| Tue 23 Mar 2010, 8:33 | | CNL - Control Instruments Group - Results for the Year Ended 31 December 2009 |
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CNL
CNL
CNL - Control Instruments Group - Results for the Year Ended 31 December 2009
CONTROL INSTRUMENTS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1964/003987/06)
Share Code: CNL
ISIN: ZAE000001665
("Control Instruments" or "the Company" or "the Group")
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009
HIGHLIGHTS
- R75m cash generated from operations
- 19% reduction in operating expenses from continuing operations
- R20m invested in product development and capex - total invested
over two years R48m
- 66 % decrease in loss per share from continuing operations
- Significant international contracts for OpenECU product range
- Excellent forward order book for OEM business
MESSAGE FROM THE CHAIRMAN
Globally the automotive industry appears to be recovering. The challenge for
us in 2010 as we prepare for our expected future growth is to build on the
improvements we have achieved and ensure that the benefits arising out of them
are sustained. This will enable us to capitalise on the opportunities that we
have created. We are looking forward to the future with confidence.
COMMENTARY
OVERVIEW
What a difference a year can make. This time last year we were implementing
survival strategies. Today we are looking at growth strategies.
2009 was extremely tough and uncertain. Decisive action successfully reduced
costs and generated cash, containing the knock-on effects of the global
recession on the Group.
Towards the end of 2009 the OEM business won a number of international
contracts for its OpenECU products and for the development and manufacture of
other products. These contracts and orders are scheduled to go into full
production from late 2010 and the benefits are expected to show from 2011
onwards. This is directly as a result of the Group`s decision to continue
investing in the development of new products in which it owns the Intellectual
Property ("IP") and ongoing capital expenditure in its manufacturing
facilities.
Notwithstanding the unprecedented market conditions, over the past two years
the Group has invested R47.8 million in product development and capex, R20.2
million in the year under review and R27.6 million in the previous year.
RESULTS AND BUSINESS OVERVIEW
2009 was a year of crisis in the international automotive industry with the
demand for new vehicles collapsing in late 2008 and the knock-on effect being
felt throughout the supply chain and continuing for most of 2009. Vehicle
manufacturers reacted quickly to the crisis at the end of 2008, reducing their
production levels overnight and cutting orders for components to virtually
zero in early 2009. This had a material impact on revenue and profitability in
our OEM business.
Trading conditions stabilised during the second half of 2009, but at lower
levels than those experienced in the first half of 2007 and in 2008.
In spite of the difficult trading conditions the loss per share from
continuing operations reduced 66% to 12.3 cents in the year ended 31 December
2009 compared with a loss per share from continuing operations of 36.4 cents
in the previous year.
OEM business - Pi Shurlok
Results
Revenue decreased 32% from R572.7 million in the year ended 31 December 2008
to R387.8 million in the current year. Normalised EBITDA decreased 55% from
R27.5 million in the previous year to R12.4 million in the year under review.
Under the circumstances a positive normalised EBITDA is an excellent
achievement.
We used the downturn as an opportunity to rationalise products in our OEM
business. Agreement was reached with customers for one-time last order
quantities for products that were uneconomical quantities for us to
manufacture and products that had become economically unviable were
discontinued.
Business
The decision to invest in an offshore engineering, product development and
front-end business to drive the OEM business and to relocate Group CEO,
Richard Friedman, offshore to run the new company, Pi Shurlok, was a
significant strategic step for the Group. It is satisfying to note that Pi
Shurlok has become an international business with a manufacturing facility
in South Africa (as opposed to a South African business with offshore design
and development facilities).
Pi Shurlok is focused on developing products that contain our own IP, can be
manufactured at our factory in Pietermaritzburg and are for supply to
customers on a global basis. Our OpenECU family of electronic control units
("ECUs") were developed as a result of this strategy. They were first tested
in the market in late 2008 and were officially launched in mid 2009.
There has been an extremely rapid uptake of the OpenECU products, with sales
in 2009 almost double our expectations.
Readers who are interested in more detail about Pi Shurlok`s OpenECU products
and the related technology should visit the Pi Shurlok website at
www.pi-shurlok.com.
In addition to our OpenECU products, our motorcycle and vehicle infotainment
products and instrument clusters are also showing excellent growth prospects.
