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Results for the year ended 31 December 2012
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")
Results for the year ended 31 December 2012
HIGHLIGHTS
- Eliminated exposure to the OEM business
- Repositioned the business as an automotive aftermarket business
- Operating profit from continuing operations R29.65 million up from R17.93 million
- Profit after tax from continuing operations R19.92 million up from R9.12 million
- Earnings per share from continuing operations 14.48 cents up from 6.63 cents
- Resumption of dividends
OVERVIEW
We have completed the repositioning and restructuring of Control Instruments Group Limited ("CIGL" or "Group") to be an automotive aftermarket
business. The satisfactory results that have been produced by the continuing operations positively confirms the decision taken to focus on
the automotive aftermarket business, servicing the South African and sub-Saharan Africa markets.
The Group eliminated its exposure to the original equipment manufacturing ("OEM") businesses when, following the closure of the two OEM
businesses based in the UK and the USA towards the end of 2011, it disposed of Pi Shurlok (Proprietary) Limited, based in Pietermaritzburg, in
November 2012.
The OEM business has accordingly been reflected as a discontinued operation in the results and the financial impact of exiting this business
has been excluded from the highlights above. The net loss relating to the write-off of the investment, Group commitments and trading losses for
the year ended 31 December 2012 is R53.34 million.
CONTINUING OPERATIONS
RESULTS
Revenue from continuing operations for the year ended 31 December 2012 was R566.37 million up from R535.80 million for the 2011 financial
year. Gross profit for the period increased by 13.24% to R171.35 million (2011 - R151.32 million). Improved expense control resulted in a
65.37% increase in operating profit up from R17.93 million to R29.65 million for the 2012 financial year. Net profit after tax increased from
R9.12 million to R19.92 million.
Earnings per share from continuing operations for the year ended 31 December 2012 improved to 14.48 cents compared with 6.63 cents
(restated) in the previous financial year. Headline earnings per share from continuing operations increased from 8.2 cents (restated) to
16.20 cents.
MARKETING STRATEGY
The results produced by the continuing operations during 2012 was achieved on the back of an increased focus on the development
of our brands and the disciplined approach in our route to market.
Each of the brands is being activated through a bespoke marketing strategy developed to achieve either a "push" or a "pull" effect in the
distribution channel; a key component of which is the focus on owning the relationship at each level in the channel. This investment resulted in
marketing and selling costs increasing by R 11.8 million to R 66.95 million.
Particularly satisfying this year was the introduction of a number of new and innovative marketing concepts into the distribution channel. These
included the introduction of a programme which allows the consumer to purchase a 5 year extended warranty for the Gabriel product range; the
successful rollout of the Gabriel shock tester, designed and developed over the course of the past two years, for fitment centres; the
introduction of a mobile shock tester for use in promotional call-to-action campaigns and a very successful micro-marketing programme which
allowed the brand ambassadors to tailor campaigns to suit the requirements of the retailers and workshops.
Control Instruments Automotive (Proprietary) Limited ("CI Automotive"), the Group's automotive aftermarket business' value proposition
focuses on bringing to its customers a premium branded product, recognisable by the consumer, supported by the requisite level of technical
service and back up together with application and installation training expected from a premium brands. We believe this differentiates and
strengthens the position of our brands in an ever increasingly competitive market.
NEW BRANDS AND PRODUCTS
As part of its strategy to secure new brands CI Automotive has concluded a strategic partnership with a German manufacturer, TMD to market
and distribute the Textar brand in sub-Saharan Africa. TMD is a global leader in the manufacture of brake friction products supplying an
extensive range of aftermarket friction brands into the global independent aftermarket.
Textar, the premium brand of TMD, offers a comprehensive range of brake pads, brake discs, callipers, brake shoes, brake linings and braking
components for the automotive aftermarket.
The Textar brand will be launched at the end of the first quarter of 2013.
CI Automotive also introduced a range of lighting products under a newly secured North American brand, VisionX. The VisionX product range
catering for off highway equipment lighting and specialised lighting systems for the mining, military, construction and industrial markets will
complement our other North American lighting brand, Trucklite.
Investment in the expansion of the existing product ranges to meet the demands of the increasingly diverse vehicle parc in South Africa will
continue.
