CI reports revenue slump

Control Instruments (CI) had a tough first half of the year, as vehicle sales came under pressure.

Group revenue dropped 17%, to R416 million, in the first half of the year to June, compared to R501.1 million in the same period last year.

It did, however, reduce expenses by R38 million, which limited the operating loss to R6.2 million, compared to an operating profit of R3.4 million in the six months of last year.

Control Instruments says “further cost reductions were considered, but were not implemented as they would have impacted the core competencies of our businesses”.

The electronics company says it managed to trim its loss per share through reducing expenses and increasing efficiencies. The loss per share was reduced by 62%, to 8.75c, compared to 23.21c in the same period in 2008. The headline loss per share reduced 7%, to 8.76c, compared to 9.37c.

However, CI says its cash resources “were under significant pressure until May 2009”. This was mostly the result of the long lead-times for orders of components and products that could not be cancelled or deferred, despite a significant drop in demand. The resultant net cash outflow for the period was R7.8 million, which was better than its targets.

A global slowdown in demand for new vehicles led to a decreased demand for manufacturing and engineering services. This resulted in revenue in its original equipment manufacturing (OEM) division declining 31%, to R196.5 million, compared to a year ago, when it was R284.2 million in the comparative period.

The aftermarket business, aimed at vehicles that have left the showroom floor, traded well below expectations.

Usually, this business is counter-cyclical to the OEM business, but it was hampered by the global financial crisis and the resulting impact on consumer spending. Revenue was flat at R220.7 million.

The company says its main target market, the automotive industry, seems to have stabilised and a “slow, but steady upturn in demand is expected for the remainder of 2009”.

South African vehicle sales have been declining for some time. Earlier this month, the National Association of Automobile Manufacturers of SA said 30 731 units were sold in July, a 27.4% year-on-year decline.

CI also expects to generate cash in the second half of the year, assuming no untoward occurrences.

Chris Gilmour, an analyst at Absa Investments, says there are signs the decline in vehicle sales is slowing, and a turnaround is on the horizon. “You get to a point where, if a downturn lasts long enough, eventually it starts turning up.”

He adds that the sustained reduction in interest rates will start improving car sales, as sales of other durable items, such as furniture, are already picking up.

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