Wrap Text
Provisional reviewed group results for the year ended 30 April 2014
Ellies Holdings Limited
Registration number: 2007/007084/06
JSE Share Code: ELI
ISIN: ZAE000103081
Provisional Reviewed Group Results
for the year ended 30 April 2014
Revenue increased 5,5%
EPS 24,66 cents decreased (66,8%)
NAV per share up to 340,95 cents increased (8%)
PAT decreased 68,2%
HEPS 23,46 cents decreased (68,3%)
Condensed consolidated statement of financial position
Reviewed Audited
as at as at
30 April 2014 30 April 2013 %
R'000 R'000 change
ASSETS
Non-current assets 481 424 409 485
Property, plant and equipment 190 536 163 115
– Land and buildings 96 155 86 140
– Other 94 381 76 975
Goodwill and other intangibles 264 066 226 182
Investment in associates 10 062 10 491
Other financial assets 4 264 –
Deferred taxation 12 496 9 697
Current assets 1 607 279 1 282 644
Inventories 737 412 667 983
Trade and other receivables 395 666 392 259
Amounts due from contract customers 420 497 158 651
Taxation receivable 29 986 447
Bank and cash balances 23 718 63 304
Total assets 2 088 703 1 692 129
EQUITY AND LIABILITIES
Total shareholders' interests 1 031 732 958 467
Stated capital 501 494 501 494
Non-distributable reserves (177 344) (178 316)
Accumulated profits 710 639 635 289
Equity attributable to equity holders of the parent 1 034 789 958 467
Non-controlling interests (3 057) –
Non-current liabilities 30 397 260 266
Interest-bearing liabilities 1 034 259 411
Vendor loan payable 855 –
Minority shareholder loans 2 033 –
Deferred taxation 26 475 855
Current liabilities 1 026 574 473 396
Interest-bearing liabilities 395 488 26 104
– payable after 12 months** 289 393 –
– payable within 12 months 106 095 26 104
Vendor loan payable 4 588 1 278
Trade and other payables 467 807 343 671
Amounts due to contract customers 17 368 8 246
Provisions 9 954 20 787
Taxation payable 146 1 060
Shareholders for dividends 35 40
Bank overdraft 131 188 72 210
Total equity and liabilities 2 088 703 1 692 129
** In terms of IAS1.74 when an entity breaches a provision of
a long-term loan arrangement on or before the end of the
reporting period with the effect that the liability becomes
payable on demand, it classifies the liability as current,
even if the lender agreed, after the reporting period and
before the authorisation of the financial statements for
issue, not to demand payment as a result of consequence
of the breach. The lender has agreed not to demand
immediate payment and the payment terms have reverted
to beyond 12 months at the date of authorisation of these
financial statements.
Shares in issue at end-of year (number of shares) 303 505 691 303 505 691
Net asset value per share (cents) 340,95 315,80 8,0
Tangible net asset value per share (cents) 254,39 241,12 5,5
Condensed consolidated statement of comprehensive income
Reviewed Audited
year ended year ended
30 April 2014 30 April 2013 %
R'000 R'000 change
Revenue 2 106 089 1 996 053 5,5
Profit before interest, taxation, depreciation and
amortisation ("EBITDA") 167 525 348 282 (51,9)
Depreciation (14 103) (11 331)
Amortisation of intangibles (1 577) (557)
Profit before interest and taxation 151 845 336 394
Interest received 9 032 5 994
Interest paid (56 469) (27 853)
Share of losses from associates (389) (1 666)
Net profit before taxation ("PBT") 104 019 312 869 (66,8)
Taxation (32 498) (88 023)
Net profit after taxation 71 521 224 846 (68,2)
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
– Foreign currency translation reserve 972 591
Total comprehensive income for the year 72 493 225 437
Attributable to:
Equity holders of the parent 74 840 225 325
Non-controlling interests (3 319) (479)
Net profit after tax 71 521 224 846
Attributable to:
Equity holders of the parent 75 812 225 916
Non-controlling interests (3 319) (479)
Total comprehensive income for the year 72 493 225 437
Supplementary information:
Basic earnings per share (cents) 24,66 74,24 (66,8)
Headline earnings per share (cents) 23,46 74,00 (68,3)
Weighted average number of shares in issue 303 505 691 303 505 691
Shares in issue (number of shares):
– At the end of the year 303 505 691 303 505 691
* Ellies has no dilutionary instruments in issue.
