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Bell Equipment Ltd - Interim Report for the six months ended 30 June 2005
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 2005
Consolidated Balance Sheet
Restated Restated
Unaudited Audited
at 30 June at 30 June at 31 December
R"000 2005 2004 2004
ASSETS
Non-current assets 284 532 245 406 276 753
Property, plant and equipment 231 211 166 579 219 200
Investments and
long-term receivables 53 321 67 454 57 553
Deferred taxation - 11 373 -
Current assets 1 343 099 1 111 106 1 328 002
Inventory 940 653 810 032 1 056 828
Trade and other receivables 360 203 258 460 213 139
Current portion of
long-term receivables 7 112 21 579 11 264
Prepayments 3 367 6 684 6 881
Taxation 25 346 4 960 26 809
Cash resources 6 418 9 391 13 081
TOTAL ASSETS 1 627 631 1 356 512 1 604 755
EQUITY AND LIABILITIES
Capital and reserves 738 654 709 700 711 834
Stated capital (Note 5) 225 776 224 380 224 414
Non-distributable reserves 45 627 25 600 33 147
Retained earnings 467 251 459 720 454 273
Non-current liabilities 61 444 20 030 49 348
Interest-bearing 6 248 8 540 6 669
Repurchase obligations
and deferred leasing income 43 386 - 34 431
Long-term warranty provision 10 224 11 490 6 937
Deferred taxation 1 586 - 1 311
Current liabilities 827 533 626 782 843 573
Trade and other payables 495 057 348 363 390 989
Current portion of
interest-bearing liabilities 3 411 3 803 3 684
Current portion of
repurchase obligations and
deferred leasing income 8 130 - 14 617
Current portion of provisions 51 889 40 277 48 734
Short-term interest bearing
debt 269 046 234 339 385 549
TOTAL EQUITY AND LIABILITIES 1 627 631 1 356 512 1 604 755
Number of shares in issue
("000) 94 713 94 234 94 246
Net asset value per
share(cents) 780 753 755
Consolidated Income Statement
Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R"000 2005 2004 2004
Revenue 1 668 402 1 356 616 2 526 488
Cost of sales 1 418 553 1 091 216 2 053 943
Gross profit 249 849 265 400 472 545
Other operating income 44 987 24 366 84 228
Distribution costs (209 279) (212 052) (429 821)
Administration expenses (29 679) (27 322) (57 135)
Other operating expenses (23 118) (24 732) (44 466)
Profit from operating activities 32 760 25 660 25 351
Net finance costs (Note 2) 13 835 30 035 31 428
Profit (loss) before
taxation (Note 3) 18 925 (4 375) (6 077)
Taxation 6 291 1 491 5 356
Profit (loss) for the period 12 634 (5 866) (11 433)
Earnings (loss) per share
(basic) (cents) (Note 4) 13 (6) (12)
Earnings (loss) per share
(diluted) (cents) (Note 4) 13 (6) (12)
Headline earnings (loss)
per share (basic) (cents) (Note 4) 11 (6) (13)
Headline earnings
(loss) per share (diluted)
(cents) (Note 4) 11 (6) (13)
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 2005 2004 2004
Cash operating profit
before working capital changes 63 009 3 221 11 622
Cash generated from
(invested in) working capital 76 693 68 929 (85 034)
Cash generated from
(applied to) operations 139 702 72 150 (73 412)
Net finance costs paid (13 835) (30 035) (31 428)
Taxation paid (4 070) (10 500) (28 984)
Net cash generated from
(applied to) operating activities 121 797 31 615 (133 824)
Invested in property,
plant, equipment, investments
and long-term receivables (15 093) (17 519) (46 692)
Net cash inflow (outflow) 106 704 14 096 (180 516)
Proceeds from shares issued 1 362 28 62
Net (repayment of)
increase in borrowings (108 066) (14 124) 180 454
(Cash surplus applied)
funding requirement (106 704) (14 096) 180 516
Statement of Changes in Equity
Restated Restated
Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R"000 2005 2004 2004
Equity at the beginning
of the period 711 834 711 257 711 257
Changes in share capital 1 362 28 62
Issue of share capital 1 362 28 62
Changes in
non-distributable reserves 12 480 (9 283) (1 736)
Surplus on revaluation
of properties - - 16 820
Deferred taxation on
revaluation of properties - - (5 046)
Effect of change in
tax rate on surplus
on revaluation of properties 265 - -
Realisation of revaluation
reserve on
depreciation of buildings (344) (121) (241)
Increase (decrease) in
foreign currency
translation reserve of
foreign subsidiaries 12 239 (8 571) (11 934)
Exchange differences on
foreign reserves 320 (591) (1 335)
Changes in retained earnings 12 978 7 698 2 251
Effect of adoption of IFRS:
Adjustment to opening
retained earnings
in respect of depreciation
on property, plant
and equipment previously
taken into account - 13 443 13 443
Net profit (loss) for the period 12 634 (5 866) (11 433)
Transfer from
revaluation reserve on
depreciation of buildings 344 121 241
Equity at the end of the period 738 654 709 700 711 834
Notes to Interim Report
Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R"000 2005 2004 2004
1. ACCOUNTING POLICIES
In the current period, the Group has adopted all of the new and revised
Standards and Interpretations issued by the International Accounting Standards
Board (the IASB) and the International Financial Reporting Interpretations
