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IPTE: Annual results 2009

The most important event of the past year was the sale of the automation activity in December. As a result of this sale, the income statements for 2008 and 2009 have been restated on the basis of IFRS 5 non-current assets held for sale and discontinued operations, in order to permit comparison, with the results of the automation activity presented on a single line as profit and loss from discontinued operations.

The change of name from IPTE NV to Connect Group NV will be formally approved at the Extraordinary General Shareholders Meeting of 2 March 2010. To avoid confusion, the name Connect Group will already be used in this press release, given that the name IPTE is already being used by the purchaser.

Management discussion and analysis of the results:

1. Discontinued operation - Automation

After negotiations with various interested parties, Connect Group accepted an offer in December 2009 from Huub Baren, the company’s founder, and Vladimir Dobosch, to acquire the entire automation business.

The automation division is being sold for a fixed amount of EUR 2 million and a variable amount equal to 50 percent of the accumulated profits of the division until 31 December 2012. Payment of the lump sum may be deferred until 31 December 2013 at the latest.

The contract also contains a clause whereby Connect Group will participate in any possible capital gain realised by the purchaser of the automation activity, should it sell the activity with a profit to a third party within the next 2 years (50% in year 1, 25% in year 2).

To guarantee the payment obligations Connect Group is taking a pledge on 700,000 IPTE NV shares held by the purchasers. Connect Group is also given a call option on these shares at an exercise price of (i) EUR 2.86 per share in the event that the highest independent bid price for the share in the central order book of Euronext Brussels is higher or equal to EUR 2.86 or (ii) equal to the highest independent bid for the share in the central order book of Euronext Brussels in the event that this is less than EUR 2.86.

Under IFRS 5, the results of the discontinued operation are included in the income statement under ‘Profit/loss from discontinued operation’ and the assets and liabilities of the discontinued operation are combined and displayed on a single line.

The net result for the year of the discontinued operation is a loss of EUR 22.9 million (EUR 4.5 million in 2008). The 2009 loss consists of the operating loss for the year of EUR 5.8 million and the loss resulting from the sale of the business of EUR 17.1 million.

The sales price is determined by several factors including the losses recorded by the automation activity in past years (EUR 4.5 million in 2008, EUR 5.8 million in 2009), the expenditure needed to bring the company back to health and the fact that the net assets include goodwill of EUR 4 million, which IFRS rules required in any case to be written off in the second half of 2009. The non-recurrent non-cash loss is a logical consequence of all this.

2. Continued operation – Contract Manufacturing

The continued operation is the entire contract manufacturing business. This activity saw its turnover decrease by 27 percent compared with 2008. This decrease is entirely attributable to the general economic downturn. We see this decline across almost all customers and all sectors. A positive factor, however, is that the activity succeeded in 2009 in acquiring several important new customers. With the resumption of the economy this will surely have a positive impact on the company’s earnings.

The net result from continued operation was a loss of EUR 3.1 million compared with a profit of EUR 4.8 million in 2008. The net result for 2009 has been influenced by the strong sales downturn and the restructuring carried out, consisting of a staff reduction (cost EUR 0.7 million) and the closure of the plant in Slovakia (EUR 0.4 million).

Due to the discontinuation of the automation activity in 2009, the continued operation is required under IFRS 5 to present in the income statement all costs to be paid in the future by the continued operation. This means that in the 2009 results, the contract manufacturing activity (continued operation) has had to pick up EUR 1 million of financing costs which were previously costs of the automation activity.

The order book of the activity was EUR 55.0 million at the end of the year compared with EUR 56.8 at the end of the 3rd quarter and EUR 53.5 million at the end of 2008.

IPTE Group changes name to Connect Group

With the transfer of the automation division, IPTE’s remaining contract manufacturing division will continue, as from the date of transfer, as the sole publicly traded entity. IPTE Group is proposing to its shareholders to change its name to Connect Group. This name change will be decided at the Extraordinary General Shareholders Meeting on March 2, 2010.

Strengthening of equity

The group will strengthen the balance sheet structure in spring 2010 by issuing a subordinated convertible bond in a minimum amount of EUR 2 million and a maximum amount of EUR 5 million. The following conditions will apply: suspension of general preferential rights, a minimum investment of EUR 50,000, a term of 6 years, an interest rate of 6 percent payable semi-annually, and a twice-yearly conversion option (following publication of annual and half-yearly figures). The bonds will be convertible at the lower of (i) 70% of the average highest independent bid price for a Connect Group share, in the central order book of Euronext, over the last 30 trading days preceding the date of exercise and (ii) EUR 2. A number of shareholders have already pledged an amount of at least EUR 2 million.

The issuing arrangements are currently submitted to the CBFA for approval. After approval by the CBFA the subscription period will be opened. The company expects that the borrowing will be finally concluded and approved by shareholders at the General Meeting to be held on 27 April 2010.

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