Business Day LIVE

Ellies CEO Wayne Samson takes us through interim results from the electronics group and its position post a major recapitalisation

BUSINESS DAY TV: Ellies Holdings is clawing itself back to health, posting a dramatic reduction in headline losses for the first half of 1.02c per share while revenue from continuing operations is rising. It’s up 27.5% for the period. While the firm remains intent on separating its consumer and infrastructure divisions, it was ironically the consumer segment, which is classified as discontinued operations, that made the higher profit over the period, and joining me now in the News Leader studio is Wayne Samson, CEO of Ellies.

Wayne...it’s obviously great that you are moving in the right direction but given where you foresee the company being separated infrastructure versus consumer, are the gains being made in the right place?

WAYNE SAMSON: They’re being made in the right place on the infrastructure. Both sides…infrastructure and consumer, have had a turnaround strategy. On the infrastructure side it was always half local, half export or business in Africa. Now the business in Africa is 100% of the focus. They shut down most of the South African focus on operations and that’s where their strategy is north of the borders.

On the consumer side we’ve had the strategy of lowering our costs, re-looking at the distribution model, tailor making it more to where retail is going now and taking the opportunities that present themselves.

BDTV: Okay so you had to get both businesses right but I guess what I’m getting to is, if you are left with the infrastructure division and you spin off consumer, but consumer seems to be the one making more money at this point in time, have you picked the right horse?

WS: I’ve got both horses at the moment...

BDTV: I know, but are you going to be separating them out?

WS: We’re talking very theoretically here.

BDTV: So is that a relevant...

WS: It is very theoretical — if there is the unbundling then the shareholder will have shares in both and then they will decide which way they want to go, if they want to keep both or move from on to the other.

BDTV: Okay at what point though is that likely to happen...the unbundling will take place?

WS: Well, we’re having look at the unbundling. We’ve got a few legislative hurdles to go through. We’ve got to go through the JSE processes, it’s a long process. We’ve got to substantiate there’s no shareholder destruction if anything, it would be an enhancement of shareholder value. Then there is meeting shareholder approval that we’ve got to get, circulars have got to go out, so it’s a bit of a process to go through.

BDTV: Can you give us a time period though?

WS: Unfortunately not, we’re working on it and it all depends whether all these processes go through smoothly or not.

BDTV: And presumably the businesses themselves have to be strong enough to stand on their own two feet?

WS: Correct.

BDTV: And you do talk about the cash position as one of your primary focuses in the next period — how are you going to improve the cash position? What more can you do than what you’ve done already, which was the rights issues and the whole renegotiation with the banks of your debt?

WS: Well we’ve paid down the majority of the debt so from where we are sitting a year ago there’s a vast difference to where we’re sitting at the moment and with the lowering...let’s talk of the consumer, the lowering of the costs, we’ve been able to make a bigger profit and increase our cash flow. Obviously the rand is not helping us whatsoever, everything we imported even six months ago costs 20% more at the moment. That’s something we have to deal with. As far as infrastructure division goes it’s the flip side of that...is all their projects being in Africa and dollar based, they should see a significant increase on their rand revenues there.

BDTV: Just going to the consumer division you talked about…you had to try and sell down or get rid of the inventory that you were left with, and you say that 20% devaluation in the rand, or you use a figure of 20%, has kind of skewed the monetary value of what you’ve been doing as far as de-stocking is concerned, is it better than what it looks in these numbers?

WS: No…definitely, so the stocking is more or less the same as where it was sitting in April but take into account costs of the stock is 20% higher, plus we started the digital migrations, so we have some of that stock in raw materials in our manufacturing division even though the supply that only started now in the last six weeks or so into the DTT (digital terrestrial television) migration, so we are carrying the raw materials stock, and we had some stocks from the load shedding with inverters and generators and that.

BDTV: Just on DTT and then onto load shedding, you got an order for 400,000 satellite dishes, is that going to then reflect and provide quite a kicker for the consumer business in the next six months?

WS: It should add to the figures. I don’t know if it will all be into those figures...we go according to delivery schedules so it all depends on when the delivery takes place and payment then comes thereafter. But what is quite nice is that finally...I think I’ve been sitting with you for I don’t know how many years now, saying DTT is coming and finally the trigger has been pulled. We’ve manufactured, we’ve supplied and we’ve even been paid for the first few orders.

BDTV: And is it enough for you...is it not because I think maybe a lot of people were pinning their hopes on DTT, but because the order was split between a number of companies, is it enough that you got what you did?

WS: Well it’s only the start. I see the digital migration process being a four year if not longer a process. So it’s still got lot of legs ahead of it. We’re just supplying all the satellite dishes that we’ve been doing at the moment. We’ve just signed a tender now or a contract to do installations and we’re still hoping to get an order for the antennas. So we’re still in the infancy of the digital migration. We hope to grow from there but again when I say it’s there to be the cherry on the top, it’s not there to be the actual business itself.

BDTV: Okay. So the actual business itself...if we look at for example load shedding, the inverters, you obviously had a huge or a nice pick-up but have things tailed off quite substantially?

WS: Things have tailed off in SA to a large extent. We’ve still got quite a bit of demand north of our borders where we’re sending stock into the likes of Zambia and Mozambique, and Zambia has got horrendous load shedding at the moment and so we’re still selling it. So it’s slower moving than what it was before but it’s moving.

BDTV: And as far as Africa is concerned, is this now a big risk for you? You do allude to the drop off in commodity prices and oil rich countries are really seeing difficulties, is that going to affect the projects that you had backed on?

WS: No…the projects that we have in the bag already, there is no effect on it whatsoever, where the threat or the risk does come is looking for future projects north of the borders. So I think with the commodity prices down, I don’t know how many countries are eager to go and build on the infrastructure.

BDTV: If you’ve pinned your hopes on export focused hard currency earnings from African operations, does that actually negate what you wanted to do with this business?

WS: No I just think that the possible growth might be slower than what we forecast, we’ve still got the contracts, there’s an excess of R3bn worth of contracts. Finding the newer business thereafter might be a little slower paced but I don’t see commodity prices staying down for more than a year or two and we’re still rolling out the existing projects at that time.

BDTV: So can you just clarify what the order book is then at the moment?

WS: It’s around about R3bn if not more at the moment.

BDTV: And the pipeline, do you have any visibility on that?

WS: The pipeline, we’re still in talks with a lot of different companies overseas and we’re confident that those will come through, it’s just taking a little bit longer than what we thought and it has to do with the commodity prices.

BDTV: Just to end off with, would you foresee that the next six months will actually carry you into an overall positive position as far as headline earnings go?

WS: I’m hoping so, the turnaround strategy for infrastructure is a little bit slower than on the consumer side but we’d like to see them levelling off now at the end of this next six months and into a very profitable future thereafter.