To view the PDF file, sign up for a MySharenet subscription.

BEL - Bell Equipment - Interim Report For The Six Months Ended 30 June 2007

Release Date: 08/08/2007 17:05
Code(s): BEL
Wrap Text

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 Supplied by www.sharenet.co.za Produced by the JSE SENS Department.

Share This Story