Bell Equipment Investor Relations

INTERIM RESULTS for the six month ended 30 June 2007

Condensed consolidated balance sheet
	Reviewed		Audited
R’000	at 30 June 2007	Restated at 30 June 2006	at 31 December 2006

ASSETS
Non-current assets	468 653	379 284	368 315
Property, plant and equipment	385 106	305 945	318 140
Intangible assets	7 375	7 514	7 074
Investments and long-term receivables	56 341	62 739	20 637
Deferred taxation	19 831	3 086	22 464
Current assets	1 984 955	1 649 395	1 673 937
Inventory	1 377 363	1 109 914	1 219 834
Trade and other receivables	537 211	516 438	389 469
Current portion of long-term receivables	55 922	12 294	15 271
Taxation	1 729	1 238	1 623
Cash resources	12 730	9 511	47 740

Total assets	2 453 608	2 028 679	2 042 252

EQUITY AND LIABILITIES
Capital and reserves	1 114 211	824 304	954 912
Stated capital (Note 5)	226 229	225 946	226 185
Non-distributable reserves	55 941	59 590	55 490
Retained earnings	832 041	538 768	673 237
Non-current liabilities	182 670	161 723	158 371
Interest-bearing liabilities	1 553	3 574	2 319
Repurchase obligations and deferred leasing income	144 778	142 978	133 253
Deferred warranty income	22 389	7 166	11 724
Long-term provisions and lease escalation	13 950	8 005	11 075
Current liabilities	1 156 727	1 042 652	928 969
Trade and other payables	725 987	613 509	557 330
Current portion of interest-bearing liabilities	2 018	2 706	2 467
Current portion of repurchase obligations and deferred leasing income	18 881	18 600	17 021
Current portion of deferred warranty income	10 238	2 345	5 291
Current portion of provisions and lease escalation	40 111	68 403	70 748
Taxation	59 317	22 431	88 741
Short-term interest-bearing debt	300 175	314 658	187 371

Total equity and liabilities	2 453 608	2 028 679	2 042 252

Number of shares in issue (’000)	94 834	94 763	94 817
Net asset value per share (cents)	1 175	870	1 007

Condensed consolidated income statement

Reviewed Audited

R’000 6 months ended
30 June 2007 6 months ended 30 June 2006 12 months ended 31December 2006

Revenue 2 069 329 1 534 894 3 533 177

Cost of sales 1 615 669 1 236 536 2 739 263

Gross profit 453 660 298 358 793 914

Other operating income 33 353 53 290 102 604

Distribution costs (190 058) (193 299) (415 194)

Administration expenses (20 250) (17 344) (60 307)

Other operating expenses (18 397) (15 400) (45 963)

Profit from operating activities 258 308 125 605 375 054

Net finance costs (income) (Note 2) 2 652 (23 286) 28 017

Profit before taxation (Note 3) 255 656 148 891 347 037

Taxation 73 514 46 847 110 880

Profit for the period 182 142 102 044 236 157

Earnings per share (basic) (cents) (Note 4) 192 108 249

Earnings per share (diluted) (cents) (Note 4) 192 108 249

Proposed dividend per share (cents) – – 25

Condensed cash flow statement

Reviewed Audited

R’000 6 months ended 30 June 2007 6 months ended 30 June 2006 12 months ended 31 December 2006

Cash operating profit before working capital changes 253 361 165 762 436 268

Cash invested in working capital (136 614) (100 963) (143 931)

Cash generated from operations 116 747 64 799 292 337

Net finance (costs) income (2 652) 23 286 (28 017)

Taxation paid (100 411) (19 060) (36 269)

Net cash generated from operating activities 13 684 69 025 228 051

Dividend paid (23 709) – –

Net cash flow applied to investing activities (165 615) (104 598) (100 904)

Net cash flow from financing activities 27 826 82 558 85 354

Net cash (outflow) inflow (147 814) 46 985 212 501

Net short-term interest-bearing debt at beginning of the period (139 631) (352 132) (352 132)

Net short-term interest-bearing debt at end of the period (287 445) (305 147) (139 631)

