Wrap Text
Unaudited interim results for the six months ended 31 October 2016
ELLIES HOLDINGS LIMITED
Registration number: 2007/007084/06
JSE share code: ELI
ISIN: ZAE000103081
(“Ellies or “the company” or “the group”)
Unaudited interim results for the six months ended 31 October 2016
Revenue (Continuing operations) down (26%)
LPS of (31,49 cents)
HLPS of (11,30 cents)
NAV per share 52,71 cents down (68,4%)
Deconsolidation of the infrastructure segment has commenced
Deconsolidation of the remaining Infrastructure segment companies will result in a
profit, on loss of control, in excess of R100 million
Material costs to be removed
Interim consolidated statement of financial position
Unaudited Unaudited Audited
as at as at as at
31 October 31 October 30 April
2016 2015 2016
R'000 R'000 R'000
ASSETS
Non-current assets 192 370 319 847 328 934
Property, plant and equipment 120 100 22 625 124 567
– Land and buildings 76 683 – 80 832
– Other 43 417 22 625 43 735
Goodwill and other intangible assets 56 251 173 041 56 450
Investment in associate 9 963 – 10 514
Other financial assets – 1 199 129 406
Trade and other receivables – 35 196 –
Amounts due from contract customers – 36 350 –
Deferred taxation 6 056 51 436 7 997
Current assets 640 939 473 293 934 461
Inventories 385 962 5 510 503 659
Trade and other receivables 231 592 181 532 299 072
Amounts due from contract customers – 264 925 73 202
Taxation receivable 5 387 162 3 489
Bank and cash balances 17 998 21 164 38 472
Non-current assets held for sale – – 16 567
Group disposals held for sale/distribution 23 584 964 530 27 922
Infrastructure segment (Note 1) 23 584 53 273 27 922
Consumer and property segment – 911 257 –
Total assets 856 893 1 757 670 1 291 317
EQUITY AND LIABILITIES
Capital and reserves 326 946 1 025 103 519 288
Stated capital 837 212 837 213 837 212
Non-distributable reserves (176 230) (177 664) (177 635)
Accumulated profits (334 107) 374 586 (138 834)
Equity attributable to equity holders of the parent 326 875 1 034 135 520 743
Non-controlling interests 71 (9 032) (1 455)
Non-current liabilities 38 841 100 771 142 074
Interest-bearing liabilities 38 119 99 877 136 396
Deferred taxation 722 894 5 678
Current liabilities 442 696 204 406 589 726
Interest-bearing liabilities 62 164 14 078
– payable within 12 months 62 164 14 078
Vendor loans payable 3 000 3 000 3 000
Shareholder loans payable 2 000 342 2 098
Trade and other payables 164 948 190 829 419 576
Amounts due to contract customers – 8 171 1 289
Provisions 40 519 1 314 12 319
Taxation payable 250 551 708
Loans payable/Net inter-group loan balances* 74 384 – –
Shareholders for dividends 35 35 35
Bank overdraft 157 498 – 136 623
Group disposals held for sale/distribution 48 410 427 390 40 229
Infrastructure segment (Note 2) 48 410 13 029 40 229
Consumer and property segment – 414 361 –
Total equity and liabilities 856 893 1 757 670 1 291 317
* Net loans owing to Megatron SA (Pty) Ltd by the remaining
entities in the Infrastructure segments
Supplementary information:
Net asset value per share (cents) 52,71 166,75 83,92
Net tangible asset value per share (cents) 43,52 130,03 74,74
Number of shares in issue at the end of period 620 158 235 620 158 235 620 158 235
Note 1 – Assets within the infrastructure
segment held for sale/distribution
Non-current assets 1 822 2 050 3 742
Property, plant and equipment 1 822 2 050 3 742
– Other 1 822 2 050 3 742
Current assets 21 762 51 223 24 180
Inventories 4 668 38 441 10 254
Trade and other receivables 9 534 12 782 13 926
