From intergrated annual report for year ended 31 December
The pandemic affected all aspects of the business in 2020.
The initial hard lockdowns in the first half of the year led to the closure of the factory in South Africa for a month and in high levels of uncertainty and subdued sales in all markets. These sudden challenging conditions focused the business on cash preservation and working capital management.
Revenue of R6,7 billion for 2020 was 14% down on 2019, which was an improvement on half year end when sales to 30 June 2020 were down 24% on the comparative period. Sales for the first half of 2020 were severely impacted by hard lockdowns and other measures taken by authorities globally to control the spread of the pandemic. Weak market conditions, low activity levels in the sectors that the group operates in and uncertainty relating to the duration and severity of the pandemic meant that there was reduced demand for Bellís products across all key markets. Sales in the second half of 2020 were 17% up on the first half and signs of some recovery were evident. The Rand was approximately 17% and 15% weaker against the Euro and USD respectively in 2020 compared with 2019 and this helped offset some of the impact of the volume pressure on revenue. Sales volumes were down approximately 25% on 2019.
The group incurred a loss after tax of R57,2 million for the year, after
reporting a loss after tax for the half year to 30 June 2020 of R52,3
million. Apart from the impact of weak economic conditions and low sales on
the bottom line, the result for the year was further negatively affected by
low production volumes, due to the group having started 2020 with record high
inventory levels which meant that planned production levels were low while
inventory was being sold off and right sized, as well as by certain once off
costs. Low production levels resulted in low recovery of a largely fixed cost
base, especially at the Richards Bay factory. This is evident in the
operating losses reported for the groupís manufacturing operations in South
Africa and Germany in the segmental report. The once off costs incurred in
2020 related to provisions totalling R82 million for residual value losses on
guarantees provided to a financial institution on equipment rentals financed
in the USA, the impairment of R32 million on the groupís owned facility in
Kitwe, Zambia and the impairment of certain research and development projects
totalling R23 million. These matters are detailed in notes 24 and 41 of the
annual financial statements. Headline loss per share was 31 cents (2019:
restated HEPS of 71 cents) for the year. In light of the continued difficult
market conditions, no interim or final dividend was paid for the 2020 year.
In the prior year, an interim dividend of 20 cents per share was paid.
The share price of the company is trading at a significant discount to net asset value per share and as this is an indicator of possible impairment in terms of IAS 36: Impairment of Assets, valuations and assessments were performed to determine the recoverable amount of the groupís main cash generating unit and certain other key assets in the group. No impairments resulted from this review. Refer to note 41 in the annual financial statements for further details of this assessment.
The group also assessed the potential impact of the weak economic conditions brought about by the pandemic and changed economic circumstances in certain countries, specifically Zambia, on the judgements and estimates exercised in determining the carrying values of assets and made additional provisions where necessary. Additional provisions were made on certain categories of inventory. The owned customer service centre in Kitwe, Zambia and certain non core development projects were impaired. Note 41 of the annual financial statements provides further details of these assessments.
During the second half of 2020, our internal processes identified an error relating to the accounting for the groupís standard warranty provision on manufactured equipment sales. A firm of accounting specialists was engaged to assist with determining the correct accounting treatment for this complex area. This was remediated by management prior to the finalisation of the year end results and led to the restatement of prior year audited results as detailed in note 5 of the annual financial statements.
The change in accounting treatment has no impact on the expected cash flows relating to the groupís warranty obligations.