Connection Group continued to deliver in the year to May. Its continuing operations achieved a 30% rise in headline earnings per share.
Strong cash flow, together with the recent sale of Ultimate Connection, eliminated all debt and left R81, 2-million of cash in the bank. Only three years ago the Group had total debt of more than R100-million.
Said chief executive Pierre Joubert: "Incredible Connection put in another sterling performance. We are also delighted at a convincing turnaround in Enterprise Connection."
A number of new Incredible Connection outlets, together with accelerated buying of IT equipment after the rand`s crash in December and January helped to increase Group revenue by 19% to R886-million.
An "outstanding performance" by Incredible Connection was the main reason Group earnings before interest, tax and depreciation (EBITDA) rose 21% to R35, 7-million. Incredible Connection cashed in on strong sales and exercised excellent margin and expense control. The retail chain lifted sales 18% to R707, 9-million and EBITDA by 45% to R37, 3-million.
Group profit before exceptional items increased by 26% to R24, 2-million. Headline earnings rose 30% to 8,94 cents (2001: 6,86 cents) per share.
In spite of difficult markets, Connection Group achieved real earnings growth for the third consecutive year. It expects conditions to remain difficult in the current year but is aiming at real earnings growth again.
The company continued its stated goal of strengthening its balance sheet through strong cash generation and the conversion of intangible assets to cash. With effect from 30 April, the Group sold its 83,7% holding in Ultimate Connection for R18, 3-million in cash and the prospect of an additional payment of R4-million should that company exceed its gross profit forecast over the next 12 months.
The sale of Ultimate Connection did much to degear the Group but did result in an exceptional item of R17, 5-million. Continuing operations, however, reported net profit for the year of R20, 87-million - an increase of 29%.
Enterprise Connection reported a loss of R356 000 on sales of R154, 7-million. The loss was recorded in the first half of the year. After realigning its strategy and structure, it returned convincingly to the black in January and was consistently profitable from January to the May year-end.
Enterprise Connection has deliberately switched emphasis from products, where demand is cyclical, to services, which are more predictable. Whereas products last year accounted for 72% of operating profit, they now account for 45% and services for 55%.
The notional tax charge of R2, 3-million relates to the movement in the deferred taxation balance and had no cash flow implications. The group had R63, 2-million of unused assessed losses at end May.
Inventories rose by R22, 7-million mainly because of the expansion of Incredible Connection`s activities and building stock levels by taking advantage of buying opportunities.
Joubert said he was particularly pleased at the group`s cash generation. Cash generated from operations amounted to R44, 3-million, equal to 19 cents per share.
Connection Group is confident Incredible Connection and Enterprise Connection will continue to provide future growth.
Joubert observes: "We have cash in the bank, which we will use to grow our operations, but no acquisitions are imminent".
In addition, it sees great potential in the consolidation of specialist retailers and the shift in technology towards digital convergence of electronic products.
"We have started with the establishment of Connection Universe, a three-to-four-year strategy to establish a retail management group comprising specialist retailers, that are market leaders in defined areas of technology and electronics."
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