From intergrated annual report for year ended 31 December
Overall, 2022 was a pleasing year for the Bell Equipment Group characterised by our solid performance in the face of multifarious challenges. The way in which the team worked together and the resilience that was shown enabled us to end the year ahead of budget and substantially up on the previous year.
As reported in our interim statement, increased demand for commodities, country-specific post-COVID-19 stimulus packages, and increased infrastructure spending in several markets drove demand for ADTs. However, the conflict between Russia and the Ukraine since February 2022 caused ongoing supply chain constraints following on the lingering effects of COVID-19. This resulted in the group having to cut back on production and prevented us from fully capitalising on the market conditions.
To mitigate supply chain challenges high-risk suppliers were closely managed and supply continuity interventions were put in place. These included, among others, the interplant movement of parts to minimise line stoppages, production sequence changes to meet shipping plans and the implementation of alternate supply lines where feasible.
An improvement in the supply chain in the last quarter of the year meant that production could be caught up and product invoiced and delivered to customers by the end of 2022 to finish the year stronger than in the first half of the year.
In addition to supply chain constraints, 2022 saw soaring fuel prices, unprecedented levels of inflation and interest rates, record load shedding, and floods in KwaZulu-Natal in April that caused logistics challenges. In general, we experienced a reduced frequency of vessels, which increased the need to use significantly more expensive air freight.
Eskomís long-term implementation of extended load shedding during 2022 had far-reaching effects on the group, our local suppliers, and customers. Besides the disruptive impact on business, the mitigation action of running generators significantly increased the cost of doing business in South Africa. Power interruptions and changeovers also increase the risk of equipment being damaged, especially electrical switching and electronic equipment.
Expectations are that South Africa will experience between 200 and 250 days of load shedding in 2023, predominantly at stage 4. The group is therefore investigating increasing manufacturing in its German factory, sourcing of fabrications from outside of South Africa, as well as a grid-tied solar system for the Richards Bay factory.
The group improved significantly on the 2021 results with profit after tax increasing by 63% to R478,9 million (2021: R294,3 million).
Strong market conditions resulted in all regions outperforming their sales volume budgets, except for Europe, which had an exceptionally high budget considering the actual volume sold into this market in the last five years. Group sales were up by 28% on 2021 largely due to an improvement in the supply chain in the last quarter that meant that production could be caught up and products invoiced and delivered to customers by year end.
Higher production volumes resulted in an increase in labour and overheads recovered, positively impacting the bottom line.
In addition to freight and load shedding expenses already mentioned, other notable expenses include increased electricity charges due to higher production and electricity tariff increases.
Group inventory increased by R1,1 billion (31%) from December 2021 to R4,8 billion at the end of 2022 and inventory days ended the year at 210 days compared with 204 days at the end of 2021. Considering the increase in sales in 2022 and the substantial further increase in volumes planned for 2023, this is an acceptable level. Likewise, borrowings remain stable and within acceptable levels.
Operations and product development
South Africa experienced a positive year with favourable commodity prices fuelling demand in the mining industry.
Construction was flat, however the building industry rallied and the demand for backhoe loaders and smaller equipment increased as a result.
The JCB product line is proving to be extremely complementary to our South African offering by enabling BESSA to be more active in market segments where we struggled previously. The market has reacted positively to the group taking over the distribution and support for this great product range.
To overcome shortages of partner products, especially Finlay and Kobelco, the group implemented effective changes in point of source to alleviate long lead times and improve availability.
In our major international markets of the US and UK demand was strong despite high levels of inflation, increased interest rates and soaring energy costs. Australia and New Zealand also maintained a high demand for ADTs.
Our OEM business was restructured into three distinct divisions: Mining and Construction, Forestry and Agriculture, and Underground Mining to provide a more dedicated focus on product lines, distribution, and support going forward.
In South Africa, we started distributing JCB Agriculture alongside the Bell Forestry and Agriculture range in May. Over a dozen independent dealers have been appointed as part of our strategy to grow our exposure in these industries through increased products and improved service.
Underground mining has been identified as another opportunity for growth and the new OEM business division is pursuing this goal with a focus on expanding the product range, providing specialised customer support, and establishing new global markets.