Bell Equipment ups German production to mitigate load shedding impact

JSE-listed Bell Equipment is increasing production at its Germany factory to mitigate the impact of load shedding at the group’s local manufacturing base in Richards Bay.

The leading global manufacturer, distributor and exporter of a wide range of heavy equipment for the construction, mining, quarrying, sugar, and forestry industries said on Friday it also investigating the feasibility of sourcing fabrications from outside of South Africa and installing a grid-tied solar system for its factory in the northern KwaZulu-Natal port city because of load shedding.

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The shift in production by Bell Equipment to its German factory is likely to have a negative impact on its employment in South Africa and on its manufacturing output.

Bell Equipment CEO Leon Goosen said expectations are that South Africa will experience between 200 and 250 days of load shedding in 2023, predominantly at Stage 4.

Goosen said Eskom’s long-term implementation of extended load shedding during 2022 had far-reaching effects on the group, its 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,” he added.

Cumulative effect

Goosen said Bell Equipment will continue to engage and work with the government but stressed that the cost and ability to do business in South Africa is a serious concern.

“The cumulative effect of the challenges that local businesses must grapple with needs to be weighed up when considering strategies for long term sustainability.

“These include exchange rate volatility, fuel prices, rising inflation and interest rates, escalating electricity tariffs, a severely encumbered national electricity provider, growing structural challenges around water and sanitation, and road infrastructure and port inefficiencies that frustrate logistics.”

He added that increased demand for commodities, country-specific post-Covid-19 stimulus packages and increased infrastructure spending in several markets has driven demand for articulated dump trucks (ADTs) in particular.

He however noted that the conflict between Russia and Ukraine since February 2022 caused ongoing supply chain constraints following the lingering effects of Covid-19, resulting in Bell Equipment having to cut back on production.

“While we mitigated these challenges well by closely managing high-risk suppliers and putting supply continuity interventions in place, it did prevent us from fully capitalising on the market conditions,” he said.

But Goosen said an improvement in the supply chain in the last quarter of the year meant that Bell Equipment was able to catch up on production and product was both invoiced and delivered to customers by the end of 2022.

“This ensured that we closed the year much more strongly than we did the first half of the year,” he said.

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Goosen said in addition to supply chain constraints, 2022 was marred by soaring fuel prices, unprecedented levels of inflation and interest rates, record load shedding and floods in KwaZulu-Natal in April that caused logistics challenges.

Reduced vessel frequency increased the need to use significantly more expensive air freight, he said.

Strong full-year results

Despite all these challenges, Bell Equipment on Friday reported significantly improved financial results for the year to end-December 2022 compared to the previous year.

Group revenue rose by 28% to R10.27 billion from R8 billion. Profit after tax increased by 63% to R478.9 million from R294.3 million.

Goosen said higher production volumes resulted in an increase in labour and overheads recovered, positively impacting the bottom line.

Headline earnings per share grew by 61% to 473 cents from 294 cents. A gross final dividend of 90 cents per ordinary share was declared.

Goosen said South Africa experienced a positive year, with favourable commodity prices fuelling demand in the mining industry and the JCB product line is proving to be extremely complementary to the South African offering.

He said Bell Equipment has also started distributing JCB Agriculture alongside the Bell Forestry and Agriculture range as part of the group’s strategy to grow its exposure in these industries.

Growth opportunities

Goosen said underground mining has been identified as another opportunity for growth, adding that the two underground articulated dump truck (ADT) models and a rock scaler have been well accepted in existing African markets and this range will be expanded.

He added that four years after commencing extensive testing, the group’s autonomous technology is now at the adoption stage – with customers in the UK, South America and Australia set to introduce autonomous Bell ADTs on their worksites during 2023.

Goosen said the group has also decided to enter the global motorised grader market, and final testing and refinement on its first generation of motor graders is underway, with production set to begin as early as the first quarter of 2024.

“This is a significant step in the group’s strategy to grow its product development IP [intellectual property], increase its manufactured product offering, and expand global markets. Motor graders complement the group’s flagship ADT product as a core earthmoving product. There are several shared global markets and dealer distribution channels,” he said.

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Turning to the outlook for the group, Goosen said that from a production perspective, the volume outlook for 2023 is strong, work in progress has normalised and supply chain issues should not be a major constraint in the second half of 2023.

He noted that the group’s order book is being maintained at record levels and that it is already taking orders for 2024.

“In South Africa, we anticipate some improvement in the construction industry as the recent Sanral [South African National Roads Agency] awards have created optimism and are positive for the country.”

Goosen added that while Europe and the US started 2023 very well, the group needs to exercise caution given the banking crisis in the US and macroeconomic indicators, most notably subdued economic activity and high inflation levels and interest rates, signalling a possible recession.

Shares in Bell Equipment rose 0.17% on Friday to close at R17.25 per share.