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Connect Group reports annual results 2014

ANNUAL RESULTS

Sales of EUR 121 million compared with EUR 125 million in 2013.

Slight improvement in operating result from a profit of EUR 671K in 2013 to a profit before restructuring costs of EUR 840K in 2014.

Net loss of EUR 4.646K compared with a profit of EUR 82K in 2013. The loss in 2014 consisted of restructuring costs amounting to EUR 4,476K. Without these restructuring costs, the loss in 2014 would have amounted to only EUR 170K.

The order book at the end of financial year 2014 amounted to EUR 82.8 million (EUR 84 million at the end of 2013).

(in 000 Euro) 2014 2013
Sales 120,984 124,988
Operating result continuing before restructuring costs 840 671
Restructuring costs -4,476 -
Operating result continuing after restructuring costs -3,636 671
 
Profit / (loss) of the group excluding restructuring costs -170 82
Profit / (loss) of the group -4,646 82

RESULTS 2ND HALF

Sales of EUR 56.1 million compared with EUR 61.9 million in 2013.
Net result of a loss of EUR 4,659K compared with a profit of EUR 242K in 2013. Without the booked restructuring costs, the net result for the second half of the year would have been a loss of EUR 402K.

Management discussion and analysis of the results

Luc Switten (CEO) : At the closing of the financial year 2013, we were positive about the upcoming year 2014. We felt that 2014 could be a good year for Connect Group for the following reasons:

  • The group's overheads have been reduced to ensure positive results, even with lower sales levels.
  • We had won several new customers to end the year with a strong order book of over EUR 84 million. Despite market/customer fickleness with regard to delivery dates, we believed that we could return to growth in 2014.
  • The introduction of our TiaS® (Technology is a Service) programme into the market had been very positively received by our customers. Customers are keen to obtain more technology from us. We see a strong demand for this service and have already logged a number of successes with certain customers that strengthen customer loyalty. We also observe that new customers view this service as an additional argument to order from us.
  • Our additional focus on a number of target markets like Railway was producing clear results. Long-term agreements with a number of customers have secured revenue streams for several years out.

Despite the general economic slowdown, the first half of 2014 was in line with expectations. Compared to 2013, sales increased slightly (see table 'Evolution sales figures') and the results were positive.  Both the order book as well as order intake remained at a high level and gave no cause for concern.

Evolution sales figures:

H1 2013 H2 2013 H1 2014 H2 2014
63.0 million 61.9 million 64.7 million 56.1 million

Order intake during the first six months of 2014 was positive and the order book grew to EUR 88.8 million.  Hence, the first half of 2014 was completely in line with the expectations at the end of 2013.

As a result of the general economic downturn and the less positive evolution of some customers, the order intake during the entire second half of the year remained below expectations and the orderbook decreased to EUR 82.8 mio at yearend.
This slowdown in order intake had an immediate impact on the sales in the second half of the year and the profitability of the company, as a result of which it became necessary to take more stringent measures in the 4th quarter of 2014. In addition to previous restructurings in 2014, the Group took the decision to carry out a major restructuring at its plant in Poperinge.  In recent years, this plant has evolved from a purely subcontracting company producing mainly standard products to a more project-driven technology company focussing on prototype activities.  This evolution is the result of a number of factors:

  • The historically largest customer of the Poperinge plant has relocated his production;
  • The overall economic situation in Western Europe has changed. High wage costs have meant that mass production has been shifted to Eastern Europe, with the focus in Western Europe now being put on technological competence. Our plant in Poperinge thus needs to develop into a technology company focusing on the production of prototypes and specialising in certain sectors;
  • As a result of the high-wage structure existing in Belgium and Western Europe and in an effort to maintain competitiveness, Connect Group has been forced to relocate all mass production to its Eastern Europe production plants in Oradea (Romania) and Kladno (Czech Republic);
  • New potential customers want to fully benefit from the Eastern European plants, demanding that all mass production automatically takes place there.

As a result of the restructuring at the Poperinge plant, the number of personnel in this plant will decrease by 58 employees. In addition, as part of the restructuring, all activities in the leased plant at Poperinge will be discontinued and transferred to the factory in Ieper in the period April – June 2015. This move will generate further savings (in terms of rent, heating costs, etc.) from the second half of 2015.

In addition to the restructuring at Poperinge, the Group also took the decision at the beginning of 2015 to carry out a limited personnel reduction at the facility in the Netherlands. The argument for the restructuring in the Netherlands is similar to that cited above for the Poperinge plant.

Both restructuring exercises, along with the natural staff turnover and the already implemented restructuring in 2014 at our Western European facilities in the past year, will lead to a permanent annual decrease of more than EUR 3 million in our total personnel costs in Western Europe. This is an important and essential element for returning to a positive Group result in 2015.

In summary, we can say that 2014 did not deliver the expected results. The speed at which our markets evolve makes it necessary for us to react at the same speed and obliges us to take painful measures. This is what we had to do at the end of 2014, with a significantly negative impact on the results of 2014 but the belief that we will emerge stronger in 2015 and in the subsequent years as a result of these measures. Our market position with our customers has improved overall, our skills have increased and our cost structure has been significantly adjusted based on the ever-changing market. We look forward to 2015 and hope that our customers perform strongly so that we too can reap the benefits of all the efforts made.

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