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Financial Report for the 1st half 2017

Sales of EUR 59.4 million in H1 2017 vs. EUR 62.0 million in H1 2016.

Positive EBITDA of EUR 1,838K for H1 2017, vs. positive EBITDA of EUR 1,868 K for H1 2016.

Operating profit of EUR 525K in H1 2017, vs an operating profit of 549K in H1 2016.

Net profit of EUR 247K in H1 2017, vs a profit of EUR 135K in H1 2016.

The 1st half of 2016 was impacted by the loss of a specific customer, ASML, at the end of that period. Consequently, the 1st half of 2016 still included EUR 8.6 million of revenue from this customer (0 in 2017).  On a like-for-like basis, there was an increase in revenue from EUR 53.4 million (2016) to EUR 59.4 million (2017). In addition, the loss of ASML led to restructuring costs of EUR 1,156K and the redundancies of 33 employees in our Dutch branch, both of which were also booked during the 1st half of 2016.

Orders at the end of H1 2017 stood at EUR 97.3 million, vs. EUR 89.4 million at the end of 2016.

Management discussion and analysis of the results

Jeroen Tuik (CEO):

“The figures for the 1st half of 2017 do not sufficiently reflect the efforts made in the past few months. The drop in revenue resulting from the loss of ASML in the Netherlands has been almost fully offset by orders and revenue from new or existing customers. This growth was mainly realised in our factories in Kladno and Oradea, which have been under heavy pressure in the past few months to increase their production capacity. However, realising this increase in capacity is currently proving to be a challenge, because there is high demand for employees in the regions where we recruit. We have also noticed a considerable rise in labour costs in Romania. For the 2nd year running, the Romanian government has decided to increase minimum wages by more than 15 percent. On the other hand, growing shortages on the components market are leading to an increase in component prices, which puts extra pressure on operational activities. These rising costs cannot be directly passed on to our customers in all cases, which means our margins are being squeezed. One positive aspect is the growth of our order book. At EUR 97 million, Connect Group's order book has never been bigger. Although the size of this order book is not fully reflected in our short-term revenue forecast (some orders have longer lead times), we do believe that further growth should be possible in the 2nd half of 2017.

Results 1st half 2017:

Connect Group NV (Euronext Brussels: CONN) posted revenues of EUR 59.4 million  in the 1st half of 2017.  In the same period in 2016, the group's turnover was EUR 62.0 million. At the end of 2015, ASML, one of the group’s clients, informed Connect Group that it would no longer place any new orders after its existing orders had been completed. Turnover from ASML amounted to EUR 8,605K in the first 6 months of 2016, but dropped to EUR 0 in the first half of 2017. Without ASML, turnover for the 1st half of 2016 would have been EUR 53,411K, as opposed to EUR 59,428K in 2017. After July 2016, revenue from ASML became negligible.

The company's gross margin stood at 10.2 percent, as opposed to 11.8 percent in 2016. Both research and development expenses and general and administrative expenses remained more or less stable (1.1 percent and 4.4 percent of revenue respectively). Sales costs (3.9 percent of revenue) rose by 0.4 percentage points in relation to revenue, mainly as a result of rising transport costs.

The company posted a profit of EUR 525K in the 1st half of 2017, as opposed to EUR 549K in the 1st half of 2016.

Net financial costs amounted to EUR 276K (EUR 412K in 2016).  This drop was mainly caused by a decrease in interest costs of EUR 127K. This decrease in interest costs is mainly a consequence of the capital increase that took place in the 2nd half of 2016.

The order book grew from EUR 89.4 million at the end of 2016 to EUR 97.3 million at the end of the 1st half of 2017. The order book contains formal commitments of customers, but could be subject to change in terms of quantities and delivery deadlines. For this reason, it cannot be used as a financial indicator of future results.

During the 1st half of 2017, investments to the value of EUR 0.6 million were made (EUR 0.3 million in 2016), mainly consisting of minor adjustment works and replacement investments.

Stocks rose from EUR 28.4 million to EUR 33.8 million as a consequence of the new projects that will be realised in the 2nd half of the year (order book growth).

Strong invoicing in May and June of 2017 resulted in an increase in trade receivables.  As far as we are aware, there is no increased recovery risk in these trade receivables.

Total financial debt rose by EUR 2.2 million (from EUR 15 million at the end of 2016 to EUR 17.2 million in the 1st half of 2017). This rise is a result of greater demand for working capital in 2017 (increased stocks and trade receivables).

Equity rose from EUR 20.5 million to EUR 20.7 million as a result of the net profit booked during the period. However, the group’s solvency decreased from 34 percent to 30.8 percent due to its higher total assets.

The risk assessment can be found in the annual report and is available on the Internet (www.connectgroup.com).

The most significant risks for the company are:

  • Production is completely dependent on the availability of all components at the moment that production starts up. If component availability slows down, sales too will be delayed.
  • Currency risk:
    • The group buys a portion of its components in dollars/yen, the exchange rate risk on which is only partially covered in the selling price.
    • Production takes place partly in Romania and the Czech Republic: large fluctuations of these currencies against the Euro can impact costs.
    • Since foreign currency needs cannot be accurately timed, the group does not cover its foreign currency positions.
  • The group has a credit agreement with its bankers that includes a minimum solvency ratio covenant, equity and cash flow. Customer insolvency can have a major impact on the results
  • Risk of order postponements, leading to a temporary under-coverage of costs incurred.
  • The group is dependent on a number of customers each accounting for more than 10% of sales. Should any one of them terminate its business relationship, this will impact results.
  • There is an ongoing dispute between the group and the Romanian VAT authorities, which may have a negative impact on results in the longer term.

Significant events in first half 2017

No major events occurred in the first 6 months of 2017.

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