Storied South African electronics group Ellies Holdings has unpacked in detail how shifting customer behaviour – with consumers opting for streaming services over satellite broadcasting – hammered its 2022 financial results and why it’s gearing up to pivot the business in a new direction.

Ellies said on Friday that revenue from continuing operations plunged 12% to R1.08-billion in the 12 months ended 30 April 2022, while it swung from a R30.7-million profit to a R43.7-million loss. It blamed a shift away from direct-to-home satellite broadcasting and to streaming over fibre broadband for the poor financial performance.

“We have found that transitioning a 42-year-old brand is a significant task, especially a business like Ellies which is entrenched in the South African consumer landscape. From the ‘bunny aerials’ to becoming the largest installer of satellite technology, Ellies had to constantly evolve as technology leapfrogged and consumer needs changed,” CEO Shaun Prithivirajh and non-executive chairman Timothy Fearnhead wrote in a letter to investors.

“The growth of fibre to the home in the last two years has fundamentally changed the way consumers receive entertainment and this has disintermediated aggregators such as MultiChoice and other traditional broadcasters as well as forcing MultiChoice to provide value bundles to their customers, which is not Ellies’ main distribution channel,” they wrote.

“As a result, Ellies’ traditional business of satellite installations has continued to erode at a faster rate than in the past, and frankly faster than we anticipated. As a result, the board and management have begun to investigate ways to diversify revenue streams… Competition from streaming alternatives as well as decreased demand for MultiChoice offerings have been the main contributors to the unsatisfactory performance in this financial year.”

The two wrote that the company was hit hard by the impact of the Covid-19 lockdowns and, although its facilities weren’t directly affected by last year’s riots and looting centred on KwaZulu-Natal, it still took pain. Ellies, they wrote, needs to pivot away from the “strategic direction on which the business was built”.

Stress

“While diversification of revenue streams away from MultiChoice to solar, smart homes and water infrastructure has begun, it is important to note that these initiatives place further stress on already-constrained working capital.

“The board and management have embarked on an ambitious turnaround plan that resets the cost base, restructures the business for growth in new categories, and is actively pursuing acquisition opportunities to return the group to profitability.

“We believe that this comprehensive plan will allow us to access more working capital funding that will deliver the desired result. The plan is to decrease costs while simultaneously growing revenues. The entire process is estimated to take 18 months to completion. Thereafter, we believe that the positive performance of the business will allow us to seek alternative solutions to strengthening the statement of financial position.

“We are confident of the ultimate success of these plans, which seek to address many of the issues that are impacting the daily lives of most South Africans. The continued inability of Eskom to provide South Africans with reliable energy has created significant demand for alternative energy, as witnessed by the aggressive growth of solar distributors and installers. The challenge for consumers is that many of these businesses are start-ups with no brand reliability. Ellies has the solutions and expertise and, together with the strong brand name, could champion this category,” Prithivirajh and Fearnhead said. – © 2022 NewsCentral Media