Ellies, the once proud electronics brand founded in 1979 by Ellie Salkow, has been destroyed by poor management decisions and a lack of proper execution.
In a trading update on Wednesday, Ellies announced that its board decided it would be in Ellies’ best interest to commence with voluntary business rescue proceedings.
The decision followed a failed attempt to acquire a 100% interest in the alternative energy company Bundu Power.
Ellies initially planned to raise the R202.6 million it needed to pay for Bundu Power through a rights offer of 7c per share.
However, the share price plummeted to 5c per share, well below its planned rights offer price of 7c. It meant shareholders were better off not exercising their rights.
It was time for plan B. This time, Ellies tried to buy Bundu Power for R208 million and fund it through a debt facility.
However, in its latest announcement, Ellies revealed that its bankers have advised that they will not fund the proposed transaction.
This is hardly surprising. No bank worth its salt would risk over R200 million on a company with a R40 million market cap running at big losses.
The sad reality is that Ellie has lost trust in their ability to grow and generate profits. It basically wanted to buy itself out of trouble through the Bundu Power acquisition.
Instead of improving its own operations and building a sustainable business, Ellies management wanted Bundu Power to solve its financial problems.
It is also much easier and more pleasant to negotiate a multi-million rand deal than the hard work involved in fixing and running a business.
To those in the know, none of it is a surprise. Ellies’ financial results revealed a company which loved making excuses more than hard work and making money.
A few years ago, Ellies made the decision to focus on alternative energy solutions. It was an inspired strategy.
Load-shedding started to escalate, 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 price of petrol and diesel has also played into Ellies’ hands, making its battery backup and inverter trollies attractive alternatives to generators.
With near-perfect conditions for Ellie’s alternative energy products, it raises the question of why the company has failed to excel.
The reason is simple — poor management. While its competitors made millions, Ellies sat back and happily handed the market to them.
Instead of taking responsibility for the poor performance and plans to fix it, Ellies’ management used every excuse in the book to try to explain it away.
The excuses ranged from Covid-19, the unrest during July 2021, South Africa’s weak economy to unemployment and even the petrol price.
Ellies could have been a thriving alternative energy company capitalising on Eskom’s deterioration and the move towards green energy.
Instead, it has been forced to enter business rescue with an uncertain future. It was not a victim of the South African economy. It is a disaster of its own making.
The once proud Ellies — which reached a share price of R9.50 with a market cap of over R3 billion — plummeted to 1c per share after the trading update.
Ellies share price
This article was first published by Daily Investor and is reproduced with permission.