| Tue 12 Oct 2004, 9:56 | | FINANCIAL REPORT |
|
CONNECTION GROUP HOLDINGS - FINANCIAL REPORT
CONNECTION GROUP HOLDINGS
Incorporated in the Republic of South Africa
Registration number 1997/005390/06
ISIN: ZAE000042529
Share code: CCT
* TURNOVER (CONTINUING OPERATIONS) UP 17% AT R791m)
* OPERATING PROFIT (CONTINUING OPERATIONS) UP 29% AT R40,8m
* HEADLINE EARNINGS PER SHARE UP 35% AT 92,16c
* DIVIDEND PER SHARE UP 39% AT 25c
Group Income Statement
12 months ended 12 months ended
31 August 2004 31 August 2003
R`000 R`000
(audited) (reviewed)
Revenue 790 927 804 836
Continuing operations 790 927 675 829
Discontinued operations - 129 007
Cost of sales (578 783) (598 656)
Staff costs (74 209) (77 351)
Other operating expenses (87 029) (84 291)
Net profit before interest
and depreciation 50 906 44 538
Continuing operations 50 906 41 394
Discontinued operations - 3 144
Depreciation (9 639) (10 421)
Amortisation of goodwill (477) -
Operating profit before interest 40 790 34 117
Net interest received 2 395 2 565
Profit before exceptional items 43 185 36 682
Continuing operations 43 185 33 996
Discontinued operations - 2 686
Exceptional items - (3 480)
Profit before taxation 43 185 33 202
Taxation (13 128) (9 261)
Profit after taxation 30 057 23 941
Attributable to minority shareholders - (293)
Net profit for the period 30 057 23 648
Continuing operations 30 057 22 071
Discontinued operations - 1 577
Headline earnings per share (cents) 92,16 68,09
Earnings per share (cents) 90,87 59,35
Fully diluted headline earnings
per share (cents) 87,44 66,68
Fully diluted earnings per share (cents) 86,21 58,13
Dividend per share (cents) 25,00 18,00
Weighted average number
of ordinary shares in issue (000`s) 33 076 39 843
Net asset value per share (cents) 151,29 106,55
15 months ended
31 August 2003
%
Increase/ R`000
(decrease) (audited)
Revenue (1,7) 1 012 112
Continuing operations 17,0 832 069
Discontinued operations - 180 043
Cost of sales (3,3) (756 890)
Staff costs (4,1) (98 449)
Other operating expenses 3,2 (104 526)
Net profit before interest
and depreciation 14,3 52 247
Continuing operations 23,0 47 280
Discontinued operations - 4 967
Depreciation (7,5) (12 746)
Amortisation of goodwill - -
Operating profit before interest 19,6 39 501
Net interest received (6,6) 2 736
Profit before exceptional items 17,7 42 237
Continuing operations 27,0 37 955
Discontinued operations - 4 282
Exceptional items - (3 480)
Profit before taxation 30,1 38 757
Taxation 41,8 (10 888)
Profit after taxation 25,5 27 869
Attributable to minority shareholders - (293)
Net profit for the period 27,1 27 576
Continuing operations 36,2 26 247
Discontinued operations - 1 329
Headline earnings per share (cents) 35,4 76,91
Earnings per share (cents) 53,1 68,27
Fully diluted headline earnings
per share (cents) 31,1 75,50
Fully diluted earnings per share (cents) 48,3 67,01
Dividend per share (cents) 38,9 18,00
Weighted average number
of ordinary shares in issue (000`s) (17,0) 40 395
Net asset value per share (cents) 42,0 106,55
Segmental Analysis
12 months ended 12 months ended
31 August 2004 31 August 2003
R`000 R`000
(audited) (reviewed)
Revenue per division
Incredible Connection 770 647 672 388
Photo Connection 20 280 -
Enterprise Connection - 129 007
Group Services - 3 441
790 927 804 836
Operating profit (loss) before interest
Incredible Connection 42 419 36 084
Photo Connection 2 762 -
Enterprise Connection - 2 425
Group Services (4 391) (4 392)
40 790 34 117
Balance sheet
Assets
Incredible Connection 284 125 189 382
Photo Connection 39 792 -
Enterprise Connection - -
Group Services (65 122) 19 274
258 795 208 656
Liabilities
Incredible Connection 204 827 164 019
Photo Connection 38 465 -
Enterprise Connection - -
Group Services (33 712) 8 451
209 580 172 470
15 months ended
31 August 2003
%
Increase/ R`000
(decrease) (audited)
Revenue per division
Incredible Connection 14,6 829 114
Photo Connection - -
Enterprise Connection - 180 043
Group Services - 2 955
(1,7) 1 012 112
Operating profit (loss) before interest
Incredible Connection 17,6 40 518
Photo Connection - -
Enterprise Connection - 4 062
Group Services - (5 079)
19,6 39 501
Balance sheet
Assets
Incredible Connection 50,0 189 382