OPERATING MARGIN
The improvement in the operating margin to 5.23% in the 2012 financial year up from 3.35% in the previous year, while still not aligned with
medium term expectations, did meet our short term target. There are a number of ongoing initiatives aimed at improving the operating margin.
MANUFACTURING
The threat of imports from globally competitive and low cost manufacturing countries remains the driving force behind the initiatives on which
we have embarked to improve our global competitiveness. The manufacturing operations are engaged in projects which are aimed at improving
manufacturing efficiencies and reducing the material input costs over the next twenty-four months.
SUPPLY CHAIN
A number of programmes are being undertaken to extract value from and improve on the efficiencies in the supply chain. Focus is being placed on
internal logistics, on-shelf availability, improved in-fill rates, prompt and accurate order completion, supplier quality management and best cost
pricing.
CONCLUSION
The Group is now a focused automotive aftermarket business with a very clear vision:
We will be the leading supplier of choice for branded automotive parts in sub-Saharan Africa.
Rigorous cost management, effective selling strategies, focused service delivery and the expansion into sub-Saharan Africa will remain core to all
management activities going forward.
PROSPECTS
Whilst the automotive aftermarket remains highly competitive and consumer debt levels are increasing due to the pressures being placed on
disposable incomes from higher food, fuel and electricity prices, we are confident that the marketing strategies we have deployed will create a
receptive market for the three major brands; Gabriel, Echlin and Textar.
DIVIDEND
The return to stronger earnings and cash flows from the continuing operations has provided the Board with the opportunity to propose and
declare an ordinary final dividend of 1.5 cents per share.
The Board is confident that the repositioning of the Group and the elimination of our exposure to the OEM businesses should, in subsequent
years, enable the Board to follow an appropriate dividend policy.
Notice is hereby given that the gross final dividend of 1.5 cents per share for the full year ended 31 December 2012 that has been declared,
will be payable to shareholders recorded in the register of the company at the close of business on the record date appearing below. This dividend
has been declared out of income reserves.
The number of ordinary shares in issue at the date of this declaration is 139 436 754. The company has no STC credits to be utilised resulting in
a net dividend of 1.275 cents per share for those shareholders who are not exempt from dividend tax.
The salient dates applicable to the interim dividend are as follows:
Announcement 13 March 2013
Last date to trade cum dividend 5 April 2013
Trading ex dividend 8 April 2013
Record date 12 April 2013
Payment Date 15 April 2013
No share certificates may be dematerialised or rematerialised between Monday, 8 April 2013, and Friday, 12 April 2013 both days inclusive.
Dividend cheques will be posted and electronic payments made, where applicable, to certificated shareholders on the payment date.
Dematerialised shareholders will have their accounts with their Central Securities Depository Participant or broker credited on the payment
date. The company's income tax reference number is 9486001713.
AUDITOR'S REPORT
PricewaterhouseCoopers Inc. has audited the results for the year ended 31 December 2012 and their unqualified audit report on the Group
annual financial statements is available on request at the Company's registered office.
The auditor's report does not necessarily cover all of the information contained in this announcement. Shareholders are therefore advised that in
order to obtain a full understanding of the nature of the auditor's work they should obtain a copy of that report together with the
accompanying financial information from the registered office of the company after they have been released on or before 31 March 2013.
On behalf of the Board
JPS O'LEARY, Chairman SD ROGERS, Chief Executive Officer
13 March 2013
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for
preliminary reports and the requirements of the Companies Act applicable to summary financial statements. The Listings Requirements require
preliminary reports to be prepared in accordance with the framework concepts, the measurement and recognition requirements of International
Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and must also,
as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the
consolidated financial statements from which the summary consolidated financial statements were derived are in terms of IFRS and are
consistent with the accounting policies applied in the preparation of the previous consolidated annual financial statements.
Certain reallocations were made to the income statement for continuing operations for the prior year to achieve improved comparability. These
reallocations have had no impact on profit; statement of financial position; statement of changes in equity; or statement of cash flows. The prior
year has also been restated to account for the discontinued operations as reflected in the notes to financial results. The preparation of the financial
results was supervised by the Group Financial Director, FE Giliomee CA (SA).
