| Wed 1 Oct 2003, 9:18 | | Audited Results for the 15 month period ended 31 |
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Connection Group Holdings -
Connection Group Holdings
Incorporated in the Republic of South Africa
Registration number 1997/005390/06
ISIN: ZAE 000016630
Share code: CCT
Audited Results for the 15 month period ended 31 August 2003
- Dividend 18c
- Turnover at R1,01bn
- Operating profit up 46% at R52,2m
- Headline earnings per share up 67% at 68,7c
Group Income Statement
15 Months Year ended
ended
31 August 2003 31 May 2002 %
R"000 R"000 Increase/
(audited) (audited) (decrease)
Revenue 1 012 112 886 139 14,2
Continuing operations 832 069 712 120 16,8
Discontinued operations 180 043 174 019 3,5
Cost of sales (756 890) (673 003) 12,5
Staff costs (98 449) (91 307) 7,8
Other operating expenses (104 526) (86 097) 21,4
Operating profit before 52 247 35 732 46,2
interest and depreciation
Continuing operations 47 280 33 746 40,1
Discontinued operations 4 967 1 986 150,1
Depreciation and amortisation (12 746) (11 015) 15,7
Operating profit before 39 501 24 717 59,8
interest
Net interest received (paid) 2 736 (564) -
Profit before exceptional 42 237 24 153 74,9
items
Continuing operations 37 955 27 333 38,9
Discontinued operations 4 282 (3 180) -
Exceptional items (3 480) (18 875) -
Amortisation of goodwill - (697) -
Profit before taxation 38 757 4 581 746,0
Taxation (10 888) (2 378) 357,9
Profit after taxation 27 869 2 203 1165,0
Attributable to minority (293) - -
shareholders
Net profit for the period 27 576 2 203 1151,7
Continuing operations 26 889 19 639 36,9
Discontinued operations 687 (17 436) -
Headline earnings per share 68,67 41,24 66,5
(cents)
Earnings per share (cents) 60,95 4,70 1196,8
Fully diluted headline 68,67 36,30 89,2
earnings per share (cents)
Fully diluted earnings per 60,95 4,15 1369,2
share (cents)
Dividend per share (cents) 18,00 - -
Weighted average number of 45 240 46 875 (3,5)
shares in issue (000"s)
Net tangible asset value per 117,00 102,25 14,4
share (cents)
Reconciliation of Headline Earnings per share
15 Months ended Year ended
31 August 2003 31 May 2002
R"000 R"000
(audited) (audited)
Net profit attributable to 27 576 2 203
ordinary shareholders
Adjustments:
Loss on disposal of fixed assets 11 70
Discontinued operations 3 480 16 361
Goodwill amortisation - 697
Headline earnings attributable 31 067 19 331
to ordinary shareholders
Weighted average number of 45 240 46 875
shares in issue (000"s)
Headline earnings per share 68,67 41,24
(cents)
Segmental Analysis
15 Months ended Year ended
31 August 2003 31 May 2002
R"000 R"000
(audited) (audited)
Revenue per division
Incredible Connection 829 114 707 955
Enterprise Connection 180 043 154 744
Ultimate Connection - 19 275
Group Services 2 955 4 165
Operating profit/(loss) before
interest and depreciation
Incredible Connection 52 318 37 321
Enterprise Connection 4 967 (356)
Ultimate Connection - 2 342
Group Services (5 038) (3 575)
Group Balance Sheet
31 August 2003 31 May 2002
R"000 R"000
(audited) (audited)
Assets
Non-current assets 47 209 51 106
Plant and equipment 19 780 22 800
Non-current receivables 15 441 4 302
Deferred taxation 11 988 24 004
Current assets 170 536 195 165
Inventories 71 535 75 343
Trade and other receivables 17 501 38 633
Bank balances and cash 81 500 81 189
Total assets 217 745 246 271
Equity and liabilities
Capital and reserves 45 275 47 927
Share capital and premium 11 793 31 536
Foreign currency translation 911 1 215
reserve
Accumulated profit 32 571 15 176
Non-current liabilities 3 039 833
Current liabilities 169 431 197 511
Total equity and liabilities 217 745 246 271
Group Cash Flow Statement
15 Months ended Year ended
31 August 2003 31 May 2002
R"000 R"000
(audited) (audited)
Net cash inflow from operating 44 686 44 330
activities
Investment to maintain (4 813) (2 213)
operations
Investment to expand operations (5 922) (11 581)
Cash inflow on disposal of 3 282 18 249
subsidiary
Purchase of treasury stock (19 743) -
Loan to employee share trust (17 179) -
Net increase in cash and cash 311 48 785
equivalents
Cash and cash equivalents at 81 189 32 404
beginning of the period
Cash and cash equivalents at end 81 500 81 189
of the period
Capex for the period 10 735 13 873
Group Statement of Changes in Retained Earnings
31 August 2003 31 May 2002
R"000 R"000
(audited) (audited)
Balance at beginning of the year 15 176 12 973
Adjustment to valuation of (1 500) -
deferred taxation
Write down of loan to employee (6 040) -
share trust
Rationalisation of Group companies (2 641) -
Attributable profit for the year 27 576 2 203
Balance at end of the year 32 571 15 176
Group Statement of Changes in Shareholders" Equity
31 August 2003 31 May 2002
R"000 R"000
(audited) (audited)
Balance at beginning of the year 47 927 45 888
Attributable profit for the year 27 576 2 203
Exchange difference arising on (304) (164)
translation of foreign entity
Adjustment to deferred taxation in (1 500) -
respect of trademark
Write down of loan to employee (6 040) -
share trust
Rationalisation of Group companies (2 641) -
Cancellation of treasury stock (8 347) -
Set off of treasury stock (11 396) -
Balance at end of the year 45 275 47 927
OVERVIEW
The directors are pleased to report record earnings of R27,6m for the period and
an increase in headline earnings per share of 67% for the 15 months to August
and 43% for the comparable 15 month period. Both Incredible Connection and
Enterprise Connection have made significant contributions to the Group"s
performance. The board is further pleased to announce a dividend of 18 cents per
share representing a 3,8 times cover.
