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Connection Group Holdings - Reviewed Results For The Six Months Ended 28
February 2005
Connection Group Holdings
Incorporated in the Republic of South Africa
Registration number 1997/005390/06
ISIN: ZAE000042529
Share code: CCT
REVIEWED RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2005
R496 MILLION
TURNOVER
up 36% at
R496m
R32 MILLION
OPERATING PROFIT
up 60% at
R32m
52,4c
HEADLINE EARNINGS
PER SHARE up 51% at
52,4c
Group Income Statement
Six months Six months 12 months
ended ended ended
28 February 29 February % 31 August
2005 2004 2004
R`000 R`000 Increase/ R`000
(reviewed) (reviewed) (decrease) (audited)
Revenue 496 483 365 705 35,8 790 927
Cost of sales (364 769) (271 086) 34,6 (578 783)
Staff costs (42 719) (33 373) 28,0 (74 209)
Other operating expenses (56 595) (41 045) 37,9 (87 029)
Operating profit before
interest and depreciation 32 400 20 201 60,4 50 906
Depreciation (6 864) (4 236) 62,0 (9 639)
Amortisation of goodwill - - - (477)
Operating profit before
interest 25 536 15 965 59,9 40 790
Net interest (paid)/
received (71) 1 522 - 2 395
Profit before taxation 25 465 17 487 45,6 43 185
Taxation (8 425) (5 766) 46,1 (13 128)
Net profit for the period 17 040 11 721 45,4 30 057
Headline earnings per
share (cents) 52,44 34,79 50,7 92,16
Earnings per share (cents) 52,60 34,87 50,8 90,87
Fully diluted headline
earnings
per share (cents) 48,18 33,44 44,1 87,44
Fully diluted earnings per
share (cents) 48,32 33,52 44,2 86,21
Weighted average number
of ordinary shares in
issue (000`s) 32 394 33 615 (3,6) 33 076
Number of shares in issue
(000`s) 38 697 43 422 (10,9) 38 697
Net asset value per share
(cents) 166,64 102,85 62,0 151.29
Reconciliation of Headline Earnings per share
Six months ended Six months ended 12 months ended
28 February 2005 29 February 2004 31 August 2004
(reviewed) (reviewed) (audited)
R`000 R`000 R`000
Net profit
attributable to
ordinary
shareholders 17 040 11 721 30 057
Adjustments:
Profit on
disposal of fixed
assets (52) (28) (51)
Goodwill
amortisation - - 477
Headline earnings
attributable to
ordinary
shareholders 16 988 11 693 30 483
Segmental Analysis
Six months Six months 12 months
ended ended ended
28 February 29 February 31 August
2005 2004 2004
R`000 R`000 % R`000
(reviewed) (reviewed) Increase (audited)
Revenue per division
Incredible Connection 458 758 365 705 25,4 770 647
Photo Connection 37 725 - - 20 280
496 483 365 705 35,8 790 927
Operating profit/(loss)
before interest
Incredible Connection 23 758 17 487 35,9 42 419
Photo Connection 3 597 - - 2 762
Group Services (1 819) (1 522) 19,5 (4 391)
25 536 15 965 59,9 40 790
Balance Sheet
Assets
Incredible Connection 287 189 222 238 1,1 284 125
Photo Connection 81 851 - 105,7 39 792
Group Services (66 005) (17 231) 1,4 (65 122)
303 035 205 007 17,1 258 795
Liabilities
Incredible Connection 212 003 231 204 3,5 204 827
Photo Connection 76 993 - 100,2 38 465
Group Services (39 673) (59 930) - (33 712)
249 323 171 274 19,0 209 580
Group Balance Sheet
28 February 2005 29 February 2004 31 August 2004
R`000 R`000 R`000
(reviewed) (reviewed) (audited)
ASSETS
Non-current assets 106 489 33 983 69 669
Plant and equipment 51 673 19 499 36 197
Non-current
receivables 9 030 7 352 10 182
Goodwill 41 325 - 18 602
Deferred taxation 4 461 7 132 4 688
Current assets 196 546 171 024 189 126
Inventories 111 051 78 920 91 983
Trade and other
receivables 13 059 15 070 15 990
Bank balances and
cash 72 436 77 034 81 153
Total assets 303 035 205 007 258 795
EQUITY AND
LIABILITIES
Capital and
reserves 53 712 33 733 49 215
Share capital and
premium 1 612 1 640 1 627
Foreign currency
translation
reserve 545 831 825
