Connect Group: Financial report for the 1st half 2012

Connect Group NV (Euronext Brussels: CONN) posted sales of EUR 79.9 million for the first half of 2012, down 3 percent year over year. On 6th January 2012 the Dutch group Halin was acquired and incorporated in the income statement. If the Halin takeover is not taken into account, sales for the first 6 months of 2012 would be EUR 71.5 million (down 13 percent year over year). The decrease in sales for the first half of the year was partly due to exceptionally high sales during the first half of 2011, itself the result of a catching-up process following a period of component shortages during 2010. However, it is also explained by a general market slowdown and economic uncertainty, to which Connect Group as an electronics supplier is directly exposed.
Gross margin fell slightly from 14 percent in 2011 to 13.3 percent in 2012, mainly due to changes in the product mix. The increase in selling expenses and general and administrative expenses is entirely due to the Halin takeover. During the first half of 2011, a provision amounting to EUR 1.7 million was made for customer problems from the past (other operating expenses).
The operating result remained stable at EUR 2.7 million. On a directly comparable basis (without taking Halin into account), operating result was EUR 2.69 million (EUR 2.75 million in 2011). As expected, Halin made no contribution to net results during the first six months.
The net financial result remained practically unchanged. Finance charges fell considerably, dropping EUR 233,000 from EUR 889,000 to EUR 656,000 as a result of improved interest rates. By contrast, exchange rate losses rose sharply by EUR 242,000 due to the deterioration in the EUR/USD exchange rate.

In 2011, the company ended a tax dispute dating back to 2007, allowing it to reverse a tax provision of kEUR 310 and thus improving 2011 results by kEUR 310.

The order book at the end of the first half of 2012 was EUR 80 million compared with EUR 70.7 million at the end of 2011 (of the EUR 80 million, EUR 8.4 million is accounted for by Halin).

The risk assessment can be found in the Annual Report and is available on the Internet

The following represent the major risks for the company:

1. Given its subcontractor status, the group is dependent on the success of its customers. If customers' products are not successful on the market, this has a knock-on effect on the group.
2. Unavailability of components can result in sales delays. External factors may affect the availability of components.
3. Currency Risk:
• The group buys a number of its components in dollars/yen. The accompanying exchange rate risk is only partially covered in the selling price.
• With production taking place partly in Romania and the Czech Republic, any major fluctuations of these currencies against the Euro can impact costs.
• Since foreign currency requirements cannot be accurately timed, the group does not cover its foreign currency positions.
4. The group has a credit agreement with its bankers.  Should the group fail to meet the imposed credit conditions, the bankers may either terminate the credit agreement or tighten the lending conditions. 

No significant events have occurred after the balance sheet date.

Significant events in first half year of 2012

In January 2012, the Dutch group Halin became fully integrated into Connect Group data. Halin's sales during the first half of the year amounted to EUR 8.4 million, with an operating result of kEUR 53. Immediately following the takeover, Connect Group embarked on the integration of Halin. The names of Halin companies were changed to Connect Group and, following a study, it was decided to centralize all Dutch-based Connect Group activities at the Veldhoven premises. The merger process will be completed during 2012. The merger is expected at first to lead to certain additional costs and efficiency losses but, from 2013 onwards, integration should result in a stronger commercial and operational entity in the Netherlands, in a position to leverage the Connect Group production plants in Romania and the Czech Republic to keep production costs down.

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