Wrap Text
Provisional Reviewed Group Results for the year ended 30 April 2016
Ellies Holdings Limited
Registration number: 2007/007084/06
JSE share code: ELI
ISIN: ZAE000103081
("Ellies" or "the Group")
Provisional Reviewed Group Results
for the year ended 30 April 2016
MEGATRON SA (PTY) LTD
ELLIES ELECTRONICS (PTY) LTD
Continuing operations: Improvement UP, Deterioration DOWN
Revenue Group DOWN 0.52%
Infrastructure UP 25.98%
Consumer DOWN 4.37%
LAT Group UP 56.32%
LAT Infrastructure DOWN 99.31%
PAT Consumer UP 131.74%
LPS Group UP 3.72%
LPS Infrastructure DOWN 22.30%
PPS Consumer UP 120.26%
HLPS Group UP 31.11%
HLPS Infrastructure UP 8.72%
HPPS Consumer UP 121.42%
NAV Group DOWN 52.05%
Infrastructure DOWN 94.29%
Consumer UP 8.53%
Condensed consolidated statement of financial position
Reviewed as at Audited as at
30 April 2016 30 April 2015
R'000 R'000
ASSETS
Non-current assets 328 934 248 631
Property, plant and equipment 124 567 23 254
– Land and buildings 76 891 –
– Other 47 676 23 254
Goodwill and other intangibles 56 450 173 407
Investment in associates 10 514 –
Other financial assets 129 406 1 144
Deferred taxation 7 997 50 826
Current assets 934 461 536 100
Inventories 503 659 15 824
Trade and other receivables 299 072 132 584
Amounts due from contract customers 73 202 348 615
Taxation receivable 3 489 29 267
Bank and cash balances 38 472 9 810
Non-current assets held for sale 16 567 –
Group disposals held for sale/distribution 27 922 948 784
Infrastructure segment (Note 1) 27 922 49 517
Consumer and property segment* – 899 267
Total assets 1 291 317 1 733 515
EQUITY AND LIABILITIES
Total shareholders' interests 519 288 855 047
Stated capital 837 212 658 334
Share capital 837 212 658 334
Non-distributable reserves (177 635) (177 763)
Non-distributable reserve – common control (177 635) (177 763)
Accumulated profits (138 834) 383 667
Equity attributable to equity holders of the parent 520 743 864 238
Non-controlling interests (1 455) (9 191)
Non-current liabilities 142 074 96 210
Interest-bearing liabilities 136 396 95 260
Deferred taxation 5 678 950
Current liabilities 589 726 211 294
Interest-bearing liabilities 14 078 210
Vendor loan payable 3 000 3 000
Shareholder loans payable 2 098 311
Trade and other payables 419 576 186 915
Amounts due to contract customers 1 289 13 662
Provisions 12 319 7 116
Taxation payable 708 45
Shareholders for dividends 35 35
Bank overdrafts 136 623 –
Group disposals held for sale/distribution 40 229 570 964
Infrastructure segment (Note 2) 40 229 4 444
Consumer and property segment – 566 520
Total equity and liabilities 1 291 317 1 733 515
* The Consumer and property segment was classified as
'Group disposals held for sale/distribution' in the 2015
financial year. This is no longer the case for the 2016
financial year. IFRS 5 does not require a restatement of
the balance sheet for the 2015 financial year.
Supplementary information:
Shares in issue at end of year (number of shares) 620 158 235 453 057 398
Net asset value per share (cents) 83.97 190.76
Tangible net asset value per share (cents) 74.74 140.70
Note 1 – Assets: Infrastructure segment
held for sale/distribution
Non-current assets 3 742 8 674
Property, plant and equipment 3 742 5 545
– Other 3 742 5 545
Goodwill and other intangible assets – 3 129
Current assets 24 180 40 843
Inventories 10 254 40 810
Trade and other receivables 13 926 33
27 922 49 517
Note 2 – Liabilities: Infrastructure segment
held for sale/distribution
Current liabilities 40 229 4 444
Trade and other payables 40 229 4 444
40 229 4 444
Condensed consolidated statement of profit and loss and other
comprehensive income
Reviewed Audited
year ended year ended**
30 April 2016 30 April 2015
R'000 R'000
Revenue 1 581 911 1 590 247
Loss before interest, taxation, depreciation
and amortisation ("EBITDA") (203 243) (255 731)
Depreciation (13 979) (16 378)
Amortisation of intangibles (397) (865)
Impairment of goodwill (170 416) (34 428)
Loss before interest and taxation (388 035) (309 953)
Interest received 17 149 11 574
Interest paid (42 088) (61 121)
Loss before taxation ("LBT") (415 575) (362 229)
Taxation (66 424) 53 892
Loss for the year from continuing operations (481 999) (308 337)
Discontinued operations – Infrastructure segment (Note 3) (32 766) (24 769)
Discontinued operations – Consumer and property
Loss for the year (514 765) (333 106)
Other comprehensive income:
Items that may be reclassified subsequently to
profit or loss
– Foreign currency translation reserve 128 (419)
Total comprehensive loss for the year (514 637) (333 525)
Attributable to:
Equity holders of the parent (512 205) (326 972)
Non-controlling interests (2 560) (6 134)
Net loss after tax (514 765) (333 106)
Attributable to:
Equity holders of the parent (512 077) (327 391)
Non-controlling interests (2 560) (6 134)
Total comprehensive loss for the year (514 637) (333 525)