Taxation receivable 123 – –
Bank and cash balances 7 437 – –
23 584 53 273 27 922
Note 2 – Liabilities within the infrastructure
segment held for sale/distribution
Non-current liabilities 940 – –
Interest-bearing liabilities 183 – –
Deferred taxation 757 – –
Current liabilities 47 470 13 029 40 229
Shareholder loans payable 62 – –
Trade and other payables 15 881 13 029 40 229
Net inter-group loan balances* 31 527 – –
48 410 13 029 40 229
* Net loans owing to Megatron SA (Pty) Ltd by the remaining entities in the Infrastructure segments
Interim consolidated statement of comprehensive income
Unaudited Restated Restated
six months six months year
ended ended* ended*
31 October 31 October 30 April
2016 2015 2016
R'000 R'000 R'000
Revenue 652 412 881 498 1 482 396
Profit/(loss) before interest, taxation, depreciation
and amortisation (“EBITDA”) (11 025) 39 553 (208 151)
Depreciation (6 098) (8 063) (13 698)
Amortisation of intangibles (198) (365) (397)
Impairment of goodwill and other intangibles – – (170 416)
Impairment of loan to associate (4 542) – –
Impairment of receivables from related parties (4 712) – –
Loss as a result of guarantees (37 000) – –
Loss as a result of loss of control (123 955) – –
Profit/(loss) before interest and taxation (187 530) 31 125 (392 662)
Interest received 61 6 858 17 169
Interest paid (13 616) (19 884) (39 264)
Share of losses from associate (550) (327) (2 601)
Net profit/(loss) before taxation (201 635) 17 772 (417 358)
Taxation 6 258 (5 397) (59 833)
Profit/(loss) for the period from continued
operations (195 377) 12 375 (477 191)
Discontinued operations – Infrastructure
segment (Note 3) 1 630 (21 297) (37 574)
Loss for the period (193 747) (8 922) (514 765)
Other comprehensive income:
Items that may be reclassified subsequently to
profit or loss
– Foreign currency translation reserve (116) 99 128
– Foreign currency translation reserve as a result
of loss of control 1 521 – –
Total comprehensive loss for the period (192 342) (8 823) (514 637)
Attributable to:
Equity holders of the parent (195 273) (9 081) (512 205)
Non-controlling interests 1 526 159 (2 560)
– Continued operations (676) 861 (205)
– Discontinued operations 2 202 (702) (2 355)
Net loss after taxation (193 747) (8 922) (514 765)
Attributable to:
Equity holders of the parent (193 868) (8 982) (512 077)
Non-controlling interests 1 526 159 (2 560)
– Continued operations (676) 861 (205)
– Discontinued operations 2 202 (702) (2 355)
Total comprehensive loss for the period (192 342) (8 823) (514 637)
* Restated – Refer to discontinued operations note
Supplementary information:
Basic loss per share (cents) (31,49) (1,56) (87,78)
– Infrastructure continued operations (2,60) (0,29) (84,49)
– Infrastructure discontinued operations (0,09) (3,65) (6,44)
– Holding company/consolidation (25,95) – –
– Consumer and property continued operations (2,84) 2,39 3,16
Headline loss per share (cents) (11,30) (1,02) (57,35)
– Infrastructure continued operations (2,60) (0,27) (54,11)
– Infrastructure discontinued operations (0,10) (3,12) (6,44)
– Holding company/consolidation (5,72) – –
– Consumer and property continued operations (2,87) 2,36 3,20
Weighted average number of shares in issue 620 158 235 583 633 462 583 533 394
Ellies has no dilutionary instruments in issue
Note 3 – Infrastructure segment held for
sale/distribution
Revenue 47 545 107 591 160 781
Profit/(loss) before interest, taxation, depreciation
and amortisation (“EBITDA”) 1 639 (16 902) (34 351)