Photo Connection - -
Enterprise Connection -
Group Services - 19 274
24,0 208 656
Liabilities
Incredible Connection 24,9 164 019
Photo Connection - -
Enterprise Connection - -
Group Services - 8 451
21,5 172 470
Group Balance Sheet
31 August 2004 31 August 2003
R`000 R`000
(audited) (audited)
ASSETS
Non-current assets 69 669 38 120
Plant and equipment 36 197 19 780
Non-current receivables 10 182 6 352
Goodwill 18 602 -
Deferred taxation 4 688 11 988
Current assets 189 126 170 536
Inventories 91 983 71 535
Trade and other receivables 15 990 17 501
Bank balances and cash 81 153 81 500
TOTAL ASSETS 258 795 208 656
EQUITY AND LIABILITIES
Capital and reserves 49 215 36 186
Share capital and premium 1 627 2 704
Foreign currency translation reserve 825 911
Accumulated profit 46 763 32 571
Non-current liabilities 1 508 3 039
Current liabilities 208 072 169 431
Trade payables and provisions 208 072 169 431
TOTAL EQUITY AND LIABILITIES 258 795 208 656
Group Cash Flow Statement
12 months ended 15 months ended
31 August 2004 31 August 2003
R`000 R`000
(audited) (audited)
Net cash inflow from operating
activities 62 541 45 422
Taxation paid (2 341) (734)
Dividend paid (5 751) -
Investment to maintain operations (6 769) (4 813)
Investment to expand operations (4 911) (5 924)
Purchase of Photo Connection (28 597) -
Cash inflow on disposal of subsidiary - 3 282
Purchase of treasury stock (5 606) (19 743)
Loan to employee share trust (8 913) (17 179)
Net (decrease)/increase in cash and
cash equivalents (347) 311
Cash and cash equivalents at beginning
of the period 81 500 81 189
Cash and cash equivalents at end of the
period 81 153 81 500
Capex for the period 11 680 10 737
Reconciliation of Headline Earnings per share
12 months ended 12 months ended
31 August 2004 31 August 2003
R`000 R`000
(audited) (reviewed)
Net profit attributable to ordinary
shareholders 30 057 23 648
Adjustments:
(Profit)/loss on disposal of fixed
assets (51) -
Discontinued operations - 3 480
Goodwill amortisation 477 -
Headline earnings attributable to
ordinary shareholders 30 483 27 128
15 months ended
31 August 2003
% R`000
Increase (audited)
Net profit attributable to ordinary
shareholders 27,1 27 576
Adjustments:
(Profit)/loss on disposal of fixed assets - 11
Discontinued operations - 3 480
Goodwill amortisation - -
Headline earnings attributable to
ordinary shareholders 12,4 31 067
Group Statement Of Changes In Shareholders` Equity
12 months ended 15 months ended
31 August 2004 31 August 2003
(audited) (audited)
Balance at beginning of the period 36 186 47 927
Attributable profit for the period 30 057 27 576
Dividend paid (5 751) -
Exchange differences arising on
translation of foreign entity (86) (304)
Adjustment to deferred taxation in
respect of trademark - (1 500)
Rationalisation of Group companies - (2 641)
Cancellation of treasury stock - (8 347)
Set off of treasury stock (5 606) (11 396)
Consolidation of employee share trust (5 585) (15 129)
Balance at end of the period 49 215 36 186
Commentary
OVERVIEW
The Board of Directors is pleased to report headline earnings per share of 92
cents for the year to 31 August 2004, some 35% higher than the comparative year.
These results are the first for the Group as a focused retailer, as all non-
retail businesses were disposed of prior to this reporting period. Both
Incredible Connection and Photo Connection delivered strong performances. The
Board is also pleased to announce a dividend of 25 cents per share.
What is most encouraging in the above results is the 17% increase in turnover
from continuing operations to R791m and the 20% increase in operating profits to
R41m. The increase in turnover needs to be seen against the background of a 20%
average decrease in retail selling prices brought about by the strength of the
rand.
The Group`s decision to pass on the benefit of the stronger rand to its
customers by reducing retail selling prices has been more than vindicated as
both Incredible Connection and Photo Connection have achieved significant
increases in volumes. Categories such as notebooks, personal computers,
multifunction printers, entertainment and digital photography have shown
substantial growth.
