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Preliminary audited results for the year ended 31 December 2016
BELL EQUIPMENT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1968/013656/06)
("Bell")
Share code: BEL
ISIN: ZAE000028304
PRELIMINARY AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016
COMMENTARY
Overview
2016 will be remembered as one of the most challenging years in Bell Equipment's history. The
tough trading conditions of the past few years continued unabated with mining activity
deteriorating further across most markets, particularly Africa.
The discovery of fraud and mismanagement in the group's operation in the Democratic Republic
of the Congo (DRC) in the first half of 2016 and the losses reported by that entity during the
clean-up process that followed has been taken extremely seriously by the board. Significant
time and effort has been spent on understanding the findings of the independent investigation
and on ensuring that adequate steps are taken to address control deficiencies identified.
Rand volatility during 2016, and particularly the Rand strength in the second half of the year,
was not favourable for Bell as a local manufacturer and exporter and put further strain on an
already very difficult year. Delivery delays into the North American market were caused by
administrative compliance weaknesses identified, which have now been attended to and should
not disrupt any further deliveries into this market.
In line with a focal point of the group strategy to grow Articulated Dump Truck (ADT) market share
globally, 2016 saw the worldwide launch of the E-series large trucks, successfully completing the
range, which was first introduced in 2013 with the E-series small trucks. Customer feedback thus
far confirms these vehicles as world class machines, well positioned to build on the D-series legacy
of providing a package that optimally delivers in the key areas of productivity, reliability, safety,
operator comfort and fuel economy.
Additionally, the B60E was launched to the international market and the positive reaction is
affirmation of the niche that can be filled by this ADT/rigid truck crossover.
The group's range of haulage tractors has also been recently upgraded and offers the market
significant advantages provided by the introduction of Mercedes Benz engines across the range.
We are confident that these tractors will start delivering immediate returns for our agricultural
customers when the season commences. There are signs that we are coming to the end of the
protracted dry cycle and good rains could bode well for this industry, which is so closely linked
to Bell Equipment's roots.
In line with our ongoing focus on key strategic objectives, in southern Africa, our alliance
partnerships continued to grow from strength to strength with the ability to supply product to a
diverse range of industries. As global leaders in supplying equipment to industries where
confidence in machine application output is essential, and can be extremely costly for the
contractor if wrong, Finlay crushing and screening and Bomag road building equipment continue
to be a safe bet for contractors in the field.
The group redirected resources across its global markets to focus activity on the more buoyant
construction equipment sectors.
Financial
The group did not achieve its goal of delivering financially sustainable results in 2016. The very
modest profit of R39 million for the year represents a significant decline on the previous year
profit of R142 million.
The results for 2016 were dominated by the findings in the DRC and the losses reported by that
entity, particularly relating to increased provisions for inventory and taxation. The group's
business model and cost structures in the DRC and certain other African countries, where critical
mass in sales volumes has not been demonstrated, where the cost of doing business is high and
where the local governance structures and environment is weak, is being critically assessed.
Markets contracted further in 2016 and group sales were flat on the previous year. While there
was some recovery in ADT sales volumes in South Africa and Europe, ADT sales volumes in the
rest of Africa and in North America were disappointing. Sales volumes of alliance partner
products in southern Africa declined compared with 2015. The right-sizing and cost reduction
initiatives implemented in 2015 were not sufficient to mitigate against weak market conditions.
The depreciation of the British Pound following Brexit also had a negative impact on the
important United Kingdom market.
While the investment in inventory at year-end in most group operations was at satisfactory
levels, the group's exposure to certain large overdue receivables in the DRC at year-end
contributed to the mixed success in managing working capital during the year.
Despite the challenges, the group generated positive cash flow from operating activities of R88
million.
Further alignment of costs with market conditions in certain regions, more responsible credit
control in Africa and enhancing the control environment and systems of internal control
throughout the group are the priorities for the period ahead. We still expect some further trading losses
in the DRC operation in the first half of 2017 while the operation undergoes further right-sizing.
Operational issues
Our major markets were weighed down by political and economic challenges presented by the
Brexit vote in the United Kingdom, the US presidential election and the local government
election in South Africa.
In South Africa, confidence in the current government continues to be tested and concerns
regarding the exchange rate volatility and the increasing cost of doing business in the country
remain.
