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BEL - Bell Equipment Limited - Reviewed interim report for the six months ended
30 June 2010
Bell Equipment Limited
(Incorporated in the Republic of South Africa)
Registration number: 1968/013656/06
(Share code: BEL) ISIN: ZAE000028304
("Bell" or "Group" or the "company")
REVIEWED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2010
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2010
Reviewed Reviewed Audited
at 30 June at 30 June at 31 December
R`000 2010 2009 2009
ASSETS
Non-current assets 733 242 717 942 798 445
Property, plant and equipment 453 898 509 318 520 452
Intangible assets 51 124 28 917 39 873
Interest-bearing investments
and long-term receivables 57 632 66 010 73 982
Deferred taxation 170 588 113 697 164 138
Current assets 1 972 427 2 635 667 2 127 669
Inventory 1 396 041 2 153 553 1 618 728
Trade and other receivables
and prepayments 496 570 406 575 428 940
Current portion of
interest-bearing long-term
receivables 27 256 55 311 37 409
Other financial assets 2 054 - 430
Taxation 8 031 1 644 10 280
Cash resources 42 475 18 584 31 882
TOTAL ASSETS 2 705 669 3 353 609 2 926 114
EQUITY AND LIABILITIES
Capital and reserves 1 408 147 1 513 347 1 420 435
Stated capital (Note 5) 228 605 228 586 228 605
Non-distributable reserves 99 852 130 465 123 984
Retained earnings 1 075 959 1 147 114 1 066 540
Attributable to equity holders
of Bell Equipment Limited 1 404 416 1 506 165 1 419 129
Non-controlling interest 3 731 7 182 1 306
Non-current liabilities 365 210 379 523 374 654
Interest-bearing liabilities 218 410 214 787 218 404
Repurchase obligations and
deferred leasing income 54 614 70 497 49 724
Deferred warranty income 73 072 78 538 89 047
Long-term provisions and lease
escalation 19 114 15 701 17 479
Current liabilities 932 312 1 460 739 1 131 025
Trade and other payables 511 343 532 016 530 151
Current portion of
interest-bearing liabilities 34 985 70 529 52 830
Current portion of repurchase
obligations and
deferred leasing income 26 620 64 346 46 639
Current portion of deferred
warranty income 18 733 35 121 17 599
Current portion of provisions
and lease escalation 36 815 34 390 37 199
Other financial liabilities 303 - 3 922
Taxation 11 744 51 811 14 856
Short-term interest-bearing debt 291 769 672 526 427 829
TOTAL EQUITY AND LIABILITIES 2 705 669 3 353 609 2 926 114
Number of shares in issue (`000) 94 958 94 950 94 958
Net asset value per share (cents) 1 483 1 594 1 496
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 June 2010
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R`000 2010 2009 2009
Revenue 1 502 344 1 375 295 2 699 149
Cost of sales (1 177 975) (1 052 316) (2 164 082)
Gross profit 324 369 322 979 535 067
Other operating income 63 496 16 770 143 477
Expenses (350 773) (492 932) (941 970)
Profit (loss) from operating
activities (Note 2) 37 092 (153 183) (263 426)
Net interest paid (Note 3) (36 013) (61 712) (108 605)
Profit (loss) before taxation 1 079 (214 895) (372 031)
Taxation 9 669 27 987 100 325
Profit (loss) for the period 10 748 (186 908) (271 706)
Profit (loss) for the period
attributable to:
- Equity holders of Bell
Equipment Limited 8 323 (180 822) (259 744)
- Non-controlling interest 2 425 (6 086) (11 962)
Earnings (loss) per share
(basic)(cents) (Note 4) 9 (190) (274)
Earnings (loss) per share
(diluted)(cents) (Note 4) 9 (190) (274)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2010
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R`000 2010 2009 2009
Profit (loss) for the period 10 748 (186 908) (271 706)
Other comprehensive loss
Exchange differences arising during
the period (23 797) (69 300) (77 433)
Exchange differences on translating
foreign operations (21 957) (67 283) (74 954)
Exchange differences on foreign
reserves (1 840) (2 017) (2 479)
Total comprehensive loss for the
period (13 049) (256 208) (349 139)
Total comprehensive loss
attributable to:
- Equity holders of Bell Equipment
Limited (15 474) (250 122) (337 177)
- Non-controlling interest 2 425 (6 086) (11 962)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 30 June 2010