The motorcycle and vehicle infotainment products are designed in-house in the
UK and manufactured at our factories in South Africa. Instrument clusters are
primarily manufactured under licence from technical partners, who are world
leaders in Europe and Japan. In addition, instrument clusters for specialist
vehicle manufacture are designed in-house and manufactured in smaller volumes
at our factories. We also manufacture products for third parties, including
customers such as BMW, Eaton, MiX Telematics and Mann and Hummel.
The current forward order position is the best that the Group`s OEM business
has had in many years. One of the attractions of the OEM business is the long-
term nature of contracts. This means that the majority of the contracts won at
the end of 2009 will be coming on stream progressively over the next three
years. In many cases they should run for in excess of five years.
Aftermarket business
Results
The Aftermarket business traded at similar levels to those achieved in 2008,
however in real terms and after price increases this means decreased volumes
and turnover. Revenue increased by 1% from R450.6 million in the previous year
to R454.2 million in the year under review. Normalised EBITDA increased 38%
from R15.4 million to R21.2 million.
The strength of the brands owned and/or distributed by the Group as well as
longstanding relationships with our customers and suppliers stood the business
in good stead during this difficult period.
Contrary to recent history in which a decrease in the sales of new vehicles
leads to an increase in the sale of aftermarket products, in late 2008 and
into the first half of 2009 consumer spending in the automotive aftermarket
shrunk.
This negatively impacted the business and drastic steps were taken to right
size the business for what potentially could have been an extended period of
significantly lower levels of revenue. A number of areas that we felt could
become negative contributors in a future of continued lower levels of business
were discontinued. This is reflected in the abnormal write-down of stock in
the financial statements.
Business
Our Aftermarket business is based in South Africa and our Aftermarket strategy
is based on owning or having exclusive rights to premium brands. We provide
our customers with an exceptional basket of high quality products, which
includes Gabriel shock absorbers, VDO instrumentation and Warn winch products.
Demand for these products picked up in the second half of 2009 and indications
are that this trend will continue in 2010.
AUDITOR`S REPORT
PricewaterhouseCoopers Inc. has audited the results for the year ended
31 December 2009 and their unqualified audit reports on the Group annual
financial statements and the Group abridged financial statements are available
on request at the Company`s registered office.
PROSPECTS
As has been proven over the last 18 months, the unforeseen can and does
happen.
The automotive industry and the global economy are not out of the woods and
the potential exists for setbacks in our business.
Cash will remain tight during most of 2010 due to world economic conditions,
the funding requirements of our development programme, capex for the
production of future orders and the general increase in working capital that
goes hand in hand with a ramp up in volumes.
Nevertheless, we believe that Pi Shurlok is at the beginning of a period of
high growth driven by its OpenECU, infotainment and instrument cluster product
ranges and our manufacturing capabilities. The business offers a compelling
mix between volume flexibility, high quality levels and manufacturing
experience. This combination is not readily available worldwide and it is
enabling Pi Shurlok to win contracts and to become more selective in the work
that it accepts.
The Aftermarket business has "best of breed" brands and a critical mass in sub-
Saharan Africa. One of the roles of the Aftermarket business is to produce
significant positive cash flow for the Group to deploy in funding growth,
paying dividends, developing new products and investing in capital equipment.
In 2009 we used the economic crisis as a catalyst to achieve higher levels of
efficiency and returns in our businesses. The challenge for us in 2010 as we
prepare for our expected future growth is to build on the improvements we have
achieved and ensure that the benefits arising out of them are sustained.
This will enable us to capitalise on the opportunities that we have created.
We are looking forward to the future with confidence.
On behalf of the Board
JPS O`LEARY
Chairman
R FRIEDMAN
CEO and Group Managing Director
18 March 2010
STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2009
GROUP
2009 2008
R 000 R 000
ASSETS
Non-current assets 286 954 300 908
Property, plant and equipment 127 770 139 788
Intangible assets 129 526 137 247
Investments in joint ventures 565 2 421
Available-for-sale financial assets 648 384
Deferred income tax assets 28 445 21 068
Current assets 252 129 291 003
Inventories 124 694 152 378
Trade and other receivables 97 108 124 746
Derivative financial instruments - 3 986
Financial assets at fair value through profit or loss 137 81
Current income tax assets 118 1 883
Cash and cash equivalents 30 072 7 929
Total assets 539 083 591 911
EQUITY AND LIABILITIES
Capital and reserves 295 445 329 924
Share capital 6 972 6 972
Share premium 396 996 396 996
Treasury shares (3 117) (3 117)
Foreign currency translation reserve (12 382) (3 185)
Other reserves (1 647) 1 338
Accumulated loss (91 377) (69 080)
Non-current liabilities 35 924 109 884
Borrowings 10 753 76 791
Deferred income tax liabilities 21 532 27 699
Provisions 3 639 5 394
Current liabilities 207 714 152 103
Trade and other payables 123 425 106 633
Current income tax liabilities 2 946 9 342
Derivative financial instruments 2 363 1 848
Borrowings 74 478 28 560
Provisions 4 502 5 720
Total equity and liabilities 539 083 591 911
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2009
GROUP
2009 2008
R 000 R 000
CONTINUING OPERATIONS
Revenue 840 404 1 014 229
Cost of sales (618 989) (761 533)
Gross profit 221 415 252 696
Other operating income 6 735 12 154
Marketing and selling expenses (31 767) (32 370)
Administrative expenses (94 210) (133 348)
Other operating expenses (120 164) (137 585)
Operating loss (17 991) (38 453)
Finance income 303 585
Finance costs (14 151) (16 243)
Share of profit from joint ventures 148 418
Loss before taxation (31 691) (53 693)
Taxation 14 803 3 520
Loss for the year from continuing operations (16 888) (50 173)
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations (5 409) (25 507)
Loss for the year (22 297) (75 680)
Attributable to equity holders of the Parent (22 297) (75 680)
Loss per share (cents) - continuing operations
Basic (12.3) (36.4)
Diluted (12.3) (36.4)
Loss per share (cents) - discontinued operations
Basic (3.9) (18.5)
Diluted (3.9) (18.5)
Dividends per share (cents)
Cash - 8.0
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2009
GROUP
2009 2008
R 000 R 000
Loss for the year (22 297) (75 680)
Other comprehensive income for the year,
net of taxation (12 182) (5 794)
Cash flow hedges
Current year gross movement (4 501) 2 123
Current year taxation movement 1 252 (599)
Available-for-sale assets
Current year gross movement 264 (516)
Foreign currency translation reserve
Current year gross movement (9 826) (6 802)
Current year taxation movement 629 -
Total comprehensive income/(loss) for the year (34 479) (81 474)
Attributable to equity holders of the Parent (34 479) (81 474)
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2009
Share Share Trea- Foreign Other Retained Total
capital pre- sury curr- res- earn
mium shares ency- erves ings/
trans- (accumu-
lation lated-
reserve loss)
R 000 R 000 R 000 R 000 R 000 R 000 R 000
GROUP
Balance at
1 Jan 2008 6 972 396 996 (7 634) 4 295 245 21 139 422 013
Total compre-
hensive income
/(loss) for
the year (7 480) 1 008 (75 002) (81 474)
Transactions
with owners
Employee share
option scheme
Value of
services
provided 85 85
Movement of
treasury shares 4 517 (4 388) 129
Dividends paid (10 829) (10 829)
Balance at
31 Dec 2008 6 972 396 996 (3 117) (3 185) 1 338 (69 080) 329 924
Total compre-
hensive income
/(loss) for
the year (9 197) (2 985) (22 297) (34 479)
Balance at
31 Dec 2009 6 972 396 996 (3 117) (12 382) (1 647) (91 377) 295 445
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2009
GROUP
2009 2008
R 000 R 000
Cash flows from operating activities
Cash generated from operations 75 114 3 645
Finance income received 303 593
Finance costs paid (13 859) (16 889)
Dividends received 2 035 -
Dividends paid - (10 829)
Taxation paid (3 811) (3 715)
59 782 (27 195)
Cash flows from investing activities
Purchase of property, plant and equipment (11 186) (17 813)
Proceeds from disposal of property, plant
and equipment 441 5 745
Increase in intangible assets (9 005) (9 758)
Proceeds from disposal of financial assets - 3 591
Proceeds from disposal of subsidiaries,
net of cash - 26 046
(19 750) 7 811
Cash flows from financing activities
Net (settlement of)/proceeds from non-current
Borrowings (237) 7 214
Net proceeds on disposal of treasury shares - 129
(237) 7 343
Net cash inflow/(outflow) for the year 39 795 (12 041)
Forex translation adjustments on cash and
cash equivalents 569 (2 459)
Cash and cash equivalents at the beginning
of the year (12 110) 2 390
Cash and cash equivalents at the end of the year 28 254 (12 110)
NOTES
FOR THE YEAR ENDED 31 DECEMBER 2009
1. Accounting policies and basis of preparation
The Group financial statements for the year ended 31 December 2009 are
prepared in accordance with International Financial Reporting Standards
(IFRS), IAS 34 Interim Financial Reporting, the South African Companies Act,
1973 and in compliance with the Listing Requirements of the JSE Limited.