We still engage with the government regularly to provide more meaningful support and
reconsideration of existing barriers to help the local design and manufacturing industries. As the
only significant South African manufacturer in our industry this is particularly important to us
and we hope that 2017 will provide some fruits to our efforts. We remain committed to
southern Africa and it is important that the support we receive from our local customers is
ploughed back into the economy in a meaningful way.
Sustainability
Risks associated with the sustainability of the group are dealt with directly by the board. To
promote sustainability the group's strategic priorities are currently focused on opportunities to
capture additional ADT volumes in global markets and business growth through the provision of
aftermarket products to current customers.
Therefore, with our objective of growth in North American sales, it is prudent that the group
investigate the feasibility of setting up a production facility in the US to allow better flexibility
and quicker response to improve our customer experience and support additional market
penetration in that region.
Corporate Governance
The group is committed to sound corporate governance and the board is responsible for
ensuring that this is practiced throughout the group. The group's audit and risk and
sustainability committees play an important role through their focus on internal controls, risk
management, legislative compliance and financial reports.
During 2016 considerable time and effort was spent on ensuring adherence to the principles
embodied in King III in addition to those items specifically required of the audit committee in
the Companies Act. The group's 2017 integrated annual report will substantially deal with the
King IV report, which was launched in November 2016.
The board and its committees, the company secretary as well as the internal and external
audit functions were all assessed in December 2016 by means of a questionnaire-based
evaluation undertaken by the directors. This is an important tool for identifying areas for
improvement in the governance structures of the group and this evaluation again identified
certain development areas.
Transformation
We are pleased to report that subsequent to year-end the board approved a BBBEE ownership
transaction for Bell Equipment Sales South Africa Limited (BESSA). In terms of this transaction, a
selected BBBEE partner and a newly formed broad based trust will acquire 22,5% and 7,5%
respectively of the issued share capital of BESSA. After this transaction, BESSA will
qualify as a 30% black women owned entity. The conclusion of this transaction is expected
to be announced in the first half of 2017. The transaction has been specifically structured
to pursue real transformation through the economic empowerment of black women and also aligns
the BESSA business strategy with government's economic transformation policies.
At the same time the objectives of creating a sustainable BEE funding structure that is not
reliant on external finance or dividend flow, improving BESSA's ownership score under the
Revised Code of Good Practice and preserving value for the existing Bell shareholders have also
been met.
Importantly for our customers in South Africa, they will be able to claim the benefit of purchasing
from a 30% black women owned entity.
CEO Succession
As part of the succession planning of Bell Equipment at senior management level, the board has
initiated a programme to ensure that a successor will be in place when Gary Bell, the current
chief executive officer, elects to retire. This programme will include a talent search process,
both internal and external.
Outlook
Looking to 2017, there are some signs of commodity price recovery for a number of base
materials and the indices we track are showing more positivity than the past few years. Despite
this we do see that the volume of commodities mined globally remains relatively depressed.
This increases pressure on contractors and mines to continue to focus on input costs in an effort
to be the best choice globally for their outputs.
The introduction of our ADTs into the Americas will continue to be a focus area and some
sustained market recovery in Europe has seen these markets becoming more important to our
overall business.
To continue to deliver on customer needs globally, our newly built distribution facility in
Germany will open in the first half of 2017 to ensure that we keep pace with servicing the ever
increasing vehicle park in the northern hemisphere. We will also expand our product offering to
these markets by introducing a low ground pressure variant of the smaller 20 ton ADT that
has historically been successful in South Africa.
Placing more 60 tonners in specific markets will remain a focus as we have seen that every
demonstration results in a sale. Anyone who tries the concept immediately sees the benefit and
we continually find that our demo units end up staying on the initial site.
While we don't see significant increases in market demand for 2017, we believe that companies
that are more closely aligned with what their customers find important, in their own businesses,
will achieve more growth. We feel strongly that this alignment with our customers has always
been one of our key advantages and that by helping our customers succeed so will we.
Appreciation
We are grateful to the board for their hard work and unstinting commitment to act in the best
interests of the group as well as the group executive committee for its hands-on leadership and
motivation of Bell employees. Bell employees are a distinguishing feature of our business and
their collective drive to work together as 1-BELL and do their part to achieve our strategic
goals is commendable.
We similarly thank all our stakeholders and associates for their ongoing confidence and support
of our group.
