| Mon 19 Mar 2007, 15:33 | | CNL - Control Instruments Group Limited - Reviewed |
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CNL
CNL
CNL - Control Instruments Group Limited - Reviewed Provisional Results
For The Year Ended 31 December 2006
Control Instruments Group Limited
(Incorporated in the Republic of South Africa)
Registration number: 1964/003987/06
Share code: CNL & ISIN: ZAE000001665
Registered office: 9 Electron Street, Linbro Business Park, Sandton 2196
Directors: JPS O`Leary (Irish, Chairman)*, R Friedman (Managing), EPH Bieber*,
SR Bruyns*, TE Buzer, RB Forrester, RJ Fraenkel, HV Hefer* * independent,
non-executive
Reviewed provisional results for the year ended 31 December 2006
OVERVIEW
The results for the year ended 31 December 2006 reflect that Control
Instruments is well on the way to achieving the strategic goals it set
two years ago.
By 2004 it became clear that fundamental changes, driven primarily by
globalisation, were taking place in the local and international automotive
markets in which the Group operates. The Group responded by implementing a
strategy to rapidly increase the critical mass of each of its businesses;
become a global player in its chosen niche markets; and increase the level
of development expenditure.
To achieve these objectives, Control Instruments made a number of
acquisitions (detailed below) during 2005 and 2006. These acquisitions were
identified at the start of the process. The board believed they were
exceptional opportunities that would not arise again and therefore the risk
and possible short-term disruptions that could arise out of this extensive
expansion in a short period of time were justified. The high level of change
has resulted in a challenging period for the Group`s management and staff.
The primary focus in 2006 was to maintain the momentum of each business and
to service their customers. This was achieved. During 2007 the focus will
be on the integration of the acquisitions and working capital and expense
management.
Acquisitions made during 2005
Business of Autocom
- Distributor of aftermarket components for the automotive industry in
Southern Africa, based in Johannesburg;
- Acquired in January 2005 for R9.5 million.
Dana South Africa (Pty) Limited
- Distributor of aftermarket components for the automotive industry in
Southern Africa, based in Johannesburg;
- Acquired with effect from 1 October 2005 for R120 million.
Acquisitions made during 2006
Tripmaster
- Supplier of fleet management products based in Dallas, USA;
- 51% of the shares acquired with effect from 1 March 2006 for R23 million;
- Purchase agreement includes put and call options in respect of the
remaining shares over a three year period.
Business of Sagercy Group
- Manufacturer of plastic products for the automotive industry, based in
Port Elizabeth;
- Acquired with effect from 1 March 2006 for R111 million.
Business of Gabriel South Africa
- Manufacturer and distributor of ride control products (shock absorbers,
struts and gas springs) to the automotive industry in sub-Saharan Africa;
- Acquired with effect from 5 September 2006 for R85 million.
Business of Pi Technology
- Electronic design consultancy providing services to the international
automotive industry;
- Offices in the United Kingdom, Germany and Detroit, USA;
- Acquired with effect from 1 December 2006 for R72 million.
BUSINESS
While the Group`s operations remain focused on supplying niche sectors of
the worldwide automotive and transportation industries, the R420 million
spent on acquisitions over the past two years has dramatically changed the
nature and size of the Group.
Besides its South African offices, the Group now has offices in the UK
(Cambridge), USA (Dallas and Detroit) and Germany. In addition to its
world-class design and manufacturing facilities in Pietermaritzburg,
the Group also has manufacturing operations in Port Elizabeth, Cape Town
and Johannesburg. The number of employees has grown from 570 at the end
of 2004 to 1 950 at the end of 2006.
Following the growth and changes, the Group operates in two distinct areas -
(i) fleet and vehicle management products and systems, and (ii) automotive
components and products.
Fleet and vehicle management products and systems
The Fleet Management business performed extremely well with its onboard
computers (OBCs) being sold on every continent in more than 43 countries
around the world. Sales of OBCs increased 38% to 31 500 units sold during
2006, with the largest increase coming from the international markets.
Annuity based revenue derived from the bureau service, introduced in the
first half of 2004, more than doubled during the year and now makes a
meaningful contribution to profitability. Tripmaster in the United States
achieved its budgeted results.