**Restated – Refer to discontinued operations note.
Supplementary information:
Basic (loss)/earnings per share (cents) (87,78) (92,33)
– Infrastructure continuing operations (85.32) (69.76)
– Infrastructure discontinued operations (5.62) (6.99)
– Consumer and property continuing operations 3.16 (15.58)
Headline (loss)/earnings per share (cents) (57.35) (81.34)
– Infrastructure continuing operations (54.93) (60.18)
– Infrastructure discontinued operations (5.62) (6.24)
– Consumer and property continuing operations 3.20 (14.92)
Weighted average number of shares in issue 583 533 394 354 135 067
Shares in issue (number of shares):
– At end of the year 620 158 235 453 057 398
Ellies has no dilutionary instruments in issue.
Note 3 – Infrastructure segment discontinued operations
Reviewed Audited
year ended year ended**
30 April 2016 30 April 2015
R'000 R'000
Revenue 61 266 212 903
Loss before interest, taxation, depreciation and
amortisation ("EBITDA") (39 258) (32 988)
Depreciation (2 044) (1 189)
Amortisation of intangibles (352) (224)
Impairment of intangibles (3 853) –
Loss before interest and taxation ("LBIT") (45 508) (34 401)
Net loss before taxation ("LBT") (45 508) (34 401)
Taxation 12 742 9 632
Net loss after taxation ("LAT") (32 766) (24 769)
** Restated – Refer to discontinued operations note.
Reconciliation of earnings to headline earnings
Reviewed Audited
year ended year ended**
30 April 2016 30 April 2015
R'000 R'000
Net loss for the year attributable to equity holders of the
parent (512 205) (326 971)
Adjusted for:
Loss on sale of property, plant and equipment 6 097 2 682
– Infrastructure continuing operations – (703)
– Infrastructure discontinued operations 5 771 3 719
– Consumer and property continuing operations 326 (334)
Loss on sale of component infrastructure division 3 789 –
Impairment of intangibles – Consumer and property
discontinued operations – 2 551
Impairment of goodwill – Infrastructure continuing
operations 170 416 34 428
Tax effect on adjustments (2 768) (751)
Headline earnings attributable to ordinary shareholders (334 671) (288 061)
** Restated – Refer to discontinued operations note.
Condensed consolidated statement of cash flows
Reviewed Audited
year ended year ended**
30 April 2016 30 April 2015
R'000 R'000
Cash flows from operating activities (23 031) (68 637)
Cash (utilised by)/generated from operations (29 538) (1 417)
Interest received (in cash) 13 250 3 349
Interest paid (in cash) (42 088) (61 121)
Taxation paid 9 417 (949)
Cash flows – continuing operations (48 959) (60 138)
Cash flows – discontinued operations 25 928 (8 499)
Cash flows from investing activities (459) 14 237
Cash flows – continuing operations 1 585 15 426
Cash flows – discontinued operations (2 044) (1 189)
Cash flows from financing activities*** 31 747 55 462
Cash flows – continuing operations 31 747 55 462
Net increase in cash and cash equivalents 8 257 1 062
Cash and cash equivalents at the beginning of the year (106 408) (107 470)
Cash and cash equivalents at the end of the year (98 151) (106 408)
** Restated – Refer to discontinued operations note.
*** Due to the central treasury function within the group, it is considered impracticable to calculate the
cash and cash equivalents attribution to continued and discontinued operations for the 2015 financial
period for financing activities, as no separation basis existed in the prior periods.
