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Connect Group reports 2nd half and annual results 2016

2ND HALF RESULTS:

Sales of EUR 54.8 million compared with EUR 56.5 million in 2015.
Improvement of operating result from EUR 566 K profit in 2015 to EUR 1,480 K profit in 2016.
Net profit of EUR 966 K compared to a net profit of EUR 38 K in 2015.

ANNUAL RESULTS:

Sales of EUR 116.8 million compared with EUR 113.4 million in 2015.
Improvement of operating result from a loss of EUR 5,821 K in 2015 to a profit of EUR 2,058 K in 2016.
Net profit of EUR 1,161 K in 2016 compared with a loss of EUR 6,979 K in 2015.

The order book at the end of financial year 2016 amounted to EUR 89.4 million (EUR 86.6 million at the end of 2015).

Management discussion and analysis of the results

Discussion of the 2nd half results

The 2nd half of 2016 closed with sales of EUR 54.8 million compared with EUR 62 million in the 1st half of 2016 and EUR 56.5 million in the 2nd half of 2015. When account is taken of the loss of ASML as a customer in mid-2016, sales on a comparable basis totalled EUR 50.4 million in the 2nd half of 2015, EUR 53.4 million in the 1st half of 2016 and EUR 53.8 million in the 2nd half of 2016, indicating that sales are back on the rise.
The cost of sales remained stable at 88 percent. R&D, administrative and sales costs decreased, amounting to about 8.7 percent of sales in the 2nd half of 2016 compared to 10.3 percent in the 2nd half of 2015.
After making a small profit of EUR 38 K in the 2nd half of 2015, improving to a net profit of EUR 165 K (including restructuring charges of EUR 1,156 K) in the 1st half 2016, the result for the 2nd half of 2016 was substantially better at EUR 996 K.

Discussion of the annual results

Already known at the start of the year, the loss of ASML as a customer in the Netherlands was the main event in 2016. This customer had accounted for annual sales of more than EUR 12 million in the past years and the cessation of the relationship had an immediate effect, causing the redundancy of 33 employees in the Netherlands. In the first half of 2016, measures were taken to counteract the effects. The restructuring plan was carried out and all outstanding orders fulfilled. While this meant that we achieved high sales to ASML in the 1st half of 2016 (EUR 8.8 million), it also imposed restructuring costs of EUR 1,156 K, pushing our net profit down to EUR 165 K. Our 2nd half results show that we are on the right track.

In preparing the half-year figures in 2015, the Board of Directors decided, on the basis of an impairment analysis, to write off goodwill amounting to EUR 4.5 million.
This impairment charge in turn caused a 1st half net loss of EUR 7 million in 2015. The Board of Directors was well aware that this negative result would raise questions with customers, suppliers and bankers about the company's future prospects. To counteract this, the Board of Directors decided in summer 2015 to request a capital increase from key shareholders. In December 2015, these shareholders undertook to subscribe EUR 3 million in a capital increase which would take place in 2016.
The capital increase was successfully completed in April 2016, with the maximum amount of EUR 4.939 million being subscribed. 

Jeroen Tuik (CEO): 
“In the 1st half, we were still involved in the restructuring resulting from the loss of ASML in our Dutch plant. The results achieved in the 2nd half show that we are on the right track. We are pleased that our strict cost control programme has produced results. Sales are on the rise again, and for the first time in many years we have achieved a good net profit of EUR 1.2 million. Our order book is also developing positively. Despite the loss of ASML (whose orders amounted to EUR 7.7 million at the end of 2015), orders have risen from EUR 86.6 million at the end of 2015 (including the EUR 7.7 million from ASML) to EUR 89.4 million at the end of 2016, constituting an increase of over 13 percent. As a result, we are entering 2017 on a positive note.

Nevertheless, we are still not where we want to be, and more cost adjustments will be necessary in 2017 to further improve our profitability. We also need to invest in skill development in our plants in Romania and the Czech Republic to meet all customer demands.”

Annual figures
Connect Group NV announces 2016 sales of EUR 116.8 million, against EUR 113.4 million in the previous year (+ 3 %). Without the ASML impact (sales of EUR 12.2 million in 2015 and EUR 9.6 million in 2016), sales rose 5.9 percent.

The gross margin on sales increased from 9.2 to 11.9 percent, due to better cost containment and pricing. R&D, administrative and sales costs dropped 8 percent from EUR 11.3 million to EUR 10.5 million.

Other operating income / expenses in 2015 totalled EUR -369 K, mainly due to the write-off of receivables of EUR 465 K and gains on selling fixed assets amounting to EUR 115 K. Other operating income / expenses in 2016 total EUR -282 K, this time mainly due to reversals / write-offs of revenues from customers amounting to EUR 360 K and an EUR 285 K gain on the sale of a building, as well as lease costs totalling EUR 289 K and a provision for litigation of € 650 K.

In preparing the half-yearly results 2015, the Board of Directors carried out an impairment analysis. This led to the decision being taken to book a EUR 4.5 million goodwill impairment for 2015. At the end of 2016 the Board conducted a new impairment analysis, finding that no further impairments were necessary with regard to intangible and tangible assets.

The net financial result improved to EUR 260 K, mainly due to lower financing costs amounting to EUR 123 K (through lower financing requirements due to the capital increase and a positive operating cash-flow) and lower exchange losses (EUR 93 K). The company makes only limited use of foreign currency hedging contracts.

The group's net result thus improved from a loss of EUR 6,979 K in 2015 to a profit of EUR 1,161 K in 2016.

The order book at the end of the 2016 financial year stood at EUR 89.4 million (against EUR 86.6 million at the end of 2015).

Balance sheet
Trade receivables increased from EUR 17.5 million to EUR 19.1 million at the end of 2016. Q4 2016 sales were slightly higher than Q4 2015 sales.

Inventories increased slightly from EUR 27.0 million at the end of 2015 to EUR 28.4 million at the end of 2016.

New investments (replacements and new technologies) amounting to EUR 1.0 million were made in 2016. Given annual depreciation of EUR 2.6 million, and the sale of a company property with a carrying value of EUR 590 K, tangible and intangible assets declined from EUR 10.4 million at the end of 2015 to EUR 8.2 million at the end of 2016.

Total financial debt dropped significantly from EUR 21 million at the end of 2015 to EUR 14.4 million at the end of 2016 as a result of the capital increase (net impact of EUR 4.7 million) and free cash from operations. The group's working capital consists of short-term bank credit lines of EUR 3 million, of which EUR 968 K had been taken up at the end of the year, long-term bank loans of EUR 5.2 million, of which EUR 1.1 million have been taken up, and a long-term subordinated shareholder loan of EUR 0.8 million. In addition, the group makes use of factoring its receivables (EUR 10.7 million at the end of 2016, against EUR 13.3 million at the end of 2015). The group has bank investment loans and leasing debts amounting to EUR 0.8 million.
At year-end 2016, Connect Group met all bank covenants.

Trade debts dropped from EUR 15.7 million at the end of 2015 to EUR 14.9 million at the end of 2016.

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