A “perfect storm” of weak demand, a depressed consumer market, the cancellation of the residential mass roll-out (RMR) programme and slower-than-expected OpenView high-definition (OVHD) sales had weighed on the financial performance of JSE-listed Ellies during the 12 months to April 30.

Speaking at the group’s financial results presentation, in Sandton, on Wednesday, CEO Wayne Samson said the year under review was “extremely challenging” for the group, which delivered poor earnings and no dividend.

The diversified electronic distributor and manufacturer’s consumer division experienced weak demand and pressurised margins, which it attributed to a “tough” economic environment.

Further, the infrastructure division’s move into higher-value and longer-term contracts with more onerous billing milestones led to deferred billings and increased contract debtors, which had weighed on working capital.

The cancellation of State-owned power utility Eskom’s RMR initiative, which was aimed at reducing electricity consumption in South Africa’s suburban sector, had left the group with significant stock that was, in part, sold off at, or below, cost.

“The expected further participation in the Eskom consumer programme, which contributed substantially to the [group’s results] in 2013, did not materialise during 2014,” said Samson.

Further, OVHD decoder sales reached 46 000 during the year – far short of expectations – with only another 6 500 sold since May.

The value of the OVHD decoder stock and the remaining RMR stock totalled R145-million; however, while the decoder stock was slow moving, it posed no financial risk and Ellies had already shed about 60% of the RMR stock, with the remainder expected to be sold by October.

Meanwhile, with the long-awaited launch of digital terrestrial television (DTT) continuously delayed, Ellies’ R40-million investment in local DTT aerial manufacturing capacity continued to remain grossly unused, Samson commented.

However, no further capital injection would be required and the facility was “ready to go”.

FINANCIAL RESULTS
Ellies posted headline earnings a share of 23.46c during the year to April 30 – a 68.3% fall on the 74c reported the year before.

Earnings a share fell 66.3% from 74.24c in the 12 months to April 2013, to 24.66c for the year under review.

The group’s operating profit plunged 54.9% to R151.5-million, while its profit fell 67.8% to R72.5-million.

The consumer division reflected a 62.7% decline in profit before interest and tax (PBIT) to R93-million in 2014, while the infrastructure division’s PBIT fell 36.8% to R51.9-million.

The group's net working capital declined by R236-million; however, Samson explained that Ellies and its financiers and advisers were “actively engaged” with the challenges in funding its working capital requirements.

“The current nature and timing of infrastructural projects is causing funding pressures with the increase of construction working capital by R259-million,” Samson noted.

Ellies reported a 5.5% revenue uptick to R2.1-billion.

The group had expanded into commercial efficient lighting and energy generation, with Samson expecting the new business-to-business initiative to deliver ongoing future opportunities.

Further, Ellies’ secured contracts and in-progress projects were valued at about R4.1-billion.

“With its sizeable export order book and its local production facilities, management is confident of [the infrastructure unit’s] continued importance to the group and its positioning in a strong growth sector,” he added.