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BEL - Bell Equipment Limited - Reviewed interim report for the six months ended
30 June 2008
BELL EQUIPMENT LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1968/013656/06
Share Code: BEL
ISIN: ZAE000028304
("Bell" or "the Company")
Reviewed interim report for the six months ended 30 June 2008
Revenue up 35%
Gross profit up 57%
Earnings per share up 44%
Total assets up (June on June) 58%
Condensed consolidated balance sheet
as at 30 June 2008
Reviewed Reviewed Audited
30 June 30 June 31 Dec
R`000 2008 2007 2007
ASSETS
Non-current assets 607 940 468 653 473 633
Property, plant and equipment 471 461 385 106 426 649
Intangible assets 16 635 7 375 8 328
Interest-bearing investments
and long-term receivables 50 897 56 341 24 695
Deferred taxation 68 947 19 831 13 961
Current assets 3 269 055 1 984 955 2 408 034
Inventory 2 248 113 1 377 363 1 698 820
Trade and other receivables 884 453 537 211 676 142
Current portion of interest-
bearing long-term receivables 107 575 55 922 10 499
Taxation - 1 729 1 865
Cash resources 28 914 12 730 20 708
Total assets 3 876 995 2 453 608 2 881 667
EQUITY AND LIABILITIES
Capital and reserves 1 653 316 1 114 211 1 380 869
Stated capital (Note 5) 228 586 226 229 226 293
Non-distributable reserves 179 000 55 941 140 040
Retained earnings 1 239 841 832 041 1 014 536
Equity attributable to equity
holders of
Bell Equipment Limited 1 647 427 1 114 211 1 380 869
Minority interest 5 889 - -
Non-current liabilities 303 649 182 670 214 779
Interest-bearing liabilities 148 840 1 553 76 624
Repurchase obligations and 101 575 144 778 83 695
deferred leasing income
Deferred warranty income 48 927 22 389 50 740
Long-term provisions and 4 307 13 950 3 720
lease escalation
Current liabilities 1 920 030 1 156 727 1 286 019
Trade and other payables 1 047 155 725 987 758 984
Current portion of interest-
bearing liabilities 33 125 2 018 31 838
Current portion of repurchase
obligations
and deferred leasing income 18 183 18 881 20 638
Current portion of deferred 32 112 10 238 2 497
warranty income
Current portion of provisions
and lease escalation 47 789 40 111 51 048
Taxation 128 689 59 317 52 927
Short-term interest-bearing 612 977 300 175 368 087
debt
Total equity and liabilities 3 876 995 2 453 608 2 881 667
Number of shares in issue 94 950 94 834 94 858
(`000)
Net asset value per share 1 741 1 175 1 456
(cents)
Condensed consolidated income statement
for the six months ended 30 June 2008
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
R`000 2008 2007 2007
Revenue 2 787 369 2 069 329 4 624 961
Cost of sales 2 074 887 1 615 669 3 647 808
Gross profit 712 482 453 660 977 153
Other operating income 39 590 33 353 70 894
Expenses (343 341) (222 695) (553 785)
Profit from operating 408 731 264 318 494 262
activities (Note 2)
Net finance costs (Note 3) 34 903 8 662 19 696
Profit before taxation 373 828 255 656 474 566
Taxation 106 699 73 514 109 657
Profit for the period 267 129 182 142 364 909
Profit for the period
attributable to:
- Minority interest 4 989 - -
- Equity holders of Bell
Equipment Limited 262 140 182 142 364 909
Earnings per share (basic) 276 192 385
(cents) (Note 4)
Earnings per share (diluted)
(cents) (Note 4) 276 192 384
Dividend per share (cents) 40 25 -
Condensed consolidated cash flow statement
