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BEL
BEL
Bell Equipment Ltd - Interim Report Six Months Ended 30 June 2006
Bell Equipment Ltd
(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 2006
Consolidated Balance Sheet
Unaudited Audited
RESTATED
at 30 June at 30 at 31
June December
R"000 2006 2005 2005
ASSETS
Non-current assets 379 284 284 532 295 765
Property, plant and 313 459 231 211 237 394
equipment
Investments and long-
term receivables 62 739 53 321 50 885
Deferred taxation 3 086 - 7 486
Current assets 1 649 395 1 336 784 1 345 842
Inventory 1 109 914 940 653 928 838
Trade and other 503 436 360 203 361 812
receivables
Current portion of long-
term receivables 12 294 7 112 12 128
Prepayments 13 002 3 367 7 732
Taxation 1 238 19 031 2 194
Cash resources 9 511 6 418 33 138
TOTAL ASSETS 2 028 679 1 621 316 1 641 607
EQUITY AND LIABILITIES
Capital and reserves 824 304 728 282 699 259
Stated capital (Note 5) 225 946 225 776 225 946
Non-distributable 59 590 45 627 36 921
reserves
Retained earnings 538 768 456 879 436 392
Non-current liabilities 161 723 65 342 89 401
Interest-bearing 3 574 6 248 4 754
Repurchase obligations
and deferred leasing 142 978 43 386 69 176
income
Long-term provisions 15 171 15 476 15 471
Deferred taxation - 232 -
Current liabilities 1 042 652 827 692 852 947
Trade and other payables 613 509 495 057 391 670
Current portion of
interest-bearing 2 706 3 411 2 731
liabilities
Current portion of
repurchase obligations 18 600 8 130 8 639
and deferred leasing
income
Current portion of 70 748 52 048 64 637
provisions
Taxation 22 431 - -
Short-term interest-
bearing debt 314 658 269 046 385 270
TOTAL EQUITY AND 2 028 679 1 621 316 1 641 607
LIABILITIES
Number of shares in
issue ("000) 94 763 94 713 94 763
Net asset value per
share (cents) 870 769 738
Consolidated Income Statement
Unaudited Audited
6 months 6 months 12 months
ended ended Ended
30 June 30 June 31 December
R"000 2006 2005 2005
Revenue 1 534 894 1 668 402 3 209 233
Cost of sales 1 236 536 1 418 553 2 701 658
Gross profit 298 358 249 849 507 575
Other operating income 53 290 44 987 92 615
Distribution costs (193 299) (209 279) (441 523)
Administration expenses (17 344) (29 679) (62 615)
Other operating (15 400) (23 118) (48 773)
expenses
Profit from operating 125 605
activities 32 760 47 279
Net finance (income) (23 286)
costs (Note 2) 13 835 43 459
Profit before taxation 148 891
(Note 3) 18 925 3 820
Taxation 46 847 6 291 12 017
Profit (loss) for the 102 044 12 634 (8 197)
period
Earnings (loss) per
share (basic) (cents) 108 13 (9)
(Note 4)
Earnings (loss) per 108 13 (9)
share (diluted) (cents)
(Note 4)
Proposed dividend per
share (cents) - - -
Abbreviated Cash Flow Statement
Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R"000 2006 2005 2005
Cash operating profit 165 762 63 009
before working capital 100 679
changes
Cash (invested in) (100 963) 76 693 (23 146)
generated from working
capital
Cash generated from 64 799 139 702 77 533
operations
Net finance income (costs 23 286 (13 835) (43 459)
paid)
Taxation (paid) refunded (19 060) (4 070) 501
Net cash generated from 69 025 121 797
operating activities 34 575
Invested in property, (104 598) (15 093) (41 670)
plant, equipment,
investments and long-term
receivables
Increase in interest- 82 558 1 774 25 899
bearing liabilities,
repurchase obligations and
deferred leasing income
Proceeds from shares issued - 1 362 1 532
Net cash inflow 46 985 109 840 20 336
Statement of Changes in Equity
Unaudited Audited
RESTATED
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R"000 2006 2005 2005
Equity at the beginning of 699 259 701 462 701 462
the period
Changes in share capital - 1 362 1 532
Issue of share capital - 1 362 1 532
Changes in non-distributable 3 774
reserves 22 669 12 480
Effect of change in tax rate - 265 265
on surplus on revaluation of
properties
Realisation of revaluation
reserve on depreciation of
buildings (332) (344) (688)
Increase in foreign currency
translation reserve of
foreign subsidiaries 22 279 12 239 2 666
Exchange differences on 722 320 1 531
foreign reserves
Changes in retained earnings 102 376 12 978 (7 509)
Net profit (loss) for the 102 044 12 634 (8 197)
period
Transfer from revaluation 332 344 688
reserve on depreciation of
buildings
Equity at the end of the 824 304 728 282 699 259
period
Notes to Interim Report
Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R"000 2006 2005 2005
1. ACCOUNTING POLICIES
The accounting policies of the group are in accordance with International
Financial Reporting Standards and
are consistent with those applied to the previous year.
