ENGINEERING SOLUTIONS GROUP

The past year was characterised by extremely tough market conditions,
the conclusion of three strategic acquisitions and significant progress
in the implementation of BMG’s multi-year, multi-faceted ‘Simplify
for Success’ initiative and the continued upgrade of BMG World.


























ENGINEERING SOLUTIONS GROUP comprises of:
 
Man-Dirk - Specialist suppliers of maintenance, repair and operating (MRO) supplies to mining, industry, power generation, municipalities, government and quasi-government departments.

OST - Vibrator Motors, Screen Mounts, Niche Screens and Feeders and Vibrator Units.

OMSA - Manufacturers of oil and grease lubrication systems and filtration systems, and supplies associated instrumentation and condition monitoring equipment to a broad spectrum of industries in Africa and beyond.

Wegezi - Importer and distributor of leading materials handling equipment and related spares.

Hansen Transmissions SA - Assembly and Distribution for all Sumitomo and Hansen branded industrial gearbox units throughout Africa.

Hyflo Group - Design, Manufacturing, Marketing and Servicing of Hydraulic and Pneumatic Equipment.

Autobax - Automotive after-market spares.

 
Map of bmg distribution network

 
 

2016 Review of Operations

The Engineering Consumables segment financial performance was
severely impacted by very difficult trading conditions. Commodity
prices continued to fall causing stress among our mining
customers. Heavy industry, particularly the steel sector, was similarly
impacted with a large customer being placed in business rescue while
the agriculture sector was devastated by the worst drought in over 50
years. To exacerbate matters, extreme currency volatility particularly
in the second half of the year resulted in significant foreign exchange
losses.
Revenues increased by 2% to R4.3 billion (2015: R4.2 billion) with all
of this growth attributable to acquisitions made during the year. Strict
pricing discipline saw gross margins improve slightly in existing
businesses, however, some of the acquisitions made during the year
were in lower margin businesses resulting in a marginal decrease in
the overall gross margin. Overhead growth (excluding acquisitions,
foreign exchange losses and one-off restructuring and relocation
costs) was well contained at below inflation, but exceeded gross
profit growth, resulting in a decrease in operating margin.
Ensuring unrivalled levels of stock availability remains a strategic
differentiator. The constrained economic environment and long lead
times, caused inventory levels to exceed desired cover targets. In
addition, rand weakness resulted in increased inventory values
without a concomitant increase in actual stock units. Measures have
been implemented to reduce inventory back to target levels in the
near term.
Net operational assets increased to R1.9 billion (2015: R1.8
billion). Return on average net segment assets reduced to 21.8%
(2015: 29.8%).

BMG

BMG remains the engineering consumables segment’s largest
business.
BMG’s two main trading divisions, Distribution and Engineering,
delivered vastly different results for the year.
The Distribution division produced a very resilient performance
under very challenging market conditions. Turnover was flat despite
the implementation of regular price increases necessitated by the
dramatic devaluation of the rand. Power transmission, tools and
equipment and electronics were the stand out performers while the
bulk materials handling and fluid technology divisions were impacted
by the dearth of project activity. Slightly higher gross margins and
below inflation overhead growth, resulted in this division’s trading
profit being maintained.
In contrast, the Engineering division endured its most difficult year
to date with revenue down year-on-year. Project activity in South
Africa all but came to a complete stop with activity levels in Africa
following a similar downward trajectory. The continued commodity
price pressure has put most expansion projects on hold and the
traditional replacement philosophy of many customers’ procurement
departments has been changed to repair only.
In order to counteract the challenging conditions, significant effort
was made to rationalise the overhead base and streamline business.
The BMG Fluid Technology businesses (BMG Hydraulics and OMSA)
have been consolidated into the Benrose facility and the OMSA
property in Randburg has been sold. This has resulted in efficiency
savings by rightsizing the business. Late in the year, the Fluid
Technology business was further divisionalised into BMG and all sales
and support is now done through BMG’s extensive branch network.
BMG has also secured a national distribution rights for Festo, the
world’s leading brand in pneumatics.

 

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