| Fri 13 Mar 2009, 13:00 | | BEL - Bell Equipment - Audited Results for the Year Ended 31 December 2008 |
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BEL
BEL
BEL - Bell Equipment - Audited Results for the Year Ended 31 December 2008
Bell Equipment Limited
(Incorporated in the Republic of South Africa)
(Share code: BEL & ISIN: ZAE000028304)
Registration number: 1968/013656/06
("Bell")
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008
Condensed consolidated balance sheet
as at 31 December 2008
31 December 31 December
R`000 2008 2007
Assets
Non-current assets 665 822 473 633
Property, plant and equipment 532 764 426 649
Intangible assets 30 309 8 328
Interest-bearing investments and long-
term receivables 34 787 24 695
Deferred taxation 67 962 13 961
Current assets 3 256 950 2 408 034
Inventory 2 546 512 1 698 820
Trade and other receivables 627 839 662 828
Current portion of interest-bearing long-
term receivables 20 016 10 499
Prepayments 13 663 13 314
Taxation 12 494 1 865
Cash resources 36 426 20 708
Total assets 3 922 772 2 881 667
Equity and liabilities
Capital and reserves 1 769 555 1 380 869
Stated capital (note 5) 228 586 226 293
Non-distributable reserves 200 940 140 040
Retained earnings 1 326 761 1 014 536
Attributable to equity holders of Bell
Equipment Limited 1 756 287 1 380 869
Minority interest 13 268 -
Non-current liabilities 273 881 214 779
Interest-bearing liabilities 83 171 76 624
Repurchase obligations and deferred
leasing income 81 001 83 695
Deferred warranty income 95 370 50 740
Long-term provisions and lease 14 339 3 720
escalation
Current liabilities 1 879 336 1 286 019
Trade and other payables 839 474 758 984
Current portion of interest-bearing
liabilities 91 254 31 838
Current portion of repurchase
obligations
and deferred leasing income 66 186 20 638
Current portion of deferred warranty 11 047 2 497
income
Current portion of provisions and lease
escalation 50 838 51 048
Taxation 115 905 52 927
Short-term interest-bearing debt 704 632 368 087
Total equity and liabilities 3 922 772 2 881 667
Number of shares in issue (`000) 94 950 94 858
Net asset value per share (cents) 1 864 1 456
Condensed consolidated income statement
for the year ended 31 December 2008
31 December 31 December
R`000 2008 2007
Revenue 5 458 273 4 624 961
Cost of sales (4 036 622) (3 647 808)
Gross profit 1 421 651 977 153
Other operating income 71 300 70 894
Distribution costs (663 826) (453 548)
Administration expenses (66 638) (54 816)
Other operating expenses (173 383) (45 421)
Profit from operating activities (note 589 104 494 262
2)
Net interest paid (note 3) (74 637) (19 696)
Profit before taxation 514 467 474 566
Taxation (153 751) (109 657)
Profit for the year 360 716 364 909
Profit for the year attributable to:
Equity holders of Bell Equipment Limited 348 348 364 909
Minority interest 12 368 -
Earnings per share (basic) (cents) (note 367 385
4)
Earnings per share (diluted) (cents) 367 384
(note 4)
Dividend per share (cents) 40 25
Condensed consolidated cash flow statement
for the year ended 31 December 2008
31 December 31 December
R`000 2008 2007
Cash operating profit before working
capital changes 714 903 533 797
Cash invested in working capital (732 562) (564 005)
Cash utilised in operations (17 659) (30 208)
Net interest paid (74 637) (19 696)
Taxation paid (154 249) (158 285)
Net cash utilised in operating (246 545) (208 189)
activities
Net cash flow utilised in investing
activities (171 825) (69 745)
Net cash flow from financing activities 97 543 70 186
Net cash outflow (320 827) (207 748)
Net short-term interest-bearing debt at
beginning of the year (347 379) (139 631)
Net short-term interest-bearing debt at
end of the year (668 206) (347 379)
Consolidated statement of changes in equity
for the year ended 31 December 2008
Attributable to equity holders
of Bell Equipment Limited
Non-
Stated distributable Retained
R`000 capital reserves earnings Total
Balance at 31 December
2006 226 185 55 490 673 237 954 912
Surplus on revaluation
of properties - 95 042 - 95 042
Deferred taxation on
revaluation of