This abridged report complies with Interim Financial Reporting (IAS34).
2. NET FINANCE (INCOME)
COSTS
Net interest paid 11 720 12 769 22 404
Net currency exchange 35 006) 1 066 21 055
(income) losses
Net finance (income) costs (23 286) 13 835 43 459
3. PROFIT BEFORE TAXATION
Profit before taxation is arrived at after taking into account:
Income
Import duty rebates 14 611 20 428 42 116
Net surplus on disposal of
property, plant and 220 3 403 2 372
equipment
Expenditure
Auditors" remuneration -
audit and other services 2 541 6 995 10 811
Depreciation of property,
plant and equipment 16 733 14 869 31 566
Increase in warranty 666 1 340 16 212
provision
Operating lease charges
- equipment and motor 6 838 6 820 16 320
vehicles
- properties 8 241 8 143 15 946
Research and development
expenses 17 779 12 735 10 072
Staff costs 228 886 205 974 408 987
4. EARNINGS/(LOSS) PER SHARE
The calculation of earnings (loss) per share is based on profit (loss)
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 94 763 400 (June 2005: 94 399 542). On a diluted
basis, the fully converted weighted average number of shares is 94 850 178
(June 2005: 94 481 028).
Headline earnings (loss) is arrived at after excluding the net surplus on
disposal of property, plant and equipment as reflected in note 3:
Headline earnings (loss) 108 11 (11)
per share (basic) (cents)
Headline earnings (loss) 107 11 (11)
per share (diluted) (cents)
5. STATED CAPITAL
Authorised
100 000 000 (June 2005:100
000 000) ordinary shares of
no par value
Issued
94 763 400 (June 2005: 94
712 900) ordinary shares of
no par value 225 946 225 776 225 946
6. CAPITAL EXPENDITURE
COMMITMENTS
Contracted 2 588 304 475
Authorised, but not 29 904 10 405 44 591
contracted
Total capital expenditure
commitments 32 492 10 709 45 066
7. SEGMENTAL ANALYSIS
Geographical segments
The group operates in two principal geographical areas
Operating
R"000 Revenue profit Assets Liabilities
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 1 534 894 125 605 2 028 679 1 204 375
June 2005
(Restated)
South Africa 731 021 20 833 1 089 611 639 512
Rest of world 937 381 11 927 531 705 253 522
Total 1 668 402 32 760 1 621 316 893 034
Unaudited Audited
at 30 at 30 at 31 December
June June
R"000 2006 2005 2005
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 106 534 172 134 900
405
In the event of 119 429 172 596 151 078
repurchase, it is
estimated that these units
would presently realise
(12 895) (191) (16 178)
Provision for residual (6 179) (6 016) (8 127)
value risk on specific
machines
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 51 200 151 978 90 758
customers to Wesbank in respect
of these transactions totalled
In the event of default, the (63 670)
units financed would be recovered
and it is estimated that they (115 778) (76 957)
would presently realise
(12 470) 36 200 13 801
Less: provision for non-recovery (10 832) (20 929) (9 795)
Net contingent liability - 15 271 4 006
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 10 892 10 512 8 496
amount of
8.4 Certain trade
receivables have been
discounted with financial
institutions for an amount 14 037 3 498 5 943
of
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 14 037 3 498 5 943
least
9. EXCHANGE RATES
30 June 2006 30 June 2005 31 December 2005
Weighted Weighted Weighted
average Closing average Closing average Closing
The
following
major
rates of
exchange
were
used:
Euro:
United
States $ 1,24 1,28 1,28 1,21 1,24 1,18
SA Rand:
United
States $ 6,37 7,11 6,24 6,66 6,36 6,33
British
GBP:
United 1,80 1,84 1,87 1,79 1,81 1,72
States $
10. COMPARATIVE INFORMATION
Comparative information has been restated for the effects of the following
prior year adjustments:
10.1 Correction recognised in respect of leases previously accounted for
incorrectly on the contractual basis.
Prior period figures have been appropriately restated to account for leases
on the straight line basis in terms of IAS 17.
10.2 Correction recognised in respect of the income tax treatment of
profits earned by a controlled foreign company of the group. Prior period
figures have been appropriately restated.
The aggregate effect of the restatements is as follows:
Prior Prior year
year adjustment
Previously adjustment - lease
R"000 stated - taxation escalation Restated
For the period
ended 30 June
2005
Current portion 51 889 52 048
of provisions - 159
Long term 10 224 - 5 252 15 476
provisions
Deferred taxation 1 586 - (1 354) 232
Taxation asset 25 346 (6 315) - 19 031
Opening retained
earnings - 1
January 2005 454 273 (6 315) (4 057) 443 901
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
unqualified report is available for inspection at the company"s registered
office.