Accumulated profit 51 555 31 262 46 763
Non-current
liabilities 896 2 096 1 508
Current liabilities 248 427 169 178 208 072
Trade payables and
provisions 248 427 169 178 208 072
Total equity and
liabilities 303 035 205 007 258 795
Group Cash Flow Statement
Six months ended Six months ended 12 months ended
28 February 2005 29 February 2004 31 August 2004
R`000 R`000 R`000
(reviewed) (reviewed) (audited)
Net cash inflow
from operating
activities 39 436 14 581 62 556
Taxation paid (5 339) (939) (2 356)
Dividend paid (7 828) (5 722) (5 751)
Net investment to
maintain
operations (8 542) (1 751) (6 769)
Investment to
expand operations (3 737) (2 265) (4 911)
Purchase of
Beyond iT/Photo
Connection (20 424) - (28 597)
Purchase of
treasury stock (25) - (5 606)
Loan to employee
share trust (2 258) (8 370) (8 913)
Net decrease in
cash and cash
equivalents (8 717) (4 466) (347)
Cash and cash
equivalents at
beginning of the
period 81 153 81 500 81 500
Cash and cash
equivalents at
end of the period 72 436 77 034 81 153
Capex for the
period 12 279 4 016 11 680
Group Statement Of Changes In Shareholders` Equity
Six months ended Six months ended 12 months ended
28 February 2005 28 February 2004 31 August 2004
R`000 R`000 R`000
(reviewed) (reviewed) (audited)
Balance at
beginning of the
year 49 215 36 186 36 186
Attributable
profit for the
period 17 040 11 721 30 057
Dividend paid (7 828) (5 722) (5 751)
Exchange
differences
arising on
translation of
foreign entity (280) (80) (86)
Set off of
treasury stock (25) - (5 606)
Consolidation of
share trust (4 410) (8 372) (5 585)
Balance at end of
the period 53 712 33 733 49 215
Commentary
OVERVIEW
Your Board of Directors is pleased to report headline earnings per share of
52,4 cents for the six month period to 28 February 2005, some 51% higher than
the comparative period.The Group now consists of two operating divisions, namely
Incredible Connection and Photo Connection. Incredible Connection performed
exceptionally well during the period while Photo Connection delivered a solid
performance, given the short period of time that it has been part of the Group.
Buoyant conditions in the retail market during the period under review have
contributed to the increase in turnover of 36% to R496,5m and operating profit,
before interest and depreciation, up 60% to R32,4m. The Group has seen
significant volume growth across all categories especially notebooks and
personal computers, digital photography, gaming and multimedia.
Highlights for the period were:
Headline earnings up 51% to 52.4 cents per share
36% increase in turnover to R496m
Profit before taxation up 46% to R25m
Cash generated from operations of R39m
Acquisition of 12 Beyond iT stores
REVIEW OF OPERATIONS
Incredible Connection
Incredible Connection continues to benefit from very buoyant consumer demand
with turnover up 25% to R459m and operating profit before interest and tax up
36% to R23,8m.Profit before taxation increased by 30% to R25,8m which represents
a 5.6% return on sales, up from 5.4% in the corresponding period. This increase
was achieved, despite a 9% reduction in average retail selling prices, by
maintaining margins, excellent expense control and strict working capital
management. One new store was opened during the period in Somerset West in Cape
Town. Two stores were relocated, one at the Foreshore in Cape Town, while the
Hillfox store in Johannesburg was moved to Clearwater Mall. Incredible
Connection currently has 34 retail outlets with some 22 125 square metres of
trading space. Operating efficiencies showed further improvement, with monthly
turnover per head at R153,7k, trading density of R40,2k/square metre per annum
and stock turns of 7,7.