Reconciliation of earnings to headline earnings
Reviewed Audited
year ended year ended
30 April 2014 30 April 2013 %
R'000 R'000 change
Net profit for the year attributable to equity holders
of the parent 74 840 225 325 (66,8)
Adjusted for:
Profit on change of control from subsidiary to associate – (120)
Profit on sale of property, plant and equipment (4 541) (857)
Tax effect on adjustments 905 240
Headline earnings attributable to ordinary shareholders 71 204 224 588 (68,3)
Condensed consolidated statement of cash flows
Reviewed Audited
year ended year ended
30 April 2014 30 April 2013
R'000 R'000
Cash flows from operating activities (170 071) 445
Cash (utilised by)/generated from operations (82 757) 153 428
Interest received 2 018 5 994
Interest paid (in cash) (55 443) (27 713)
Taxation paid (33 884) (100 765)
Dividends paid (5) (30 499)
Cash flows from investing activities (38 942) (77 529)
Cash flows from financing activities 110 449 110 390
Net (decrease)/increase in cash and cash equivalents (98 806) 33 306
Cash and cash equivalents at the beginning of the year (8 906) (42 212)
Cash and cash equivalents at the end of the year (107 712) (8 906)
Condensed statement of changes in equity
Reviewed Audited
year ended year ended
30 April 2014 30 April 2013
R'000 R'000
Balance at the beginning of the year 958 467 760 450
Total comprehensive income for the year 72 493 225 437
Minority acquired as part of business combination 262 –
Change of shareholding in subsidiary 510 –
Dividends declared – (30 351)
Change of control from subsidiary to associate – 2 931
Balance at the end of the year 1 031 732 958 467
Segmental analysis
Reviewed Audited
year ended year ended
30 April 2014 30 April 2013 %
R'000 R'000 change
Revenue 2 106 089 1 996 053
Consumer goods and services 1 379 326 1 301 030 6,0
– Total 1 379 829 1 308 065
– Inter-segment (503) (7 035)
Infrastructure 726 763 687 922 5,6
– Total 728 575 688 382
– Inter-segment (1 812) (460)
Property – –
– Total 10 786 8 483
– Inter-segment (10 786) (8 483)
Other – 7 101
Segmental profits/(losses) from operations
Profit/(loss) before interest and taxation,
after losses from associates 151 456 334 728
Consumer goods and services 92 889 249 292 (62,7)
Infrastructure 51 904 82 118 (36,8)
Property 7 789 6 790 14,7
Other (389) (2 710)
Holding company/consolidation (737) (762)
Interest received 9 032 5 994
Net finance costs (56 469) (27 853)
Operating segments (combined) (48 376) (22 804)
Property (7 872) (4 909)
Deemed vendor interest (221) (140)
Profit before taxation 104 019 312 869
Business combinations
On 1 May 2013, Ellies, through a wholly-owned subsidiary, acquired 100% of the shares and loans of
Botjheng Water Proprietary Limited. The purchase price of R10 million was settled via a cash payment of
R7 million on this date and the balance over a 12-month period.
On 1 February 2014, Ellies, through a wholly-owned subsidiary, acquired 50,01% of the shares of African
Solar Power Proprietary Limited. The maximum purchase price payable amounts to R2 million, which is
subject to certain profits being achieved over the next two years. The directors believe that a payment of
R1 million (R836 000 at fair value) is probable.
A summary of the fair values of assets, liabilities and purchase consideration is as follows:
Botjheng African
Water Solar Power
R'000 R'000
Property, plant and equipment 785 –
Intangibles 3 969 –
Deferred taxation (asset) 6 054 178
Inventories 35 123
Trade and other receivables 18 137 –
Amounts due from contract customers 4 583 –
Bank and cash 2 630 1 565
Shareholder loans due – (2 028)
Non-current liabilities (573) –
Trade and other payables (46 857) (294)
Amounts due to contract customers (10 925) –
Provisions (2 400) –
Total net liabilities acquired (24 562) (456)
Less: minority interest – 228
(24 562) (228)
Purchase consideration at fair value: 9 866 836
– Cash payments made on effective date 7 000 –
– Deferred payment due in the future 2 866 836
Goodwill 34 428 1 064
– Infrastructure CGU 34 428 –
– Consumer CGU – 1 064
Cash outflow on acquisition: (4 370) –
– Purchase consideration paid (7 000) –
– Cash acquired 2 630 –
The main factor contributing to the goodwill raised is these acquisitions is their market presence and
expected synergies.
