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Connect Group: Interim statement: 3rd quarter 2010

Connect Group NV (Euronext Brussels: CONN) posts turnover from the continuing contract manufacturing operations of EUR 33.7 million for Q3 2010 and an operating profit of EUR 0.5 million from continuing operations. This compares with turnover of EUR 27.5 million and an operating loss of EUR 1.15 million in the same period in 2009.
Following the weak first half of 2010 mainly due to shortages on the components market (delayed sales) and the associated inefficiencies in production (excessive production costs), results are now back to positive.
Although the problem of global shortages of components is not solved, the measures taken by the company and its customers in recent months have taken Q3 turnover back to a normally to be expected level.

The orderbook at the end of Q3 2010 rose to EUR 71 million, against EUR 66 million at the end of the previous quarter, representing an increase of 7%.

As a result of the high orderbook and the problem of component shortages in the market, inventories rose further to EUR 35.7 million.
The group has a net outstanding receivable of EUR 2.8 million against a customer currently unable to pay. In recent months, a number of agreements have been reached with this customer.  These include immediate payment for new product deliveries and prepayment of all materials prior to the start of production. These agreements are currently being respected. Negotiations have started on a concrete repayment plan for the outstanding receivable from the past. Should the customer cease respecting these agreements or if no agreement is reached on a repayment plan, the group will be required to record a provision on this receivable. The Board has asked Management for an evaluation of the overall risk on this customer by the end of the financial year.
 
As part of the optimization of its financing, the group has decided to make use of factoring of accounts receivable. Factoring is used solely as a financing instrument, with all operational activities (customer service, administration) fully carried out by the Connect Group. This financing method enables the group to dynamically adjust its credit lines to expected needs.
In consultation with the group's bankers, EUR 14 million of credit lines have been replaced by financing via the factoring company. The potential financial leeway achieved through the transfer of the receivables to the factoring company amounts to EUR 16 million at the end of the quarter, creating additional financial resources for the group.

Long-term debt includes a EUR 5 million subordinated convertible loan. This EUR 5 million convertible subordinated loan can be viewed as quasi-equity, bringing total quasi-equity to EUR 18.941 million.

As a result of these changes, the group has gone through all contractual agreements with its bankers. Based on all currently known data, the bankers have clearly stated that they see no need for further modifications to the financing structure.
Taking into account the factoring agreement entered into and the agreements with the banks, the group believes that its medium-term financing needs are covered.

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