(0.31) 2015 financials...the company’s latest line of activity, i.e., the manufacturing of a range...

2ENL Commercial Limited | Annual Report 2016

2012

2014

2013

2016

2015

(1.42)

(0.31)

1.18

(4.35)

1.50

2012

2014

2013

2016

2015

23.83

25.62

27.06

24.16

30.96

2012

2014

2013

2016

2015

14.30

21.20

21.00

23.50

22.00

2012

2014

2013

2016

2015

0.45

0.90

1.20

1.60

1.60

The growth in turnover of 4% to reach Rs 2.7bn was driven by Axess which performed better in its high-end markets segments.

In spite of the increase in turnover, the group made a loss of Rs 41m due to: • Downward pressure on margins as

most of our subsidiaries operate in a highly competitive environment,

• One-off costs incurred at Axess, Grewals and Box Manufacturing totaling Rs 23m,

• A number of loss making lines at Axess,

• Lower exports of sunglasses resulting from a significant cut in order levels, and

• Higher finance cost linked to an increase in indebtedness

EARNINGS PER SHARE (RS)

NAV PER SHARE (RS)

SHARE PRICE (RS)

DIVIDEND PER SHARE (RS)

We maintain our drive to improve our performance, focusing on cash generation and enhanced profitability through the pursuit of efficiency gains, greater customer centricity and contained indebtedness.

FROM RS 9M TO RS 41M LOSS

FY15(9)

Extraincome

37

One-offcosts(23)

Loss-making

lines(8)

Exports of sunglasses

(23)

Financecosts(15)

FY16(41)

KEYFINANCIALS

The indebtedness level rose by Rs 163m to reach Rs 1bn, represented largely by investments into:• Higher stock holding in our Automotive

segment, linked to the contraction of the new vehicles’ market

• Acquisition of immovable properties to house Nabridas’ new line of activity

We are working actively at re-structuring the debts to reduce the pressure on cash flows in the short to medium term. This initiative will enable the subsidiaries to focus on their operations in a more serene environment.

The Board of directors decided to reduce the dividend paid for the financial year under review as cash was needed to support the operations.

54ENL Commercial Limited | Annual Report 2016ENL Commercial Limited | Annual Report 2016

AUTOMOTIVE

INDUSTRY AND MANUFACTURING

TRADING AND SERVICES

ENL Commercial Limited

100

% Nabridas Ltd(Manufacturer of fibreglass wares)

99.9

% Pack Plastics Limited(Indoor & outdoor soft furnishing)

99.4

% Plastinax Austral Limited(Eyewear manufacturer)

45.8

% Cogir Limitée(Building & civil engineering contractor)

100

% Nabridas International Limited(Exporter of swimming pools & related accessories)

100

% Freight Link Limited*(Freight Services)

50 % Interex S.A

(Express Courier)

100

% Box Manufacturing Company Ltd(Carton packaging)

AUTOMOTIVE INDUSTRY AND MANUFACTURING TRADING AND SERVICES

100

% Charabia Ltd(Soft furnishing) 10

0 % Grewals (Mauritius) Limited

(Building materials trader)

100

% Packestate Limited(Industrial Building)

100

% Plaine des Papayes Properties Limited(Owner of property)

100

% Rennel Limited(Express Courier)

100

% Société Réunion(Investment holding company)

35 % Docufile (Mauritius) Ltd**

(Document management solutions)

47.1

%

Formation, Recrutement et Conseil en Informatique Limitee(IT & Business Solutions)

25 % ENL Foundation

(Corporate Social Responsibility)

45 %

Superdist Limited(IT hardware wholesaler)

100

% Axess Limited(Automobile dealership)

100

% L’Epongerie Limitée(House linen products)

Subsidiaries

Associates

* Effective 23 March 2016, Rennel Logistics Limited has changed its name to Freight Link Limited** Effective 30 August 2016, Docufile (Mauritius) Ltd has changed its name to We Simplyfile Ltd

50 %

Joinery and Metal Distribution International Ltd(Manufacturing and Trading of Aluminium profiles and accessories)

group brands


Axess performed better in its high-end market segments this year, which saw

the launch of several new Jaguar models.