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2016 Audited Audited Audited
31 December 31 December 1 January
2016 2015 2015
R'000 Restated* Restated*
ASSETS
Non-current assets 1 029 444 1 032 725 1 011 357
Property, plant and equipment 704 295 686 608 672 106
Intangible assets 216 419 213 305 203 078
Investments 568 665 548
Interest-bearing long-term receivables 16 964 35 573 45 357
Deferred taxation 91 198 96 574 90 268
Current assets 3 477 504 3 855 778 3 483 147
Inventory 2 427 921 2 862 652 2 403 437
Trade and other receivables 751 672 737 964 728 638
Current portion of interest-bearing long-term receivables 56 546 77 331 42 519
Prepayments 21 828 34 352 25 346
Other financial assets 5 641 12 783 2 071
Non-current assets held for sale - - 11 850
Current taxation assets 29 601 26 475 10 331
Cash and bank balances 184 295 104 221 258 955
TOTAL ASSETS 4 506 948 4 888 503 4 494 504
EQUITY AND LIABILITIES
Capital and reserves 2 758 247 2 947 416 2 518 457
Stated capital (Note 5) 232 139 230 567 230 567
Non-distributable reserves 553 298 752 269 465 551
Retained earnings 1 972 810 1 957 219 1 814 703
Attributable to owners of Bell Equipment Limited 2 758 247 2 940 055 2 510 821
Non-controlling interest - 7 361 7 636
Non-current liabilities 321 787 293 056 214 273
Interest-bearing liabilities 103 175 117 695 87 161
Repurchase obligations and deferred leasing income 2 034 3 820 -
Deferred income 84 083 66 543 65 616
Long-term provisions and lease escalation 47 781 51 376 44 813
Deferred taxation 84 714 53 622 16 683
Current liabilities 1 426 914 1 648 031 1 761 774
Trade and other payables 759 463 1 068 804 1 386 621
Current portion of interest-bearing liabilities 51 268 90 344 40 304
Current portion of repurchase obligations and
deferred leasing income 763 1 042 34 980
Current portion of deferred income 82 903 71 774 59 079
Current portion of provisions and lease escalation 69 562 53 783 65 941
Other financial liabilities 952 20 593 4 404
Current taxation liabilities 15 615 37 898 36 666
Bank overdrafts and borrowings on call 446 388 303 793 133 779
TOTAL EQUITY AND LIABILITIES 4 506 948 4 888 503 4 494 504
* Refer to restatements of prior periods in note 11.
SUMMARISED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended 31 December 2016
Audited Audited
2016 2015
R'000 Restated*
Revenue 6 002 341 5 901 431
Cost of sales (4 604 486) (4 556 343)
Gross profit 1 397 855 1 345 088
Other operating income 168 448 184 523
Expenses (1 418 055) (1 261 195)
Profit from operating activities (Note 2) 148 248 268 416
Net interest expense (Note 3) (32 557) (61 364)
Profit before taxation 115 691 207 052
Taxation (77 072) (65 308)
Profit for the year 38 619 141 744
Profit for the year attributable to:
- Owners of Bell Equipment Limited 37 472 141 169
- Non-controlling interest 1 147 575
Earnings per share (basic)(cents) (Note 4) 39 148
Earnings per share (diluted)(cents) (Note 4) 39 148
* Refer to restatements of prior periods in note 11.
SUMMARISED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
for the year ended 31 December 2016
Audited Audited
2016 2015
R'000 Restated*
Profit for the year 38 619 141 744
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences arising during the year (221 639) 285 630
Exchange differences on translating foreign operations (210 970) 272 161
Exchange differences on foreign reserves (10 669) 13 469
Items that may not be reclassified subsequently to profit or loss: 17 340 -
Surplus arising on revaluation of properties 24 300 -
Taxation relating to surplus arising on revaluation of properties (6 960) -
Other comprehensive (loss) income for the year, net of taxation (204 299) 285 630
Total comprehensive (loss) income for the year (165 680) 427 374
Total comprehensive (loss) income attributable to:
- Owners of Bell Equipment Limited (166 827) 426 799
- Non-controlling interest 1 147 575
* Refer to restatements of prior periods in note 11.
