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Connect Group reports 2nd half and annual results 2015

2ND HALF RESULTS:
Sales of EUR 56.5 million compared with EUR 56.2 million in 2014.
Improvement of operating result before goodwill impairment, with profit rising from EUR 104 K in 2014 to EUR 566 K.
Net profit of EUR 38 K compared to a net loss of EUR 4,659 K in 2014.

ANNUAL RESULTS:
Sales of EUR 113 million compared with EUR 121 million in 2014.
Improvement of operating result before goodwill impairment, with the loss dropping from EUR 3,636 K in 2014 to EUR 1,272 K.
Net loss of EUR 6,979 K compared with a loss of EUR 4,646 K in 2014.

The order book at the end of financial year 2015 amounted to EUR 86.6 million (EUR 82.8 million at the end of 2014).

Management discussion and analysis of the results

Discussion of the 2nd half results

The 2nd half of 2015 closed with sales of EUR 56.5 million compared with EUR 56.9 million in the 1st half of 2015 and EUR 56.2 million in the 2nd half of 2014, pointing to a stabilisation of sales.
The cost of sales improved significantly from 93.6 percent to 88 percent as a result of the decline in labour costs achieved through the restructuring measures carried out in the first half. All other costs remained on a comparable level to those of the 1st half.
Following the 1st half net loss (before goodwill impairment) of EUR 2,468 K, the result for the 2nd half was positive again (EUR 38 K).

Flor Peersman (CEO): 
"We are pleased that our strict cost control programme has produced results. The 1st half of 2015 was very difficult for the company, with the necessary restructuring of our Poperinge plant not being easy and leading to a lot of inefficiencies, not only in Poperinge but also in the plants that took over certain activities. Fortunately, the sustained efforts of all staff yielded the necessary results and we were able to make a small profit in the 2nd half. I would like to explicitly thank all staff for their help in achieving this result.
Nevertheless we are still not where we want to be, and more cost adjustments will be necessary in 2016 to further improve our profitability.

Discussion of the annual results

On the basis of the order pipeline at the end of 2014 and certain customer prospects, 2015 sales were expected to increase slightly. This expectation failed to materialise, and the decline in sales that started in the 2nd half of 2014 could not be reversed in 2015. Throughout 2015, sales remained at the lower level of the 2nd half of 2014, stabilising at EUR 56 million per half year.

Evolution of sales figures (in EUR):

H1 2014 H2 2014 H1 2015 H2 2015
64.7 million 56.2 million 56.9 million 56.5 million

Against the background of the drop in sales in the 1st and 2nd half of 2014, a major restructuring of the company's Poperinge plant was announced. Carried out in the 1st half of 2015, the restructuring negatively impacted efficiency in that period. Similarly, staff motivation suffered on account of the uncertainty about who was to be made redundant. It was only after the restructuring and the move to the new location in Ypres had been completed that the factory started getting back to a normal efficiency level in the 2nd half.

In the course of the 1st quarter of 2015, the reduced sales forecast for the whole year led to the decision to carry out restructuring measures and cost cuts in other plants as well. Further cost-saving measures were carried out in both the Netherlands and Germany. These restructuring measures had a positive impact on the 2nd half figures. While the 1st half ended with a net loss of EUR 2.5 million, the cost savings achieved led to a net profit in the 2nd half on  sales at a level comparable to the 1st half.

In preparing the interim figures, the Board of Directors conducted an impairment analysis, the result of which led to the decision 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. 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. In response to this the Board of Directors decided in the summer of 2015 to propose a capital increase to the reference shareholders. Moreover, the company's bankers agreed to make available, if necessary, additional credit facilities for a limited period of time. Moreover, at the beginning of December, the reference shareholders agreed to subscribe to an EUR 3 million capital increase.

The Board notes that, throughout the whole of 2015, all payment obligations were met without recourse to the additional credit facilities negotiated with the banks. Controls on the use of working capital were strengthened, resulting in a decreased working capital requirement at the end of the year.

In summary, we can say that 2015 did not deliver the expected results. Though the measures taken resulted in the company achieving a positive result in the 2nd half, the result was still greatly below targets. In 2016 as well, the focus will be on reducing costs with a view to further improving profitability.

Within this context, the Board took the decision to recruit a new external Chief Executive Officer. Following the departure of Luc Switten as CEO in April 2015, Flor Peersman, at that time the company's COO, took on the role of CEO. The Board was of the opinion that this was a solution for a limited period of time, as the position of COO is one requiring full attention, given the operational problems facing the company.  The recruitment of a new CEO to strengthen the management team was thus a necessity.

Jeroen Tuik will be taking up the position of CEO as of 1 May 2016, allowing Flor Peersman to devote all his time and effort to his role as COO within the company.

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