Durban - Bell Equipment, the heavy equipment manufacturer that warned shareholders late last year that earnings for the year to December 2004 would plummet by 80 percent, is taking longer than expected to implement a cost-cutting agreement with John Deere Construction & Forestry.
But, the company said, once the deal started delivering, Bell's fortunes should begin to turn around.
In November last year Bell announced an agreement with John Deere that would license the two companies to manufacture each other's products, a move that is expected to cut costs by 12 percent over the next three or four years.
John Deere, which holds a 32.2 percent stake in Bell, is a US-based manufacturer of construction, forestry and agricultural equipment.
At the time of the announcement, Bell said "delivery of the products would begin in January, and by the third quarter the full impact will be seen".
But yesterday Gary Bell, Bell's chief executive, said: "We are still putting the final touches to the agreement. It will only kick in from June.
The benefits of the deal will partially be seen this year but the full effects will first be seen in 2006."
The deal would result in a change in the company's method of operation, moving it away from the dollar-based contracts that Bell has been locked into.
"As we plan the implementation of the agreement we have seen that the synergies will be considerably more than we initially envisaged," Bell said.
Johan de Bruijn of Sanlam Investment Management said: "Bell has a strong distribution business, which John Deere would like to leverage off to get into our markets. This will be beneficial for both parties."
Bell's earnings have been hard hit by the rand's strength. For the four years to the end of 2002 the group had consistently grown earnings.
In the year to December 2002 it reported a record net profit of R125.6 million. But with 50 percent of its revenue based on exports, the company's fortunes changed as the rand firmed.
Bell said another reason for the fall in earnings was a decline in the mining sector, a sector in which many of the group's major customers operate.
In the year to December 2003 profit plummeted to R36.6 million. In the six months to June 2004 Bell reported a net loss of R5.8 million compared with a previous profit of R40.9 million.
In November last year the company warned shareholders that its earnings for the full year to December 2004 would dive by 80 percent.
Bell's share price closed 10c lower yesterday at R6.30. The engineering sector was down 0.39 percent.