Ellerines Holdings, the second-largest furniture group by market cap, used last week’s results presentation to unveil plans to sew up the market and grow at home and abroad. The group’s highlight for the year was the acquisition — for R507-million — of upmarket furniture group Wetherleys and its sibling Osiers, the cane furnisher and linen store.
The acquisition means Ellerines has now fully partitioned the income spectrum from top to bottom. “I am excited about this acquisition and I remain bullish about our prospects,” said group CEO Peter Squires.
At the lower, credit-dominated end of the market the group has Town Talk furnishers and Ellerines, rated the number one furniture brand by the Sunday Times/Markinor Top Brands Survey. Furn City enjoys an average market penetration of 27% across LSMs six, seven and eight, the middle-to-high income annals. And then there is Wetherleys and Osiers for the loaded, who purchase goods with a “price on request” tag for cash.
Wetherleys comes into the Ellerines fold next week and will find a solid base.
The group has delivered a 16% increase in profit, to R247-million, off a revenue increase of 7,8% to R2,2-billion. Earnings per share improved 18,3% to 343c a share. The group share price over the year shot up from R14,35 to R27, and the group’s market capitalisation is currently R2-billion. It has rationalised its stores, closing 34 outlets in a period when the sector saw 200 store closures.
Squires expects organic growth to be driven by sales in an environment of low inflation and falling interest rates. The group has a net debtors ledger of R1,5-billion, having grown by 8,9% over the year. Executive director Arnold van den Borne attributes the success of the debtors control to a disciplined credit-granting procedure. The group has centralised all credit approvals to its headquarters. Part of the debtors ledger has been outsourced to compete with internal debt collection systems.
Evan Walker, retail analyst at Andisa Capital, foresees the strength of the rand as posing the greatest threat to Ellerine Holdings, specifically the looming retrenchments in the mining and export sectors. “If they can grow their sales and maintain the quality of their [creditors], they would do well,” he said.
Ellerine Holdings also has exposure to the financial services sector, through Rainbow Loans, and a 37,5% holding in specialist insurance company CICL Investment Holdings.
There is also a negligible exposure to property. An overwhelming 81% of its profit is derived from South Africa, while the balance is from neighbouring countries, including Botswana and, most recently, Zambia. Furniture retail provides 69% of the profit, while financial services contribute 25%.
All this is now set to change with the introduction of Wetherleys. “Ellerines will give us critical mass to leverage our growth plans,” said the upmarket furniture group’s financial director, Rob Brickhill.
Over the next five years the group intends to achieve 25% cumulative growth in turnover. This would include opening a Wetherleys store in Tyger Valley, Cape Town. Osiers will see its outlets grow from seven to 20 during this period. Most importantly, Wetherleys has plans to enhance its international footprint. It currently has a store in Spain and intends to use the lucrative holiday resort area around Malaga and Costa del Sol to launch into Europe. The number of international stores will increase to seven, and a distribution centre will be opened there. Locally, the group expects to expand its manufacturing base.
Analysts saw the sale of Wetherleys as being driven by complementary aspects rather than synergies. There will be no interference across brands. By 2008 the plan is for international operations to contribute 23% of revenue, from the current 3%. One analyst expressed concern about whether the strategy had sufficiently mitigated risk: global economic uncertainty and fluctuations in the value of the rand.
Brickhill said the group had tested current levels of the currency and was satisfied with its model.