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BEL - Bell Equipment - Audited Results for the Year Ended 31 December 2008

Release Date: 13/03/2009 13:00
Code(s): BEL
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BEL - Bell Equipment - Audited Results for the Year Ended 31 December 2008 Bell Equipment Limited (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 2008 Condensed consolidated balance sheet as at 31 December 2008 31 December 31 December R`000 2008 2007 Assets Non-current assets 665 822 473 633 Property, plant and equipment 532 764 426 649 Intangible assets 30 309 8 328 Interest-bearing investments and long- term receivables 34 787 24 695 Deferred taxation 67 962 13 961 Current assets 3 256 950 2 408 034 Inventory 2 546 512 1 698 820 Trade and other receivables 627 839 662 828 Current portion of interest-bearing long- term receivables 20 016 10 499 Prepayments 13 663 13 314 Taxation 12 494 1 865 Cash resources 36 426 20 708 Total assets 3 922 772 2 881 667 Equity and liabilities Capital and reserves 1 769 555 1 380 869 Stated capital (note 5) 228 586 226 293 Non-distributable reserves 200 940 140 040 Retained earnings 1 326 761 1 014 536 Attributable to equity holders of Bell Equipment Limited 1 756 287 1 380 869 Minority interest 13 268 - Non-current liabilities 273 881 214 779 Interest-bearing liabilities 83 171 76 624 Repurchase obligations and deferred leasing income 81 001 83 695 Deferred warranty income 95 370 50 740 Long-term provisions and lease 14 339 3 720 escalation Current liabilities 1 879 336 1 286 019 Trade and other payables 839 474 758 984 Current portion of interest-bearing liabilities 91 254 31 838 Current portion of repurchase obligations and deferred leasing income 66 186 20 638 Current portion of deferred warranty 11 047 2 497 income Current portion of provisions and lease escalation 50 838 51 048 Taxation 115 905 52 927 Short-term interest-bearing debt 704 632 368 087 Total equity and liabilities 3 922 772 2 881 667 Number of shares in issue (`000) 94 950 94 858 Net asset value per share (cents) 1 864 1 456 Condensed consolidated income statement for the year ended 31 December 2008 31 December 31 December R`000 2008 2007 Revenue 5 458 273 4 624 961 Cost of sales (4 036 622) (3 647 808) Gross profit 1 421 651 977 153 Other operating income 71 300 70 894 Distribution costs (663 826) (453 548) Administration expenses (66 638) (54 816) Other operating expenses (173 383) (45 421) Profit from operating activities (note 589 104 494 262 2) Net interest paid (note 3) (74 637) (19 696) Profit before taxation 514 467 474 566 Taxation (153 751) (109 657) Profit for the year 360 716 364 909 Profit for the year attributable to: Equity holders of Bell Equipment Limited 348 348 364 909 Minority interest 12 368 - Earnings per share (basic) (cents) (note 367 385 4) Earnings per share (diluted) (cents) 367 384 (note 4) Dividend per share (cents) 40 25 Condensed consolidated cash flow statement for the year ended 31 December 2008 31 December 31 December R`000 2008 2007 Cash operating profit before working capital changes 714 903 533 797 Cash invested in working capital (732 562) (564 005) Cash utilised in operations (17 659) (30 208) Net interest paid (74 637) (19 696) Taxation paid (154 249) (158 285) Net cash utilised in operating (246 545) (208 189) activities Net cash flow utilised in investing activities (171 825) (69 745) Net cash flow from financing activities 97 543 70 186 Net cash outflow (320 827) (207 748) Net short-term interest-bearing debt at beginning of the year (347 379) (139 631) Net short-term interest-bearing debt at end of the year (668 206) (347 379) Consolidated statement of changes in equity for the year ended 31 December 2008 Attributable to equity holders of Bell Equipment Limited Non-
Stated distributable Retained R`000 capital reserves earnings Total Balance at 31 December 2006 226 185 55 490 673 237 954 912 Surplus on revaluation of properties - 95 042 - 95 042 Deferred taxation on revaluation of properties - (20 835) - (20 835) Realisation of revaluation reserve on depreciation of buildings - (969) 969 - Deferred taxation on realisation of revaluation reserve on depreciation of buildings - 281 (281) - Increase in legal reserves of foreign subsidiaries - 589 (589) - Exchange differences on translation of foreign operations - 10 476 - 10 476 Exchange difference on foreign reserves - (34) - (34) Net income recognised directly in equity - 84 550 99 84 649 Net profit for the - - 364 909 364 909 year Total recognised income and expense - 84 550 365 008 449 558 Share options 108 - - 108 exercised Dividends paid - - (23 709) (23 709) Balance at 31 December 2007 226 293 140 040 1 014 536 1 380 869 Realisation of revaluation reserve on depreciation of buildings - (3 417) 3 417 - Deferred taxation on realisation of revaluation reserve on depreciation