| Fri 12 Aug 2011, 17:00 | | CNL - Control Instruments Group Limited - Interim results for the six months |
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CNL
CNL
CNL - Control Instruments Group Limited - Interim results for the six months
ended 30 June 2011
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 Group" or "the Company")
INTERIM RESULTS for the six months ended 30 June 2011
OVERVIEW
The results for the six months ended 30 June 2011 are disappointing and below
our expectations. In March 2011 when writing the report for the annual results,
the Group`s Aftermarket business, CI Automotive, was in line for a very good
first quarter and the order book for development projects and other
opportunities in the OEM business, Pi Shurlok, was full. The future looked
promising.
This position reversed dramatically in the second quarter. The abnormally large
number of public holidays in April 2011 and the knock-on effects of the lost
days had a major negative effect on the Group`s South African operations. This
was compounded by increases in underlying costs, such as electricity and wages,
over which the Group has limited direct control. Our OEM business in particular
was affected by a number of other factors. These are dealt with more fully
below.
Despite an increase in revenue of 7.9% from R418.2 million to R451.2 million for
the six months ended 30 June 2011 and a 6.3% increase in gross profit from
R118.7 million to R126.2 million, a 10.1% increase in expenses resulted in an
operating loss of R3.6 million, compared with an operating profit of R2.8
million for the same period in the previous year. The net loss after tax
increased from a loss of R1.7 million to a loss of R7.3 million.
AFTERMARKET
Revenue increased 5.6% to R230.7 million. Normalised EBITDA decreased 5.6% to
R23.2 million mainly as a result of an increase in expenses, particularly
advertising and marketing to support future sales growth. A number of these
expenses were authorised based on the performance in the first quarter and are
aimed at solidifying the gains made by the business over the past 24 months.
CI Automotive has been working on a number of initiatives to improve its
performance metrics and levels of customer service, which should give it an
increased competitive advantage in the longer term. While the second quarter
turned out to be more difficult than expected, we are satisfied that the
business has maintained its market share in its key product categories.
The business has built up a strong management team and a lean structure. This
should ensure that it is well placed to cope with changes in its market and with
the slowdown in the economy.
The Aftermarket business sells premium quality products with strong brand
identities for which the Group either owns or has exclusive distribution rights
to the brand names. These include Gabriel (shock absorbers), VDO
(instrumentation products), Echlin (ignition, fuel, cooling and switch
products), Autocom (steering and suspension components), Acsa-Mag (auto
electrical products), Mag Brakes (heavy-duty airbrake parts and hydraulic
cylinders), Shurlok (alarms and immobilisers) and Warn (off-road accessories and
winches).
OEM
The OEM business also had an increase in revenue, by 10.6% to R221.6 million,
but a drop in normalised EBITDA from a profit of R3.7 million to a loss of R1.1
million. The poor results are mainly attributable to the OEM business`
electronics manufacturing operation in South Africa. This was particularly
disappointing as it operated at high turnover and unit production levels during
the period.
The poor financial performance of the electronics manufacturing operation is the
result of a number of factors. These include a sub-optimal mix of business
caused by certain production runs ending; deteriorating margins; and increasing
costs, which include costs over which the business has little or no control and
the upfront costs involved in preparing for the production of new products. In
addition, manufacturing operations in general do not run efficiently when
subjected to disruptions and interruptions. The high number of public holidays
in April caused severe disruptions to our manufacturing operation and component
shortages, as a result of the tsunami in Japan in March 2011, exacerbated an
already tight component supply chain resulting in numerous production delays as
well as significant additional transport and costs.
We are taking aggressive steps to counteract the effects of the business mix and
to improve the margins. Some success in renegotiating more acceptable margins
has already been achieved. Where it has not been possible to negotiate
acceptable levels of profitability based on better margins and optimal order
quantities, active steps are being taken to exit the production programmes
concerned.