The Fleet Management business is expected to continue to show strong growth
and it is actively seeking further opportunities to expand internationally.
Automotive components and products
The Automotive Aftermarket business has expanded significantly and will
continue to do so as a result of the acquisition of Gabriel South Africa.
This business now sells a comprehensive basket of high quality branded
replacement parts into a rapidly growing market place.
Control Instruments has repositioned itself during the past eighteen months
to face the challenges in the OEM market. Changes taking place in this
market relate to global cost pressures and local manufacturers being fully
integrated into the worldwide operations of their various parent companies.
The acquisition of the business of Pi Technology will give the Group a
significant "front end" into the specialised niche markets in the UK,
Germany and the USA. The first orders resulting from the combined business
have already been won and provided the strategy continues to be successful,
it will result in sustainable and meaningful export opportunities.
RESULTS
Revenue increased 95% from R395 million to R772 million. This increase
indicates the growth in the Group, but does not include the full impact of
the acquisitions as only ten months of Tripmaster and Sagercy; three full
months of Gabriel; and one month of Pi Technology were applicable for the
year ended 31 December 2006.
IFRS
Gross profit increased 61%, from R162 million to R261 million.
Operating profit increased 171% from R30 million to R81 million.
Profit before tax increased 151% to R64 million and profit for the year
was up 174% to R57 million.
Earnings per share increased 105% to 60.8 cents and headline earnings
per share decreased 102% to a loss of 0.7 cents. The major reason for this
disparity is the IFRS requirement with respect to accounting for negative
goodwill.
Normalised earnings (unaudited)
The core metrics the Group uses in managing its businesses are turnover,
operating profit and profit after interest, but before certain IFRS
adjustments, once off items and tax. It is the opinion of the directors
that certain of the requirements of IFRS distort the results from a
business perspective. A normalised income statement for the twelve months
ended 31 December 2006 is therefore presented separately.
Normalised earnings exclude the negative goodwill of R60 million that was
raised primarily on the acquisition of Gabriel because it is a non-recurring
adjustment made in terms of IFRS. Normalised earnings also exclude
amortisation of intangible assets raised on the acquisitions of R13 million
and restructuring expenses of approximately R7 million that relate directly
to the acquisitions.
On a normalised basis, operating profit increased by 57% from R36 million
to R57 million and profit before tax increased 29% from R29 million to
R38 million.
Normalised earnings per share decreased 4% to 40.3 cents. This is mainly
due to the increase in the number shares in issue and the fact that the
acquisitions of Gabriel and Pi Technology made a lower than expected
contribution in the short period that they were part of the Group.
Net asset value per share increased 67% from R2.09 to R3.49.
SHARE CAPITAL
In February 2006 the directors authorised the issue of 16 667 000
Control Instruments ordinary shares, with a par value of five cents each,
at a price of R6.00 per share in a vendor placement with selected
institutions to settle the purchase consideration of R100 million for the
business of Sagercy.
On 23 June 2006 Control Instruments cancelled and delisted 8 148 672
ordinary shares with a par value of five cents each. These shares were
bought back by a subsidiary company (Control Instruments Management
Services (Pty) Limited) during the period January 2003 to September 2004.
4 400 000 ordinary shares, with a par value of five cents each, were issued
at a price of R5.55 per share in a private placement to public shareholders
in December 2006. This was in terms of the general authority to issue
shares for cash granted to directors at the Company`s annual general
meeting held on 2 May 2006. The shares were issued at a 1.1% premium to
the Control Instruments 30-day volume weighted average traded price,
calculated on 30 November 2006.
AUDIT OPINION
PricewaterhouseCoopers Incorporated`s unmodified review report on the
condensed financial statements contained in this provisional report is
available for inspection at the Company`s registered office.
PROSPECTS
The Group continues to operate in niche sectors of global markets and is
therefore subject to local and international disruptions that are not
under its control. Nevertheless, the recent acquisitions and increased
focus on expense and working capital management should have a positive
effect from 2007.
The board of directors continues to look for ways to enhance shareholder
value. Although the strategy initiated at the end of 2004 has resulted
in a re-rating of the Group`s share price, the directors are of the
opinion that there is further underlying value in the Group. They are
therefore reviewing a number of options in this regard.
