Control Instruments hit by 'difficult year`

Control Instruments incurred a headline loss of 6.6c a share for the year to 31 December 2001, an "extremely difficult and challenging" 20^th year of operation, according to MD Richard Friedman.

Although revenue grew almost 27%, operating income increased by only 17.5%. Friedman says this was lower than expected mainly due to the pressure on margins at Shurlok.

However, he adds that the underlying strength inherent in the group and its subsidiaries and the conservative approach followed allowed Control Instruments to weather the period.

"The group continued to tighten its focus on its core electronics operations, Shurlok, CI-FMS and CI-AT (previously known as CI-VDO). These businesses operate in specialised niche areas of the original equipment manufacture motor industry and the commercial and passenger vehicle markets," Friedman says.

"These are all market segments that offer excellent growth prospects as well as export opportunities arising out of SA`s successful Motor Industry Development Program and the declared intention of most of the world`s motor manufacturers to increase their component supplies from SA.

"All the core electronics operations traded profitably during the year, although Shurlok`s margins and profitability were adversely affected by component shortages and exchange rate variances. The national strike in the automotive industry in the second half of the year also had a major impact on Shurlok and CI-AT`s results."

He adds that the group`s operations and activities generated sufficient cash to fund the investment of R12 million in productive assets, about R16.8 million in development expenditure and R5.25 million in acquisitions, with a further R8.6 million of free cash flow used to reduce debt.

Control Instruments continued with the disposal of its non-core holdings with the sale of the business of Data Pro for R30 million and 61% of its shareholding in Emailco for R5.8 million.

The Southern Africa distribution rights for the Siemens VDO FMS range of onboard computers, which were sold to Matrix in 1999 were re-acquired for R5.25 million, and the group acquired Siemens VDO`s Audio Navigation business in sub-Saharan Africa with effect from 1 January 2002.

A substantial increase in expenses was mainly as a result of the inclusion of expenses relating to the Conlog business, a large increase in development expenditure in all the operations, the inclusion of SAN People`s costs and the expensing of all its development expenses as a result of the change in accounting policy, and an increase in sales and marketing expenditure.

Friedman adds that R6.6 million was written off in respect of the investment in discontinued South American operations; R3.2 million of goodwill was written off; a provision of R2.2 million was raised against the value of the shares held by the share incentive scheme, depreciation increased markedly and the deferred tax charge of R1.45 million was reversed.

Friedman says the group`s prospects are good. "The ongoing investments in modern manufacturing facilities, new product development and staff have enabled the group to build a solid platform from which it is in a position to generate acceptable returns.

"The disposal of non-core businesses and the acquisition of complementary assets have enhanced the group and added to its focus."

He expects Control Instruments to trade profitably and to continue to generate cash in the current year.

The group`s share was trading 3c up at 48c by midmorning today.