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17
February
2012

Connect Group reports good annual results

EMS-provider Connect Group reports 2011 sales of EUR 148.2 million compared to EUR 133.5 million in 2010.
Annual results 2011

- Sales of EUR 148.2 million compared to EUR 133.5 million in 2010.
- Improved operating result from a loss of kEUR 167 in 2010 to a profit of kEUR 5,030 in 2011.
- Net profit of kEUR 3,735 compared to a net loss of kEUR 1,131 in 2010.

4th quarter results:
- Sales of EUR 31.5 million compared to EUR 37.2 million in 2010.
- Operating profit of kEUR 965 compared to kEUR 341 in 2010.
- Net profit of kEUR 690 compared to a net profit of kEUR 309 in 2010.

Connect Group NV reports an annual sales figure of EUR 148.2 million compared to EUR 133.5 million in 2010 (+ 11.0 percent). The gross margin on sales increased from 11.4 percent to 13.9 percent, reflecting better product mix and cost control. R&D, administration and selling expenses remained virtually unchanged.

Other operating income in 2010 consisted primarily of a gain on the sale of a property in Germany. Other operating expenses in 2011 include a kEUR 1,250 valuation allowance on part of a customer receivable. In 2010, a valuation allowance of kEUR 1,250 had already been recorded on the same customer receivable. The total receivable from this problem customer is therefore reserved against. In the ultimate event of payment by the customer, these reserves will be reversed.

The operating result improved from a loss of kEUR 167 in 2010 to a profit of kEUR 5,030 in 2011 (3.4 percent of sales). As a result of lower interest rates (both the basic interest rate and the bank margin) and a lower average outstandings, the net financial result reduced from an expense of kEUR 2,435 to one of kEUR 1,600 in 2011. The group got its equal in a tax dispute , as a result of which an earlier tax provision of kEUR 305 was no longer needed. This improved the result by kEUR 305.

In this way the profit from the contract manufacturing business (continuing operations) for 2011 was kEUR 3,735 compared to a loss of kEUR 2,626 in 2010.

CEO Luc Switten comments:

"After the difficult years of 2009 - and then the sale of Automation in 2010 - and the component shortages, we are pleased with the results of 2011. The sales figure and the net profit of EUR 3.7 million are within expectations."

"In 2011, no transactions were executed for the Automation activity that was discontinued in 2009. In 2010 a profit of kEUR 1,495 was still recorded for the discontinued operation. This income in 2010 related to reversal of a customer provision (kEUR 1,095) recorded prior to the end of the activity and the reversal of a write-down of kEUR 400 on the receivable against the buyer of the discontinued operation. In this way the net group result improved from a loss of kEUR 1,131 to a profit of kEUR 3,735 (2.5 percent of sales)."

"Sales during the 4th quarter decreased from EUR 34.2 million in the third quarter to EUR 31.5 million. Sales for the 4th quarter of 2010 were EUR 37.2 million. The order book at year-end remained at EUR 70.7 million (unchanged compared to 3rd quarter 2011). During the 4th quarter of 2011, the group continued the operating integration of SAP at 3 main facilities (Romania, Germany and Belgium-Ieper)."

"This SAP start-up and the associated changes in all operating activities significantly impacted production during the 4th quarter. The switch-over necessitated the stopping of the 3 factories for more than 1 week, with production at a lower level for several weeks in order to ensure quality. We can report that the transition was successful."

"This has meant, however, that in the 4th quarter we were unable to deliver the sales requested by customers (estimated 3 to 4 million of delivery arrears). This has directly impacted the 4th quarter results as lower sales immediately result in an absolute lower gross margin and lower profits."

"Despite the temporary negative impact on actual deliveries in the 4th quarter, we are pleased that we have finally taken and completed this important step. With this switch-over, all the print board assembly plants are now operating w ith SAP and working methods can all be inter- coordinated. This will in future enable us to make major improvements to our working methods and to operate more efficiently. In 2012 we are planning to further optimize the systems at our print board assembly plants. From 2013 we will also be switching the Kampenhout and Rijen facilities and the cable part of the Romanian plant to SAP."

Outlook for 2012

The current economic climate makes it difficult to establish clear expectations for 2012. As a subcontractor, Connect Group is very much dependent on the general evolution of its customers and cannot itself force volume increases. On the one hand, Connect Group is strongly positive about its position with its customers and its acquiring of new customers. On the other hand, the general economic outlook is cloudy, with expectations of zero general economic growth for 2012 for Belgium.

The order book is growing despite the caution that we observe among our customers.
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