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R`000 2010 2009 2009
Cash operating profit (loss) before
working capital changes 67 313 (187 664) (223 592)
Cash generated from working capital 133 617 320 428 784 160
Cash generated from operations 200 930 132 764 560 568
Net interest paid (36 013) (61 712) (108 605)
Taxation refunded (paid) 1 183 (70 992) (95 526)
Net cash generated from operating
activities 166 100 60 356 437
Net cash flow utilised in investing
activities (773) (21 697) (117 316)
Net cash flow (utilised in)
generated from financing activities (18 674) 35 901 33 138
Net cash inflow 146 653 14 264 272 259
Net short-term interest-bearing
debt at beginning of the period (395 947) (668 206) (668 206)
Net short-term interest-bearing
debt at end of the period (249 294) (653 942) (395 947)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2010
Attributable to equity holders of Bell Equipment Limited
Non-
Stated distributable Retained
R`000 capital reserves earnings Total
Balance at 31
December 2008 -
audited 228 586 200 940 1 326 761 1 756 287
Total comprehensive
loss for the period - (69 300) (180 822) (250 122)
Realisation of
revaluation reserve
on depreciation of
buildings - (1 708) 1 708 -
Deferred taxation on
realisation of
revaluation reserve on
depreciation of
buildings - 478 (478) -
Increase in legal
reserves of foreign
subsidiaries - 55 (55) -
Balance at 30 June
2009 - reviewed 228 586 130 465 1 147 114 1 506 165
Share options
exercised 19 - - 19
Total comprehensive
loss for the period - (8 133) (78 922) (87 055)
Realisation of
revaluation reserve
on depreciation of
buildings - (1 710) 1 710 -
Deferred taxation on
realisation of
revaluation reserve on
depreciation of
buildings - 479 (479) -
Increase in legal
reserves of foreign
subsidiaries - 2 883 (2 883) -
Balance at 31
December 2009 -
audited 228 605 123 984 1 066 540 1 419 129
Recognition of
share-based payments - 761 - 761
Total comprehensive
(loss) income
for the period - (23 797) 8 323 (15 474)
Realisation of
revaluation reserve
on depreciation of
buildings - (1 522) 1 522 -
Deferred taxation on
realisation of
revaluation reserve on
depreciation of
buildings - 426 (426) -
Balance at 30 June
2010 - reviewed 228 605 99 852 1 075 959 1 404 416
Non- Total
controlling capital and
R`000 interest reserves
Balance at 31 December 2008 - audited 13 268 1 769 555
Total comprehensive loss for the period (6 086) (256 208)
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 - -
Balance at 30 June 2009 - reviewed 7 182 1 513 347
Share options exercised - 19
Total comprehensive loss for the period (5 876) (92 931)
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 - -
Balance at 31 December 2009 - audited 1 306 1 420 435
Recognition of share-based payments - 761
Total comprehensive (loss) income for the period 2 425 (13 049)
Realisation of revaluation reserve
on depreciation of buildings - -
Deferred taxation on realisation of
revaluation reserve on
depreciation of buildings - -
Balance at 30 June 2010 - reviewed 3 731 1 408 147
ABBREVIATED NOTES TO INTERIM REPORT
for the six months ended 30 June 2010
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
R`000 2010 2009 2009
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 2009,
which complied with International Financial
Reporting Standards, except for the
adoption of new and revised
Standards and Interpretations.
In the current period the group
has adopted all of the new
and revised Standards and
Interpretations relevant to
its operations and effective for
annual reporting periods
beginning 1 January 2010. The
adoption of these new
and revised Standards and
Interpretations has not had
any significant impact on the
amounts reported in this
abridged report.
This abridged report complies with
International Accounting Standard 34 -
Interim Financial Reporting,
AC 500 Standards as issued by the
Accounting Practices
Board, Schedule 4 of the South
African Companies Act and the
disclosure requirements of
the JSE Limited`s
Listing Requirements.