Chairman"s Statement
The results for the six months ended 30 June 2006 reflect the long awaited
turn around in our group. The cessation of the loss making contracts with
North America, some weakening of the Rand against the US Dollar and more
particularly the Euro coupled with the benefits of our Project 100 Plus
Programme and the strong improvement in the world construction and mining
equipment markets have allowed us to make a healthy profit for the six
months under review.
Revenue is down by 8% from R1,668 million to R1,535 million on the
comparative period largely due to the drop in sales of completed
Articulated Dump Trucks (ADTs) to North America, despite which the gross
profit is up from R249,8 million to R298,4 million. There has been a
decrease in import duty rebates due to our new business model whereby
royalties are earned on ADTs manufactured by John Deere Construction and
Forestry Company in the US, which has caused our other operating income to
increase by 18,5%. Export revenues are down from R937,4 million to R760,1
million as compared with the same period last year due to the drop in
volume of units to North America mentioned above. Another encouraging
aspect of the results is the drop in overheads of R36,0 million due almost
exclusively to our Project 100 Plus Programme. The reduced amount of
interest paid, together with the currency exchange gain of R35 million,
resulted in our profit before taxation being higher than the profit from
operating activities.
The effective taxation rate at 31,5% remains disappointingly high, as we
have not yet had the promulgation of the Minister of Finance"s amendments
to the Income Tax Act in order to assist manufacturers and exporters with
research and development expenditure. Headline earnings are sharply up from
11 cents to 108 cents and net asset value per share has also increased by
R1,32 since the beginning of the year to R8,70 per share.
Another pleasing aspect of these results is the positive cash flow of R47
million that was generated in the six months, despite net capital
expenditure of R22,0 million. Unfortunately working capital continues to be
a problem for the group, in particular the R181,1 million increase in
inventory which caused trade cycle days to rise from 82 days to 99 days as
at the end of June. Trade receivables peaked on 30 June 2006 as a result of
large shipments in the last week of the month, the proceeds of which were
only received during July. The increase in inventory was largely financed
by an increase in trade payables but this is an area that management
continues to work at reducing on a daily basis. The cost reduction benefits
from the Project 100 Plus Programme, which was implemented in the later
part of 2005, which have come on stream in this period are extremely
pleasing and the savings in overheads and product costs from this
initiative are expected to continue to flow through to the bottom line in
the next twelve to eighteen months as the programme continues to be rolled
out. Obviously the weakening Rand affects our offshore operating costs when
reporting in Rand but we do expect increased savings in our overall
manufacturing costs as a consequence.
As shareholders are aware the reciprocal manufacturing distribution and
royalty agreements signed with John Deere in 2005 have now been operational
for over twelve months and we are particularly excited by benefits that we
have been able to achieve in cost reductions for our Front-End Loaders
(FELs) and Tractor Loader Backhoes (TLBs). We have become a significant
supplier of TLBs in Southern Africa and we expect a substantial increase in
the market share of these units that we are manufacturing for the local and
export markets over the next eighteen months. Our range of FELs that we
import in a knockdown form from John Deere has increased to a nine-model
range and we are enjoying improved margins from this world-class product.
Localisation of some components is being pursued for both of these
products.
Quality continues to be a high level focus with continuous refinement and
improvements to our product development programme where we are spending
more up front during the design and engineering stage of products before
releasing them to the market. Our Southern African Distribution operation
continues to be a key contributor and what is encouraging is the increased
contribution we have been able to make on lower revenue from our activities
outside of South Africa. Our results in Europe are pleasing with good
progress being made in a number of countries.
I am pleased to report that the entire Bell team is extremely excited by
the progress that has been made in the last six months and we look forward
to ensuring that our targets set for working capital management, cost
reduction, efficiency and quality improvements continue to be realised for
the rest of the year and are sustainable into the future. We are optimistic
that when compared with the prior year our efforts will see a continuation
of these benefits and results to report to our stakeholders in December
2006.
Howard J Buttery
Group Chairman
4 August 2006
Directors: HJ Buttery (Group Chairman), GW Bell (Group Chief Executive),
DL Smythe, KJ van Haght, GP Harris,
BW Schaffter*#, JW Kloet*#, RL Bridges*#, DJJ Vlok*, PJC Horne*, TO
Tsukudu*, MA Mun-Gavin*
Alternate Directors: PA Bell, PC Bell, MA Campbell, DM Gage*#
(*Non-executive directors) (#USA))
Company Secretary: DP Mahony
Sponsor: Investec Bank Limited
Registered Office: 13 - 19 Carbonode Cell, Alton, Richards Bay
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street, Johannesburg
Date: 08/08/2006 05:23:50 PM Produced by the JSE SENS Department
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