Committee (IFRIC) of the IASB that are relevant to its operations and effective
for accounting periods beginning on 1 January 2005. The adoption of these new
and revised Standards and Interpretations has resulted in changes to the
Group"s accounting policies in the following areas that have affected the
amounts reported for the current or previous periods:
Property, Plant and Equipment (IAS 16)
2. NET FINANCE COSTS
Net interest paid 12,769 13,688 24,003
Net currency exchange losses 1,066 16,347 7,425
Net finance costs 13,835 30,035 31,428
3. PROFIT (LOSS) BEFORE TAXATION
Profit (loss) before taxation
is arrived at after taking into
account:
Income
Import duty rebates 20,428 11,125 38,197
Decrease in warranty provision - 25,763 30,042
Net surplus on disposal of
property, plant and equipment 3,403 49 454
Expenditure
Auditors" remuneration -
audit and other services 6,995 2,301 3,795
Depreciation of property,
plant and equipment 14,869 12,535 26,364
Increase in warranty provision 1,340 - -
Operating lease charges
- equipment and motor vehicles 3,256 1,668 11,497
- properties 8,143 7,943 16,188
Research and development expenses 12,735 11,215 27,548
Staff costs 193,548 167,344 337,856
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 94,399,542 (June 2004: 94,228,800).
On a diluted basis,the fully converted weighted average number of shares is
94,481,028 (June 2004: 94,674,328).
Headline earnings (loss) is arrived at after excluding the net surplus on
disposal of property,plant and equipment as reflected in note 3.
5. STATED CAPITAL
Authorised
100 000 000 (June 2004:100 000 000)
ordinary shares of no par value
Issued
94 712 900 (June 2004:94 233 500)
ordinary
shares of no par value 225,776 224,380 224,414
6.CAPITAL EXPENDITURE COMMITMENTS
Contracted 304 1,005 488
Authorised, but not contracted 10,405 5,353 18,286
Total capital expenditure commitments 10,709 6,358 18,774
7.SEGMENTAL ANALYSIS
Geographical segments
The group operates in two principal geographical areas
Operating
R"000 Revenue (loss) profit Assets Liabilities
June 2005
South Africa 731 021 (3 767) 1 095 926 636 032
Rest of world 937 381 36 527 531 705 252 945
Total 1 668 402 32 760 1 627 631 888 977
June 2004
(Restated)
South Africa 664 796 8 820 1 037 682 556 935
Rest of world 691 820 16 840 318 830 89 877
Total 1 356 616 25 660 1 356 512 646 812
Unaudited Audited
at 30 June at 30 June at 31 December
R"000 2005 2004 2004
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 172 405 275 673 248 713
In the event of repurchase,
it is estimated
that these units would
presently realise 172 596 274 548 242 699
(191) 1 125 6 014
Less: provision for residual
value risk (6 016) - (4 669)
Net contingent liability - 1 125 1 345
The provision for residual
value risk is based
on the assessment of the
probability
of return of the units.
Notes to Interim Report
(continued)
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 151 978 160 483 133 202
In the event of default,
the units financed
would be recovered and
it is estimated that
they would presently realise (115 778) (153 627) (94 645)
36 200 6 856 38 557
Less: provision for
non-recovery (20 929) - (18 248)
Net contingent liability 15 271 6 856 20 309
To the extent that both
customers
are 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 10 512 11 974 8 564
8.4 Certain trade receivables
have been discounted with
financial institutions
for an amount of 3 498 21 088 1 467
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 3 498 17 489 1 467
9. EXCHANGE RATES
The following major 30 June 30 June 31 December
rates of exchange 2005 2004 2004
were used: Weighted Weighted Weighted
average Closing average Closing average Closing
Euro: United
States $ 1.28 1.21 1.22 1.22 1.25 1.36
SA Rand: United
States $ 6.24 6.66 6.60 6.21 6.37 5.63
British GBP: U
nited States $ 1.87 1.79 1.82 1.81 1.84 1.93
10.COMPARATIVE INFORMATION
Comparative information has been restated for the effects of adopting
International Financial Reporting Standards. The aggregate effect of the
restatements is as follows:
Previously
stated Adjustment Restated
Retained earnings - 31 December 2003 452 022 13 443 465 465
For the six months ended 30 June 2004
Property, plant and equipment 147 375 19 204 166 579
Deferred taxation asset 17 134 (5 761) 11 373
Retained earnings 446 277 13 443 459 720
For the year ended 31 December 2004
Property, plant and equipment 202 464 16 736 219 200
Deferred taxation asset (liability) 3 709 (5 020) (1 311)
Non-distributable reserves 34 874 (1 727) 33 147
Retained earnings 440 830 13 443 454 273
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 2005 are acceptable given the
trading conditions and exchange rates in which the group operated. Revenue for
the six months was up 23% on the comparative period in 2004. Gross profit
however dropped from 20% to 15% of revenue, which is as a result of continuing
losses on the contracted export of product to the United States and
discounting in the face of fierce competition in our domestic and U.K.
