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Ellies turnaround plan to position it for greater share of alternative energy market

Ellies Holdings says the need for higher levels of working capital is paramount. Photo: Simphiwe Mbokazi

Ellies Holdings says the need for higher levels of working capital is paramount. Photo: Simphiwe Mbokazi

Published Aug 1, 2022

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Ellies Holdings will launch an “ambitious turnaround” plan over the next 18 months to move into new areas such as tendering for public sector alternative energy and solar opportunities, and broaden its alternative energy product offering.

This is according to chairperson Timothy Fearnhead and CEO Dr Shaun Prithivirajh, commenting after the electrical products group reported that comprehensive income had slid by 243.4 percent to a loss of R43.6 million in the year to June 30, compared with a R30.4 million profit in the 2021 financial year.

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They said the continued inability of Eskom to provide reliable energy had created significant demand for alternative energy, as witnessed by the aggressive growth of solar distributors and installers. The group had so far been constrained from making bigger inroads into this market due to low levels of working capital.

They said that the demand for alternative energy products continues to gain momentum in the South African market, but its sales were restricted due to the unavailability of stock, caused by supply chain delays.

“This constraint requires holding larger than ideal inventory levels which, as stated above, impacts and stresses our working capital. The board has tasked management to seek innovative solutions to this problem in order to take advantage of the opportunities available,” the executives said.

They said the challenge for consumers was that many of the businesses in the alternative energy market were start-ups with no brand reliability.

“Ellies has the solutions and expertise and, together with the strong brand name, could champion this category. The conflict in Ukraine has placed further pressure on fuel prices and Eskom’s plan to combine load shedding and diesel turbines to manage demand is no longer viable, which could lead to more pervasive loadshedding,” they said.

The executives said that while the financial performance of the past year had been underwhelming, one positive was that the group had transformed its governance culture significantly.

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Major risks in all aspects of the business had either been mitigated or identified, and more effective controls were put in place. The appointment of internal auditors who work closely with management had assisted considerably.

In addition, the move away from the Johannesburg Eloff Street warehouse to Value Logistics also continued to deliver value for Ellies. Stock shrinkage was negligible, and customer deliveries were rated above 95 percent.

The BBBEE transaction concluded with Imvula Empowerment Trust would allow Ellies to retain its supply to all major retailers as well as commercial customers.

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The executives said Covid-19 had a material impact on global supply chains, which together with container shortages and port congestion in both Durban and Richards Bay, had rendered just-in-time procurement ineffective.

Thus the need for higher levels of working capital was paramount. Ellies had also experienced intermittent stock shortages of decoders in the past year due to the global microchip shortages, they said.

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