for the six months ended 30 June 2008
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
R`000 2008 2007 2007
Cash operating profit before
working capital changes 470 973 259 371 533 797
Cash invested in working (469 433) (136 614) (564 005)
capital
Cash generated from (utilised
in) operations 1 540 122 757 (30 208)
Net finance costs paid (34 903) (8 662) (19 696)
Taxation paid (84 058) (100 411) (158 285)
Net cash (utilised in)
generated
from operating activities (117 421) 13 684 (208 189)
Net cash flow utilised in
investing activities (201 242) (165 615) (69 745)
Net cash flow from financing 81 979 4 117 70 186
activities
Net cash outflow (236 684) (147 814) (207 748)
Net short-term interest-
bearing debt at beginning
of the period (347 379) (139 631) (139 631)
Net short-term interest-
bearing debt at end of the (584 063) (287 445) (347 379)
period
Consolidated statement of changes in equity
for the six months ended 30 June 2008
Non-
Stated distributable Retained Minority
R`000 capital reserves earnings interest Total
Balance at 31
December 2006 226 185 55 490 673 237 - 954 912
- audited
Realisation
of
revaluation
reserve on
depreciation - (371) 371 - -
of buildings
Exchange
differences
on
translation
of
foreign - 731 - - 731
operations
Exchange - 91 - - 91
difference on
foreign
reserves
Net income - 451 371 - 822
recognised
directly in
equity
Net profit - - 182 142 - 182 142
for the
period
Total - 451 182 513 - 182 964
recognised
income and
expense
Share options 44 - - - 44
exercised
Dividend paid - - (23 709) - (23 709)
Balance at 30
June 2007 - 226 229 55 941 832 041 - 1 114 211
reviewed
Realisation
of
revaluation
reserve on
depreciation - (317) 317 - -
of buildings
Surplus on
revaluation - 95 042 - - 95 042
of properties
Deferred
taxation on - (20 835) - - (20 835)
revaluation
of properties
Increase in
legal - 589 (589) - -
reserves of
foreign
subsidiaries
Exchange
differences
on
translation
of
foreign - 9 745 - - 9 745
operations
Exchange
difference on - (125) - - (125)
foreign
reserves
Net income
recognised - 84 099 (272) - 83 827
directly in
equity
Net profit - - 182 767 - 182 767
for the
period
Total
recognised - 84 099 182 495 - 266 594
income and
expense
Share options 64 - - - 64
exercised
Balance at 31
December 2007 226 293 140 040 1 014 536 - 1 380 869
- audited
Realisation
of
revaluation
reserve on
depreciation - (1 147) 1 147 - -
of buildings
Increase in
legal - 38 (38) - -
reserves of
foreign
subsidiaries
Exchange
differences
on
translation
of
foreign - 39 803 - - 39 803
operations
Exchange
difference on - 266 - - 266
foreign
reserves
Net income
recognised - 38 960 1 109 - 40 069
directly in
equity
Net profit - - 262 140 4 989 267 129
for the
period
Total
recognised - 38 960 263 249 4 989 307 198
income and
expense
Share issue
to minority - - - 900 900
shareholders
Share options 2 293 - - - 2 293
exercised
Dividend paid - - (37 944) - (37 944)
Balance at 30
June 2008 - 228 586 179 000 1 239 841 5 889 1 653 316
reviewed
Abbreviated notes to interim report
for the six months ended 30 June 2008
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
R`000 2008 2007 2007
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 2007 which
complied with
International
Financial Reporting
Standards.
This abridged report
complies with IAS
34, the Standard on
Interim Financial
Reporting.