Plastinax acquired a 3D printer to reduce its lead time for product development and to increase its competitiveness.

Maison & Co outlet, by L’Epongerie and Charabia, and a Grewals shop were opened at Bagatelle Home & Leisure to improve brand visibility.

Axess became authorised dealer for Peugeot. A dedicated showroom and

mechanical workshop were opened at Bagatelle Motor City.

Grewals acquired 50% of Joinery and Metal Distribution International Limited (JMD), a distributor of aluminium profiles, with a view to enlarge its product offering.

recent

D E V E L O P M E N T S

IT hardware wholesaler Superdist became Avaya’s representative for the Africa region, an add-on to its existing product range.

BU

SIN

ES

S R

EV

IEW

for the thingsthat make everyday

smoother


Dear shareholder,

We have taken energetic actions to contain costs, improve efficiency and increase profit margins during the year under review. We have acted in line with our strategic intent as expressed in our 3-year plan for the period ending June 2017 which focuses on enhancing the quality of our teams and the agility of our processes. However, our efforts yielded results that fell short of our objectives, due mainly to a deterioration in the performance of Axess and of Plastinax. This outcome is no doubt disappointing but it spurs us to go even further in our efforts to bring ENL Commercial back to profitability.

We maintain our drive to improve our performance, focusing on cash generation and enhanced profitability through the following:

Relentless pursuit of efficiency gains by upgrading our human resources and our processes,

Greater customer centricity in the design and provision of our products and services,

Increased efficiency in our operations, and

Contained indebtedness.

reviewCEO’s

“Investments made this year to improve efficiency and control costs should bear results next year, while the business environment we operate in is promised to improve. This makes us confident that we will be able to turn around our current financial situation in the coming months.”

ERIC ESPITALIER-NOËLCEO - ENL Commercial Limited

During the year, we continued to promote the lean enterprise culture within the group. We are happy to note that 68% of our employees were engaged in continuous improvement initiatives. We are actively collaborating with the National Productivity and Competiveness Council (NPCC) in a bid to improve quality and productivity at operational level.

We continued to invest in human capacity building and maintained expenditure in training to an average of 3% of our basic salary bill: 46% of our employees followed a training course with a view to improve their capabilities. The main areas of training focus were personal leadership and growth as well as an improvement of technical competencies. Read further on factors impacting our Human Capital on pages 42 to 45.

Our strategy to be more customer-centric was supported by the newly created marketing department at ENL Corporate Services. Our first endeavour was to render our marketing planning process more effective and efficient. The underlying objective was to ensure that the fundamentals of a sound marketing strategy are in place prior to embarking on a journey of marketing excellence. Going forward, we expect our subsidiaries to further refine their commercial strategies, to better plan their overall brand experience, to build engaging relationships with customers and, in the process, to uncover untapped business opportunities.

BUSINESS REVIEW


Our performanceDespite a 4% growth in turnover which reached Rs 2.7bn this year, we made a loss of Rs 41m compared to a loss of Rs 9m last year. The increase in turnover is attributable mainly to Axess which performed better in its high-end market segments. The decline in profitability is due to:

• Downward pressures on margins given that most of our subsidiaries operate in a highly competitive environment,

• One-off costs incurred at Axess, Grewals and Box Manufacturing totalling Rs 23m,

• A number of loss-making lines of business at Axess,

• A drop in the volume of sunglasses exported resulting from a significant cut in order levels, and

• Higher finance costs linked to an increase in indebtedness.

Our operational cash flow decreased from Rs 105m to Rs 53m, impacting dividend pay-out for the year. Having paid an interim dividend of Rs 0.45 per share, the Board of Directors decided not to make a final payment for the year as we needed cash to support operations. The total dividend paid for the year therefore amounted to Rs 13m, representing a yield of 3.15% based on the share price of Rs 14.3 at year end.

