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Announcement relating to corporate restructuring, debt restructuring, trading statement, proposed rights, cautionary
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”)
ANNOUNCEMENT RELATING TO:
- THE CORPORATE RESTRUCTURING;
- THE DEBT RESTRUCTURING;
- A TRADING STATEMENT;
- THE PROSPECTS OF THE COMPANY;
- A FURTHER PROPOSED RIGHTS OFFER; AND
- A CAUTIONARY ANNOUNCEMENT.
1. Introduction
Shareholders are referred to the announcements dated 29 October 2014 and 11 December 2014 in terms of
which shareholders were advised of, inter alia, a rights offer and the Corporate Restructuring.
Further to those announcements and other developments, shareholders are provided herein with further
information regarding the Corporate Restructuring, information regarding the Debt Restructuring, information
in respect of a further Proposed Rights Offer, a trading statement and the prospects of the company.
2. Update on Corporate Restructuring
As set out in the announcements dated 29 October 2014 and 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
Consumer Division and the Infrastructure Division to be held by separate wholly-owned subsidiaries of the
company, in preparation for a further restructuring.
To this end, two new wholly owned subsidiaries, Ellies Electronics Holdings Proprietary Limited and Ellies
Electronics Proprietary Limited (“Ellies Electronics”) have been established. The company is in the process of
transferring the Consumer Division into Ellies Electronics.
Pursuant to the Corporate Restructuring, the Consumer Division and the Infrastructure Division will be housed
in a stand-alone subsidiary and each of the Consumer Division and the Infrastructure Division will be operated
and funded on a stand-alone basis.
Further information regarding the Corporate Restructuring and separation of the Consumer Division and the
Infrastructure Division will be announced in due course.
3. Debt Restructuring
In line with the Corporate Restructuring, Ellies is in the process of restructuring its debt with The Standard
Bank of South Africa Limited (“Standard Bank”) (the “Debt Restructuring”). The Debt Restructuring allows
each of the Consumer Division and the Infrastructure Division to be funded on a stand-alone basis, thereby
allowing each of the businesses to optimise its debt arrangements to meet its specific cash-flow requirements
and funding needs. In order to facilitate the Debt Restructuring, Ellies has concluded terms sheets with
Standard Bank. Ellies and Standard Bank are in the process of concluding formal written agreements which
will give effect to the Debt Restructuring.
4. Trading statement
Shareholders are advised that a reasonable degree of certainty exists that Ellies’ loss per share (“LPS”) for the
year ending 30 April 2015 (the “current financial period”) is expected to be more than 67 cents per share
compared to the earnings per share (“EPS”) of 24.66 cents per share for the year ended 30 April 2014 (the
“comparative period”), which is more than 370% lower than the EPS for the comparative period. The headline
loss per share (“HLPS”) for the current financial period is expected to be more than 66 cents per share
compared to the headline earnings per share (“HEPS”) of 23.46 cents per share for the comparative period,
which is more than 380% lower than the HEPS for the comparative period. It should however be noted that
various audit impairment reviews, which may impact on Ellies’ LPS and HLPS, have not yet been concluded.
Ellies’ financial performance has been negatively affected by difficult trading conditions, severe liquidity
constraints and significant interest charges. Non-recurring items in both the Consumer and Infrastructure
Divisions have had a negative impact on results for the current financial period. Within the Consumer Division
these include stock impairments resulting from cancelled projects. Within the Infrastructure Division there were
losses as a result of discontinued operations and significant impairments to accounts and construction
receivables. In addition, the Infrastructure Division’s South African manufacturing operations are expected to
report a loss in the current financial period, due to the liquidity constraints, while still funding fixed overheads.
Were it not for these non-recurring items and the loss in the Infrastructure Division’s South African
manufacturing operations the LPS and HLPS for the current financial period would be expected to be more than
160% lower than for the comparative period.
In compliance with the JSE Listings Requirements, a further trading statement will be issued by Ellies in due
course, providing more precise guidance.
The information on which this trading statement has been based has not been reviewed or reported on by the
company’s auditors.
