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Bell Equipment Ltd - Audited Results For The Year Ended 31 December 2003
Bell Equipment Ltd
(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 2003
CONSOLIDATED BALANCE SHEET
at 31 December at 31 December
R"000 2003 2002
ASSETS
Non-current assets 227 768 178 027
Property, plant and equipment 154 819 142 284
Investments and long-term receivables 56 389 30 440
Deferred taxation 16 560 5 303
Current assets 1 170 959 1 145 056
Inventory 855 791 843 994
Trade and other receivables 191 518 253 171
Current portion of long-term receivables 20 167 8 250
Prepayments 39 724 33 714
Taxation 15 1 121
Cash resources 63 744 4 806
TOTAL ASSETS 1 398 727 1 323 083
EQUITY AND LIABILITIES
Capital and reserves 711 257 717 688
Stated capital (Note 5) 224 352 224 308
Non-distributable reserves 34 883 65 310
Retained earnings 452 022 428 070
Non-current liabilities 29 293 6 221
Long-term borrowings 8 612 6 221
Long-term warranty provision 20 681 -
Current liabilities 658 177 599 174
Trade and other payables 291 291 430 493
Current portion of long-term borrowings 4 538 2 073
Current portion of warranty provision 56 849 38 794
Taxation 3 490 20 796
Short-term interest bearing debt 302 009 107 018
TOTAL EQUITY AND LIABILITIES 1 398 727 1 323 083
Number of shares in issue ("000) 94 224 94 210
Net asset value per share (cents) 755 762
CONSOLIDATED INCOME STATEMENT
For the year ended
Percentage 31 December 31 December
R"000 change 2003 2002
Revenue 16 2 778 279 2 386 356
Cost of sales 2 173 237 1 768 707
Gross profit 605 042 617 649
Other operating income 66 940 73 202
Distribution costs (411 995) (336 378)
Administration expenses (59 847) (82 016)
Other operating expenses (47 431) (41 231)
Profit from operating activities (34) 152 709 231 226
Net finance costs (Note 2) 76 001 56 144
Profit before taxation (Note 3) (56) 76 708 175 082
Taxation (19) 40 054 49 481
Net profit for the year (71) 36 654 125 601
Earnings per share (basic)
(cents) (Note 4) (71) 39 134
Earnings per share (diluted)
(cents) (Note 4) (71) 39 133
Headline earnings per share (basic)
(cents) (Note 4) (71) 39 133
Headline earnings per share (diluted)
(cents) (Note 4) (70) 39 132
Proposed dividend per share (cents) (100) - 15
ABBREVIATED CASH FLOW STATEMENT
For the year ended
at 31 December at 31 December
R"000 2003 2002
Cash operating profit before working capital
changes 187 237 211 408
Cash invested in working capital (95 356) (30 917)
Cash generated from operations 91 881 180 491
Net finance costs paid (80 492) (57 718)
Taxation paid (62 599) (64 402)
Net cash flow (applied to)/from operating
activities (51 210) 58 371
Dividend paid (14 131) (9 385)
Invested in property. plant, equipment, investments and
long-term receivables (75 612) (16 814)
Net cash (outflow)/inflow (140 953) 32 172
Proceeds from shares issued 44 953
Net increase in/(repayment of) borrowings 140 909 (33 125)
Cash funding requirement/(surplus applied) 140 953 (32 172)
STATEMENT OF CHANGES IN EQUITY
For the year ended
at 31 December at 31 December
R"000 2003 2002
Equity at the beginning of the year 717 688 661 259
Changes in share capital 44 953
Issue of share capital 44 953
Changes in non-distributable reserves (30 427) (60 208)
Realisation of revaluation reserve on depreciation
of buildings (240) (241)
Increase in legal reserves of foreign subsidiaries 687 773
Decrease in foreign currency translation reserve of
foreign subsidiaries (31 082) (63 569)
Exchange differences on foreign reserves 208 2 829
Changes in retained earnings 23 952 115 684
Effect of adoption of AC133:
Adjustment to opening retained earnings in respect
of fair value of embedded forward exchange
derivatives in purchases and sales contracts 829 -
Net profit for the year 36 654 125 601
Transfer from foreign currency translation
reserve on liquidation of foreign subsidiary 1 047 -
Transfer from revaluation reserve on depreciation
of buildings 240 241
Transfer to legal reserves of foreign subsidiaries (687) (773)
Dividend (14 131) (9 385)
Equity at the end of the year 711 257 717 688
ABBREVIATED NOTES TO AUDITED RESULTS
1. ACCOUNTING POLICIES
The accounting policies of the group comply with South African Statements
of Generally Accepted Accounting Practice, and except for the adoption of AC
133, Financial Instruments: Recognition and Measurement, are consistent with
those applied for the previous year.