Photo Connection
With effect from 16 November 2004 the Group acquired 12 photographic outlets
from Beyond iT (Pty) Limited, in order to bolster its presence in the digital
photographic sector of the IT retail market. The Group currently has a total of
28 photographic stores countrywide with some 2 350 square metres of trading
space. We are currently busy with the integration of Beyond iT into the Group.
This will involve a change of the trading name to `Photo Connection` as well as
the introduction of an extended range, the upgrading of the IT system, the
consolidation of the operating standards across the entire division as well as
the transfer of operational responsibility to a reconstituted management team.
Good progress has been made in these integration initiatives to date. Within
the short time since the acquisition, the Photo Connection division generated
an operating profit before interest of R3,6m on R37,7m of turnover. Operating
efficiencies were good with monthly turnover per head at R39,2k, trading
density of R37k/square metre per annum and stock turns of 4,7
FINANCIAL RESULTS
The financial results for the six months ended 28 February 2005 have been
prepared on a basis consistent with the prior year annual financial statements,
except for the adoption of the revised AC140:Business Combinations and in
accordance with South African Statements of Generally Accepted Accounting
Practice applicable to interim financial reporting. The results to 28 February
2005 include Photo Connection and Beyond IT which were acquired with effect from
16 March 2004 and 16 November 2004 respectively and therefore did not form part
of the comparative period`s results.
The Group achieved an operating profit before interest and depreciation of
R32,4m, up from R20,2m in the prior period, due to excellent earnings from
Incredible Connection as well as a solid performance from Photo Connection.
During the period the Group paid interest of R71k compared to earning interest
of R1,5m in the prior period. This was as a result of the acquisition of Photo
Connection for R29m and Beyond iT for R30m. The increase in depreciation from
R4,2m to R6,9m is mainly as a result of the acquisition of Photo Connection and
Beyond iT. The current period taxation charge of R8,4m includes an STC payment
of R1,0m in respect of the 2004 dividend. During the period the Group spent
R3,7m on opening new stores, as well as R8,5m on relocating and refurbishing a
number of Incredible Connection and Photo Connection stores.
Management of working capital remains a core focus of the Group and we are
pleased to report that once again the Group was able to convert more than 120%
of its operating profit into cash.
The increase in inventory levels from R92m to R111m is as a result of increased
activity levels coupled with the acquisition of Beyond iT. We anticipate a
further increase in stock levels over the next reporting period in order to meet
higher demand. The movement in goodwill and plant and equipment is primarily as
a result of the acquisition of Beyond iT, as well as the impact of the new and
relocated stores.
Capital commitments contracted but not provided for amount to R2,5m and capital
commitments approved but not contracted amount to R4,8m. All future capital
expenditure will be funded from existing cash resources. Operating lease
commitments payable within one year amount to R24,8m and payable thereafter
amount to R44,1m. The results have been reviewed by Deloitte & Touche and their
unqualified review report is available for inspection at the registered office
of the company.
PROSPECTS
Connection Group expects trading conditions to remain positive over the next
six months, assuming exchange rates and interest rates remain stable over this
period. We anticipate good organic growth in the next period with strong demand
for the products that we sell arising from the increase in computer literacy in
Southern Africa, coupled with strong replacement demand.
Accordingly, the Group expects to show appreciable earnings growth for the
financial year to 31 August 2005. 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
12 April 2005
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 4148, Rivonia 2128
www.connect.co.za
Date: 12/04/2005 09:00:32 AM
Produced by the JSE SENS Department
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