ELLIES HOLDINGS LIMITED - Decision to discontinue financial assistance to the manufacturing segment

Decision to discontinue financial assistance to the manufacturing segment

ELLIES HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2007/007084/06)
JSE share code: ELI ISIN: ZAE000103081
("Ellies" or the "Company")


DECISION TO DISCONTINUE FINANCIAL ASSISTANCE TO THE MANUFACTURING SEGMENT


1.   Definitions

     Ellies Holdings Ltd is referred to as the "Company",
     Ellies Electronics Pty Ltd is referred to as "Electronics" and
     Ellies Industries Pty Ltd is referred to as "Industries"

2.   Background

     Shareholders are referred to the 2020 Integrated Annual Report where it was stated under Review of operations that
     "There has been insufficient throughput to recover the costs on a monthly basis and, as such, a detailed review of
     the Strategy of the Manufacturing segment has been undertaken. Due to the amount of activity over the last year in
     the Trading and Distribution segment, the focus of the Board and Ellies management in the coming year is on the
     Manufacturing segment."

     2.1.   Industries is a partially owned subsidiary with the Company holding 73,68% of the shares through a wholly
            owned subsidiary Electronics.

     2.2.   The Company has, for a considerable period been monitoring the trading operations of Industries and has
            made every effort to contain costs and restore a level of profitably to Industries. Of particular concern is the
            fact that trading volumes have not been adequate to cover much of the fixed cost or to generate sufficient
            profit to sustain the business. The major lines produced by Industries and which are largely sold to
            Electronics, consist of products related to satellite connectivity and associated electrical products which
            Electronics is now in a position to procure externally at a lower cost than if manufactured by Industries.

     2.3.   Over the course of five years, the Company has provided financial assistance, through its wholly owned
            subsidiary Electronics, in the form of financial assistance and partially subordinated its loan account so as to
            enable Industries to continue operating.

     2.4.   During 2020, the Company engaged the services of an external consultant to assess the operations of
            Industries with the objective of identifying both inefficiencies and efficiencies in order to assist in improving
            Industries’ viability. This exercise did not find sufficient positives to persuade the Company that its continued
            financial support of Industries was justifiable or in the best interests of the Company and its shareholders.

     2.5.   Management prepared three scenario forecasts based on aggressive, conservative and cost reduction
            assumptions. None of the scenario forecasts prepared by management indicated a return to profitability in the
            next 24 months.

3.   The Company also attempted to dispose of the business as a going concern. One potential buyer completed a
     comprehensive due diligence but declined to make a binding offer; the other potential buyer required significantly
     more security and vendor funding than was currently being provided and thus that potential transaction also fell
     through.

4.   As a consequence of the above, shareholders are advised that:

     4.1.   After considerable discussion and thought by the Board, and given the fact that the Board could no longer see
            a strategic imperative to retain a manufacturing segment within the group as well as the fact that Industries is
            a drain on the resources of Electronics and the Company, it has determined that with effect from 12 February
            2021, the Company through Electronics will no longer provide financial assistance to Industries. This has
            resulted in the Electronics board resolving to commence with an application for the liquidation of Industries.
                                                                                                                    
     4.2.   The resolution of the ongoing losses in Industries is expected to have a positive effect on the financial
            position of Ellies going forward.

5.   Shareholders will be updated as further material information becomes available.

12 February 2021


Sponsor
Java Capital

Date: 12-02-2021 08:27:00
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