As a result of adopting AC 133, embedded forward exchange derivatives in
purchases and sales contracts, which were previously not recognised in the
financial statements, are now accounted for on the balance sheet at fair
value, with all changes in fair value being recognised in the income statement
in the period to which they relate.
For the year ended
at 31 December at 31 December
R"000 2003 2002
2. NET FINANCE COSTS
Net interest paid 21 233 12 947
Net currency exchange losses 59 259 44 771
Net finance costs paid 80 492 57 718
Effect of adoption of AC 133:
Transitional provision - currency exchange gains (4 491) -
Financial instrument income - (1 574)
Net finance costs 76 001 56 144
3. PROFIT BEFORE TAXATION
Profit before taxation is arrived at after taking
into account:
Income
Import duty rebates 30 267 41 236
Net surplus on disposal of property, plant and
equipment - 320
Expenditure
Auditors" remuneration 3 080 3 540
Depreciation of property, plant and equipment 24 162 19 904
Loss on disposal of property, plant and equipment 54 -
Operating lease charges
- equipment and motor vehicles 10 313 9 012
- properties 12 935 9 934
Research and development expenses 53 069 38 950
Staff costs 350 997 320 617
Increase in warranty provision 38 736 15 486
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 year. The
weighted average number of shares in issue for the year under review was 94
219 203 (2002: 93 891 981). On a diluted basis, the fully converted weighted
average number of shares is 94 631 949 (2002: 94 663 131).
Headline earnings is arrived at after excluding the net (loss)/surplus on
disposal of property, plant and equipment as reflected in note 3.
5. STATED CAPITAL
Authorised
100 000 000 (2002: 100 000 000) ordinary shares
of no par value - -
Issued
94 224 100 (2002: 94 209 600) ordinary shares of
no par value 224 352 224 308
6. CAPITAL EXPENDITURE COMMITMENTS
Contracted 497 323
Authorised, but not contracted 24 197 49 925
Total capital expenditure commitments 24 694 50 248
7. CHANGE IN ACCOUNTING POLICIES
During the prior year the group changed its accounting policy with respect to
depreciation on freehold buildings. Depreciation is now provided on freehold
buildings. Previously, buildings were not depreciated as they were considered
to be investment properties. Comparative amounts were restated. The effect of
this change was as follows:
Reduction in net profit due to increase in depreciation expense:
Gross - 2 333
Taxation - (663)
Net - 1 670
Restatement of opening retained earnings in respect of prior year adjustment:
Gross - 4 009
Taxation - (1 139)
Effect on equity at the beginning of the year - 2 870
Transfer from revaluation reserve - (482)
Net - 2 388
8. SEGMENTAL ANALYSIS
Geographical segments
The group operates in two principal geographical areas
Operating
Revenue profit Assets Liabilities
2003
South Africa 1 516 070 80 503 1 053 819 560 996
Rest of world 1 262 209 72 206 344 908 126 474
Total 2 778 279 152 709 1 398 727 687 470
2002
South Africa 1 269 027 197 278 995 735 496 880
Rest of world 1 117 329 33 948 327 348 108 515
Total 2 386 356 231 226 1 323 083 605 395
9. CONTINGENT LIABILITIES
An action has been instituted against a subsidiary of the company for a
substantial amount. As previously reported, the action is being defended and
the continuing view of the company"s legal advisers is that the company has
good grounds for successfully opposing the claims. After consideration and
based on this legal advice, the Board is satisfied that the company will not
suffer any material loss.
10. EXCHANGE RATES 2003 2002
Weighted Year Weighted Year
average end average end
The following major rates
of exchange were used:
Euro: United States $ 1,14 1,26 0,95 1,05
SA Rand: United States $ 7,40 6,62 10,32 8,58
British GBP: United States $ 1,65 1,78 1,51 1,61
11. INDEPENDENT AUDITORS" REPORT
The annual financial statements of the group have been audited by the
company"s auditors, Deloitte & Touche. Their unqualified report is available
for inspection at the registered office of the company.
