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Connect Group Financial Report for the 1st half of 2013

Sales improve in the first half of 2013 to EUR 63.0 million from EUR 61.2 million in the second half of 2012 (EUR 79.9 million in H1 2012).

Strong improvement in the operating result to give a profit of kEUR 130 in the first half of 2013 versus an operating loss of EUR 1.3 million in the second half of 2012 (EUR 2.7 million profit in H1 2012).

Following the sharp drop in sales and the operating loss in the 2nd half of 2012, reflecting the general economic crisis, Connect Group succeeded in slightly increasing sales (+ 3%) and in turning the operating loss (EUR 1.3 million) into a small operating profit of kEUR 130 (including kEUR 450 of reorganization costs).

Order book of EUR 83.2 million at the end of the first half (EUR 77.0 million at end-2012).


Connect Group NV (Euronext Brussels: CONN) announces sales of EUR 63.0 million for the first half of 2013.  Sales for the equivalent period in 2012 were EUR 79.9 million.  The decline in sales in H1 2013 compared with H1 2012 is due to the general market slowdown and economic uncertainty, with Connect Group as a subcontractor in the electronics industry facing fluctuating order intake since the second half of 2012. For the 1st half, gross margin decreased from 13.3 percent in 2012 to 11.5 percent in 2013, due mainly to changes in product mix and lower capacity usage. Selling and administrative expenses decreased by 10 percent thanks to efforts to bring overheads in line with reduced turnover.

Operating profit reduced from EUR 2.7 million for the comparable 6-month period in 2012 to kEUR 130 positive. kEUR 450 of reorganization costs were recorded during the first half year. Without these the operating result would have been kEUR 580.

Net financial expenses decreased from kEUR 874 to kEUR 291. The finance costs decreased significantly by KEUR 349 as a result of the Group's reduced debt position and improved interest rates. Foreign exchange gains of kEUR 15 in H1 2013 compare with losses of kEUR 218 in the comparable period in 2012.

Compared with H2 2012, sales evolved positively. After the strong fall in the third quarter of 2012 and bottoming in the fourth quarter, sales increased in both the first and second quarters of 2013. More significantly, on comparable sales, the H2 2012 operating loss of EUR 1.3 million was turned round into a small operating profit of kEUR 130.  In late 2012 and in the H1 2013 the company did everything possible to be once again operationally profitable at the current sales level.

The order book progressed positively, ending H1 2013 at EUR 83.2 million, up from EUR 77.0 million at the end of 2012. A number of new and important client contracts were concluded during the first half of 2013, which can be expected to positively contribute to sales and results from 2014.

For the second half of 2013, Connect Group expects a slight increase in sales and improved results thanks to new clients and the effect of cost savings. The general tenor of the electronics market continues reticent. This market uncertainty continues to weigh on the outlook.

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. The group complied with its bank covenants at the end of 2012 and is discussing with its bankers its covenants to be complied with in 2013.
• Customer insolvency can have a major impact on the results.
• Risk of order postponements, leading to a temporary under-coverage of costs incurred.

No significant events have occurred after the balance sheet date.

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