| Wed 8 Aug 2007, 17:05 | | BEL - Bell Equipment - Interim Report For The Six |
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BEL
BEL
BEL - Bell Equipment - Interim Report For The Six Months Ended 30 June 2007
Bell Equipment Limited
(Incorporated in the Republic of South Africa)
(Share code: BEL ISIN: ZAE000028304)
Registration number: 1968/013656/06 ("Bell")
Interim report for the six months ended 30 June 2007
Revenue up 35%
Earnings per share up 78%
Net asset value per share up 35%
Condensed consolidated balance sheet
Reviewed
Restated Audited
at 30 June at 30 June at 31 December
R`000 2007 2006 2006
ASSETS
Non-current assets 468 653 379 284 368 315
Property, plant and equipment 385 106 305 945 318 140
Intangible assets 7 375 7 514 7 074
Investments and long-term
receivables 56 341 62 739 20 637
Deferred taxation 19 831 3 086 22 464
Current assets 1 984 955 1 649 395 1 673 937
Inventory 1 377 363 1 109 914 1 219 834
Trade and other receivables 537 211 516 438 389 469
Current portion of long-term
receivables 55 922 12 294 15 271
Taxation 1 729 1 238 1 623
Cash resources 12 730 9 511 47 740
Total assets 2 453 608 2 028 679 2 042 252
EQUITY AND LIABILITIES
Capital and reserves 1 114 211 824 304 954 912
Stated capital (Note 5) 226 229 225 946 226 185
Non-distributable reserves 55 941 59 590 55 490
Retained earnings 832 041 538 768 673 237
Non-current liabilities 182 670 161 723 158 371
Interest-bearing liabilities 1 553 3 574 2 319
Repurchase obligations and
deferred leasing income 144 778 142 978 133 253
Deferred warranty income 22 389 7 166 11 724
Long-term provisions and lease
escalation 13 950 8 005 11 075
Current liabilities 1 156 727 1 042 652 928 969
Trade and other payables 725 987 613 509 557 330
Current portion of interest-
bearing liabilities 2 018 2 706 2 467
Current portion of repurchase
obligations and deferred
leasing income 18 881 18 600 17 021
Current portion of deferred
warranty income 10 238 2 345 5 291
Current portion of provisions
and
lease escalation 40 111 68 403 70 748
Taxation 59 317 22 431 88 741
Short-term interest-bearing debt 300 175 314 658 187 371
Total equity and liabilities 2 453 608 2 028 679 2 042 252
Number of shares in issue (`000) 94 834 94 763 94 817
Net asset value per share 1 175 870 1 007
(cents)
Condensed consolidated income statement
Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R`000 2007 2006 2006
Revenue 2 069 329 1 534 894 3 533 177
Cost of sales 1 615 669 1 236 536 2 739 263
Gross profit 453 660 298 358 793 914
Other operating income 33 353 53 290 102 604
Distribution costs (190 058) (193 299) (415 194)
Administration expenses (20 250) (17 344) (60 307)
Other operating expenses (18 397) (15 400) (45 963)
Profit from operating activities 258 308 125 605 375 054
Net finance costs (income) (Note 2) 2 652 (23 286) 28 017
Profit before taxation (Note 3) 255 656 148 891 347 037
Taxation 73 514 46 847 110 880
Profit for the period 182 142 102 044 236 157
Earnings per share (basic) (cents) 192 108 249
(Note 4)
Earnings per share (diluted) 192 108 249
(cents) (Note 4)
Proposed dividend per share (cents) - - 25
Condensed cash flow statement
Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R`000 2007 2006 2006
Cash operating profit before
working capital changes 253 361 165 762 436 268
Cash invested in working capital (136 614) (100 963) (143 931)
Cash generated from operations 116 747 64 799 292 337
Net finance (costs) income (2 652) 23 286 (28 017)
Taxation paid (100 411) (19 060) (36 269)
Net cash generated
from operating activities 13 684 69 025 228 051
Dividend paid (23 709) - -
Net cash flow applied to investing
activities (165 615) (104 598) (100 904)
Net cash flow from financing
activities 27 826 82 558 85 354
Net cash (outflow) inflow (147 814) 46 985 212 501
Net short-term interest-bearing
debt at beginning of the period (139 631) (352 132) (352 132)
Net short-term interest-bearing
debt at end of the period (287 445) (305 147) (139 631)
Statement of changes in equity for the six months ended 30 June 2007
Non-
Stated distributable Retained
R`000 capital reserves earnings Total
Balance at 31 December 2005 225 946 36 921 436 392 699 259
Realisation of revaluation
reserve on depreciation of
buildings - (332) 332 -
Exchange differences on
translation of foreign
operations - 22 279 - 22 279
Exchange differences on
foreign reserves - 722 - 722
Net profit for the period - - 102 044 102 044
Balance at 30 June 2006 -
reviewed 225 946 59 590 538 768 824 304
Share options exercised 239 - - 239
Realisation of revaluation
reserve on depreciation of
