Overview
We are pleased to share the 2017 integrated annual report with our various stakeholders and to report that Bell Equipment has delivered a solid result for the year by continuing to build on its strategy for long-term value creation and sustainable growth.
The year has delivered significantly better results than 2016.
Bell Equipment is exposed to a number of economies that performed differently during the year under review. Our African operations continued to perform poorly because of relatively low mining activity. Our South African distribution business had a better year as did the European and North American operations despite extensive movement in the Euro to US Dollar exchange rate which subdued profitability particularly for our
North American operations.
Further steps towards restructuring our underperforming operations in the DRC, Mozambique and Zambia and reducing the significant losses encountered here over the last few years are beginning to bear fruit and to contribute to better results.
A decade after the world went through a major economic crisis a mark of revival has now been achieved with every major economy expanding, and this will positively impact our business.
According to the International Monetary Fund the world economy is expected to grow by between 3% and 4% this year, up from 2,7% in 2017.
Many milestones have been achieved in the past financial year and these have allowed Bell to confirm its position as the global specialist in ADTs.
Financial
Revenue for 2017 was up 13% to R6,8 billion. Profit after tax increased to R272,1 million, up from the 2016 result of R38,6 million when Bell recorded substantial operating losses of R185,8 million in the Rest of Africa segment. Headline earnings per share is up from 48 cents per share to a more respectable 270 cents per share.
On average the Rand was stronger in 2017 compared with the 2016 financial year and this impacted sales and margins negatively and partially offset the benefit of higher sales volumes. The stronger Rand also ontributed to a reduction in foreign expenses when reported in Rand.
With more buoyant global conditions the board took a strategic decision to increase finished product inventories to respond more rapidly to higher demand across our spectrum of client industries. Current manufacturing locations and philosophies have inherently longer supply chains than some of our global competitors, and we had to counter this.
The board has declared a final dividend of 25 cents per share which added to the interim dividend of 20 cents amounts to a total dividend of 45 cents for the year compared to 15 cents in 2016.
Operations
With a greater portion of our core products now being sold in the Northern Hemisphere, plans have been confirmed and construction work has begun on expanding our Eisenach-Kindel factory in Germany. This follows on from the completion of our new ELC which came into operation in June 2017.
Bell continues to invest in critical research and development to ensure that our products remain at the forefront of innovative design and engineering.
Growth in our South African operations is assured with the global growth in acceptance of the ADT concept and product, coupled with the addition of new products for our South African distribution business. A full line of excavator machines from Kobelco has been launched and Bell expects to gain a significant share of this business in the local market.
The launch and introduction of the range of Kamaz heavy-duty trucks to the construction and mining industry in South Africa is a diversification which will allow Bell to compete in the lower cost sector of this market. Localisation and production of these trucks are likely to begin early in 2019 at the plant in Richards Bay, bringing with it additional jobs.
Bell continues to be a sizeable employer with approximately 3 200 employees worldwide of which approximately 2 500 are located in South Africa. The multiplier effect of our operations in South Africa with related businesses providing us with both goods and services is significant, with over 1 000 South African companies working together with Bell to produce, service and distribute our products across the world.
Sustainability
Risks associated with the sustainability of the group are managed through our strategic planning process, directly involving the board. We are currently focused on growing our global volumes and capturing a greater volume of the annuity income associated with our machinery life cycle.
With increased currency volatility and the impact it has on our competitiveness we are also aggressively driving initiatives to reduce both operational and product costs.
The expansion of our European manufacturing capacity will allow better flexibility, quicker responsiveness to improve our customer experience and support our penetration in the Northern Hemisphere.
We recognise the importance of a sustainable business and along with our geographic product and industry diversity we have built sustainability into the different facets of our operations.
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Corporate governance
Our commitment to being a good corporate citizen pervades our total approach to the business and we endeavour to act in a responsible, balanced and commercially sensible manner.
We are ever conscious of the impact on the environment and we continue to measure and mitigate these risks.
Bell is committed to the highest standards of corporate governance. Details of governance structures and the extent to which we apply relevant principles of corporate governance, including King IV and regulatory requirements, are provided in the integrated annual report.
Transformation
Without a sense of purpose Bell would not be able to achieve its full potential which has to include a role and involvement within our local community and its environment, developing a welltrained and diverse workforce as well as providing the retraining and opportunities that our employees and our business need to adjust to an increasingly automated world within an emerging and new South African economy.
Following the conclusion of the BBBEE ownership transaction in BESSA, our South African distribution business, in 2017, our customers in South Africa now benefit from procuring from a 30% black women owned entity.
Furthermore, the South African entities are committed to continued focus on the other elements of the BBBEE scorecard.
Outlook
The political changes which took place in South Africa towards the end of 2017 have improved local sentiment and along with improved macroeconomic conditions we believe that all our African operations should deliver significantly better results in 2018.
Improved business sentiment in the South African market will hopefully drive the many infrastructure projects proposed by government.
Most major equipment markets are expected to see growth this year with global construction and mining machinery markets expected to increase by between 10% and 15%.
The North American market for ADTs disappointed over the last two to three years with a decline in volumes. A turning point seems to have been reached in the fourth quarter of 2017 and the order book at this time suggests a somewhat stronger year for this very important market for Bell.
Board changes
The Board has appointed Leon Goosen, the current chief executive designate, as the chief executive and Gary Bell will step down from his role as chief executive with effect from 1 June 2018. Gary will remain with the group, having been appointed as the non-executive chairman of the board effective 1 June 2018.
In compliance with the King IV requirements, John Barton will assume the role of lead independent non-executive director to ensure adherence to good governance principles. The board acknowledges his valuable chairmanship during the three years of his tenure.
On behalf of the board, I would like to thank Gary for his exemplary service, dedication and commitment to the group since 1971. The board looks forward to Gary’s continued contribution as the non-executive chairman. The group will continue to benefit from his industry experience and intimate knowledge of Bell.
We congratulate Leon on his appointment as chief executive and are confident that he, together with senior management, will continue to grow and build the Bell core business and deliver the right outcomes for the group and its stakeholders.
Appreciation
On behalf of the board we thank our executive management and our 1-BELL team for their considerable efforts and for steering the business through the past year. We also thank our stakeholders for their support and our fellow board members for their guidance and ongoing commitment.
The past year has seen us reach a number of new milestones to propel the group into the next stage of growth with increased contributions from new products and new markets in 2018.
We would like to thank everyone for their hard work and dedication and congratulate them on what has been a significantly better year for Bell Equipment.
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