We fully appreciate how unwelcomed the decision about the dividend pay-out may be for our shareholders. However, our primary responsibility is to ensure the sustained profitability of ENL Commercial and any future declaration of dividend will be subject to the level of free cash flows generated.

The year under review also saw our net indebtedness rise by Rs 163m to reach Rs 1bn. This increase is largely attributable to:

• Higher stock holding in the Automotive segment of our operations. The fairly long lead time with regard to the sourcing of motor vehicles impacts our capacity to adapt to unforeseen changes in market conditions. We thus bore the brunt of the contraction in demand for new motor vehicles observed during the year.

• Acquisition of immovable property to support the expansion plans of Nabridas. We invested Rs 37m in the construction of new facilities to house the company’s latest line of activity, i.e., the manufacturing of a range of plastic products.

2015 20162014

2,61

6

2,29

8

52

(9)

(41)

51

36

642,

731

RESULTS (RS’M)

Turnover

Operating profits

Results after tax

2015 20162014

846

74778

7

662

695

1,00

9

46%53%

59%

Equity (Rs’m)

Debt. (Rs’m)

Gearing (%)

GEARING

Our gearing level has increased to 59% as a result and the higher finance costs are impacting profitability. We are working actively at re-structuring our debts with a view to reduce the pressure on cash-flows in the short to medium term. This initiative should also make additional cash available to our subsidiaries, enabling them to focus on their operations in a more serene environment.

We now make a detailed review of our segmental performance. This year, we have reorganised the presentation of the financial statements so that they better reflect the performance of our different business segments. Consequently, we have separated the Corporate Office results from those of the Trading and Services segment. The results of the previous year have been amended accordingly.rs 2.7 bn

turnover

BUSINESS REVIEW BUSINESS REVIEW


automotive

“Testing the new Peugeot 208 on this beautiful day”

The automotive segment, represented by Axess, drives the performance of ENL Commercial. It is engaged in the import and sale of new passenger vehicles and agro-industrial equipment as well as in the delivery of a comprehensive range of after-sales services. These activities account for 72% of our group’s total turnover.

The main highlights of the year under review were as follows:

• We became the authorised dealer for Peugeot and were able to offer the full PSA range (Peugeot, Citroen and DS) to our client base. We opened a showroom and mechanical workshop dedicated to Peugeot at Bagatelle Motor City.

• We streamlined our agro-industrial business unit and set up new facilities for it to operate from. We expect this line to generate incremental business in the future.

• Our new Dealer Management System (DMS) was operational for a full year during which we smoothed out all teething problems resulting from the change. The system has now started to deliver on its promise to ease out the monitoring of operations and to assist management in the decision making process.

• Demand for new vehicles fell by 9% compared to last year, confirming a shift in market trends in favour of imported second hand vehicles.

The market contraction significantly impacted the performance of Axess. The situation was compounded by the fierce competition on entry-level cars such as Suzuki. As a result, sales volume went down from 1,431 new vehicles to 1,305.

2015 20162014

1,83

3

1,54

5

70

37

55

11

62

19

1,95

8

Operating pro�ts (Rs)

Results after tax (Rs)

RESULTS (RS’M)

SALES OF NEW VEHICLES

Operating profits Results after taxTurnover

automotive

2015 20162014

9,08

2

8,89

3

13.9%

15.8% 15.8%

8,24

51,

305

1,43

1

1,24

0

Axess’ market share

Axess’ sales New vehicle market

BUSINESS REVIEW


We nonetheless maintained our market share at 15.8%. The drop in sales volume was mitigated by a change in our product mix in favour of higher-priced vehicles. Turnover grew by 7% to reach Rs 2bn as a result. However, this did not lead to a concurrent increase in profitability which actually went down from Rs 19m to Rs 11m over the year. This decrease is attributable to:

• The suboptimal performance of Quicklane, Univers Outillage and our tyre management services, all of which were loss-making units, and

• The higher finance costs incurred with respect to greater stock holdings following an unexpected contraction of the market for new vehicles: Given the long lead time applicable to the sourcing of new cars, we were not able to readjust orders to stay in tune with market trends. The acquisition of the Peugeot dealership led to a further escalation in finance costs.