These are the Group`s abridged consolidated financial statements for the year
for which annual financial statements have been prepared as stated above.
The principle accounting policies used in preparing the audited results for
the year ended 31 December 2009 are consistent with those applied in the
annual financial statements for the year ended 31 December 2008 in terms of
IFRS, except for the following changes:
-IFRS 8 - Operating Segments
-Annual Improvements to IFRSs
-IAS 1(R) - Presentation of Financial Statements
2. Reconciliation of earnings per share to headline earnings
per share (cents)
2009
Weighted average number
of shares in issue (000) 137 387
Continuing Discontinued
operations operations Total
Loss per share (12.3) (3.9) (16.2)
Reduction to profit on disposal
of the fleet and vehicle
management businesses - 3.6 3.6
Loss on disposal and scrapping of
property, plant and equipment 1.8 - 1.8
Impairment of intangible assets 0.2 - 0.2
Tax effect (0.5) - (0.5)
Headline loss per share (10.8) (0.3) (11.1)
2008
Weighted average number
of shares in issue (000) 137 891
Continuing Discontinued
operations operations Total
Loss per share (36.4) (18.5) (54.9)
Loss on disposal of the fleet and
vehicle management businesses - 8.9 8.9
Impairment of intangible assets 0.4 - 0.4
Impairment of property, plant and
equipment 1.2 - 1.2
Tax effect (0.4) 0.1 (0.3)
Headline loss per share (35.2) (9.5) (44.7)
3. Change in accounting estimate
Re-assessment of useful lives of trademarks
The useful life of the Gabriel trademark was re-assessed during 2009 as being
indefinite as there is no foreseeable limit to the period over which this
trademark is expected to generate net cash inflows for the Group. The market
share of this trademark and the duration of its existence support this
assessment. The Gabriel trademark is owned by the CI Automotive Gabriel
division.
The change in the estimated useful life of this trademark had the following
impact on this year`s financial results:
GROUP
2009
R 000
Increase in profit before tax 1 520
Increase in deferred income tax expense (426)
Net increase in profit for the year 1 094
4. Segmental information
Management has determined the operating segments based on the reports reviewed
by the Board of Directors and used by it to make strategic decisions. The
Group is organised on a worldwide basis in the following operating segments:
OEM Development and manufacture of electronic products for the
international OEM automotive, transportation, industrial and
defence markets.
Aftermarket The supply of premium branded products to the automotive
aftermarket in sub-Saharan Africa.
Head office Service supplier to the Group including treasury and
investment management.
The Board of Directors assesses the performance of the operating segments
based on a measure of normalised earnings before interest, tax, depreciation
and amortisation (normalised EBITDA). This measurement basis excludes the
effects of non-recurring expenditure from operating segments, such as
restructuring costs; write-down of inventories (exited and discontinued
product lines); and
impairments, which are a result of isolated, non-recurring events. The measure
also excludes the effects of equity-settled share-based payments; profits
and losses on disposal and scrapping of property, plant, equipment and
intangible assets; and the results of discontinued operations.
