| Tue 11 Oct 2005, 9:00 | | Connection Group Holdings Limited - Audited Result |
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Connection Group Holdings Limited - Audited Results For The Year Ended 31 August
2005
Connection Group Holdings Limited
Incorporated in the Republic of South Africa
Registration number 1997/005390/06
ISIN: ZAE000042529
Share code: CCT
AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST 2005
* TURNOVER UP 34% AT R1.1bn
* OPERATING PROFIT UP 43% AT R71,9m
* HEADLINE EARNINGS PER SHARE UP 38% AT 125,1c
* DIVIDEND PER SHARE UP 40% AT 35c
Group Income Statement
Restated As previously
(note 1) reported
12 months ended 12 months ended 12 months ended
31 August 31 August 31 August
2005 2004 % 2004
R"000 R"000 Increase/ R"000
(audited) (audited)(decrease) (audited)
Revenue 1 059 942 790 927 34,0 790 927
Cost of sales (778 928) (578 783) 34,6 (578 783)
Staff costs (95 596) (74 209) 28,8 (74 209)
Occupancy cost (note 1) (35 956) (27 608) 30,2 (26 945)
Other operating expenses (77 536) (60 084) 29,0 (60 084)
Operating profit before interest
and depreciation 71 926 50 243 43,2 50 906
Depreciation (14 576) (9 639) 51,2 (9 639)
Amortisation of goodwill 0 (477) - (477)
Operating profit before interest 57 350 40 127 42,9 40 790
Net interest (paid) / received (304) 2 395 - 2 395
Profit before taxation 57 046 42 522 34,2 43 185
Taxation (17 708) (12 929) 37,0 (13 128)
Net profit for the year 39 338 29 593 32,9 30 057
Headline earnings per share (cents) 125,05 90,76 37,8 92,16
Earnings per share (cents) 125,91 89,47 40,7 90,87
Fully diluted headline earnings
per share (cents) 115,60 86,10 34,3 87,44
Fully diluted earnings per
share (cents) 116,40 84,88 37,1 86,21
Dividend per share (cents) 35,00 25,00 40,0 25,00
Weighted average number
of ordinary shares in issue (000"s) 31 242 33 076 (5,5) 33 076
Number of shares in issue (000"s) 38 697 38 697 - 38 697
Net asset value per share (cents) 133,31 142,29 (6,3) 151,29
Segmental Analysis
Restated As previously
(note 1) reported
12 months 12 months 12 months
31 August 31 August 31 August
2005 2004 % 2004
R"000 R"000 Increase/ R"000
(audited) (audited)(decrease) (audited)
Revenue per division
Incredible Connection 984 521 770 647 27,8 770 647
Photo Connection 75 421 20 280 271,9 20 280
1 059 942 790 927 34,0 790 927
Operating profit (loss) before
interest
Incredible Connection 59 164 41 929 41,1 42 420
Photo Connection 5 194 2 590 100,5 2 762
Group Services (7 008) (4 392) 59,6 (4 392)
57 350 40 127 42,9 40 790
Balance sheet
Assets
Incredible Connection 305 218 285 328 7,0 284 125
Photo Connection 81 938 39 844 105,6 39 792
Group Services (52 933) (65 122) (18,7) (65 122)
334 223 260 050 28,5 258 795
Liabilities
Incredible Connection 260 834 208 838 24,9 204 827
Photo Connection 77 649 38 637 101,0 38 465
Group Services (43 004) (33 712) 27,6 (33 712)
295 479 213 763 38,2 209 580
Note
1. Following circular 7/2005 issued by SAICA on 2 August 2005, a clarification
of the interpretation of AC 105: Leases, has resulted in a reduction to opening
retained earnings in 2004 of R 2 464k and a decrease of R 464k and R 76k in
headline earnings in 2004 and 2005 respectively. The 2004 income statement and
balance sheet have been restated accordingly.
