Case
Supplementary Resources
Abstract
At the end of the third quarter of 2007, Leon Kirkinis, chief executive officer (CEO) of African Bank Investments Limited (ABIL), unexpectedly arrived at the head office of Ellerine Holdings Limited (EHL), a South African furniture retail group, with a proposal to purchase EHL. For some time, EHL, which derived a substantial portion of its profit from loans provided to customers wishing to buy furniture, had been looking to enter into a deal with a bank as a means of growing its business. Up until the ABIL offer, EHL had been seriously considering a joint venture with Capitec Bank. Now, EHL’s CEO, Peter Squires, and the EHL board had to decide which route to choose.
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved
Resources
Exhibit 1: African Bank Investments Limited Organogram
Source: African Bank Investments Limited (n.d.), “Reviewed Annual Results for the Financial Year Ended 30 September 2013”, available at: http://africanbank.investoreports.com/downloads/2013/new/African-Bank-IAS-bk-9Nov-2013.pdf (accessed 25 April 2015).
Exhibit 2: Gross Domestic Product Annual Growth 2007–2013: Global, Euro Area, United States and South Africa
Source: The World Bank (n.d.), “Gross Domestic Product”, available at: http://search.worldbank.org/all?qterm=Gross+Domestic+product (accessed 4 May 2015).
Exhibit 3: South African Prime and Repo Rates: 2007–2014
Source: South African Reserve Bank (n.d.), “Interest Rates”, available at: www.resbank.co.za/Research/Rates/Pages/Repo%20Rate.aspx and www.resbank.co.za/Research/Rates/Pages/Rates-Home.aspx (accessed 20 February 2015).
Exhibit 4: Brands and Market Segments Served
Brand | LSM | Kept after 2008 restructure | Brand after business rescue |
Original Ellerine Group | |||
Ellerines | 2–6 | ✔ | ✗ |
Town Talk | 2–6 | ✗ | ✗ |
FurnCity | 4–7 | ✗ | ✗ |
Wetherlys | 6–10+ | ✔ | ✗ |
Osiers | 6–10+ | ✗ | ✗ |
Original Relyant | |||
Dial-a-Bed | 6–10 | ✔ | ✓ |
Furniture City | 4–7 | ✔ | ✗ |
Beares | 6–9 | ✔ | ✗ |
Geen & Richards | 6–9 | ✔ | ✗ |
Lubners | 5–7 | ✗ | ✗ |
Mattress Factory | 4–9 | ✗ | ✗ |
Source: African Bank Investments Limited (2008), “EHL Investor Presentation August 2008”, available at: www.africanbank.investoreports.com/downloads/resultsreportspresentations/results/2008/EHLpresentationfinal.pdf; and African Bank Investments Limited (2013), “Annual Report 2013”, available at: http://africanbank.investoreports.com/downloads/2013/new/African-Bank-IAS-bk-9Nov-2013.pdf (accessed 20 February 2015).
Exhibit 5: Selected Financial Information for EHL: 2008–2013
Ellerine Holdings Limited | 2008 9 months | 2009 | 2010 | 2010 | 2011 | 2012 | 2012 restated | 2013 | |
Abridged income statement | |||||||||
Sales | Rm | 3 092 | 4 196 | 4 487 | 4 487 | 4 710 | 4 792 | 4 034 | |
Cash | Rm | 1 723 | 1 881 | 1 817 | 1 817 | 1 682 | 1 773 | 1 592 | |
Credit | Rm | 1 369 | 2 315 | 2 670 | 2 670 | 3 028 | 3 019 | 2 442 | |
Advances | Rm | 2 177 | 2 451 | ||||||
Gross margin on sales | Rm | 1 313 | 1 791 | 1 974 | 1 974 | 2 083 | 2 134 | ||
Interest income from advances | Rm | 962 | 1 192 | 1 073 | 83 | 110 | 96 | 105 | |