Revenue declined 4,8% in the comparable period due to the reduction in average
selling prices, the appreciating rand and higher interest rates. To offset this
the Group was able to firm its margins and reduce costs to ensure strong
earnings growth, representing a profit before tax return on sales of 4,2%. The
Group"s strong cash generation continued to boost the cash reserves to R81,5m at
the year end, notwithstanding spending R37m on treasury stock and the share
trust. The cash will be applied to grow Incredible Connection"s retail operation
and to fund acquisitions as and when appropriate.
With effect from 31 July, the Group sold its remaining 50% holding in Enterprise
Connection (Pty) Ltd to a management consortium led by Paul Moses. This
concluded the outright sale of the business as the initial 50% was sold to Canal
Square Investments 26 (Pty) Ltd, a Black Empowerment company.
Last quarter"s performance
The last quarter has seen a return to high positive revenue growth for the Group
driven by Incredible Connection which has enjoyed sales growth of 16%, 19% and
27% in the months of June to August respectively. The growth comes as a result
of an increase in consumer buoyancy, falling interest rates, and Incredible
Connection"s dominance and aggressive marketing.
Highlights for the year were:
* HEPS increased by 67% for the 15 month period and by 43% to 68,7c for the
comparable 15 months to August * Dividend of 18c declared
* PBT return on sales of 4,2% at Group level and 5,7% at Incredible Connection
* Return on equity of 60,9%
* Very strong working capital management generating R44,7m cash from operations,
boosting cash to R81,5m
* Firm margins and excellent expense control
* The successful turnaround and subsequent sale of Enterprise Connection to a
grass roots Black Empowerment company
* Substantial share re-purchase
* Repositioning of the Group as a focused category specialist retailer and
transfer to the retail sector of the JSE
* New organisational structures are in place and are appropriately aligned with
the business strategy
Corporate Governance update
In line with our commitment last year Connection Group Holdings undertook a
Corporate Governance Audit in respect of King II. All appropriate
recommendations have been attended to, to ensure a well governed organisation in
respect of internal audit, board and committee mandates, risk management and
board structure.
REVIEW OF OPERATIONS
Incredible Connection
Incredible Connection continued to entrench and enhance its position as the
dominant and leading IT retailer in South Africa. Profit before tax grew 41,7%
for the 15 months to August and 25,2% in the comparable 15 month period to
August. Internal inflation was negative during the period with prices decreasing
by 43% between June 2002 and August 2003 in the key computer and hardware
categories. The firming of margins and excellent expense control contributed to
the strong operating profit. Incredible Connection delivered a 5,7% return on
sales exceeding the commitment made three years ago. Incredible Connection has
now completed a fourth year of high and sustained profitability.
Four new outlets were opened during the year in Windhoek, Polokwane, Klerksdorp
and Kolonnade of which two were in the last quarter. Gross trading space however
remained constant as oversized old stores were reduced in space and the stand-
alone Upgrade Connection store integrated into Woodmead. The reductions in space
ensure these stores are in line with the productivity levels required. The total
number of stores now stands at 30 with two of these being outside South Africa.
Enterprise Connection
Enterprise Connection has enjoyed its most successful period ever generating
profit before tax of R4,3m compared to last year"s loss of R1,5m. After the
successful turnaround and 20 consecutive months of profitability Enterprise
Connection was sold to a Black Empowerment company and a Management consortium.