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2016
Attributable to owners of Bell Equipment Limited
Non- Non- Total
Stated distributable Retained controlling capital and
R'000 capital reserves earnings Total interest reserves
Balance at 31 December 2014 - Audited (restated)* 230 567 465 551 1 814 703 2 510 821 7 636 2 518 457
Total comprehensive income for the year (restated)* - 285 630 141 169 426 799 575 427 374
Recognition of share-based payments - 1 585 - 1 585 - 1 585
Decrease in statutory reserves of foreign subsidiaries - (497) 497 - - -
Transactions with non-controlling interest - - 850 850 (850) -
Balance at 31 December 2015 - Audited (restated)* 230 567 752 269 1 957 219 2 940 055 7 361 2 947 416
Total comprehensive (loss) income for the year - (204 299) 37 472 (166 827) 1 147 (165 680)
Transfer between reserves relating to expired share options - (3 220) 3 220 - - -
Decrease in equity-settled employee benefits reserve relating to
forfeited share options - (702) - (702) - (702)
Share options exercised 1 572 - - 1 572 - 1 572
Increase in statutory reserves of foreign subsidiaries - 9 250 (9 250) - - -
Dividends paid - - (14 273) (14 273) - (14 273)
Transactions with non-controlling interest - - (1 578) (1 578) (8 508) (10 086)
Balance at 31 December 2016 - Audited 232 139 553 298 1 972 810 2 758 247 - 2 758 247
* Refer to restatements of prior periods in note 11.
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2016
Audited Audited
2016 2015
R'000 Restated*
Cash generated from operations before working capital changes 406 005 361 045
Cash utilised in working capital (208 338) (602 925)
Cash generated from (utilised in) operations 197 667 (241 880)
Net interest paid (32 377) (54 369)
Taxation paid (76 951) (54 141)
Net cash generated from (utilised in) operating activities 88 339 (350 390)
Net cash utilised in investing activities (117 390) (54 194)
Net cash (utilised in) generated from financing activities (33 470) 79 836
Net cash outflow (62 521) (324 748)
Net (bank overdrafts and borrowings on call) cash at beginning of the year (199 572) 125 176
Net bank overdrafts and borrowings on call at end of the year (262 093) (199 572)
Comprising:
Bank overdrafts and borrowings on call (446 388) (303 793)
Cash and bank balances 184 295 104 221
Net bank overdrafts and borrowings on call at end of the year (262 093) (199 572)
* Refer to restatements of prior periods in note 11.
SUMMARISED NOTES TO THE PRELIMINARY AUDITED CONSOLIDATED RESULTS
for the year ended 31 December 2016
R'000 31 December 31 December
2016 2015
Restated
1 ACCOUNTING POLICIES
The consolidated financial statements, from which these summarised consolidated financial
statements have been derived, 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, except for the adoption of amended
standards and interpretations and the changes as described below. The consolidated
financial statements have been prepared on the historical cost basis, except for the revaluation
of properties and financial instruments.
The group has adopted all of the amended standards and interpretations relevant to
its operations and effective for annual reporting periods beginning 1 January 2016.
The adoption of these amended standards and interpretations has not had any significant
impact on the amounts reported in the financial statements and in this preliminary report.
In the current year the group reclassified certain revenue transactions and related receivables
balances from the South African manufacturing and logistics operation to the Rest of Africa
operation. The operating segment information for the previous periods has been restated accordingly.
Refer to note 7.
Due to fraud and mismanagement in the group's operation in the Democratic Republic of the
Congo, Bell Equipment (DRC) SPRL, the group's results in prior periods have been restated.
Comparative information has been restated and details of these adjustments are disclosed in
note 11.
The summarised consolidated financial statements are prepared in accordance with the requirements
of the JSE Limited's Listings Requirements for preliminary reports and the requirements of the
Companies Act in South Africa. The Listings Requirements require preliminary reports to be
prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee, Financial Pronouncements
as issued by the Financial Reporting Standards Council and the information at a minimum as
required by IAS 34 Interim Financial Reporting. The preparation of this preliminary report and
consolidated financial statements from which these results are summarised was supervised
by the Group Finance Director, KJ van Haght CA (SA).