CAUTIONARY ANNOUNCEMENT
The Group is currently under cautionary and hopes to be able to make an
announcement in this regard in early May 2007. Until a further announcement is
made shareholders must exercise caution when dealing in the Company`s
securities.
DIVIDEND
It is the board`s intention to declare a final dividend in respect of the
year ended 31 December 2006 in early May 2007.
On behalf of the board
JPS O`Leary R Friedman
Chairman Managing Director 19 March 2007
Normalised consolidated income statements
for the year ended 31 December 2006
Year Year
ended ended
31/12/06 31/12/05
Unaudited Unaudited
R 000 R 000
Revenue 772 155 395 060
Cost of sales (499 449) (233 168)
Normalised gross profit 272 706 161 892
Other operating income 26 573 11 693
Interest income - 845
Administrative expenses (111 889) (79 252)
Marketing and selling expenses (41 779) (18 704)
Other operating expenses (91 706) (43 955)
Profit from joint ventures before tax 3 144 3 938
Normalised operating profit 57 049 36 457
Finance costs (19 498) (7 357)
Normalised profit before tax 37 551 29 100
Weighted average number of shares in issue (000) 93 247 69 687
Normalised earnings per share before tax (cents) 40.27 41.76
Normalised earnings per share before interest and
tax (cents) 61.18 52.32
Reconciliation between profit before tax and
normalised profit before tax
Profit before tax 63 804 25 455
IFRS 3: Business Combinations - Negative goodwill (59 540) (3 098)
IFRS 3: Business Combinations - Amortisation of
intangible assets created on acquisition 12 930 215
IFRS 2: Share-based Payment - Share option expense 4 904 3 751
IAS 39 (amendment): Fair Value Option - Impairment
of "available-for-sale" financial asset 3 208 1 604
Restructuring and once off costs 7 328 -
Unrealised exchange loss on Tripmaster purchase price 3 712 -
Tax on profit from joint venture 1 205 1 173
Normalised profit before tax 37 551 29 100
Variance 6 months
ended
30/06/06
Unaudited
% R 000
Revenue 95.5 333 595
Cost of sales 114.2 (203 874)
Normalised gross profit 68.4 129 721
Other operating income 127.3 7 282
Interest income - 80
Administrative expenses 41.2 (56 698)
Marketing and selling expenses 123.4 (17 872)
Other operating expenses 108.6 (30 123)
Profit from joint ventures before tax (20.2) 2 710
Normalised operating profit 56.5 35 100
Finance costs 165.0 (7 462)
Normalised profit before tax 29.0 27 638
Weighted average number of shares in issue (000) 33.8 90 190
Normalised earnings per share before tax (cents) (3.6) 30.64
Normalised earnings per share before interest and
tax (cents) 16.9 38.92
Reconciliation between profit before tax and
normalised profit
before tax Profit before tax 37 864
IFRS 3: Business Combinations - Negative goodwill (14 213)
IFRS 3: Business Combinations - Amortisation of
intangible assets
created on acquisition 326
IFRS 2: Share-based Payment - Share option expense 2 661
IAS 39 (amendment): Fair Value Option - Impairment of
"available-for-sale" financial asset -
Restructuring and once off costs -
Unrealised exchange loss on Tripmaster purchase price -
Tax on profit from joint venture 1 000
Normalised profit before tax 27 638
Consolidated income statements
for the year ended 31 December 2006
Group Group
31/12/06 31/12/05
Reviewed Audited
R 000 R 000
Revenue 772 155 395 060
Cost of sales (511 470) (233 168)
Gross profit 260 685 161 892
Other operating income 86 113 14 791
Interest income - 845
Other operating expenses (96 327) (45 559)
Administrative expenses (127 329) (83 036)
Marketing and selling expenses (41 779) (18 886)
Operating profit 81 363 30 047
Finance costs (19 498) (7 357)
Net profit from joint ventures 1 939 2 765
Profit before tax 63 804 25 455
Tax (7 085) (4 737)
Profit for the year 56 719 20 718
Additional information
Total shares in issue (excluding treasury
shares) (000) 100 434 78 956
Weighted average number of shares in issue (000) 93 247 69 687
Adjustment for share options (000) 6 374 5 173
Weighted average number of shares for diluted
