first half year and, because of the seasonality of the business, is expected to increase to 9,3 percent by the end of 2008. Nordsee is expanding its international business to the Middle East and Eastern Europe with successful store openings in Budapest, Bukarest and Prague to date and a planned opening in Dubai in November this year. The division expects to enter the Turkish market in the near term.

The Homann / Hamker division for the period generated 209 million EUR of sales and 6,8 million EUR of Ebitda. Increased raw material prices put pressure on the operating performance, however the Company has negotiated to pass a substantial proportion of these additional costs onto retail customers, with effect from September. The integration process is being implemented faster than expected and will be finished by the end of 2008. Major projects include combined procurement, centralisation of warehousing functions, merger of logistic companies and the closure of the administrative operations of Hamker. 13 million EUR of exceptional restructuring costs are expected to arise in 2008 (with net exceptional items of 2,1 million EUR during the six month period) to achieve an anticipated 16 million EUR of annual synergies. Another five million EUR has been invested in a German TV campaign to strengthen the Homann brand in addition to the historic marketing budget.

Bastian´s, the premium bakery concept has generated strong growth of 17 percent on like for like sales and a profitable performance in its new store in Cologne, opened at the end of 2007. The concept has proven a success and further locations are being investigated for future development and growth.

The High Court proceedings between IFR Capital and ACP relating to the claim by ACP for an increase of the margin on a part of IFR Capital´s debt and the counterclaim by IFR Capital for an account of profits and / or other compensation for breach of fiduciary duties have been stayed until the end of November.

The Company believes that, in order to realise its strategy of building a food group with 1,5 billion EUR turnover and an Ebitda margin of ten percent within the next few years, it is a prerequisite that its capital structure be restructured.

The most important objective of IFR Capital in the second half of 2008 is therefore to improve the structure of its balance sheet. Given the current terms of the preferred equity, it is essential that the preferred equity is refinanced, either by way of redemption or conversion into ordinary equity or another similar instrument on acceptable terms to the Board. Theo Müller, one of the owners of the preferred equity, is strongly supportive of converting the preferred equity into ordinary equity. However, ACP, the other owner of the preferred equity, was not willing to convert its preferred equity into ordinary equity. ACP has received a cash offer for all of its investment in IFR Capital from private investors, who are in line with the intentions of Theo Müller.

Heiner Kamps, Chief Executive Director and one of the main shareholders of IFR Capital, summarizes: «I am pleased with the development of the operating business during the six months ended 30 June 2008, in spite of price increases of raw materials and difficult negotiations with retail customers. We have established a good platform to realize our growth strategy. However, an inevitable precondition to realise this strategy is for the preferred equity to be refinanced, and the Board believes that this should be converted into ordinary equity to strengthen the balance sheet. The Company is aware that funding for this transaction is available, because of the support of the Company´s financially strong shareholders. In order to benefit from the opportunities for IFR that the market currently offers, there would need to be an agreement on this transaction by the end of 2008» (source).