Ellies warns of closing doors due to Covid-19 and trade war

Electrical goods group Ellies has warned that the effects of the Covid-19 national lockdown may threaten its ability to continue trading.

If the economy and as a “result, the performance of Ellies, deteriorate and management is unable to stem the losses incurred in a major subsidiary, these present a material uncertainty to Ellies remaining as a going concern,” it said.

A going concern refers to an

“” accounting assumption that a business will stay in operation for the foreseeable future.

The lockdown to stop the spread of Covid-19 has devastated the local economy. Stats SA revealed that the pandemic has led to a 51% decline in GDP in the second quarter of 2020.

On Thursday, Ellies, which makes electrical cables and plugs, said revenues for the year to end-April decreased 13.8% to R1.169bn, compared to R1.357bn in the year to end-April 2019.

This resulted in a loss in earnings before interest, tax, depreciation and amortisation of R67.1m, against a loss of R21.5m in 2019, a fall of 212.1%.

The company s loss per share

’ grew 709.2% to 28.97c, further down from the 3.58c loss previously.

Ellies CEO Shaun Prithivirajh said in a statement that Ellies has continued to be affected by global political and economic volatility, with uncertainty and unpredictability affecting raw material prices and foreign exchange rates, exacerbated by

“the ongoing trade conflict between the US and China, and more significantly by the global spread of Covid-19 ”.

With about 40% of Ellies

’

products being imported, the

“

impact on both stock availability as well as the overall financial performance has been material ”,

Prithivirajh said.

Despite the bleak state of affairs, Ellies said the first year of its turnaround strategy has positioned it for future growth, with issues of leadership uncertainty having been dealt with through a new board of directors and the executive team.

The group s strategy is

’ focused on increasing operational efficiencies, managing costs and finding opportunities for profitable growth.

Ellies had already been facing tough times before the lockdown came into effect. In March, the company was considering cutbacks to a fifth of its workforce, citing financial losses that underlined a slump in the manufacturing sector.

The restructuring, affecting 183 out of a total 872 jobs, would allow the company to focus on its core business of procurement and sale of electronic products, Ellies said at the time.

With the process being completed in June, the company has made provision of R18.3m for retrenchment costs.

No dividend was declared by the group for the period.

Shares in Ellies fell sharply after the earnings release on Thursday afternoon, closing trade 16.67% down at 5c a share.

WITH ABOUT 40% OF PRODUCTS IMPORTED, THE IMPACT ON STOCK AVAILABILITY HAS BEEN MATERIAL