earnings per share (000) 99 621 74 860
Earnings per share (cents)
- basic 60.8 29.7
- diluted 56.9 27.7
- headline (loss)/earnings (0.7) 28.3
Dividends per share (cents) 7.5 6.0
Reconciliation of EPS to Headline EPS (cents)
EPS 60.8 29.7
Profit on disposal of property, plant and equipment (1.3) (0.1)
Profit on disposal of joint venture - (0.3)
Negative goodwill on acquisitions (63.9) (4.5)
Impairment of "available-for-sale" financial
assets 3.4 2.3
Impairment of development costs 0.3 1.2
(0.7) 28.3
Consolidated balance sheets
at 31 December 2006
Group Group
31/12/06 31/12/05
Reviewed Audited
R 000 R 000
ASSETS
Non-current assets 510 557 193 179
Property, plant and equipment 229 747 124 831
Intangible assets 273 273 57 727
Investments in joint ventures 2 177 2 765
Financial assets - 3 208
Non-current receivables 366 -
Deferred tax assets 4 994 4 648
Current assets 403 602 175 792
Inventories 176 656 84 846
Trade and other receivables 212 888 90 702
South African Revenue Services 5 676 -
Cash and bank balances 8 382 244
Total assets 914 159 368 971
EQUITY AND LIABILITIES
Capital and reserves 350 231 165 027
Share capital 5 472 4 826
Share premium 221 066 97 886
Treasury shares (10 282) (20 692)
Fair value and other reserves 17 933 7 564
Retained earnings 116 042 75 443
Non-current liabilities 300 072 111 853
Borrowings 221 764 96 065
Retirement benefit obligations 600 600
Deferred tax liabilities 77 142 14 356
Provisions 566 832
Current liabilities 263 856 92 091
Trade and other payables 154 748 65 108
South African Revenue Services 3 037 213
Derivative financial liabilities 466 599
Borrowings 93 842 24 095
Provisions 11 763 2 076
Total equity and liabilities 914 159 368 971
Net asset value per share (cents) 349 209
Consolidated statements of changes in equity
for the year ended 31 December 2006
Share Share Treasury
capital premium shares
R 000 R 000 R 000
GROUP
Balance at 1 January 2005 4 213 43 591 (22 658)
As previously reported 4 213 43 591 (22 658)
Change in accounting policy
Net losses not recognised in the
income statement
- Cash flow hedges, net of tax
Impairment of "available-for-sale"
financial asset
Profit for the year
Employee share option scheme:
- Value of services provided
Movement of treasury shares 1 966
Shares issued 613 54 295
Dividends paid
Balance at 31 December 2005 4 826 97 886 (20 692)
Net gains not recognised in the
income statement:
- Cash flow hedges, net of tax
Profit for the year
Employee share option scheme:
- Value of services provided
Movement in foreign currency
translation reserve
Movement of treasury shares 482
Shares issued 1 053 123 277
Cancellation of treasury shares (407) (97) 9 928
Dividends paid
Balance at 31 December 2006 5 472 221 066 (10 282)
Fair value
and other Retained
reserves earnings Total
R 000 R 000 R 000
GROUP
Balance at 1 January 2005 2 349 59 328 86 823
As previously reported 3 953 57 724 86 823
Change in accounting policy (1 604) 1 604 -
Net losses not recognised in the income
statement
- Cash flow hedges, net of tax (140) (140)
Impairment of "available-for-sale"
financial asset 1 604 1 604
Profit for the year 20 718 20 718
Employee share option scheme:
- Value of services provided 3 751 3 751
Movement of treasury shares (635) 1 331
Shares issued 54 908
Dividends paid (3 968) (3 968)
Balance at 31 December 2005 7 564 75 443 165 027
Net gains not recognised in the income
statement:
- Cash flow hedges, net of tax 95 95
Profit for the year 56 719 56 719
Employee share option scheme:
- Value of services provided 4 904 4 904
Movement in foreign currency
translation reserve 5 370 5 370
Movement of treasury shares 580 1 062
Shares issued 124 330
Cancellation of treasury shares (9 521) (97)
Dividends paid (7 179) (7 179)
Balance at 31 December 2006 17 933 116 042 350 231
Consolidated cash flow statements
for the year ended 31 December 2006
Group Group
31/12/06 31/12/05
Reviewed Audited
R 000 R 000
Cash flows from operating activities
Cash generated from operations 40 776 7 203
Interest received - 845
