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CONNECTION GROUP HOLDINGS - REVIEWED RESULTS FOR THE SIX MONTHS ENDED 29
FEBRUARY 2004
Connection Group Holdings
Incorporated in the Republic of South Africa
Registration number 1997/005390/06
ISIN: ZAE000042529 Share Code: CCT
"Connection Group" or "the Company")
REVIEWED RESULTS FOR THE SIX MONTHS ENDED 29 FEBRUARY 2004
Turnover (continuing operations) up 18% at R366m
Operating profit (continuing operations) up 34% at R20,2m
Headline earnings per share up 68% at 34,8c
Group Income Statement
+ Six months Six months 15 months
ended ended ended
29 28 31 August
February February 2003
2004 2003 %
R"000 R"000 Increase/ R"000
(reviewed) (reviewed) (decrease) (audited)
Revenue 365 705 371 918 (1,7) 1 012 112
Continuing
operations 365 705 309 268 18,2 832 069
Discontinued
operations - 62 650 - 180 043
Cost of sales (271 086) (273 479) (0,9) (756 890)
Staff costs (33 373) (38 275) (12,8) (98 449)
Other operating
expenses (41 045) (43 196) (5,0) (104 526)
Operating profit
before
interest and
depreciation 20 201 16 968 19,1 52 247
Continuing
operations 20 201 15 129 33,5 47 280
Discontinued
operations - 1 839 - 4 967
Depreciation (4 236) (5 218) (18,8) (12 746)
Operating profit
before interest 15 965 11 750 35,9 39 501
Net interest
received 1 522 444 - 2 736
Profit before
exceptional
items 17 487 12 194 43,4 42 237
Continuing
operations 17 487 10 597 65,0 37 955
Discontinued
operations - 1 597 - 4 282
Exceptional
items - - - (3 480)
Profit before
taxation 17 487 12 194 43,4 38 757
Taxation (5 766) (3 375) 70,8 (10 888)
Profit after
taxation 11 721 8 819 32,9 27 869
Attributable to
minority
shareholders - - - (293)
Net profit for
the year 11 721 8 819 32,9 27 576
Continuing
operations 11 721 7 701 52,2 26 889
Discontinued
operations - 1 118 - 687
Headline
earnings per
share (cents) 34,79 20,71 68,0 76,91
Earnings per
share (cents) 34,87 20,71 68,4 68,27
Fully diluted
headline
earnings
per share
(cents) 33,44 19,73 69,5 75,50
Fully diluted
earnings per
share (cents) 33,52 19,73 69,9 67,01
Weighted average
number
of ordinary
shares in issue
(000"s) 33 615 42 585 (21,1) 40 395
Net tangible
asset value per
share (cents) 102,85 54,26 89,6 106,55
Reconciliation of Headline Earnings per share
Six months Six months 15 months
ended ended ended
29 February 28 31 August
2004 February 2003
2003
(reviewed) (reviewed) (audited)
Net profit attributable to
ordinary shareholders 11 721 8 819 27 576
Adjustments:
(Profit) loss on disposal
of fixed assets (28) - 11
Discontinued operations - - 3 480
Headline earnings
attributable to
ordinary shareholders 11 693 8 819 31 067
Weighted average number of
shares in issue (000"s) 33 615 42 585 40 395
Headline earnings per
share (cents) 34,79 20,71 76,91
Segmental Analysis
Six months Six months 15 months
ended ended ended
29 28 31 August
February February 2003
2004 2003 %
R"000 R"000 Increase/ R"000
(reviewed) (reviewed) (decrease) (audited)
Turnover per
division
Incredible
Connection 365 705 307 289 19,0 829 114
Enterprise
Connection - 62 650 - 180 043
Group Services - 1 979 - 2 955
365 705 371 918 (1,7) 1 012 112
Operating profit
(loss) before
interest and
depreciation
Incredible
Connection 21 707 18 496 17,4 52 318
Enterprise
Connection - 1 839 - 4 967
Group Services (1 506) (3 367) 55,3 (5 038)
20 201 16 968 19,1 52 247
Group Balance Sheet
29 February 31 August
2004 2003
R"000 R"000
(reviewed) (audited)
ASSETS
Non-current assets 33 983 38 120
Plant and equipment 19 499 19 780
Non-current receivables 7 352 6 352
Deferred taxation 7 132 11 988
Current assets 171 024 170 536
Inventories 78 920 71 535
Trade and other receivables 15 070 17 501
Bank balances and cash 77 034 81 500
Total assets 205 007 208 656
EQUITY AND LIABILITIES
Capital and reserves 33 733 36 186
Share capital and premium 1 640 2 704
Foreign currency translation reserve 831 911
Accumulated profit 31 262 32 571
Non-current liabilities 2 096 3 039
Current liabilities 169 178 169 431