COMMENTARY ON THE RESULTS
As expected and in line with the strong performance of the Rand relative to
the world"s major currencies, Bell Equipment group"s results for the year
ended 31 December 2003 are very disappointing. The results did, however,
reflect another year of strong demand and acceptance of the Bell products with
revenue at R2,778 billion up 16% on last year"s all-time high. The high demand
and acceptance of our products was in all markets with exports generating
sales of US$ 170,6 million (2002 US$ 108,3 million). Operating profit dropped
34% from last year"s record of R231,2 million to R152,7 million, total net
expenses were 3% below budget but 17% up on last year"s in line with an 11%
increase in employees, higher business volumes and the normal inflationary
pressures. The drop in operating income was mainly due to poor receipts from
record dollar sales causing gross profit to be 13% behind budget. As long-term
players in the global market, we had to accept the lower margins in our export
markets because we realised that price increases could not compensate for the
sharp 28% appreciation in the Rand to the US dollar. Our ability to absorb
these lower margins reflects the improved financial conditions of the company
and our resolve to be in these markets for the long haul.
Throughout the year Bell has maintained its policy of covering forward all net
foreign currency liability positions. This has been expensive (R78,6 million)
for the group, especially as the Rand strengthened, but it provided certainty
on the cost of components and amounts owing to suppliers. This cost is the
major reason for the R19,9 million increase in finance costs. A further R22
million was charged to finance costs arising from embedded forward exchange
derivatives in the purchases and sales contracts in compliance with the
accounting standard AC133 Financial Instruments: Recognition and Measurement.
Included in the charge of taxation for the year of R40 million is an
adjustment of R10 million relating mainly to taxation on offshore profits in
previous years.
The 28% strengthening of the Rand against the US dollar and the 20%
strengthening of the Euro against the US dollar in 2003 is the background
against which these results must be evaluated. To manage a business whose last
25 year focus has been on developing exports and at the same time benefiting
from local competitors, who import almost 100% of their products, is extremely
difficult. As a result, we are losing some local market share because of our
local competitors" reduced costs of imports in Rand terms as well as losing a
substantial margin on export sales at current exchange rates.
Despite an after tax loss of R4,26 million in the last six months of the year,
cash flow improved by R58,76 million from the position as at 30 June 2003.
This was as a result of stringent management of working capital and driving
the debt/equity ratio down to 35% at year-end, a level that management are
still not happy with. Inventory and receivable days are both well below target
and the comparative days for 2002.
Another charge to the year"s profits has been the decision to increase, on a
more conservative basis, the provision for known future warranties in an
ongoing comprehensive product improvement programme. The provision stands at
R77,53 million at year-end and resulted in a charge of R38,7 million against
profits for the year. The additional provision will be used over the next two
years to fund the current product recall costs.
We continue to develop our strategic alliances, the success of which is
reflected in record export sales. All three of our alliance partners, John
Deere Construction and Forestry Company, Hitachi Construction Machinery and
Liebherr-Hydraulikbagger GmbH, increased their unit and parts purchases from
us during 2003. We expect a further increase in unit and parts sales to them
in 2004. Unfortunately our sales transacted in US dollars are currently only
making a marginal contribution but pricing options are being sought.
We have decided to declare no dividend (15 cents in 2002) in respect of the
year ended 31 December 2003. As is our stated policy, we have considered cash
flow, current profitability, capital expenditure and the economic conditions
prevailing in our major markets in coming to this decision. The first two
months of the current financial year have produced a small profit despite
sales being below budget. Unless we see a significant weakening of the Rand
and a sales improvement, at best 2004 could produce a modest profit at current
exchange rates. Our focus for 2004 will be to continue, with even greater
endeavour, to drive cost reduction, manufacturing efficiency and to develop
world class new products.
The medium-term outlook for Bell Equipment remains strong and our products are
well received in all markets. We continue to make progress on improving our
balance sheet and asset turn by reducing inventory and receivables. The
prospect for a less volatile Rand and lower domestic inflation should improve
the business environment.
HOWARD J BUTTERY
GROUP CHAIRMAN
15 March 2004
Directors: *CD Anderson (USA), GW Bell (Group Chief Executive), PC Bell,
MA Campbell, HJ Buttery (Group Chairman), GP Harris, *PJC Horne,
*DJJ Vlok, *PE Leroy (USA), *JW Kloet (USA), *SCM Nyembezi,
*TO Tsukudu (*Non Executive Directors)
Alternate Directors: PA Bell, *DM Gage (USA), *MA Guinn (USA), DI Campbell,
DB Rhind, *MO Rysa (Finnish).
Company Secretary: D P Mahony
Registered Office Transfer Secretaries
13 - 19 Carbonode Cell Computershare Limited
Alton 70 Marshall Street
Richards Bay Johannesburg
Date: 15/03/2004 05:15:08 PM Supplied by www.sharenet.co.za
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