Eriez Holdings has been an electronics company since its founding in 1979, so much so that when the company announced it would not release its latest financial statements and instead seek protection from creditors through voluntary business rescue. was a big surprise.
The final blow to the once thriving company was when bankers refused to provide financing for the acquisition of Bundu Power. That would have given Eriez a major footprint in the burgeoning industry of taking homeowners off the national grid.
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from the top of the mountain down
When Eriez seized the opportunity to install satellite dishes when M-Net was launched in SA in 1986, it realized that its fortunes were indeed on the rise. Perhaps management had long meetings and were worried about the risks of backing new technology at the time, but it worked out and Elise joined the big leagues, and in 2007 he joined the JSE. Listed.
The stock started trading just below R2 and reached a high of over R9 in 2013. Unfortunately, it's been downhill since then.
By 2014, the share had nearly halved to less than R5, and by 2020 it was below 10 cents.
Shares fell 60%, from 5 cents to just 3 cents, on Wednesday when management announced it had “voluntarily” chosen to rescue the business.
Elise seems unable to muster up the courage to take on new opportunities like she used to. Did Elise not notice that the writing was on the wall for satellite dishes and that the new game in town was home power systems and fiber networks?
too late
Eriez attempted to enter the solar power and backup power systems market by making an offer to Bundu Power in February 2023, but it probably waited too long. Eriez has been stuck in a declining market for too long, and its balance sheet is not strong enough to buy a growing (and valuable) company operating in one of SA's most popular sectors. There was no.
Founded in 2005, Bundu Power specializes in generator sales and rentals, solar power and auxiliary product sales and installations, providing alternative energy solutions to residential, commercial, industrial, hospitality, agricultural and recreational users. doing.
Bundu Power's owners accepted an offer of about R207 million for their business, but Elise was unable to raise the funds.
“Shareholders are advised to refer to the original announcement published in SENS on February 1, 2023 and the most recent announcement published on December 4, 2023, including Magetz Electrical Proprietary Limited and Power on Wheel Proprietary Limited (collectively, Bundu Power).
“The proposed acquisition was subject to debt financing by the Company’s bankers and approval by Erie’s shareholders at a general meeting by January 31, 2024. The company has advised that it will not provide any funds and has therefore advised the company to take into account the pre-conditions.''As the conditions have not been met, the agreement in this regard lapses and further enforcement is prohibited, according to the latest statement. It loses its power and effectiveness. ”
Eriez had raised the purchase price through a rights issue to raise R120 million, with plans for debt financing and staged payments until February 2025.
changing market
The company said it is “repositioning itself as a smart infrastructure business that includes comprehensive solutions for alternative energy, water storage and recovery, connectivity, and smart home technology.”
“The acquisition of Bundu Power is the first component of a new strategy, expanding the Ellies portfolio of alternative energy solutions. Next, Ellies will provide Bundu Power with the expansion of its distribution network in Southern Africa and with Level 1 BBBEE status. “We will provide access to a group of people with similar interests,” he said when announcing the acquisition proposal in December 2023.
Bundu Power has assets of approximately R77 million and said it expected to earn an after-tax profit of nearly R34 million in the financial year to the end of February 2024.
Meanwhile, Eriez suffered a loss of R85 million in its final financial year to April 2023, with management describing the result as “disappointing”.
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“Revenues decreased 7.7% year over year. Challenges faced by consumers due to inflation and rising interest rates weighed on demand for some of Eriez's satellite installations and retail products.
“The Group saw an increase in demand for power related products such as UPS backup solutions, generators, solar power and surge protection products due to continued load shedding. “The Group's ability to take advantage of the surge in demand was limited,” it said in an earnings comment.
A summary of its performance over the past five years shows that Eriez suffered an operating loss and a comprehensive loss in four of the five years.
The profitable year came at a cost. Operating cash flow was negative R7.7 million compared to operating cash flow of R47 million in the previous year.
Dependency on MultiChoice
Even more striking was this comment regarding the group's continued reliance on satellite dishes from last year:
“Erie’s satellite business is down 70% from 2018, and efforts to replace revenue with alternative contributions have shown good results, but not enough to stem continued losses. Traditional satellite business The expected transition from the 2018-2016 pandemic was much slower than expected due to the relatively fixed costs of this category of services.
“The FIFA World Cup, which is held every four years, is the main source of new DStv connections and something similar was expected in October 2022. Unfortunately for Ellies, the match will be held on SABC But it was broadcast and the new satellite connection never materialized.”
Management also said that many South Africans have cut back on discretionary spending, which has led to “a significant reduction in satellite services such as those offered by DStv”.
Management doesn't seem to realize that the transition from DStv to a streaming service has been obvious for years.
It will be interesting to see if the business rescue process can save Elise. The balance sheet at the end of April 2023 shows only R3.6 million in cash compared to R8.9 million in the same period last year, while interest-bearing debt and bank overdrafts have increased from R64 million in April 2022 to R64 million in 2023. increased to R169 million.
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