buildings - (356) 356 -
Exchange differences on
translation of foreign
operations - (3 702) - (3 702)
Exchange differences on
foreign reserves - (42) - (42)
Net profit for the period - - 134 113 134 113
Balance at 31 December 2006
- audited 226 185 55 490 673 237 954 912
Share options exercised 44 - - 44
Realisation of revaluation
reserve on depreciation of
buildings - (371) 371 -
Exchange differences on
translation of foreign
operations - 731 - 731
Exchange differences on
foreign reserves - 91 - 91
Dividend paid - - (23 709) (23 709)
Net profit for the period - - 182 142 182 142
Balance at 30 June 2007 -
reviewed 226 229 55 941 832 041 1 114 211
Abbreviated notes to interim report
1. ACCOUNTING POLICIES
The accounting policies and methods of computation are consistent with those
applied in the financial statements for the year ended 31 December 2006, except
for the adoption of all of the new and revised International Financial Reporting
Standards and Interpretations that are effective for reporting periods
commencing on 1 January 2007. These Standards and Interpretations had no impact
on the interim results of the group and the disclosure requirements will be
addressed in the 2007 annual financial statements.
This abridged report complies with IAS 34, the Standard on Interim Financial
Reporting.
Reviewed Audited
Restated
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R`000 2007 2006 2006
2. NET FINANCE COSTS (income)
Net interest paid 8 662 11 720 21 127
Net currency exchange (income) (6 010) (35 006) 6 890
losses
Net finance costs (income) 2 652 (23 286) 28 017
3. PROFIT BEFORE TAXATION
Profit before taxation is arrived at
after taking into account:
Income
Import duty rebates 9 061 14 611 30 940
Net surplus (loss) on disposal of
property, plant and equipment 491 220 (3 450)
Royalties 6 727 13 533 30 419
Expenditure
Auditors` remuneration - audit and
other services 3 259 2 541 4 377
Amortisation of intangibles 187 125 249
Depreciation of property, plant and
equipment 22 297 16 608 39 910
(Decrease) increase in warranty
provision (24 696) 666 4 831
Operating lease charges
- equipment and motor vehicles 11 198 6 838 20 047
- properties 11 821 8 241 18 007
Research and development expenses
(excluding staff costs) 13 007 7 434 17 123
Staff costs 286 450 228 886 525 710
4. EARNINGS PER SHARE
The calculation of earnings per
share is based on profit after
taxation and
the weighted average number of
ordinary shares in issue during the
period.
The weighted average number of
shares
in issue for the period under review
was 94 832 747 (June 2006:
94 763 400).
On a diluted basis, the fully
converted weighted average number of
shares is 94 921 744 (June 2006: 94
850 178).
Headline earnings per share is
arrived at as follows:
Profit for the period 182 142 102 044 236 157
Net (surplus) loss on disposal of
property, plant and equipment (349) (156) 2 450
Headline earnings 181 793 101 888 238 607
Headline earnings per share 192 108 252
5. STATED CAPITAL
Authorised
100 000 000 (June 2006: 100 000 000)
ordinary shares of no par value
Issued
94 834 400 (June 2006: 94 763 400)
ordinary shares of no par value 226 229 225 946 226 185
6. CAPITAL EXPENDITURE COMMITMENTS
Contracted 12 894 2 588 5 531
Authorised, but not contracted 46 016 29 904 95 309
Total capital expenditure 58 910 32 492 100 840
commitments
7. ABBREVIATED SEGMENTAL ANALYSIS
Geographical segments
The group operates in two principal
geographical areas:
Operating
R`000 Revenue profit Assets Liabilities
June 2007
South Africa 945 013 173 382 1 630 107 881 470
Rest of world 1 124 316 84 926 823 501 457 927
Total - reviewed 2 069 329 258 308 2 453 608 1 339 397
June 2006
South Africa 774 812 91 377 1 354 336 884 710
Rest of world 760 082 34 228 674 343 319 665
Total - reviewed 1 534 894 125 605 2 028 679 1 204 375
December 2006
South Africa 1 720 506 295 573 1 458 397 758 821
Rest of world 1 812 671 79 481 583 855 328 519
Total - audited 3 533 177 375 054 2 042 252 1 087 340
Reviewed Audited
at 30 June at 30 at 31 December
June
R`000 2007 2006 2006
8. CONTINGENT LIABILITIES
8.1 The repurchase of units sold
to
customers and financial
institutions has been guaranteed
by
the group for an amount of 34 939 106 534 41 305
In the event of repurchase, it is
estimated that these units would
presently realise (44 824) (119 429) (49 262)
(9 885) (12 895) (7 957)
Less: provision for residual
value
risk on specific machines - (6 179) (1 991)
Net contingent liability - - -
The provision for residual value
risk is based on the assessment
of the probability of return of
the units.