CONSOLIDATED INCOME STATEMENT
Restated
2012 2011
R 000 R 000
Continuing operations
Revenue 566 367 535 802
Cost of sales (395 015) (384 484)
Gross profit 171 352 151 318
Other operating income 6 270 2 832
Marketing and selling expenses (66 949) (55 143)
Administrative expenses (43 476) (43 955)
Other operating expenses (37 550) (37 126)
Operating profit 29 647 17 926
Finance income 789 88
Finance cost (5 579) (5 980)
Profit before taxation 24 857 12 034
Taxation (4 934) (2 917)
Profit for the year from continuing operations 19 923 9 117
Discontinued operations
Loss for the year from discontinued operations (53 335) (156 900)
Loss for the year (33 412) (147 783)
Loss attributable to:
Owners of the parent (33 412) (147 783)
Net number of shares issued (000)
Total shares in issue (excluding treasury shares) (000) 137 587 137 587
Weighted average number of shares in issue 137 587 137 394
Adjustment for share options - -
Weighted average number of shares for diluted earnings per share 137 587 137 394
Basic earnings/(loss) per share (cents)
- From continuing operations 14.5 6.6
- From discontinued operations (38.8) (114.1)
Total (24.3) (107.5)
Diluted earnings/(loss) per share (cents)
- From continuing operations 14.5 6.6
- From discontinued operations (38.8) (114.1)
Total (24.3) (107.5)
Calculation of headline earnings/(loss)
Continuing operations
Net profit after taxation for the year 19 923 9 117
(Profit)/loss on disposal and scrapping of property, plant and equipment (218) 297
Impairment of property, plant and equipment 3 276 1 253
Impairment of intangible assets 159 225
Disposal of available-for-sale financial assets - 816
Taxation on the above (901) (432)
Headline earnings 22 239 11 276
Headline earnings per share (cents) 16.2 8.2
Discontinued operations
Net loss after taxation for the year (53 335) (156 900)
Profit on disposal and scrapping of property, plant and equipment (6 365) (837)
Impairment of property, plant and equipment 40 395 2 424
Impairment of intangible assets 800 50 954
Loss on disposal of subsidiary 5 322 -
Realisation of foreign currency translation reserve - 8 014
Taxation on the above - 501
Headline loss (13 183) (95 844)
Headline loss per share (cents) (9.6) (69.7)
Total operations
Loss for the year (33 412) (147 783)
(Profit)/loss on disposal and scrapping of property, plant and equipment (6 583) (540)
Impairment of property, plant and equipment 43 671 3 677
Impairment of other intangible assets 959 51 179
Loss on disposal of subsidiary 5 322 -
Loss on disposal of financial assets available-for-sale - 816
Realisation of foreign currency translation reserve - 8 014
Taxation on the above (901) 69
Headline earnings/(loss) 9 056 (84 568)
Headline earnings/(loss) per share (cents) 6.6 (61.5)
Diluted headline earning/(loss) per share
Continuing operations 16.2 8.2
Discontinued operations (9.6) (69.7)
Total 6.6 (61.5)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2012 2011
R 000 R 000
Loss for the year (33 412) (147 783)
Other comprehensive income for the year, net of taxation 397 20 348
Hedging reserve
Current year net movement 190 1 221
Current year net taxation movement (53) (342)
Available-for-sale reserve
Current year gross movement 260 92
Realised on disposal - 276
Foreign currency translation reserve
Current year gross movement - 12 306
Current year taxation movement - (1 219)
Realised on disposal of subsidiaries - 8 014
Total comprehensive loss for the year (33 015) (127 435)
Attributable to:
Owners of the parent (33 015) (127 435)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2012 2011
R 000 R 000
ASSETS
Non-current assets 132 510 197 454
Property, plant and equipment 56 202 115 987
Intangible assets 74 873 79 069
Investments in joint ventures - 1 191
Available-for-sale financial assets 580 320
Deferred income tax assets 855 887
Current assets 196 409 247 476
Inventories 96 033 113 459
Trade and other receivables 29 570 71 322
Derivative financial instruments 5 -
Financial assets at fair value through profit
or loss 367 202
Cash and cash equivalents 70 434 62 493
Total assets 328 919 444 930
EQUITY AND LIABILITIES
Capital and reserves 135 330 166 941
Share capital 6 972 6 972