2. PROFIT FROM
OPERATING ACTIVITIES
Profit from
operating activities
is arrived at after
taking into account:
Income
Currency exchange 291 192 47 461 137 373
gains
Import duty rebates - 9 061 9 956
Net surplus on
disposal of
property, plant and
equipment 1 040 491 743
Royalties 7 157 6 727 12 994
Decrease in warranty
provision 11 134 24 696 22 090
Expenditure
Auditors`
remuneration - audit 3 664 3 259 5 129
and other services
Amortisation of
intangible assets 1 189 187 459
Currency exchange 298 841 41 451 154 962
losses
Depreciation of
property, plant and 24 696 22 297 60 515
equipment
Operating lease
charges
- equipment and
motor vehicles 15 175 11 198 20 126
- properties 15 947 11 821 22 315
Research and
development expenses
(excluding staff 15 100 13 007 26 980
costs)
Staff costs 398 300 286 450 669 583
3. NET FINANCE COSTS
Interest paid 44 752 11 698 33 387
Interest received (9 849) (3 036) (13 691)
Net finance costs 34 903 8 662 19 696
4. EARNINGS PER SHARE
Basic earnings per
share is arrived at
as follows:
Profit for the
period attributable
to equity holders of
Bell Equipment 262 140 182 142 364 909
Limited
Weighted average
number of ordinary
shares in issue
during the period 94 862 490 94 832 747 94 839 508
Basic earnings per
share (cents) 276 192 385
The effect of the
increased short-term
interest-bearing
debt on
basic earnings per
share is 11 cents
per share
Diluted earnings per
share is arrived at
as follows:
Profit for the
period attributable
to equity holders of
Bell Equipment 262 140 182 142 364 909
Limited
Fully converted
weighted average 94 905 004 94 921 744 94 920 655
number of shares
Diluted earnings per
share (cents) 276 192 384
Headline earnings
per share is arrived
at as follows:
Profit for the
period attributable
to equity holders of
Bell Equipment 262 140 182 142 364 909
Limited
Net surplus on
disposal of (1 040) (491) (743)
property, plant and
equipment
Tax effect 291 142 215
Headline earnings 261 391 181 793 364 381
Weighted average
number of ordinary
shares in issue
during the period 94 862 490 94 832 747 94 839 508
Headline earnings
per share (cents) 276 192 384
The effect of the
increased short-term
interest-bearing
debt in
the period on
headline earnings
per share is 11
cents per share
Diluted headline
earnings per share
is arrived at as
follows:
Headline earnings
calculated above 261 391 181 793 364 381
Fully converted
weighted average 94 905 004 94 921 744 94 920 655
number of shares
Headline earnings
per share (diluted) 275 192 384
(cents)
5. STATED CAPITAL
Authorised
100 000 000 (June
2007: 100 000 000)
ordinary shares of
no par value
Issued
94 950 000 (June
2007: 94 834 400)
ordinary shares of
no par value 228 586 226 229 226 293
6. CAPITAL EXPENDITURE
COMMITMENTS
Contracted 13 349 12 894 9 228
Authorised, but not 52 905 46 016 131 643
contracted
Total capital
expenditure 66 254 58 910 140 871
commitments
7. ABBREVIATED SEGMENTAL ANALYSIS
Geographical segments
The group operates in two principal geographical areas:
Operating
R`000 Revenue profit Assets Liabilities
June 2008
South Africa 1 275 977 292 408 2 577 839 1 726 803
Rest of world 1 511 392 116 323 1 299 156 496 876
Total - reviewed 2 787 369 408 731 3 876 995 2 223 679
June 2007
South Africa 945 013 172 269 1 630 107 881 470
Rest of world 1 124 316 92 049 823 501 457 927
Total - reviewed 2 069 329 264 318 2 453 608 1 339 397
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 - audited 4 624 961 494 262 2 881 667 1 500 798
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 Dec
R`000 2008 2007 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 19 724 34 939 29 306
of
In the event of
repurchase, it is
estimated
that these units would
presently realise 24 171 44 824 31 794
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 7 677 55 502 11 816
In the event of default,
the units financed would
be
recovered and it is
estimated that they would
presently realise 33 355 43 708 26 151
(25 678) 11 794 (14 335)
Less: provision for non- - (16 033) -
recovery
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 13 903 11 112 15 180
amount of
Less: provision for - (2 341) (299)
residual value risk
Net contingent liability 13 903 8 771 14 881
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 - 12 288 -
for an amount 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 realise - 12 288 -
at least
30 June 2008 30 June 2007 31 December
2007
Weighted Weighted Weighted
average Closing average Closing average Closing
9. EXCHANGE
RATES
The
following
major
rates of
exchange
were
used:
United
States $: 1,55 1,58 1,33 1,35 1,38 1,47
Euro
SA Rand:
United 7,72 7,83 7,15 7,02 7,00 6,81
States $
United
States $: 1,98 1,99 1,97 2,00 2,01 2,00
British
GBP
10. COMPARATIVE INFORMATION
Currency exchange gains and losses have been reclassified from net finance costs
to operating expenses and comparative information has been restated. This has no
impact on the results of the group and only affects the reclassification of the
June 2007 information.
