ELLIES HOLDINGS LIMITED - Abridged audited results 2018 and notice of annual general meeting

Release Date: 30/07/2018 14:45
Code(s): ELI
 
Wrap Text
Abridged audited results 2018 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 2018 and notice of annual general meeting

Highlights

Group revenue for the year (Rb) R1,4 increased 8%

Overhead costs (Rm) R332 decreased 7%

Headline earnings - continued operations (cents p/share) 8,07 increased 263%

EBITDA (Rm) R88 increased 448%

Net asset value (cents p/share) 51,9 increased 15%

After TAX return on average equity 76% increased 15%

Statements of financial position
as at 30 April 2018
                                                               Group
                                                         2018          2017
                                                        R'000         R'000
ASSETS
Non-current assets                                    138 814       148 691
Property, plant and equipment                          75 979        76 492
Goodwill                                               51 438        51 438
Deferred taxation                                      11 397        20 761
Current assets                                        632 444        61 723
Inventories                                           368 616       374 502
Trade and other receivables                           241 939       221 840
Taxation receivable                                     1 097         1 161
Bank and cash balances                                 20 792        15 220
                                                        4 250        27 130
Non-current assets held for sale                        4 250        27 130
Group disposals held for sale/distribution              1 440             -
Consumer and property segment                           1 440             -
Total assets                                          776 948       788 544

EQUITY AND LIABILITIES
Total shareholders' interests                         310 429       270 906
Stated capital                                        837 212       837 212
Non-distributable reserves                           (175 267)     (176 532)
Accumulated loss                                     (340 173)     (382 594)
Equity attributable to equity holders of the parent   321 772       278 086
Non-controlling interests                             (11 343)       (7 180)
Non-current liabilities                                 7 490        32 806
Interest-bearing liabilities                            4 847        30 689
Deferred taxation                                       2 643         2 117
Current liabilities                                   458 115       484 832
Interest-bearing liabilities                            6 804         6 700
Vendor loans payable                                        -         3 000
Shareholder loans payable                                   -         2 000
Trade and other payables                              211 634       200 300
Provisions                                             67 230        75 576
Taxation payable                                          901           886
Third-party loans                                      75 350        75 960
Bank overdrafts                                        96 196       120 410
Group disposals held for sale/distribution                914             -
Consumer and property segment                             914             -
Total equity and liabilities                          776 948       788 544


Statements of profit and loss and other comprehensive income
for the year ended 30 April 2018

                                                                           Group
                                                                     2018           2017*
                                                                    R'000          R'000
Revenue                                                         1 418 324      1 311 492
Cost of sales                                                  (1 015 502)      (977 369)
Gross profit                                                      402 822        334 123
Other income                                                       19 842          9 550
Operating expenses                                               (332 274)      (357 507)
Depreciation                                                       (9 367)       (10 547)
Amortisation of intangible assets                                       -           (397)
Operating profit/(loss) before impairment of
intangibles assets                                                 81 023        (24 778)
Impairment of non-current assets held for sale                       (869)             -
Impairment of intangible assets                                         -         (2 381)
Impairment of property, plant and equipment                             -        (17 181)
Impairment of loans to associate                                   (3 136)       (15 380)
Impairment of goodwill                                                  -         (2 234)
Impairment of loans                                                  (374)             -
Profit/(loss) from operations                                      76 644        (61 954)
Interest received                                                   3 268          2 883
Interest paid                                                     (18 283)       (23 446)
Share of losses from associates                                         -         (2 427)
Profit/(loss) before taxation                                      61 629        (84 944)
Taxation                                                          (16 415)        14 225
Profit/(loss) for the year: continuing operations                  45 214        (70 719)
Loss: discontinued operations                                      (6 956)      (178 766)
Profit/(loss) for the year                                         38 258       (249 485)
Other comprehensive income:
Items that will be reclassified subsequently to profit or loss
- Foreign currency translation reserve                               (278)          (449)
- Tax effect on foreign currency translation                          (11)            (3)
Total comprehensive income/(loss) for the year                     37 969       (249 934)
Profit/(loss) attributable to:
Equity holders of the parent                                       42 421       (245 986)
Non-controlling interests                                          (4 163)        (3 499)
Net profit/(loss) after tax                                        38 258       (249 485)
Total comprehensive income/(loss) attributable to:
Equity holders of the parent                                       42 132       (246 435)
Non-controlling interests                                          (4 163)        (3 499)
Total comprehensive income/(loss) for the year                     37 969       (249 934)
- Basic earnings/(loss) per share (cents)                             6,84        (39,67)
- Headline earnings/(loss) per share (cents)                          7,89         (7,45)
- Diluted earnings/(loss) per share (cents)                           6,75        (39,67)
- Diluted headline earnings/(loss) per share (cents)                  7,79         (7,45)

