Ellies reports bigger loss as supply chain constraints and falling demand hit
Load-shedding increases demand for back-up power products, but group fails to take advantage of this due to capital constraints
Ellies has reported bigger losses for the six months to end-October, with earnings down more than 50%. Earnings were hit by supply chain constraints and reduced demand for its products.
The electronics group imports, makes and sells equipment such as aerials and power trolleys, and also undertakes solar installations.
Ellies revenue rose 5.6% to R508.9m from R481.9m in the previous matching period. Despite the revenue growth, its earnings were down and resulted in a bigger loss before interest, tax, depreciation and amortisation. This loss rose 53.8% to R30m for the period, compared with R19.5m previously.
The loss after tax rose 72.8% to R34.9m.
The group’s trading and distribution business “experienced a subdued demand on its retail products due to the difficult trading environment and pressure on the consumer”, the company said. However, power back-up products bucked the trend because of increased load-shedding.
In addition, the group — a household name in local consumer electronics — says its supply chain is still under pressure “due to the continuing disruptions emanating from the policies relating to Covid-19 restrictions in China, and this has disrupted supply and impacted revenue in the first half of the current financial year”.
The company reported a bigger headline loss per share — stripping out one-off financial events — of 4.58c compared with a loss of 4.36c previously.
The group, which also installs satellite dishes for MultiChoice, has fallen on hard times, prompting it to start consulting unions about jobs cuts in September.
The company said retrenchments resulting from “the closure and migration of the warehouse and logistics functions in Cape Town, Polokwane and Nelspruit and, lastly, the outsourcing of the sales and merchandising function”, have been completed. The expectation is that these will start to deliver savings in the second half of this financial year.
The restructuring cost it R18m for retrenchment.
Ellies has struggled to maintain profitability in recent years as consumers cancel their cable and satellite television subscriptions and shift to online video streaming.
“The continued and increased load-shedding, while negatively affecting the economy and the consumer, has benefited the group, with an increased demand for the alternative energy products that Ellies distributes, which has helped offset some of the decline in general demand from consumers, especially in the retail space,” the company said in a note.
“Regrettably, Ellies could not take full advantage of this opportunity due to working capital constraints.”
To remedy the situation, the company recently struck a deal with lenders that will increase its ability to have stock on hand to meet demand from load-shedding.
A thinly traded stock, Ellies’s share price was up 6.67% on Wednesday at 16c. The company is valued at R129m.