Revenue Loss before tax
Pro forma amounts R'000 R'000
If the acquisitions occurred at the beginning of the year
– Bothjeng Water 72 468 (7 041)
– African Solar Power 7 747 (627)
Actual amounts included in results
– Bothjeng Water 72 468 (7 041)
– African Solar Power 2 219 (136)
Notes to the audited year-end results
Reviewed results for the year ended 30 April 2014
The results for the year ended 30 April 2014 have been reviewed by Grant Thornton (Jhb) Inc. and
their unmodified review conclusion is available for inspection at the company's registered office.
The auditor's review report does not necessarily report on all of the information contained in these
provisional condensed financial results. Shareholders are therefore advised that in order to obtain a
full understanding of the nature of the auditor's engagement they should obtain a copy of the auditor's
review report together with the accompanying financial information from the issuer's registered office.
The directors take full responsibility for the preparation of the provisional condensed financial results.
Basis of preparation and accounting policies
The condensed consolidated financial statements are prepared in accordance with the requirements of
the JSE Limited Listings Requirements for provisional reports and the requirements of the Companies
Act of South Africa. The Listings Requirements require provisional reports to be prepared in accordance
with the framework concepts and the measurement and recognition requirements of International
Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting
Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim
Financial Reporting. The accounting policies applied in the preparation of the condensed consolidated
financial statements are in terms of IFRS and are consistent with those applied in the previous
consolidated annual financial statements, other than for the adoption of IFRS 7 (Revised) Financial
Instruments: Disclosures, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements,
IFRS 12 Disclosure of Interests in Other Entities, IFRS 13 Fair Value Measurement, IAS 19 (Revised)
Employee Benefits, IAS 27 (Revised) Separate Financial Statements, IAS 28 (Revised) Investments
in Associates and Joint Ventures and various other improvements. The adoption of these accounting
standards did not have a material impact on the Group results.
These results have been compiled under the supervision of the Chief Financial Officer, MF Levitt CA (SA).
Commentary
Introduction
Ellies Holdings Limited ("Ellies" 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 and services.
Overview
The year under review was extremely challenging for the group, which is reflected in its poor earnings
for the period. While the group experienced a modest 5,5% growth in combined revenue (Consumer
revenue up 6%, Infrastructure up 5,6%), substantially lower margins (Consumer margins were down
14% and Infrastructure margins were down 2%) and costs of funding relating to opportunities that did
not materialise during the year, reflected in the considerably reduced group earnings. The group's 2013
EPS of 74,24 cents compares to the 2014 EPS of 24,66 cents per share (25,27 cents being earned during
the first six-month period). The core business of the group experienced some earnings growth during
the latter half of the year, which was fully negated by the R31,8 million additional net interest incurred
for the second half.
The consumer division experienced weak demand and pressure on its margins, which it attributes
to general economic conditions. The long awaited launch of Digital Terrestrial Television ("DTT") has
been even further delayed and the uptake of OpenView HD ("OVHD") has been substantially slower
than the group expected. The expected further participation in the Eskom consumer program, known
as the Residential Mass Rollout or RMR, which contributed substantially to the group in 2013, did not
materialise during 2014. The consumer division reflected a decline in PBIT of 62,7% from R249 million
in 2013 to R93 million in 2014.
The Infrastructure division's increase in revenue was largely due to the acquisition of Botjheng Water.
This acquisition, effective from 1 May 2013, contributed R72 million in revenue, but at an operating
loss of R6,9 million as a result of its short-term legacy contracts with lower margins than new
business. Moreover, in 2014 the business of the Infrastructure division matured into higher value
and longer term contracts with more onerous billing milestones, which resulted in deferred billings
and increased contract debtors, in turn causing ongoing challenges for the group in funding working
capital. Overall, the Infrastructure division reflected a decline in PBIT of 36,8% from R82,1 million
in 2013 to R51,9 million in 2014.
The group's net working capital declined by R236 million. The board, together with Ellies' financiers and
advisors, are actively engaged with the group's challenges in funding its working capital requirements.
Other than the OVHD decoder stock and the remaining RMR stock, totalling R145 million, the working
capital in the consumer division improved as a result of tighter stock management. With the anticipated
prospects of OVHD, this stock is considered by management to be slow moving but with no financial
risk, while the RMR stock is being sold on an ongoing basis. The group's investment in local DTT aerial
manufacturing capacity, continues to remains grossly unutilised, pending the eventual SA governmental
finalisation, together with greater export opportunities still to be realised.
The current nature and timing of Infrastructural projects is causing funding pressures with the increase
of construction working capital by R259 million.
The group's increase in interest-bearing debt has resulted in net higher interest costs of R25,6 million.
