Wrap Text
Unaudited Interim Results for the six months ended 31 October 2014
Ellies Holdings Limited
Registration number: 2007/007084/06
JSE share code: ELI
ISIN: ZAE000103081
Unaudited Interim Results
for the six months ended 31 October 2014
Revenue (continuing operations) Down 26,3%
Revenue (discontinuing operations) Up 5,3%
PAT (continuing operations) Down 156,3%
PAT (discontinuing operations) Down 129,3%
LPS 13,1 cents (Down 151,9%)
HLPS 13,17 cents (Down 152,5%)
NAV per share 327,81 cents (Down 4,0%)
NTAV per share 258,90 cents (Up 1,8%)
Abridged consolidated statement of financial position
Unaudited Unaudited Audited
as at as at as at
31 October 2014 31 October 2013 30 April 2014
R'000 R'000 R'000
ASSETS
Non-current assets 250 274 472 266 481 424
Property, plant and equipment 28 801 180 184 190 536
– Land and buildings – 91 217 96 155
– Other 28 801 88 967 94 381
Goodwill and other intangible assets 207 859 263 252 264 066
Investment in associate – 11 153 10 062
Other financial assets 694 – 4 264
Deferred taxation 12 920 17 677 12 496
Current assets 727 629 1 527 727 1 607 279
Inventories 100 950 738 322 737 412
Trade and other receivables 156 450 512 018 395 666
Amounts due from contract customers 435 172 243 936 420 497
Taxation receivable 29 266 2 126 29 986
Bank and cash balances 5 791 31 325 23 718
Group disposals held for sale/distribution (Note 1) 1 041 832 – –
Total assets 2 019 735 1 999 993 2 088 703
EQUITY AND LIABILITIES
Capital and reserves 988 750 1 035 322 1 031 732
Stated capital 501 494 501 494 501 494
Non-distributable reserves (177 448) (177 585) (177 344)
Accumulated profits 670 872 711 992 710 639
Equity attributable to equity holders of the parent 994 918 1 035 901 1 034 789
Non-controlling interests (6 168) (579) (3 057)
Non-current liabilities 19 035 336 698 30 397
Interest-bearing liabilities 1 001 335 671 1 034
Vendor loans payable – 182 855
Shareholder loans payable 536 – 2 033
Deferred taxation 17 498 845 26 475
Current liabilities 519 019 627 973 1 026 574
Interest-bearing liabilities 240 711 81 240 395 488
– payable after 12 months 150 547 – 289 393
– payable within 12 months 90 164 81 240 106 095
Vendor loans payable 3 000 4 181 4 588
Trade and other payables 167 656 438 262 467 807
Amounts due to contract customers 18 511 12 776 17 368
Provisions 1 414 20 577 9 954
Taxation payable 26 1 454 146
Shareholders for dividends 35 35 35
Bank overdraft 87 666 69 448 131 188
Group disposals held for sale/distribution (Note 2) 492 931 – –
Total equity and liabilities 2 019 735 1 999 993 2 088 703
Supplementary information:
Net asset value per share (cents) 327,81 341,31 315,80
Net tangible asset value per share (cents) 258,90 254,44 241,12
Number of shares in issue 303 505 691 303 505 691 303 505 691
Note 1 - Assets: Group disposals held for sale/distribution
Non-current assets 224 219
Property, plant and equipment 150 604
- Land and buildings 97 887
- Other 52 717
Goodwill and other intangible assets 55 663
Investment in associate 11 271
Deferred taxation 6 681
Current assets 817 613
Inventories 584 457
Trade and other receivables 208 588
Taxation receivable 975
Bank and cash balances 23 593
1 041 832
Note 2 - Liabilities: Group disposals held for sale/distribution
Non-current liabilities 3 952
Interest-bearing liabilities 1 020
Vendor loans payable 896
Shareholder loans payable 2 036
Current liabilities 488 979
Interest-bearing liabilities 140 184
- payable after 12 months 87 121
- payable within 12 months 53 063
Trade and other payables 295 577
Provisions 2 129
Taxation payable 357
Bank overdraft 50 732
492 931
Abridged consolidated statement of comprehensive income
Unaudited six Unaudited six Audited
months ended months ended** year ended**
31 October 2014 31 October 2013 30 April 2014
R'000 R'000 R'000
Revenue 299 080 406 003 726 763
(Loss)/profit before interest, taxation, depreciation
and amortisation ("EBITDA") (23 337) 49 102 56 307
