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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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