Digital TV delays push Ellies unit into liquidation

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Ellies Electronics is liquidating its manufacturing segment within the group on viability grounds.

The JSE-listed company says it can no longer see a strategic imperative to retain the manufacturing segment, as it is a drain on the company’s resources.

The segment, referred to in the group as “industries”, is involved in the manufacture, trading and distribution of a diverse range of products and services, inclusive of digital terrestrial television (DTT), satellite products and related accessories.

Ellies has cited the continuing government delays in implementing SA’s DTT programme as contributing to the unit’s operational woes.

SA committed to the International Telecommunication Union's (ITU's) call for all nations to switch to DTT, but the country missed the June 2015 deadline to complete the full switchover. The ITU has called on nations to migrate to digital to allow radio frequency spectrum to be freed up for mobile broadband services.

The implementation of SA’s Broadcasting Digital Migration programme has been painstakingly slow, with controversies and department leadership changes bogging down the process even further.

Some 3.5 million South African households still need to make the switch from analogue to digital TV as part of government’s programme.

In his State of the Nation Address yesterday, president Cyril Ramaphosa shed light on government’s latest timelines in regards to the years-long delayed digital migration project, promising action in the next month.

In a note to shareholders today, Ellies says the company has, for a considerable period, been monitoring the segment’s trading operations and has made every effort to contain costs and restore a level of profitably.

“Of particular concern is the fact that trading volumes have not been adequate to cover much of the fixed cost, or to generate sufficient profit to sustain the business. The major lines produced by ‘industries’ and which are largely sold to ‘electronics’, consist of products related to satellite connectivity and associated electrical products which ‘electronics’ is now in a position to procure externally at a lower cost than if manufactured by ‘industries’.”

Additionally, Ellies says over the course of five years, the company has provided financial assistance, through its wholly-owned subsidiary ‘electronics’, and partially subordinated its loan account so as to enable ‘industries’ to continue operating.

Furthermore, it says, during 2020, Ellies engaged the services of an external consultant to assess the operations of ‘industries’, with the objective of identifying inefficiencies and efficiencies in order to assist in improving its viability.

Ellies notes: “This exercise did not find sufficient positives to persuade the company that its continued financial support of ‘industries’ was justifiable, or in the best interests of the company and its shareholders.

“Management prepared three scenario forecasts based on aggressive, conservative and cost reduction assumptions. None of the scenario forecasts prepared by management indicated a return to profitability in the next 24 months.”

In the statement, Ellies says it also attempted to dispose of the business as a going concern.

“One potential buyer completed a comprehensive due diligence but declined to make a binding offer; the other potential buyer required significantly more security and vendor funding than was currently being provided and thus that potential transaction also fell through.”

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