Statement of changes in equity

for the six months ended 30 June 2007

R’000 Stated capital Non- distributable
reserves Retained earnings

Total

Balance at 31 December 2005 225 946 36 921 436 392 699 259

Realisation of revaluation reserve on depreciation of buildings – (332) 332 –

Exchange differences on translation of foreign operations – 22 279 – 22 279

Exchange differences on foreign reserves – 722 – 722

Net profit for the period – – 102 044 102 044

Balance at 30 June 2006 – reviewed 225 946 59 590 538 768 824 304

Share options exercised 239 – – 239

Realisation of revaluation reserve on depreciation of buildings – (356) 356 –

Exchange differences on translation of foreign operations – (3 702) – (3 702)

Exchange differences on foreign reserves – (42) – (42)

Net profit for the period – – 134 113 134 113

Balance at 31 December 2006 – audited 226 185 55 490 673 237 954 912

Share options exercised 44 – – 44

Realisation of revaluation reserve on depreciation of buildings – (371) 371 –

Exchange differences on translation of foreign operations – 731 – 731

Exchange differences on foreign reserves – 91 – 91

Dividend paid – – (23 709) (23 709)

Net profit for the period – – 182 142 182 142

Balance at 30 June 2007 – reviewed 226 229 55 941 832 041 1 114 211

Abbreviated notes to interim report

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 2006, except for the adoption of all of the new and revised International Financial Reporting Standards and Interpretations that are effective for reporting periods commencing on 1 January 2007. These Standards and Interpretations had no impact on the interim results of the group and the disclosure requirements will be addressed in the 2007 annual financial statements. This abridged report complies with IAS 34, the Standard on Interim Financial Reporting.

Reviewed Audited

R’000 6 months
ended
30 June 2007 Restated
6 months
ended
30 June 2006 12 months
ended
31 December 2006

2. NET FINANCE COSTS (INCOME)

Net interest paid 8 662 11 720 21 127

Net currency exchange (income) losses (6 010) (35 006) 6 890

Net finance costs (income) 2 652 (23 286) 28 017

3. PROFIT BEFORE TAXATION

Profit before taxation is arrived at after taking into account:

Income

Import duty rebates 9 061 14 611 30 940

Net surplus (loss) on disposal of property, plant and equipment 491 220 (3 450)

Royalties 6 727 13 533 30 419

Expenditure

Auditors’ remuneration – audit and other services 3 259 2 541 4 377

Amortisation of intangibles 187 125 249

Depreciation of property, plant and equipment 22 297 16 608 39 910

(Decrease) increase in warranty provision (24 696) 666 4 831

Operating lease charges

– equipment and motor vehicles 11 198 6 838 20 047

– properties 11 821 8 241 18 007

Research and development expenses (excluding staff costs) 13 007 7 434 17 123

Staff costs 286 450 228 886 525 710

4. EARNINGS PER SHARE

The calculation of earnings per share is based on profit after taxation and the weighted average number of ordinary shares in issue during the period. The weighted average number of shares in issue for the period under review was 94 832 747 (June 2006: 94 763 400). On a diluted basis, the fully converted weighted average number of shares is 94 921 744 (June 2006: 94 850 178).

Headline earnings per share is arrived at as follows:

Profit for the period 182 142 102 044 236 157

Net (surplus) loss on disposal of property, plant and equipment (349) (156) 2 450

Headline earnings 181 793 101 888 238 607

Headline earnings per share 192 108 252

5. STATED CAPITAL

Authorised

100 000 000 (June 2006: 100 000 000) ordinary shares of no par value

Issued

94 834 400 (June 2006: 94 763 400) ordinary shares of no par value 226 229 225 946 226 185

6. CAPITAL EXPENDITURE COMMITMENTS

Contracted 12 894 2 588 5 531

Authorised, but not contracted 46 016 29 904 95 309

Total capital expenditure commitments 58 910 32 492 100 840

7. ABBREVIATED SEGMENTAL ANALYSIS

Geographical segments

The group operates in two principal geographical areas:

R’000 Revenue Operating
profit Assets Liabilities

June 2007

South Africa 945 013 173 382 1 630 107 881 470

Rest of world 1 124 316 84 926 823 501 457 927

Total – reviewed 2 069 329 258 308 2 453 608 1 339 397

June 2006

South Africa 774 812 91 377 1 354 336 884 710

Rest of world 760 082 34 228 674 343 319 665

Total – reviewed 1 534 894 125 605 2 028 679 1 204 375

December 2006

South Africa 1 720 506 295 573 1 458 397 758 821

Rest of world 1 812 671 79 481 583 855 328 519

Total – audited 3 533 177 375 054 2 042 252 1 087 340

Reviewed Audited

R’000 at 30 June 2007 at 30 June 2006 at
31 December 2006

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 34 939 106 534 41 305

In the event of repurchase, it is estimated that these units would presently realise (44 824) (119 429) (49 262)

(9 885) (12 895) (7 957)

Less: provision for residual value risk on specific machines – (6 179) (1 991)

Net contingent liability – – –

The provision for residual value risk is based on the assessment of the probability of return of the units.

8.2 The group has assisted customers with the financing of equipment purchased through a financing venture with Wesbank, a division of FirstRand Bank Limited.
In respect of a certain category of this financing provided and in the event of default by customers, the group is at risk for the full balance due to Wesbank by the customers. At period end the amount due by customers to Wesbank in respect of these transactions totalled 55 502 51 200 61 275

In the event of default, the units financed would be recovered and it is estimated that they would presently realise (43 708) (63 670) (60 482)

11 794 (12 470) 793

Less: provision for non-recovery (16 033) (10 832) (14 700)

Net contingent liability – – –

To the extent that customers are both in arrears with Wesbank and there is a shortfall between the estimated realisation values of units and the balance due by the customers to Wesbank, a provision for the full shortfall is made.

8.3 The residual values of certain equipment sold to financial institutions has been guaranteed by the group. In the event of a residual value shortfall, the group would be exposed to an amount of 11 112 10 892 13 943

Less: provision for residual value risk (2 341) (3 539) (3 002)

Net contingent liability 8 771 7 353 10 941

The provision for residual value risk is based on the assessment of the probability of return of the units.

8.4 Certain trade receivables have been discounted with financial institutions for an amount of 12 288 14 037 6 266

These transactions are with recourse to the group. In the event of default, certain units could be recovered and it is estimated that these units would presently realise at least 12 288 14 037 6 266

Reviewed Audited

30 June 2007 30 June 2006 31 December 2006

Weighted average Closing Weighted average Closing Weighted average Closing

9. EXCHANGE RATES

The following major rates of exchange were used:

United States $: Euro 1,33 1,35 1,24 1,28 1,26 1,32

SA Rand: United States $ 7,15 7,02 6,37 7,11
6,80
6,98

United States $: British £ 1,97 2,00 1,80 1,84 1,85 1,97

10. COMPARATIVE INFORMATION

In accordance with IAS 1 computer software has been reclassified as intangible assets and is shown on the face of the balance sheet. Comparative information has been restated accordingly. This had no impact on the results of the group.

11. INDEPENDENT AUDITORS’ REPORT

The financial information set out in the interim report has been reviewed, but not audited, by the company’s auditors, Deloitte & Touche. Their unmodified report is available for inspection at the company’s registered office.

Commentary
The results for the six months ended 30 June 2007 confirm the trend of increasing profitability for the Bell Equipment Group. Strong commodity prices for mining products and the huge increase in infrastructure spend has resulted in a significant improvement in most world markets for construction and mining equipment. Never in our 55-year history have we seen the order book and the demand at this current high level. Sales revenue is up by 35% from R1,535 billion to R2,069 billion on the comparative period and gross profit is up 52% to R453,7 million. Other income is down by R20 million due to a drop in royalty income from the USA and the cessation of our participation in the MIDP programme from 9 February 2007. Royalties are down due to a substantial drop in production at John Deere’s Articulated Dump Truck plant in the United States due to declining demand. Export revenues are up from R760,1 million to R1,124 billion in the current reporting period. Exports into Europe and Central Africa have increased substantially during the period under review and demand continues to be strong. Another encouraging aspect of our results is that overheads are well contained, rising only 1% on the comparative period. This is due to the continuing roll-out of our Project 100 Plus Programme and a substantial improvement in quality and consequent reduction in warranty costs which as a percentage of sales continues to drop and is now at 1,82% of turnover, below the budget of 2,29%. I would like to pay tribute to our engineering and manufacturing teams for this performance and in particular for the improved quality of all our products. Lower interest paid and currency gains continue to impact favourably as a result of lower average borrowings and improved treasury management.