Total interest-bearing bank debt, which includes property term finance, results in a debt to equity ratio
of 44% as compared to 31% at April 2014. With the exclusion of the property funding, which replaces
rent with interest, this ratio drops to 36% as compared to 23% at April 2014. Management's objective
remains in the medium term the achievement of a 25% gearing level, excluding any property financing.
The group's interest cover to EBITDA is 3,53 times (2013: 12,25 times) and cash flows from operating
activities declining by R170,1 million. A further R150 million two year facility was raised during the
course of the year to fund the OVHD project.
As a result of the higher debt and working capital levels and comparatively lower EBITDA, its financial
ratios in respect of net debt to EBITDA and debt service cover for the quarter to 30 April 2014 were
below the covenant ratios applicable under its term loan facilities. This has been condoned by the
group's bank subsequent to year end. The board is confident of the bank's ongoing support during this time.
It is believed that the group's cash flow will show that it will trade through these challenges without
default in any scheduled repayments and by the third quarter of the 2015 financial year the financial position
is expected to have improved.
The group's statement of financial position remains solid, with NAV and NTAV per share improving to
341 cents (2013: 316 cents) and 254 cents (2013: 241 cents), respectively.
The group hopes for a speedy resolution to the NUMSA strike which has halted production and
manufacturing in both Megatron and Ellies Industries.
Prospects
The Consumer goods and services division
The DTT migration rollout in South Africa is still keenly anticipated in the short term. New production
machinery has been installed for increased local production and employment. In the interim the group
continues to export DTT products into Africa.
Sales of MultiChoice DSTV remain constant and it is anticipated that its market share will be maintained
with their new product initiatives and innovations.
OVHD launched in October 2013 and has been slow to take off. However, optimism remains for the
future growth both in South Africa and Southern Africa in the short to medium term. Management does
not believe that the current stock holding presents any major risks.
The expansion into commercial efficient lighting and energy generation continues to attract interest.
Management anticipates that this business-to-business sector will present ongoing future opportunities.
Infrastructure division
The contribution of the Infrastructure division remains material to the group, consistently contributing
approximately one third of the group's profits and offering diversification in both product and
customer base. The infrastructure division underperformed in the period as the billings did not match
expectations. We anticipate that the future revenue drag should improve in the following year. Improved
revenue is expected following the restructuring of the towers business.
With its sizeable export order book and its local production facilities, management is confident of its
continued importance to the group and its positioning in a strong growth sector.
Power products manufacturing sector
During the period significant revenue was derived from the renewable energy industry in South Africa.
Several large contracts were awarded for both Photo-Voltaic Solar and Wind projects. The partnering
with South African Renewable Energy Independent Power Producer's ("REIPP") developers and original
equipment manufacturers still remains key.
With the improving residential construction market, there is an improvement in the miniature substation
manufacturing operation. The prospects for this division remain positive subject to the speedy
resolution of the strike.
Infrastructure projects sector
There are signed contracts and in progress of approximately R4,1 billion of which around 75% still
remain uncompleted.
DRC, Ghana and Republic of Congo remain key markets with new wins in Mozambique and Cote d'Ivoire
expected to contribute to the next periods.
Two projects in the Concentrated Solar industry were awarded during the period resulting in valuable
references in a growing industry.
The acquisition of Botjheng Water has increased the offering to our customer base within the Water
Infrastructure sector.
Telecommunications projects sector
49% of the Towers business unit was restructured to allow for a broad-based ownership structure.
Growth in both revenue and earnings has yet to match expectations.
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 dividend is proposed for the 2014 year.
Appreciation
The directors and management once again continue to recognise and appreciate the focused efforts
and hard work of the group's staff and also continue to appreciate its customers, business partners,
advisors, suppliers and most importantly shareholders.
By order of the board
ER Salkow WMG Samson
Chairman CEO
22 July 2014
Directors
Executive Directors Lead independent non-executive Director
ER Salkow (Chairman) OD Fortuin
WMG Samson (Chief Executive Officer)
MF Levitt (Chief Financial Officer) Independent non-executive Directors
RH Berkman FS Mkhize
RE Otto M Moodley
Non-executive Directors * There have been no changes to the Ellies board
AC Brooking since the last reporting period.
MR Goodford
Registered office: 94 Eloff Street Ext, Village Deep, Johannesburg, 2001 (PO Box 57076, Springfield, 2137)
Sponsor: Java Capital
Auditors: Grant Thornton (Jhb) Inc.
Company secretary: CIS Company Secretaries (Pty) Limited (changed on 6 June 2014)
Transfer secretaries: Link Market Services South Africa (Pty) Limited
www.ellies.co.za
www.elliesholdings.com
www.megatronfederal.com
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