properties - (20 835) - (20 835)
Realisation of
revaluation reserve on
depreciation
of buildings - (969) 969 -
Deferred taxation on
realisation of
revaluation
reserve on
depreciation
of buildings - 281 (281) -
Increase in legal
reserves of
foreign subsidiaries - 589 (589) -
Exchange differences
on translation of
foreign
operations - 10 476 - 10 476
Exchange difference on
foreign reserves - (34) - (34)
Net income recognised
directly in equity - 84 550 99 84 649
Net profit for the - - 364 909 364 909
year
Total recognised
income and expense - 84 550 365 008 449 558
Share options 108 - - 108
exercised
Dividends paid - - (23 709) (23 709)
Balance at 31 December
2007 226 293 140 040 1 014 536 1 380 869
Realisation of
revaluation reserve on
depreciation
of buildings - (3 417) 3 417 -
Deferred taxation on
realisation of
revaluation
reserve on
depreciation
of buildings - 957 (957) -
Effect of change in
tax rate on
realisation of
revaluation
reserve - 800 - 800
Increase in legal
reserves of
foreign subsidiaries - 639 (639) -
Exchange differences
on translation of
foreign
operations - 60 413 - 60 413
Exchange difference on
foreign reserves - 1 508 - 1 508
Net income recognised
directly in equity - 60 900 1 821 62 721
Net profit for the - - 348 348 348 348
year
Total recognised
income and expense - 60 900 350 169 411 069
Share issue to
minority shareholders - - - -
Share options 2 293 - - 2 293
exercised
Dividends paid - - (37 944) (37 944)
Balance at 31 December
2008 228 586 200 940 1 326 761 1 756 287
Total
Minority capital and
R`000 interest reserves
Balance at 31 December 2006 - 954 912
Surplus on revaluation of properties - 95 042
Deferred taxation on revaluation
of properties - (20 835)
Realisation of revaluation reserve on
depreciation of buildings - -
Deferred taxation on realisation of
revaluation reserve on depreciation
of buildings - -
Increase in legal reserves of
foreign subsidiaries - -
Exchange differences on translation
of
foreign operations - 10 476
Exchange difference on foreign - (34)
reserves
Net income recognised directly in - 84 649
equity
Net profit for the year - 364 909
Total recognised income and expense - 449 558
Share options exercised - 108
Dividends paid - (23 709)
Balance at 31 December 2007 - 1 380 869
Realisation of revaluation reserve on
depreciation of buildings - -
Deferred taxation on realisation of
revaluation reserve on depreciation
of buildings - -
Effect of change in tax rate on
realisation of revaluation reserve - 800
Increase in legal reserves of
foreign subsidiaries - -
Exchange differences on translation
of
foreign operations - 60 413
Exchange difference on foreign - 1 508
reserves
Net income recognised directly in - 62 721
equity
Net profit for the year 12 368 360 716
Total recognised income and expense 12 368 423 437
Share issue to minority shareholders 900 900
Share options exercised - 2 293
Dividends paid - (37 944)
Balance at 31 December 2008 13 268 1 769 555
Abbreviated notes to audited consolidated results for the year ended 31 December
2008
1. Accounting policies
The financial statements from which these results are summarised have been
prepared in accordance with International Financial Reporting Standards (IFRS)
and the policies and methods of computation are consistent with those applied to
the previous year.
The adoption of the following interpretations has not led to any changes in the
group`s accounting policies and did not have a material impact on the financial
statements of the group:
IFRIC 11 - IFRS 2 Group and Treasury Share Transactions
IFRIC 12 - Service Concession Arrangements
IFRIC 14 - IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction
The financial statements have been prepared on the historical cost basis, except
for the revaluation of certain properties and financial instruments, and
adjustments, where applicable, in respect of hyperinflation accounting. This
abridged report complies with International Accounting Standard 34 - Interim
Financial Reporting, Schedule 4 of the South African Companies Act and the
disclosure requirements of the JSE Limited`s Listing Requirements.