2 PROFIT FROM OPERATING ACTIVITIES
Profit from operating activities is arrived at after taking into account:
Income
Currency exchange gains 388 753 239 526
Deferred warranty income 50 764 51 627
Decrease in warranty provision - 21 330
Import duty rebates 65 020 57 153
Net surplus on disposal of non-current assets held for sale - 7 073
Net surplus on disposal of property, plant and equipment and intangible assets 26 6 041
Expenditure
Amortisation of intangible assets 33 229 25 374
Amounts written off as uncollectible 33 898 11 924
Auditors' remuneration - audit and other services 10 772 9 683
Consulting fees 33 270 30 353
Currency exchange losses 419 694 234 940
Depreciation of property, plant and equipment 110 985 143 304
Increase in warranty provision 14 060 -
Operating lease charges 127 370 135 468
Research expenses (excluding staff costs) 35 501 29 978
Severance pay 9 739 26 240
Staff costs (including directors' remuneration) 1 203 963 1 225 182
3 NET INTEREST EXPENSE
Interest expense 48 174 77 384
Interest income (15 617) (16 020)
Net interest expense 32 557 61 364
4 EARNINGS AND NET ASSET VALUE PER SHARE
Basic earnings per share is arrived at as follows:
Profit for the year attributable to owners of Bell Equipment Limited (R'000) 37 472 141 169
Weighted average number of ordinary shares in issue ('000) 95 159 95 147
Earnings per share (basic) (cents) 39 148
Diluted earnings per share is arrived at as follows:
Profit for the year attributable to owners of Bell Equipment Limited (R'000) 37 472 141 169
Fully converted weighted average number of shares ('000) * 95 289 95 147
Earnings per share (diluted) (cents) 39 148
* The number of shares has been adjusted for the effect of the dilutive potential ordinary
shares relating to the unexercised options in the group's share option scheme.
Headline earnings per share is arrived at as follows:
Profit for the year attributable to owners of Bell Equipment Limited (R'000) 37 472 141 169
Net surplus on disposal of property, plant and equipment, intangible assets
and non-current assets held for sale (R'000) (26) (13 114)
Taxation effect of net surplus on disposal of property, plant and equipment,
intangible assets and non-current assets held for sale (R'000) 7 3 672
Headline earnings (R'000) 37 453 131 727
Weighted average number of ordinary shares in issue ('000) 95 159 95 147
Headline earnings per share (basic) (cents) 39 138
Diluted headline earnings per share is arrived at as follows:
Headline earnings calculated above (R'000) 37 453 131 727
Fully converted weighted average number of shares ('000) 95 289 95 147
Headline earnings per share (diluted) (cents) 39 138
Net asset value per share is arrived at as follows:
Total capital and reserves (R'000) 2 758 247 2 947 416
Number of shares in issue ('000) 95 297 95 147
Net asset value per share (cents) 2 894 3 098
5 STATED CAPITAL
Authorised
100 000 000 (2015: 100 000 000) ordinary shares of no par value
Issued
95 296 885 (2015: 95 146 885) ordinary shares of no par value 232 139 230 567
The increase in issued share capital relates to 150 000 (2015: nil) share options
exercised at an average share price of R10,48 per share.
6 CAPITAL EXPENDITURE COMMITMENTS
Contracted 13 228 3 827
Authorised, but not contracted 88 508 46 260
Total capital expenditure commitments 101 736 50 087
7 SUMMARISED SEGMENTAL ANALYSIS
Operating
R'000 Revenue profit (loss) Assets Liabilities
December 2016
South African sales operation 2 731 470 115 347 1 093 956 699 513
South African manufacturing and logistics operation 3 334 624 80 506 2 858 072 1 278 889
European operation 2 180 950 60 801 1 074 298 694 993
Rest of Africa operation 799 706 (185 805) 624 312 511 340
North American operation 665 612 49 810 266 720 198 098
All other operations - (163 390) 1 117 089 239 591
Inter-segmental eliminations * (3 710 021) 190 979 (2 527 499) (1 873 723)
Total 6 002 341 148 248 4 506 948 1 748 701
December 2015
South African sales operation 2 435 925 70 112 1 155 685 822 850
South African manufacturing and logistics operation (restated) ** 3 571 649 148 671 2 556 304 1 109 465
European operation 1 806 920 65 273 1 130 113 692 910
Rest of Africa operation (restated) ** 1 127 479 (1 714) 909 980 785 352
North American operation 560 413 301 95 996 29 152
All other operations - (40 360) 1 342 185 153 523
Inter-segmental eliminations (restated) * (3 600 955) 26 133 (2 301 760) (1 652 165)
Total 5 901 431 268 416 4 888 503 1 941 087
Included in the Rest of Africa operation are past due debtors of R110,1 million (2015: R92,1
million) relating to a few customers in the group's operation in the Democratic Republic of
the Congo. These customer accounts are being managed by senior group management with
regular visits, review of business activities and business plans and in some cases the debts
have been rescheduled and revised repayment agreements entered into. Subsequent to
year-end scheduled repayments have been received in terms of these agreements.