Highlights for the year were:
* Headline earnings per share increased by 35% to 92 cents per share
* 39% increase in dividend per share to 25 cents
* 17% increase in turnover from continuing operations to R791m
* Successful integration of the 16 Photo Connection stores
* Cash generated from operations of R63m
* Cash on hand of R81m
REVIEW OF OPERATIONS
Incredible Connection
Incredible Connection continues to position itself as the dominant IT retailer
in Southern Africa bringing to the market leading brands, the most extensive
range as well as superior after-sales service. Profit before interest and tax
increased by 18% to R42,4m from R36,1m representing a 5,5% return on sales.
Return on sales was marginally up on the previous year despite the reduction in
average selling prices. Three new outlets were opened during the year in the
Midlands Mall in Pietermaritzburg, Century City in Cape Town and Riverside Mall
in Nelspruit. The Group currently has 32 retail outlets with some 21,700 sq
metres of trading space. We have also carried out a number of refurbishments
during the year in order to improve the look and feel of our stores in line with
the rapidly changing technology offer. We are opening a new store during October
in Somerset West and relocating the Hillfox store to Clear Water Mall.
Good progress has been made in the area of operating efficiency with monthly
turnover per head up 14% to R146k, trading density at R34,7k/sq metre and stock
turns at 7,6.
Photo Connection
With effect from 16 March 2004 the Group acquired 16 photographic outlets from
New Teltron. This was the Group`s first acquisition since disinvesting all non-
retail related investments and represented a low risk entry into the fast
growing digital photographic sector of the IT retail market. Photo Connection
generated a profit before interest and tax of R2,8m on R20m of turnover. All 16
stores were re-branded during the period and successfully integrated into the
Group.
FINANCIAL RESULTS
The financial results for the year ended 31 August 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 accordance 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 31 August 2004 exclude Enterprise Connection which was sold with
effect from 31 July 2003. Enterprise Connection is shown as a discontinued
operation in the comparative period.
The Group achieved operating profit before interest of R40,8m owing to excellent
earnings from Incredible Connection and a solid performance from Photo
Connection. The reduction in interest earned is as a result of the acquisition
of Photo Connection for a cash consideration of R29m. The tax charge of R13,1m
includes an STC payment of R0,7m in respect of the 2003 dividend.
During the year the Group spent R4,9m on opening three new stores and installing
a developing and printing machine in the Sandton City branch, as well as R1,9m
on refurbishing existing stores. The Group also spent R5,6m on one million
treasury shares and R8,9m on shares for the employee share trust.
The employee share trust currently holds 7,8 million shares. In March 2004 the
Group cancelled 4,7 million shares previously held as treasury stock.
Management of working capital continues to be a key focus and the Group was able
to convert its operating profits into cash.
Capital commitments contracted but not provided for amount to R6,9m and capital
commitments approved but not contracted amount to R4,3m. All future capital
expenditure will be funded from existing cash reserves or bank facilities
available to the Group.
Operating lease commitments payable within one year amount to R22,8m and payable
thereafter amount to R44,4m. The results have been reviewed by Deloitte & Touche
and their unqualified audit report is available for inspection at the registered
office of the company.
POST BALANCE SHEET EVENT
On 5 October 2004 the Group announced that it had entered into an agreement to
acquire all 12 photographic outlets from Beyond IT (Pty) Limited. Beyond IT is
considered one of the premier resellers of photographic products as well as
developing and printing services in Johannesburg. The 12 stores are all located
in popular high gathering malls in the greater Johannesburg area. This
acquisition gives the Connection Group further entry into the retail
photographic and film processing market through a chain of stores operated on a
similar business model, with similar customer profiles and complementary store
locations. It increases the number of photographic outlets to 29. The owners of
Beyond IT will join the Group and take on operational responsibility for the
entire photographic initiative.
PROSPECTS
Connection Group expects trading conditions to be positive over the next 12
months assuming that exchange rates and interest rates remain reasonably stable
over this period. Our objective is to achieve a superior business model by
enhancing our customer offering, increasing our national footprint and
delivering above average returns to shareholders. We look forward to further
entrenching our position as the market leader in the IT retail arena. This will
be achieved through a combination of organic and acquisitive growth, but only
when viable opportunities present themselves.
The Group anticipates that given the prospects for Incredible Connection, as
well as a full year`s contribution from Photo Connection and Beyond IT, that we
will deliver acceptable real earnings growth for the year ahead. We wish to
express our sincere appreciation to all staff for their commitment and
contribution to the Group over the last 12 months.
For and on behalf of the Board
S Mulholland AG Kirk
Chairman Chief Executive Officer
Johannesburg
12 October 2004
Transfer Secretaries: Ultra Registrars (Pty) Limited,
1 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 4148, Rivonia 2128
www.connect.co.za