Our OEM business is still not operating at a level that allows it to absorb any
volatility in market demand or input costs for products. We are therefore
reviewing the cost base of the business, specifically the costs required to
support potential future growth and expansion, versus what is required to
support current business. This is particularly relevant as the current outlook
for new development projects has dropped since March to the lowest level it has
been for the past two years. It is clear that Pi Shurlok`s customers are taking
a conservative approach to the slowdown. They are pushing out delivery dates and
reducing their forecasted volumes for future production programmes.
PROSPECTS
The Group`s performance in the second quarter of the year is in sobering
contrast to the optimism we felt in the first quarter. We believe it reflects
the stark economic position that is emerging both internationally and in South
Africa.
In our opinion South Africa continues to lose its ability to remain a
competitive manufacturing country. Our OEM electronics manufacturing operation
is facing rapidly rising input costs, such as electricity and labour, without
the ability to generate proportional increases in productivity. In addition, the
new Automotive Production and Development Programme (APDP), which will replace
the Motor Industry Development Programme (MIDP), does not in many cases favour
small independent suppliers of automotive components, particularly electronics.
The second half of the year is going to remain difficult. We are expecting the
slowdown in world economies to continue and consumer spending in South Africa
and abroad to decrease further. The OEM business remains a work-in-progress and
its realignment is aimed at meeting the new market dynamics. Our Aftermarket
business is well positioned in its space and should continue to generate profits
and cash.
On behalf of the Board
JPS O`LEARY R FRIEDMAN
Chairman Group CEO and Managing Director
12 August 2011
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
This interim report has been prepared in accordance with IAS 34 - Interim
Financial Reporting under the supervision of the Group Financial Director,
FE Giliomee (CA)SA; the requirements of the South African Companies Act, No. 71
of 2008; and in compliance with the Listings Requirements of the JSE Limited.
The accounting policies used are consistent with those applied in the financial
statements for the year ended 31 December 2010 and IFRS.
CONSOLIDATED INCOME STATEMENT
Six months Six months Year
ended ended ended
30/06/11 30/06/10 31/12/10
Unaudited Unaudited Audited
R 000 R 000 R 000
Revenue 451 197 418 189 906 123
Cost of sales (325 013) (299 441) (659 239)
Gross profit 126 184 118 748 246 884
Other operating income 2 580 4 323 10 173
Marketing and selling expenses (22 990) (16 655) (40 365)
Administrative expenses (44 636) (44 163) (78 996)
Other operating expenses (64 756) (59 445) (124 957)
Operating profit/(loss) (3 618) 2 808 12 739
Finance income - 4 -
Finance costs (5 487) (5 690) (11 295)
Share of profit from joint ventures 244 309 415
Profit/(loss) before taxation (8 861) (2 569) 1 859
Taxation 1 582 833 355
Profit/(loss) for the period (7 279) (1 736) 2 214
Attributable to:
Owners of the parent (7 279) (1 736) 2 214
Non-controlling interests - - -
(7 279) (1 736) 2 214
Net number of shares issued (000)
Total shares in issue (excluding
treasury shares) 137 587 137 387 137 387
Weighted average number of shares in
issue 137 394 137 387 137 387
Adjustment for share options - - -
Weighted average number of shares for
diluted earnings per share 137 394 137 387 137 387
Profit/(loss) per share (cents) (5.30) (1.26) 1.61
Diluted profit/(loss) per share (cents) (5.30) (1.26) 1.61