* 2017 restated in terms of IFRS 5
                                                                                                                                                 Group
                                                                                                                                             2018               2017*
Basic earnings/(loss) per share (cents)                                                                                                       6,84             (39,67)
- Infrastructure continuing operations                                                                                                        1,39              (3,28)
- Infrastructure discontinued operations                                                                                                     (0,77)            (28,81)
- Consumer and property discontinued operations                                                                                              (0,18)             (0,01)
- Consumer and property continued operations                                                                                                  6,39              (7,56)
Headline earnings/(loss) per share (cents)                                                                                                    7,89              (7,45)
- Infrastructure continuing operations                                                                                                        1,39              (2,89)
- Infrastructure discontinued operations                                                                                                      0,00              (2,47)
- Consumer and property discontinued operations                                                                                              (0,18)             (0,01)
- Consumer and property continued operations                                                                                                  6,68              (2,08)
The calculation of earnings/(loss) per ordinary share for the Group is based on the following:
- Basic earnings/(loss) (R'000)                                                                                                             42 421           (245 986)
- Headline earnings/(loss) (R'000)                                                                                                          48 941            (46 202)
- Diluted earnings/(loss) per share (cents)                                                                                                   6,75             (39,67)
- Diluted headline earnings/(loss) per share (cents)                                                                                          7,79              (7,45)
- Diluted weighted average number of shares                                                                                            628 158 235         620 158 235
Weighted average number of shares
- At the end of the year**                                                                                                             620 158 235         620 158 235

Reconciliation of headline earnings:
Net profit/(loss) for the year attributable to equity holders of the parent                                                                 42 421           (245 986)
Adjusted for:
Profit on sale of property, plant and equipment                                                                                             (3 105)            (1 063)
- Infrastructure continuing operations                                                                                                           -                (51)
- Consumer and property continued operations                                                                                                (3 105)            (1 012)
Impairment of intangibles - Consumer and property discontinued operations                                                                        -              2 381
Impairment of goodwill - Infrastructure continuing operations                                                                                    -              2 234
Impairment of non-current assets held for sale                                                                                                 869                  -
Loss as a result of loss of control                                                                                                          4 751            163 373
Impairment of property, plant and equipment                                                                                                      -             17 181
Impairment of loans to associates                                                                                                            3 136             15 380
Tax effect on adjustments                                                                                                                      869                298
Headline earnings/(loss) attributable to ordinary shareholders                                                                              48 941            (46 202)

* 2017 restated in terms of IFRS 5
**Share options totalling 37 450 000, not shares were issued to key staff. The company will seek to have the shares cancelled as soon as possible in compliance with
  JSE Regulations and the Companies Act. The shares in issue will then be 620 158 235, with any dilution for share options calculated per note 14 of the annual financial
  statements.


Statements of cash flows
for the year ended 30 April 2018

                                                                   Group
                                                              2018          2017*
                                                             R'000         R'000
Cash flows from operating activities                        42 317        52 820
Cash generated from operations                              69 559       103 895
Interest received                                              201         2 885
Interest paid                                              (18 310)      (23 419)
Taxation paid                                               (6 191)          884
Dividends paid                                                   -           (35)
Cash flows - continuing operations                          45 259        84 210
Cash flows - discontinued operations                        (2 942)      (31 390)
Cash flows from investing activities                        16 152       (19 046)
Acquisitions of property, plant and equipment               (9 118)       (9 065)
Proceeds on disposal of property, plant and equipment          613         6 942
Proceeds on disposal of non-current assets held for sale    24 734             -
Loss of control                                                  -        (9 575)
Loan to associate                                              (69)       (7 293)
Cash flows - continuing operations                          16 160       (18 990)
Cash flows - discontinued operations                            (8)          (55)
Cash flows from financing activities                       (27 795)      (40 573)
Repayment of interest-bearing liabilities                  (25 738)      (39 863)
Shareholders' loans (paid)/raised                                -           (98)
Third-party loans paid                                        (957)            -
Cash flows utilised by continuing operations               (26 695)      (39 961)
Cash flows utilised by discontinued operations              (1 100)         (612)