Condensed statement of changes in equity
Reviewed Audited
year ended year ended**
30 April 2016 30 April 2015
R'000 R'000
Balance at the beginning of the year 855 047 1 031 732
Total comprehensive (losses)/income for the year (514 637) (333 525)
Increase in stated capital through the issue of shares 178 878 156 840
Balance at the end of the year 519 288 855 047
** Restated – Refer to discontinued operations note.
Segmental analysis
Reviewed Audited
year ended year ended**
30 April 2016 30 April 2015
R'000 R'000
Revenue 1 643 163 1 803 150
Infrastructure 314 871 414 218
– Total – continuing operations 253 619 201 357
– Total – discontinued operations 61 266 212 903
– Inter-segment (14) (42)
Consumer goods – Continuing operation 1 328 292 1 388 932
– Total 1 328 292 1 388 932
– Total 11 468 12 805
– Inter-segment (11 468) (12 805)
Segmental losses from operations
Loss before interest and taxation, after losses
from associates (436 144) (347 083)
Infrastructure – Continuing operation (435 195) (259 128)
Infrastructure – Discontinuing operation (Note 3) (45 508) (34 401)
Consumer goods – Continuing operation 37 116 (60 225)
Property division – Continuing operation 7 404 9 932
Other – Discontinued operation – (2 729)
Holding company/consolidation 39 (532)
Interest received 17 149 11 574
Net finance costs (42 088) (61 121)
Operating segments (32 744) (52 416)
– Continuing operations (32 744) (36 815)
– Discontinued operations – (15 601)
Property division – Continued operations (7 925) (8 622)
Deemed vendor interest – Continuing operations (1 419) (83)
(Loss)/profit before taxation (461 083) (396 630)
** Restated – Refer to discontinued operations note.
Notes to the provisional condensed consolidated financial statements
Auditors' conclusion
These provisional condensed consolidated financial statements for the year ended 30 April 2016
have been reviewed by Grant Thornton. Their Conclusion and Emphasis of Matter is detailed below:
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the provisional
condensed consolidated financial statements Ellies Holdings Limited for the year ended are not
prepared, in all material respects, in accordance with the requirements of the JSE Limited Listings
Requirements for provisional reports to the financial statements, and the requirements of the
Companies Act of South Africa.
Emphasis of matter
Without qualifying our conclusion, we draw attention to the going concern note in the financial
information which indicates that the group's ability to fund its short-term liquidity requirements is
dependent on the financial support of Standard Bank Limited. This condition indicates the existence
of a material uncertainty which may cast significant doubt on the group's ability to continue as a
going concern.
A copy of the auditors' report on the provisional condensed consolidated financial statements is
available for inspection at the company's registered office.
Basis of preparation and accounting policies
The provisional 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.
These results have been complied under the supervision of the Chief Financial Officer, AL Bock
CA(SA).
Changes to the board
Adrian Bock was appointed as financial director with effect from 14 July 2016, after the resignation
of Irwin Lipworth on 29 April 2016. Ryan Otto resigned on 15 Febraury 2016. Russell Broadhead
resigned as an executive director of Ellies on 14 July 2016, but remains employed by Megatron.
Commentary
Introduction
Ellies 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 "Megatron" and Consumer goods and services "Ellies Electronics".
Overview
The proposed separate listing that was envisaged and reported on last year did not materialise
as Megatron's performance could not warrant a standalone listing. Accordingly, the application of
IFRS 5: Non-current Assets Held for Sale and discontinued operations is no longer appropriate and
as a result the results of the Ellies Ellectronics goods business and property division have been
included in continuing operations in the consolidated statement of comprehensive income and
consolidated statement of financial position, with the comparative statement of comprehensive
income reclassified as required to aid comparability.
During the year under review the group acquired the remainder (49%) of the share capital of a
subsidiary, Megatron Towers (Pty) Ltd, for an amount of R1,2 million.
As announced on SENS on 4 May 2015, the Group raised approximately R185 million by way of a
rights offer resulting in the issue of 167 100 837 shares at 110 cents per share. The number of
issued shares post the rights offer was 620 158 235. An amount of R150 million from this capital
raise was used to further reduce the Group's debts, with the balance of the money used to fund
working capital.
Operations
The year under review was extremely challenging for the Group, which is reflected in its poor
earnings for the period. The group managed to maintain revenue at approximately R1.6 billion
notwithstanding the top line pressures and the difficulty in operating in an import driven inflation
environment, coupled with the depressed macroeconomic environment in South Africa.
Ellies Electronics
Trading conditions in South Africa remain very tough with consumer spend in our segment slowing
even further. We have also faced a situation where many of our customers having either closed
down e.g. Ellerines or are significantly reducing the amount of stores they have e.g. JD Group.