Calculation of headline profit/(loss)
Net profit/(loss) after tax for the
period (7 279) (1 736) 2 214
(Profit)/loss on disposal and
scrapping of property, plant and
equipment (11) 104 3
Impairment of property, plant and
equipment - - 222
Loss on disposal of financial assets
available-for-sale 816 - -
Tax on the above 2 (15) (63)
Headline profit/(loss) (6 472) (1 647) 2 376
Headline profit/(loss) per share
(cents) (4.71) (1.20) 1.73
Diluted headline profit/(loss) per
share (cents) (4.71) (1.20) 1.73
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year
ended ended ended
30/06/11 30/06/10 31/12/10
Unaudited Unaudited Audited
R 000 R 000 R 000
Profit/(loss) for the period (7 279) (1 736) 2 214
Other comprehensive (loss)/income for
the period, net of tax 4 547 (72) (5 905)
Fair value adjustment on
available-for-sale assets, net of tax 318 72 120
Cash flow hedges, net of tax 799 1 306 694
Foreign currency translation reserve,
net of tax 3 430 (1 450) (6 719)
Total comprehensive loss for the period (2 732) (1 808) (3 691)
Attributable to:
Owners of the parent (2 732) (1 808) (3 691)
Non-controlling interests - - -
(2 732) (1 808) (3 691)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30/06/11 30/06/10 31/12/10
Unaudited Unaudited Audited
R 000 R 000 R 000
ASSETS
Non-current assets 280 888 284 414 280 636
Property, plant and equipment 120 072 123 466 123 621
Intangible assets 124 051 128 518 123 381
Investments in joint ventures 1 224 874 980
Available-for-sale financial assets 270 720 768
Deferred income tax assets 35 271 30 836 31 886
Current assets 306 026 291 052 274 131
Inventories 150 706 153 586 136 594
Trade and other receivables 150 892 132 850 92 322
Derivative financial instruments 1 64 -
Financial assets at fair value through
profit or loss 171 152 162
Current income tax assets - 42 3
Cash and cash equivalents 4 256 4 358 45 050
Total assets 586 914 575 466 554 767
EQUITY AND LIABILITIES
Capital and reserves 290 400 293 693 291 992
Share capital 6 972 6 972 6 972
Share premium 396 996 396 996 396 996
Treasury shares (2 813) (3 117) (3 117)
Foreign currency translation reserve (15 671) (13 832) (19 101)
Other reserves 711 (213) (595)
Accumulated loss (95 795) (93 113) (89 163)
Non-current liabilities 39 346 39 088 39 680
Borrowings 9 888 10 699 11 064
Deferred income tax liabilities 25 844 23 542 26 296
Provisions 3 614 4 847 2 320
Current liabilities 257 168 242 685 223 095
Trade and other payables 165 315 150 692 136 477
Current income tax liabilities 2 877 2 683 503
Derivative financial instruments 303 845 1 411
Borrowings 85 109 85 839 79 567
Provisions 3 564 2 626 5 137
Total equity and liabilities 586 914 575 466 554 767
Net asset value per share (cents) 211 214 213
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months Year
ended ended ended
30/06/11 30/06/10 31/12/10
Unaudited Unaudited Audited
R 000 R 000 R 000
Net cash generated from/(utilised in)
operating activities (37 190) (24 616) 34 484
Net cash utilised in investing
activities (7 875) (11 134) (25 342)
Net cash generated from financing
activities 206 103 3 796
Net cash inflow/(outflow) for
the period (44 859) (35 647) 12 938
Forex translation adjustments on
cash and cash equivalents (274) 95 506
Cash and cash equivalents at the
beginning of the period 41 698 28 254 28 254
Cash and cash equivalents at the
end of the period (3 435) (7 298) 41 698
SEGMENTAL REVIEW
Primary reporting format - operating segments
At 30 June 2011, the Group is organised on a worldwide basis into the following
operating segments:
OEM: Development and manufacture of electronic products for
the international OEM automotive, transportation 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.