8.2 The group has assisted
customers with the financing of
equipment purchased through a
financing venture with
Wesbank, a division of FirstRand
Bank Limited.
In respect of a certain category
of this financing provided and in
the event of default by
customers,
the group is at risk for the full
balance due to Wesbank by the
customers.
At period end the amount due by
customers to Wesbank in respect
of these transactions totalled 55 502 51 200 61 275
In the event of default, the
units
financed would be recovered and
it is estimated that they would
presently realise (43 708) (63 670) (60 482)
11 794 (12 470) 793
Less: provision for non-recovery (16 033) (10 832) (14 700)
Net contingent liability - - -
To the extent that customers are
both in arrears with Wesbank and
there is a shortfall between the
estimated realisation values of
units and the balance due by the
customers to Wesbank, a provision
for the full shortfall is made.
8.3 The residual values of
certain equipment sold to
financial institutions has been
guaranteed by the group.
In the event of a residual value
shortfall, the group
would be exposed to an amount of 11 112 10 892 13 943
Less: provision for residual
value risk (2 341) (3 539) (3 002)
Net contingent liability 8 771 7 353 10 941
The provision for residual value
risk is based on the
assessment of the probability of
return of the units.
8.4 Certain trade receivables have
been discounted with
financial institutions for an
amount of 12 288 14 037 6 266
These transactions are with
recourse to the group.
In the event of default, certain
units could be recovered and it
is estimated that these units would
presently realise at least 12 288 14 037 6 266
Reviewed Audited
30 June 2007 30 June 2006 31 December 2006
Weighted Weighted Weighted
average Closing average Closing average Closing
9. EXCHANGE
RATES
The following
major rates of
exchange were
used:
United States
$: Euro 1,33 1,35 1,24 1,28 1,26 1,32
SA Rand:
United States 7,15 7,02 6,37 7,11 6,80 6,98
$
United States
$: British GBP 1,97 2,00 1,80 1,84 1,85 1,97
10. COMPARATIVE INFORMATION
In accordance with IAS 1 computer software has been reclassified as intangible
assets and is shown on the face of the balance sheet. Comparative information
has been restated accordingly. This had no impact on the results of the group.
11. INDEPENDENT AUDITORS` REPORT
The financial information set out in the interim report has been reviewed, but
not audited, by the company`s auditors, Deloitte & Touche. Their unmodified
report is available for inspection at the company`s registered office.
Commentary
The results for the six months ended 30 June 2007 confirm the trend of
increasing profitability for the Bell Equipment Group. Strong commodity prices
for mining products and the huge increase in infrastructure spend has resulted
in a significant improvement in most world markets for construction and mining
equipment. Never in our 55-year history have we seen the order book and the
demand at this current high level. Sales revenue is up by 35% from R1,535
billion to R2,069 billion on the comparative period and gross profit is up 52%
to R453,7 million. Other income is down by R20 million due to a drop in royalty
income from the USA and the cessation of our participation in the MIDP programme
from 9 February 2007. Royalties are down due to a substantial drop in production
at John Deere`s Articulated Dump Truck plant in the United States due to
declining demand. Export revenues are up from R760,1 million to R1,124 billion
in the current reporting period. Exports into Europe and Central Africa have
increased substantially during the period under review and demand continues to
be strong. Another encouraging aspect of our results is that overheads are well
contained, rising only 1% on the comparative period. This is due to the
continuing roll-out of our Project 100 Plus Programme and a substantial
improvement in quality and consequent reduction in warranty costs which as a
percentage of sales continues to drop and is now at 1,82% of turnover, below the
budget of 2,29%. I would like to pay tribute to our engineering and
manufacturing teams for this performance and in particular for the improved
quality of all our products. Lower interest paid and currency gains continue to
impact favourably as a result of lower average borrowings and improved treasury
management.
