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CED - Capital Equipment Division
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The Capital Equipment Group comprises:
NORTHMEC: CaseIH Agricultural Equipment and other
related implement brands
NEW HOLLAND SA: New Holland Agricultural Equipment and
other related brands
CSE: Case Construction Equipment, Club Car and
Jacobsen/Ransomes Turf Equipment
DOOSAN SA: Doosan Construction Equipment and Hammers
CRITERION EQUIPMENT: TCM Forklifts
CARTCOM: Golf car rental
LANDBOU PART: Replacement spare parts for agricultural
equipment
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FINANCIAL REVIEW
The CEG has faced challenging conditions during the
year.
The year started off with the country struggling out of the
recession with muted demand for new equipment and a strong Rand,
which put pressure on margins. The CEG implemented various
strategies during the recession and was better prepared than
most to perform well as the markets started recovering. It rose
to the occasion and delivered improved profits and cash flow.
By the end of the financial year, each market segment
serviced by the CEG had shown an improvement over last year,
with the only exception being the plant hire sector of the
construction equipment market.
The CEG’s structures have
been built over the years to
enable it to weather
cyclical market corrections. Therefore, in years where all
divisions of CEG simultaneously perform, the profits and cash
flow contributions are rewarding. |
Revenue of the CEG increased by 7,3% to R1,877 billion. This
small increase in turnover was expected, owing to the very
strong South African Rand having the effect of lowering retail
prices. Only one acquisition was made during the year, which has
not yet had any impact on the results, but is expected to do so
in the future.
Good operational management and control of
gross margins, as well as continuous pressure to maintain
operating costs, have resulted in operating profit increasing by
27,6% to R158 million. The operating profit return on sales of
8,4% is particularly pleasing. Equally pleasing was the
operating profit return on working capital which makes CEG an
important contributor to the Invicta Group.
The year
ended with equipment stock levels in line with the value on hand
at the 2008 year-end. All stock on hand is well within
market-related pricing. Notably, high valued inventory that
resulted from currency fluctuations at the beginning of the
current year is out |
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of the system. Lead times from
manufacturers during
the year of trading were within normal
standards and
additional demand was well accommodated by the
factories.
QUALITY MANAGEMENT AND SOCIAL
RESPONSIBILITY
The CEG has maintained its
standard of quality service, after sales support and internal
controls, by complying with ISO9001 certification which is
audited annually to ensure continuous compliance. The division
is currently working toward ISO14001 environmental
certification.
To ensure stability and succession as well
as up skilling staff in the divisions, e-learning has been
introduced, which enables staff in remote locations to be
trained and educated electronically. The CEG also trains
artisans and has a university bursary scheme for tertiary
education.
The CEG contributes to a weekly feeding scheme
which reaches more
than 200 children under the age
of eight years old. It has
also invested in a continuous chess education scheme “Moves for
Life”
for school children, of which President Zuma, is the
Patron.
OPERATIONAL REVIEW
There has been a gradual recovery of volume demand in the
capital equipment markets throughout the year with the
construction sector still lagging behind the agricultural and
material re-handling markets.
Equipment volumes in the
construction markets in
which the CEG trades have increased on 2009 calendar year by
17,7%, agricultural tractors increased by 5,5%, combine
harvester volumes decreased by 8,0% and forklift trucks
increased by 58%.
All divisions performed well, with
Doosan having an
exceptional year. Criterion performed well
following
its restructuring after being acquired by the Group
in the prior year. All the agricultural machinery operations
performed well. Only the Case construction equipment division,
which trades predominately in the plant hire market, struggled
although it continuous to be profitable. |
NORTHMEC
CaseIH Agricultural Equipment and
other related
implement brands
Northmec,
predominantly a retail distributor of agricultural equipment and
implements, performed above expectation. The total national
market tractor volumes in South Africa increased by 5,5%
(excluding exports) from 5 146 units to 5 432 units. Combine
harvesters decreased by 8,0% from 252 units to 210 units. The
baler market has remained constant with a 2,3% increase from 388
units to 397 units, while demand for implements was good.
Soft commodity prices were low at the beginning of the year,
but have increased steadily throughout the year. This increase
in prices has resulted in improved farmer confidence despite a
surplus of grain stock in South Africa.
Northmec gained
market share in all sectors in which it trades. At year-end
inventory was at an acceptable level and was well priced.
Northmec is steadily increasing its importation of tractors
from India, owing to better pricing and quality which is
superior to Chinese product at this stage. There is a continuous
search for more products to add to the range.
In a
positive start to the 2012 year, Northmec has secured a R90
million tractor order, the biggest ever from a private farmer in
South Africa.
