VERIMARK HOLDINGS LIMITED - Verimark - TRADING UPDATE

Verimark - TRADING UPDATE

Verimark Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1998/006957/06
JSE share code: VMK
ISIN number: ZAE000068011
("Verimark" or "the company")

TRADING STATEMENT

It is anticipated that the Group will record a loss before taxation of
between R4.5 million and R5.5 million for the six months ended 31 August
2012 compared to the profit before taxation of R13.1 million reported on in
the previous corresponding period. Headline earnings per share and earnings
per share for the six months ended 31 August 2012 is expected to be in the
range of (5.0) and (6.2) cents per share compared to the headline earnings
per share and earnings per share of 7,0 cents per share and 7.1 cents per
share respectively, as reported on in the previous corresponding period.

The loss is attributable, mainly due to the following factors:
*     Given the tougher trading environment, certain retail customers have
      reduced their stockholding of products in their stores, which
      resulted in lower sales into those retail customers. It is important
      to highlight that sales out of those retailers reflect positive
      growth for the period March to July 2012. This reduction in stock
      levels is not expected to be repeated in the second six months.
*     Rand exchange devaluation, whilst partly offset by the purchasing of
      forward cover, has had a material negative impact on margins in the
      first six months. Selling prices were increased on certain products
      in June / July 2012 to offset the impact of the rand devaluation.
      Whilst margins are expected to recover in the medium term, initial
      resistance to the increased prices is to be expected. Full impact of
      the corrected margins should bear fruit in second half of the year
*     Out of stock on two key products. Verimark rejected an inbound
      shipment from a specific supplier due to the product being out of
      specification. This resulted in rework of the product by the
      supplier, which caused a two month out of stock situation. In the
      second instance, Verimark had taken a decision to replace an existing
      product with a substantially more improved version. Unfortunately,
      the introduction of the new product was delayed and resulted in an
      out of stock situation.
*     As mentioned in previous communications, the business efficiencies
      were negatively impacted due to the sales and operations that have
      outgrown the infrastructure. Whilst concerted efforts have been made
      to improve the operational efficiencies and contain costs, the
      benefits of this focus will only be realised after the relocation to
      the newly custom built, double the size warehouse & head office.

FUNDING

Whilst, the anticipated loss for the six months ended 31 August 2012 has
resulted in additional cash utilisation, the group remains favourably
geared and adequately funded to continue on the Verimark group’s growth
path.

PROSPECTS

The Board remains confident that the medium and long term prospects of the
group remain positive. This view is based on the business’s 35yr successful
history, market leadership of the company, the improved product supply and
the improved margin outlook. Furthermore, operational and process
efficiencies should start to bear fruit in the second six months, when the
relocation to the new warehouse and head office is completed.

The information on which this trading update has been based has not been
reviewed or reported on by the company’s auditors.

3 August 2012

Sponsor
Grindrod Bank Limited

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