2 PROFIT (LOSS) FROM OPERATING
ACTIVITIES
Profit (loss) from operating
activities is arrived at after
taking into account:
Income
Currency exchange gains 63 579 114 490 184 078
Decrease in warranty provision 1 695 16 597 17 398
Deferred warranty income 22 834 - 36 428
Import duty rebates 21 226 - 75 340
Royalties 1 120 (248) -
Net surplus on disposal of property,
plant and equipment and
intangible assets 101 318 826
Expenditure
Amortisation of intangible assets 4 437 3 590 8 137
Auditors` remuneration - audit and
other services 3 789 3 710 7 842
Currency exchange losses 55 477 111 970 190 788
Depreciation of property, plant and
equipment 45 018 46 633 94 144
Operating lease charges
- equipment and motor vehicles 10 321 12 918 24 502
- land and buildings 29 688 27 481 56 852
Research and development expenses
(excluding staff costs) 10 943 10 388 17 791
Staff costs 268 574 350 097 604 847
3 NET INTEREST PAID
Interest paid 43 205 66 956 121 912
Interest received (7 192) (5 244) (13 307)
Net interest paid 36 013 61 712 108 605
4 EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is
arrived at as follows:
Profit (loss) for the period
attributable to equity holders of
Bell Equipment Limited (R`000) 8 323 (180 822) (259 744)
Weighted average number of ordinary
shares in issue during the
period (`000) 94 958 94 950 94 952
Basic earnings (loss) per share (cents) 9 (190) (274)
Diluted earnings (loss) per share is
arrived at as follows:
Profit (loss) for the period
attributable to equity holders of
Bell Equipment Limited (R`000) 8 323 (180 822) (259 744)
Fully converted weighted average
number of shares (`000) 94 966 94 963 94 955
Diluted earnings (loss) per share (cents) 9 (190) (274)
Headline earnings (loss) per share
is arrived at as follows:
Profit (loss) for the period
attributable to equity holders of
Bell Equipment Limited (R`000) 8 323 (180 822) (259 744)
Net surplus on disposal of property,
plant and equipment
and intangible assets (R`000) (101) (318) (826)
Tax effect of net surplus on
disposal of property, plant and
equipment and intangible assets (R`000) 28 89 231
Headline earnings (loss) (R`000) 8 250 (181 051) (260 339)
Weighted average number of ordinary
shares in issue during
the period (`000) 94 958 94 950 94 952
Headline earnings (loss) per share
(basic) (cents) 9 (191) (274)
Diluted headline earnings (loss) per
share is arrived at as follows:
Headline earnings (loss) calculated
above (R`000) 8 250 (181 051) (260 339)
Fully converted weighted average
number of shares (`000) 94 966 94 963 94 955
Headline earnings (loss) per share
(diluted) (cents) 9 (191) (274)
5 STATED CAPITAL
Authorised
100 000 000 (June 2009: 100 000 000)
ordinary shares of no par value
Issued
94 958 000 (June 2009: 94 950 000)
ordinary shares of no par value 228 605 228 586 228 605
6 CAPITAL EXPENDITURE COMMITMENTS
Contracted 2 739 1 897 58
Authorised, but not contracted 26 748 10 347 29 487
Total capital expenditure commitments 29 487 12 244 29 545
7 ABBREVIATED SEGMENTAL ANALYSIS
Operating
R`000 Revenue profit (loss) Assets Liabilities
June 2010
South African
sales operation 883 078 19 448 849 143 815 842
South African
manufacturing
and logistics
operation 610 641 (21 380) 1 671 995 511 008
European
operation 261 135 (7 560) 416 354 318 767
Rest of Africa
and other
international
sales operations 354 189 8 265 307 073 234 833
All other
operations - 1 836 398 250 35 858
Inter-segmental
eliminations (606 699) 36 483 (937 146) (618 786)
Total -
reviewed 1 502 344 37 092 2 705 669 1 297 522
June 2009 -
restated
South African
sales operation 872 829 (14 019) 1 042 047 997 240
South African
manufacturing
and logistics
operation 611 783 (156 187) 2 055 806 805 707
European
operation 179 496 (25 439) 667 408 508 686
Rest of Africa
and other
international
sales
operations 414 217 (8 339) 353 719 281 326
All other
operations - 3 851 493 150 87 829
Inter-segmental
eliminations (703 030) 46 950 (1 258 521) (840 526)
Total -
reviewed 1 375 295 (153 183) 3 353 609 1 840 262
December 2009
- restated
South African
sales operation 1 693 975 (29 332) 931 261 906 041
South African
manufacturing
and logistics
operation 1 135 860 (254 200) 1 773 631 598 598
European
operation 391 448 (68 731) 527 842 409 453
Rest of Africa
and other
international
sales
operations 845 665 (11 742) 323 332 250 425
All other
operations - (9 197) 546 423 154 146
Inter-segmental
eliminations (1 367 799) 109 776 (1 176 375) (812 984)
Total - audited 2 699 149 (263 426) 2 926 114 1 505 679
The group`s reportable segments have changed as a result of changes in the
structure of the internal organisation.