Depreciation (2 427) (1 942) (4 094)
Amortisation of intangibles (477) (279) (1 046)
(Loss)/profit before interest and taxation ("PBIT") (26 241) 46 881 51 167
Interest received 3 465 3 105 7 599
Interest paid (17 014) (11 397) (25 356)
Net (loss)/profit before taxation ("PBT") (39 790) 38 589 33 410
Taxation 11 117 (10 890) (9 418)
(Loss)/profit for the period from continuing operations (28 673) 27 699 23 992
Discontinued operations (Note 3) (14 205) 48 425 47 529
(Loss)/profit for the period (42 878) 76 124 71 521
Other comprehensive income:
Items that may be reclassified subsequently to
profit or loss
– Foreign currency translation reserve –
discontinued operations (104) 731 972
Total comprehensive (loss)/income for the period (42 982) 76 855 72 493
Attributable to:
Equity holders of the parent (39 767) 76 703 74 840
Non-controlling interests (3 111) (579) (3 319)
– Continuing operations (2 103) – (2 153)
– Discontinued operations (1 008) (579) (1 166)
Net (loss)/profit after taxation (42 878) 76 124 71 521
Attributable to:
Equity holders of the parent (39 871) 77 434 75 812
Non-controlling interests (3 111) (579) (3 319)
– Continuing operations (2 103) – (2 153)
– Discontinued operations (1 008) (579) (1 166)
Total comprehensive (loss)/income for the period (42 982) 76 855 72 493
** Restated – Refer to discontinued operations note.
Supplementary information:
Basic (loss)/earnings per share (cents) (13,10) 25,27 24,66
– Continuing operations (8,42) 9,32 9,00
– Discontinued operations (4,68) 15,95 15,66
Headline (loss)/earnings per share (cents) (13,17) 25,09 23,46
– Continuing operations (8,67) 9,14 9,00
– Discontinued operations (4,50) 15,95 14,46
Weighted average number of shares in issue 303 505 691 303 505 691 303 505 691
*Ellies has no dilutionary instruments in issue.
Note 3 – Discontinued operations
Revenue 713 284 677 438 1 379 326
Profit before interest, taxation, depreciation and
amortisation ("EBITDA") 2 085 74 676 111 218
Depreciation (6 245) (5 144) (10 009)
Amortisation of intangibles (67) – (531)
(Loss)/profit before interest and taxation ("PBIT") (4 227) 69 532 100 678
Interest received 1 079 873 1 433
Interest paid (15 108) (2 687) (31 113)
Share of losses from associate (591) (386) (389)
Net (loss)/profit before taxation ("PBT") (18 847) 67 332 70 609
Taxation 4 642 (18 907) (23 080)
Net (loss)/profit after taxation ("PAT") (14 205) 48 425 47 529
Reconciliation of basic earnings and headline earnings
Net (loss)/profit for the year attributable to equity
holders of the parent (39 767) 76 703 74 840
Adjusted for:
Profit on sale of property, plant and equipment (287) (754) (4 541)
Tax effect on adjustments 80 211 905
Headline (loss)/earnings attributable to ordinary
shareholders (39 974) 76 160 71 204
Abridged consolidated statement of cash flows
Cash flows from operating activities 12 166 (131 910) (170 071)
Cash generated from/(utilised by) operations 43 451 (89 980) (82 757)
Interest received 1 137 3 978 2 018
Interest paid (32 081) (13 996) (55 443)
Taxation paid (341) (31 907) (33 884)
Dividends paid – (5) (5)
Cash flows from investing activities 946 (28 261) (38 942)
Cash flows from financing activities (14 656) 130 954 110 449
Net decrease in cash and cash equivalents (1 544) (29 217) (98 564)
Cash and cash equivalents at the beginning of
the period (107 470) (8 906) (8 906)
Cash and cash equivalents at the end of the period (109 014) (38 123) (107 470)
Abridged consolidated statement of changes in equity
Balances at beginning of the period 1 031 732 958 467 958 467
Total comprehensive (loss)/income for the period (42 982) 76 855 72 493
Change of shareholding in subsidiary – – 510
Acquired as part of business combinations – – 262
Balances at end of the period 988 750 1 035 322 1 031 732
Segmental analysis
Revenue 1 012 364 1 083 441 2 106 089
Consumer goods – Discontinued operation 713 284 677 438 1 379 326
– Total 713 408 677 438 1 379 829
– Inter-segment (124) – (503)