31 December 31 December
R`000 2008 2007
2. Profit from operating activities
Profit from operating activities is
arrived at after taking into
account:
Income
Currency exchange gains 499 590 137 373
Import duty rebates - 9 956
Net surplus on disposal of property,
plant and equipment and
intangible assets 40 743
Royalties 11 573 12 994
Decrease in warranty provision - 22 090
Expenditure
Auditors` remuneration - audit and
other services 6 503 5 129
Amortisation of intangible assets 3 915 459
Currency exchange losses 566 640 154 962
Depreciation of property, plant and
equipment 54 784 60 515
Operating lease charges
- equipment and vehicles 28 312 20 126
- land and buildings 33 825 22 315
Research and development expenses
(excluding staff costs) 34 268 26 980
Increase in warranty provision 2 742 -
Staff costs 812 931 656 257
3. Net interest paid
Interest paid 104 237 33 387
Interest received (29 600) (13 691)
Net interest paid 74 637 19 696
4. Earnings per share
Basic earnings per share is arrived
at as follows:
Profit for the year attributable to
equity holders of Bell Equipment
Limited 348 348 364 909
Weighted average number of ordinary
shares in issue 94 906 604 94 839 508
Basic earnings per share (cents) 367 385
The effect of the increased short-
term interest-bearing debt
for the year ended 31 December 2008
on basic earnings per
share is 19 cents per share.
Diluted earnings per share is
arrived at as follows:
Profit for the year attributable to
equity holders of Bell Equipment
Limited 348 348 364 909
Fully converted weighted average
number of shares 94 946 517 94 920 655
Diluted earnings per share (cents) 367 384
Headline earnings per share is
arrived at as follows:
Profit for the year attributable to
equity holders of Bell Equipment
Limited 348 348 364 909
Net surplus on disposal of property,
plant and equipment and
intangible assets (40) (743)
Tax effect of net surplus on
disposal of property, plant and
equipment and intangible assets 11 215
Headline earnings 348 319 364 381
Weighted average number of ordinary
shares in issue 94 906 604 94 839 508
Headline earnings per share (basic)
(cents) 367 384
The effect of the increased short-
term interest-bearing debt
for the year ended 31 December 2008
on headline earnings
per share is 19 cents per share.
Diluted headline earnings per share
is arrived at as follows:
Headline earnings calculated above 348 319 364 381
Fully converted weighted average
number of shares 94 946 517 94 920 655
Headline earnings per share
(diluted) (cents) 367 384
5. Stated capital
Authorised
100 000 000 (December 2007:
100 000 000) ordinary shares
of no par value
Issued
94 950 000 (December 2007: 94 857
900) ordinary shares of no par value 228 586 226 293
6. Capital expenditure commitments
Contracted 3 552 9 228
Authorised, but not contracted 50 341 131 643
Total capital expenditure
commitments 53 893 140 871
7. Abbreviated segmental analysis
Geographical segments
The group operates in two principal geographical areas:
Operating
Revenue profit Assets Liabilities
December 2008
South Africa 2 700 335 541 539 2 745 685 1 723 506
Rest of world 2 757 938 47 565 1 177 087 429 711
Total 5 458 273 589 104 3 922 772 2 153 217
December 2007
South Africa 2 095 564 281 684 1 998 712 1 142 537
Rest of world 2 529 397 212 578 882 955 358 261
Total 4 624 961 494 262 2 881 667 1 500 798
31 December 31 December
2008 2007
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 10 473 29 306
In the event of repurchase, it is
estimated that these units would
presently realise (11 741) (31 794)
Net contingent liability - -
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 year end the amount due by
customers to WesBank in respect
of these transactions totalled 120 508 11 816
In the event of default, the units
financed would be
recovered and it is estimated that
they would presently realise (103 986) (26 151)
Net contingent liability 16 522 -
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 13 801 15 180
Less: provision for residual value
risk - (299)
Net contingent liability 13 801 14 881
The provision for residual value risk is based on the assessment of the
probability of return of the units.
9. Related party transactions and balances
Details of transactions and balances between the group and other related parties
are disclosed in the annual report. There are no material changes in related
party transactions and balances in the current year.
2008 2007
Weighted Year Weighted Year
average end average end
10. Exchange rates
The following major rates of
exchange were used:
United States $: Euro 1,47 1,41 1,38 1,47
SA Rand: United States $ 8,24 9,23 7,00 6,81
United States $: British GBP 1,84 1,45 2,01 2,00
11. Independent auditors` report
The annual financial statements of the group have been audited by the company`s
auditors, Deloitte & Touche. The audit report has been modified to draw
attention to a material uncertainty regarding the group`s funding facilities
which has been disclosed in the directors` report as per the extract from this
report in note 12 below.
Their modified report is available for inspection at the registered office of
the company.
12. Extract from directors` report
As a result of the current global economic climate and the significant downturn
in the markets in which the group operates, business plans have been revised to
address the expected lower demand and difficult trading conditions in 2009.