Corresponding information for earlier periods has been restated accordingly.
Reviewed Reviewed Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2010 2009 2009
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 1 618 5 411 6 903
In the event of repurchase, it is
estimated that these
units would presently realise (4 324) (6 764) (17 475)
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 the different categories
of financing provided
by WesBank, the group is liable for
the full balance due
to WesBank by default customers
with regard to Bell
backed deals and a portion of the
balance with regard
to Bell shared risk deals.
At period end the amount due by
customers to WesBank in respect
of these transactions totalled 151 342 149 737 151 517
In the event of default, the units
financed would be recovered and it
is estimated that they would
presently realise (136 455) (125 670) (146 862)
14 887 24 067 4 655
Less: provision for non-recovery (6 500) (3 000) (6 239)
Net contingent liability 8 387 21 067 -
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 15 484 12 972 12 100
Less: provision for residual value
risk (533) - (844)
Net contingent liability 14 951 12 972 11 256
The provision for residual value risk is based on the assessment of the
probability of return of the units.
9 EXCHANGE RATES
30 June 2010 30 June 2009
The following major rates Weighted Weighted
of exchange were used: average Closing average Closing
United States $: Euro 1,31 1,23 1,34 1,40
SA Rand: United States $ 7,54 7,60 8,99 7,71
SA Rand: Euro 9,90 9,31 11,96 10,83
United States $: British GBP 1,52 1,50 1,50 1,65
30 June 2010 31 December 2009
The following major rates Weighted
of exchange were used: average Closing
United States $: Euro 1,40 1,44
SA Rand: United States $ 8,29 7,36
SA Rand: Euro 11,51 10,60
United States $: British GBP 1,57 1,61
10 DIRECTORS` UPDATE ON GOING CONCERN
As expected, the group experienced a moderate recovery in demand in the first
half of 2010. The impact of the cost reduction initiatives implemented in 2009
was also realised during the period and the group has demonstrated in 2010 that
it can break even at current sales levels. Inventory has reduced and production
has returned to levels appropriate for current demand. Borrowings and liquidity
have also improved significantly.
Looking ahead, sales forecasts reflect the improved market outlook and this,
together with the restructured cost base, will have a positive impact on
trading results. Further plans with respect to cash generation and securing the
long-term sustainability of the business are well underway.
As a result of the above the directors believe that the going concern
assumption is appropriate.
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
review 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 2010 and the date of this report.
COMMENTARY
It is fitting that I start this statement by paying tribute to my predecessor,
the Group`s recently retired executive chairman, Mr Howard Buttery, after
thirty seven illustrious years at the helm. Whilst he will no longer remain on
the Board, his services will not be entirely lost to Bell as he has kindly
offered to continue assisting the Group in various ways. Through those thirty
seven years he has helped steer the company from a small Zululand engineering
operation into a large and highly respected international heavy equipment
manufacturer and distributor supplying top quality machinery into the mining,
construction, forestry and agricultural sectors throughout the globe. Howard,
we salute you and thank you for your enormous contribution.
The past eighteen months have undoubtedly been some of the most testing
economic times in living memory and Bell suffered the dramatic impacts of this
meltdown like most other global organisations. I am pleased to report, however,
that we have stemmed the tide and are now back on the path to profitability,
and in due course, acceptable returns for shareholders.
Notwithstanding the fact that it is early days in the improving economic cycle
and there are still a number of concerning signals showing up from time to time
in the world`s economies into which Bell supplies its products and services, we
are optimistic that the Group has turned the corner and largely right-sized
itself.
The results for the six months to 30 June 2010 show a significant improvement,
with earnings having improved from a loss in the comparable period last year of
190 cents per share to favourable earnings in the period under review of 9
cents per share. In Rand terms, this translates into a profit for the period of
R10,75 million, of which R8,32 million is attributable to shareholders of Bell
Equipment Limited. Forecasting future demand is difficult at the best of times
but in these uncertain and volatile conditions it is even more so. However,
current indications are that the Group should see ongoing improvement in the
demand for its products in the second half of the year.
The turnaround in profitability can be attributed to a number of factors. Sales
revenue has improved over the comparable period last year by 9% to R1,5
billion. A pleasing feature of this is that increases in sales were achieved in
all regions of Bell`s operations. Although overall volumes are still slightly
down, a more favourable mix of higher value machines sold has resulted in the
improvement in sales revenue. In addition to the increased sales, the Group has
also experienced higher gross margins. In the current reporting period, gross
margin achieved was 21,6% as compared with 19,8% for the full year last year.