Segmental information for the year ended 31 December 2009
OEM After- Head Unallocated / Total
market Office eliminations
R 000 R 000 R 000 R 000 R 000
External revenue 386 225 454 179 - - 840 404
Inter-segment
revenue 1 582 - 27 406 (28 988) -
Total segment
revenue 387 807 454 179 27 406 (28 988) 840 404
Normalised EBITDA 12 382 21 209 13 884 (14 954) 32 521
Depreciation and
amortisation (15 914) (14 688) (284) - (30 886)
Finance income 4 518 6 569 1 514 (12 298) 303
Finance costs (9 582) (11 452) (23 268) 30 151 (14 151)
Share of profit
from joint ventures 148 - - - 148
Taxation 4 462 9 362 1 608 (629) 14 803
Total assets 298 904 350 135 354 968 (465 489) 538 518
Investments in
joint ventures 565 - - - 565
Segmental information for the year ended 31 December 2008
OEM After- Head Unallocated / Total
market Office eliminations
R 000 R 000 R 000 R 000 R 000
External revenue 563 668 450 561 - - 1 014 229
Inter-segment
revenue 9 030 - 34 444 (43 474) -
Total segment
revenue 572 698 450 561 34 444 (43 474) 1 014 229
Normalised
EBITDA 27 495 15 436 11 682 (25 466) 29 147
Depreciation and
amortisation (25 315) (14 920) (289) - (40 524)
Net finance income 4 313 6 030 2 295 (12 053) 585
Net finance costs (15 375) (12 854) (21 314) 33 300 (16 243)
Share of profit
from joint ventures 418 - - - 418
Taxation 813 4 683 (1 976) - 3 520
Total assets 320 523 358 612 373 645 (463 290) 589 490
Investments in
joint ventures 2 421 - - - 2 421
Inter-segment transfers or transactions are entered into under the normal
commercial terms and conditions that would also be available to unrelated
parties.
Segment assets consist primarily of property, plant and equipment, intangible
assets, inventories, trade and other receivables, deferred income tax assets,
available-for-sale financial assets, cash and cash equivalents, financial
assets at fair value through profit or loss, current income tax assets and
derivatives designated as hedges of future commercial transactions.
Reconciliation of normalised EBITDA to loss for the year from continuing
operations
GROUP
2009 2008
R 000 R 000
Normalised EBITDA 32 521 29 147
Depreciation and amortisation (30 886) (40 524)
Impairment of intangible assets and property, plant
and equipment (288) (2 131)
Write-down of inventories (14 551) -
Restructuring costs (2 264) (6 674)
Loss on disposal and scrapping of property, plant
and equipment (2 523) (7)
Loss (Dealstream) - (11 650)
Impairment of related party debtor - (6 614)
Operating loss (17 991) (38 453)
Net finance costs (13 848) (15 658)
Share of profit from joint ventures 148 418
Loss before taxation from continuing operations (31 691) (53 693)
Taxation 14 803 3 520
Loss for the year from continuing operations (16 888) (50 173)
5. Trade receivables securitisation
During 2010 the CIDF securitisation funding arrangement will be replaced by a
confidential debtors factoring facility. This will result in the HSBC Bank
debentures being repaid within twelve months after year-end. These debentures
have been reclassified as current liabilities in the 2009 financial statements
of the Group.
6. Contingent liability
The South African Revenue Service has claimed R12 million in respect of a
rebate store operated by Pi Shurlok (Pty) Limited. The Board does not believe
there is any substance to this claim and based on legal advice received the
matter will be defended.
7. Discontinued operations
GROUP
2009
R 000
Total loss from discontinued operations consists
of the following:
Costs incurred relating to discontinued operations (409)
Reduction to profit on disposal of the fleet and vehicle
management businesses (5 000)
Total loss from discontinued operations (5 409)
Fleet and vehicle management businesses sold to MiX Telematics Limited
With effect from 1 October 2007 the Group sold its fleet and vehicle
management businesses to MiX Telematics Limited ("MIX") in return for 50% of
the shares in MIX, being 320 000 000 shares. The Group unbundled 278 873 508
of these shares to Control Instruments` shareholders on 16 November 2007.
Shareholders received two MIX shares for every one share they held in Control
Instruments.
MIX was valued by an independent expert, giving a value of R2.05 per MIX
share.
A settlement agreement relating to the net working capital dispute was signed
with MIX during the year under review and a R5 million settlement has been
accounted for under discontinued operations.
Registered office: 28 Wiganthorpe Road, Willowton, Pietermaritzburg 3201
Directors: JPS O`Leary* (Irish, Chairman), R Friedman (Managing),
EPH Bieber*, SV Bromfield*, FE Giliomee (Financial), NCGN Preston (British),
SD Rogers, IH Scott-Gall* (British), A Watson*
* independent, non-executive
www.ci.co.za
Sponsor
Investec Bank Limited
23 March 2010
Date: 23/03/2010 08:33:02 Produced by the JSE SENS Department.
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