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.
12. SUBSEQUENT EVENTS
No fact or circumstance material to the appreciation of this interim report has
occurred between 30 June 2008 and the date of this report.
Commentary
The results for the six months ended 30 June 2008 are the best half-year
results in the Bell group`s history. These results continue to be boosted by
strong commodity prices and the increases in infrastructure spend, both of
which are important growth drivers for our customer base. Sales revenue is up
by 35% from R2,069 billion to R2,787 billion and more importantly the gross
profit is up 57% to R712,5 million. The increase in gross profit is largely
attributable to a more favourable Rand exchange rate and also a positive
increase in price realisation. Other income is up by 19% to R39,6 million due to
an increased profit share on the WesBank financing joint venture.
Parts and service sales, whilst reflecting a growth of 23,5% on a rolling
welve-month basis, have contributed 14,9% to total turnover in comparison
with the 16,5% in the first six months of 2007. This drop was due to a number
of factors including the commencing of building of our global logistics centre
at Jet Park in Johannesburg. We have suffered from serious space constraints
in terms of area available to store parts and disruptions caused by the
challenges of implementing a new group information system. Parts sales in the
second six months are expected to improve and we anticipate achieving our
target of 20% of total turnover for parts and service sales by 2010.
Overheads, while much in line with budget, are 54% up on the comparable period
of 2007. For many years we have been successful in containing our increase in
overheads below 5% of the previous reported period but this action has had the
negative consequence of having far too few people relative to the requirements
of our operation and our customers. As at 30 June 2008 our staff complement had
grown to 3 245 people as compared to 2 655 at the corresponding date in 2007. As
a result, our salary and wage costs have increased by R111,9 million half-year
on half-year. This accounts for almost all of the increase in overheads which
otherwise have been well contained.
Warranty costs continue to be well managed and are currently running at 1,67% of
sales, which is well within our targeted level of 2%. Once again 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.
Interest paid is substantially higher at R34,9 million (June 2007: R8,7
million). This is due to consistently higher borrowings in the period under
review. The effective tax rate at 28,5% is much in line with our budget and we
look forward to the continued rollout of the Government`s promise to reduce the
overall tax rates in South Africa. Headline earnings are up 44% from 192 cents
to 276 cents and the net asset value per share has increased by R2,85 since the
beginning of the year to R17,41 per share at 30 June 2008.
There was negative cash flow of R236,7 million during the period. Working
capital and in particular inventory continues to rise in line with turnover,
currency fluctuations, inflation and our need to support our customers in the
aftermarket. The reduction of inventory to free up cash to fund future growth
remains a high priority. Receivables continue to be in line with expectation but
have increased as a result of our corporate finance activities. Our normal trade
debtor days are in line with both budget and previous year achievements but the
total receivables have been substantially increased by our corporate finance
book which stands at R151,35 million at 30 June 2008. This continues to be a
profitable activity and a great help to our customers in countries where
financing from conventional sources is proving to be difficult. As a result of
the above the trade cycle days deteriorated from 120 days at June 2007 to 163
days at the end of June 2008. Our long-term interest-bearing liabilities have
substantially increased since June 2007 and during the next six months we are
planning to increase them further in order to reduce short-term borrowings and
hence the effective costs of financing our fixed assets. We also have seen a
R288,2 million increase in trade payables since year-end, which has gone a long
way to finance our increases in inventory. Gearing, while up to 46%, is in line
with our expectations and the annualised return on net assets is maintained at
35%. A dividend of 40 cents per share in respect of the financial year ended 31
December 2007 was paid on 14 April 2008, but no dividend is proposed for this
interim period.