* Inter-segmental eliminations above relate to the following:
i) Revenue - the elimination of intra-group sales transactions, mainly sales
from the South African manufacturing and logistics operation, to the distribution
operations.
ii) Operating profit (loss) - the elimination of profit (loss) on intra-group
transactions, mainly sales transactions from the South African manufacturing
and logistics operation to the distribution operations, where the inventory has
not yet been on-sold by the distribution operations to a third party at year-end.
iii) Assets and liabilities - the intra-group transactions result in intra-group
receivables and payables balances and furthermore intra-group loans are in
place between certain group operations. These are eliminated on consolidation.
** In the current year the group reclassified certain revenue transactions and
related receivables balances from the South African manufacturing and logistics
operation to the Rest of Africa operation. Previously revenue from certain customers
in Africa was reported to the group's chief operating decision maker under the South
African manufacturing and logistics operation. This is now reported under the Rest
of Africa operation. The operating segment information for the previous periods has
been restated accordingly. The effect of these reclassifications is presented below.
Refer adjustment (a). This reclassification had no impact on the operating profit
(loss) of the segments.
The segment information for the Rest of Africa operation has been further adjusted
for the prior period restatements as disclosed in note 11. Refer adjustment (b) below.
Operating
Revenue profit (loss) Assets Liabilities
R'000 R'000 R'000 R'000
December 2015
South African manufacturing and logistics operation
As previously reported 3 782 318 148 671 2 558 768 1 109 465
Adjustment (a) (210 669) - (2 464) -
Restated 3 571 649 148 671 2 556 304 1 109 465
Rest of Africa operation
As previously reported 916 810 21 634 872 073 693 034
Adjustment (a) 210 669 - 2 464 -
Adjustment (b) - (23 348) 35 443 92 318
Restated 1 127 479 (1 714) 909 980 785 352
R'000 31 December 31 December
8 CONTINGENT LIABILITIES 2016 2015
8.1 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
carries certain credit risks. These are considered to be financial guarantee contracts.
The group is liable for all credit risks and therefore the full balance due to WesBank
by default customers with regard to Bell-backed deals and a portion of the credit
risk and a portion of the balance due to WesBank by default customers with regard to
Bell-shared risk deals. In terms of the Bell-shared risk deals the group's exposure
is calculated as a percentage of the net selling price of the equipment.
At year-end the group's credit risk exposure to WesBank under Bell-backed deals
for which the group carries all the credit risk totalled 144 688 211 581
At year-end the group's credit risk exposure to WesBank under Bell-shared risk
deals for which the group carries a portion of the credit risk totalled 2 682 1 997
In the event of default, the equipment financed would be recovered and it is
estimated that on re-sale the equipment would presently realise the following
towards the above liabilities 249 936 319 208
Net contingent liability - -
The group has entered into similar shared risk arrangements with various other
institutions. These arrangements are first-loss undertakings and the group's exposure
remains fixed until the capital is repaid. These are considered to be financial
guarantee contracts.
At year-end the group's credit risk exposure to these financial institutions totalled 3 146 14 566
In the event of default, the equipment financed would be recovered and it is
estimated that on re-sale the equipment would presently realise the following
towards the above liability 1 413 27 839
1 733 (13 273)
Less: provision for non-recovery (1 797) (262)
Net contingent liability - -
Where customers are in arrears with these financial institutions and there is a shortfall
between the estimated realisation values of equipment and the balances due by the
customers to these financial institutions, an assessment of any additional security is
done and a provision for any residual credit risk is made on a deal-by-deal basis.