Depreciation (13) (383) (2 325)
Amortisation of intangibles – (19) (352)
Impairment of intangibles – (3 111) (3 853)
Profit/(loss) before interest and taxation 1 626 (20 415) (40 881)
Interest received 32 110 –
Interest paid (28) (1 287) (2 844)
Net profit/(loss) before taxation 1 630 (21 592) (43 725)
Taxation – 295 6 151
Net profit/(loss) after taxation 1 630 (21 297) (37 574)
* Restated – Refer to discontinued operations note
Reconciliation of basic earnings and headline earnings
Unaudited Restated Restated
six months six months year
ended ended* ended*
31 October 31 October 30 April
2016 2015 2016
R'000 R'000 R'000
Net loss for the period attributable to equity holders
of the parent (195 273) (9 081) (512 205)
Adjusted for:
Loss/(profit) on sale of property, plant and equipment (355) 14 6 097
– Infrastructure continued operations (51) 219 –
– Infrastructure discontinued operations (62) – 5 771
– Consumer and property continued operations (242) (205) 326
Loss/(profit) on sale of component infrastructure
division – – 3 789
Loss as a result of loss of control 123 955 – –
Foreign currency translation reserve as a result
of loss of control 1 521 – –
Impairment of goodwill and other intangibles – 3 111 170 416
– Infrastructure continued operations – – 170 416
– Infrastructure discontinued operations – 3 111 –
Tax effect on adjustments 99 (4) (2 768)
Headline loss attributable to ordinary shareholders (70 053) (5 960) (334 671)
* Restated – Refer to discontinued operations note
Interim consolidated statement of changes in equity
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 October 31 October 30 April
2016 2015 2016
R'000 R'000 R'000
Balances at beginning of the period 519 288 855 047 855 047
Increase in stated capital through the issue
of shares – 178 879 178 878
Total comprehensive loss for the period (192 342) (8 823) (514 637)
Balances at end of the period 326 946 1 025 103 519 288
Interim consolidated statement of cash flows
Unaudited Restated Restated
six months six months year
ended ended* ended*
31 October 31 October 30 April
2016 2015 2016
R'000 R'000 R'000
Cash flows from operating activities 5 531 (59 498) (23 027)
Cash (utilised by)/generated from operations 30 406 (58 903) (34 422)
Interest received 61 3 020 13 250
Interest paid (13 616) (19 842) (39 264)
Taxation received 1 469 30 233 16 008
Cash flows – continuing operations 18 320 (45 492) (44 428)
Cash flows – discontinued operations (12 789) (14 006) 21 401
Cash flows from investing activities (274) (822) (463)
Additions to property, plant and equipment (5 172) (3 217) (6 898)
Proceeds on disposal of property,
plant and equipment 7 548 3 423 11 864
Loss of control (3 126) – –
Loan to associate 551 (1 028) (3 104)
Cash flows – continuing operations (199) (822) 1 862
Cash flows – discontinued operations (75) – (2 325)
Cash flows from financing activities (39 169) 36 183 31 747
Repayment of interest bearing liabilities (39 316) (142 726) (146 063)
Repayment of vendor loans – – (938)
Shareholders loans (paid)/raised (36) 31 (130)
Proceeds from issue of additional stated capital – 178 878 178 878
Cash flows – continuing operations (39 352) 36 183 31 747
Cash flows – discontinued operations 183 – –
Net (decrease)/increase in cash and cash equivalents (33 912) (24 137) 8 257
Cash and cash equivalents at the beginning of
the period (98 151) (106 408) (106 408)
Cash and cash equivalents at the end of the period (132 063) (130 545) (98 151)
* Restated – Refer to discontinued operations note.
