Bell Equipment to increase its manufacturing footprint in Northern Hemisphere

JSE-listed manufacturer of heavy equipment for construction, mining and agriculture Bell Equipment plans to increase its manufacturing footprint in the Northern Hemisphere.

Bell Equipment CEO Leon Goosen said the group aims through this initiative to improve responsiveness and efficiencies by manufacturing more of its articulated dump truck (ADT) product closer to suppliers and the markets in which they are sold.

Goosen said the capacity created in the group’s Richards Bay factory will be used for additional products that will be introduced in the Southern Hemisphere market over the next few years.

Possible contract manufacturing in SA

He added that the Richards Bay manufacturing facility has been identified for diversification involving underground mining equipment, while the group will also be seeking contract manufacturing opportunities using the core competencies and assets of the facility.

Goosen said increased demand for commodities, country-specific post-Covid-19 stimulus packages and an increase in infrastructure spend in a number of markets stimulated demand for the group’s products during the six months to end-June 2022.

However, he said supply chain challenges in the same period unfortunately constrained sales and prevented Bell Equipment from fully capitalising on these strong demand conditions.

Goosen said while there are signs of economic slowdowns in some markets, existing stimulus packages continue to drive demand for Bell Equipment products in most international regions.

He said the group has healthy order books in all regions for the remainder of the 2022 financial year and expects global demand for its products to continue to increase.

However, Goosen said the construction industry outlook for South Africa remains low as the country grapples with low infrastructure spending in a weakened economy but mining activity has exceeded expectations, leading to higher demand for products into this sector and a better than anticipated result for this division in the six months to end-June.

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Goosen said demand in the US remains at much higher levels than the group has seen for some time and additional product to meet this demand is planned.

He said the group’s manufacturing operations increased planned production in response to global market growth and a strong order book but the continual supply chain challenges have delayed invoicing leading to an increase in inventory and borrowings.

Aftermarket inventory has also been increased to improve customer service and minimise the disruption caused to customers through longer lead times and poor delivery from the supply chain, said Goosen.

“Ensuring that the integrity of the supply chain is improved is a key focus and it is anticipated that the inventory will reduce as products are shipped from the manufacturing plants and as greater post-Covid normality returns to both the supply and logistics chains.

“Additional funding lines are being put in place to fund the increase in working capital required to meet the higher production plan and sales outlook as well as to absorb the effects of any further supply chain disruptions.”

Cost increases

He added that raw material, component and logistics cost increases are unprecedented and have had to be passed on to customers.

“Improving efficiencies and containing product cost increases, where possible, remain challenging yet key priorities to ensure competitiveness.”

Goosen said the continued conflict between Russia and Ukraine has exacerbated supply chain issues, with certain suppliers affected by restrictions that are in place.

He said Bell Equipment’s operations have stopped supply into Russia and the group’s small operation in that country “is paused as we monitor developments”.

Interim results

Bell Equipment on Friday reported a 10% increase in revenue to R4.23 billion in the six months to end-June from R3.84 billion in the previous corresponding period.

Profit from operating activities improved by 15.2% to R307.8 million from R267.2 million.

South Africa manufacturing, assembly, logistics and dealer sales operations increased operating profit by almost 252% to R134.4 million from R38.2 million in the prior period because of improved direct sales volumes.

The operating profit from direct sales in South Africa increased by 33.7% to R84.1 million from R62.9 million.

In Europe, operating profit from manufacturing, assembly, logistics and dealer sales operations declined by 37.5% to R75.1 million from R120.1 million. This reduction was attributed to an underrecovery of costs resulting from lower than planned production volumes, product cost increases and increased aftersales support costs.

The operating profit from direct sales in the rest of Africa declined 10.3% to R13 million from R14.5 million.

Group headline earnings per share grew by 19% to 210 cents from 176 cents.

A dividend was not declared.

Outlook

Goosen expressed optimism that the momentum experienced in the first half of the year in the South Africa operations will continue, especially in light of continued demand for commodities and large infrastructure projects globally.

He is also optimistic for the same reason that the direct sales momentum experienced in South Africa in the first half of the year will continue.

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Goosen is bullish about an improvement in the European manufacturing, assembly, logistics and dealer sales operations, adding that the outlook for the UK, Europe and US markets is positive with stronger order books.

He said this strong outlook is supported by the infrastructure-led recovery, large infrastructure projects and increased demand for commodities across the globe.

Shares in Bell Equipment rose 2.3% on Friday to close at R13.80.