A strong performance by retailer Incredible Connection helped Connection Group report a 20.5% increase in its year-end operating profit, although the sale of Ultimate Connection chewed into its net profit.
Incredible Connection, which contributed almost 80% of the group`s revenue, increased its profitability in the year to May. That, combined with strict management of working capital, resulted in strong cash generation.
Connection Group CEO Pierre Joubert says the retailer`s performance marks the completion of a three-year turnaround strategy. The company has consistently met its financial and strategic targets in that period.
He says strong cash flow, together with the recent sale of Ultimate Connection to UCS, eliminated all debt and left R81.2 million cash in the bank.
"Only three years ago the group had total debt of more than R100 million."
While the sale of Ultimate Connection did much to lower gearing, it resulted in an exceptional item of R17.5 million.
"Continuing operations, however, reported net profit for the year of R20.87 million - an increase of 29%," he says.
The increase in group revenue was supported by several new Incredible Connection outlets and the accelerated buying of IT equipment after the rand`s depreciation in December and January.
Enterprise Connection realigned its strategy and structure at the start of the financial year in anticipation of an improvement in the market for IT infrastructure services and solutions. Instead, conditions worsened and the company recorded a loss for the first half.
"Swift action was taken to reduce its overhead base and to focus on its core competency areas of sales, services and outsourcing," Joubert says. "Much closer attention was paid to expanding relationships with existing clients.
"Enterprise Connection returned to profitability in January 2002 and has been consistently profitable from January to May."
Although Joubert says market conditions are expected to remain difficult for the foreseeable future, the group is confident it will continue to show earnings growth in the next financial year.
The medium-term strategy is to establish a retail management group, Connection Universe, consisting of a group of specialist retailers that are market leaders in defined areas of technology and electronics.
Incredible Connection will be the first retail specialist under the Connection Universe banner. Enterprise Connection will be incorporated into Connection Universe.
"It will play a valuable role in enhancing Connection Universe`s competitive-edge by providing the same superior IT platform that contributed so significantly to the success of Incredible Connection," Joubert says.
The Connection Group share was trading at 46c on the JSE late this morning, 1c or 2.22% higher than yesterday`s close.
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Ultimate Connection sold to UCS Group
Connection Group grows in tough period
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