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Ellies comes in at a loss

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 19 Dec 2014
Despite a torrid first half, things are looking better for Ellies, says CEO Wayne Samson.
Despite a torrid first half, things are looking better for Ellies, says CEO Wayne Samson.

Electronics manufacturer Ellies has made a R43 million loss in the first half of the year as revenue slumps to R299 million from R406 million. This compares to the gain of R76.9 million it made in the six months to October 2013.

The company, which is in the midst of a rights offer and restructuring, went through the most "challenging" period it has experienced in its 30-year history, compounded by "severe cash flow restrictions" experienced in the past few months, it says.

To combat this situation, Ellies is offering shareholders 30 new shares at 110c a share for every 100 shares they already own in a fully underwritten rights offer that seeks to raise R115 million to pay off debt and fund working capital. The company is currently trading at about 120c.

In the first half of the year, its infrastructure unit - Megatron - was "significantly hampered" by its lack of liquidity and the month-long metalworkers strike earlier this year, which hampered its supply chain for weeks after being resolved, it says.

Ellies' consumer goods division also had a torrid period as sales slowed and retailers put pressure on margins. However, it did see steady growth of satellite sales, it adds.

Looking better

CEO Wayne Samson notes "things are looking up after the tough times". Ellies' infrastructure division will look to grow export earnings, and could take part in equity deals for the projects in which it is involved.

In addition, the issue of the tender for aerials for digital migration, which happened late last month, bodes well as the company is keen to take part. The Universal Service and

Access Agency of South Africa recently issued four tenders around migration.

"We remain hopeful that the migration will take place in 2015 and that Ellies will play its part as capex [capital expenditure] was spent in previous years, giving us the capacity to manufacture the quantities required."

Split coming

Ellies is set to operate its two operating divisions so that its consumer business and Megatron infrastructure unit can be held by separate wholly-owned subsidiaries. Ellies will create Ellies Electronic to house the consumer unit, and will then be unbundled and separately listed.

This will leave its power unit, Megatron, as its only asset - a move that will be followed by Ellies' renaming. It believes the restructuring and separate listings of the Ellies Electronics business and the Megatron infrastructure business will allow for increased focus on their respective core operations.

"It will also enable the Ellies consumer business and the Megatron infrastructure business to access different sources of funding, better suited to their respective needs and cash flow profiles. The unbundling and simultaneous separate listing of Ellies Electronics will also provide greater investor flexibility," it says.

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