Interim Results

Legacy Distribution Group Inc 28 September 2006 28 September 2006 Legacy Distribution Group, Inc. ('Legacy' or 'the Company') Interim Results for the Six Months to 30 June 2006 DELIVERING THE GOODS Legacy Distribution Group, Inc., (AIM: LDG), the Arizona based wholesaler and distributor of tobacco and grocery products to the convenience store market, today announces its interim results for the six months ended 30 June 2006. The results show a significant improvement over 2005 and solid progress made in the implementation of the Company's strategy for growth. Highlights of the results include: •Gross profit up over 38.8% to US$2.4 million (2005: US$1.7 million) with a gross margin of 10.8% (2005: 5.0%) •Operating profit increased to US$0.5 million (2005: US$0.03 million) •Earnings before tax increased to US$0.3 million (2005: loss US$0.1 million) with net margin growth to 0.9% •Turnover was US$22.3 million (2005: US$34.4 million) reflecting the Company's strategy of rationalising unprofitable clients •Basic earnings per share improved to 0.3c (2005: loss 0.2c) •Successful IPO and admission to AIM in March 2006 raising US$2.0 million net •Two significant contracts won and then extended with major clients, Albertsons and the QDN Corporation •Convenience store market share increased from less than 1% to 4% in the Arizona /Nevada market •Fred Gretsch and Tim Riedel appointed to the Board as Chief Financial Officer and Chief Marketing Officer respectively, providing further strength and depth to the senior management team •Gary Nelson appointed as Vice President of Non Tobacco Category Management in August 2006, continuing commitment to growth of non tobacco products division growth •Trading in second half combined with healthy order book and opportunity pipeline leads to a positive outlook for the full year. Commenting on the results, Legacy's chairman, Michael Mills said: 'The results for our first half year are extremely encouraging and I am convinced that Legacy is 'delivering the goods' in both senses. We have significantly improved both gross margin and operating profit and progressed our transformation from being a niche supplier of tobacco products to a business that is rapidly growing market share in the wider convenience store market. 'To date, our growth has been achieved organically, helped particularly by the contracts with Albertsons and QDN. We remain committed to looking for suitable acquisition opportunities and I hope to be able to make further announcements on this in the coming months.' For further information: Legacy Distribution Group Inc.: Tel: +1 (0) 602 344 6750 Frank Patton (CEO)/Fred Gretsch (CFO) Tavistock Communications: Tel: +44 (0) 20 7920 3150 Richard Sunderland/Rachel Drysdale Corporate Synergy Plc: Tel: +44 (0) 20 7448 4400 Oliver Cairns/Romil Patel CHAIRMAN'S STATEMENT During the period the Company has successfully managed the transition from a private to a public company whose shares are quoted on the AIM market of the London Stock Exchange. Since the start of the year, management has concentrated on its stated strategy of generating improved margins by diversifying the Company's product mix and the customer base. As laid out in the strategy set out at the time of our IPO, we are moving away from being a niche distributor of purely tobacco products to becoming a wholesale convenience store distributor. To that end, the Company is relinquishing low margin and unprofitable business in order to concentrate on more appropriate types of customers. Although this has resulted in lower sales revenue in the short term, it has allowed us to not only improve gross margins dramatically but also to provide a better quality and more efficient service to other clients, new and old. This strategy has already resulted in substantial contract wins, as evidenced by the recent announcements regarding QDN and Albertsons, and, going forward, we expect this to translate into increased sales. We will continue to focus on profitable sales growth by utilizing our long standing core competency of distributing tobacco products to solicit and win convenience store customers in the Arizona and Nevada marketplaces and beyond. We are also confident that our focus on a broader product range and specific customer sectors will yield significant shareholder return in the near term. To further develop the non tobacco side of the business, we appointed Gary Nelson in August 2006 as Vice President of Non Tobacco Category Management. Formerly a senior category manager at Winn Dixie, the multi-billion dollar US grocery chain, his responsibilities include key account management, as well as overall responsibility for all non tobacco products in the Legacy portfolio. During the period, Legacy also appointed Fred Gretsch to the Board as Chief Financial Officer. Fred brings with him over 30 years of financial management experience and will be a tremendous asset to the Company. Additionally, Legacy appointed Tim Riedel, the Chief Marketing Officer, to the Board. This appointment was a priority, given the key role that he plays in our business strategy. In addition to the organic growth strategy outlined above, the Company is developing a