We have however maintained the revenue line at R1,3 billion, and with the implementation of
some cost cutting measures and the introduction of new product ranges we were able to turn a
loss before interest and tax (LBIT) of R60 million (2015) to a profit before Interest and tax (PBIT) of
R37 million (2016).
To reduce inventory holding we introduced new buying criteria by narrowing the inventory ranges
and lowering in the quantity of stock imported with more frequent shipments. Although Ellies
inventory is marginally lower in value at R459 million it does not paint the full picture as we
experienced a 25% drop in exchange rate which in turn meant that our product cost us 25% more to
purchase, so where the value seems the same, the quantum of inventory has reduced.
There continues to be margin squeeze by retailers fuelled by our opposition trying to obtain a price
advantage. This together with retailers creating their own home brands and thereby becoming
opposition, and in some instances becoming the main category brand in the stores has increased
and has forced us to reduce margins in order to compete on the shelf. We continue to offer ourselves
as partners in their business and have worked hard with some retailers by offering our product
as an Original Equipment Manufacturer (OEM) product in their offering. Ellies has started a brand
awareness campaign to re-establish Ellies as the brand to buy. We have also become more
innovative in product design, approach and offering. In order to spread our customer risk profile
we have concentrated on independents, installers and SMMEs, by creating value add opportunities
and providing training in other product areas such as solar, lighting and signal distribution. Ellies
has started creating points of presence that enhances the installer experience with the opening of
our Woodmead, East London and Polokwane trade counters and the imminent opening of a new
counter in Tshwane. All existing trade counters are being revamped to create this new experience
throughout the country.
We had significant sales in our inverter and inverter trolley offering during the months of load-
shedding that ended last September. We remain with stock in inverters and batteries that continue
to sell in Africa albeit at a slower rate.
ElSat – the satellite business has been challenging with MultiChoice lowering their decoder pricing
and thereby reducing our revenue and rands gross profit for this category. We continue to enjoy a
good working relationship with MultiChoice often workshopping new areas of business and we hope
to see some of these implemented in the future. ElSat sold all of its OVHD stock in the last financial
year and has not reinvested as it remains financially non-viable for us. It has, however, created a
revenue hole that we will continue to try and fill.
Ellies Engineering continues to manufacture satellite dishes for Universal Service and Access
Agency of South Africa (USAASA) for the digital migration albeit at a slower pace than anticipated.
The migration via satellite has not been in dispute and therefore has not been disrupted by the
recent court cases as extensively detailed in the media. Ellies has commenced with the installations
for the migration with the majority being around the Square Kilometre Aray (SKA) area. We wait to
see what initiatives are started to create more awareness in these areas about the migration to
accelerate installations. Ellies Engineering also has OEM manufactured dishes for new customers
in other countries and we expect these sales to increase as we offer competitive pricing, a quality
product and the ability to provide a SADC certificate. This is in line with government's policy to create
viable industry using the digital migration as a springboard.
We continue to make inroads with our lighting offering in both domestic and commercial arenas. Our
Lamp for Life domestic lighting product leads the market with its leading technology, competitive
pricing and the best warrantee in the market. We are now introducing new product to this range
as we see the introduction of floodlights and day/night sensing lamps before year-end sales. Our
commercial division continues to gain momentum with some large lighting projects already under
our belts and with proven savings to our customer base. It is this area too where we have introduced
leading edge technology and market leading warrantees. Our audio division has had great success in
a tough market having grown its customer base and is proud to have done approximately a quarter
of all the retail shops in the new Mall of Africa. The move to using two satellites by MultiChoice will
also accelerate the installation of new fibre optic distribution systems for satellite in all Multi Unit
Dwellings where the old one and two cable systems will be unable to operate the Explora decoder
properly.
We have and continue to restructure with a view to reducing operating costs. During the next
12 months most of these cost-saving initiatives should be implemented. Savings are expected in
the areas of warehousing, distribution and IT, where we will move to a centralised computer system
which will in turn result in better stock management, service delivery and debt collection.
Megatron
The financial results of the current year include the following items (pre-tax) that are not part of the
results from normal business operations:
1. Impairment of goodwill of R170 million predominately relating to the Megatron acquisition.
2. Impairment of intangibles of R4 million relating to the Maxi-Concepts business.
3. Impairments to accounts and construction receivables, and other non-recoverable assets of
approximately R191 million;
4. Impairments to inventory of R7 million predominately from the discontinued manufacturing
business.