Net increase/(decrease) in cash and cash equivalents        30 674        (6 798)
Foreign currency translation reserve - net movement
on cash and cash equivalent                                   (283)         (241)
Cash and cash equivalents at the beginning of the year    (105 190)      (98 151)
Cash and cash equivalents at the end of the year           (74 799)     (105 190)
Cash and cash equivalents consist of:
Bank and cash balances                                      21 397        15 220
 Continuing operations                                      20 792        15 220
 Discontinued operations                                       605             -
Bank overdrafts                                            (96 196)     (120 410)
 Continuing operations                                     (96 196)     (120 410)
                                                           (74 799)     (105 190)

* 2017 restated in terms of IFRS 5


Statements of changes in equity
for the year ended 30 April 2018

                                                                                           Equity
                                             Foreign                                 attributable
                                            currency            Non-                    to equity         Non-
                                Stated   translation   distributable  Accumulated      holders of  controlling       Total
                                capital      reserve        reserves         loss      the parent    interests      equity
                                 R'000         R'000           R'000        R'000           R'000        R'000       R'000
Group:
Balances as at 1 May 2016      837 212         1 964       (179 599)     (138 834)        520 743       (1 455)    519 288
Total comprehensive
income/(loss) for the year           -          (449)             -      (245 986)       (246 435)      (3 499)   (249 934)
Change 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         1 515       (178 047)     (382 594)        278 086       (7 180)    270 906
Total comprehensive
income/(loss) for the year           -          (289)             -        42 421          42 132       (4 163)     37 969
Share-based payment reserve          -             -          1 554             -           1 554            -       1 554
Balances as at 30 April 2018   837 212         1 226       (176 493)     (340 173)        321 772      (11 343)    310 429

Segmental analysis
                                                                                Audited       Audited
                                                                             year ended    year ended*
                                                                          30 April 2018 30 April 2017
                                                                                  R'000         R'000
Revenue                                                                       1 429 706     1 382 760
- Infrastructure - continuing operations                                              -         1 285
- Infrastructure - discontinuing operations                                           -        51 494
- Consumer - continuing operations                                            1 422 546     1 268 727
- Consumer - discontinuing operations                                            11 382        19 774
- Manufacturing - continuing operation                                          116 935       166 668
Property division - continuing operation                                              -             -
- Inter-segment                                                                (121 157)     (125 188)
Segmental profits/(losses) from operations
Profit/(loss) before interest and taxation, after losses from associates         69 720      (236 893)
Infrastructure - continuing operation                                             8 701       (19 156)
Infrastructure - discontinuing operation                                         (4 751)     (174 817)
- Consumer - continuing operations                                               64 428       (25 674)
Consumer goods - discontinuing operation                                         (2 173)         (121)
Property division - continuing operation                                          4 738       (14 703)
Manufacturing - continuing operation                                             (1 223)       (2 422)
Interest received                                                                 3 270         2 985
- Infrastructure - continuing operations                                              -            18
- Infrastructure - discontinuing operations                                           -           100
- Consumer - continuing operations                                               13 880        18 119
- Consumer - discontinuing operations                                                 2             2
- Inter-segment                                                                 (10 612)      (15 254)
Net finance costs                                                               (18 283)      (27 397)
- Infrastructure - continuing operations                                            (83)         (677)
- Infrastructure - discontinuing operations                                           -        (3 951)
- Consumer - continuing operations                                              (15 372)      (18 043)
- Consumer - discontinuing operations                                                 -             -
- Manufacturing - continuing operation                                          (10 612)      (11 388)
- Property division - continuing operation                                       (2 828)       (8 592)
- Inter-segment                                                                  10 612        15 254
Share of losses in associate                                                          -        (2 427)
Profit/(loss) before taxation                                                    54 707      (263 732)

* 2017 restated in terms of IFRS 5


Notes to the abridged audited results

Approval of financial statements

The financial statements has 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 the abridged report. 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 2017.
These results have been compiled under the supervision of the CFO and joint CEO, 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.