Infrastructure – Continued operation 299 080 406 003 726 763
– Total 300 460 406 003 728 575
– Inter-segment (1 380) – (1 812)
Property division – Discontinued operation – – –
– Total 5 831 4 812 10 786
– Inter-segment (5 831) (4 812) (10 786)
Segmental (losses)/profits from operations
Net (loss)/profit before interest and taxation (31 059) 116 027 151 456
Consumer goods (8 663) 65 765 92 889
Infrastructure (25 904) 47 203 51 904
Property division 4 436 3 767 7 789
Other (591) (386) (389)
Holding company/consolidation (337) (322) (737)
Interest received 4 544 3 978 9 032
– Continuing operations 3 465 3 105 7 599
– Discontinued operations 1 079 873 1 433
Interest paid (32 122) (14 084) (56 469)
Operating segments (27 841) (10 281) (48 376)
– Continuing operations (17 014) (11 397) (25 356)
– Discontinued operations (10 827) 1 116 (23 020)
Property division – discontinued operations (4 239) (3 715) (7 872)
Deemed vendor interest – discontinued
operations (42) (88) (221)
Net (loss)/ profit before taxation (58 637) 105 921 104 019
Notes to the unaudited interim results
Basis of preparation and accounting policies
The unaudited interim results for the six months ended 31 October 2014 have been prepared in
accordance with International Financial Reporting Standards ("IFRS"), and comply with IAS 34 – Interim
Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Board
or its successor, the requirements of the Companies Act, No. 71 of 2008 of South Africa and the Listings
Requirements of the JSE Limited. The accounting policies used in the preparation of the unaudited interim
results for the six months ended 31 October 2014, are consistent with those applied in the audited financial
statements for the year ended 30 April 2014. These results have been compiled under the supervision of the
Chief Financial Officer, IM Lipworth CA (SA). The interim results have not been reviewed or reported on by
the group auditors, Grant Thornton (Jhb) Inc.
Discontinued operations and disposal groups held for sale/distribution
Following the group's announcement that it intends to unbundle and list its consumer goods business
separately, the results of these operations have been reclassified to discontinued operations in the income
statement and its assets and liabilities reclassified to disposal groups held for sale/distribution in the
statement of financial position.
The prior year interim and final numbers have been restated to show the continuing and discontinued
operations consistent with the above-mentioned split.
The disposal groups held for sale/distribution, as disclosed in the statement of financial position, relate to
the assets and liabilities of the group's consumer goods business and property operations.
Commentary
Introduction
Ellies Holdings Limited ("Ellies" or the "Company" or the "group") is a leading South African manufacturer,
wholesaler, importer and distributor in diversified sectors servicing the local and African markets.
The business comprises two main segments, namely Infrastructure and Consumer goods.
Shareholders are referred to the announcements on SENS on Monday, 6 October 2014 and Wednesday,
29 October 2014 advising that Ellies has reached agreement with its primary lender, The Standard Bank of
South Africa Limited, to reschedule certain obligations in respect of its debt and facilities. Following the debt
rescheduling, the Company has undertaken and is in the process of undertaking the following steps aimed at
bolstering liquidity and reducing gearing:
- a general issue of shares for cash;
- management loans to be raised and invested into the Company; and
- a fully underwritten rights offer.
On 6 November 2014, the Company issued 45 000 000 Ellies ordinary shares at 110 cents per share to client
funds managed by Mazi Capital Proprietary Limited ("Mazi Capital"). These funds were used by the Company in
order to reduce its gearing and fund its working capital.