This is still lower than we would wish but it is only with increases in demand
that we will be able to command higher margins and produce our targeted gross
profit percentages.
Equally important has been the reduction in expenses, which are 29% down on the
comparable period in 2009. Relative to turnover, total expenses amounted to
23,3% in the period under review, which is significantly lower than the 35,8%
for the same period last year. This saving amounts to R142 million. The largest
single contributor to this improvement has come from a reduction in salaries
and wages (R82 million), with the balance spread over a number of different
overheads. Management is to be commended for having implemented many cost
saving measures although it must be recognised that regrettably this has led to
the loss of numerous jobs. We will continue to reduce costs wherever possible
but remain mindful of the risks of damaging the very fabric of our business by
being overly aggressive in the cost-cutting measures.
Warranty costs were little changed over last year and continue to be well
managed even though they are slightly above the Group`s targeted level.
Net interest paid is well down on the same period last year - R36 million
compared with R62 million. This has been the direct result of better working
capital management which is expanded upon below.
The balance sheet of the Group is also vastly improved in comparison with a
year ago. Most of this improvement stems from a reduction in inventory, which
amounts to approximately R760 million over the past 12 months. Production in
the Group`s two manufacturing facilities - in Germany and Richards Bay - has
been significantly curtailed and at times even stopped in order to reduce
inventories to far more acceptable levels. Although the recent improvement in
orders has necessitated production to be recommenced, it is still intended that
we will reduce inventories further over the remainder of the year. Both
production facilities are operating at well below their optimum capacities,
which means that the Group has little need for any major production capital
expansion in the immediate future. In addition, as production reaches more
optimal levels, so will the recovery of labour and overheads improve too.
Receivables are slightly higher than they were at June 2009 but that is
entirely due to a very good month`s sales in June with settlement only being
received in July. As a result of the improved trading and in particular, the
reduction in inventories, gearing has shown a significant improvement too.
Interest-bearing debt has been reduced by R413 million over the past year,
whilst net cash inflows for the six months under review amounted to R147
million. Gearing stands at 36% which is well below both last year`s figure of
47% and the Group`s budget. It is, however, still above our target level and
further reductions can be expected. Whilst on the subject of borrowings, I wish
to take the opportunity of acknowledging our financiers and major shareholders,
in particular IA Bell & Co., and thanking them for their support through the
Group`s recent difficult times.
Whilst it came at the cost of higher than usual interest charges, it enabled
Bell to weather the storm and provided the time for the Group to right-size
itself for current levels of activity.
We continue to have meaningful engagement with government at various levels and
as Southern Africa`s leading heavy construction, mining, agricultural and
forestry equipment manufacturer, are extremely supportive of all initiatives
and programmes which seek to bolster our economy and improve prospects for the
creation of employment in our industry. In this context, we fully support the
Industrial Policy Action Plan (IPAP2) with its purpose of expanding production
in the value-added sectors where high employment and growth multipliers are
present.
I conclude this report by once again thanking management and all employees for
their loyal and dedicated commitment to Bell. In most cases they have gone
beyond the call of duty. To my fellow directors, I also express my sincere
thanks for their commitment and wise input over this period. There have been
many additional calls upon their time and skills, both of which have been
willingly given. We all look forward to improving markets and being in a
position to deliver to our various stakeholders their legitimate expectations
of a successful global organisation.
Michael Mun-Gavin
Non-executive Group Chairman
5 August 2010
Directors: JR Barton*, GW Bell (Group Chief Executive), DM Gage (USA)#,
L Goosen, KJ van Haght (Group Financial Director), K Manning (USA)#,
MA Mun-Gavin (Group Chairman)*, BW Schaffter (USA)#, TO Tsukudu*, DJJ Vlok*
Alternate Directors: GP Harris, JW Kloet (USA), AR McDuling
# Non-executive Directors * Independent Non-executive Directors
Company Secretary:
R Verster
Registered Office:
18 - 19 Carbonode Cell, Alton, Richards Bay
Transfer Secretaries:
Link Market Services South Africa (Pty) Limited, PO Box 4844, Johannesburg
Sponsor:
Rand Merchant Bank
(A division of FirstRand Bank Limited)
www.bellequipment.com
Date: 10/08/2010 09:18:01 Supplied by www.sharenet.co.za
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