Discontinued operations

During the year management resolved to discontinue the business of African Solar Power Proprietary Limited. As a result thereof 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

Our long-standing CEO, Wayne Samson, resigned on 28 February 2018 to pursue new interests. We would like to thank him for his many
years of service and dedication to the company and wish him well.


Commentary

The Group has presented commendable results in a challenging
environment during the period under review. The results
confirm the expectations of the first part of the turnaround
strategy announced in last year's integrated report, and present
the Group with a solid base from which to grow.

In particular, we would like to acknowledge the branch
managers who have been instrumental in buying into the cost-
cutting measures that were introduced as part of the strategy,
and who have delivered on expectations. The second part of
the turnaround strategy will now shift to head office, where
significant efficiencies have been identified and will need to be
realised in the forthcoming financial year.

Overview

The predominant theme for the year under review is that the
turnaround strategy is resulting in the expected outcomes.
What is pleasing is that this improvement has been driven not
only by the reduction of costs as expected, but also by top line
growth.

Group results

The Group produced an 8% increase in revenue to R1,42 billion,
compared to the R1,31 billion achieved in the 2017 financial
year, mainly contributed by the Goods and Services segment,
which was up a pleasing 14% year on year.

Trading margins were under pressure, given the weak economic
environment. However, given the improved product mix and
margin management, the average margins increased to 28%
from 26%, which management believes can improve further
and thus is targeting a 30% margin.

Overheads continued to be well managed, and reduced from
R358 million to R332 million, notwithstanding once-off costs
related to the turnaround. The second part of the strategy
should yield a further cost reduction in the forthcoming year, of
a similar quantum.

As a result of the above, we are pleased with the Group's return
to profitability, with headline earnings per share of 7,89 cents
per share, up from a headline loss per share of 7,45 cents per
share in the comparable prior year.

The Group's continued focus on working capital management
has ensured that our operations remained cash generative,
resulting in increasing headroom of R30 million in our working
capital facility when compared to last year.

Net working capital at 28% (2017: 30%) of revenue is improving
within our 2018 target range of 25% to 30% of revenue; the mid-
term goal is to reduce this to 20% to 25% of revenue range. This
will remain a key management focus, especially in a geared
environment, where cost of funding and interest paid remains a
material expense and a drag on earnings.

The Group's after-tax return on average equity in the current
year is 15%, as compared to a loss of 4% achieved in the prior
year. The return, whilst significantly improved, clearly reflects
much is still to be done on both the growth 
side and the cost
side, and management is well aware of this.
Further details on the financial results are set out in the annual
financial statements and accompanying notes.

Consumer (goods and services, properties
and manufacturing)

Notwithstanding the challenging economic conditions and
reduction in consumer spending, the Consumer segment fared
well, improving turnover to R1,42 billion, up from R1,31 billion in
2017. What is also pleasing is we managed to grow the top line
whilst still being able to increase the gross profit percentage
from 27% to 28%.

Operating expenses reduced by 7%, from R350 million to
R332 million this year. Management is targeting a similar
reduction in the forthcoming year, largely through efficiencies
at head office. The segment returned headline earnings from
continuing operations of R41,8 million, up from a loss of
R12,9 million last year, representing headline earnings per
share for continuing operations of 6,68 cents, an increase from
a loss of 2,08 cents per share last year.

The satellite market remains robust and exceeded our internal
forecasted numbers, whilst other product lines held their own,
which was pleasing given the highly competitive environment.
Ellies continues to be an environmentally-aware-organisation,
and is gradually becoming a more recognised brand in the
renewable/energy-efficient sector, mainly focusing on PV and
alternative energy-efficient products and solutions.

In the Corporate Lighting division, investment in the product line
is starting to bear fruit, with several blue-chip clients having
been signed up. Management remains optimistic that this
particular area will grow exponentially during the forthcoming
financial year.

Ellies and Elsat remain strong South African brands that are
trusted and found in most homes in Southern Africa. We will
endeavour to continue to grow the brand and remain a trusted
technology leader in all our categories.