We continue to be actively engaged with Government in trying to secure
competitive supply-side support measures, but are receiving very limited
response in our attempts to be readmitted to the current revised Motor Industry
Development Programme. Nevertheless, we are engaging with all parties involved
in the development of the replacement programme. We have increased our labour
force in South Africa this year by over 20%, but are still not supported to
anywhere near the same degree as many of our foreign competitors. We urge
Government at national, provincial and local level to heed our call to assist us
with globally competitive supply-side support measures.
I am very proud to report on the successful rollout of our BBBEE initiative. Our
BEE company, Bell Equipment Sales SA Limited (BESSA), has been operational since
1 January 2008. Our entire South African, Swazi and Namibian sales operations,
comprising 25 customer service centres, have been transferred to this subsidiary
and have been operating with great success. Our partners Kagiso Trust
Investments have a 22,5% stake and our employees own 7,5% of the equity. All the
share and loan capital for this company has been fully paid for in cash by all
shareholders with the Bell employees being gifted their shares by the company.
It gives me great pleasure to report that the partnership has bedded down well
and very good progress is being made in other areas of the Department of Trade
and Industry`s BBBEE generic scorecard throughout the group`s South African
operations.
The disruption to our manufacturing and distribution operations caused by the
recent power outages of the national service provider, Eskom, adversely affected
production during March and April of this year. We have taken positive steps to
support Government`s call to ensure an amount of self-sufficiency in the
provision of electricity for the company and are now pleased to report a two-
month period of continuous supply. In last year`s annual report we referred to
the problems we were encountering with component supply. While most of this has
been resolved during the period under review, it remains one of the major
factors in the increase in inventory where we are holding strategic stocks to
counteract unreliable supply. Neither problem has completely disappeared, but we
are better placed to ensure that we have the necessary measures in place to
mitigate these issues.
There has been a considerable increase in sales and marketing activity in the
Middle East and we have recently secured some substantial orders for delivery
before the end of the year. We have opened a sales office in Bahrain as a
beachhead from which Bell will drive further development of that market region.
Along with customer service, quality continues to be an area of key focus, which
is resulting in reduced warranty cost and increased customer satisfaction. We
are optimistic that the results for the second half of the year will continue
their positive performance and that we will see a continuation of these benefits
in our report to shareholders for the full year to December 2008.
Howard J Buttery
Group Chairman
12 August 2008
Directors: HJ Buttery (Group Chairman), GW Bell (Group Chief Executive),
DM Gage*#, K Manning*#,
MA Mun-Gavin*, BW Schaffter*#, DL Smythe, TO Tsukudu*, KJ van Haght,
DJJ Vlok*
Alternate directors: PA Bell, PC Bell, MA Campbell, GP Harris, JW Kloet*#
(*Non-executive directors) (#USA)
Resignations: PJC Horne (8 May 2008), J Dalhoff (13 March 2008)
Appointments: K Manning (13 March 2008)
Company DP Mahony
Secretary:
Registered 13 - 19 Carbonode Cell, Alton, Richards
Office: Bay
Transfer Link Market Services South Africa (Pty)
Secretaries: Ltd, PO Box 4844, Johannesburg 2000
Sponsor: RAND MERCHANT BANK (A division of
FirstRand Bank Limited)
Bell Equipment Limited
(Incorporated in the Republic of South Africa)
(Share code: BEL & ISIN: ZAE000028304)
Registration number: 1968/013656/06 ("Bell")
www.bellequipment.com
Date: 12/08/2008 09:00:02 Supplied by www.sharenet.co.za
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