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CNL - Control Instruments Group Limited - Interim results for the six months
ended 30 June 2010
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 2010
HIGHLIGHTS
Global automotive industry stabilising
Return to profitability at operating level
Improved performance by Aftermarket business
Continued investment in OEM products
OVERVIEW
Overall the Group`s performance in the first half of 2010 is in line with our
expectations. The global automotive industry continued to recover and the
improved performance of the Aftermarket business more than compensated for the
slower recovery in the OEM business.
The Group operates in the OEM and Aftermarket sectors of the global automotive
industry. Pi Shurlok, the OEM (original equipment manufacture) business,
develops and manufactures electronics for the automotive, transportation,
industrial and defence markets worldwide. The Aftermarket business, CI
Automotive, focuses on the supply of replacement parts and associated services
to the automotive aftermarket in sub-Saharan Africa.
Revenue for the six months ended 30 June 2010 of R418.2 million was essentially
flat when compared with the same period in the previous year. However, gross
profit increased 8.0% to R118.7 million. At operating level the Group returned
to profitability with an operating profit of R2.8 million for the period when
compared with an operating loss of R6.2 million for the same period in 2009. Net
loss after tax decreased 85.6% from a loss of R12.0 million to a loss of R1.7
million for the six months to June 2010.
Inventory levels increased during the period under review, mainly due to
significant disruptions in the supply of electronic components and longer than
normal lead times. Working capital is expected to remain under pressure, but
should start to normalise by the end of the year.
OEM
Revenue in the OEM business increased by 2.0% to R200.4 million in the period
under review when compared with the corresponding six months in the previous
year. Normalised EBITDA decreased by R7.4 million to R3.7 million primarily as a
result of a reduction in the number of high margin engineering consulting
services contracts during the second quarter of 2010.
Over the past 24 months the focus of the Group`s Engineering Services operations
(based in Cambridge in the UK and Detroit in the USA) has been changing from
providing pure engineering consulting services to developing products that will
be manufactured at Pi Shurlok`s factory in Pietermaritzburg. A large portion of
product development work is customer funded, however the full cost of this work
is only recovered over the life of the production contract.
The strategic focus of the OEM business is based on owning the Intellectual
Property ("IP") for the products it designs and develops. Products include
Pi Shurlok`s OpenECUTM, infotainment modules and instrument clusters. The order
pipeline for these products is strong and pre-production of certain programmes
is expected to commence towards the end of this year. Volumes should increase
from the second half of 2011 when the first series (full) production of a number
of the programmes is scheduled to come on stream. By 2013 the orders and
commitments that are currently held should be in full production. As time-scales
in the OEM business are measured in years and not months, the benefit of these
orders will start accruing to the Group from late 2011 and gain momentum
thereafter.
AFTERMARKET
The Group`s Aftermarket business performed well. The executive management team,
appointed during the past twelve months, is instilling stability, confidence and
energy into the business and this is delivering results.
Although revenue decreased by 1.0% to R218.4 million in the period under review
compared with the same period in 2009, normalised EBITDA increased 64.9% to
R24.6 million. A major contributory factor to this increase is the decision that
was taken in 2009 to exit product lines with low margins and high costs to
service. The business is also becoming more efficient as a result of the
benefits of the restructuring implemented over the past year.
The Aftermarket business is based on high quality products with strong brand
identities for which the Group either owns or has exclusive distribution rights
to the brand names. The basket of products sold by the Aftermarket business
competes strongly for shelf space in all the major distribution channels for
aftermarket automotive parts.
Brand names include Gabriel (shock absorbers), VDO (instrumentation products),
Echlin (drivetrain and electrical products), Warn (winches), Autocom (steering
and suspension parts) and Acsa-Mag (brake products).
PROSPECTS
The Group`s strategic focus has remained unchanged since 2004. Overall the
results show that the Group is recovering from the worst conditions experienced
in the history of the automotive industry.
The Aftermarket business is starting to become a dependable profit and cash
generator and it should continue to grow and perform well for the balance of
this year.
The Group`s investment is focused on the development of Pi Shurlok`s OpenECU
range of products, specialised infotainment systems and instrument clusters. The
prospects that are emerging as a result of this investment are exciting. These
products are enabling the Group to enter significant niche markets in the
international OEM market as the owner of the IP and should build up significant
value in this area of our business. Our strategy is to use some of the cash
generated by the Aftermarket business to continue with this investment.
Management and the Board continue to remain confident about the Group`s
prospects. The OEM business is dependent on its niche international markets.
Economic conditions in these markets remain uncertain and a full economic
recovery has yet to take place.
RETIREMENT OF PETER BIEBER
Peter Bieber retired from the Board with effect from 30 August 2010. Peter
served on the Board as an independent non-executive Director for eleven years
until May 2008 when he first retired. Early in 2009, during a particularly
difficult time for the Group and the global automotive industry, he was asked by
the Chairman to rejoin the Board as a non-executive Director. The benefit of his
wisdom and experience has been particularly important over the past 18 months.
Once again, we thank him for his invaluable and insightful involvement and
direction.
