| |
|
BMG - Bearing Man Group
|
 |
|
|
FINANCIAL REVIEW
The economic
environment continued to prove challenging during the year with
areas of improvement in some sectors offset by weakness in
others. Despite these tough trading conditions BMG has produced
a satisfactory set of results.
Turnover from
existing businesses increased by 7,6%
to R2,172 billion (2010: R2,018 billion).
Acquisitions added a further R215 million to turnover. Turnover,
including acquisitions, increased by 18,3%. Gross margins
remained under pressure due to the continued strength of the
Rand. Operating profit from existing businesses was marginally
lower, at R286,3 million (2010: R292,7 million) at an operating
margin of 13,2% (2010: 14,5%). Operating profit, including
acquisitions, increased by 9,2% to R319,7 million, at an
operating margin of 13,4%.
|
In key geographic areas, BMG has acquired the majority
interest of the agency back from the owner manager for a number
of reasons, inter alia, key account management and succession
planning.
In April 2010 Wegezi Power Holdings (Pty) Limited was
acquired on a profit target basis, with targets to be met over
the three-year period to 31 March 2013. This acquisition has
enabled BMG to expand its product offering to include electric
motor rewinding and transformers.
A number of smaller acquisitions were made during the
year to improve the geographic footprint of BMG’s hydraulics
business. The more significant of these were
Turnkey
Hydraulics in KwaZulu-Natal and Hi-Quip Hydraulics in
Mpumalanga.
|
| |
|
|
In July 2010, a strategic decision was
taken to increase stock orders due to pending supplier price
increases arising from escalating commodity prices. BMG is well
prepared for extended supplier lead times.
The short-term
implication has been a significant
increase in inventory, but management is
confident
this
decision will benefit BMG in the ensuing year due
to product availability at lower costs.
Inventory in
existing businesses increased by 32% to R790 million and
inventory in acquired businesses amounted to R22 million at
year-end. The cost of acquisitions, combined with increases in
inventory, resulted in cash balances reducing by R86 million to
R91 million at year-end.
ACQUISITIONS
During the year BMG
spent R128 million on acquiring businesses and buying back
certain of the company’s strategic agency outlets. Many of BMG’s
retail branches are owner managed on an agency basis.
|
CONSUMABLE PRODUCTS DIVISION –
BEARINGS, SEALS,
POWER TRANSMISSION
PRODUCTS AND FASTENERS
The
Consumables Division performed satisfactorily
overall, with positive
sales and volume growth compared to the previous year.
Gross margin on bearing sales remained under pressure, mainly
due to the competitive situation resulting from the strong Yen.
Sales and volume growth were positive, although the magnitude of
the growth tapered off in the last quarter.
Power
transmission products recovered well with sales,
volume
and gross margin improvement in most product lines.
A
highlight of the year included the formalisation of a
distribution agreement with the Gates Corporation of the USA.
Gates is a global leader in the supply of premium quality drive
belts and hoses.
|
| |
|
Performance from BMG’s seals products
was ahead of expectations, with sales, volume and gross margin
results showing pleasing growth. The addition of a
new seal manufacturing facility towards the end of
the
financial year will improve the company’s ability to provide
customers with a broader range of products. BMG pioneered the
introduction of professional specialised seal manufacturing
machines more than twenty years ago. This investment, which
strengthens BMG’s leading position in the local seals market,
enables the company to increase the size range of non-standard
seals to over 500 mm.
The Fasteners Division saw positive
growth during the year; however, the dynamics in this sector
resulted in continued pressure on margins. A supply agreement
was finalised with Gedore, which extends BMG’s range to include
a full portfolio of quality tool products.
ENGINEERED PRODUCTS DIVISION –
DRIVES, BELTING, OST AND
WEGEZI
The Drives Division experienced a slow
recovery in
sales in the first six months, as major projects
remained on hold in key mining sectors, including diamonds,
platinum and chrome.
In the second half of the year the
Drives Division was
awarded several strategic project orders,
including replacement gearboxes for the Richards Bay coal
terminal and two large Dorstener units for Illovo Sugar.
Daily replacement sales increased during the year and the
availability of strategic stocks resulted in increased market
share for BMG Drives. The division remains focussed on becoming
the leader in the southern African market in this highly
competitive sector.
The electric motor market in southern
Africa remained depressed in the first six months and
competitive throughout the year. Nevertheless, BMG’s Electric
Motors Division performed satisfactorily relative to the
previous year.
Highlights for the division were the
launch of new IE2 high efficiency motors and the award of an
Eskom contract for the supply of high voltage and low voltage
motors.
The Belting Division experienced a slow recovery
from the recession and faced the challenges of responding to
skills shortages and raw material price increases. The belting
technical platform was enhanced by the |
employment of four product technical specialists who
concentrate on training, technical expertise and superior
service.
Oscillating System Technology (OST) experienced
another tough year. Focus was placed on reducing costs and the
profitability of the business was improved. The niche product
offering of this business has seen it weather the storm well and
it is well set to benefit from the anticipated improvement in
its markets.
The acquisition in April 2010 of Wegezi
Power Holdings has made a meaningful contribution to BMG. Wegezi
consists of five divisions – transformers, electric motor repair
and sales, remanufacturing and site work, pump repair and sales.
The Wegezi transaction is in line with BMG’s strategy to
expand its business through select value-adding acquisitions.
BMG continues to differentiate its business through specialist
services that include technical advice on energy savings and
production efficiency, condition monitoring and maintenance
advice, on-site maintenance support, repair services for
bearings, gearboxes, electric motors, hydraulic systems and
pumps, as well as customer training.
BMG has also
extended its interests in the electronics sector, with the
recent acquisition of Velo Control, distributors of Danfoss
drives and instrumentation. With this key addition under BMG
Drives, BMG is set to become a leader in variable speed drives
in southern Africa.
TECHNICAL RESOURCES DIVISION
BMG’s growing influence as a source of competitive
advantage and
profit maximisation for South African
industry is spearheaded
by its Technical Resources
Division.
During the year,
the technical team has added world leading reliability systems,
advanced instrumentation and recording devices and energy
efficiency programmes to boost the effectiveness of its World
Class Production Efficiency initiative.
Aligned with this
is a continuing expansion into field services to deliver these
benefits on the ground, at the customer’s plant and machinery,
where skills shortages are negatively affecting the
profitability of the South African economy. |
| |
|
The company has invested significantly
in the control
of product quality, both locally and abroad.
The recent establishment of a high power, low energy test
facility has enabled BMG in South Africa to make a meaningful
contribution to the research and development work of one of the
company’s largest global suppliers, at the same time delivering
total reliability confidence to local customers.
Future
plans are geared at increasing BMG’s ability to
partner its customers by expanding further into
field services, technical training, reliability based
maintenance and integrated technical process solutions involving
the entire BMG product range.
OUTLOOK
Although trading conditions have improved somewhat
from the recession in the past two years,
trading conditions
are likely to remain fairly challenging. The local currency is
expected to remain
relatively strong while ongoing upward
cost pressure
is expected from product suppliers due to availability
challenges and commodity price increases. Increases in local
labour and distribution costs are also expected. While BMG will
have to pass product price increases on to its customers,
management remains very focused on ensuring all input costs are
effectively managed and that customer value is created by
providing assistance with the correct selection of product and
the introduction of services to assist with the management of
maintenance programmes and costs.
BMG is well positioned
to continue to provide quality
components,
technical expertise and superior service
to diverse
industries, thereby ensuring it continues on its exciting growth
path. |
|
| |
|
|
|
|
|
