| Tue 4 Oct 2011, 15:24 | | CNL - Control Instruments Group Limited - Placement of Pi Shurlok in the |
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CNL
CNL
CNL - Control Instruments Group Limited - Placement of Pi Shurlok in the
United Kingdom under administration
(Incorporated in the Republic of South Africa)
(Registration number: 1964/003987/06)
JSE Share Code: CNL
ISIN: ZAE000001665
("Control Instruments" or "the Group")
PLACEMENT OF Pi SHURLOK IN THE UNITED KINGDOM UNDER ADMINISTRATION
Shareholders are advised that the board of directors of Control
Instruments has decided that the Group will no longer provide financial
support to Pi Shurlok Limited ("Pi Shurlok UK"), a subsidiary of the
Group based in the United Kingdom. The result of this decision is that Pi
Shurlok UK will not have the funding it requires to continue trading and
its directors have therefore had no alternative but to place Pi Shurlok
UK under administration.
Notice of intention to place Pi Shurlok UK in administration was filed on
Monday, 3 October 2011. It is expected that the administrator will be
appointed within the next 24 hours.
BACKGROUND
Control Instruments` subsidiaries operate in two distinct sectors of the
automotive industry - (i) the automotive aftermarket in sub-Saharan
Africa through Control Instruments Automotive (Proprietary) Limited ("CI
Automotive") and (ii) the international original equipment manufacture
(OEM) market, through the Pi Shurlok companies, which are based in the
UK, the USA and South Africa.
The Aftermarket business has gone from strength to strength over the past
three years. It is profitable and generates cash. It reported revenue of
R472.9 million and normalised EBITDA of R53.2 million for the year ended
31 December 2010 and revenue of R230.7 million and normalised EBITDA of
R23.2 million for the six months ended 30 June 2011.
On the other hand, the results of the OEM businesses have been extremely
disappointing for the past few years. These businesses have not fully
recovered from the effects of the global meltdown in the automotive
industry in late 2007 and 2008. The OEM businesses reported revenue of
R436.7 million and normalised EBITDA of R7.9 million for the year ended
31 December 2010 and revenue of R221.6 million and a loss at normalised
EBITDA level of R1.1 million for the six months ended 30 June 2011.
Pi SHURLOK UK
During the past 18 months, Pi Shurlok UK has received financial support
from the Group as and when its available funding was insufficient to meet
its requirements. This enabled Pi Shurlok UK to continue the development
of the core OpenECU technology during a period in which it was
transitioning from providing purely engineering support services to
becoming the central point for the development and sale of OpenECU based
products.
A review of Pi Shurlok UK in August and again in September 2011 indicated
that there had been a rapid and material deterioration in its future
prospects. Given the lead times involved in this business it is unlikely
that any improvement in these prospects can be expected within a
reasonable period of time. This would have resulted in Pi Shurlok UK
requiring a level of financial support significantly over and above the
amounts planned for, with no firm endpoint in sight.
The Board of Control Instruments therefore decided that it is no longer
viable or prudent for the Group to continue to provide financial support
to Pi hurlok UK.
In reaching this decision the Board considered a number of other factors,
including:
(i) A reorganisation and substantial reduction in the cost base of Pi
Shurlok UK. The costs and timeline involved in achieving this make
it unaffordable for the Group. In addition there is the risk that
key staff would leave during the process and the business would not
have the skills or critical mass required to continue operating.
(ii) The difficulties and timelines associated with a sale of Pi Shurlok
UK, as well as the fact that the Group would not be prepared to give
warranties and indemnities to any prospective purchaser of the
business.
(iii)Shifting customer programme timetables and reductions in volumes,
coupled with the unwillingness of customers to make firm future
commitments.
(iv) The current global economic environment, particularly in Pi Shurlok
UK`s major markets, being the UK and Europe.
(v) The possible knock-on effects of a continuing downturn in the world
economy and the difficulty the Group would have in raising capital,
if required, in this environment.
