| Mon 28 Jan 2002, 0:00 | | Connection Group Holdings Limited - Results For Th |
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November 2001
CONNECTION GROUP HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1997/005390/06)
(ISIN code : ZAE 000016630)
(Share code : CCT)
Results for the six months ended 30 November 2001
Turnover up 6% at R380m
Operating profit up 30% at R14,8m
Headline earnings per share up 10,3% at 2,79c
Group Income Statement
Six months Six months Year
ended ended ended
30 Nov 2001 30 Nov 2000 % 31 May 2001
R'000 R'000 Increase R'000
(unaudited) (unaudited) (decrease) (audited)
Revenue 380 105 358 833 5,9 746 154
Cost of sales (280 507) (271 292) 3,4 (565 108)
Staff costs (41 483) (37 527) 10,5 (75 370)
Other operating
expenses (43 267) (38 557) 12,2 (76 031)
Operating profit
before interest
and depreciation 14 848 11 457 29,6 29 645
Depreciation and
Amortisation (5 477) (3 531) 55,1 (8 984)
Operating profit
before Interest 9 371 7 926 18,2 20 661
Net interest paid (667) (731) (8,8) (1 540)
Profit before
exceptional items
and goodwill
amortisation 8 704 7 195 21,0 19 121
Exceptional items - - - (2 042)
Amortisation
of goodwill (344) (353) (2,5) (697)
Profit before
taxation 8 360 6 842 22,2 16 382
Deferred taxation (2 076) (1 284) 61,7 (3 317)
Profit after
taxation 6 284 5 558 13,1 13 065
Attributable to
minority
shareholders (102) 18 - 18
Net profit for
the period 6 182 5 576 10,9 13 083
Headline earnings
per share (cents) 2,79 2,53 10,3 6,71
Earnings per share
(cents) 2,64 2,38 10,9 5,58
Fully diluted
headline earnings
per share (cents) 2,41 2,33 3,4 6,20
Fully diluted
earnings per share
(cents) 2,28 2,19 4,1 5,16
Weighted average
number of ordinary
shares in issue
(000's) 234 374 234 374 - 234 374
Net asset value per
share (cents) 22,27 16,13 38,1 19,58
Segmental Analysis
Six months ended Six months ended Year ended
30 Nov 2001 30 Nov 2000 31 May 2001
R'000 R'000 R'000
(unaudited) (unaudited) (audited)
Turnover per division
Incredible Connection 304 447 288 953 599 610
Enterprise Connection 62 015 64 045 130 442
Ultimate Connection 10 340 3 495 11 422
Group services 3 303 2 340 4 680
Operating profit before
interest and
depreciation
Incredible Connection 14 590 10 385 25 819
Enterprise Connection (2 290) 1 349 1 432
Ultimate Connection 2 479 (605) 2 634
Group services 69 328 (240)
Group Statement of Changes in Equity
30 Nov 2001 30 Nov 2000 31 May 2001
R'000 R'000 R'000
(unaudited) (unaudited) (audited)
Balance as previously reported 45 888 32 227 32 227
Net profit for the period 6 182 5 576 13 083
Exchange differences arising on
translation of foreign entity 119 - 578
Balance at end of the period 52 189 37 803 45 888
Group Balance Sheet
30 Nov 2001 30 Nov 2000 31 May 2001
R'000 R'000 R'000
(unaudited) (unaudited) (audited)
Assets
Non-current assets 73 139 75 727 73 600
Plant and equipment 24 201 24 137 23 800
Intangible assets 23 016 21 559 21 802
Deferred taxation 25 922 30 031 27 998
Current assets 142 903 114 126 123 460
Inventories 68 336 64 559 47 609
Receivables 49 361 40 544 43 447
Bank balances and cash 25 206 9 023 32 404
Total assets 216 042 189 853 197 060
Equity and liabilities
Capital and reserves 52 189 37 803 45 888
Share capital and
premium 31 536 31 536 31 536
Foreign currency
translation reserve 1 498 801 1 379
Accumulated profit 19 155 5 466 12 973
Minority shareholders 102 - -
Shareholders' equity 52 291 37 803 45 888
Current liabilities 163 751 152 050 151 172
Payables 163 751 152 050 151 172
Total equity and
liabilities 216 042 189 853 197 060
Group Cash Flow Statement
Six months ended Six months ended Year ended
30 Nov 2001 30 Nov 2000 31 May 2001
R'000 R'000 R'000
(unaudited) (unaudited) (audited)
Net cash inflow from
operating activities 259 2 468 31 426
Investment to
