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Strike derails Ellies production

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 23 Jul 2014
Ellies is hopeful sales of OpenView HD decoders will pick up soon, says CEO Wayne Samson.
Ellies is hopeful sales of OpenView HD decoders will pick up soon, says CEO Wayne Samson.

The ongoing strike in the metals industry has affected JSE-listed Ellies' ability to produce television accessories such as aerials, and also caused a three-week shutdown at its Megatron unit.

This setback comes after the group experienced a challenging period in the year to April, although it is confident of improving conditions ahead, noting its financial position should have improved by the third quarter of the current year.

Its challenges are reflected in a marginal revenue improvement of 5.5%, to R2.1 billion, and substantially lower margins, especially in its consumer division - which produces television products - where the margin lost 14%.

The group also carried the cost of funding projects that were expected to take off during the year, but were delayed, such as SA's much-anticipated move to digital television. SA's move off analogue television to digital - which has been in the pipeline since 2006 - has repeatedly been delayed. The latest snarl-up is a dispute between broadcasters over set-top box controls.

However, telecommunications and postal services minister Siyabonga Cwele is now set to take the matter in hand, with a turn-on date set to be announced in three months. But this pronouncement did not aid Ellies in the full year, and it also experienced slower-than-expected uptake of the OpenView HD offering.

Gaining on rivals

CEO Wayne Samson notes the consumer unit did improve revenue, which shows it is taking market share, although too slow price increases and foreign exchange movements impacted margins.

Slower OpenView sales led to increased decoder stock, although Samson says this does not present a financial risk, because there are prospects of the service expanding to neighbouring countries. He adds the company has invested R40 million in digital terrestrial manufacturing capacity, which is currently sitting idle, and hopes Cwele does not restart the migration.

The listed group adds it continues to export digital TV products to Africa, and sales of MultiChoice decoders remain constant.

Ellies also saw the fall-off of its participation in Eskom's energy-saving residential mass roll-out programme, which contributed substantially to the group in 2013, although Samson says the revenue has been made up. All these factors led to the consumer division's profit before interest and tax dropping 62.7%, to R93 million.

Its infrastructure unit, however, grew revenue, mostly thanks to its purchase of Botjheng Water, although that company made an operating loss of R6.9 million, because of low-margin contracts. The operating division also saw deferred billing and increased contract debtors, in turn causing ongoing challenges for the group in funding working capital. Overall, the division saw its profit before interest and tax drop 36.8%, to R51.9 million.

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