(vi) The risk that the Group could be faced with the prospect of
providing ever-increasing financial support to Pi Shurlok UK in the
general environment outlined above.
Given Pi Shurlok UK`s financial outlook, without ongoing financial
support from the Group, the directors of Pi Shurlok UK had no alternative
but to place Pi Shurlok UK under administration. They filed notice of
intention to place Pi Shurlok UK in administration on Monday, 3 October
2011 and it is expected that the administrator will be appointed within
the next 24 hours.
FINANCIAL IMPACT ON THE GROUP
The most important outcome of the decision by the Group`s Board to cease
financial support to Pi Shurlok UK is that it stops the current and the
potential future drain on the Group`s cash resources.
The following information is based on the interim results for the six
months ended 30 June 2011 and is provided for illustrative purposes. It
has not been reviewed or reported on by the Group`s auditors and is the
responsibility of the board of directors of Control Instruments.
Before After Change
placing Pi placing Pi
Shurlok UK Shurlok UK (cents)
under under
administrat administrat
ion ion
Basic loss per share (cents) 5.3(1) 65.0(2) (59.70)
Headline earnings per share 4.71(1) 4.71(3) 0.00
(cents)
Net asset value per share (cents) 211(1) 164(4) (47.00)
2
Number of ordinary shares in 137 587(1) 137 587(1)
issue (000)
Weighted average number of 137 394(1) 137 394(1)
ordinary shares in issue (000)
Notes
1. As disclosed in the 30 June 2011 interim results
2. Reported interim loss plus recognition of loss assuming net
investment fully written off, divided by the weighted average number
of shares
3. No change to headline earnings per share as any write down of the
net investment would be excluded from headline earnings
4. Reported net asset value less adjustment from writing off net
investment, divided by the number of ordinary shares in issue
The Group purchased the Pi Shurlok UK business in December 2006 for R73
million. Subsequently the Group has shared in post-acquisition losses of
approximately R20 million and advanced loans of approximately R25
million.
If the net investment by the Group had been fully written off in the
interim results for the six months ended 30 June 2011 it would have
resulted in a reduction of approximately R65 million in net asset value
and approximately R82 million in profits after allowing for the
realisation of accumulated foreign currency gains and losses.
Any potential recoveries by the Group have been ignored.
The final figures will depend on the date on which Pi Shurlok UK is moved
out of administration, either by way of a sale of its assets or final
liquidation, and the prevailing rate of exchange rate at that time.
Pi Shurlok LLC, in the USA ("Pi Shurlok USA"), is currently solvent and
trading profitably. It is however a subsidiary of Pi Shurlok UK and
therefore effectively falls under the control of the administrator of Pi
Shurlok UK. Pi Shurlok USA was comprehensively reorganised in August 2011
and its overhead base was reduced.
Pi Shurlok (Proprietary) Limited ("Pi Shurlok SA") is based in
Pietermaritzburg and is a subsidiary of Control Instruments. It is
therefore not directly affected by the decision to place Pi Shurlok UK
under administration. Pi Shurlok SA is in the process of rationalising
its product base to ensure that its business is profitable and cash
positive. Its core customers have been fully consulted during this
process.
Pi Shurlok Engineering (Proprietary) Limited is a subsidiary of Pi
Shurlok SA and incorporates the Group`s plastics manufacturing facility
in Port Elizabeth. It is not affected by the decision to place Pi Shurlok
UK under administration in any way whatsoever.
The Group`s aftermarket business, CI Automotive, is also not affected in
any way whatsoever.
GOING FORWARD
Going forward the Group will comprise CI Automotive, which is focused on
the automotive aftermarket in sub-Saharan Africa and Pi Shurlok SA, which
is focused on manufacturing opportunities that meet the Group`s profit
expectations.
Shareholders will be updated as and when further information is
available.
Cape Town
4 October 2011
Sponsor
Investec Bank Limited
Date: 04/10/2011 15:24:01 Produced by the JSE SENS Department.
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