Additional financing has been obtained from shareholders subsequent to year-end
in the form of a loan and account settlement assistance. In this regard, IA Bell
& Company has entered into a loan agreement with the company to the effect that
this shareholder will lend the company R150 million until at least 30 June 2010,
or when the group`s gearing is maintained at 20% or less. The other major
shareholder and the single largest supplier to the group, John Deere, is
providing assistance on account settlement in respect of machines and kits
supplied. Furthermore, application has been made to the Industrial Development
Corporation for a loan of approximately R220 million for which the due diligence
review is currently in progress.
Business plans have been revised in line with the changed outlook for 2009 and
costs have been reduced accordingly, but with careful consideration given to the
long-term sustainability of the business. The priority for 2009 is on positive
cash flow and realising the value in inventory and receivables.
The group`s bankers are fully apprised of the group`s liquidity challenges and
their continued support is vital to the group`s future success. The group
acknowledges that the banks` willingness and ability to maintain facilities
available to the group is dependent on the success of the group`s business plans
regarding sales realisation, recovery of the carrying values of inventory and
receivables and cost reduction.
Although the group has current liquidity constraints and this leads to material
uncertainty at the time of approving the annual financial statements, the
directors, taking full cognisance of all the issues referred to above, believe
that the going concern assumption is appropriate.
13. Subsequent events
No fact or circumstance material to the appreciation of this report has occurred
between 31 December 2008 and the date of this report.
14. Changes in directorate
Mr R Verster was appointed as Company Secretary, effective from 1 September
2008. Mr J Horne retired on 7 May 2008.
Commentary
The group closed the 2008 financial year with credible results, having achieved
profits after taxation of R360,7 million (2007: R364,9 million) and earnings per
share of 367 cents (2007: 385 cents). The first 10 months of 2008 saw the group
producing record pre-tax and post-tax profits. However, the global economic
crisis, which started to seriously affect the group in October of 2008, saw us
making a loss in the month of December 2008.
Financial review
In 2008, revenue increased by 18,0% to R5,458 billion and at the same time gross
profit peaked at an all time high of R1,422 billion up by R444,5 million on the
previous year. Gross profit as a percentage of revenue increased to 26% from the
previous year`s 21%. This was due to efforts by management to maintain price
realisation, contain costs and achieve economies of scale, and because of
favourable exchange rates. As a result of our increased turnover and gross
profit, operating profit for the year increased by R94,8 million to
R589,1million. This was despite a R350,1 million increase in total expenses.
Our balance sheet clearly spells out the difficult trading conditions we
encountered in the last two months of the year with inventory and interest-
bearing debt at all time highs. Currently, we have inventory of R850 million in
excess of our requirements at current turnover levels. All of this inventory is
valued at the lower of cost and net realisable value and is all saleable over
the next six to eight months, during which time we will use these proceeds to
reduce group debt. Over and above the curtailment of production at our German
factory, the Richards Bay factory is on a reduced schedule and rates will be
adjusted during the year. We intend to keep the factory operating at these
levels until such time as we are able to dispose of our inventory and see the
demand develop for additional production.
As a result of the above, we have suffered a negative cash flow of R320,8
million in the year under review as a direct consequence of the increase in
working capital.
Operational review
Our focus on the lifetime revenue stream from the sale of parts and service
has once again been significant with revenue increasing by 16,5%. Parts
continue to be a focus area in growth in terms of customer service as well
as revenue and gross profit, and these sales generate 15,8% of our turnover.
Subsequent to year-end we have moved the four geographically disparate parts
operations that we ran in various parts of Johannesburg into a single global
logistics centre at Jet Park. This facility was built at a cost of R220
million by our landlord and we expect to generate improved parts sales from
this location.
Exports achieved a turnover of R2,76 billion up by 9% on the previous year. A
total of 20,1% turnover was sold in Europe and 21,1% in Africa outside of South
Africa. Exports represented 50,5% of our global turnover as compared with 54,7%
in 2007.
For the past few years we have been challenged to contain overheads due to large
increases in business volumes, turnover, weakening reporting currency and the
inflationary pressures that have been brought to bear upon us in many of the
countries in which we operate. As we advised in last year`s report we expected
overheads to increase in 2008 in line with our increased gross profit and
revenue. Overheads increased by R350,1 million largely as a result of increased
salaries and wages.
