Background

CPI Group Limited was listed on ASX in 1998, and is headquartered in Newcastle, New South Wales, Australia. The company's business focuses on manufacturing and distributing building fixtures and fittings to residential and commercial premises in Australia, New Zealand, the United Kingdom, China, and other countries. The company offers vitreous china toilet suites, basins, plastic cisterns, taps and showers, baths, kitchen sinks, laundry tubs, smart products, and bathroom accessories, as well as domestic water control valves under various brands.

To expand its market in New Zealand, the Group acquired Bath & Bed Limited for consideration of NZ$107.5M on 12 November 2019. The size of the acquisition had a pervasive impact on the financial statements. The Group engaged an independent valuation expert to advise on the identification and measurement of acquired assets and liabilities, in particular determining the allocation of purchase consideration to goodwill and separately identifiable intangible assets. On 17 June 2020, CPI secured an additional long-term loan of $27 million with its current bank. The loan will be released in July 2020 and will be used to pay for another long-term loan that will fall due in the same month.

To ensure a good availability of stock in stores and on-time delivery, CPI must maintain a reasonable level of inventory. The inventory has a very large range of items, from very cheap (e.g. taps) to very expensive (e.g. luxury bathtubs). In the past two years, the industry has moved fast due to changes in customer preferences, new products, and fast-moving product. Many of CPI's models have to be discontinued.

CPI generates approximately 30% of its revenue from supplying items to builders for their construction jobs at residential premises (new builds, renovations, and replacements). Builders can purchase CPI's products on credit up to $50,000 for each construction job and pay once the job is finished. A construction job can last from a few days up to four months. For each job, the builder provides CPI's warehouse staff with a list of items required. Items are then packed and delivered to the construction site. The delivery dockets will be given weekly to an accountant who manages inventory, invoices and payments. Each builder has a customer code number, and the same for each construction job.

The New Zealand and United Kingdom markets were both impacted significantly as COVID-19 restrictions were implemented. In response to the lockdown restrictions in the United Kingdom and New Zealand, 98 staff were furloughed during those periods. However, CPI grew share in the United Kingdom and maintained share in New Zealand, and the management is confident of a bounce back in these markets.

The fixed remuneration of the Board and Group Executive was reduced by 20 per cent for the period 1 April 2020 to 30 June 2020. In addition, there were no short-term incentive payments for all executives for FY20 as the financial gateways were not achieved due to the weaker market activity and the negative impact of the pandemic on revenue and earnings for the Group.

Overall, despite the economic downturn due to COVID, the management believes that the company will remain well capitalised to manage through the current challenging conditions, continue to generate strong operating cashflow, and drive growth through new and smart products and good management.

Financial information : see attached