The changing landscape of corporate IT, the imperative for Black Economic
Empowerment coupled with Connection Group Holding"s strategic requirements led
to the decision to sell Enterprise Connection. The transaction was concluded for
a cash consideration in excess of net asset value.
FINANCIAL RESULTS
The financial results for the period ended 31 August 2003 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 results to 31 August 2003 exclude Ultimate Connection, which was
sold at the end of the previous year and include Enterprise Connection as a
discontinued operation in 2002 and 2003.
The Group achieved operating profit before interest and depreciation of R52,2m
owing to much higher earnings from Incredible Connection and an excellent
turnaround from Enterprise Connection. The Group earned interest of R2,7m in the
current year compared to an interest charge of R0,6m in 2002. The R3,3m
turnaround is testament to strict working capital management as well as the
benefit of the proceeds on disposal of Ultimate Connection. The exceptional item
of R3,5m arises from the disposal of Enterprise Connection. The notional tax
charge of R10,9m relates primarily to the movement on the deferred taxation
account. The Group still has R23,1m of tax losses available at 31 August 2003.
During the year the Group spent R10,7m in opening four new retail outlets and
upgrading the IT infrastructure as well as R17,2m on shares for the employee
share trust scheme. The full dilutionary impact of the share option scheme has
now been covered by the Group"s holding in the employee share trust. In
addition, the Group acquired 8,1 million treasury shares for R19,7m which
represents 17,4% of the issued share capital. Of these shares, 3,5 million have
been cancelled with the balance kept as treasury stock. Net tangible asset value
per share has been calculated after taking into account the purchase of the
treasury stock. Capital commitments contracted but not provided for amount to
R0,6m and capital commitments approved but not contracted amount to R1,5m. All
future capital expenditure will be funded from existing cash resources.
Operating lease commitments payable within one year amount to R15,8m and those
payable thereafter amount to R41,9m. These results have been audited by Deloitte
& Touche and their unqualified audit opinion is available for inspection at the
registered office.
Dividend Policy and Declaration
Connection Group"s policy is to declare and pay a final dividend of between 3 to
4 times dividend cover unless circumstances dictate otherwise. Notice is hereby
given that a final dividend of 18c per share in respect of the period ended 31
August 2003 has been declared payable to ordinary shareholders. The salient
dates with regards to the dividend declaration will be announced shortly.
BOARD CHANGES AND BOARD APPOINTMENTS
The Group announces the resignation of Antonio Fourie, its CEO, who leaves to
pursue new challenges. Antonio Fourie has over four years made a significant
contribution to the Group"s turnaround and its profitability and the board of
directors thank him and wish him well in his new venture.
The Group also announces the appointment of Grattan Kirk, the current Financial
Director, to the position of CEO. Grattan Kirk has been with the Group since
listing and has been a key member of the team through the turnaround. Antonio
Fourie will leave after a structured transfer of responsibilities to Grattan
Kirk.
Two new executive directors have been appointed to the board bringing a wealth
of retailing skills and experience to the team. Paul Susan has been appointed
Chief Operations Officer responsible for merchandising, marketing and store
operations. Pamela Barletta has been appointed to the board with responsibility
for all Human Resources and staff affairs.
PROSPECTS
Conditions in the market are expected to be more stable and buoyant and we
therefore expect to continue to show real earnings growth during the next
financial year. Connection Group will strive to grow revenue by aggressively but
profitably increasing market share. Connection Group will pursue a growth
strategy over the next three years driven by both organic and acquisitive
initiatives as viable and appropriate opportunities present themselves.
Connection Group will also continue to grow Incredible Connection"s store base
in order to further consolidate and entrench its dominance in the category and
geographically. Building critical mass remains a key focus.
Our objective is to achieve a superior business model in respect of our customer
offering, our employment offering and our return to shareholders.
Six key imperatives will underpin the strategy over the next period:
* Growth * Strategic relationships
* Product leadership * Building internal capacity in respect of
our cash, human resources and store
infrastructure
* Dominance * A low relative cost base
While growth is very important, superior returns from existing assets will
always be our foremost priority. We wish to extend our heartfelt appreciation to
all staff of Connection Group for their unwavering commitment, resilience and
contribution to the organisation.
For and on behalf of the board
S. Mulholland A. Fourie
Chairman Chief Executive Officer
Johannesburg
26 September 2003
Transfer Secretaries: Ultra Registrars (Pty) Limited, 11 Diagonal Street,
Johannesburg 2001
Directors: Stephen Mulholland (Chairman)*, Antonio Fourie (Chief Executive),
Wendy Appelbaum*, Pamela Barletta, Pierre Joubert*, Andisiwe Kawa*, Grattan
Kirk, Gunter Steffens*, Paul Susan (*Non-Executive)
Registered Office: 6 Mellis Road, Rivonia 2128, POBox 2214, Rivonia 2128
Date: 01/10/2003 09:00:14 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
