| Wed 10 Jul 2002, 0:00 | | Connection Group Holdings Limited - Results For Th |
|
Connection Group Holdings Limited - Results for the year ended 31 May 2002
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 year ended 31 May 2002
Turnover up
19% at R886m
Operating profit
up 21% at R35,7m
Headline earnings per share
(continuing operations) up 30% at 8,94c
Group Income Statement
Year ended Year ended
31 May 2002 31 May 2001 %
R`000 R`000 Increase/
(audited) (audited) (decrease)
Revenue 886 139 746 154 18,8
Continuing operations 858 670 734 732 16,9
Discontinued operations 27 469 11 422 140,5
Cost of sales (673 003) (565 108) 19,1
Staff costs (91 307) (75 370) 21,1
Other operating expenses (86 097) (76 031) 13,2
Operating profit before
interest and depreciation 35 732 29 645 20,5
Continuing operations 34 631 28 201 22,8
Discontinued operations 1 101 1 444 (23,8)
Depreciation and amortisation (11 015) (8 984) 22,6
Operating profit before
interest 24 717 20 661 19,6
Net interest paid (564) (1 540) (63,4)
Profit before exceptional items 24 153 19 121 26,3
Continuing operations 27 085 20 241 33,8
Discontinued operations (2 932) (1 120) 161,7
Exceptional items (18 875) (2 042) -
Amortisation of goodwill (697) (697) -
Profit before taxation 4 581 16 382 (72,0)
Taxation (2 378) (3 317) (28,3)
Deferred taxation on operating
profits (4 892) (3 317) 47,5
Deferred taxation on capital
loss 2 514 - -
Profit after taxation 2 203 13 065 (83,1)
Attributable to minority
shareholders - 18 -
Net profit for the year 2 203 13 083 (83,2)
Continuing operations 20 874 16 166 29,1
Discontinued operations (18 671) (3 083) -
Headline earnings per share -
continuing operations (cents) 8,94 6,86 30,3
Headline earnings per share
(cents) 8,25 6,71 23,0
Earnings per share (cents) 0,94 5,58 (83,2)
Fully diluted headline earnings
per share (cents) 7,26 6,20 17,1
Fully diluted earnings per
share (cents) 0,83 5,16 (83,9)
Weighted average number of
ordinary shares in issue
(000`s) 234 374 234 374 -
Net tangible asset value per
share (cents) 20,45 10,28 99,0
Group Cash Flow Statement
Year ended Year ended
31 May 2002 31 May 2001
R`000 R`000
(audited) (audited)
Net cash inflow from operating activities 44 330 31 426
Investment to maintain operations (2 213) 168
Investment to expand operations (11 581) (22 415)
Cash inflow/(outflow) on
disposal/(investment) in subsidiary 18 249 (4 489)
Net increase in cash and cash equivalents 48 785 4 690
Cash and cash equivalents at beginning of
the year 32 404 27 714
Cash and cash equivalents at end of the
year 81 189 32 404
Capex for the year 13 873 23 535
Group Statement of Changes in Shareholders` Equity
31 May 2002 31 May 2001
R`000 R`000
(audited) (audited)
Balance at beginning of the year 45 888 32 227
Attributable profit for the year 2 203 13 083
Exchange differences arising on
translation of foreign entity (164) 578
Balance at end of the year 47 927 45 888
Group Balance Sheet
31 May 2002 31 May 2001
R`000 R`000
(audited) (audited)
Assets
Non-current assets 51 106 76 811
Plant and equipment 22 800 23 800
Non-current receivables 4 302 3 211
Intangible assets - 21 802
Deferred taxation 24 004 27 998
Current assets 195 165 120 249
Inventories 75 343 47 609
Trade and other receivables 38 633 40 236
Bank balances and cash 81 189 32 404
Total assets 246 271 197 060
Equity and liabilities
Capital and reserves 47 927 45 888
Share capital and premium 31 536 31 536
Foreign currency translation reserve 1 215 1 379
Accumulated profit 15 176 12 973
Current liabilities 198 344 151 172
Trade payables and provisions 198 344 151 172
Total equity and liabilities 246 271 197 060
Reconciliation of Headline Earnings per share
Year ended Year ended
31 May 2002 31 May 2001
R`000 R`000
(audited) (audited)
Net profit attributable to ordinary
shareholders 2 203 13 083
Adjustments:
Loss/(profit) on disposal of fixed assets 70 (89)
Discontinued operations 1 430 -
Net after tax loss on sale of investment 14 931 -
Goodwill amortisation 697 697
Exit of Golf Park lease in Cape Town - 2 042
Headline earnings attributable to
ordinary shareholders 19 331 15 733
Weighted average number of shares in
issue (000`s) 234 374 234 374
