QUESTION            

1                                                                                                                                    

                                               110            

marks            

Azania Engineering (Pty) Ltd (“Azania”) manufactures and su

pplies gener

ator sets to 

customers 

in the hospit

ality, retail, telecommunications and 

health care industries. Over the past 

18 months

the  demand  for  generat

or  sets  (“ge

nsets”)  has  

increased  

significantly  b

ecause  of  t

he  frequent  

power  outages  experienced  in  major  cities  

in  

South  Africa  and  the  perception  th

at  electricity  

demand will outstrip sup

ply in the country over the 

next five 

to ten years. Gensets are primaril

y 

used as back-up power sources wh

en the electr

icity supply is disrupted. 

Azania produces diese

l powered gensets at its f

actory situated in Wadeville, Johann

esburg. The

sales and marketing, pr

ocurement, finance and

administrative functions are lo

cated 

in the 

same

building. Th

e business 

was founded in 1985 by Mr Diggory 

Lewis and has grown into one of the

leading  sup

pliers  of  die

sel  genset

s.  Mr  Lewis  retired  in  20

05  and  his  f

amily  trust  still  retain

s  a  

100% share

holding in A

zania. The

business is ru

n by the executive direct

ors, who ha

ve all been

employed b

y Azania for more than ten years. 

The major components, by 

value, of a genset are the diesel e

ngine, altern

ator, sheetwork (meta

l 

frames  or  c

anopies  in  which  gensets  are  housed)  and  the  electrical  

control  panel.  Azania  has  

always impo

rted diesel e

ngines from various 

European suppliers renowned for the reliability and

quality of en

gines supplied. Alternators, electrical control panel components and sheetwork are 

sourced fro

m local 

sup

pliers. A

zania design

s gensets u

sing computer 

assisted

de

sign 

software 

which  it  then  uses  for  the  assembly  of  the  components.  All  assembly  operations,  includin

g  

electrica

l wir

ing and instr

umentation work, are performed at the Wadeville factory. 

Azania  prod

uces  custo

m-built  gensets  according  to  specif

ic  requirements  of  cust

omers.  This  

strategy,  as  opposed  t

o  building  

standard  g

ensets,  has  differentiat

ed  Azania  

from  other  

suppliers   in

  South   Afri

ca.   The   company   has   found   tha

t   most   customers   have   unique

requirements  regarding  power  out

put,  genset

 desi

gn,  co

ntrol  systems,  sound  shields,  et

c.,  

which  are  g

enerally  not  met  by  standard  genset  product  r

anges.  While  some  sup

pliers  do

 sell  

standard  gensets,  this  invariably  

means  that  their  customers  either  acquire  gensets  which  

produce too

much power for their ne

eds (and incur unnecessary expense

) or that there is some 

aspect of th

e standard g

enset desig

n that does 

not suit their

requirements. 

In the industries in which most of th

e company’

s customers operate, back-up power is a critical 

requirement. Customers

accordingly place a high value on reliable and high quality gensets and

tend  to  be  

less  price  sensitive  in  procurem

ent  decisions.

 Azania  has  many  long  standing  

custom

ers.  

Because  of  

the  tremendous  increase  in  market  demand  for  gensets,  f

actory  staff  has  worked  

extensive overtime at the Azania factory duri

ng the months of July, August and Sept

ember. The 

company  is  considering

 expanding  its  premises  

and  employing  more  f

actory  staff  to  increase

capacity. 

Extracts  from  the  deta

iled  management  acc

ounts  of  Azania  for  the  financial  

year  ende

d  

31  

December  2005  and

 the  nine  months  ende

d  30  September  2006,  together  with  the  revised  

budget for t

he year ending 31 December 2006, are summari

sed below: 

1