NEW HOLLAND
New
Holland Agricultural Equipment and other
related brands
New Holland is predominantly a wholesale
distributor of agricultural equipment but during the year it
ventured into opening retail stores in areas where existing
dealers were under-performing. This has resulted in increased
revenue and profits, although operating costs have increased
commensurately.
New Holland once again performed
exceptionally well. Its market share in tractors was maintained
at prior year levels despite difficulties in obtaining popular
models due to excessive world demand. |
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Turnover remained flat but profit
increased and an
excellent return on capital employed was
achieved.
Overheads were fully covered by profits made on
parts and service without the necessity of having to sell any
equipment.
New Holland has recently acquired two
significant
implement franchises which should make a
meaningful contribution to the division in future.
LANDBOU PART
Landbou Part is a wholesale
division which sources
and sells replacement spare parts for
agricultural
equipment. It was acquired during the financial
period under review.
At this early stage the division
does not make a meaningful contribution to the CEG’s profit, but
it has
enormous potential to do so within the next three
years.
CSE
Case Construction Equipment,
Club Car and
Jacobsen/Ransomes Turf Equipment
The construction equipment division showed a marked
improvement on the last year, while the turf
markets were on
par with last year. Total market volumes of construction
machinery in which CSE operates in South Africa, increased by
17,7% from
2 653 units to 3 123 units, with signs of
continued
recovery going forward. The golf car and turf
markets remained stable.
The CSE construction equipment
division trades predominantly in the plant hire and construction
sectors of the markets. Revenue increased over last year, but
demand was muted owing to the lack of government spending on
infrastructure and there were no major contracts to fill the gap
left after the FIFA World Cup. Lack of bank financing was also a
major obstacle for financing of sales of equipment. Mining
sectors, especially coal and platinum, have recovered, which is
good for the front end loader materials re-handling sectors. |
Despite the slowdown in golf course development, there is
still a need for upgrading of golf car fleets and turf
equipment. The golf course market is a replacement market with
very few, if any, new golf course developments in progress.
CSE’s revenue increased over last year, and it continues
to trade profitably. There are positive signs of a gradual
recovery in the market and CSE should continue to make its
contribution to the overheads of the Group.
Cartcom, the
golf car rental company, performed well
and generated good
cash flow.
DOOSAN SA
Doosan excavators and loaders, Everdigm hammers
This company distributes Doosan construction machinery
(excavators and loaders) and Everdigm breaker hammers, all
products being sourced from South Korea. The company was
acquired three years ago and has performed exceptionally well
considering the market conditions. It has delivered an
outstanding result with turnover and operating profit
increasing, generating healthy cash flow throughout the year and
providing an excellent return on working capital.
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Doosan’s target market is mining and
construction,
although it services other sectors as well.
Doosan has increased market share in both excavators and
loaders in a market which grew by 17,7% on average.
The
coming year looks positive, with the increase in
activity in
coal and platinum mining providing a good base for the business.
The influence of Chinese
equipment in the local construction
market has almost disappeared because of poor support for the
product.
On a sad note, Doosan SA mourns the passing of
its
Managing Director, Andre Struwig, who passed
away
unexpectedly in May 2011. Andre was a key driver of the
success of Doosan and he will be sorely missed. The Group’s
condolences go to his family and friends. |
The company has made a good contribution to the CEG and has
good potential to make an even more meaningful contribution to
the division’s profits in future.
PROSPECTS
The results are an indication that the markets are gradually
starting to recover, but management is cautious going into the
new financial year. Management expects factory lead times to
increase as global demand for product grows and has taken
appropriate steps to counteract this. The tsunami in Japan had a
minimal impact on TCM and the company is back to full production
in Japan. There is, however, |
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CRITERION
TCM forklifts
Criterion is the distributor of TCM forklift trucks
imported from
Japan.
This is the second full trading year since
acquisition by the Group and after many challenges to restore
the company and brand confidence in the market place, the TCM
brand is rapidly regaining its position as one of the leading
forklift brands in the South African market. Each year since
acquisition the profits have grown significantly with both
revenue and operating profit increasing, compared with last
year.
A significant amount of funds have been invested to
upgrade the national service vehicle fleet and an
internal
rental finance facility has been put in place to finance sales
of equipment by the Group. |
a threat of rolling power blackouts in Japan, but suppliers
are prepared for this and it should not have
any material
impact on supplies to Criterion.
The CEG will once again
remain focussed on the core
fundamentals of its
business of cash flow and profitability. The division will also
continue seeking
out acquisition opportunities.
Management would like to thank all staff who helped
to make
these excellent results possible.
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