maintain operations (988) (733) 168
Investment to
expand operations (6 469) (20 426) (26 904)
Net (decrease)
increase in cash and
cash equivalents (7 198) (18 691) 4 690
Cash and cash
equivalents at
beginning of the period 32 404 27 714 27 714
Cash and cash equivalents
at end of the period 25 206 9 023 32 404
Capex for the period 7 499 16 670 23 535
Reconcilliation of
Headline Earnings per share
30 Nov 2001 30 Nov 2000 31 May 2001
R'000 R'000 R'000
(unaudited) (unaudited) (audited)
Net profit for the period 6 182 5 576 13 083
Loss(profit) on disposal
of plant and equipment 21 12 (89)
Exit Golf Park lease in
Cape Town - - 2 042
Amortisation of goodwill 344 353 697
Headline earnings attributable
to ordinary shareholders 6 547 5 941 15 733
Weighted average number
of shares in issue (000's) 234 374 234 374 234 374
Headline earnings per share 2,79 2,53 6,71
Commentary
OVERVIEW
Your directors are pleased to report that the Connection Group again
delivered real earnings growth during the period under review. The overall
results for the interim period are acceptable, but reflect a mixed
performance from the three operating divisions.
REVIEW OF OPERATIONS
Incredible Connection
Incredible Connection continues to consolidate its position as the country's
leading IT retailer. In line with its goal of attaining critical mass,
defined as R1 billion of sales within the next two years, new stores were
opened in Alberton City and the Gateway shopping centre in Durban. The
existing store in the Rosebank Mall was relocated to better and larger
premises.
A number of factors impacted on the supply chain during the period, notably
the closure of the Siltek Group, currency fluctuations and the events in the
USA on September 11. In spite of these, Incredible Connection was able to
access alternative sources of supply, maintain appropriate stock levels and
strengthen its existing supplier relationships. In addition, new supplier
relationships have been formed, resulting in the introduction of new product
lines where appropriate.
Good progress was made in other areas of strategic importance. The core
competencies of staff continue to be improved through a number of ongoing
initiatives and much is being done to boost customer satisfaction levels.
A version upgrade of the ActiveRetail software system was implemented.
Incredible Connection increased its operating profit by 40,5% on a growth in
turnover of 5,4% and an increase in trading space of 3%. It remains firmly
on track with the execution of its strategic plan.
Enterprise Connection
Enterprise Connection has experienced a disappointing six months. A marked
slowdown in the corporate IT infrastructure market saw customers deferring
orders for services and equipment, as well as fierce competition for
available business.
Market conditions in this sector are not expected to change in the
foreseeable future. Accordingly Enterprise Connection has embarked on a
programme to scale back its activities and reduce overheads to a level that
will return it to profitability in the second half of the financial year.
Ultimate Connection
Ultimate Connection continues to build on the momentum established towards
the end of the previous financial year, recording a threefold increase in
turnover over the comparable period. The higher turnover resulted in an
operating profit of some R2,5m compared to a loss of R0,6m in the prior
year.
The ActiveRetail suite of software products has established itself as the
market leader for Microsoft-based retail software in South Africa. This
strong market position was enhanced by the acquisition of the SaleAbility
division of Ixchange in September for a nominal consideration. The
acquisition enabled Ultimate Connection to acquire a substantial customer
base and to expand its pool of specialised skills.