sound acquisition strategy to generate rapid sales and earnings growth. We have identified a number of potential opportunities and expect that, with access to capital markets via AIM, we can progress these in the near term; adding geographic reach and/or providing us with a platform to manage additional large national customers. We expect these to have a positive impact on both the Company's income statement and balance sheet and result in a continual improvement in shareholder value over the next three to five years. Michael Mills Chairman 27 September 2006 CHIEF EXECUTIVE OFFICER'S REVIEW We have achieved a number of milestones in the last six months, Legacy's admission to AIM in March 2006 being of particular note. We have also won, and subsequently extended, sizable contracts from Albertsons and QDN and grown the convenience store segment of our business, which has flowed through into greatly improved gross margins and an increase in earnings. Legacy's biggest objective is to make the transition from being a narrowly focused niche distributor to a broad line convenience store distributor and we continue to make solid progress in this area. The results of the last six months clearly illustrate the type of improvements that can be achieved in our core markets with the correct product mix and the right team working towards a common objective. Both Legacy's gross margin percentage and gross margin dollars have significantly improved during the first six months. We have made good inroads into our strategy of rationalizing some unprofitable customers, which, although resulting in lower turnover, when compared to last year, has allowed us to increase the gross margin dollars by $0.7 million by focusing on customers with a higher mix of non tobacco products. Legacy's reputation for operational excellence in terms of reliability, customer service and ease of use will drive further organic sales growth in our convenience store division, as evidenced over the past twelve months by an increase in Legacy's share of this market from less than 1% to 4%. Current and potential customers generally choose their supplier on the basis of operational excellence rather than just price. We are confident that Legacy's reputation, based on its 50 plus year history, and our focus on customer service will continue to provide contract wins, such as the significant new contracts we have already announced. To achieve even higher levels of operational excellence, the Company will invest in a next generation Enterprise Resource Planning (ERP) platform along with a new handheld ordering device. These systems will allow the Company to better forecast demand whilst providing customers with real time inventory information. Over 3,000 independent convenience stores, representing an annual sales value of $450 million, exist in the markets Legacy serves. The projected growth of these markets during the next five years is estimated to be between 5% and 8%, which is directly attributable to the population growth in Arizona and Nevada projected by the US Government. The appointments of Fred Gretsch and Gary Nelson are big steps forward for Legacy. They will both play key roles in our growth strategies. Gary provides the disciplines necessary to allow Legacy to maximize gross margins from all the non tobacco categories. Legacy must stay focused on finding results oriented, customer focused employees in order to achieve the committed goals. Legacy's managers and employees will be the defining difference between the Company and its competition. As a direct result of our growth in the convenience stores, Legacy has introduced a number of new product lines including hanging bag candy, automotive products, beverages and prepared foods. The additions of the automotive and beverage products were critical to our convenience store growth for the period. These products represent 5% to 7% of the annual sales volume and 15% of profit for a convenience store owner. During the period, Legacy also expanded its snack product portfolio by transitioning to a direct buying relationship with Frito Lay. The successful completion of our IPO is a major step forward, providing us with additional capital to pursue our strategic expansion plans both organically and via acquisition. Legacy has developed, and is pursuing, an acquisition strategy to increase geographical reach and to diversify the type of customers that we service; improving turnover, gross margin dollars and earnings in the short term. We continue to make solid progress across all aspects of the business and I look forward to the future with confidence. Frank Patton Chief Executive Officer 27 September 2006 Profit and Loss statement for the six month period ended 30 June 2006 --------------------------------------------------------------------- Unaudited Audited Audited 30 June 30 June 31 December 2006 2005 2005 US$ '000 US$ '000 US$ '000 Turnover 22,299 34,404 64,574 Gross Profit 2,408 1,734 3,546 Operating Profit/(Loss) 512 26 (586) Profit/(Loss) before tax 329 (133) (911) Net Profit/(Loss) 194 (133) (711) Basic earnings/(Loss) per share (US Cents) 0.3 (0.2) (1.0) Diluted earnings/(Loss) per share (US Cents) 0.3 (0.2) (1.2) Balance Sheet