Headline earnings per share (cents) 8,25 6,71
Headline earnings attributable to
ordinary shareholders 19 331 15 733
Attributable loss from discontinued
operations 1 613 344
Headline earnings - continuing operations 20 944 16 077
Weighted average number of shares in
issue (000`s) 234 374 234 374
Headline earnings per share - continuing
operations (cents) 8,94 6,86
Segmental Analysis
Year ended Year ended
31 May 2002 31 May 2001
R`000 R`000
(audited) (audited)
Revenue per operation
Incredible Connection 707 955 599 610
Enterprise Connection 154 744 130 442
Ultimate Connection 19 275 11 422
Group Services 4 165 4 680
Operating profit/(loss) before interest
and depreciation
Incredible Connection 37 321 25 819
Enterprise Connection (356) 1 432
Ultimate Connection 2 342 2 634
Group Services (3 575) (240)
Commentary
OVERVIEW
The directors are pleased to report that the Connection Group has recorded
another solid performance for the year to 31 May 2002, with a 23% increase in
headline earnings per share.
Despite challenging market conditions during the period under review, the Group
has achieved real earnings growth for the third consecutive year. The Group`s
retail arm, Incredible Connection, had another singularly successful year.
Building on the strong foundation established over the past three years, the
Connection Group continued to address its stated goal of strengthening its
Balance Sheet through strong cash generation and the conversion of intangible
assets to cash.
With effect from 30 April 2002, the Group sold its 83,7% holding in Ultimate
Connection, a developer of retail software, for R18,3 million in cash. Should
Ultimate Connection exceed its gross profit forecast for the twelve month period
to 30 April 2003, the Group will receive 50% of any excess as an additional
payment, to a maximum of
R4 million. Ultimate Connection had achieved success in the local market with
its proprietary software suite, ActiveRetail. However, despite sustained efforts
to market its software in Europe, no successful sales were concluded in this
region during the year.
The Group`s strong cash generation from operations and the disposal of Ultimate
Connection have boosted cash reserves to R81,2 million at the year end, an
increase of R48,8 million over the prior year. This resulted in a doubling of
the tangible net asset value per share from 10,3 cents to 20,5 cents.
The Connection Group will apply this cash in growing its retail operations and
has made application to transfer its listing on the JSE Securities Exchange SA
from the Information Technology sector to the General Retailers sector.
REVIEW OF OPERATIONS
Incredible Connection
The Group`s retail operation, Incredible Connection, enhanced its position as
the leading IT retailer in Southern Africa.
The operation achieved a 45% increase in operating profit, with turnover growing
by 18% and gross trading space increasing by 6%. The increase in profitability
and strict management of working capital resulted in strong cash generation.
Three new outlets were opened during the year, bringing the total number of
outlets to 26 at the year-end. In addition, the outlets in Rosebank and Eastgate
were relocated and upgraded. Good progress was made in other areas of strategic
importance including employee skills training, customer satisfaction and
supplier relationships.
Incredible Connection`s exceptional achievements during the year mark the
completion of a three-year turnaround strategy. Under the capable leadership of
Toni Fourie, Managing Director of Incredible Connection, the company has
consistently met its financial and strategic targets over the past three years.
Enterprise Connection
At the start of the 2002 financial year, Enterprise Connection realigned its
strategy and structure to take advantage of an anticipated improvement in the
market for IT infrastructure services and solutions. Market conditions in fact
worsened and Enterprise Connection recorded a loss for the first half of the
year.
Swift action was taken to reduce its overhead base and to focus on its core
competency areas of Sales, Services and Outsourcing. Much closer attention was
paid to expanding relationships with existing clients.
