| Mon 28 Feb 2005, 12:50 | | Ellerines’ prudence confounds its critics |
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Ellerines’ prudence confounds its critics
Larry Claasen
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Industrial Correspondent
FOR a man who has guided his company through probably the toughest period in its history, made one major acquisition and is about to make another that will double the group’s size, Ellerines’ CEO Peter Squires does not seem to get a lot of respect.
Some analysts say they do not like the furniture retail chain, as they consider it conservative and lacking the energy of bigger rival JD Group.
A superficial assessment might lead one to nod in agreement. Squires tends to use words like “cautious” and “prudent” when talking about Ellerines’ approach to doing business.
But Ellerines’ critics are not judging the group fairly if this is their basis for assessing its performance, says Andisa Securities analyst Evan Walker.
Walker says when Squires took charge of the company in 2000, the furniture retail market was about to enter an extremely difficult period.
High interest rates, low disposable income and a lack of jobs saw furniture retailers straining throughout the early part of the decade.
In fact, the entire credit granting sector was under pressure. Saambou Bank, microlender Unifer and rival furniture retailer Profurn were all crushed by bad debt.
But Ellerines then implemented a new credit-granting system, which enabled it to avoid the brunt of the crisis in the credit granting industry.
JD Group was not so lucky. It implemented a new credit-granting system too late and blamed the high levels of indebtedness for its drop in earnings in its interim results for the six months to February 2002.
JD Group said at the time that its research showed that 20% of its customers had some kind of loan facility with microlenders and that 5% of them had defaulted on payments to those lenders.
Walker says being prudent was justified, given the bad debt concerns and the substantial portion of Ellerines’ business that was focused on vulnerable low income earners.
During this time Ellerines was reinventing itself.
It had upgraded its information technology systems and shifted from being exclusively focused on low income earners to middle to upper income groups.
The hard work has paid off. Revenue rose 30% to R2,8bn and operating profit surged 49% to R511,3m in the year to last August.
Apart from an increase in spending, Ellerines’ results were also boosted by the contribution coming from lifestyle chain Wetherlys, which it bought for R507m two years ago.
The group’s prospects have taken a significant turn for the better and its current performance is a far cry from the results it produced in 2002, which saw revenue rise a mere 4,2% to R2,02bn and operating profit only up 3,1% to R313,7m.
If it were not for Squires’ careful stewardship, Ellerines would not have been in a position to bid for rival Relyant, Walker says.
The merging of the two companies will give the new entity more than 1000 outlets throughout southern Africa, and will double combined turnover to R4bn a year.
This will make it roughly equal in size to the JD Group. Walker says Squires could have easily opted to ride the upswing in consumer spending rather than pursue a difficult integration with Relyant.
He says Squires has brought the group into the 21st century, and under his leadership the group is in many ways better run now than under the leadership of its legendary founders, Eric and Sidney Ellerine.