The tax rate at 28,8% is higher than we anticipated, as we have not yet enjoyed
the full benefit of the amendments to the Income Tax Act in respect of
assistance to local taxpayers with research and development expenditure.
Headline earnings are up from 108 cents to 192 cents and the important net asset
value per share has increased by R1,68 since the beginning of the year to R11,75
per share at 30 June 2007.
Whilst there was positive cash flow of R17,7 million in the 12-month period
ended 30 June 2007, working capital and in particular inventory continues to be
a focus area for the group. Trade cycle days improved from 133 days at June 2006
to 120 days as at the end of June 2007, although inventories increased by R158
million in the six months. Trade receivables continue to rise as a result of
increased credit granted particularly in the DRC and Europe. These increases are
in line with expectations but actions are being taken to reduce this exposure
over the next twelve months as a result of negotiations we are conducting with
third parties to take over these credit risks. Fortunately we were able to
finance R112 million of the increase in working capital from trade payables. We
are currently investigating structures that will allow us to convert some of our
short-term interest-bearing debt into long-term debt in order to improve the
effective cost of financing our fixed assets. We hope to have this programme
under way before the end of the current financial year. We are also in
discussions with a number of financial institutions to increase our trade
related lines of credit, which will help improve the matching of our borrowings.
Gearing, whilst up to 26%, is still within our target and annualised return on
net assets is a healthy 35%, up from 27% in the comparative period. A dividend
of 25 cents per share was paid on 23 April 2007 but no dividend is proposed for
this interim period.
We continue to be very concerned about unacceptably slow delivery by government
of globally competitive supply side support measures. After being removed from
the MIDP Programme despite more than complying with every objective of that
programme we are now facing unnecessary delays in the roll-out of the new or
replacement vehicle support programme. We are encouraged to create jobs, add
value locally and improve our balance of payments but importers are dealt with
preferentially, particularly concerning the exemption for branded products under
the broad based black economic empowerment (BBBEE) codes. With greater mobility
of capital, available facilities and global production strategies, we may need
to look elsewhere in the world to develop our manufacturing capacities unless
globally competitive supply side measures are made available to us as a local
manufacturer. This should again not necessarily result in the loss of local jobs
but rather in the net export of jobs to other locations around the globe at the
cost of new local jobs, value add and their resultant impact on trade deficit.
As shareholders are aware, we have embraced the challenge of BBBEE. Our task
team has made significant progress and within the next few weeks we will be in a
position to produce a shortlist of potential BEE partners for certain elements
of our operations. We continue to ensure that our BBBEE structure will operate
in the best interests of the group and more importantly for all our previously
disadvantaged South African employees who will hold 7,5% of the new vehicle to
be created. It is our intention to move our South African sales operations into
the BEE vehicle in which Bell Equipment Limited will own 70%. Running parallel
with the shareholding option we are making very good progress on other areas of
the BBBEE generic scorecard. Shareholders will be formally advised as soon as
the structures and selection of partners have been finalised by the board.
Our core strategy of growing our global business profitably continues to be
regularly reviewed and aggressively implemented with all priorities making good
progress with the exception of working capital, which was discussed earlier. We
are particularly pleased with the progress we have made with our talent
management where we have an excellent competitive reward scheme that recognises
the hard work that is being done by our people. We are also taking steps to
counter the impact of the global skills shortages. Growth opportunities for
employees have never been better and the performance management structure that
we are implementing is ensuring the future success of the group.
I am pleased to report that along with customer service, quality continues to be
an area of key focus resulting in reduced warranty costs. This is a clear
indication of increased customer satisfaction. We are making investments in
additional capacity and closely managing the inventory challenge that we are
facing. We are optimistic that the results for the rest of this year will see a
continuation of these benefits in our report to shareholders on the full year to
December 2007.
Howard J Buttery
Group Chairman
8 August 2007
Directors: HJ Buttery (Group Chairman), GW Bell (Group Chief Executive),
J Dalhoff*#, DM Gage*#, PJC Horne*, MA Mun-Gavin*, BW Schaffter*#, DL Smythe, TO
Tsukudu*, KJ van Haght, DJJ Vlok*
Alternate directors: PA Bell, PC Bell, MA Campbell, GP Harris (*Non-executive
directors) (#USA)
Company Secretary: DP Mahony
Registered Office: 13 - 19 Carbonode Cell, Alton, Richards Bay
Transfer Secretaries: Link Market Services South Africa (Pty) Ltd,
PO Box 4844, Johannesburg 2000
Sponsor: Investec Bank Limited
www.bellequipment.com
Date: 08/08/2007 17:05:01 Produced by the JSE SENS Department.