Trade payables and provisions 169 178 169 431
Total equity and liabilities 205 007 208 656
Group Cash Flow Statement
Six months 15 months
ended ended
29 February 31 August
2004 2003
R"000 R"000
(reviewed) (audited)
Net cash inflow from operating
activities 14 581 45 422
Taxation paid (939) (734)
Dividend paid (5 722) -
Net investment to maintain operations (1 751) (4 813)
Investment to expand operations (2 265) (5 924)
Cash inflow on disposal of subsidiary - 3 282
Purchase of treasury stock - (19 743)
Loan to employee share trust (8 370) (17 179)
Net (decrease) increase in cash and
cash equivalents (4 466) 311
Cash and cash equivalents at beginning
of the period 81 500 81 189
Cash and cash equivalents at end of
the period 77 034 81 500
Capex for the period 4 016 10 737
Group Statement Of Changes In Retained Earnings
Six months 15 months
ended ended
29 February 31 August
2004 2003
(reviewed) (audited)
Balance at beginning of the period 32 571 15 176
Adjustment to valuation of deferred
taxation - (1 500)
Dividend paid (5 722) -
Rationalisation of Group companies - (2 641)
Attributable profit for the period 11 721 27 576
Consolidation of share trust (7 308) (6 040)
Balance at end of the period 31 262 32 571
Group Statement Of Changes In Shareholders" Equity
Six months 15 months
ended ended
29 February 31 August
2004 2003
(reviewed) (audited)
Balance at beginning of the period 36 186 47 927
Attributable profit for the period 11 721 27 576
Dividend paid (5 722) -
Exchange differences arising on
translation of foreign entity (80) (304)
Adjustment to deferred taxation in
respect of trademark - (1 500)
Rationalisation of Group companies - (2 641)
Concellation of treasury stock - (8 347)
Set off of treasury stock - (11 396)
Consolidation of share trust (8 372) (15 129)
Balance at end of the period 33 733 36 186
Commentary
OVERVIEW
The Board of Directors is pleased to report headline earnings of R11,7m for the
six month period to 29 February 2004, some 68% higher than the comparative
period. These results are the first for the Group as a focused retail
organisation, as all non-retail businesses were disposed of prior to the
reporting period.
While operating profit before interest rose by a commendable 36%, what was most
encouraging was the 18% increase in turnover. The increase in turnover must be
seen against a background of a 25% reduction in retail selling prices brought
about by the strength of the Rand as well as the deflationary nature of the IT
products that the Group sells.
The Group has seen significant volume growth in the categories of personal
computers and notebooks, digital photography, gaming and multifunction devices,
which has offset the impact of price deflation.
Highlights for the period were:
Headline earnings per share increased by 68%
18% increase in turnover to R366m
Profit before tax return on sales of 4,8%
Excellent expense control
Strong working capital management generating R14,6m cash from operations
Cash balances of R77m
Payment of an 18 cents per share dividend amounting to R5,7m.
REVIEW OF OPERATIONS
Incredible Connection continues to entrench itself as the dominant IT retailer
in South Africa. Profit before tax increased by 31% to R19,8m from R15,1m
representing a 5,4% return on sales. The increase in return on sales from 4,9%
in the corresponding period to 5,4% was due to Incredible Connection being able
to maintain margins despite the reduction in average unit selling prices, as
well as excellent expense control. Two new stores were opened, one in the
Midlands Mall in Pietermaritzburg and the other in Century City in Cape Town.
The Group currently has 31 retail outlets with some 21 950m2 of trading space,
up from 21 400m2 at 31 August 2003. We expect to open one new store before the
end of the financial year and two in October 2004. Operating efficiencies were
good, with monthly turnover per head at R125k, trading density of R34k/m2 and
stock turns of seven.