OEM Aftermarket Head office
R 000 R 000 R 000
For the six months ended 30 June 2011
(Unaudited)
External revenue 220 457 230 740 -
Inter-segment revenue 1 154 - 6 840
Total segment revenue 221 611 230 740 6 840
Normalised EBITDA (1 116) 23 243 (9 536)
For the six months ended 30 June 2010
(Unaudited)
External revenue 199 740 218 449 -
Inter-segment revenue 621 - 10 214
Total segment revenue 200 361 218 449 10 214
Normalised EBITDA 3 697 24 612 (6 998)
For the year ended 31 December 2010
(Audited)
External revenue 433 188 472 935 -
Inter-segment revenue 3 478 - 19 314
Total segment revenue 436 666 472 935 19 314
Normalised EBITDA 7 911 53 153 (16 734)
Unallocated/
eliminations Total
R 000 R 000
For the six months ended 30 June 2011
(Unaudited)
External revenue - 451 197
Inter-segment revenue (7 994) -
Total segment revenue (7 994) 451 197
Normalised EBITDA (1 391) 11 200
For the six months ended 30 June 2010
(Unaudited)
External revenue - 418 189
Inter-segment revenue (10 835) -
Total segment revenue (10 835) 418 189
Normalised EBITDA (3 340) 17 971
For the year ended 31 December 2010
(Audited)
External revenue - 906 123
Inter-segment revenue (22 792) -
Total segment revenue (22 792) 906 123
Normalised EBITDA (1 357) 42 973
Note: Head office revenue and EBITDA figures for 2010 include interest income
from the Group`s trade receivables securitisation funding arrangement.
Reconciliation of normalised EBITDA to operating profit/(loss)
Six months Six months Year
ended ended ended
30/06/11 30/06/10 31/12/10
Unaudited Unaudited Audited
R 000 R 000 R 000
Normalised EBITDA 11 200 17 971 42 973
Depreciation and amortisation (13 273) (15 003) (29 771)
Impairment of intangible assets and
property, plant and equipment - - (222)
Profit/(loss) on disposal and scrapping
of property, plant and equipment 11 (104) (3)
Loss on disposal of financial assets
available-for-sale (816) - -
Share-based payments expense (740) (56) (238)
Operating profit/(loss) (3 618) 2 808 12 739
Note: For a reconciliation of operating profit/(loss) to total profit/(loss)
before taxation refer to the "Consolidated Income Statement".
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign
currency
Share Share Treasury translation
capital premium shares reserve
R 000 R 000 R 000 R 000
Balance at 1 January 2010
(Audited) 6 972 396 996 (3 117) (12 382)
Transactions with owners
Employee share option
scheme
Value of services provided
Total comprehensive income/
(loss) for the period (1 450)
Balance at 30 June 2010
(Unaudited) 6 972 396 996 (3 117) (13 832)
Transactions with owners
Employee share option
scheme
Value of services provided
Total comprehensive income/
(loss) for the period (5 269)
Balance at 31 December 2010
(Audited) 6 972 396 996 (3 117) (19 101)
Movement of treasury
shares 304
Transactions with owners
Employee share option
scheme
Value of services provided
Transferred to
accumulated loss
Total comprehensive
income/(loss) for the period 3 430
Balance at 30 June 2011
(Unaudited) 6 972 396 996 (2 813) (15 671)
Other Accumu-
reserves lated loss Total
R 000 R 000 R 000
Balance at 1 January 2010
(Audited) (1 647) (91 377) 295 445
Transactions with owners
Employee share option scheme
Value of services provided 56 56
Total comprehensive income/
(loss) for the period 1 378 (1 736) (1 808)
Balance at 30 June 2010
(Unaudited) (213) (93 113) 293 693
Transactions with owners
Employee share option scheme
Value of services provided 182 182
Total comprehensive income/
(loss) for the period (564) 3 950 (1 883)
Balance at 31 December 2010
(Audited) (595) (89 163) 291 992
Movement of treasury
shares 96 400
Transactions with owners
Employee share option scheme
Value of services provided 740 740
Transferred to
accumulated loss (551) 551 -
Total comprehensive
income/(loss) for the period 1 117 (7 279) (2 732)
Balance at 30 June 2011
(Unaudited) 711 (95 795) 290 400
Registered office: 28 Wiganthorpe Road, Willowton, Pietermaritzburg 3201
Directors: JPS O`Leary* (Irish, Chairman), R Friedman (Managing Director),
SV Bromfield*, FE Giliomee (Financial Director), SD Rogers,
IH Scott-Gall* (British), PM Surgey*, Prof. A Watson*
* independent, non-executive
Company Secretary: JC Jeffery
Sponsor: Investec Bank Limited
www.ci.co.za
Date: 12/08/2011 17:00:01 Produced by the JSE SENS Department.
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