Ellies Electronics on the ropes

Ellies has sold its brand and intellectual property to SMD Technologies, raising questions about the future of the company’s operating divisions and staff.

“All queries have to be directed to business rescue practitioner John Evans,” Ellies Electronics CEO Shaun Prithivirajh told MyBroadband.

Evans did not respond to emailed questions. When reached by telephone, he said he had not yet had time to consider his answers and would reply when he could.

Asked how long he would need, Evans refused to commit to a deadline.

Prithivirajh and Evans’ refusal to answer simple questions about whether anything else remains to be sold within Ellies casts a cloud over the company’s retail import and distribution business.

In May, Prithivirajh had told MyBroadband that if the business rescue plan to sell Ellies’ operating divisions were approved, the brand would continue to exist.

“If the business rescue plan is adopted and the sale finalised, many jobs will be saved and Ellies-branded products will continue to be sold in retailers across the country,” Prithivirajh assured us at the time.

However, SMD Technologies revealed on Friday that it had acquired the brand and intellectual property without the rest of Ellies Electronics.

The acquisition came three months after Evans announced that Ellies Holdings was being liquidated as there was no reasonable prospect of rescuing the business.

The company entered voluntary business rescue on 31 January 2024 after its proposed acquisition of alternative energy company Bundu Power fell through.

Evans later clarified that subsidiary Ellies Electronics continued to trade and that several suitors had already approached them to acquire Ellies’ operating divisions.

It is unclear what happened to these prospective buyers.

Once a JSE darling, Ellies was founded by Ellie Salkow in 1979 in Johannesburg. It originally had five employees and sold only television aerials.

Ellies expanded rapidly and opened branches in Cape Town, Durban, Port Elizabeth, Windhoek, Polokwane, Gaborone, Nelspruit, East London, and Bloemfontein.

The company broadened its product range in the nineties to include remote controls and other accessories.

With the advent of satellite TV in the South African market, the company founded Elsat in 1995, which soon became a household name.

Ellies was listed on the JSE’s Alternative Exchange in 2007. It issued its maiden dividend in 2010 and moved to the JSE’s main board in 2010.

The company became a firm favourite among investors and had an all-time high price of over R9.50 per share in May 2013.

There was tremendous excitement about its involvement in providing set-top boxes in partnership with Altech UEC as part of the digital terrestrial television (DTT) roll-out.

However, as the government fumbled the DTT migration, so did the interest in Ellies and its prospects.

The share price declined by 80% between 2013 and 2014, and the company continued to lose value as it searched for new revenue streams.

A few years later, DStv’s subscriber numbers began to stagnate and decline in South Africa, causing that part of Ellies’ business to suffer.

By 2019, it was trading at 10c per share.

With changing market conditions, Ellies decided to focus on alternative energy solutions. This was an inspired strategy.

At the time, load-shedding escalated, and Ellies was well-positioned to take advantage of the growing demand for more reliable energy sources.

It had a wide range of backup power products — including solar solutions and inverters — to serve residential and commercial clients.

The high petrol and diesel prices have also benefited Ellies, making its battery backup and inverter trollies attractive alternatives to generators.

Unfortunately, it fell completely flat in execution.

To those in the know, none of it is a surprise. Ellies’ financial results revealed a company that loved making excuses more than hard work and making money.

Rather than put in the hard yards to grow and run the business, Ellies management tried to acquire themselves out of financial trouble.

They made a deal to buy Bundu Power, a company specialising in alternative energy products for residential, commercial, industrial, agricultural, and recreational applications.

Ellies announced the Bundu Power deal on 1 February 2023, with the initial plan of raising the necessary capital from shareholders through a rights offer.

At the time of the rights offer, Ellies shares were trading at 11 cents.

Ellies said it would allow shareholders to buy 2.13 additional shares for every share they owned for 7 cents. It aimed to secure R120 million.

However, its share price soon collapsed to less than the rights offer price.

With the proposal losing its appeal, Ellies cancelled the rights offer in December and said it would instead finance the deal with debt.

However, the debt would be over five times its market capitalisation and more than its net debt of about R183 million at the end of its last financial year.

Ellies had also been struggling financially, posting a comprehensive loss of R85 million during the year, which it partly blamed on waning demand for its satellite dishes.

In January, Ellies announced that the banks would not loan it the money, stopping its last-ditch deal dead in its tracks.

As for the sale of its intellectual property, SMD Technologies assured the acquisition would revitalise the Ellies brand and ensure the trusted name remains available to its loyal customers.

“By integrating the Ellies electrical brand into its portfolio, SMD Technologies aims to uphold the legacy of the Ellies brand while introducing new innovations that meet the evolving needs of consumers,” it said.