Nevertheless, the contribution of the automotive sector to ENL Commercial’s total indebtedness went down by 11 percentage points compared to last year, i.e., from 66% in 2015 to 55%.

“The kids are all prepped with their Helios sunglasses”

Industry& manufacturing

Focus on core activitiesThe situation called for bold measures of redress. We took the decision to divest from non-performing business lines in order to focus on our core activity which is to sell passenger vehicles and agro-industrial equipment and to provide related after sales services. We streamlined our operations in order to increase efficiency. We thus,

• Implemented fully fledged marketing plans for each of our brands with emphasis on modern marketing tools including the social media and on closer monitoring of market trends,

• Invested Rs 8m into the discontinuation of loss-making business lines – the initiative impacted our workforce which, however, is now stabilised.

• Maintained efforts to improve operational efficiency: the successful implementation of an efficiency measurement initiative in our after-sales services department is now being replicated in other departments.

ProspectsOur focus for the next financial year will be on maximising our new operational structure in order to boost sales, increase efficiency and control costs. We believe that the level of profitability will progress substantially as operations will be leaner and one-off reorganisation costs incurred this year will not recur.

We are also envisaging investment into a new, state of the art showroom dedicated to Jaguar and Land Rover (JLR), our two high-end brands. The timing for the implementation of this project will depend on the new products available within the JLR range.

In its 2016-17 National Budget, the Government reviewed the fiscal framework for the imports of new vehicles quite significantly. We welcome this review as it contributes to level up the playing field for new vehicles as compared to imported second hand vehicles.

Rs 2 bnturnover

BUSINESS REVIEW


The industry and manufacturing segment of our operations produces a range of products and services that includes eyewear for exports, swimming pools, storage tanks and other related wares, timber and other raw materials for the construction sector, carton boxes and packaging solutions as well as house linen and soft furnishings for interiors and exteriors. Cogir, an associate which provides construction services, is also part of this business cluster.

Our turnover in this segment increased marginally to reach Rs 513m. However, our bottom line deteriorated, reflecting a loss of Rs 26m compared to a profit of Rs 5m last year. The results were impacted by:

• An improvement in the performance of Pack Plastics following a restructuring of its operations,

• A reduction in the volume of sunglasses exported by Plastinax as a result of one of its main customers readjusting its order levels, and

• An impairment of the goodwill of Rs 9m arising on the acquisition of Box Manufacturing.

2015 20162014

507

468

15

(6)

5

(26)

1

23 513

RESULTS (RS’M)

Turnover

Operating profits

Results after tax

FY155

Plastinax(23)

Box(9)

Pack Plastics

3

Others(2)

FY16(26)

Changes impacting Industry and manufacturing results: From Rs 5m profit to Rs 26m loss

industry & manufacturingPlastinax continued to optimise its manufacturing capacity, investing in state-of-the-art equipment in an attempt to continuously improve the quality of its products and the level of its service. The company acquired a 3D printer in order to reduce its lead time for product development and to increase its competitiveness. The coming year, the challenge will be to increase sales volumes and to enter new market segments, including that of optical eyewear.

Box Manufacturing focused on efficiency gains in its planning and production departments. Nevertheless, it performed below what we expected when we acquired this company, hence the goodwill impairment of Rs 9m. The company recently centralised its activities in one location in a bid to increase efficiency from a production and logistics perspective. Going forward, Box Manufacturing will add a range of tailor-made plastic welded products to its offering.

