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ELLIES HOLDINGS LIMITED - Unaudited Interim Results for the six months ended 31 October 2014

Release Date: 18/12/2014 16:00
Code(s): ELI     PDF:  
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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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