Segmental analysis
Unaudited Restated Restated
six months six months year
ended ended* ended*
31 October 31 October 30 April
2016 2015 2016
R'000 R'000 R'000
Revenue 699 957 989 089 1 643 163
Infrastructure 50 294 251 987 314 871
– Total – continued operations 2 749 144 396 154 104
– Total – discontinued operations 47 545 107 591 160 781
– Inter-segment – – (14)
Consumer goods – continued operation 649 663 737 102 1 328 292
– Total 649 663 737 102 1 328 292
Property division – continued operation – – –
– Total 5 052 5 945 11 468
– Inter-segment (5 052) (5 945) (11 468)
Segmental profits/(losses) from operations
Net profit/(loss) before interest and taxation (186 454) 10 383 (436 144)
Infrastructure – continued operation (12 237) (2 009) (439 822)
Infrastructure – discontinued operation 1 626 (20 415) (40 881)
Consumer goods – continued operations (13 741) 28 692 37 116
Property division – continued operation (597) 4 115 7 404
Other – continued operation (550) (327) –
Holding company/consolidation (160 955) 327 39
Interest received 93 6 968 17 169
Infrastructure – continued operation 11 5 571 –
Infrastructure – discontinued operation 32 110 –
Consumer goods – continued operation 50 1 287 17 169
Interest paid (13 644) (21 170) (42 108)
Infrastructure – continued operation (3 938) (4 703) (3 899)
Infrastructure – discontinued operation (28) (1 287) (2 844)
Consumer goods – continued operation (7 854) (11 045) (26 021)
Property division – continued operations (1 824) (4 093) (7 925)
Deemed vendor interest – discontinued operations – (42) (1 419)
Net loss before taxation (200 005) (3 819) (461 083)
* Restated – Refer to discontinued operations note
Segment Assets
Infrastructure – continued operation 51 446 793 102 435 241
Infrastructure – discontinued operation 23 584 53 273 40 229
Consumer goods and property division –
continued operation 781 820 911 257 815 847
Holding company/consolidation 43 38 –
Total Assets 856 893 1 757 670 1 291 317
Segment Liabilities
Infrastructure – continued operation 135 562 300 553 410 265
Infrastructure – discontinued operation 48 410 13 029 40 229
Consumer goods and property division –
continued operation 308 919 414 361 321 535
Holding company/consolidation 37 056 4 624 –
Total Liabilities 529 947 732 567 772 029
Notes to the unaudited interim results
Basis of preparation and accounting policies
The unaudited interim results for the six months ended 31 October 2016 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 2016, are
consistent with those applied in the audited financial statements for the year ended 30 April 2016.
During the current interim period the group adopted those standards and interpretations in issue
and effective for the interim period. The adopting of these new and amended standards and
interpretations has not had a significant impact on the group's accounting policies.
These results have been compiled under the supervision of the Chief Financial Officer,
A L Bock CA(SA). The interim results have not been reviewed or reported on by the group's auditors,
Grant Thornton Johannesburg Partnership.
Deconsolidation loss as a result of a loss of control
The company has applied IFRS 10 – Consolidated Financial Statements, in the preparation of these
results due to the following:
1. On the 12th August 2016, by way of an Order from the High Court of South Africa, Megatron SA
(Pty) Ltd (“Megatron SA”) was placed under supervision and business rescue proceedings
commenced on the same date in terms of Section 131 (1) of the Companies Act, 71 of 2008. The
effect of the Order is the control of Megatron SA and its subsidiaries vests with the business
rescue practitioner and in terms of IFRS 10, should be deconsolidated.
Discontinued operations and group disposals held for sale/distribution (“Discontinued
operations”)
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 Electronics 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.
Management has committed to a plan to wind down its exposure in respect of the Infrastructure
segment, and to do so in a manner that best protects the company and the respective stakeholders.
Those entities (Megatron Engineering Namibia (Pty) Ltd and Megatron Towers (Pty) Ltd) where it is
possible to sell immediately and there is an active market for the same, have been classified in terms
of IFRS 5 as group disposals held for sale. The remaining operating entities (Ellies Infrastructure
(Pty) Ltd and Botjheng Water (Pty) Ltd (“Botjheng”)) are classified as continuing operations until
such time as management deems it in the best interest to dispose of the same, and commits to
such disposal.