of buildings - 957 (957) - Effect of change in tax rate on realisation of revaluation reserve - 800 - 800 Increase in legal reserves of foreign subsidiaries - 639 (639) - Exchange differences on translation of foreign operations - 60 413 - 60 413 Exchange difference on foreign reserves - 1 508 - 1 508 Net income recognised directly in equity - 60 900 1 821 62 721 Net profit for the - - 348 348 348 348 year Total recognised income and expense - 60 900 350 169 411 069 Share issue to minority shareholders - - - - Share options 2 293 - - 2 293 exercised Dividends paid - - (37 944) (37 944) Balance at 31 December 2008 228 586 200 940 1 326 761 1 756 287 Total Minority capital and R`000 interest reserves Balance at 31 December 2006 - 954 912 Surplus on revaluation of properties - 95 042 Deferred taxation on revaluation of properties - (20 835) Realisation of revaluation reserve on depreciation of buildings - - Deferred taxation on realisation of revaluation reserve on depreciation of buildings - - Increase in legal reserves of foreign subsidiaries - - Exchange differences on translation of foreign operations - 10 476 Exchange difference on foreign - (34) reserves Net income recognised directly in - 84 649 equity Net profit for the year - 364 909 Total recognised income and expense - 449 558 Share options exercised - 108 Dividends paid - (23 709) Balance at 31 December 2007 - 1 380 869 Realisation of revaluation reserve on depreciation of buildings - - Deferred taxation on realisation of revaluation reserve on depreciation of buildings - - Effect of change in tax rate on realisation of revaluation reserve - 800 Increase in legal reserves of foreign subsidiaries - - Exchange differences on translation of foreign operations - 60 413 Exchange difference on foreign - 1 508 reserves Net income recognised directly in - 62 721 equity Net profit for the year 12 368 360 716 Total recognised income and expense 12 368 423 437 Share issue to minority shareholders 900 900 Share options exercised - 2 293 Dividends paid - (37 944) Balance at 31 December 2008 13 268 1 769 555 Abbreviated notes to audited consolidated results for the year ended 31 December 2008 1. Accounting policies The financial statements from which these results are summarised have been prepared in accordance with International Financial Reporting Standards (IFRS) and the policies and methods of computation are consistent with those applied to the previous year. The adoption of the following interpretations has not led to any changes in the group`s accounting policies and did not have a material impact on the financial statements of the group: IFRIC 11 - IFRS 2 Group and Treasury Share Transactions IFRIC 12 - Service Concession Arrangements IFRIC 14 - IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction The financial statements have been prepared on the historical cost basis, except for the revaluation of certain properties and financial instruments, and adjustments, where applicable, in respect of hyperinflation accounting. This abridged report complies with International Accounting Standard 34 - Interim Financial Reporting, Schedule 4 of the South African Companies Act and the disclosure requirements of the JSE Limited`s Listing Requirements. 31 December 31 December R`000 2008 2007 2. Profit from operating activities Profit from operating activities is arrived at after taking into account: Income Currency exchange gains 499 590 137 373 Import duty rebates - 9 956 Net surplus on disposal of property, plant and equipment and intangible assets 40 743 Royalties 11 573 12 994 Decrease in warranty provision - 22 090 Expenditure Auditors` remuneration - audit and other services 6 503 5 129 Amortisation of intangible assets 3 915 459 Currency exchange losses 566 640 154 962 Depreciation of property, plant and equipment 54 784 60 515 Operating lease charges - equipment and vehicles 28 312 20 126 - land and buildings 33 825 22 315 Research and development expenses (excluding staff costs) 34 268 26 980 Increase in warranty provision 2 742 - Staff costs 812 931 656 257 3. Net interest paid Interest paid 104 237 33 387 Interest received (29 600) (13 691) Net interest paid 74 637 19 696 4. Earnings per share Basic earnings per share is arrived at as follows: Profit for the year attributable to equity holders of Bell Equipment Limited 348 348 364 909 Weighted average number of ordinary shares in issue 94 906 604 94 839 508 Basic earnings per share (cents) 367 385 The effect of the increased short- term interest-bearing debt for the year ended 31 December 2008 on basic earnings per share is 19 cents per share. Diluted earnings per share is arrived at as follows: Profit for the year attributable to equity holders of Bell Equipment Limited 348 348 364 909 Fully converted weighted average number of shares 94 946 517 94 920 655 Diluted earnings per share (cents) 367 384 Headline earnings per share is arrived at as follows: Profit for the year attributable to equity holders of Bell Equipment Limited 348 348 364 909 Net surplus on disposal of property, plant and equipment and intangible assets (40) (743) Tax effect of net surplus on disposal of property, plant and equipment and intangible assets 11 215 Headline earnings 348 319 364 381 Weighted average number of ordinary shares in issue 94 906 604 94 839 508 Headline earnings per share (basic) (cents) 367 384 The effect of the increased short- term interest-bearing debt for the year ended 31 December 2008 on headline earnings per share is 19 cents per share. Diluted headline earnings per share is arrived at as follows: Headline earnings calculated above 348 319 364 381 Fully converted weighted average number of shares 94 946 517 94 920 655 Headline earnings per share (diluted) (cents) 367 384 5. Stated capital Authorised 100 000 000 (December 2007: 100 000 000) ordinary shares of no par value Issued 94 950 000 (December 2007: 94 857 900) ordinary shares of no par value 228 586 226 293 6. Capital expenditure commitments Contracted 3 552 9 228 Authorised, but not contracted 50 341 131 643 Total capital expenditure commitments 53 893 140 871 7. Abbreviated segmental analysis Geographical segments The group operates in two principal geographical areas: Operating Revenue profit Assets Liabilities
December 2008 South Africa 2 700 335 541 539 2 745 685 1 723 506 Rest of world 2 757 938 47 565 1 177 087 429 711 Total 5 458 273 589 104 3 922 772 2 153 217 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 4 624 961 494 262 2 881 667 1 500 798 31 December 31 December 2008 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 of 10 473 29 306 In the event of repurchase, it is estimated that these units would presently realise (11 741) (31 794) Net contingent liability - - 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 year end the amount due by customers to WesBank in respect of these transactions totalled 120 508 11 816 In the event of default, the units financed would be recovered and it is estimated that they would presently realise (103 986) (26 151) Net contingent liability 16 522 - 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 13 801 15 180 Less: provision for residual value risk - (299) Net contingent liability 13 801 14 881 The provision for residual value risk is based on the assessment of the probability of return of the units. 9. Related party transactions and balances Details of transactions and balances between the group and other related parties are disclosed in the annual report. There are no material changes in related party transactions and balances in the current year. 2008 2007 Weighted Year Weighted Year
average end average end 10. Exchange rates The following major rates of exchange were used: United States $: Euro 1,47 1,41 1,38 1,47 SA Rand: United States $ 8,24 9,23 7,00 6,81 United States $: British GBP 1,84 1,45 2,01 2,00 11. Independent auditors` report The annual financial statements of the group have been audited by the company`s auditors, Deloitte & Touche. The audit report has been modified to draw attention to a material uncertainty regarding the group`s funding facilities which has been disclosed in the directors` report as per the extract from this report in note 12 below. Their modified report is available for inspection at the registered office of the company. 12. Extract from directors` report As a result of the current global economic climate and the significant downturn in the markets in which the group operates, business plans have been revised to address the expected lower demand and difficult trading conditions in 2009. Additional financing has been obtained from shareholders subsequent to year-end in the form of a loan and account settlement assistance. In this regard, IA Bell & Company has entered into a loan agreement with the company to the effect that this shareholder will lend the company R150 million until at least 30 June 2010, or when the group`s gearing is maintained at 20% or less. The other major shareholder and the single largest supplier to the group, John Deere, is providing assistance on account settlement in respect of machines and kits supplied. Furthermore, application has been made to the Industrial Development Corporation for a loan of approximately R220 million for which the due diligence review is currently in progress. Business plans have been revised in line with the changed outlook for 2009 and costs have been reduced accordingly, but with careful consideration given to the long-term sustainability of the business. The priority for 2009 is on positive cash flow and realising the value in inventory and receivables. The group`s bankers are fully apprised of the group`s liquidity challenges and their continued support is vital to the group`s future success. The group acknowledges that the banks` willingness and ability to maintain facilities available to the group is dependent on the success of the group`s business plans regarding sales realisation, recovery of the carrying values of inventory and receivables and cost reduction. Although the group has current liquidity constraints and this leads to material uncertainty at the time of approving the annual financial statements, the directors, taking full cognisance of all the issues referred to above, believe that the going concern assumption is appropriate. 