Countrywide IT retailer Connection Group boosted headline earnings from continuing operations by 15,9% to 16,91c a share in the six months to November and confirmed its intention to pay a dividend at the year end.
The improvement was achieved on like-on-like revenue growth of 7,6% to R392 million.
Revenue growth was derived largely as a result of a positive performance from subsidiary, Enterprise Connection, a corporate IT infrastructure and solutions provider. Incredible Connection`s turnover was flat in the wake of high interest rates and the resultant slowdown in the retail durable markets sector. Incredible Connection`s revenue growth was further affected by the "panic buying" that occurred in the prior year precipitated by the steep decline in the Rand/Dollar exchange rate.
Toni Fourie, Connection Group`s chief executive officer, says that the first half of the year was characterised by the process of strategic change that started with the disposal of Ultimate Connection and was followed by the transfer of the Group`s listing to the retail sector of the JSE Securities Exchange. Connection Group continues the next period with two very focused and profitable businesses.
In line with the changes, Connection Group embarked on a process of organisational re-design to ensure alignment with the strategy. Fourie says that the process will continue into the next period "to ensure we are appropriately positioned, organised and suitably structured".
The six months to November saw both Incredible Connection and Enterprise Connection generate solid earnings growth, with Enterprise having recorded "a very strong turnaround". Return on sales for Incredible was 4,2% and for Enterprise 2,9%. Net interest received totalled R424 000 versus net interest paid of R667 000 in the comparable 2001 period.
Fourie notes that, for the first time in its history, all group entities are profitable.
Fourie says that while semi-durable goods enjoyed buoyant market conditions in the latter half of calendar 2002, with growth ranging from the mid-teens to the high twenties, durable goods were severely hit by the interest rate hikes with growth ranging from negative to less than 2%.
Margin improvements, a positive interest line and stringent cost control resulted in a more than proportional growth in headline earnings per share.
During the period, Incredible Connection tempered the pace of its store expansion programme. Of the three new outlets, two were opened towards the end of the half-year and therefore made no contribution to the results.
Investments during the period were directed toward the group`s ongoing development of its human capacity and its IT infrastructure. New strategic relationships were forged with a view to establishing more international brands and product line extensions "in the near future".
A restructured Enterprise Connection enjoyed a significant turnaround from last year`s losses, having completed a full year of monthly profit generation. It has further strengthened its customer and vendor relationships.
Fourie believes that Enterprise now has a manageable cost base "and some exciting products and projects to deliver to the market".
Although conditions in the durable goods IT retail sector and the corporate IT market are likely to remain challenging during the second half, Fourie is confident that Connection Group is on track to produce real earnings growth for the full financial period.
He emphasises that the Group will continue with its process of transformation and concentrate all its energies on sustaining the profitability of Enterprise Connection and building a substantive retail organisation over time.
To more accurately reflect the Group`s trading cycles, in terms of consumer demand and working capital requirements, Connection Group is to change its year end from May to August.
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