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Abridged audited results 2017 and notice of annual general meeting
Ellies Holdings Limited
(Registration number 2007/007084/06)
JSE share code: ELI
ISIN: ZAE000103081
("Ellies" or "the Company" or "the Group")
ABRIDGED AUDITED RESULTS 2017 AND NOTICE OF ANNUAL GENERAL MEETING
Turnover (Rm) 1 331 Deterioration 2%
Loss for the year (Rm) (249) Improvement 52%
Cash flow from operating activities (Rm) 53
Improvement 330%
Headline loss per share for the year (cents) (7,45)
Improvement 87%
Statements of financial position
as at 30 April 2017
Group
2017 2016
R'000 R'000
ASSETS
Non-current assets 148 691 328 934
Property, plant and equipment 76 492 124 567
Goodwill 51 438 53 672
Intangible assets - 2 778
Investment in associates - 10 514
Other financial assets - 129 406
Deferred taxation 20 761 7 997
Current assets 612 723 917 894
Inventories 374 502 503 659
Trade and other receivables 221 840 299 072
Amounts due from contract customers - 73 202
Taxation receivable 1 161 3 489
Bank and cash balances 15 220 38 472
Non-current assets held for sale/distribution 27 130 16 567
Infrastructure segment - 10 900
Consumer segment 27 130 5 667
Group disposals held for sale/distribution - 27 922
Infrastructure segment - 27 922
Total assets 788 544 1 291 317
EQUITY AND LIABILITIES
Total shareholders' interests 270 906 519 288
Stated capital 837 212 837 212
Non-distributable reserves (176 532) (177 635)
(Accumulated loss)/Retained earnings (382 594) (138 834)
Equity attributable to equity holders of the parent 278 086 520 743
Non-controlling interests (7 180) (1 455)
Non-current liabilities 32 806 142 074
Interest bearing liabilities 30 689 136 396
Deferred taxation 2 117 5 678
Current liabilities 484 832 589 726
Interest bearing liabilities 6 700 14 078
Vendor loan payable 3 000 3 000
Loans payable to subsidiary external shareholders 2 000 2 098
Trade and other payables 200 300 419 576
Amounts due to contract customers - 1 289
Provisions 75 576 12 319
Taxation payable 886 708
Third party loan 75 960 -
Shareholders for dividends - 35
Bank overdrafts 120 410 136 623
Group disposals held for sale/distribution - 40 229
Infrastructure segment - 40 229
Total equity and liabilities 788 544 1 291 317
Statements of profit and loss and other comprehensive income
for the year ended 30 April 2017
Group
2017 2016*
R'000 R'000
Continuing operations
Revenue 1 331 266 1 362 761
Cost of sales (995 245) (956 609)
Gross profit 336 021 406 152
Other income 10 153 10 368
Operating expenses (360 113) (388 000)
Depreciation (10 564) (13 555)
Amortisation of intangible assets (397) (397)
Operating (loss)/profit before impairments (24 900) 14 568
Impairment of intangible assets (2 381) -
Impairment of assets (17 181) -
Impairment of loan to associate (15 380) -
Impairment of goodwill (2 234) -
(Loss)/profit from operations (62 076) 14 568
Interest received 2 885 2 464
Interest paid (23 446) (27 516)
Share of losses from associates (2 427) (2 601)
Loss before taxation (85 064) (13 085)
Taxation 14 247 (1 577)
Loss for the year: continuing operations (70 817) (14 662)
Loss for the year: discontinued operations (178 668) (500 103)
Loss for the year (249 485) (514 765)
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
- Foreign currency translation reserve (449) 128
Total comprehensive loss for the year (249 934) (514 637)
Attributable to:
Equity holders of the parent (245 986) (512 205)
Non-controlling interests (3 499) (2 560)
Net loss after tax (249 485) (514 765)
Attributable to:
Equity holders of the parent (246 435) (512 077)
Non-controlling interests (3 499) (2 560)
Total comprehensive loss for the year (249 934) (514 637)
* Restated as a result of discontinued operations
Supplementary information
Basic loss per share (cents) (39,67) (87,78)
- Infrastructure continuing operations (3,27) (84,49)
- Infrastructure discontinued operations (28,81) (6,44)
- Consumer continued operations (7,59) 3,16
Headline loss per share (cents) (7,45) (57,35)
- Infrastructure continuing operations (2,89) (54,11)
- Infrastructure discontinued operations (2,47) (6,44)
- Consumer continued operations (2,09) 3,20
The calculation of earnings per ordinary shar
for the Group is based on the following:
- Basic loss (R000's) (245 986) (512 205)
- Headline loss (R000's) (46 202) (334 671)
- Weighted average number of shares in issue 620 158 235 583 533 394
