Johannesburg - Bell Equipment took a R60 million knock in the six months to June from theft, fraud and misrepresentation perpetrated by its management team and several other employees in the group’s operation in the Democratic Republic of Congo (DRC).
Gary Bell, the chief executive of the listed manufacturer of heavy equipment for the construction and mining sectors, said yesterday that the entire DRC management team had been dismissed plus one or two other employees following a forensic investigation “but we’re not done yet”.
Bell said they were involved in a number of things, including overvaluing inventory and setting up some businesses on the side that were involved in selling certain of Bell Equipment’s components.
“The difficulty is when you have the whole management team colluding to defraud you,” Bell said. “The auditors gave them a clean bill of health at the end of last year. But we knew something was wrong when margins started to decline and also picked up some things on the cash management side.”
Bell said the investigation had not yet been finalised and a decision would be taken shortly about laying criminal charges against those implicated. The theft, fraud and misrepresentation involved amounted in the order of R60 million in the six months to June, but some of these illegal activities also took place in the prior period.
Civil damages
Bell said the individuals involved were repaying some of the misappropriated funds they had agreed to repay in the early stages of the investigation.
He added that Bell Equipment had some level of insurance cover to recover some of those costs incurred in the DRC, but there was likely to be some civil damages litigation.
The operating profit from the rest of Africa slumped to a loss of R123.2m in the year to June from a profit of R26.4m in the previous corresponding period.
Bell said most of that operating loss was attributable to the group’s DRC operations. The group would have shown an improvement in profitability in the six months to June compared to the prior period had it not been for the fraud and mismanagement discovered in its operations in the DRC in the first quarter of this year.
The group’s rightsizing and restructuring initiatives undertaken early last year, higher factory throughput, favourable exchange rates and lower interest costs on well managed borrowings all contributed to the rest of the business performing better this year than in the first half of last year.
Decline
After the impact of the findings in the DRC, the group reported a 28 percent reduction in profit after tax of R64.3m in the six months to June from R89.4m in the previous corresponding period.
Diluted headline earnings a share declined by almost 25 percent to R67c from 89c. Revenue rose by 7 percent to R3.09bn from R2.89bn. Profit from operating activities dropped by 8 percent to R144.8m from R158m. A dividend of 15c a share was declared.
Bell said they expected the extremely tough trading conditions to continue, but would continue to take all reasonable steps to best position the company to withstand these challenges and continue delivering on its customer needs.
He added that Bell Equipment Sales SA, the distribution division for Africa, planned to conclude a broad based black economic empowerment transaction during the second half of this year to promote gender inclusive economic transformation.
Shares in Bell Equipment were unchanged yesterday to close at R10.50.
BUSINESS REPORT