Connection Group overcame challenging trading conditions to lift operating profit before interest and depreciation by 29,6% to R14,84-million in the six months to November 2001.
Interim headline earnings per share rose by a more modest 10,3% to 2,79 cents (2000:2,53 cents) as a result of non-cash depreciation, deferred tax and amortisation of goodwill.
Chief executive Pierre Joubert forecast "acceptable real earnings growth for the full year" in the wake of better-than-expected trading from Incredible Connection during the Christmas season.
The group lifted turnover 5,9% to R380,1-million. The greater rise in earnings before interest, tax and depreciation and amortisation (EBITDA) means the margin at this level rose to 3,9% (3,2%) in spite of a loss at Enterprise Connection. Enterprise`s loss was more than offset by excellent performances at Incredible Connection and Ultimate Connection.
The depreciation and amortisation charges increased by 55,1% to R5,4-million, largely due to the opening of new stores in the 2001 financial year. This left operating profit before interest ahead by 18,2% at R9,37-million. Net interest paid decreased by 8,8%, leaving profit before the amortisation of goodwill up 21% at R8,7-million. A R2-million (R1,28-million) deferred tax provision left net profit for the period up by 10,9% at R6,18-million.
Joubert reported that Incredible Connection continued to consolidate its position as SA`s leading IT retailer. As part of its plan to achieve critical mass and turnover of R1-billion in two years, new stores were opened in Alberton City and the Gateway Centre in Durban.
A number of factors affected the supply chain, notably the closure of the Siltek Group, currency fluctuations and the aftermath of September 11. In spite of this, Incredible Connection was able to access alternative sources of supply, hold appropriate stock levels and strengthen supplier relationships.
Enterprise Connection experienced a disappointing six months, reporting a loss of R2,3-million. It experienced a marked slowdown in the corporate IT infrastructure market, deferred orders and fierce competition. Because conditions are not expected to change in the near future, Enterprise Connection has scaled back its activities, aiming to return to profitability in the second half.
Ultimate Connection trebled turnover, which enabled it to report a profit of R2,5-million, compared to a loss of R0,6-million in the prior year.
The ActiveRetail suite of software products established itself as the market leader for Microsoft-based retail software in SA. A strong market position was enhanced by the acquisition of the SaleAbility division of Ixchange for a nominal consideration. The acquisition brought with it a substantial customer base and specialised skills.
Lower capital expenditure resulted in improved cash balances and a reduction in the net interest charge. The notional tax charge relates to the movement in the deferred tax balance and had no cash flow implications. The Group had R89,5-million of assessed tax losses available at November 30.
Incredible Connection is continuing with its store expansion programme, planning to add at least two new outlets in the current financial year. A key focus will be to return Enterprise Connection to profitability. Good progress has already been made.
Joubert concludes: "Economic conditions will remain challenging but it is pleasing to report that Christmas trading at Incredible Connection exceeded expectations. We expect to improve the group`s profitability in the second half of the year and to deliver acceptable real earnings growth for the full year."
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