Management loans have been raised from Ellie Salkow ("Salkow"), the executive chairman of the Company
and Ryan Otto ("Otto"), an executive director of the Company and the chief executive officer of its Megatron
infrastructure business ("the Management Loans") as follows:
- Salkow, in his personal capacity, has loaned the Company R25 million, in order to fund the Ellies consumer
goods business; and
- Otto, in his personal capacity, has committed to loan the Company R20 million to fund the Megatron
infrastructure business. To date he has loaned the Company R8 million.
The Company is undertaking an underwritten rights offer, as detailed on SENS on Thursday, 11 December
2014, offering shareholders 30 new shares at 110 cents per share for every 100 shares held. Salkow and
Otto will be the first underwriters of the Proposed Rights Offer in an amount equal in each case to the amount
due by the Company in respect of the Management Loans. In effect, their underwriting of the Proposed Rights
Offer will serve to convert all or part of the Management Loans into Ellies shares at 110 cents per share, any
balance remaining on the Management Loans to be repaid with interest at prime, subject to solvency and
liquidity and the consent of the Company's primary lender. The balance of the shares to be issued pursuant
to the Proposed Rights Offer will be underwritten by Mazi Capital for an underwriting fee of 3%.
The proceeds of the Proposed Rights Offer will be used to fund working capital and to further reduce the
Company's gearing.
Restructuring of the Company
As set out in the SENS announcement dated Thursday, 11 December 2014, the board of directors of the
Company has resolved to separate the two operating divisions of Ellies Proprietary Limited in order for the
Ellies consumer business and the Company's Megatron infrastructure business to be held by separate wholly-
owned subsidiaries of the Company, in preparation for a further restructuring whereby the capital required by
each business will be funded on a stand-alone basis going forward (the "Restructuring").
It has been resolved by the board to give effect to the Restructuring by:
- establishing a new wholly-owned subsidiary ("Ellies Electronics"), into which the Ellies consumer business
is to be transferred in exchange for new shares in Ellies Electronics ("Ellies Electronics shares"); and
- subject to all required approvals being obtained, the subsequent unbundling of the Ellies Electronics
shares to Ellies shareholders and simultaneous listing of Ellies Electronics on the appropriate board of
the JSE Limited,
with the result that the Megatron infrastructure business will remain the sole asset of the Company, with the
Company being renamed in due course.
The Company is of the view that the separate listings of the Ellies Electronics business and the Megatron
infrastructure business will allow for increased focus on their respective core operations. It will also enable
the Ellies consumer business and the Megatron infrastructure business to access different sources of funding,
better suited to their respective needs and cash flow profiles. The unbundling and simultaneous separate
listing of Ellies Electronics will also provide greater investor flexibility.
Overview
The past six months have been the most challenging the group has experienced in its 30-year history.
In the last few months, the Company has come under severe cash flow restrictions, which have impacted
significantly on its results.
As a result of the restructure that is in process, the Company has applied IFRS 5 – Non-current Assets Held
for Sale and Discontinued Operations. The results of the consumer goods business and property division have
been reclassified to discontinued operations in the income statement and its assets and liabilities reclassified
to disposal groups held for sale/distribution in the statement of financial position.
The infrastructure division
During the current period, the results of the infrastructure division were significantly hampered due to the
current liquidity constraints of the group and negative undertakings in its facilities with its bankers, together
with the effects of the Numsa strike.
Access to working capital has a direct relationship to the speed at which projects can be executed and revenue
realised.
During the five-week NUMSA strike, all of the factories of the infrastructure division were shut and no
production or sales took place. Disruption to the supply chain continued for weeks after the strike ended.
The infrastructure project mix for the six months included a larger proportion of local contracts rather than
export work, with the local contracts being completed at lower gross margins. It is anticipated that these local
projects will however be fully billed before year end.
Due to the size of the fixed cost base of the division, lower revenues have a large impact on the net margins.
Cost control remained a priority of management during the period.
The consumer goods division
In the first six months of the financial year, the Ellies consumer goods division experienced one of the worst
periods of consumer slowdown in decades. Sales were slower and retailers have put continued pressure on
margins. Further margin loss resulted from the sales of RMR led lighting stock that was sold below cost. The
sale of these lamps although at a loss helped gain marketshare and promote Ellies as a lighting brand.