markets. Exports as a percentage of sales were 56%, up 5% from the comparative
period, as were export volumes up by 9%. Margins were also affected by the
strengthening of the Rand, earning on average R6,24 for each U.S. Dollar of
exports as compared with June 2004"s average rate of R6,60. Fortunately we
benefited from a strengthening Rand against the Euro in this period otherwise
gross profit would have been lower. Net operating profit was R32,8 million as
compared to R25,7 million this despite a R15,6 million drop in gross profit.
Net asset value per share has increased by 25 cents since the beginning of the
year.
The most pleasing aspect of these results is the positive cash flow of R106,7
million that was generated in the six months despite capital expenditure of
R15,1 million in the period. The working capital was reduced and as a result
trade cycle days were down from 133 days to 83 days at the 30 June. The
inventory reduction of R116,2 million, was the single most important factor in
the improvement in the working capital cycle. On the contrary debtors did
increase but this was largely due to exceptionally high revenue of R427,8
million in June. Subsequent to half year the cash flow has continued to
improve with further reductions in borrowings. We have still not enjoyed the
full working capital benefits of our German assembly plant as high volumes
stress the supply chain and increased competition erodes the margin
expectation. During the next six months we expect a further reduction in
borrowings of over R100 million. Total overheads of R262,1 million are 1%
lower than the comparative period despite the substantial increase in volumes
and sales. We have seen some small cost reduction benefits from the Project
100 Plus cost reduction programme in this period but expect increased savings
in overheads and product costs to flow from this project in the next 12 to 18
months as the various initiatives are implemented.
Another noteworthy feature of these results is the excellent work done by our
Treasury team in managing foreign exchange losses down from R16,3 million last
June to R1,1 million in this period.
During the last two months we have been able to see the implementation of the
new arrangements with our strategic alliance partner, John Deere Construction
and Forestry Company (Deere). Manufacturing part of the range of our
Articulated Dump Trucks (ADTs) has commenced in Davenport U.S. and the first
batch of Tractor Loader Backhoes (TLBs) being assembled and partially
manufactured have come off our Richards Bay production line. The first
consignment of Front End Loaders (FELs) kits imported from Deere is now being
assembled in Richards Bay. This production in Richards Bay will substantially
reduce our overall manufactured cost of these products and will improve our
gross margin. The setting up of the ADT plant in the U.S. allows us to make a
margin on the kits manufactured in Richards Bay and exported to this facility
and at the same time reduces losses that we are making on the sales of
completed units to the U.S. We expect these three manufacturing processes to
be completely bedded down by 31 December 2005. The migration of manufacturing
between South Africa, the U.S. and our German facility should improve
profitability, reduce manufacturing costs and currency dependency as well as
improving our responsiveness to customers. Management"s efforts to reduce
product and operating costs continue unabated.
Our Southern African Sales and Distribution operation which forms the backbone
of the Group, continues to be profitable and at the forefront of the industry.
I am pleased to report that the entire Bell team see the progress being made
and have a combined clear resolve to achieve the stated targets set for cost
reduction, efficiency and quality improvements. The sustainable benefits of
our Project 100 Plus programme and more importantly our strategic alliance
with Deere we expect to flow substantially to the bottom line during 2006.
HJ Buttery
Group Chairman
5 August 2005
Bell Equipment Ltd
(Incorporated in the Republic of South Africa)
(Share code: BEL ISIN: ZAE000028304)
Registration number 1968/013656/06 ("Bell")
Directors: HJ Buttery (Group Chairman), GW Bell (Group Chief Executive), DL
Smythe, JP Du Toit, GP Harris, BW Schaffter*#, JW Kloet*#, RL Bridges*#, DJJ
Vlok*, PJC Horne*, TO Tsukudu*
Alternate Directors: PA Bell, PC Bell, MA Campbell, DM Gage*#
(*Non Executive Directors) (#USA)
Company Secretary: DP Mahony
Registered Office
13 - 19 Carbonode Cell
2004 (Pty) Limited
Alton
Richards Bay
Sponsor
Investec Bank Limited
Transfer Secretaries
Computershare Investor Services 2004 (Pty) Ltd
70 Marshall Street
Johannesburg
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