Control Instruments Group Limited FY 2013 results

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Control Instruments Group Limited FY 2013 results

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Control Instruments Group Limited FY 2013 results

  1. 1. Results for theyear ended 31 December 2013
  2. 2. Results for the Year Ended 31 December 2013 2 Results For the Year Ended 31 December 2013 Control Instruments Group Limited (Incorporated in the Republic of South Africa) Registration number: 1964/003987/06 Share code: CNL • ISIN: ZAE 000001665 (“Control Instruments” or “the Group”) Results for the year ended 31 December 2013 MARKET OVERVIEW The results for 2013 reflect difficult trading conditions. Despite the slowdown in its markets, Control Instruments Group Limited (“CI” or the “Group”) remained committed to its investment in marketing and sales in its distribution channel, and to the introduction of new brands and products. The continued investment in a subdued market will provide a solid platform for the business, in the medium to long-term. The launch of Textar, a global braking brand, in the first quarter of 2013 has been a success. Textar sales for the year under review were ahead of expectations. The strong relationships which CI has cultivated over the years throughout the distribution channel, on the back of its other recognised brands, has enabled it to leverage these relationships to successfully introduce the brand into the South African market. Based on the success achieved with Textar, CI has entered into further strategic discussions to expand the product range to include the full range of Textar brake discs and drums in the latter half of 2014. CI now offers one of the widest and most complete range of brake pads for the South African automotive aftermarket and is continuing, together with Textar, to further develop its range of brake products particularly for the taxi market. Gabriel, the Group’s flagship ride control brand continues to invest in product development to meet the demands of the increasingly diverse vehicle parc in South Africa and sub-Saharan Africa. Investment in product development for the sub- Saharan Africa car parc is seen as essential for the successful growth of the brand in the region. For the year under review 120 new references were released and this focus will continue in 2014. Marketing activities are key to the reinforcement of the brand with the consumer. CI launched The Garage, a thirteen part series of two minute infomercials, which aired on Multichoice channels and the launch of the “Shocks for Life” campaign run by Supa Quick on prime time television. Exciting opportunities are materialising in the mining sector under the newly secured distribution rights for the North American brand, VisionX. The bespoke development of VisionX’s mining specified lights will further increase the likelihood of success in the South African and sub-Saharan Africa mining and construction channels. A number of trial sites have already been fitted with VisionX. The introduction and adoption of new products in the specialist mining, military and construction channel, with its long sales cycles, is a lengthy process. CI’s expansion into sub-Saharan Africa more fully reported on below is showing good growth off a low base. Distributors have been appointed in eleven countries during the year under review. The Group continues to look for opportunities to acquire brands and products with a recognised pedigree in the automotive aftermarket that will support the Group’s vision to be the leading supplier of choice for branded automotive parts in sub-Saharan Africa.
  3. 3. Results for the Year Ended 31 December 2013 3 RESULTS The results for the year ended 31 December 2013 represent the first reporting period following the repositioning of the Group as a focused automotive aftermarket business. The results for the year are comparable to the continuing operations in the prior period which exclude the Group’s original equipment manufacturing (“OEM”) operations which had been reflected as discontinued operations. Revenue for the period under review was down 2.26% at R553.55 million when compared with R566.37 million for the same period last year. The lower sales can mostly be attributed to the negative impact that the seven weeks of industrial action in the third quarter of the year had on the automotive sector and the economy in general. This was compounded by the decision by CI’s distributors, in collaboration with CI, to reduce inventory levels in the supply chain on the back of CI’s improved logistics, increased in-fill rates and reduced lead times. Ultimately this lean supply chain will provide both CI and its distributors with whom it partners a competitive advantage in the market place. Despite the substantial weakening of the Rand in the second half of the year and the inflationary impact this had on the cost of materials, the gross profit percentage improved marginally from 30.25% in the previous period to 30.37% in the period under review. Margin was protected through the use of a forward cover policy which eliminates speculation and provides CI and its customers with pricing certainty within a pre-defined band. In an environment where expenses have been increasing at above the rate of inflation, CI’s continued focus on operational efficiencies and cost management resulted in net operating expenses for the period under review being well contained at R141.38 million, down 0.23% from R141.71 million in the previous period. While curtailing its expenditure the Group continued to invest in its sales and marketing strategies for its primary brands – Gabriel, Echlin and Textar. Marketing and selling expenses for the period under review were up 3.73% to R69.45 million from R66.95 million in the previous period. The increased marketing expenses can in part be attributed to the launch of the Textar brand and the investment in the expansion of the sales, marketing and technical teams required to support the brand in the distribution channel. The investment in working capital for the launch of the Textar brand, coupled with the impact the current rate of exchange had on the cost of inventory, had the effect of increasing net working capital for the period under review. The reduction in expenses was not sufficient to offset the impact of the loss in revenue and margin. Operating profit for the year ended 31 December 2013 declined by R2.9 million to R26.74 million compared to R29.65 million for the same period in the previous year. The operating profit margin for the year of 4.83% remains well below the Group’s short term objectives. Rigorous cost management and further rationalisation of the businesses cost-to-serve structures are being embarked upon to achieve an acceptable operating margin. Net profit after tax was R14.78 million compared to R19.92 million from continuing operations in 2012. Earnings per share for the year was 10.7 cents compared with a total loss per share of 24.3 cents, which included earnings per share from continuing operations of 14.5 cents, in the corresponding period in the previous year. Headline earnings per share was 10.5 cents compared with a headline earnings per share of 6.6 cents, which included headline earnings per share from continuing operations of 16.2 cents, in the corresponding period in the previous year. SUB-SAHARAN AFRICA The Group’s vision is to be the supplier of choice for branded automotive parts in sub-Saharan Africa. The Group is starting to show good growth off the low base from which it commenced in 2013. The key to success in sub-Saharan Africa is the ability to provide the required coverage and availability of product to service the predominantly Asian imported vehicle parc which forms the majority of the vehicles in these markets. The Group has embarked on an intensive project aimed at developing the top part numbers required for these markets. In addition to this CI has also embarked on a vehicle parc part mapping process which will enhance the ability to identify parts in these markets. CI’s strategy is to appoint country specific distributors capable of representing the Group and its brands through a similar model to that used in South Africa. CI is now represented in eleven countries in sub-Saharan Africa predominantly in the South African Development Community (“SADC”). Results For the Year Ended 31 December 2013
  4. 4. Results for the Year Ended 31 December 2013 4 Zimbabwe has shown the highest growth rate of the mature markets. Growth in Mozambique exceeded forecast and offers a number of opportunities. The current political instability however, should it escalate, may force a revision of our outlook. Good growth in Namibia and Botswana was the result of improved marketing and branding efforts in support of the wholesale distributors combined with improved in-country stock holding by the distributors and improved brand visibility. Current opportunities are being explored in Angola, Nigeria, Tanzania and Sierra Leone. TORRE ACQUISITION OF CONTROL INSTRUMENTS Towards the end of the year, the board of Torre Industrial Holdings Limited (“Torre”) announced its intention to make an offer to shareholders to purchase the Group for R1.40 per share. This reflected a 44% premium to the volume weighted average price of the shares on the JSE for the 30 trading days up to and including 29 November 2013, being the day prior to Torre announcing its intention. Details of the Torre offer are contained in a seperate Circular to Shareholders, which was distributed on 6 March 2014. In line with the requirements of the offer, no dividend is proposed or declared. PROSPECTS The investment in building great brands will continue, enabling CI to enhance its relationships with its primary customers and take advantage of opportunities in the market. The key component to all of CI’s strategies will remain its focus on owning the relationship at each level in the channel and creating demand for its brands. The economy appears to be slowing down. Consumer spending is weakening, fuelled by high consumer debt levels and an increasing cost of living. The impact of this has been particularly prevalent in the income groups which form the target market for the automotive aftermarket and seems likely to continue in the near future. CI remains confident that its brands are correctly positioned in the market and that the marketing strategies which have been deployed will create a receptive market for all of its major brands; Gabriel and Autocom, Textar and Mag Brakes, Echlin and VDO, Vision X and Trucklite, and Warn and Hi-Lift. AUDITOR’S REPORT The auditors, Deloitte Touche, have issued their unmodified opinion on the Group’s consolidated financial statements for the year ended 31 December 2013. The audit was conducted in accordance with International Standards on Auditing. This preliminary report has been derived from the Group’s consolidated financial statements and consistent in all material respects, with the Group’s consolidated financial statements. A copy of their audit reports are available for inspection at the company’s registered office. The auditors have issued an unmodified audit opinion for the Group’s consolidated annual financial statements as well as an unmodified audit opinion for this extract from the Group’s consolidated annual financial statements. Any reference to future financial performance included in this announcement, has not been reviewed or reported on by the Company’s auditors. Results For the Year Ended 31 December 2013
  5. 5. Results for the Year Ended 31 December 2013 5 BASIS OF PRESENTATION AND ACCOUNTING POLICIES The Group is domiciled in South Africa. The audited summarised consolidated financial results at and for the year ended 31 December 2013 comprise the company and its subsidiaries (the ‘Group’). The Group’s principal accounting policies have been applied consistently over the current and prior financial years. The Group’s summarised consolidated financial results have been prepared in accordance with the framework concepts and measurement and recognition requirements of International Financial Reporting Standards (IFRS), interpretations issued by the IFRS Interpretations Committee (IFRIC), the Companies Act of South Africa, as well as SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council. The preparation of the financial results were supervised by the Group Financial Director, FE Giliomee CA (SA). On behalf of the Board JPS O’LEARY SD ROGERS Chairman Chief Executive Officer The Group’s integrated annual report, including the complete annual financial statements of the Group and the Company for the year ended 31 December 2013, will be mailed to shareholders on or before 31 March 2014. A copy of the Group’s integrated annual report will also be available on the Company’s website, www.ci.co.za on or before 31 March 2014. 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 Results For the Year Ended 31 December 2013
  6. 6. Results for the Year Ended 31 December 2013 6 For the year ended 31 December 2013 Summarised CONSOLIDATED Income Statement 2013 2012 R 000 R 000 Continuing operations Revenue 553 549 566 367 Cost of sales (385 435) (395 015) Gross profit 168 114 171 352 Other operating income 5 372 6 270 Marketing and selling expenses (69 449) (66 949) Administrative expenses (41 801) (43 476) Other operating expenses (35 501) (37 550) Operating profit 26 735 29 647 Finance income 195 789 Finance costs (6 278) (5 579) Profit before taxation 20 652 24 857 Taxation (5 876) (4 934) Profit for the year from continuing operations 14 776 19 923 Discontinued operations Loss for the year from discontinued operations – (53 335) Profit/(Loss) for the year 14 776 (33 412) Profit/(Loss) attributable to: Owners of the parent 14 776 (33 412) Basic earnings/(loss) per share (cents) – From continuing operations 10.7 14.5 – From discontinued operations – (38.8) 10.7 (24.3) Diluted earnings/(loss) per share (cents) – From continuing operations 10.5 14.5 – From discontinued operations – (38.8) 10.5 (24.3) Headline earnings/(loss) per share (cents) 10.5 16.2 – From continued operations – (9.6) – From discontinued operations 10.5 (6.6) Diluted headline earnings/(loss) per share (cents) – From continued operations 10.3 16.2 – From discontinued operations – (9.6) 10.3 (6.6) Dividends per share (cents) – Cash 1.50 –
  7. 7. Results for the Year Ended 31 December 2013 7 For the year ended 31 December 2013 Summarised CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2013 2012 R 000 R 000 Profit/(Loss) for the year 14 776 (33 412) Other comprehensive income for the year, net of taxation 418 397 Items that will be reclassified to profit and loss Hedging reserve Current year net movement – 190 Current year net taxation movement – (53) Available-for-sale reserve Current year gross movement 419 260 Realised on disposal (1) – Total comprehensive income/(loss) for the year 15 194 (33 015) Attributable to: Owners of the parent 15 194 (33 015)
  8. 8. Results for the Year Ended 31 December 2013 8 At 31 December 2013 Summarised CONSOLIDATED Statement of FINANCIAL position 2013 2012 R 000 R 000 Assets Non-current assets 125 878 132 510 Property, plant and equipment 53 455 56 202 Intangible assets 70 554 74 873 Available-for-sale financial assets 997 580 Deferred income tax assets 872 855 Current assets 203 911 196 409 Inventories 106 840 96 033 Trade and other receivables 36 779 29 570 Derivative financial instruments 147 5 Financial assets at fair value through profit or loss – 367 Cash and cash equivalents 60 145 70 434 Total assets 329 789 328 919 EQUITY AND LIABILITIES Capital and reserves 150 209 135 330 Share capital 6 972 6 972 Share premium 396 996 396 996 Treasury shares (2 166) (2 813) Other reserves 4 261 3 045 Accumulated loss (255 854) (268 870) Non-current liabilities 26 293 27 065 Borrowings 4 586 3 962 Deferred income tax liabilities 19 349 20 386 Provisions 2 358 2 717 Current liabilities 153 287 166 524 Trade and other payables 76 504 89 673 Current income tax liabilities 474 273 Derivative financial instruments – 490 Borrowings 72 223 72 827 Provisions 4 086 3 261 Total equity and liabilities 329 789 328 919
  9. 9. Results for the Year Ended 31 December 2013 9 For the year ended 31 December 2013 Summarised CONSOLIDATED STATEMENT OF CASH FLOWS 2013 2012 R 000 R 000 Cash flows from operating activities Cash generated from operations 12 314 19 667 Finance income received 9 414 Finance costs paid (6 133) (8 499) Dividends received 20 36 Dividends paid (2 064) – Taxation refunded 2 – Taxation paid (6 733) (9 549) Net cash (utilised in)/generated from operating activities (2 585) 2 069 Cash flows from investing activities Purchase of property, plant and equipment (7 959) (7 559) Proceeds from disposal of property, plant and equipment 374 6 844 Additions to intangible assets (1 098) (2 965) Disposal of subsidiary – 17 336 Disposal of financial assets 668 – Net cash (utilised in)/generated from investing activities (8 015) 13 656 Cash flows from financing activities Proceeds from borrowings 4 278 4 696 Repayments of borrowings (4 258) (7 608) Proceeds from treasury shares 291 – Net cash generated from/(utilised in) financing activities 311 (2 912) Net cash (outflow)/inflow for the year (10 289) 12 813 Cash and cash equivalents at the beginning of the year 70 434 57 621 Cash and cash equivalents at the end of the year 60 145 70 434
  10. 10. Results for the Year Ended 31 December 2013 10 For the year ended 31 December 2013 Summarised CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share capital Share premium Treasury shares Other reserves Accumulated loss Total R 000 R 000 R 000 R 000 R 000 R 000 Balance at 1 January 2012 6 972 396 996 (2 813) 1 719 (235 933) 166 941 Total comprehensive income/(loss) for the year 397 (33 412) (33 015) Loss for the year (33 412) (33 412) Other comprehensive income for the year 397 397 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 Balance at 1 January 2013 6 972 396 996 (2 813) 3 045 (268 870) 135 330 Total comprehensive income for the year 418 14 776 15 194 Profit for the year 14 776 14 776 Other comprehensive income for the year 418 418 Employee share option scheme Share-based payment expense 1 458 1 458 Transferred to accumulated loss (660) 660 – Movement of treasury shares 647 (356) 291 Dividends declared (2 064) (2 064) Balance at 31 December 2013 6 972 396 996 (2 166) 4 261 (255 854) 150 209
  11. 11. Results for the Year Ended 31 December 2013 11 For the year ended 31 December 2013 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. Segmental information for the year ended 31 December 2013 Aftermarket R000 Head office R000 Unallocated/ eliminations R000 Total R000 Continuing operations External revenue 553 549 – – 553 549 Inter-segment revenue – 4 091 (4 091) – Total segment revenue 553 549 4 091 (4 091) 553 549 Normalised EBITDA 48 483 (3 931) – 44 552 Depreciation and amortisation (16 140) – – (16 140) Finance income 195 – – 195 Finance costs (6 252) (26) – (6 278) Taxation (5 768) (108) – (5 876) Total assets 325 298 88 555 (84 064) 329 789 Segmental information for the year ended 31 December 2012 Continuing operations 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 Depreciation and amortisation (16 261) – – (16 261) Finance income 3 614 4 021 (6 846) 789 Fnance costs (8 484) (3 941) 6 846 (5 579) Taxation (4 770) (164) – (4 934) Total assets 326 989 93 860 (91 930) 328 919 Summarised segmental information
  12. 12. Results for the Year Ended 31 December 2013 12 For the year ended 31 December 2013 Summarised segmental information A reconciliation of normalised EBITDA to the profit for the year from continuing operations is provided as follows: 2013 2012 R 000 R 000 Normalised EBITDA 44 552 51 583 Depreciation and amortisation (16 140) (16 261) Impairment of intangible assets and property, plant and equipment (110) (3 435) Reversal of impairment of intangible assets and property, plant and equipment 252 – Restructuring costs (910) (1 174) Profit on disposal and scrapping of property, plant and equipment 249 218 Share-based payments expense (1 458) (1 271) Bad debts – (13) Profit on disposal of available-for-sale financial assets 3 – Profit on disposal of financial assets at fair value through profit or loss 297 – Operating profit 26 735 29 647 Net finance costs (6 083) (4 790) Profit before taxation from continuing operations 20 652 24 857 Taxation (5 876) (4 934) Profit for the year from continuing operations 14 776 19 923

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