Shares in issue (number of shares):
- At end of the year 620 158 235 620 158 235
Reconciliation of headline loss:
Net loss for the year attributable to equity holders of the
parent (245 986) (512 205)
Adjusted for:
Loss/(profit) on sale of property, plant and equipment (1 063) 6 097
- Infrastructure continuing operations (51) -
- Infrastructure discontinued operations - 5 771
- Consumer continued operations (1 012) 326
Profit on sale of component infrastructure division - 3 789
Impairment of intangibles - Consumer operations 2 381 -
Impairment of goodwill - Infrastructure continuing operations 2 234 170 416
Loss as a result of loss of control 163 373 -
Impairment of assets 17 181 -
Impairment of loans to associates 15 380 -
Tax effect on adjustments 298 (2 768)
Headline loss attributable to ordinary shareholders (46 202) (334 671)
* Restated as a result of discontinued operations
Statements of cash flows
for the year ended 30 April 2017
Group
2017 2016*
R'000 R'000
Cash flows from operating activities 52 546 (23 027)
Cash generated from operations 103 541 146 233
Interest received 2 885 989
Interest paid (23 419) (26 052)
Taxation received 884 22 004
Dividends paid (35) -
Cash flows - continuing operations 83 856 143 174
Cash flows - discontinued operations (31 310) (166 201)
Cash flows from investing activities (19 012) (463)
Acquisitions of property, plant and equipment (9 065) (6 898)
Proceeds on disposal of property, plant and equipment 6 960 12 007
Loss of control* (9 575) -
Loan to associate (7 293) (3 104)
Cash flows - continuing operations (18 973) 2 005
Cash flows - discontinued operations (39) (2 468)
Cash flows from financing activities (40 573) 31 747
Repayment of interest bearing liabilities (39 863) (146 063)
Repayment of vendor loans - (938)
Loans paid to subsidiary external shareholders (98) (130)
Proceeds from the issue of additional stated capital - 178 878
Cash flows - continuing operations (39 961) 31 747
Cash flows - discontinued operations (612) -
Net (decrease)/increase in cash and cash equivalents (7 039) 8 257
Cash and cash equivalents at beginning of year (98 151) (106 408)
Cash and cash equivalents at end of year (105 190) (98 151)
Cash and cash equivalents consist of:
Bank and cash balances 15 220 38 472
Continuing operations 15 220 38 472
Bank overdrafts (120 410) (136 623)
Continuing operations (120 410) (136 623)
(105 190) (98 151)
* Restated as a result of discontinued operations
Statements of changes in equity
for the year ended 30 April 2017
Equity
attributable
Non- to equity Non-
Stated distributable Retained holders of controlling Total
capital reserves earnings the parent interests equity
R'000 R'000 R'000 R'000 R'000 R'000
Group:
Balances as at 1 May 2015 658 334 (177 763) 383 667 864 238 (9 191) 855 047
Issue of additional shares 178 878 - - 178 878 - 178 878
Total comprehensive income for the year - 128 (512 205) (512 077) (2 560) (514 637)
Change of control: Transfer of non-controlling interests - - (10 296) (10 296) 10 296 -
Balances as at 30 April 2016 837 212 (177 635) (138 834) 520 743 (1 455) 519 288
Total comprehensive loss for the year - (449) (245 986) (246 435) (3 499) (249 934)
Loss on loss of control - 1 402 2 226 3 628 (2 226) 1 402
Share based payment reserve - 150 - 150 - 150
Balances as at 30 April 2017 837 212 (176 532) (382 594) 278 086 (7 180) 270 906
Segmental analysis
for the year ended 30 April 2017
Group
2017 2016*
R'000 R'000
Revenue 1 382 760 1 643 177
Infrastructure 52 779 314 885
- Total - continuing operations 1 285 34 469
- Total - discontinuing operations 51 494 280 416
Consumer - continuing operation 1 329 981 1 328 292
- Total - continuing operations 1 329 981 1 328 292
Segmental profits/(losses) from operations
Operation loss (236 894) (433 542)
Infrastructure - continuing operation (19 156) (32 989)
Infrastructure - discontinuing operation (174 817) (448 110)
Consumer goods - continuing operation (25 796) 28 227
Property division - continuing operation (14 703) 7 404
Manufacturing - continuing operation (2 422) 11 926
Interest received 2 985 18 549
Infrastructure - continued operation 18 136
Infrastructure - discontinued operation 100 16 085
Consumer goods - continued operation 2 867 2 315
Manufacturing - continuing operations - 13
Interest paid (27 397) (43 489)
Infrastructure - continued operation (677) (95)
Infrastructure - discontinued operation (3 951) (15 973)
