The turnaround at Connection Group has been completed, and CEO Pierre Joubert is now able to look further ahead.
The group reaped the results of a lack of focus when it incurred a R26.7 million operating loss for the year to May, despite an almost 400% growth in turnover to R923.6 million, mainly on the back of the acquisition of Incredible Connection.
Joubert was appointed in April 1999, and set about shedding non-core businesses, implementing cost-control measures, reducing head office overheads and streamlining the remaining business.
His measures appear to have worked. This week the group reported its second consecutive profitable interim results since the losses. Joubert says when the first set of profitable results were published, there were still many sceptics who adopted a wait-and-see attitude.
"But we have demonstrated that the turnaround is sustainable," he adds. "These results reinforce that."
With the difficult process of turning the group around now behind him, Joubert is focusing on the future. At the end of the last financial year, the board set a target to achieve R1 billion in sales and an operating margin of 4% in two to three years. He says the group is well on track to reaching that target.
Looking further ahead, he says the group also wants to expand the services it offers. "We don`t want to be in the low-margin business forever. There is a great deal we can do to improve the service offering."
M&S Lingerie, a division of UK-retailer based Marks & Spencer, has bought the group`s Active Retail 4 Solomon for installation in five pilot sites across Europe, and Joubert says the retail software business has the opportunity to be a player locally and in Europe. "We will probably look at the US later on, but we are not in a rush to do that."
Joubert says although the South African market is maturing in its purchasing patterns with regard to items such as personal digital assistants, which have gained acceptance and are being used in daily life, there is still great scope for the PC market.
"PC sales are still growing strongly, and the market has by no means reached a mature level yet. Only about 5% of homes - that`s in urban areas - have PCs." That compares with 30% to 40% in Europe and the US.
Joubert says no corporate activity is planned for the short-term, with all growth being organic. Connection Group has about R9 million in the bank, and he has no plans to spend it all just yet. "I would like to see the cash level higher and we are working on increasing our cash generation. We spent R21 million on the business in the first six months."
The share price has hovered between 20c and 30c in the past few months, but Joubert says he is not too concerned. "It is something we have no control over. Most of the small caps have had a rough time, but we can`t move the share. If we deliver the numbers and the results are consistently good, the share price will tend towards what we regard as a more normal level."
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