As set out above, the board of directors of Ellies is in the process of implementing a number of initiatives,
which if successful, are expected to improve Ellies’ financial position.
5. Prospects
The Infrastructure Division
The Infrastructure Division has scaled down its South African operations significantly during the current
financial period to focus on higher margin African operations. Losses incurred by these discontinued operations
will not be repeated.
The current trading year did not do any justice to the current pipeline, with significant losses incurred due to
extension of time related costs as a result of the company’s liquidity challenges.
Management does not expect these project delays caused by external factors to recur in the next financial year
and will aim to recoup the additional expenses the Infrastructure Division has incurred.
A key market remains the Democratic Republic of Congo, with projects in generation, transmission and
distribution, as well as the completion of the energy efficiency project currently under way. Both Nigeria and
Ivory Coast are expected to be significant revenue contributors in the next financial year.
The Infrastructure Division expects an improved funding position to facilitate a return to normal trading
conditions.
The Consumer Division
Whilst trading conditions for the Consumer Division remain difficult, the division continues to maintain its
market share in most of its product categories.
Ellies’ commercial lighting offering continues to gain momentum, allowing the Consumer Division to grow a
significant reference base. Ellies continues to educate and train its installer base on new technologies, from
satellite installation to Wi-Fi and 3G networks. With this training the Consumer Division can expand its core
installation competencies into new products that see the convergence of television and internet.
The Digital Terrestrial Television (“DTT”) migration has made significant progress. The Universal Service and
Access Agency of South Africa (“USAASA”) had issued tender documents for the manufacture and supply of
decoders, antennas and satellite dishes. Ellies has since been approved by USAASA as a manufacturer and
supplier of both antennas and satellite dishes, pursuant to the DTT migration. These manufactured antennas and
satellite dishes are required to adhere to a minimum of a 90% local content. Once a tender order is given from
USAASA, the quantity and timing of manufacture and supply will be known. In addition, the Ellies DTT
antenna has been approved by Multichoice for distribution into South Africa and Africa. Insofar as the
Consumer Division has already invested in equipment to manufacture the DTT antennas and satellite dishes, it
is well geared towards rolling this project out successfully.
With the return to South Africa of national load shedding, the Consumer Division has seen a significant increase
in its sale of inverters, inverter trolleys and small generators. These products are predominantly sold to home-
owners through retail stores. The Consumer Division manufactures its inverter trolleys locally for South African
conditions. The demand for these projects has well exceeded its supply and Ellies is in the process of increasing
orders to meet this demand.
6. Proposed Rights Offer
In order to further reduce its gearing, fund working capital and ensure Ellies is adequately positioned for the
opportunities mentioned above, Ellies intends undertaking a further renounceable rights offer at an issue price
of 110 cents per share to raise a maximum of R200 million (the “Proposed Rights Offer”).
The Proposed Rights Offer will be partially underwritten by Mazi Capital Proprietary Limited (“Mazi”). To
this end, an underwriting agreement has been entered into between Ellies and Mazi (the “underwriting
agreement”). In terms of the underwriting agreement:
- Mazi will follow their rights in respect of the Ellies shares they currently hold, pursuant to the terms of
the Proposed Rights Offer to the value of approximately R39.9 million,
- Mazi will underwrite the rights offer up to a maximum of R105 million (the “cap”) in exchange for an
underwriting fee of 3% of the cap.
- Ellies has received irrevocable undertakings from other shareholders to subscribe for shares to the value
of approximately R40.3 million under the Proposed Rights Offer.
Further information in respect of the Proposed Rights Offer will be announced in due course.
7. Cautionary
As the above matters may have a material effect on the price of the company’s securities, shareholders are
advised to exercise caution when dealing in the company’s securities until a further announcement in this regard
is made.
4 May 2015
Joint corporate advisor, joint transaction sponsor and Joint corporate advisor and joint transaction
sponsor sponsor
Java Capital Standard Bank
Legal advisor
Cliffe Dekker Hofmeyr
Date: 04/05/2015 05:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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