Consumer goods - continued operation (2 789) (8 130)
Property division - continued operations (8 592) (8 341)
Manufacturing - continuing operations (11 388) (10 951)
(Loss)/profit before taxation** (263 732) (461 083)
* Restated as a result of discontinued operations
** Share of losses from associates excluded
Notes to the abridged audited results
Approval of financial statements
The financial statements have been approved by the Board and abridged for purposes of this report. Grant Thornton
Johannesburg Partnership has signed an unqualified audit opinion on the annual financial statements. Both the financial
statements and the auditor's report are available for inspection at the Company's registered office.
This abridged report is extracted from audited information, but is not itself audited.
The auditor's report does not necessarily cover all of the information contained in this announcement. Shareholders
are therefore advised that in order to obtain a full understanding of the nature of the auditor's work they should obtain
a copy of the report together with the accompanying financial information from the registered office of the Company.
Supplementary information
The consolidated financial statements have been prepared in accordance with IAS 34: Interim Financial Reporting,
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board
(IASB), SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the requirements of the
South African Companies Act and the JSE Listings Requirements. The same accounting policies, presentation and
measurement principles have been followed in the preparation of this abridged report as were applied in the preparation
of the Group's annual financial statements for the year ended 30 April 2016. These results have been compiled under
the supervision of the CFO, AL Bock, CA (SA). The directors of Ellies take full responsibility for the preparation of the
abridged report and ensuring that the financial information has been correctly extracted from the underlying financial
statements.
Deconsolidation loss as a result of a loss of control
Megatron SA Proprietary Limited (‘Megatron‘) was placed under the control of a business rescue practitioner by order of
the court, and Megatron Towers Proprietary Limited was placed under the control of a liquidation practitioner by order
of the court with the resultant effect that the control of the respective companies now rests with appointed practitioners,
and in terms of IFRS 10 should be deconsolidated due to loss of control.
The Statement of profit and loss and other comprehensive income and Statements of cash flows are restated for the
comparative period in terms of IFRS 5.
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
Following Megatron going into business rescue, Megatron Towers Proprietary Limited being placed into liquidation and
the disposal of Megatron Engineering Namibia Proprietary Limited, the focus of the Ellies group is now largely on the
Consumer segment, which encompasses goods and services, properties and manufacturing.
Operations - current year
The year under review was enormously challenging for Ellies, which is reflected in the poor results for the period. The
Group managed to successfully minimise the risk arising from future financial exposure to the Infrastructure segment,
with only Botjheng Water Proprietary Limited (‘Botjheng') still carried on our balance sheet as an operating company.
Had Botjheng been deconsolidated as at 30 April 2017, it would have resulted in a net profit on deconsolidation of
R83 million (being the net losses previously recognised). Botjheng is being kept operational on a low-cost base with the
sole purpose of completing legacy projects and to enable it to continue its claim against a partner, both of which should
be completed by the end of April 2018. This will allow us to deconsolidate Botjheng at that time.
During the financial year, on a comparable basis, we managed to maintain revenue at approximately R1.3 billion,
notwithstanding the top-line pressures and the difficulty in operating in an import-driven inflationary environment,
coupled with the depressed macro-economic environment in South Africa. To facilitate meaningful analysis, we have
split up the various components in the segment report at a more granular level. This should shed more light on the
performance of the various components.