Infrastructure

The arbitration in which the operating entity Botjheng Water
Proprietary Limited (Botjheng) is involved against Cooperative 
Muratori Cementisti Ravenna (CMC) and which was expected 
to be heard in February 2018, was postponed by the arbitrator 
until July 2018. As such both Botjheng and its holding company, 
Ellies Infrastructure Proprietary Limited, are classified as 
continuing operations. On finalisation of the arbitration, 
management may commit to a disposal and/or wind down as 
applicable. It should be noted that if the case is not successful, 
a profit on loss of control in excess of R75 million will be 
recognised (non-cash flow). Please refer to subsequent events 
for post year end updates.

Subsequent events

On 24 July 2018, Botjheng and CMC entered into a Settlement
Agreement, the substance thereof being that CMC agreed to pay
Botjheng a net USD2.25 million in full and final settlement for
all claims each party has against each other.

The effect of the settlement will be that the guaranteed provision
to Standard Bank will reduce from R66 million as reflected in
the financial statements to R47 million.

On 27 July 2018 the restructuring of the bank facilities with
The Standard Bank of South Africa Limited was completed.

The effect thereof was to restructure the debt facility, in that
the property term loan of R11 million, as reflected in Note 15
of the annual financial statements, the guarantee provision 
of R66 million, as reflected in Note 20 of the annual financial 
statements, and the overdraft facility of R200 million, as 
reflected in Note 10 of the annual financial statements,
was collapsed and substituted by a bullet 5 year facility of
R85 million, an amortizing 5 year facility of R85 million and an
ongoing working capital facility of R135 million.

The covenants have been set such that the Gross Debt to
EBITDA cannot exceed 4,5 at 30 April 2018, 4 at 30 April 2019, 
3,5 at 30 April 2020 and 3 at 30 April 2021.

Corporate activity and expansion

No new corporate activity was undertaken during the year
under review, and none has been committed to at this stage,
other than as disclosed in the Consumer and Infrastructure
segment information. Acquisitions and further diversification
of the Group and, as a result, its product offering, will become
an integral part of Ellies' growth strategy.

Potential acquisitions will need to be considered and evaluated.
In the evaluation of such acquisitions, the Board will consider
the strategic fit and merits of each opportunity, the risk
associated therewith, both in terms of the acquisition itself and
in the ability to extract value there from for shareholders, on an
ongoing basis. The risk will also be referenced in terms of cost,
cash generation, independent oversight and specific know-how
of the potential target's industry.

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.

Outlook

The current trading environment is tough and is not expected to
change in the foreseeable future.

The Group remains focused on optimising operational
efficiencies within its existing business and will accelerate
this, particularly at head office. We are in the process of
implementing a warehouse management system and will look
to overhaul the way we do business by embracing digitisation,
IT and accounting electronic work-flow management. The way
we interact with our suppliers and customers will change
significantly to reduce the cost of doing business.

The Group will also seek out strategically aligned trading and
distribution-related acquisitions, as alluded to above.

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.

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 2018 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, 30 July 2018.

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, 7 December 2018 at 11:00. The last day to trade in order
to be eligible to participate in and vote at the AGM is Tuesday,
27 November 2018 and the record date for voting purposes is
Friday, 30 November 2018. The summarised audited financial
information for the year ended 30 April 2018, together with the
notice of AGM will be dispatched to shareholders on Tuesday,
31 July 2018.

Conclusion

In conclusion, the results confirm the expectation of the first
part of the turnaround strategy, and present the Group with a
solid base from which to grow. The Corporate Lighting division
is starting to bear fruit and new growth initiatives will be
implemented to ensure that the brand remains a signature
player in South Africa. With the combined support of all
stakeholders, we have no doubt the turnaround will accelerate.

Ellie Salkow                          Adrian Bock
Chairman and Joint CEO                Joint CEO and CFO

30 July 2018


Executive directors

ER Salkow (Chairman and Joint CEO)
AL Bock (Joint CEO and CFO)
Lead independent non-executive:
FS Mkhize

Independent non-executive:
S Goldberg

Non-executive:
MJ Kuscus

The following director resigned during the year:

WMG Samson (Chief Executive Officer)
OD Fortuin (Lead independent non-executive*)

*Resignation post year end

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 Proprietary Limited

Transfer secretaries

Computershare Investor Services Proprietary Limited

www.elliesholdings.com

www.ellies.co.za

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