13. Subsequent events No fact or circumstance material to the appreciation of this report has occurred between 31 December 2008 and the date of this report. 14. Changes in directorate Mr R Verster was appointed as Company Secretary, effective from 1 September 2008. Mr J Horne retired on 7 May 2008. Commentary The group closed the 2008 financial year with credible results, having achieved profits after taxation of R360,7 million (2007: R364,9 million) and earnings per share of 367 cents (2007: 385 cents). The first 10 months of 2008 saw the group producing record pre-tax and post-tax profits. However, the global economic crisis, which started to seriously affect the group in October of 2008, saw us making a loss in the month of December 2008. Financial review In 2008, revenue increased by 18,0% to R5,458 billion and at the same time gross profit peaked at an all time high of R1,422 billion up by R444,5 million on the previous year. Gross profit as a percentage of revenue increased to 26% from the previous year`s 21%. This was due to efforts by management to maintain price realisation, contain costs and achieve economies of scale, and because of favourable exchange rates. As a result of our increased turnover and gross profit, operating profit for the year increased by R94,8 million to R589,1million. This was despite a R350,1 million increase in total expenses. Our balance sheet clearly spells out the difficult trading conditions we encountered in the last two months of the year with inventory and interest- bearing debt at all time highs. Currently, we have inventory of R850 million in excess of our requirements at current turnover levels. All of this inventory is valued at the lower of cost and net realisable value and is all saleable over the next six to eight months, during which time we will use these proceeds to reduce group debt. Over and above the curtailment of production at our German factory, the Richards Bay factory is on a reduced schedule and rates will be adjusted during the year. We intend to keep the factory operating at these levels until such time as we are able to dispose of our inventory and see the demand develop for additional production. As a result of the above, we have suffered a negative cash flow of R320,8 million in the year under review as a direct consequence of the increase in working capital. Operational review Our focus on the lifetime revenue stream from the sale of parts and service has once again been significant with revenue increasing by 16,5%. Parts continue to be a focus area in growth in terms of customer service as well as revenue and gross profit, and these sales generate 15,8% of our turnover. Subsequent to year-end we have moved the four geographically disparate parts operations that we ran in various parts of Johannesburg into a single global logistics centre at Jet Park. This facility was built at a cost of R220 million by our landlord and we expect to generate improved parts sales from this location. Exports achieved a turnover of R2,76 billion up by 9% on the previous year. A total of 20,1% turnover was sold in Europe and 21,1% in Africa outside of South Africa. Exports represented 50,5% of our global turnover as compared with 54,7% in 2007. For the past few years we have been challenged to contain overheads due to large increases in business volumes, turnover, weakening reporting currency and the inflationary pressures that have been brought to bear upon us in many of the countries in which we operate. As we advised in last year`s report we expected overheads to increase in 2008 in line with our increased gross profit and revenue. Overheads increased by R350,1 million largely as a result of increased salaries and wages. Once again I am very pleased to report on the successful control of warranty costs within the group. This expenditure remained at similar levels to 2007 at 1,8% of total sales in 2008. This constitutes a better performance than 2007 since we benefited from a reversal of prior year warranty provisions in that year amounting to R22 million. Net interest paid increased by R54,9 million as a result of substantially higher borrowings and higher interest rates. Our tax rate at 29,9% is at a higher level than we would like and whilst we are benefiting