Finance costs (19 498) (7 357)
Dividends received 2 526 -
Dividends paid (7 179) (3 968)
Tax paid (8 509) (7 778)
8 116 (11 055)
Cash flows from investing activities
Purchase of property, plant and equipment (32 240) (31 701)
Proceeds from disposal of property, plant and
equipment 9 998 2 622
Increase in intangible assets (20 173) (13 808)
Disposal of joint venture - 512
Acquisition of subsidiaries and operations, net
of cash (54 370) (8 359)
Increase in investments and non-current
receivables (366) -
(97 151) (50 734)
Cash flows from financing activities
Proceeds from /(settlement of) non-current borrowings 25 785 (407)
Proceeds on disposal of treasury shares 1 062 1 297
Shares issued 24 233 54 908
51 080 55 798
Net cash outflow for the year (37 955) (5 991)
Forex translation adjustments on cash and
cash equivalents 1 205 -
Cash and cash equivalents at the beginning of
the year (1 240) 4 751
Cash and cash equivalents at the end of the year (37 990) (1 240)
Business and geographical segments
Fleet Automotive
management components Eliminations GROUP
Business segments
2006
Total revenue 206 200 612 890 (46 935) 772 155
Total assets 180 764 762 420 (29 025) 914 159
2005
Total revenue 89 269 334 694 (28 903) 395 060
Total assets 116 466 295 108 (42 603) 368 971
Rest of the
Africa World Eliminations GROUP
Geographic segments
2006
Total revenue 709 575 66 295 (3 715) 772 155
Total assets 798 433 160 378 (44 652) 914 159
2005
Total revenue 395 060 - - 395 060
Total assets 368 971 - - 368 971
Notes
Accounting policies - basis of presentation
The financial statements have been prepared in terms of International
Financial Reporting Standards ("IFRS") and comply with IAS 34 - Interim
Financial Reporting.
The accounting policies are consistent with those applied in the annual
financial statements for the year ended 31 December 2005 except for the
adoption of IAS 39 (Amendment) - The Fair Value Option, which became
effective from 1 January 2006. This resulted in the reclassification
of the preference shares of Multenet Technologies (Pty) Limited as an
"Available-for-sale" financial asset. As a result, changes in fair value
will now be recognised in the statement of changes in equity and any
impairment will be recognised in the income statement. An impairment
of R3.2 million was recognised in the income statement in 2006
(2005: R1.6 million).
Significant acquisitions
i)Business of Sagercy
With effect from 1 March 2006, the Group acquired a 100% interest in the
business of Sagercy. Sagercy manufactures plastic products for the
automotive industry.
Group
31/12/06
R 000
Details of the net assets acquired and goodwill are as follows:
Purchase consideration:
Paid 109 062
Direct costs relating to the acquisition 1 502
Total purchase consideration 110 564
Less: Fair value of net assets acquired 62 427
Goodwill on acquisition 48 137
The goodwill is attributable to the high profitability of the acquired
business and the significant synergies expected to arise following the
Group`s acquisition of the Sagercy business.
Acquiree`s
Fair carrying
value amount
R 000 R 000
The assets and liabilities arising from the
acquisition are as follows:
Property, plant and equipment 20 596 6 360
Intangible assets 39 136 25
Inventories 7 011 7 011
Receivables and prepayments 11 743 11 743
Trade and other payables (873) (873)
Deferred tax liabilities (15 186) -
Fair value of net assets 62 427 24 266
Group
31/12/06
R 000
Purchase consideration 110 564
Purchase consideration settled in shares issued (100 000)
Cash outflow on acquisition 10 564
ii)Tripmaster
With effect from 1 March 2006, the Group acquired a 51% interest in
Tripmaster. In terms of the purchase agreement, the Company has call
options to acquire the remaining interest, while the seller has identical
put options. As a result, 100% of the interest in Tripmaster has been
consolidated. Tripmaster is incorporated in the United States of America
and is a well established supplier of fleet management products.