Once again I am very pleased to report on the successful control of warranty
costs within the group. This expenditure remained at similar levels to 2007 at
1,8% of total sales in 2008. This constitutes a better performance than 2007
since we benefited from a reversal of prior year warranty provisions in that
year amounting to R22 million.
Net interest paid increased by R54,9 million as a result of substantially higher
borrowings and higher interest rates. Our tax rate at 29,9% is at a higher level
than we would like and whilst we are benefiting from research and development
allowances the foreign tax paid was at higher levels than budgeted.
Our South African sales and distribution operations as well as our Africa sales
group achieved pleasing results and I would like to congratulate the management
and employees of those operations. Our subsidiaries in Zambia, the Democratic
Republic of Congo (DRC) and Zimbabwe produced good results in difficult trading
conditions.
As mentioned in our interim report, our European operations did very well in the
first six months of 2008 but suffered a decline and losses in the second six
months. This is particularly noticeable in our United Kingdom and Spanish
operations where the markets have experienced serious slow downs. We have taken
corrective steps after year-end to reduce our overheads in both of these
operations and are planning to restructure the rest of our European businesses.
We have curtailed production at our German assembly facility to match retail
demand. We constantly review our sales and inventory requirements for Europe and
will shortly take a decision as to whether this curtailment of production should
be extended further into the year. Our business relationship with Hitachi in
Asia and the Far East has had a very successful year and turnover in those
markets has increased by 60% to R395 million.
As reported in our interim statement, we brought a broad-based BEE partner and
employee shareholders into Bell Equipment Sales SA Limited (BESSA) at the start
of the year. This has now been operating with great success for over a year.
Prospects
Whilst the spend in developing economies on infrastructure has not slowed down
as much, we have seen an alarming drop in the price of mining commodities
particularly in platinum, copper, diamonds and chrome. It is, however, very
encouraging to note that government has allocated funds to spend on
infrastructure in South Africa. We expect this expenditure to be of considerable
benefit to our group`s activities in South Africa going forward.
During 2009, we will continue to focus on our strategic position in Africa where
we have superior network cover and a supply chain advantage. The industries in
which we operate in Africa have been less affected by the global slow down and
because of our close proximity to markets we are competitive both in terms of
pricing and service.
In the first nine months of the year we continued to lose key employees through
emigration and were forced to increase salaries to retain skills. Subsequent to
the year-end and as a direct result of the economic crisis we have been forced
to lay off nearly 800 contractors, at the same time making substantial cuts to
all overheads in order to rightsize our business to cope with the current levels
of turnover. We will continue to rightsize the business throughout 2009 in order
to ensure optimal levels of overheads.
We are acutely aware that our turnover in 2009 has dropped by close to 40% in
comparison to the prior year`s turnover and currently we are not able to get a
clear picture of the markets and sales going forward. For this reason we have
decided to adopt a very cautious and conservative approach to our production
plans.
Our business plan aims to achieve sales of at least R320 million per month in
2009 with a commensurate reduction in overheads. The reduction in the excess
inventory will enable us to return to our stated ideal capital structure of a
gearing ratio not exceeding 20%. In achieving this position we will be well
poised to take full advantage of the expected upswing when it occurs.
Despite the sizeable after tax profits generated in 2008 the Board cannot
recommend the payment of any dividend. All cash needs to be conserved in order
to ensure the groups` ability to fund itself in these difficult economic times.
We have through this group developed a very robust business plan to combat the
economic downturn and I am positive that we will come out of this downturn a
stronger and better company as a result of our endeavours in a very difficult
time. We also have a robust contingency plan should the markets further
deteriorate.
HJ Buttery
Group Chairman
11 March 2009
Directors: HJ Buttery (Group Chairman), GW Bell (Group Chief Executive), DL
Smythe, KJ van Haght (Financial Director).
Non-executive directors: DJJ Vlok, MA Mun-Gavin, TO Tsukudu,
BW Schaffter (USA), K Manning (USA), DM Gage (USA).
Alternate directors: PC Bell, L Goosen, GP Harris, JW Kloet (USA),
AR McDuling.
Company Secretary: R Verster
Registered Office: 13 - 19 Carbonode Cell, Alton, Richards Bay
Transfer Secretaries: Link Market Services South Africa (Pty) Limited, PO Box
4844, Johannesburg 2000
Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited)
www.bellequipment.com
Date: 13/03/2009 13:00:05 Produced by the JSE SENS Department.
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