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South America, albeit relatively
small, was up on previous years and for the first time in many years we were
able to supply more than one hundred units to that continent.
In reviewing our balance sheet the
debt/equity ratio stands at 15%, this despite an increase in inventory both in
terms of value and days.
Inventory management continues to be
a challenging area on which management is strongly focused. Revenue recognition
accounting treatment, mainly in the UK, is obliging us to carry an additional
R153,20 million as fixed assets with corresponding repurchase obligations and
deferred leasing income resulting in a R150,27 million provision. Trade cycle
(working capital) days deteriorated from 113 to 128 days as a direct result of
increased inventory levels of R291,0 million. Capital expenditure, excluding
that on rental assets during 2006, amounted to R31,96 million but is budgeted to
be over R100 million in 2007 as a result of restricted expenditure over the last
two years in view of profitability and cash flow constraints. Headline earnings
are at 252 cents per share as compared to the 11 cents per share loss in 2005
and the all-important net asset value per share increased by R2,69 since the
beginning of the year to R10,07 per share.
Bell has been able to generate
positive cash flow of R212,50 million in the year under review.
Financing of customers in their purchase of our
equipment continues to be a very important part of our business. Our joint
venture with WesBank (a division of FirstRand Bank Limited) goes from strength
to strength. During 2006 in both South Africa and Zambia we jointly wrote over
R322,0 million worth of business and we are providing an important financing
facility for our customers. We are currently negotiating an agreement with the
Export Import Bank (Ex-Im Bank) based in Washington in the USA to finance the
importation of US manufactured goods and components into South Africa. The
initial line of credit is for US$9,95 million and will be used to support our
working capital needs as well as being available to be used to provide
three-year credit on certain of the Deere products that we import,
distribute and support in southern Africa. Bell will manage the credit granted
to customers from this line through our joint venture with WesBank. An effective
Government supported Ex-Im Bank equivalent in South Africa should be a priority
for Government. We continue to work with Deutsche Leasing AG (Germany) to
finance sales in Europe and with a Swiss-based leasing company for sales in
sub-Saharan Africa and South America. Supplier finance and our various financial
cooperation agreements provide us with a valuable tool to enhance our sales,
market shares and gross profit.
Corporate governance best practices
continue to enjoy high priority and commitment. The Board of Directors, which
consists of a majority of non-executive directors, ensures that management, who
are the stewards of our shareholders’ capital, pursues the best interests of
all stakeholders. Of vital importance are the roles, functions and
responsibilities of our nonexecutive directors and our management’s respect
for the contribution of these directors.
Bell continues to apply most of the
best practice recommendations contained in the second King Report and is very
conscious of our commitment to excel in this area. All board sub-committees
comprise only non-executive directors and are chaired by independent
nonexecutive directors. Bell Audit Services, our internal audit function,
provides valuable service and advice to our Risk Management and Audit Committee
as well as our management teams.
The independent non-executive
chairman of the Risk Management and Audit Committee spends a considerable amount
of time in the company in pursuit of his duties as well as attending all of the
Bell Audit Services Committee meetings.
The Risk Management focus group has
been active during the year and has further refined and confirmed the top 40
risks facing the group. Strategies have been put in place to either mitigate or
eliminate each risk and the group will meet regularly going forward to monitor
and improve our management of these risks.
Over the past three years the South
African business community has been seriously challenged on the question of
Black Economic Empowerment (BEE). We at Bell have set up a task team to
recommend to the board, who over two years ago approved the principle of
introducing a BEE shareholding in relevant operations in our group, a way
forward to roll out the implementation of a structure to satisfy this critical
need in our business. Given the finalisation and gazetting of the codes we can
now proceed with greater clarity and certainty.
We have always supported the
Government stance on this matter, especially the broadbased aspects, but have
wanted to be sure that our BEE structure is in the best business interests of
the company and more importantly for all of our previously disadvantaged
employees to benefit. We have made substantial progress and are currently
identifying suitable partners for the new company to be formed. It is envisaged
that Bell Equipment Limited will own 70% of the new company with our employees
and suitable BEE partners owning the balance.
We will be reporting to shareholders
on this subject as soon as we have finalised the structure and partners but
confirm that the deal will be concluded before the end of this current year if
the necessary approvals are obtained.
Our strategic alliances with John
Deere Construction and Forestry Company, Hitachi Construction Machinery and
Liebherr-Hydraulikbagger GmbH continue to flourish and provide invaluable
benefits to our group. Bell strives to strengthen these alliances and mutually
to maximise the benefits that our enterprises can obtain from the partnerships.
With the group’s return to
profitability and positive cash flow it is now possible to pay a dividend and
the Board has declared a dividend of 25 cents per share in respect of the year
ended 31 December 2006, and it will be paid in April of this year. Shareholders
will appreciate that with the low profitability over the past two years and cash
being required to finance capital expenditure the dividend needs to be
conservative and is hence ten times covered. Hopefully going forward we can
reduce dividend cover depending upon the group’s cash requirements at the time
of dividend declaration.
The current outlook for Bell is good
and should exchange rates weaken further and commodity prices remain stable, we
are well placed to increase our profitability. We need to continue and
accelerate our efforts with sustainable cost and working capital reductions. Our
Project 100 Plus Programme will continue to reduce both overhead and component
costs in 2007.
I take this opportunity to thank the
management team and my Board colleagues for their support, time given and energy
spent in turning around the group during 2006. The efforts of the whole Bell
team in turning the group around on a sustainable basis deserve the highest
praise.
In conclusion, I would like to make
special reference to the cornerstone on which our business has been built –
our three most important stakeholders, ie our customers, our suppliers and our
employees. Their invaluable contribution to the success of our company stems
from the exceptional relationships we have built up over the years. Recent
customer surveys have indicated higher than expected levels of customer
satisfaction and we are working hard to implement other opportunities for
improvement. We are partnering with our suppliers to help meet ever-increasing
and demanding requirements. Our people, particularly, are regarded as a
strategic priority and we appreciate their commitment to make our company a
success and a role model. I salute them and their families who have given much
to the company and brought us to where we are today.
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