On behalf of the Board
JPS O`LEARY R FRIEDMAN
Chairman CEO and Group Managing Director
3 September 2010
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The interim report has been prepared in accordance with IAS 34 Interim Financial
Reporting, the requirements of the South African Companies Act, No. 61 of 1973,
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 2009 and IFRS, except for IFRS 8
Operating Segments, where the Board of Directors has re-evaluated the basis for
measuring normalised earnings before interest, tax, depreciation and
amortisation (normalised EBITDA) and has excluded inter-segment service charges
from the measure. Normalised EBITDA has been restated.
SEGMENTAL REVIEW
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, 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.
CONSOLIDATED INCOME STATEMENT
Six months Six months Year
ended ended ended
30/06/10 30/06/09 31/12/09
Unaudited Unaudited Audited
R 000 R 000 R 000
CONTINUING OPERATIONS
Revenue 418 189 415 943 840 404
Cost of sales (299 441) (306 014) (618 989)
Gross profit 118 748 109 929 221 415
Other operating income 4 323 3 262 6 735
Marketing and selling expenses (16 655) (16 355) (31 767)
Administrative expenses (44 163) (42 017) (94 210)
Other operating expenses (59 445) (61 050) (120 164)
Operating profit/(loss) 2 808 (6 231) (17 991)
Finance income 4 4 303
Finance costs (5 690) (7 566) (14 151)
Share of profit from joint ventures 309 451 148
Loss before tax (2 569) (13 342) (31 691)
Taxation 833 1 315 14 803
Loss for the period from
continuing operations (1 736) (12 027) (16 888)
DISCONTINUED OPERATIONS
Loss for the period from
discontinued operations - - (5 409)
Loss for the period (1 736) (12 027) (22 297)
Attributable to equity
holders of the Parent (1 736) (12 027) (22 297)
Loss per share (cents)
Continuing operations (1.26) (8.75) (12.29)
Discontinued operations - - (3.94)
Loss per share (1.26) (8.75) (16.23)
Diluted loss per share (cents)
Continuing operations (1.26) (8.75) (12.29)
Discontinued operations - - (3.94)
Diluted loss per share (1.26) (8.75) (16.23)
Net number of shares issued (000)
Total shares in issue
(excluding treasury shares) 137 387 137 387 137 387
Weighted average number
of shares in issue 137 387 137 387 137 387
Adjustment for share options - - -
Weighted average number
of shares for diluted
earnings per share 137 387 137 387 137 387
Calculation of headline loss
Headline loss (R 000)
Continuing operations
Net loss after tax for the period (1 736) (12 027) (16 888)
(Profit)/loss on disposal and
scrapping of property, plant
and equipment 104 (58) 2 523
Impairment of property,
plant and equipment - 36 -
Impairment of other
intangible assets - - 288
Tax on the above (15) 8 (791)
(1 647) (12 041) (14 868)
Discontinued operations
Loss after tax for the period - - (5 409)
Reduction to profit on
disposal of fleet and vehicle
management business - - 5 000
- - (409)
Total headline loss (1 647) (12 041) (15 277)
Headline loss per share (cents)
Continuing operations (1.20) (8.76) (10.82)
Discontinued operations - - (0.30)
Headline loss per share (1.20) (8.76) (11.12)
Diluted headline loss
per share (cents)
Continuing operations (1.20) (8.76) (10.82)
Discontinued operations - - (0.30)
Diluted headline loss per share (1.20) (8.76) (11.12)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months Year
ended ended ended
30/06/10 30/06/09 31/12/09
Unaudited Unaudited Audited
R 000 R 000 R 000
Loss for the period (1 736) (12 027) (22 297)
Total other comprehensive income, net
of tax for the period (72) (9 170) (12 182)
Fair value adjustments on
available-for-sale assets 72 144 264
Cash flow hedges, net of tax 1 306 (6 199) (3 249)
Foreign currency translation reserve,
net of tax (1 450) (3 115) (9 197)
Total comprehensive income/(loss)
for the period (1 808) (21 197) (34 479)
Attributable to equity holders of the
Parent (1 808) (21 197) (34 479)
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months Six months Year
ended ended ended
30/06/10 30/06/09 31/12/09
Unaudited Unaudited Audited
R 000 R 000 R 000
Cash flows from operating activities
Operating profit before working
capital changes 18 622 10 518 39 882
Working capital changes (37 602) (2 049) 35 232
Cash generated from/(utilised in)
operations (18 980) 8 469 75 114
Finance income received 4 4 303
Finance costs paid (5 455) (7 566) (13 859)
Dividends received - 2 005 2 035
Taxation paid (185) (3 772) (3 811)
(24 616) (860) 59 782
Cash flows from investing activities
Purchase of property, plant and
equipment (4 848) (8 422) (11 186)
Proceeds from disposal of property,
plant and equipment 35 209 441
Investment in intangible assets (6 321) (3 765) (9 005)