FINANCIAL RESULTS
The financial results for the six month period to 29 February 2004 have been
prepared on a basis consistent with the prior year annual financial statements,
except for the consolidation of the employee share trust, and in compliance with
South African Statements of Generally Accepted Accounting Practice. Due to the
change in the Group"s year end from May to August, the results for the
comparative period have been extracted from the most recent audited results for
the 15 month period
ended 31 August 2003.
The results to 29 February 2004 exclude Enterprise Connection which was sold
with effect from 31 July 2003. Enterprise Connection has therefore been shown as
a discontinued operation in the comparative period.
In line with the recommendations for the consolidation of share incentive
schemes issued by the JSE Securities Exchange South Africa on 16 February 2004,
headline earnings and fully diluted headline earnings have been calculated based
on the provisions of AC132 and AC104.
As a result, prior year headline earnings and fully diluted headline earnings
per share have been re-stated from 68,67 to 76,91 cents per share and from 68,67
to 75,50 cents per share respectively.
The Group achieved operating profits before interest and depreciation of R20,2
million owing to strong earnings from Incredible Connection and a lower cost
base at Group Services. Interest earned of R1,5m improved from R0,4m in the
comparative period due to higher cash balances offset by lower average interest
rates. The tax charge of R5,8m includes an STC payment of R0,7m in respect of
the 2003 final dividend.
The balance of R4,8m relates to the movement in the deferred
tax balance. The Group still has R7,4m of tax losses available at 29 February
2004.
During the year, the Group spent R4,0m on opening two new stores, as well as
refurbishing a number of existing stores and R8,4m on acquiring shares for the
employee share trust scheme. The employee share trust currently holds 7,8
million shares. With effect from 16 March 2004 the Group cancelled the remaining
4,7 million shares previously held as treasury stock and now has 38,7 million
shares in issue.
Management of working capital continues to be a significant focus and once again
we are pleased to report that the Group was able to convert operating profits
into cash.
Capital commitments contracted but not provided for amount to R2,7m and capital
commitments approved but not contracted amount to R4,5m.
All future capital expenditure will be funded from existing cash resources.
Operating lease commitments payable within one year amount to
R17,5m and payable thereafter amount to R33,1m. The results have been reviewed
by Deloitte & Touche and their unqualified review report is available for
inspection at the registered office of the company.
POST BALANCE SHEET EVENT
With effect from 16 March 2004, the Group acquired 16 photographic outlets from
New Teltron. This gives the Group a low risk introduction into the fast growing
digital photographic sector of the IT retail market.
We are currently busy with the integration of these stores into the Group.
This will involve a change of name to `Photo Connection" with the corresponding
upgrading of all in-store livery as well as the introduction of an expanded
product range. Where appropriate, certain of the stores will be revamped to more
correctly represent the `Photo Connection" image. As a result `Photo Connection"
is not expected to have a material impact on the Group"s earnings over the next
six months, but will do so in the 2005 financial year. The acquisition of the 16
photographic outlets takes the number of stores in the Group to 47 and adds a
further 1 216m2 to trading space.
PROSPECTS
Connection Group will continue to grow revenue by increasing its market share
and national footprint. We also expect interest rates and exchange rates to
remain stable over the next six months. In addition, the Group"s headline
earnings will benefit from the acquisition of 8,1 million treasury shares in the
prior year as well as the impact of the consolidation of 7,8 million shares held
by the employee share trust.
Accordingly the Group expects that it will be able to show appreciable earnings
growth for the financial year to 31 August 2004. In line with current practice,
no interim dividend has been declared, as the Group will pay a final dividend
following the release of the year end results.
For and on behalf of the Board
S. Mulholland AG. Kirk
Chairman Chief Executive
Officer
Johannesburg
18 March 2004
Transfer Secretaries: Ultra Registrars (Pty) Limited, 11 Diagonal Street,
Johannesburg 2001
Directors: Stephen Mulholland (Chairman)*, Grattan Kirk (Chief Executive), Wendy
Appelbaum*,Pamela Barletta, Pierre Joubert*, Andisiwe Kawa*, Gunter Steffens*,
Paul Susan *Non-Executive
Registered Office: 6 Mellis Road, Rivonia 2128, PO Box 2214, Rivonia 2128
www.connect.co.za Inc DTP. 905. BusDay
Date: 25/03/2004 09:00:17 AM Produced by the JSE SENS Department
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