The division focused on overall stock reduction and achieved some success with a reasonable reduction in
stockholding for the period.
Elsat has seen steady growth of satellite sales, although like all the other divisions it too experienced a decline
in margins with the weaker exchange rate being a large contributor to cost. Open View HD ("OVHD") continued
with slow sales although steady for the period.
Prospects
The infrastructure division
The infrastructure division intends to place greater focus on its export earnings during the coming periods.
Local operations are expected to be reduced in the future with a view to increasing the proportion of dollar-
based revenues. The existing order book remains intact, withstanding the restrictions of the current liquidity
position.
Furthermore, the division has been presented with several opportunities to participate at an equity level in the
projects that it constructs and develops. Future prospects will include long-term annuity revenues from these
investments. A large percentage of concession-based revenues are the long-term goal of management.
Access to working capital as well as equity capital for future investments will be of paramount importance in
the future. Suitable banking facilities for the infrastructure division are currently under negotiation.
The consumer goods division
The DTT migration rollout in South Africa is still keenly anticipated in the short-term. The Universal Service and
Access Agency of South Africa ("USAASA") has recently issued tenders for products needed for this migration.
We remain hopeful that the migration will take place in 2015 and that Ellies will play its part as capex was
spent in previous years, giving us the capacity to manufacture the quantities required.
MultiChoice recently launched new products in the market, being a new single view HD Zapper decoder and
Catch Up Plus. This will help maintain its growth and marketshare in the South African entertainment market,
while adding to its technology product offering.
Subsequent to the period end Plato has launched the OVHD service on IS20 and have subsidised the decoder
which enables the Company to offer the decoder at a competitive rate to the retail market. These two initiatives
have led to a significant increase in sales.
The corporate lighting division that offers full turnkey solutions on energy efficient lighting to corporates and
small businesses has started to gain momentum, although it was not a significant contributor in the first six
months. In the period we opened our new lighting showroom in Johannesburg where lighting contractors and
developers can come and chose lighting for their projects. We look to this division in light of the current energy
crisis and rising costs to be one of our growth sectors.
The management of the consumer goods business believes that the Ellies group's strategic and logistical
footprint, diversified interests and brands are strong differentiators off the back of which Ellies Electronics
will continue to be a dominant player in its chosen consumer fields and will restore its profitability.
Dividend policy
The dividend policy will be reviewed periodically taking into account prevailing circumstances and future cash
requirements. In view of the group's financial position, no interim dividend is proposed at this stage.
Appreciation
During the period the board welcomed Irwin Lipworth as its new chief financial officer and Stephen Goldberg
as an independent non-executive director and member of both the audit committee and the remuneration
committee. Mano Moodley and Andrew Brooking resigned as directors of the Company. The board wishes to
thank Mano and Andrew for their valuable contribution to the Company.
The directors and management pay tribute to the hard work of the group's staff, especially during these
challenging times and recognise and appreciate their efforts. We also continue to appreciate our customers,
business partners, advisors, suppliers and most importantly shareholders.
The Company will be presenting the half year results at an Investment Analyst Society presentation on or
around 10 February 2015. Full details will be announced via our website in due course.
By order of the board
ER Salkow WMG Samson
Chairman CEO
18 December 2014
Directors
Executive Directors Lead independent non-executive Director
ER Salkow (Chairman) OD Fortuin
WMG Samson (Chief Executive Officer)
IM Lipworth (Chief Financial Officer) (appointed 1 August 2014) Independent non-executive Directors
RH Berkman S Goldberg (appointed 21 November 2014)
MF Levitt (resigned 1 August 2014) FS Mkhize
RE Otto M Moodley (resigned 31 October 2014)
Non-executive Directors
AC Brooking (resigned 31 August 2014)
MR Goodford
Registered office: 94 Eloff Street Ext, Village Deep, Johannesburg, 2001 (PO Box 57076, Springfield, 2137)
Sponsor: Java Capital
Company secretary: CIS Company Secretaries (Pty) Limited
Transfer secretaries: Link Market Services South Africa (Pty) Limited
www.ellies.co.za
www.elliesholdings.com
www.megatronfederal.com
Date: 18/12/2014 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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