Megatron continued to suffer difficult contracting conditions on its Design Build and Turnkey projects
as a consequence of the legacy of onerous billing milestones, which resulted in deferred billings and
increased contract debtors, in turn causing ongoing challenges for the group in funding working
capital. Revenue was severely hampered by the cancellation of the Kiri Dam Project in Nigeria and
the Sicogi Economic Housing Project in the Cote D'Ivoire due to political risk factors. Progress was
made over the period with the disposal of non-core assets most notably the Telecoms Division,
with the centralisation and reduction in overheads. Overall Megatron reflected an increase LBIT by
65% from R293 million in 2015 to R481 million in 2016, largely as a result of the aforementioned
impairments.
The current nature and timing of the main Infrastructural project "Shilatembo" continues to cause
funding pressures and a number of options are urgently being pursued including i) to secure political
risk insurance cover sufficient to attract external project funding, or ii) to negotiate the disposal of
the project, with the associated liabilities both of which will enable the group to reduce its funding
exposure and risks associated thereto. The remainder of the contacts are nearing completion and as
a consequence an orderly completion thereof is envisaged during the first half of next year, without
incurring further material costs or outlays.
The "Blade Room" project with a carrying value of R60 million has been completed and the sale agreement
pertaining thereto is expected to be enforced during the first half of the year.
Going concern
The board of directors (the Board) has resolved that the going concern assumption on the Group,
as consolidated, is appropriate. In reaching this conclusion the Board, inter alia, considered the
real drivers on this assumption, being the cash flows for the ensuing year, in particular those of
Ellies Electronics and assumptions embedded therein. The Board also applied its mind to the worst
case scenario regarding the potential cross contamination with regard to Megatron, in particular
the exposure of R100 million for which the Group has stood surety to The Standard Bank of South
Africa Limited (Standard Bank). Management have engaged with Standard Bank to address the
potential loan default event or breach and they indicated they will work with management on
an appropriate solution. The Board is satisfied that Standard Bank will act in the interests of and
support the Group, as a whole.
The Group's ability to fund its short-term liquidity requirements is, however, dependent on the
financial support of Standard Bank, creating a material uncertainty which may cast significant doubt
about the Group's ability to continue as a going concern.
Other factors the Board further considered, include:
The investment in Megatron has been written down to zero, with future exposure, on a worst case
scenario basis, being the Ellies Electronics shareholders loan (non-cash flow) of R96 million, and
Standard Bank's loan which Ellies Electronics has guaranteed up to R100 million. Post balance
sheet, this exposure has reduced to R70 million.
Further to this, the Group has a net asset carrying value of circa R520 million, and a tangible net
asset value R463 million.
Post-balance sheet event
With regard to Megatron, the Board is exploring how best to ensure shareholders and other vested
parties value is maintained/enhanced and protected. To this extent, management has retained
consultants to independently assess the prospects of Megatron on a company by company basis,
and to report back to the Board expediently. This process is ongoing. Until such time as the process is
concluded the Group will not increase its exposure to this segment, and as such there is uncertainty
as to whether Megatron can continue as a going concern.
The potential outcomes include to continue sourcing contracts with the Group support that yield
returns but are self-funding, an orderly wind-down of the business or to enter into business rescue
proceedings (type A or B) or to liquidate the company.
The potential effects of the uncertainty regarding the future of Megatron, as a consequence of the
aforementioned assessment, to the Group have been considered in the evaluation of the Group, as
a going concern.
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 2016
financial 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 the support its customers,
business partners, advisors, suppliers and most importantly shareholders provide.
By order of the board
ER Salkow WMG Samson
Chairman CEO
26 July 2016
Ellies Holdings Limited Registered office:
(Registration number. 2007/007084/06) 94 Eloff Street Ext, Village Deep, Johannesburg 2001
JSE share code: ELI (PO Box 57076, Springfield 2137)
ISIN: ZAE000103081
Directors:
Executive Directors Lead independent non-executive Director
ER Salkow (Chairman) OD Fortuin
WMG Samson (Chief executive officer)
AL Bock (Chief financial officer) Independent non-executive Directors
(Appointed 14 July 2016) FS Mkhize
RA Broadhead (Appointed 15 July 2016) S Goldberg
RH Berkman
The following directors resigned during the period,
and up to release date:
Non-executive Directors IM Lipworth (Chief financial officer) 29 April 2016
MR Goodford RA Broadhead (14 July 2016)
MJ Kuscus (Appointed 1 June 2015) R Otto (15 February 2016)
Sponsor: Java Capital
Auditors: Grant Thornton Johannesburg
Company secretary: CIS Company Secretaries (Pty) Ltd
Transfer secretaries: Link Market Services South Africa (Pty) Ltd
www.elliesholdings.com
www.ellies.co.za
www.megatronfederal.com
Date: 26/07/2016 05:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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