Ellies Stumbles

On the face of it, electronics manufacturer and distributer Ellies had some pretty poor results for the 6 months to October, with revenue down 3.8%, earnings a share down 40.7%, and the loss of an important Eskom contract. However, ZA Confidential went to the company’s Johannesburg analyst presentation to try to get a better feel for how things have been going…. CEO Wayne Samson said that the underlying consumer and infrastructure businesses have been growing well. He says the company is working hard on keeping up sales to consumers at a difficult time. Meanwhile, the weak rand has been forcing up costs, and these are now being pushed through to retailers. He says the Ellies brand has been built, and there is a lot of in-store presence for their products. However, there is a big challenge with a lot of competing unregulated “illegal” products on sale in some ZA retailers. The regulator appears not to be doing much to tackle these cheap imports from China. “We spend a fortune on tests and approvals and for other guys to come in without doing this is not a level playing field,” Samson complained. Ellies has cut its own HQ office electricity costs from R250 000 to R150 000 a month – and offers a service to other companies to help them do a similar job. “We have invested a lot in R&D. Most products are designed in-house. With the rand where it is at the moment, it makes sense to manufacture locally,” Wayne said. He noted there are a number of energy projects in the DRC. What do our experts make of it all?

Simon Brown from justonelap.com:
Weak results, which were telegraphed by CEO Wayne Samson at the last set of results – revenue was off 3.8% while HEPS fell just over 40%. The consumer segment under pressure with the weak rand hurting costs – the impact of which has not been fully passed on to consumers, and hence the company saw a shrinking of margins. The new OpenView HD launch was delayed so only accounted for a few weeks in these results while DDT is still not rolling out, albeit likely to start this year. Overall nothing special in the results, but equally no horror stories – with the second half of the year likely to remain tough.

Ian Cruickshanks from the SAIRR:
My initial shock at a substantial profit drop was partially offset by Wayne Samson’s confident presentation on the handling of the setbacks, which included the non-recurrence of the Eskom project. However, fears remain on Ellies’ large exposure to foreign exchange, with rand positions only 50% hedged (Wayne’s comfort level). However there remains a 50% high-risk discomfort level. Their strategy of big investment in R&D is likely to bring results in both domestic markets, and in exports. Their commitment to hydroelectric projects in the DRC is likely to bring good returns in the longer term.

Conclusion:
There remains enough entrepreneurial vision and solid business brains within Ellies to keep me on-side, even though the numbers did look a bit disturbing. I just think that a company with such diversity, and a commitment to green energy, has to prosper. Nice to see, too, their efforts to build in the rest of Africa.

Tweets of the Day:
Hazel Porter (@michowl): I named my WiFi after my last boyfriend because it’s never fully connected with me. And also because I caught my neighbour using it.
Funny Tweets (@Funny_TweetsQ): There’s an app on my phone that makes me look fat. It’s called camera.
Best Jokes (@best_jokes): “Doctor! Doctor! I feel like a pack of cards!” “Sit down and I’ll deal with you later.”…. #cards
Funny Tweets (@iQuoteComedy): My girlfriend told me to go out and get something that makes her look sexy….. I came back drunk.

ZA Confidential will soon again be available in full only to those who subscribe. For details on subscription rates, please contact: zaconfidential@gmail.com. Media releases, invitations to presentations, and feedback on ZA Confidential can also be sent to the same address. Add some gravitas to your conference or event by hiring ZA Confidential Editor John Fraser as a speaker or MC. Follow us on twitter: @ZAConfidential and/or John on @clasfras1
The Business News you can’t afford to miss.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: