Control Instruments Increases Net Profit 17,5%


  • Gross profit R85,43-million – up from R82,65-million
  • Profit after tax R7,97-million – increase of 17,48%
  • Earnings per share 5,80 cents – up from a comparable 4,93 cents

OVERVIEW

Control Instruments (CI) has increased operating profit by 4,2% to R13,85-million for the six months to June 2013 compared with R13,29-million for the same period the previous year. Net profit after tax was up 17,5% to R7,97-million from R6,79-million.

Earnings per share for the six months improved to 5,80 cents per share compared with a loss of 37,81 cents per share. Headline earnings per share was 5,74 cents compared to 3,24 cents. Revenue was R268,91-million compared to R269,96-million the previous year

The business managed, in spite of the weakening rate of exchange and the inflationary impact on the cost of materials, to improve its current profit margins by 1,15% to 31,77%. Gross profit for the period increased 3,37% to R85,43-million compared with R82,65-million in the previous period.

The increase in net expenses, which included an 8,22% increase in the investment in marketing, was well contained at 3,2%. Increased marketing expenses can in part be attributed to the launch of the Textar brand in the South African market and the investment in the expansion of the sales, marketing and technical teams required to support the brand in the distribution channel. The focus on operational efficiencies and cost management has resulted in operating expenses being curtailed.

“The results for the six months to 30 June 2013 represent the first reporting period following the repositioning of Control Instruments (CI), during 2012, as a focused automotive aftermarket business,” said Sean Rogers, Group CEO. CI services the South African and sub-Saharan Africa markets with branded automotive aftermarket products.

“A significant contributor to this subdued revenue performance can be attributed to the pressure CI came under as distributors decreased inventory levels in the supply chain over the first half of the year. This was partially off the back of CI’s increased in-fill rates and reduced lead times,” he said.

“While the results are satisfactory, the operating profit margin of 5,14%, while up on the same period last year, is still below the Group’s short term expectations,” said Mr Rogers.

“This period proved to be challenging. Trading conditions in the automotive aftermarket were negatively impacted by distributors reducing inventory levels, a slowdown in consumer spending and increasing competition from low cost products,” he said.

“The Group continued to invest in its sales and marketing strategies, creating a receptive market for its primary brands – Gabriel, Echlin, VDO and the newly launched Textar range of friction products. This investment has continued to strengthen the Group’s strategic relationships with its primary customers and distributors,” he said.

Gabriel’s sell-through volumes into the market are an indicator of real growth increased marginally over the period. The successful launch of Textar, the German-based brake friction product in the second quarter and the uptake of the brand in the market was insufficient to counter the drop off in revenue, said Mr Rogers.

TRADING ENVIRONMENT – NOTES

Despite the slowdown in consumer spend, CI has remained committed to its investment in marketing and sales within its distribution channel and to the introduction of new brands to the market. This continued investment will provide a solid platform for the business, its brands and its route to the market in the medium to long term.

CI’s expansion into Africa is showing good growth off a low base. Distributors have been appointed in eight territories in sub-Saharan Africa with plans to open a further three territories before year end. Key to CI’s success in this region will be the coverage and availability of product to service the Asian imported vehicle parc.

During the second quarter of 2013 CI successfully launched the Textar brand in South Africa. Sales during the launch period are ahead of expectation. The success of the launch can be attributed in part to the availability of stock and extended terms offered to primary distributors for take-on inventory. Net working capital for the period increased in part as a consequence of the level of the investment required in working capital for the Textar product launch.

TMD, the Textar holding company, and CI entered into strategic discussions to expand the product range to include TMD’s full range of Textar brake discs and drums. 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.

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.

CI increased its sales efforts during the first half of 2013 on its range of lighting products under the newly secured North American brand, VisionX. VisionX’s route to market is through CI Automotive’s specialised channel. The adoption of new products in this channel which typically includes the sale of products onto mining, military and construction vehicle is a lengthy process.

The Group continues to look for opportunities to acquire brands and products with a recognised pedigree in the automotive aftermarket that will support the Groups vision to be the leading supplier of choice for branded automotive parts in sub-Saharan Africa.

PROSPECTS

It appears that the business’s strategic initiatives that are focused on realising the growth opportunities in the market will be supported by the underpinning drivers of the automotive aftermarket: an ageing and expanding car parc.

Weakening consumer spending together with the likelihood of strike action in the automotive segment may have an impact on the second half of the year which has traditionally been a stronger period for sales in the automotive aftermarket.

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