Group
31/12/06
R 000
Details of the net assets acquired and goodwill
are as follows:
Purchase consideration:
Paid 38 527
Direct costs relating to the acquisition 1 195
Total purchase consideration 39 722
Less: Fair value of net assets acquired 39 317
Goodwill 405
Acquiree`s
Fair carrying
value amount
R 000 R 000
The assets and liabilities arising from the
acquisition are as follows:
Property, plant and equipment 806 806
Intangible assets 38 739 4 982
Inventory 2 682 2 682
Receivables and prepayments 10 746 10 746
Cash and cash equivalents 7 799 7 799
Trade and other payables (9 368) (9 368)
Deferred tax liabilities (12 087) (609)
Fair value of net assets 39 317 17 038
Group
31/12/06
R 000
Purchase consideration 39 722
Deferred purchase consideration included in borrowings (16 809)
Cash and cash equivalents in subsidiary acquired (7 799)
Cash outflow on acquisition 15 114
iii)Business of Gabriel
With effect from 5 September 2006, the Group acquired a 100% interest in the
business of Gabriel South Africa. Gabriel manufactures and distributes
ride control products (shock absorbers, struts and gas springs) to the
automotive industry in sub-Saharan Africa.
Group
31/12/06
R 000
Details of the net assets acquired and negative
goodwill are as follows:
Purchase consideration:
Paid 82 733
Direct costs relating to the acquisition 1 824
Total purchase consideration 84 557
Less: Fair value of net assets acquired 142 777
Negative goodwill on acquisition (58 220)
Acquiree`s
Fair carrying
value amount
R 000 R 000
The assets and liabilities arising from the
acquisition are as follows:
Property, plant and equipment 76 836 14 103
Intangible assets 47 800 -
Receivables and prepayments 26 336 26 336
Inventory 31 158 31 158
Trade payables (21 146) (21 146)
Provisions (8 352) (8 352)
Cash and cash equivalents 22 138 22 138
Deferred tax liabilities (31 993) -
Fair value of net assets 142 777 64 237
Group
31/12/06
R 000
Purchase consideration 84 557
Purchase consideration settled in long-term borrowings (35 000)
Cash and cash equivalents in subsidiary acquired (22 138)
Cash outflow on acquisition 27 419
iv)Business of Pi Technology
With effect from 1 December 2006, the Group acquired a 100% interest in the
business of Pi Technology, UK ("Pi"). Pi is incorporated in the United
Kingdom and is an electronic design consultancy that provides services to
the international automotive industry.
Group
31/12/06
R 000
Details of the net assets acquired and
goodwill are as follows:
Purchase consideration:
Paid 69 828
Direct costs relating to the acquisition 1 682
Total purchase consideration 71 510
Less: Fair value of net assets acquired 33 532
Goodwill on acquisition 37 978
Acquiree`s
Fair carrying
value amount
R 000 R 000
The assets and liabilities arising from the
acquisition are as follows:
Property, plant and equipment 2 556 2 556
Receivables and prepayments 37 651 37 651
Inventory 5 712 5 712
Trade and other payables (12 387) (12 387)
Fair value of net assets 33 532 33 531
Group
31/12/06
R 000
Purchase consideration 71 510
Purchase consideration settled in long-term borrowings (69 828)
Cash outflow on acquisition 1 682
The accounting for the Pi acquisition has been determined provisionally in
terms of IFRS3. As a result these figures may change when the intangible
asset valuations have been completed.
Control Instruments Group Limited
(Incorporated in the Republic of South Africa)
Registration number: 1964/003987/06
Share code: CNL ISIN:ZAE000001665
Registered office: 9 Electron Street, Linbro Business Park, Sandton 2196
Directors: JPS O`Leary (Irish, Chairman)*, R Friedman (Managing),
EPH Bieber*, SR Bruyns*, TE Buzer, RB Forrester, RJ Fraenkel, HV Hefer*
* independent, non-executive
www.ci.co.za
Date: 19/03/2007 15:33:13 Produced by the JSE SENS Department.