Group Balance Sheet
Restated As previously
(note 1) reported
31 August 2005 31 August 2004 31 August 2004
R"000 R"000 R"000
(audited) (audited) (audited)
ASSETS
Non-current assets 115 884 70 924 69 669
Plant and equipment 55 822 36 197 36 197
Non-current receivables 12 763 10 182 10 182
Goodwill 41 868 18 602 18 602
Deferred taxation 5 431 5 943 4 688
Current assets 218 339 189 126 189 126
Inventories 140 821 91 983 91 983
Trade and other receivables 18 139 15 990 15 990
Bank balances and cash 59 379 81 153 81 153
TOTAL ASSETS 334 223 260 050 258 795
EQUITY AND LIABILITIES
Capital and reserves 38 744 46 287 49 215
Share capital and premium 1 454 1 627 1 627
Foreign currency translation reserve 980 825 825
Accumulated profit 36 310 43 835 46 763
Non-current liabilities - interest
bearing 6 072 - -
Non-current liabilities - non interest
bearing 4 050 5 386 1 508
Current liabilities - non interest
bearing 285 357 208 377 208 072
Trade payables and provisions 285 357 208 377 208 072
TOTAL EQUITY AND LIABILITIES 334 223 260 050 258 795
Group Cash Flow Statement
12 months ended 12 months ended
31 August 2005 31 August 2004
R"000 R"000
(audited) (audited)
Net cash inflow from operating activities 74 609 62 556
Taxation paid (6 211) (2 356)
Dividend paid (7 828) (5 751)
Net investment to maintain operations (17 688) (6 769)
Investment to expand operations (6 940) (4 911)
Purchase of Beyond iT / Photo Connection (20 658) (28 597)
Purchase of treasury stock (25 025) (5 606)
Purchase of shares for the employee share trust (12 033) (8 913)
Net decrease in cash and cash equivalents (21 774) (347)
Cash and cash equivalents at beginning of the
period 81 153 81 500
Cash and cash equivalents at end of the period 59 379 81 153
Capex for the period 24 628 11 680
Reconciliation of Headline Earnings per share
Restated As previously
(note 1) reported
12 months ended 12 months ended 12 months ended
31 August 31 August 31 August
2005 2004 2004
R"000 R"000 % R"000
(audited) (audited) Increase (audited)
Net profit attributable to
ordinary shareholders 39 338 29 593 32,9 30 057
Adjustments:
Profit on disposal of fixed assets (271) (51) 431,4 (51)
Goodwill amortisation - 477 - 477
Headline earnings attributable to
ordinary shareholders 39 067 30 019 30,1 30 483
Group Statement Of Changes In Shareholders" Equity
Restated (note 1)
12 months ended 12 months ended
31 August 2005 31 August 2004
R"000 R"000
(audited) (audited)
Balance at beginning of the year - as
previously reported - 36 186
Prior period adjustment (note 1) - (2 464)
Balance at beginning of the year 46 287 33 722
Attributable profit for the period 39 338 29 593
Dividend paid (7 828) (5 751)
Exchange differences arising on translation
of foreign entity 155 (86)
Set off of treasury stock (25 025) (5 606)
Consolidation of employee share trust (14 183) (5 585)
Balance at end of the year 38 744 46 287
COMMENTARY
OVERVIEW
Your Board of Directors is pleased to report a 38% increase in headline earnings
per share to 125,1 cents for the year ended 31 August 2005. The Group consists
of two operating divisions, namely Incredible Connection and Photo Connection.
Incredible Connection performed particularly well with Photo Connection
delivering an acceptable performance, given the short period of time that it has
been part of the Group. Strong consumer demand contributed to the 34% increase
in turnover to R1.1bn and the resultant increase in operating profit, to R72m.
What is particularly encouraging about this year"s results is the improvement in
the Group operating margin from 6.3% to 6.8%. This has been achieved through
improving operating efficiencies, better margin management and the careful
control of expenses. Categories such as notebook and personal computers, digital
photography, computer games and multimedia have shown phenomenal volume growth
over the year.
The Board is also pleased to announce a dividend of 35 cents per share.
Highlights for the year were:
* 34% increase in turnover to R1.1bn
* 38% increase in headline earnings to 125,1 cents per share
* Profit before tax up 34% to R57m
* Cash generated from operations of R74.6m representing a 104% cash conversion
ratio
* 40% increase in dividend per share to 35 cents
* Acquisition of 12 Beyond iT stores
REVIEW OF OPERATIONS
Incredible Connection
Incredible Connection has had its most successful year ever with turnover up 28%
to R985m, and operating profit before interest and depreciation up 37% to R69m.
Profit before taxation improved by 37% to R64.7m representing a 6.5% return on
sales, up from 6.0% in the prior year. The increase in return on sales was
achieved despite a 7% reduction in average selling prices due to the strength of
the rand. Four new stores were opened during the year in Somerset West, Kempton
Park, Clearwater Mall and Fourways Crossing. Incredible Connection currently has
34 outlets with some 22 344 square metres of trading space. Three new stores
will be opened in the next two months in Witbank,
Paarl and Rustenburg. Operating efficiencies showed further improvements with
monthly turnover per head at R161k, trading density of R44k per square metre and
stockturns of 7.5.
