Connect Group NV (Euronext Brussels: CONN) announces for the first half of 2011 sales of EUR 82.5 million and a profit from operations of EUR 2.7 million. In the comparable period of 2010 sales were 31 percent lower and there was a loss from operations of EUR 1 million. As already reported in 2010, sales and results in the first half of 2010 were significantly affected by shortages of components in the market, resulting in lagging sales and production inefficiencies with a corresponding weakening of results. In the second half of 2010, sales stabilized back to normal level (EUR 70.0 million), whilst in the first half of 2011 the company caught up with the backlog to achieve record sales of EUR 82.5 million.

During the first half of 2011, additional provisions of EUR 1.7 million were recorded in respect of client problems from the past. Although it is not yet certain that the claims against these clients are permanently lost, management believes the solutions presented by these clients in recent months to be insufficient and has therefore recorded a provision in the books in the full amount of the estimated risk.  At the end of 2010 only 50 percent of the risk as estimated at the time was recorded. The total amount of the provision at the end of June 2011 therefore amounts to EUR 3.3 million.

Without this extraordinary charge the operating profit for the first half would have been EUR 4.4 million, with a net profit of EUR 3.9 million.

The net decrease in financial expenses is attributable to the translation differences. EUR 23k of translation gains were recorded in H1 2011, as against net translation losses of EUR 784k in the first half of 2010. This is due to the changes in the exchange rates of the Czech Koruna, Romanian Lei and the U.S. Dollar.

The company won a tax dispute dating back to 2007, making a tax provision of EUR 310k redundant.

The order book at the end of the second quarter amounted to EUR 72.0 million, compared with EUR 71.2 million at the end of 2010.

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

(www.connectgroup.com).

The following represent the major risks for the company at present:

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, such as the tsunami in Japan, 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 2011

Following the publication of the annual results for 2010 at the end of March 2011, all Connect Group bondholders who subscribed to the convertible subordinated loan of EUR 5 million in April 2010, decided to convert their bonds into shares. Consequently, the Connect Group’s equity increased by EUR 5 million and its financial debt decreased by EUR 5 million. This conversion resulted in the issuance of 3,355,600 new shares with the same rights as existing shares, bringing the total number of issued shares to 10,290,024. This conversion was carried out on 5 May 2011.

As a result of this conversion the shareholders’ structure is as follows:

Shareholder nameNumber declared%
Huub Baren BVBA2,166,15521.05 %
QuaeroQ cvba2,120,78120.61 %
LRM NV1,870,78618.18 %
Luc Switten426,3694.14 %
Other below the reporting threshold3,705,93336.02 %
Total10,290,024100 %

As part of this change in shareholder structure, Connect Group NV announced on 8 July 2011 that it wished to expand the Board of Directors with three new directors. These appointments were approved at an Extraordinary General Meeting, held on 8 August 2011, as follows:

o Adprimum bvba, permanently represented by Robert Van Hoofstat;

o Mentofacturing bvba, permanently represented by Willy Hendrickx; and

o Peter Watteeuw.

These appointments will expire at the Annual General Meeting of 28 April 2015.