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Positive results for the 1st half 2016

Sales of EUR 62.0 million in H1 2016 vs. EUR 56.9 million in H1 2015.

Positive EBITDA of EUR 3,023K before restructuring costs and EUR 1,868K after restructuring costs for H1 2016, vs. negative EBITDA of EUR 494 K for H1 2015.

Operating profit before goodwill impairment and restructuring costs of EUR 1,705K in H1 2016, vs. an operating loss of EUR 1,837K in H1 2015.

Operating profit of EUR 549K in H1 2016, vs a loss of EUR 6,386 K in H1 2015.

Restructuring costs of EUR 1,156K were booked in H1 2016 as a result of the loss of ASML as a customer and the subsequent dismissal of 33 employees in the Dutch plant.

In preparing the half-yearly results for 2015, the Board conducted an impairment analysis and subsequently decided to write off goodwill of EUR 4,548 K.  While this had no effect on cash flow, it greatly impacted the operating result.

Net profit of EUR 135K in H1 2016, vs a loss of EUR 7,017K in H1 2015.

In April 2016, a net capital increase of EUR 4,647K (EUR 4,939K gross minus transaction costs of EUR 292K) took place through the issuing of 16,464,038 new shares.

Orders at the end of H1 2016 stood at EUR 78.4 million, vs. EUR 87 million at the end of 2015.

Management discussion and analysis of the results

Jeroen Tuik (CEO):

“As the new CEO as of May 2016, I am delighted to report a good 1st half-year. As a result of the capital increase, we have significantly improved our solvency. Moreover, we have taken action to improve results and we have a good customer base. The only setback in the period was the discontinuation of the collaboration with an important customer in the Netherlands. We will be finishing all work for it in a correct manner and the impact is fully incorporated in H1 figures.”

“As regards the company’s future, I see it positively. Over the past few months I have got to know many highly motivated and skilled colleagues as well as customers upon whom we can build. Though there is still a lot of work to do, we are on the right track. Now that we have strengthened the balance sheet, we can set our sights on growth and on winning new customers, though always with a clear focus of profitability.”

Results 1st half 2016:

Connect Group NV (Euronext Brussel: Conn) reports sales of EUR 62.0 million for H1 2016, compared with EUR 56.9 million in H1 2015. At the end of 2015, Connect Group's customer ASML announced that it would not be placing any new orders and that existing orders were to be completed. Sales to ASML in H1 2016 reached EUR 8,605K, vs. EUR 6,084K in 2015. Without ASML, sales in H1 2016 reached EUR 53,411K, vs. EUR 50,823K in 2015. Sales to ASML will drop to a negligible level as of July 2016.

The gross margin was 11.8%, against 6.4% in 2015. Research and development expenses and general and administrative expenses remained stable at respectively 1.1% and 4.5% of sales. Selling expenses (3.5% of sales) decreased by 0.5 percentage points.

Operating profit before goodwill impairment and restructuring costs amounted to EUR 1,705K in H1 2016, vs. a loss of EUR 1,837K the previous year.

Following the announcement of ASML at the end of 2015 to terminate its business with Connect Group, the necessary measures were taken to align costs with the new situation. In the Dutch plant where most of the ASML work was done, 33 employees have been made redundant.

In preparing the H1 2015 results, the Board, taking account of the Group's plan for the future, carried out an impairment test, the results of which led the Board to decide to write off the goodwill. This had no impact on the company's cash position. In the context of its future planning, the Board looked into the possibility of increasing the company's capital to ensure its long-term stability.  This capital increase was carried out in H1 2016, with the result that shareholders’ equity was increased by EUR 4,647K.

Net financial expenses amounted to EUR 412K (vs. EUR 629 K in 2015).  This drop is the result of exchange gains of EUR 36K in 2016, vs. a loss of EUR 190K in 2015. Financing costs remained stable and the positive effects of the capital increase are expected to show up in H2.

Orders dropped from EUR 86.5 million at the end of 2015 to EUR 78.5 million at the end of H1 2016, whereby the 2015 year-end orders contained EUR 7.7 million from ASML.  Without these ASML orders, the level of orders remained basically stable.  The order book contains formal commitments from customers, but may be subject to adjustments in numbers and timeframes. For this reason, it cannot be used as a financial indicator of future results.

During H1 2016, investments of EUR 0.3 million were carried out, mainly in the form of minor adjustments and replacements. In previous years, investments had been made in new product lines and improvements to buildings.

The increase in trade receivables is due to a high level of invoicing in May and June 2016.  They contain no known increased collection risks.

Total financial debts dropped by EUR 6 million from EUR 21 million at the end of 2015 to EUR 15 million at the end of H1 2016. This decrease is the result of a) the capital increase (EUR 4.6 million), and b) the positive cash flow from operations which enabled debts to be repaid.

Shareholders’ equity increased from EUR 14.7 million to EUR 19.4 million as a result of the capital increase and the net profit for the period. As a result of this increase, the Group's solvency ratio has risen from 25% to 33%.

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.

Significant events in first half 2016

End of February, Connect Group announced the appointment of Jeroen Tuik as its new CEO as of 1 May 2016. With the appointment of Jeroen Tuik as CEO and managing director, the management team is back to full strength, meaning that Flor Peersman can now fully focus on operations in his role as COO.

At the end of April, the result of the public offering of shares and the private placement of scrips in the context of the capital increase was announced. All shares were taken up by the Group's major shareholders, institutional investors and the public at large. Payment of the subscription price, the determination of the capital increase and the listing of the new shares on Euronext Brussels took place on 28 April 2016. As a result of this transaction, the total number of shares in Connect Group increased from 10,290,024 to 26,754,062 and the capital of Connect Group NV from EUR 637,981.49 to EUR 1,658,751.85.  The shareholder structure following the capital increase is as follows:

Shareholder Name Number declared (*) %
Huub Baren BVBA(**) 11.933.365 44,60%
QuaeroQ cvba 8.211.032 30,69%
Other below the reporting threshold 6.609.665 24,71%
Total 26.754.062 100%

(*) Shareholders holding 3% or more need to declare their interests
(**) + companies controlled by Huub Baren

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