A predominant theme during the year under review was the financial effects of the unwinding of the Infrastructure
segment. The results include the following:
- R163,4 million is the net loss as a result of Loss of control in the respective companies that were deconsolidated.
- R17,5 million is the performance guarantee that was presented on Botjheng by Lombard Insurance Company
Limited (‘Lombard').
The Consumer segment started a course of restructuring its operations in the last financial year. The Company
has embarked on a path of centralising computer systems, debtors, creditors and human resources. We are also busy
outsourcing the warehousing and distribution of our products to our retailers via Super Group. The warehousing and
distribution to independents and installers will remain at the Ellies branches. We believe that this restructuring will
bring significant savings to the Company, with a reduction in both employee and infrastructure costs. The Company
embarked on a section 189A retrenchment process in February 2017.
A meaningful highlight, with the support of Standard Bank, has been the restructuring of the Group's banking facilities.
This gives Ellies the ability to absorb the Megatron contamination, with up to R170 million of debt being extended to a
term of five years, with a general short-term loan facility of R135 million in place.
The financial covenants to be maintained have also been reset to levels that management is confident are achievable
during the duration of the facilities.
Consumer
The continuing downturn in the economy, as well as the sustained decrease in consumer spending, severely affected the
segment. We managed to maintain turnover at R1,330 billion, (in line with R1,328 billion for the year ended 30 April 2016).
The gross margin, notwithstanding the higher charge for inventory impairments during this year is where the effects of
the economy became evident, with gross profit as at 30 April 2017 at R352 million (27%), (down from R411 million (31%)
for the previous year). The segment returned a loss for the year before interest and tax of R43 million, against a profit
of R47 million.
The above should be seen in light of the following impairments that were put through during this year, which may not be
recurring to the extent recognised this year:
- Impairment of properties: R17,2 million (2016: R0)
- Impairment of goodwill relating to branches: R2.2 million (2016: R0)
- Impairment of loans to associates: R15,4 million (2016: R0)
- Impairment of inventory: R50 million (2016: R8.46 million)
- Retrenchment costs provision: R11 million (2016: R0)
Ellies also felt the impact of the retail slowdown, with many of our product categories showing a decline. Electrical, which
is a large category, showed a deterioration due to the above, which was exacerbated by the entry of new competitors. The
regulation of this industry remains a concern as we see an increased number of non-conforming products in the market.
The Lighting segment, even though increasing retail shelf space, showed a decrease due to deflationary factors in
product cost and because duties fell sharply from 20% to 0% in January 2017. We have had to reduce our selling prices
in line with this reduction and absorb the loss. The corporate lighting division has, however, made satisfactory progress
and increases sales every month as business owners and property owners see the benefit of lower electricity bills and
more efficient lighting. Our technology partner keeps us ahead of the technology curve as we lead in efficiency, price
and efficacy. The Group has added more sales people in this area to bolster and grow sales. We still believe the Lighting
segment to be a significant contributor in the not-too-distant future.
The antenna segment all but disappeared given the past uncertainty relating to Digital Migration, but we are confident
that there will be a revival in the category in the near future as the government's drive to install the DTT product
accelerates. We should see this start from August 2017. Once traction is found, we have no doubt that DTT will be
introduced into retail as demand grows. Elsat (Ellies satellite brand) saw an increase in sales as MultiChoice sales
increased in the lower LSM bands. Ellies is also readying itself for innovative technology entrants in IP TV and fibre
signal distribution. We will continue to strive to be the leaders in enabling TV viewing in whichever format is available
in South Africa.
Infrastructure
This segment had the biggest bearing on the results for the year under review. This includes a R178,7 million net loss
recognised in the financial year, for the respective companies that were deconsolidated.
The only operating company held on the balance sheet at year end was Botjheng which incurred a cost of R17,5 million
for a performance guarantee that was presented on it by Lombard's.
Going concern
The Directors believe that the Group, as consolidated, has access to adequate resources to continue in operation for
the foreseeable future and accordingly the annual financial statements have been prepared on a going concern basis.