The tax rate at 28,8% is higher than we anticipated, as we have not yet enjoyed the full benefit of the amendments to the Income Tax Act in respect of assistance to local taxpayers with research and development expenditure. Headline earnings are up from 108 cents to 192 cents and the important net asset value per share has increased by R1,68 since the beginning of the year to R11,75 per share at 30 June 2007.

Whilst there was positive cash flow of R17,7 million in the 12-month period ended 30 June 2007, working capital and in particular inventory continues to be a focus area for the group. Trade cycle days improved from 133 days at June 2006 to 120 days as at the end of June 2007, although inventories increased by R158 million in the six months. Trade receivables continue to rise as a result of increased credit granted particularly in the DRC and Europe. These increases are in line with expectations but actions are being taken to reduce this exposure over the next twelve months as a result of negotiations we are conducting with third parties to take over these credit risks. Fortunately we were able to finance R112 million of the increase in working capital from trade payables. We are currently investigating structures that will allow us to convert some of our short-term interest-bearing debt into long-term debt in order to improve the effective cost of financing our fixed assets. We hope to have this programme under way before the end of the current financial year. We are also in discussions with a number of financial institutions to increase our trade related lines of credit, which will help improve the matching of our borrowings. Gearing, whilst up to 26%, is still within our target and annualised return on net assets is a healthy 35%, up from 27% in the comparative period. A dividend of 25 cents per share was paid on 23 April 2007 but no dividend is proposed for this interim period.

We continue to be very concerned about unacceptably slow delivery by government of globally competitive supply side support measures. After being removed from the MIDP Programme despite more than complying with every objective of that programme we are now facing unnecessary delays in the roll-out of the new or replacement vehicle support programme. We are encouraged to create jobs, add value locally and improve our balance of payments but importers are dealt with preferentially, particularly concerning the exemption for branded products under the broad based black economic empowerment (BBBEE) codes. With greater mobility of capital, available facilities and global production strategies, we may need to look elsewhere in the world to develop our manufacturing capacities unless globally competitive supply side measures are made available to us as a local manufacturer. This should again not necessarily result in the loss of local jobs but rather in the net export of jobs to other locations around the globe at the cost of new local jobs, value add and their resultant impact on trade deficit.

As shareholders are aware, we have embraced the challenge of BBBEE. Our task team has made significant progress and within the next few weeks we will be in a position to produce a shortlist of potential BEE partners for certain elements of our operations. We continue to ensure that our BBBEE structure will operate in the best interests of the group and more importantly for all our previously disadvantaged South African employees who will hold 7,5% of the new vehicle to be created. It is our intention to move our South African sales operations into the BEE vehicle in which Bell Equipment Limited will own 70%. Running parallel with the shareholding option we are making very good progress on other areas of the BBBEE generic scorecard. Shareholders will be formally advised as soon as the structures and selection of partners have been finalised by the board.

Our core strategy of growing our global business profitably continues to be regularly reviewed and aggressively implemented with all priorities making good progress with the exception of working capital, which was discussed earlier. We are particularly pleased with the progress we have made with our talent management where we have an excellent competitive reward scheme that recognises the hard work that is being done by our people. We are also taking steps to counter the impact of the global skills shortages. Growth opportunities for employees have never been better and the performance management structure that we are implementing is ensuring the future success of the group.

I am pleased to report that along with customer service, quality continues to be an area of key focus resulting in reduced warranty costs. This is a clear indication of increased customer satisfaction. We are making investments in additional capacity and closely managing the inventory challenge that we are facing. We are optimistic that the results for the rest of this year will see a continuation of these benefits in our report to shareholders on the full year to December 2007.

Howard J Buttery
Group Chairman

8 August 2007