Subsequent events
1. Pursuant to the committed plan to wind down its exposure to the Infrastructure segment
Megatron Engineering Namibia (Pty) Limited, was sold on the 18th November 2016, for a
consideration of R1.5 million.
2. On the 9th December 2016, Lombard Insurance Company Limited (“Lombard”), notified
Ellies, that a demand guarantee against Botjheng had been presented by its joint venture
partner. A provision of R17 million has been made for this claim which management deems
to be adequate. Botjheng is in turn pursuing legal remedies against its joint venture partner;
the potential inflows in respect thereof have not been included in these results. Lombard and
Ellies have negotiated a deferred repayment plan, in respect of the demand guarantee payment
that is due to Lombard.
Changes to the board
Executive director Raymond Berkman and non-executive director Malcolm Goodford resigned
from the board of directors with effect from 30 November 2016 in order to facilitate the reduction
of the size of the board of directors. We thank them for their many years of service and dedication
to the company.
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 operating
segments, namely Infrastructure "Megatron" and Consumer goods and services "Ellies Electronics",
with a Holding Company segment, which includes the effects of deconsolidation and where the group
assumes liabilities for issued guarantees that are not in the normal course of activities of the two
main operating segments.
Overview
The predominant theme for the period under review is the commencement of the unwinding
of the Infrastructure segment and the financial effects thereof. The results include a provision
of R20 million, being the expected residual amount owing to The Standard Bank of South Africa
Limited (“Standard Bank”) after the expected sale proceeds of Megatron SA's assets net of costs and
disbursements, together with a provision for guarantee to Lombard in the amount of R17 million.
This coupled with the deconsolidation of Megatron SA and it's subsidiaries resulted in a loss, on
loss of control, of R123,9 million, which amount includes loans forfeited amounting to R88,9 million,
giving a combined loss of R160,9 million.
It should be noted that the deconsolidation of the remaining Infrastructure segment companies will
result in a profit, on loss of control, in excess of R100 million.
Operations
The first six months of the financial period have been very challenging. Trading conditions in general
were poor with a noticeable drop in spending by consumers.
Ellies Electronics
The continuing downturn in the economy and reduction of consumer spending severely affected
Ellies Electronics, with revenue at R649 million, down from R737 million for the same period ended
31 October 2015. We have seen the slowdown in both our independents and retail sectors where
we play in the electronic and general merchandise sectors. The consumers' purchases have been
subdued and only when there are specials do we really see larger movements of stock. The segment
returned a loss for the period before interest and tax of R14 million. This includes a loss for
the impairment of a loan to an associate, as a result of a bank guarantee that was called up of
R4,5 million. The profit for the same period ended 31 October 2015 was R29 million.
With this in mind the board acknowledges that the company must adjust itself to the business before
it and therefore is in the process of removing significant costs from its operations in order to make
the Ellies Electronics cost base match where the business and economy is at present. The cost
reduction exercise will be implemented aggressively over the next six months and also includes the
centralizing of its computer and accounting system. We believe that these measures will not only
reduce our costs significantly but will make us more efficient and broaden our customer base with a
concentration on the independent market. It was in this market where Ellies Electronics started and
grew, and so for all intent and purposes its a return to basics and the core business. It will also enable
a real time consolidated view on major working capital cycle drivers, and will assist management in
executing its stated aim of reducing working capital cycles year on year going forward.