Nabridas carries on its journey of product innovation and diversification in its endeavour to supply high value-added products and services to its target markets. It continues to develop its range of pool products, equipment and services and its retail activities in Grand Bay and Tamarin fare well. Its roto-moulding activities, geared at producing a range of plastic storage wares, were operational for a full year and contributed positively to the results. The company needs space to grow and we are currently reassessing its premises in Petite Rivière with a view to improve efficiency of the existing facility and plan to build additional floor space.

We are already seeing the benefits of bringing Pack Plastics, L’Epongerie and Charabia under a common management. L’Epongerie and Charabia successfully entered the retail market with the opening of Maison & Co outlet at Bagatelle Home & Leisure in December 2015. Its good performance has prompted the opening of a second factory shop in Pailles. The three companies will amalgamate fully by the end of 2016, enabling us to provide an integrated product and service offering.

Our associate Cogir is multiplying efforts to improve efficiency in order to compensate for the downward pressure on profit margins. This year, it embarked on a lean construction initiative in order to achieve efficiency gains on construction sites. It also opened a training academy to enhance the skills of existing as well as of new employees. Cogir’s challenge for the upcoming year will be to broaden its customer base and to diversify its service offering. The outlook is encouraging given the positive trends observed in the construction industry which is expected to pick up after years of contraction. Improvements in the performance of the hospitality sector also augurs well for company and for the Pack Plastic-Charabia-L’Epongerie cluster.

Rs 513 mturnover

BUSINESS REVIEW BUSINESS REVIEW


The Trade and Services segment of our activities is led by Grewals, an importer and wholesaler of timber and other raw materials targeting the construction sector. Rennel which operates the FedEx courier-express franchise on the island, as well as our associates FRCI and Superdist, both of which are well-established service-providers in the ICT sector, are also part of this cluster.

Turnover in this segment went down by 6%, from Rs 267m last year to Rs 251m, during the year under review. However, we were able to cut losses down to Rs 1m compared to Rs 8m last year. Performance in this segment was impacted by:

• Improved operational results for Rennel and Grewals thanks to cost reduction efforts

• A positive contribution of Rs 13m from our associates FRCI and Superdist, compared to Rs 12m last year, and

• A one-off disbursement of Rs 5m by Grewals for the settlement of a legal case

During the year, Grewals acquired 50% of Joinery and Metal Distribution International Limited (JMD), a distributor of powder coated aluminium profiles, with a view to enlarge its product offering. It also opened a retail outlet at Bagatelle Home & Leisure in December 2015 to improve brand visibility. The expected pick-up in the construction industry coupled with new incentives to promote property development announced by the Government in its 2016-17 National Budget are expected to have a positive impact on the company’s performance.

Our associated companies continued to perform up to expectations. IT hardware wholesaler Superdist is now the representative of Avaya for the Africa region, bringing business phones and video conferencing solutions to the market - an add-on to its existing product range. FRCI, a leading provider of ICT services, performed well and the company is expected to continue on this trend, further developing existing lines of business and expanding its influence in the regional market.

2015 20162014

267

285

20

(21)

(8)

(1)(4) (4)

251

RESULTS (RS’M)

Turnover

Operating profits

Results after tax

PROFITABILITY PER COMPANY (RS’M)

Trading & Services

Grewals(14)

FRCI6

Superdist7

Others1

Total(1)

Rennel(1)

“LOVE THE MIX OF MATERIALSWE GOT FROM GREWALS”

Trading & services BUSINESS REVIEW


Outlook

e a positive impact on next year’s results. Government measures relating to the import of new motor vehicles and access to property for non-citizens as well as the renewed dynamism in the tourism industry should further boost our performance.

improvement of our human capital as well as of our operational and managerial processes. We are already gearing up to set out to renew the dynamism of our operations in our next strategic plan which will cater for the period 2018 to 2020.

We seize this opportunity, dear shareholder, to thank you for your continuous trust and support.

BUSINESS REVIEW

(0.31) 2015 financials...the company’s latest line of activity, i.e., the manufacturing of a range...

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