Photo Connection
With effect from 16 November 2004 the Group acquired 12 photographic outlets
from Beyond iT, bringing the total number of digital photographic stores to
27. Much work has been done over the last nine months to integrate the
photographic stores into the Group. This has included a change of name to "Photo
Connection", extension of the merchandise range, upgrading of the IT systems as
well as the standardisation of the operating procedures. Photo
Connection delivered an operating profit before interest of R5.2m on R75.4m of
turnover representing a 6.9% return on sales.
FINANCIAL RESULTS
The financial results for the year ended 31 August 2005 have been prepared on a
basis consistent with the prior year annual financial statements, except for the
adoption of the revised AC 140: Business Combinations , and the implementation
of circular 7/2005 issued by SAICA, clarifying the interpretation of AC 105:
Leases, and in accordance with the South African Statement of Generally Accepted
Accounting Practice applicable to interim financial reporting. The results to 31
August 2005 include Photo Connection and Beyond IT which were acquired with
effect from 16 March 2004 and 16 November 2004 respectively and therefore formed
a minor part of the prior year"s results.
The Group achieved an operating profit before interest and depreciation of R72m
up from R50m in the prior year, due principally to an outstanding performance
from Incredible Connection. The Group paid interest of R304k for the year
compared to earning interest of R2.4m in the prior year. This was as a result of
the acquisition of Beyond iT for R30m and the purchase of a further 3.6m
treasury and employee share trust shares for R37m. The increase in depreciation
from R9.6m in 2004 to R14.6m in the current year is mainly as a result of the
acquisition of Photo Connection. The current year taxation charge of R17.7m
includes an STC payment of R1m in respect of the 2004 dividend. During the year
the Group also spent R17.7m on relocating and refurbishing a number of
Incredible Connection and Photo Connection stores, as well as R6.9m on opening
new stores.
The Group continues to convert in excess of 100% of its operating profits into
cash due to strong earnings and sound working capital management.
Inventory levels were purposefully increased from R92m to R141m in order to meet
the significant increase in activity levels. The movement in goodwill and plant
and equipment is due to the acquisition of Beyond iT, as well as the impact of
new and relocated stores.
Capital commitments contracted but not provided for amounts to R8.4m and capital
commitments approved but not contracted amount to R1.5m. All future capital
expenditure will be funded from existing cash resources. Operating
commitments payable within one year amount to R23.4m and payable thereafter
amount to R47.3m.
The results as well as the group annual financial statements from which they
were derived have been audited by Deloitte & Touche and their unqualified audit
opinion on these results as well as the group annual financial statements are
available for inspection at the registered office of the company.
ACQUISITION OF THE GROUP BY JD GROUP LIMITED
As notified to shareholders on 1 August 2005, JD Group Limited made a firm offer
to acquire the entire issued share capital of Connection Group in terms of
section 311 of the Companies Act no. 61 of 1973 as amended. A circular
setting out the full details of the offer was posted to shareholders on 31
August 2005 with the scheme meeting scheduled to take place on Friday 28 October
2005. Application has also been made to the Competition Tribunal for
approval of the transaction. Should the necessary shareholder and regulatory
approval be granted, it is envisaged that the Group will delist from the JSE
Limited toward the end of November 2005. To date, costs of R3.5m have been
incurred in respect of the acquisition of the Group by JD Group Limited.
PROSPECTS
Connection Group expects trading conditions to remain positive over the next 12
months assuming exchange rates and interest rates remain stable. We expect to
see good organic growth in 2006 especially given the opportunity for
increased computer literacy in Southern Africa and strong replacement demand.
DIVIDEND
Notice is hereby given that a final dividend of 35 cents per share in respect of
the period ended 31 August 2005 has been declared.
Shareholders are advised of the following dates with respect to the payment of
the dividend:
* Last day to trade cum dividend - Friday 28 October 2005
* Share commence trading ex dividend from the commencement of business -
Monday 31 October 2005
* Record date - Friday 4 November 2005
* Payment date - Monday 7 November 2005
Shareholders may not dematerialise or rematerialise their shares between Monday
31 October 2005 and Friday 4 November 2005, both days inclusive.
For and on behalf of the Board
S Mulholland AG Kirk
Chairman Chief Executive Officer
Johannesburg
11 October 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* *Non-Executive
On 30 June 2005, Mr Paul Susan resigned as the Chief Operations Officer and as
an Executive Director.
Registered Office: 6 Mellis Road
Rivonia 2128
PO Box 4148
Rivonia 2128
www.connect.co.za
Date: 11/10/2005 09:00:32 AM Produced by the JSE SENS Department