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 the consumer segment and assumptions embedded therein, together with the
restructure of the Group banking facilities, the essence thereof being the ability of the Company to absorb the Megatron
contamination, up to R170 million of debt being extended to a term of 5 years, with a general short term loan facility of
R135 million. The Board also applied its mind to the levels of the financial covenants to be maintained which in their view
have been reset to levels that reflect the base case financial performance outlook and the conditions precedent of the
term sheet all of which are deemed to be under managements' control.
Other factors the Board further considered include:
The Group has a net asset carrying value of circa R271 million, and a tangible net asset value of R220 million.
The potential contamination from the Infrastructure segment is more fully understood and provided for where applicable,
and the fact that the only operating company held on the balance sheet for the infrastructure segment is Botjheng Water
Proprietary Limited. Had the deconsolidation of Botjheng taken place at 30 April 2017 it would have released a profit on
loss of control of R83 million.
Subsequent events
On 12 July 2017 Ellies signed a Term Sheet with The Standard Bank of South Africa Limited - the effect thereof was to
restructure the debt facility such that inter alia, Ellies has the ability to absorb the expected Infrastructure segment
contamination of R60 million, the duration of up to R170 million of debt being extended to a term of 5 years, (R85 million
of which will be a bullet loan and R85 million an amortising loan), with a further general short term loan facility of
R135 million, thus in total providing Ellies with funding lines of R305 million.
The levels of the financial covenants to be maintained over the duration of the facility have also been reset to levels that
reflect the base case financial model and financial performance outlook and the conditions precedent of the term sheet
all of which are deemed under managements' control.
Ellies also entered into contracts to sell certain non core properties.
No material other subsequent events occurred that require further disclosure.
Appreciation
As always, we would like to thank our executive and non-executive directors for their commitment, direction and
assistance, as well as our customers, suppliers and business partners for their ongoing support. As mentioned, we also
owe a debt of gratitude to the leadership team, our management teams and our staff members for their hard work and
tenacity under trying circumstances.
Dividend policy
The dividend policy will be reviewed periodically, considering prevailing circumstances and future cash requirements. In
view of the Group's financial position, no dividend is proposed at this stage.
Notices
Availability of Integrated Annual Report and Broad-based black economic empowerment annual compliance report.
The Company's Integrated Annual Report, incorporating the audited annual financial statements for the year ended
30 April 2017 and the Company's annual compliance report in terms of section 13G(2) of the Broad-based Black
Economic Empowerment Act 53 of 2003 (read with the Broad-based Black Economic Empowerment Amendments Act 46
of 2013, have been published and will be available on the Ellies website on Monday, 31 July 2017.
Notice is hereby given that the Annual General Meeting of shareholders ("Annual General Meeting” or "AGM”) of Ellies
Holdings Limited ("Ellies” or "the Company”) will be held at 94 Eloff Street Ext, Village Deep, Johannesburg, 2001 on
Friday, 8 December 2017 at 11:00. The last day to trade in order to be eligible to participate in and vote at the AGM is
Tuesday, 28 November 2017 and the record date for voting purposes is Friday, 1 December 2017. The summarised
audited financial information for the year ended 30 April 2017, together with the notice of AGM will be dispatched to
shareholders on Monday, 31 July 2017.
Conclusion
In conclusion, this year has seen unprecedented changes to Ellies, which we are confident will steer the Group to
improved performance and success in the market. We are investing in several new initiatives as mentioned in this report
to ensure that the brand remains a significant player in South Africa. With the continued support of our employees, we
have no doubt that we will persevere.
By order of the Board
ER Salkow W Samson
Chairman CEO
28 July 2017
Executive directors
ER Salkow (Chairman)
WMG Samson (Chief executive officer)
AL Bock (Chief financial officer)
Lead independent non-executive:
OD Fortuin
Independent non-executive:
S Goldberg
FS Mkhize
Non-executive:
MJ Kuscus
The following Directors resigned during the year:
MR Goodford
RH Berkman
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) Limited
Transfer secretaries
Computershare Investor Services (Pty) Limited
www.elliesholdings.com
www.ellies.co.za
Date: 28/07/2017 03:04:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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