Share premium 396 996 396 996
Treasury shares (2 813) (2 813)
Other reserves 3 045 1 719
Accumulated loss (268 870) (235 933)
Non-current liabilities 27 065 42 711
Borrowings 3 962 11 728
Deferred income tax liabilities 20 386 23 648
Provisions 2 717 7 335
Current liabilities 166 524 235 278
Trade and other payables 89 673 134 623
Current income tax liabilities 273 1 657
Derivative financial instruments 490 190
Borrowings 72 827 80 917
Provisions 3 261 17 891
Total equity and liabilities 328 919 444 930
Net asset value per share (cents) 98 121
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
2012 2011
R 000 R 000
Net cash generated from operating activities 2 069 35 482
Net cash generated from/(utilised in) investing activities 13 656 (19 380)
Net cash generated from/(utilised in) financing activities (2 912) 632
Net cash inflow for the year 12 813 16 734
Foreign currency translation adjustments on cash and cash equivalents - (811)
Cash and cash equivalents at the beginning of the year 57 621 41 698
Cash and cash equivalents at the end of the year 70 434 57 621
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Treasury Foreign Other Total
capital premium shares currency reserves
translation Accumu-
reserve lated loss
R 000 R 000 R 000 R 000 R 000 R 000 R 000
Balance at 1 January 2011 6 972 396 996 (3 117) (19 101) (595) (89 163) 291 992
Total comprehensive income/(loss) for the 19 101 1 247 (147 783) (127 435)
year
Loss for the year (147 783) (147 783)
Other comprehensive income for the year 19 101 1 247 20 348
Transactions with owners
Employee share option scheme
Share-based payment expense 1 984 1 984
Transferred to accumulated loss (917) 917 -
Movement of treasury shares 304 96 400
Balance at 31 December 2011 6 972 396 996 (2 813) - 1 719 (235 933) 166 941
Balance at 1 January 2012 6 972 396 996 (2 813) - 1 719 (235 933) 166 941
Total comprehensive income/(loss) for the 397 (33 412) (33 015)
year
Loss for the year (33 412) (33 412)
Other comprehensive income for the year 397 397
Transactions with owners
Employee share option scheme
Share-based payment expense 1 404 1 404
Transferred to accumulated loss (475) 475 -
Balance at 31 December 2012 6 972 396 996 (2 813) - 3 045 (268 870) 135 330
SEGMENTAL INFORMATION
Primary reporting format - business segments
The Group is based in South Africa and operates in the South African and sub-Saharan Africa markets. It is organised in the following business
segments:
- 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.
Year ended 31 December 2012
Unallocated/
Aftermarket Head office eliminations TOTAL
R 000 R 000 R 000 R 000
External revenue 566 367 - - 566 367
Inter-segment revenue - 4 218 (4 218) -
Total segment revenue 566 367 4 218 (4 218) 566 367
Normalised EBITDA 54 808 (3 093) (132) 51 583
Year ended 31 December 2011 (restated)
Unallocated/ TOTAL
Aftermarket Head office eliminations
R 000 R 000 R 000 R 000
External revenue 535 802 - - 535 802
Inter-segment revenue - 15 732 (15 732) -
Total segment revenue 535 802 15 732 (15 732) 535 802
Normalised EBITDA 50 392 (10 652) 308 40 048
Reconciliation of normalised EBITDA to the operating profit from continuing operations is provided as follows:
Restated
2012 2011
R 000 R 000
Normalised EBITDA 51 583 40 048
Depreciation and amortisation (16 261) (15 846)
Impairment of intangible assets and property, plant and equipment (3 435) (1 478)
Restructuring costs (1 174) (2 181)
Profit/(loss) on disposal and scrapping of property, plant and equipment 218 (297)
Share-based payments expense (1 271) (1 504)
Bad debts (13) -
Loss on disposal of available-for-sale-investments - (816)
Operating profit 29 647 17 926
Note: For a reconciliation of operating profit to the profit before taxation refer to the "Consolidated Income Statement".
DISCONTINUED OPERATIONS For the
period ended 12 months
07/11/2012 31/12/2011
OEM segment: Pi Shurlok - Local operations R 000 R 000
The 31 December 2012 and 2011 results relate to the Group's local OEM operations, which comprised Pi Shurlok in Pietermaritzburg. The Group made
a decision in June 2012 to dispose of this operation. On 7 November 2012 this operation was disposed to PFK Electronics (Pty) Limited.
