JSE-listed diversified electronic and alternative energy products manufacturer and distributor Ellies, impacted by global and local supply chain challenges of the Covid-19 pandemic, the July civil unrest and weak trading conditions, has reported a loss before interest, taxes, depreciation and amortisation of R19.5-million for the six months ended October 31.

This is attributable to a 38.2% decrease in gross profit when compared with the comparative reporting period of 2020.

Ellies experienced a decline against most financial metrics in the first six months of its financial year, reporting a loss a share of 3.06c, while its headline loss a share was 4.36c.

On a positive note, Ellies CEO Dr Shaun Prithivirajh says capital and reserves increased against the comparative period, largely attributable to the profitable second half of the prior financial year, which also included the creation of deferred tax assets.

As such, he says the group’s financial position remains strong, ending the half-year with capital and reserves of R156.9-million and net asset value a share of 19.5c.

In addition, large-scale progress was made during the period in collecting overdue accounts, which positively impacted on Ellies’ cash flow.

Also, the group has, in recent years, written off substantial quantities of inventory, whereas, in the six months under review, the inventory write-off was negligible.

“In this regard, the group’s decision to migrate to a third-party logistics and warehousing provider has borne fruit. We are confident that we will continue to see further efficiencies in our own supply chain through the remediation of our embedded enterprise resource planning system,” says Prithivirajh.

Post the reporting period, in November, Ellies achieved its highest sales month in the past two years, largely attributable to the resumption of load-shedding, which is likely to continue for the foreseeable future.

LOAD-SHEDDING BOOM

While load-shedding has continued to negatively impact the local production and retail sectors, Ellies benefited from the rolling blackouts experienced in the prior reporting period through increased demand for its alternative solar and inverter solutions.

However, during the six months under review, electricity supply had stabilised, resulting in lower year-on-year demand for these products.

Nevertheless, the pressure on South Africa’s electricity grid is likely to continue into the near future and Ellies says it is well-poised to take advantage of the growing demand for more reliable energy sources, from both the commercial and household consumer market.

In addition, growing calls for South Africa to diversify its energy mix and incorporate more environment-friendly energy sources also bodes well for the prospects of Ellies’ solar and inverter product offering.

“We are acutely aware of the debilitating effect of load-shedding on ordinary South Africans and their businesses. Small, medium-sized and microenterprises are the life blood of any economy, and we are well positioned, through our range of alternative solar power and inverter solutions, to assist [them] and to benefit from the large-scale growth the sector is experiencing,” he says.

Also impacting its product demand was lower demand for DSTV installations by Multichoice – one of Ellies’ long-standing partners, as a result of local unemployment being at record levels, reflective of a depressed economy and a low growth environment.

In addition, the global microchip shortage impacted on Multichoice’s ability to deliver decoders for three months and meet the existing demand from Ellies, resulting in a further two-month delay to get the boxes ready for distribution to its retail partners.

“These installations still make up a meaningful percentage of Ellies’ group revenue and the trend has intensified through the heightened accessibility of streaming video entertainment,” says Prithivirajh.

In response, Ellies is continuing to identify and pursue alternative revenue streams, as well as grow its existing direct-to-customer and third channel segments.

Meanwhile, historically, Ellies’ lack of investment in technology and infrastructure hindered its operations. However, its remediation efforts have proven successful, and in particular, the group’s systems integration with its logistics and warehousing partner Value Logistics, and its investment in a business intelligence system, has enabled Ellies’ management to better analyse its data relating to the revenue cycle.

Going forward, Ellies is confident that, despite the various challenges facing its operating model – including the trend toward video-on-demand streaming services, as well as a subdued economy and growing unemployment – the group is well positioned, through its diversified offering, to benefit from the growing demand for alternative energy solutions.

One exciting prospect relates to the recently concluded agreement between Ellies Electronics and StreamView to exclusively distribute Nokia products in South Africa and various other African countries from February.

According to Prithivirajh, the agreement which came into effect in October, gives Ellies access to a range of high-quality Nokia-branded smart products that Ellies will take to market through its extensive distribution network in South Africa. The agreement represents a landmark for StreamView as it enters the southern African market, which is in line with its own growth strategy. 

Ellies states that it could also potentially benefit from the country’s migration from analogue to digital terrestrial television. It is estimated that three-million South African households are still expected to make the transition before the deadline, with the group remaining well positioned with its large installer base.