Profits down for Connect Group in 2012

Luc Switten (CEO) comments: "After a good 2011, 2012 looked set to be a relatively good year. The order book at end-2011 stood at over EUR 70 million, while the acquisition of Halin Group at the end of 2011 gave us a clear road map for the Dutch market. The general economic situation was somewhat more hesitant but seemed under control. The first six months of 2012 were also as expected." "During early summer, however, it became clear that the general fear of economic downturn was bearing increasingly heavily on the economy and on customer behaviour. On the one hand orders were still being placed, on the other we were being frequently asked to postpone deliveries." "These two conflicting movements are highly detrimental to our operational management. Production capacities are initially planned on the basis of an order book delivery prognosis. Thus a postponement of the effectively demanded delivery leads to unused production capacity and replanning, both negatively affecting results. Deliveries in the last three months of 2012 plummeted, with a very negative impact on the figures for the 2nd half and undoing the positive results of the first half." Annual figures for 2012 Connect Group NV reports annual sales of EUR 141.6 million compared with EUR 148.2 million in 2011 (down 4.4 percent). The drop in sales occurred mainly in the 2nd half and more specifically in November and December. While order intake (order book at end-2012 of 77 million vs. 70.7 million at end-2011) remained adequate, many customers decided to postpone delivery of already-ordered items to 2013. It is clear that the general economic situation is making many companies more prudent and is leading them to postpone orders as long as possible. All possible measures were immediately taken to adapt the cost structure to the deteriorating market. The personnel structure was modified and inventories ran as low as possible. These structural adjustments initially bring additional costs which weighed on 2012 results. In 2012 Connect Group paid kEUR 989 restructuring costs. The gross margin on sales decreased from 13.9 percent to 11.5 percent, reflecting the product mix. The acquisition of the Halin group increased research and development as well as administration and selling expenses. These various departments were merged at the end of 2012, and the corresponding costs can be expected to decline in 2013. Final settlement sale Automation division Annual results 2012 improved by EUR 4.5 million as a result of the "earn-out" clause in the contract of sale concluded in late 2009 for the Automation division. Alongside the fixed selling price of EUR 2 million, this contract also provided for an additional variable portion of the purchase price equal to 50 percent of the division's adjusted accumulated profits for the period 2010 to 2012. The final settlement and payment, which were due by the end of 2013, took place by 31/12/2012. All rights and obligations of both parties to this agreement are thus finally settled.