The following financial results relate to the local OEM operations:
Revenue 162 432 298 145
Cost of sales (107 693) (225 017)
Gross profit 54 739 73 128
Other operating income 8 644 3 835
Marketing and selling expenses (3 432) (6 602)
Administrative expenses (12 279) (16 823)
Other operating expenses (57 008) (75 544)
Impairment of capitalised product development costs - (143)
Impairment of other intangible assets (800) -
Impairment of property, plant and equipment (40 395) -
Operating loss (50 531) (22 149)
Finance cost (3 664) (4 665)
Share of profit from joint ventures - 211
Loss before taxation (54 195) (26 603)
Taxation* - (22 704)
Net loss of discontinued operations (54 195) (49 307)
Loss on disposal of subsidiary (5 322) -
Loss for the year from discontinued operations (59 517) (49 307)
* - Taxation includes the deferred tax asset derecognised in 2011
For the
12 months period ended
31/12/2012 05/10/2011
OEM segment: Pi Shurlok - Foreign operations R 000 R 000
The results relate to the Group's foreign operations, which comprised Pi Shurlok in both the United Kingdom and the United States of America. The
Group made a decision in October 2011 to exit these operations.
For the period
The following financial results relate to the foreign OEM operations: 2012 ended 5/10/2011
R 000 R 000
Revenue - 92 083
Cost of sales - (55 386)
Gross profit - 36 697
Other operating income - 395
Administrative expenses - (16 743)
Other operating expenses - (41 317)
Impairment of goodwill - (19 368)
Impairment of trademarks - (3 750)
Impairment of capitalised product development costs - (23 726)
Impairment of customer relationships - (2 883)
Impairment of other intangible assets - (1 084)
Impairment of property, plant and equipment - (2 424)
Reversal of provision/(provision) for onerous contracts and redundancies 6 182 (18 609)
Operating profit/(loss) 6 182 (92 812)
Finance cost - (143)
Profit/(loss) before taxation 6 182 (92 955)
Taxation* - (6 624)
Net profit/(loss) of discontinued operations 6 182 (99 579)
Realisation of translation reserve - (8 014)
Profit/(loss) for the year from discontinued operations 6 182 (107 593)
* - Taxation includes the deferred tax asset derecognised in 2011
Total loss from discontinued operations consists of the following:
Loss from the local OEM operations (59 517) (49 307)
Profit/(loss) from the foreign OEM operations 6 182 (107 593)
(53 335) (156 900)
Cash flows from discontinued operations
Cash flows from operating activities (11 470) (10 799)
Cash flows from investing activities 5 963 (11 817)
Cash flows from financing activities (20 955) (1 027)
RECLASSIFICATION OF PRIOR YEAR FIGURES
The following reallocations were made on the continuing operations income statement for the previous year to achieve improved comparability.
The effect on the specific line items is reflected below:
Previously
stated Restated Difference
R 000 R 000 R 000
INCOME STATEMENT
Cost of sales
Marketing and selling expenses 400 458 384 484 (15 974)
Administrative expenses 31 521 55 143 23 622
Other operating expenses 44 733 43 955 (778)
43 996 37 126 (6 870)
520 708 520 708 -
These reclassifications had no taxation impact or effect on the net income attributable to the equity holders of the group or earnings per share.
The Group's integrated annual report, including the complete annual financial statements of the Group and the Company for the year ended 31
December 2012, will be mailed to shareholders on or before 31 March 2013. A copy of this report will be available on the Company's website,
www.ci.co.za on or before 31 March 2013.
Registered office: 59 Merino Avenue, City Deep, Johannesburg, 2197
Directors: SD Rogers (CEO), FE Giliomee (Financial Director), JPS O'Leary*# (Chairman, Irish), SV Bromfield*#, HJ Coetzee#, PM Surgey*#, A
Watson*#, SJ Smithyman#^
* independent #non-executive ^Alternate
Company Secretary: S Graham Sponsor: Investec Bank Limited www.ci.co.za
Date: 13/03/2013 11:35:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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