from research and development allowances the foreign tax paid was at higher levels than budgeted. Our South African sales and distribution operations as well as our Africa sales group achieved pleasing results and I would like to congratulate the management and employees of those operations. Our subsidiaries in Zambia, the Democratic Republic of Congo (DRC) and Zimbabwe produced good results in difficult trading conditions. As mentioned in our interim report, our European operations did very well in the first six months of 2008 but suffered a decline and losses in the second six months. This is particularly noticeable in our United Kingdom and Spanish operations where the markets have experienced serious slow downs. We have taken corrective steps after year-end to reduce our overheads in both of these operations and are planning to restructure the rest of our European businesses. We have curtailed production at our German assembly facility to match retail demand. We constantly review our sales and inventory requirements for Europe and will shortly take a decision as to whether this curtailment of production should be extended further into the year. Our business relationship with Hitachi in Asia and the Far East has had a very successful year and turnover in those markets has increased by 60% to R395 million. As reported in our interim statement, we brought a broad-based BEE partner and employee shareholders into Bell Equipment Sales SA Limited (BESSA) at the start of the year. This has now been operating with great success for over a year. Prospects Whilst the spend in developing economies on infrastructure has not slowed down as much, we have seen an alarming drop in the price of mining commodities particularly in platinum, copper, diamonds and chrome. It is, however, very encouraging to note that government has allocated funds to spend on infrastructure in South Africa. We expect this expenditure to be of considerable benefit to our group`s activities in South Africa going forward. During 2009, we will continue to focus on our strategic position in Africa where we have superior network cover and a supply chain advantage. The industries in which we operate in Africa have been less affected by the global slow down and because of our close proximity to markets we are competitive both in terms of pricing and service. In the first nine months of the year we continued to lose key employees through emigration and were forced to increase salaries to retain skills. Subsequent to the year-end and as a direct result of the economic crisis we have been forced to lay off nearly 800 contractors, at the same time making substantial cuts to all overheads in order to rightsize our business to cope with the current levels of turnover. We will continue to rightsize the business throughout 2009 in order to ensure optimal levels of overheads. We are acutely aware that our turnover in 2009 has dropped by close to 40% in comparison to the prior year`s turnover and currently we are not able to get a clear picture of the markets and sales going forward. For this reason we have decided to adopt a very cautious and conservative approach to our production plans. Our business plan aims to achieve sales of at least R320 million per month in 2009 with a commensurate reduction in overheads. The reduction in the excess inventory will enable us to return to our stated ideal capital structure of a gearing ratio not exceeding 20%. In achieving this position we will be well poised to take full advantage of the expected upswing when it occurs. Despite the sizeable after tax profits generated in 2008 the Board cannot recommend the payment of any dividend. All cash needs to be conserved in order to ensure the groups` ability to fund itself in these difficult economic times. We have through this group developed a very robust business plan to combat the economic downturn and I am positive that we will come out of this downturn a stronger and better company as a result of our endeavours in a very difficult time. We also have a robust contingency plan should the markets further deteriorate. HJ Buttery Group Chairman 11 March 2009 Directors: HJ Buttery (Group Chairman), GW Bell (Group Chief Executive), DL Smythe, KJ van Haght (Financial Director). Non-executive directors: DJJ Vlok, MA Mun-Gavin, TO Tsukudu, BW Schaffter (USA), K Manning (USA), DM Gage (USA). Alternate directors: PC Bell, L Goosen, GP Harris, JW Kloet (USA), AR McDuling. Company Secretary: R Verster Registered Office: 13 - 19 Carbonode Cell, Alton, Richards Bay Transfer Secretaries: Link Market Services South Africa (Pty) Limited, PO Box 4844, Johannesburg 2000 Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited) www.bellequipment.com Date: 13/03/2009 13:00:05 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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