as of 30 June 2006 -------------------------------- Unaudited Audited Audited 30 June 30 June 31 December 2006 2005 2005 US$ '000 US$ '000 US$ '000 ASSETS CURRENT ASSETS Cash and cash equivalents 39 - - Accounts receivable 1,430 2,405 1,671 Inventory 2,600 1,934 1,701 Due from shareholders/related parties - 459 459 Recoverable income taxes 380 - 270 Deferred income taxes - 44 - Other current assets 364 175 403 ------------------------------------- TOTAL CURRENT ASSETS 4,813 5,017 4,504 ------------------------------------- Property and equipment, net 1,140 967 1,265 Deposits 62 126 46 Goodwill 1,502 1,502 1,502 ------------------------------------- TOTAL ASSETS 7,517 7,612 7,317 ===================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Checks drawn in excess of cash - 24 48 Line of credit 2,500 1,750 3,000 Accounts payable 923 925 787 Accrued expenses 2 88 - Cigarette and tobacco taxes payable 609 1,219 - Income tax payable 57 72 72 Current portion of notes payable 460 242 467 Holdback note payable - 405 430 ------------------------------------- TOTAL CURRENT LIABILITIES 4,551 4,725 4,804 ------------------------------------- Notes and leases payable, net of current portion 1,504 1,615 1,793 Deferred income taxes 260 235 260 Commitments and contingencies - - - ------------------------------------- TOTAL LIABILITIES 6,315 6,574 6,857 ===================================== STOCKHOLDERS'/MEMBERS' EQUITY Members' Capital - 1,150 1,150 Common stock, par value .001 73 - - Additional paid-in capital 1,623 - - Retained earnings (495) (112) (689) ------------------------------------- TOTAL STOCKHOLDERS'/MEMBERS EQUITY 1,202 1,038 460 ------------------------------------- TOTAL LIABILITIES AND EQUITY 7,517 7,612 7,317 ===================================== Cashflow statement for the six months ended 30 June 2006 -------------------------------------------------------- Unaudited Audited Audited 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000 NET INCOME/(LOSS) 194 (133) (711) Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: Depreciation and amortization 126 89 269 Loss (gain) on sale of assets - - 20 Provision for bad debts - 125 187 Provision for deferred income taxes - - 70 Changes in Operating Assets and Liabilities Accounts receivable 240 (1,328) (656) Deposits (16) - - Inventory (898) 138 371 Property and equipment - - - Other current assets 40 (126) (545) Recoverable income taxes (110) - - Accounts payable and accrued expenses 138 538 42 Cigarette and tobacco tax payable 609 540 (679) Income taxes payable (15) - - Other liabilities - 64 - --------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 308 (93) (1,249) --------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment - (191) (228) Note due to seller - - 25 Note due from investor - (20) (20) --------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - (211) (223) --------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of Common Stock 1,478 - - Payment of Offering Costs (303) - - Borrowings on lines of credit 510 5,887 10,941 Payments on line of credit (1,687) (5,531) (9,335) Proceeds from related party note - - 100 Payment of seller holdback note (430) - - Collection of loan to related party 459 - - Payments on long-term debt (295) (121) (279) --------------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (268) 235 1,427 --------------------------------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 39 (69) (45) CASH AND CASH EQUIVALENTS - Beginning of Period - 45 45 --------------------------------- CASH AND CASH EQUIVALENTS - End of Period 39 (24) - ================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest 183 136 325 Fixed assets purchased under leases or for debt - - 461 ================================= Notes to the Interim Results 1. Basis of Preparation The results for the six months ended 30 June 2006 are unaudited. They have been prepared on an accounting basis and policies that are consistent with those used in the preparation of the audited financial statements of the Company for the 12 months ended 31 December 2005 and the 6 months ended 30 June 2005, which were prepared in accordance with US Generally Accepted Accounting Principles (US GAAP). As a requirement of the Company's admission to AIM, the results for the six months ended 30 June 2005 were audited. 2. Earnings per Share Earnings per share has been calculated based on 73,596,328 (75,799,718 fully diluted) ordinary shares for the six months ended 30 June 2006 and 73,596,328 (75,799,718 fully diluted) ordinary shares for the six months ended 30 June 2005. 3. Name change and merger On 2 February 2006 Best Holdings Acquisition Company LLC, an Arizona corporation was merged into Legacy Distribution Group, Inc., a Delaware corporation, in a tax free exchange. 4. Admission to trading on AIM On 16 March 2006, Legacy Distribution Group, Inc. was admitted to the London Stock Exchange on the AIM which included issuing new shares and exchanging old shares of existing shareholders for restricted shares subject to Regulation S. This information is provided by RNS The company news service from the London Stock Exchange

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