8.2 The repurchase of equipment sold to customers and financial institutions has been
guaranteed by the group for an amount of 467 945
In the event of repurchase, it is estimated that the equipment would presently realise 1 860 3 404
Net contingent liability - -
This relates to sales transactions with buy-back obligations where the probability of
return of the equipment by the customer at the end of the buy-back period has been
assessed as remote and revenue has been recognised upfront. A provision for
residual value risk is recognised subsequent to initial recognition of the sale on a
deal-by-deal basis, to the extent that the assessed market value of the equipment is
less than the cost of meeting the buy-back obligation.
8.3 The residual values of certain equipment sold to financial institutions have been
guaranteed by the group. The group's exposure is limited to the difference between
the group's guaranteed amount and the financial institution's predetermined estimate.
In the event of a residual value shortfall on this equipment, the group would be exposed
to a maximum amount of 8 469 28 335
Net contingent liability 8 469 28 335
In certain other transactions the group has paid cash collateral as security for the residual value
risk. This cash collateral is recognised as retention deposits under interest-bearing long-term
receivables. In the event of a residual value shortfall on this equipment, the group would
be exposed to a maximum amount equal to the cash collateral of - 2 072
Less: impairment of retention deposits - (2 072)
Net retention deposits and net contingent liability - -
Total net contingent liabilities 8 469 28 335
The transactions described in note 8.3 above relate to sales transactions to financial
institutions which lease the equipment to customers for an agreed lease term. In certain
cases, the group has a remarketing agreement with the institution for the disposal of the
equipment returned after the lease term, but in all instances the group's risk is limited to
the residual value risk described above.
The provision for residual value risk and the impairment of the retention deposits are
based on an assessment of the market value of the equipment.
9 RELATED PARTY TRANSACTIONS
Information regarding significant transactions with related parties is presented below.
Transactions are carried out on an arms length basis.
Shareholders
John Deere Construction and Forestry Company
- sales 17 302 106 458
- purchases 392 769 565 492
- amounts owing to 57 020 51 961
- amounts owing by 3 664 25 216
Enterprises over which directors and shareholders are able to exercise
significant influence and/or in which directors and shareholders have
a beneficial interest
Latin Equipment Group
- sales 29 332 43 728
10 FINANCIAL INSTRUMENTS
Categories of financial instruments included in the statement of financial position:
- Loans and receivables at amortised cost comprising interest-bearing long-term
receivables, trade and other receivables and cash and bank balances.
The directors consider that the carrying amount of loans and receivables at amortised
cost approximates their fair value.
- Financial liabilities at amortised cost comprising interest-bearing liabilities, trade
and other payables and bank overdrafts and borrowings on call.
The directors consider that the carrying amount of financial liabilities at amortised
cost approximates their fair value.
- Financial assets and liabilities carried at fair value through profit or loss include
forward foreign exchange contracts and fair value is determined based on a Level 2
fair value measurement. Level 2 fair value measurements are those derived from
inputs other than quoted prices.
- Available for sale financial asset comprising an unlisted equity investment at cost
for which a reliable fair value could not be determined.
11 PRIOR PERIOD RESTATEMENTS
(i) Restatements relating to the group's operation in the Democratic
Republic of the Congo
As a result of fraud and mismanagement in the group's operation in
the Democratic Republic of the Congo which was uncovered in the
current period, the group's results in prior periods have been restated.
This is due to the fact that:
1) A finance lease receivable had been discounted with a financial
institution with recourse to the group and had been incorrectly derecognised.
The outstanding receivable has been re-instated and the corresponding
liability to the financial institution recognised (adjustment (a)).
2) Employees taxation, corporate income taxation and related penalties
and interest, as well as certain other less significant expenses, had
been understated in prior periods. Accordingly, the group's comparative
information has been restated for these items (adjustment (b)).