(11 134) (11 978) (19 750)
Cash flows from financing activities
Net proceeds from/(settlement of)
non-current borrowings 103 5 034 (237)
Net cash inflow/(outflow) for the period (35 647) (7 804) 39 795
Foreign cash adjustments 95 (1 540) 569
Cash and cash equivalents at the
beginning of the period 28 254 (12 110) (12 110)
Cash and cash equivalents at the end of
the period (7 298) (21 454) 28 254
SEGMENTAL REVIEW
Six months Six months Year
ended ended ended
30/06/10 30/06/09 31/12/09
Unaudited Unaudited Audited
R 000 R 000 R 000
REVENUE
OEM
External revenue 199 740 195 263 386 225
Inter-segment revenue 621 1 200 1 582
Aftermarket
External revenue 218 449 220 680 454 179
Head office
Inter-segment revenue 10 214 7 527 27 406
Unallocated/eliminations (10 835) (8 727) (28 988)
Total 418 189 415 943 840 404
NORMALISED EBITDA
OEM 3 697 11 100 15 251
Aftermarket 24 612 14 928 27 893
Head office (6 998) (8 355) 4 331
Unallocated/eliminations (3 340) - (14 954)
Total 17 971 17 673 32 521
RECONCILIATION OF NORMALISED EBITDA TO
OPERATING PROFIT/(LOSS)
Normalised EBITDA from continuing
operations 17 971 17 673 32 521
Depreciation and amortisation (15 003) (16 771) (30 886)
Impairment of intangible assets - - (288)
Impairment of property, plant and
equipment - (36) -
Write-down of inventories - (5 298) (14 551)
Restructuring costs - (1 857) (2 264)
Share-based payment (IFRS 2) (56) - -
Profit/(loss) on disposal and scrapping
of property, plant and equipment (104) 58 (2 523)
Operating profit/(loss) from continuing
operations 2 808 (6 231) (17 991)
Note: For a reconciliation of operating profit/(loss) from continuing operations
to total profit/(loss) before taxation from continuing operations refer to the
"Consolidated Income Statement".
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30/06/10 30/06/09 31/12/09
Unaudited Unaudited Audited
R 000 R 000 R 000
ASSETS
Non-current assets 284 414 296 188 286 954
Property, plant and equipment 123 466 138 337 127 770
Intangible assets 128 518 132 539 129 526
Investments in joint ventures 874 867 565
Available-for-sale financial assets 720 528 648
Deferred income tax assets 30 836 23 917 28 445
Current assets 291 052 280 138 252 129
Inventories 153 586 137 366 124 694
Trade and other receivables 132 850 135 128 97 108
Derivative financial instruments 64 - -
Financial assets at fair value through
profit or loss 152 111 137
Current income tax assets 42 120 118
Cash and cash equivalents 4 358 7 413 30 072
Total assets 575 466 576 326 539 083
EQUITY AND LIABILITIES
Capital and reserves 293 693 308 727 295 445
Share capital 6 972 6 972 6 972
Share premium 396 996 396 996 396 996
Treasury shares (3 117) (3 117) (3 117)
Foreign currency translation reserve (13 832) (6 300) (12 382)
Other reserves (213) (4 717) (1 647)
Accumulated loss (93 113) (81 107) (91 377)
Non-current liabilities 39 088 109 110 35 924
Borrowings 10 699 79 601 10 753
Deferred income tax liabilities 23 542 26 131 21 532
Provisions 4 847 3 378 3 639
Current liabilities 242 685 158 489 207 714
Trade and other payables 150 692 104 813 123 425
Current income tax liabilities 2 683 5 210 2 946
Derivative financial instruments 845 6 501 2 363
Borrowings 85 839 37 355 74 478
Provisions 2 626 4 610 4 502
Total equity and liabilities 575 466 576 326 539 083
Net asset value per share (cents) 214 225 215
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months Six months Year
ended ended ended
30/06/10 30/06/09 31/12/09
Unaudited Unaudited Audited
R 000 R 000 R 000
Balance at beginning of the period 295 445 329 924 329 924
Changes in reserves
Total comprehensive income/(loss)
for the period (1 808) (21 197) (34 479)
Transactions with owners
Employee share option scheme - value of
services provided 56 - -
Balance at end of the period 293 693 308 727 295 445
Comprising
Share capital and premium 403 968 403 968 403 968
Treasury shares (3 117) (3 117) (3 117)
Foreign currency translation reserve (13 832) (6 300) (12 382)
Hedging reserve (404) (4 660) (1 710)
Available-for-sale reserve (509) (701) (581)
Share-based payment reserve (IFRS 2) 700 644 644
Accumulated loss (93 113) (81 107) (91 377)
Total 293 693 308 727 295 445
Registered office: 28 Wiganthorpe Road, Willowton, Pietermaritzburg 3201
Directors: JPS O`Leary* (Irish, Chairman), R Friedman (Managing Director), SV
Bromfield*, FE Giliomee (Financial Director), Dr. NCGN Preston (British), SD
Rogers, IH Scott-Gall* (British), Prof. A Watson*
* independent, non-executive
Company Secretary: JC Jeffery
Sponsor: Investec Bank Limited
www.ci.co.za
Date: 03/09/2010 15:19:01 Supplied by www.sharenet.co.za
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