Enterprise Connection returned to profitability in January 2002 and has been
consistently profitable from January to May. Over the year, sustained efforts to
improve the profit split between products and services and to strengthen the
recurring revenue stream proved fruitful and further improvements are envisaged.
The company has established a sound foundation from which to increase its
profitability in the future.
Financial results
The financial results for the year to 31 May 2002 have been prepared on a basis
consistent with the prior year annual financial statements and in compliance
with South African statements of generally accepted accounting practice.
The 19% increase in turnover was largely due to the additional Incredible
Connection outlets, that were opened during 2001, being in operation for the
full year as well as the 3 new outlets opened during the year. Enterprise
Connection also showed an 18% increase in turnover over the previous year.
The 21% improvement in operating profit to R35,7 million was largely due to the
outstanding performance by Incredible Connection. This increase is the result
of improved sales volumes and excellent margin and expense control. Although
Enterprise Connection incurred a small operating loss for the year, the second
six months showed a significant improvement over 2001 and the six months to 30
November 2001. Ultimate Connection`s contribution was in line with the previous
year.
The increase in depreciation and amortisation was due to the additional outlets
being open for the full year and increased amortisation of capitalised
development expenditure at Ultimate Connection.
The reduction in interest paid was as a result of good working capital
management and the improvement in operating profits.
The exceptional items of R18,9 million relate to the write off of goodwill on
the disposal of Ultimate Connection of R17,5 million and the costs of closing a
number of business units within Enterprise Connection of R1,4 million.
A deferred tax asset of R2,5 million was raised as a result of the capital loss
on the write off of the investment in Ultimate Connection. The notional tax
charge of R4,9 million relates to the movement in the deferred taxation balance
and thus has no cash flow implication. The Group had R63,2 million of unutilised
tax losses available at 31 May 2002.
The increase in inventory of R27,7 million arises from the expansion of
Incredible Connection`s operations and taking advantage of favourable buying
opportunities. The higher inventory levels were more than offset by the movement
in trade payables. Trade receivables continued to be well managed in the current
year.
One of the most noteworthy achievements during the year was the Group`s ability
to translate operating profits into cash. Cash generated from operations
amounted to R44,3 million, equal to 19 cents per share.
Capital expenditure amounted to R13,9 million, offset by the R18,3 million
received from the disposal of Ultimate Connection.
Capital commitments contracted but not provided for amount to R0,2 million.
Capital commitments approved but not contracted amount to R2,0 million. This
capital expenditure will be funded from existing cash resources. Lease
commitments in respect of operating leases, payable within one year, amount to
R20,3 million and those payable thereafter amount to R57,2 million. The results
have been audited by Deloitte & Touche and their audit report is available for
inspection at the registered office of the company.
PROSPECTS
Market conditions are expected to remain difficult for the foreseeable future.
However, we are confident that we will continue to show real earnings growth
during the next financial year.
The year ahead will see a strong focus on capitalising on the significant
opportunities that exist in the retail technology market. Our medium term
strategy is to establish a retail management group - Connection Universe - that
will comprise of a group of specialist retailers that are market leaders in
defined areas of technology and electronics. Incredible Connection will be the
first retail specialist under the Connection Universe banner.
Enterprise Connection will be incorporated into Connection Universe. It will
play a valuable role in enhancing Connection Universe`s competitive edge by
providing the same superior IT platform that contributed so significantly to the
success of Incredible Connection. Synergies between the two Group companies will
continue to be leveraged for maximum benefit.
The formation of Connection Universe builds on the successful completion of
Incredible Connection`s three-year transformation strategy. A number of factors
underpin the adoption of this strategy. The most important of these is a trend
towards consolidation of companies in the retail industry, a shift in technology
towards digital convergence and the Group`s ongoing focus on building critical
mass.
We extend sincere appreciation to the members of the board, the management team
and all staff for their energetic and steadfast commitment and contribution
towards attaining our long-term goals.
For and on behalf of the board
S. Mulholland P.G. Joubert
Chairman Chief Executive Officer
Johannesburg
4 July 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,
Toni Fourie, Grattan Kirk, Paul Moses *Non-Executive
Registered Office: 6 Mellis Road, Rivonia 2128,
PO Box 2214, Rivonia 2128
Date: 10/07/2002 10:45:18 AM Produced by the JSE SENS Department