The satellite market has seen a slight increase in numbers compared to last year, however the
reduction in selling price has influenced the increase in turnover in this category. This together with
increased costs due to increased landed costs, largely as a result of Rand volatility and weakness,
has resulted in a reduction in GP margin compared to the past. ElSat continues to work closely
with MultiChoice to seek innovative ways in growing the market. We believe the introduction of a
fully installed Explora will find a new market in the middle LSM as people enjoy the convenience of
recoding and catch up viewing. Multichoice has also launched a 3rd viewing environment with should
stimulate sales in the future. Multichoices transmission from a new satellite opens the opportunity
for our corporate division, as people in apartments and complexes will need upgrading to a fibre
viewing network in order to enjoy all of the channel offerings on the Explora. Our domestic electrical
range has shown some increase in the six months reported, although we have lost some market
share to competitors and to retail home brands. Ellies Electronics received some negative press with
regards to claims by a competitor who claimed that we stole his surge idea. Ellies Electronics went
to court and proved these claims were unfounded and obtained an interdict against the competitor
with costs. This caused reputational damage at the time but we are confident that our excellent surge
range will continue to grow and we will soon regain whatever market share that was lost. We are
confident that we will continue to grow in this category and have new products that are innovative and
waiting approval from the national regulator.
Ellies Electronics continues to grow in the lighting segment with both our Lamp for Life and
Residential ranges. The Ellies Electronics Lamp for Life is still one of the best value for money
lamps that offers a 25 year warrantee while remaining very competitive in price. We believe that we
have set the new benchmark in lighting for innovation, warranties and price. Our Residential range
addresses the mass market with one of the lowest price points. Retailers are selling this lamp for as
little as R25 per lamp and there have been tremendous sales of this product. Ellies Electronics aim
is to become a dominate player in this category and will continue to be innovative.
The digital migration continues to stop and start as a result of the ongoing litigation between Etv and
the Communications Minister. Ellies Electronics is still manufacturing satellite dish kits for the
rollout as the means of satellite transmission is not being disputed. Ellies Electronics will complete
its manufacture in January 2017. We hope that once the dispute on encryption of the terrestrial
signal is finalised, which is expected to be in February 2017, we would be able to start with the
promotion of antennas to both government and retail although we don't expect there to be a large
uptake in the beginning. These delays have seen our antenna and antenna accessories category
virtually grind to a halt, leaving our local manufacturing of these products running at a loss. We will
however maintain these production facilities albeit with a lower staff compliment as the migration
is essential for the ICT sector of South Africa. We have already invested in the IP and machinery to
produce the products needed.
Ellies Electronics and ElSat remain strong South African brands that are trusted and found in most
homes in Southern Africa. We will endeavour to grow the brand and remain a trusted technology
leader in all of our categories.
Megatron
As detailed in the notes above, this segment has been deconsolidated and all material contamination
to the group has been provided for based on information provided by the Business Rescue
practitioner. The provision for the shortfall from Megatron SA to Standard Bank, which the group has
stood surety for, may exceed the provided amount of R20 million as indicative offers for Megatron
SA's assets are not binding at this stage.
Holding Company
This segment had the biggest bearing on the results for the period under review, and is fully detailed
in the overview above.
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 at this
stage.
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, funders and most importantly shareholders provide.
By order of the board
ER Salkow WMG Samson
Chairman CEO
29 December 2016
Directors:
Executive Directors
ER Salkow (Chairman)
WMG Samson (Chief executive officer)
AL Bock (Chief financial officer)
Non-executive Director
MJ Kuscus
Lead independent non-executive Director
OD Fortuin
Independent non-executive Directors
FS Mkhize
S Goldberg
The following directors resigned during the period, and up to release date:
RH Berkman (30 November 2016)
MR Goodford (30 November 2016)
Registered office
94 Eloff Street Ext, Village Deep, Johannesburg, 2001
(PO Box 57076, Springfield, 2137)
Sponsor: Java Capital
Auditors: Grant Thornton Johannesburg Partnership
Company secretary: CIS Company Secretaries (Pty) Ltd
Transfer secretaries: Link Market Services South Africa (Pty) Ltd
Date: 29/12/2016 05:21:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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