As previously
reported Adjustment (a) Adjustment (b) Restated
R'000 R'000 R'000 R'000
December 2015
Statement of financial position
- Interest-bearing long-term receivables 29 763 5 810 - 35 573
- Trade and other receivables and prepayments 777 903 (2 947) (2 640) 772 316
- Current portion of interest-bearing long-term receivables 41 759 35 572 - 77 331
- Current taxation assets 26 827 - (352) 26 475
Net increase (decrease) in assets 38 435 (2 992)
- Non-distributable reserve 765 277 - (13 008) 752 269
- Retained earnings 2 001 086 - (43 867) 1 957 219
- Interest-bearing liabilities 111 885 5 810 - 117 695
- Trade and other payables 1 014 921 - 53 883 1 068 804
- Current portion of interest-bearing liabilities 57 719 32 625 - 90 344
Net increase (decrease) in equity and liabilities 38 435 (2 992)
Statement of profit or loss
- Cost of sales (4 554 157) - (2 186) (4 556 343)
- Expenses (1 240 033) - (21 162) (1 261 195)
- Interest expense (70 787) (4 134) (2 463) (77 384)
- Interest income 11 886 4 134 - 16 020
- Taxation (64 008) - (1 300) (65 308)
Net decrease in profit - (27 111)
Statement of profit or loss and other comprehensive income
- Exchange differences arising during the year 297 520 - (11 890) 285 630
Statement of cash flows
- Net cash utilised in operating activities (311 955) (38 435) - (350 390)
- Net cash generated from financing activities 41 401 38 435 - 79 836
Earnings per share (basic) (cents) 177 - (29) 148
Earnings per share (diluted) (cents) 177 - (29) 148
January 2015
Statement of financial position
- Non-distributable reserve 466 669 - (1 118) 465 551
- Retained earnings 1 831 459 - (16 756) 1 814 703
- Trade and other payables 1 376 773 - 9 848 1 386 621
- Current taxation liabilities 28 640 - 8 026 36 666
Net increase in equity and liabilities - -
(ii) Classification error in the group's June 2016 interim statement of cash flows
During the year-end process it was found that the movement in the group's provision
for inventory write-downs was incorrectly classified in the group's June 2016 interim
cash flow statement. The movement in the provision for inventory write-downs was
classified as part of the movement in working capital instead of adjusting operating profit
before working capital changes. This classification error has been corrected and the impact
on the group's June 2016 interim cash flow statement is as follows:
As previously
reported Adjustment Restated
R'000 R'000 R'000
Cash generated from operations before working capital changes 254 463 38 084 292 547
Cash utilised in working capital (103 502) (38 084) (141 586)
Cash generated from operations 150 961 - 150 961
12 SUBSEQUENT EVENTS
Subsequent to year-end the board approved a BBBEE ownership transaction for Bell
Equipment Sales South Africa Limited (BESSA). In terms of this transaction, a selected BBBEE
partner and a newly formed broad based trust will acquire 22,5% and 7,5% respectively of the
issued share capital of BESSA. After this transaction, BESSA will qualify as a 30% black women
owned entity. The conclusion of this transaction is expected to be announced in the first half
of 2017.
No other facts or circumstances material to the appreciation of this report has
occurred between 31 December 2016 and the date of this report.
13 INDEPENDENT AUDITOR'S REPORT
These summarised consolidated financial statements for the year ended 31 December 2016
have been audited by Deloitte & Touche, who expressed an unmodified opinion thereon.
The auditor also expressed an unmodified opinion on the consolidated financial statements
from which these summarised consolidated financial statements were derived.
A copy of the auditor's report on the summarised consolidated financial statements and of the
auditor's report on the consolidated financial statements are available for inspection at
the company's registered office, together with the consolidated financial statements.
The auditor's report does not necessarily report on all of the information contained in this
announcement. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor's engagement they should obtain a copy of the
auditor's report together with the accompanying financial information from the issuer's
registered office.
Any reference to future financial performance, included in this announcement, has not been
reviewed or reported on by the company's auditors.
Directors
Non-executive
JR Barton* (Chairman), AJ Bell, B Harie*, DH Lawrance*, TO Tsukudu*,
HR van der Merwe*
*Independent
Appointed: DH Lawrance and HR van der Merwe were appointed as
directors on 1 January 2016. DB Crandon was appointed as director
on 1 June 2016.
Retired: DJJ Vlok retired on 5 May 2016.
Resignation: DB Crandon resigned as director on 29 September 2016.
Executive
GW Bell (Group Chief Executive), KJ van Haght (Group Finance
Director), L Goosen (Chief Operating Officer)
Company Secretary
D McIlrath
Registered Office
13 - 19 Carbonode Cell Road, Alton, Richards Bay, 3900
Transfer Secretaries
Link Market Services South Africa Proprietary Limited,
19 Ameshoff Street, Johannesburg, 2001
Sponsor
Investec Bank Limited
100 Grayston Drive, Sandown, Sandton, 2196
Release date: 16 March 2017
www.bellequipment.com
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