The establishment of a skilled value added reseller (VAR) channel is
integral to the success of the ActiveRetail product suite. In this regard,
good progress has been made in expanding and upskilling the number of VARs
locally. Outside of South Africa, the relationship with NCR Corporation in
Europe continues to strengthen, although sales activity in this region has
been slower than anticipated due to customers deferring purchasing
decisions.
Financial results
The financial results for the six months to 30 November 2001 have been
prepared on a basis consistent with the prior year annual financial
statements and in compliance with generally accepted accounting practice.
The 5,9% increase in turnover was largely due to additional Incredible
Connection outlets trading for the entire period and improved sales at
Ultimate Connection. The Group achieved a 30% increase in operating profit
before interest and depreciation due to higher earnings from Incredible
Connection and Ultimate Connection. An operating profit of R14,8m was
achieved in spite of a loss of R2,3m at Enterprise Connection.
Lower capital expenditure levels resulted in improved cash balances and a
consequent reduction in the interest charge. The notional tax charge of
R2,1m relates to the movement on the deferred taxation balance and thus has
no cash flow implication. The Group had R89,5m of assessed tax losses
available at 30 November 2001.
Intangible assets of R23m comprise goodwill of R12,4m, which is being
amortised over twenty years and development expenditure of R10,6m, which is
being amortised over five years.
The increase in inventory of R20,7m compared to May 2001 is as a result of
Incredible Connection deliberately building its merchandise levels prior to
the Christmas trading season. Higher levels of trading activity at
Incredible Connection and Ultimate Connection resulted in an increase of
R5,9m in receivables for the six months. These increases were partly offset
by an increase in payables of R12,6m, with the balance being financed from
existing cash resources.
The higher levels of working capital and capital expenditure of R7,5m
resulted in a net cash utilisation of R7,2m for the period. Despite this,
the Group had cash resources of R25,2m at the balance sheet date, compared
to a balance of R9m at 30 November 2000. As the Group generates the majority
of its cash during the second half of the financial year, we anticipate
reporting a substantial increase in cash balances at the year end.
Capital commitments contracted but not provided for amount to R2,2m. This
capital expenditure will be funded from existing cash resources. Lease
commitments in respect of operating leases, payable within one year, amount
to R21,2m and those payable thereafter amount to R43,0m.
PROSPECTS
In line with its objective of achieving R1 billion of sales, Incredible
Connection will continue with its planned store expansion programme in the
second half of the year. This will see the opening of at least two
additional outlets, including a new store in Gaborone in March, Incredible
Connection's first retail store outside of South Africa. The existing store
in Eastgate shopping centre will be upgraded and relocated to larger
premises.
A key area of focus is to restore Enterprise Connection to profitability as
quickly as possible. To date good progress has been made in this regard.
Ultimate Connection will continue to increase sales of ActiveRetail locally,
while leveraging its relationship with NCR Corporation in Europe.
Economic conditions will remain challenging, but it is pleasing to report
that Christmas trading at Incredible Connection exceeded expectations. We
expect to improve the Group's profitability in the second half of the year
and to deliver acceptable real earnings growth for the full year.
For and on behalf of the board
S. Mulholland P.G. Joubert
Chairman Chief Executive Officer
Johannesburg
28 January 2002
Transfer Secretaries: Ultra Registrars (Pty) Limited, 11 Diagonal Street,
Johannesburg 2001
Directors: Stephen Mulholland (Chairman)*, Pierre Joubert (Chief Executive
Officer), Wendy Appelbaum*, Michael Dowsley, Antonio Fourie, Grattan Kirk,
Paul Moses, Neels van Tonder *Non-Executive
Registered Office: 6 Mellis Road, Rivonia 2128, PO Box 2214, Rivonia 2128
www.connect.co.za