Net assurance income | Rm | 854 | 838 | 602 | 460 | 430 | 427 | 436 | |
Non-interest income – retail division | Rm | 303 | 296 | 296 | 379 | 428 | 479 | 384 | |
Non-interest income – financial services division | Rm | 221 | 364 | 430 | |||||
Charge for bad and doubtful debts | Rm | 495 | 582 | 493 | 59 | ||||
Other interest income | Rm | 84 | 78 | 57 | 33 | 46 | 74 | 71 | |
Interest expense | Rm | 180 | 248 | 303 | 53 | 48 | 84 | 105 | |
Operating costs | Rm | 2 536 | 3 246 | 3 070 | 2 553 | 2 656 | 2 716 | 2 727 | 2 929 |
Retail division | Rm | 1 861 | 2 314 | ||||||
Financial services division | Rm | 675 | 932 | ||||||
Headline earnings | Rm | 368 | 285 | 385 | 130 | 190 | 257 | 249 | − 284 |
Retail division | Rm | − 252 | − 185 | ||||||
Financial services division | Rm | 620 | 470 | ||||||
Attributable earnings | Rm | 360 | 278 | 401 | 146 | 190 | 248 | 240 | − 328 |
Retail division | Rm | − 252 | − 192 | ||||||
Financial services division | Rm | 612 | 470 | ||||||
Non-furniture credit sales | 1 729 | 3 561 | 2 722 | ||||||
Performance ratios | |||||||||
Gross margin | % | 42.5 | 42.7 | 44.0 | 44.0 | 44.2 | 44.5 | 44.5 | 43.9 |
Operating costs as a percentage of sales | % | 60.2 | 55.1 | 46.3 | 66.2 | 65.7 | 56.7 | 62.7 | 60.5 |
Return on sales | % | − 8.2 | − 4.4 | 2.8 | 2.9 | 4.0 | 5.4 | 1.0 | |
Stock turn | X | 3.6 | 2.9 | 3.1 | 3.1 | 3.1 | 3.2 | 2.9 | |
Number of stores | 1 161 | 1 028 | 1 028 | 1 028 | 1 059 | 1 041 | 1 040 | ||
South Africa | 952 | 981 | 964 | 963 | |||||
Foreign | 76 | 78 | 77 | 77 | |||||
Sales per store | Rm | 4 253 | 4 083 | 4 364 | 4 364 | 4 446 | 4 792 | 4 605 | 3 879 |
Number of employees | 15 876 | 13 454 | 11 992 | 11 992 | 10 303 | 8 053 | 9 248 | 7 950 | |
Sales per employee | R 0000 | 317 | 312 | 374 | 457 | 374 | 647 | 518 | 507 |
Return on equity | % | 10.9 | 6.6 | 9.6 | 6.9 | 4.8 | 9.2 | −10.1 | |
Total income yield on average advances | % | 51.6 | 45.3 | 41.0 | |||||
Bad debt expense to average advances | % | 12.0 | 11.0 | 27.3 | |||||
Return on assets | % | 18.9 | 10.7 | 5.2 | |||||
Return on equity | % | 25.5 | 16.1 | 10.2 | |||||
Number of active accounts | 000 | 1 390 | 1 241 | 1 373 | |||||
Sales | 3 092 | 4 196 | 4 487 | 4 710 | 4 393 | 3 747 | |||
Ellerines | Rm | 1 220 | 1 836 | 1 927 | 2 191 | 2 108 | 1 788 | ||
Beares | Rm | 648 | 879 | 944 | 994 | 794 | 670 | ||
Furniture City | Rm | 364 | 445 | 472 | 401 | 412 | 308 | ||
Geen & Richards | Rm | 278 | 408 | 518 | 513 | 501 | 414 | ||
Dial-a-Bed | Rm | 203 | 237 | 300 | 300 | 299 | 263 | ||
Wetherlys | Rm | 327 | 354 | 326 | 311 | 279 | 227 | ||
Rest of Africa | 77 | ||||||||
Early Bird – sold during FY 2009 | Rm | 52 | 37 | ||||||
Percentage of sales | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 | |||
Ellerines | % | 39.46 | 43.76 | 42.95 | 46.52 | 47.99 | 47.72 | ||
Beares | % | 20.96 | 20.95 | 21.04 | 21.10 | 18.07 | 17.88 | ||
Furniture City | % | 11.77 | 10.61 | 10.52 | 8.51 | 9.38 | 8.22 | ||
Geen & Richards | % | 8.99 | 9.72 | 11.54 | 10.89 | 11.40 | 11.05 | ||
Dial-a-Bed | % | 6.57 | 5.65 | 6.69 | 6.37 | 6.81 | 7.02 | ||
Wetherlys | % | 10.58 | 8.44 | 7.27 | 6.60 | 6.35 | 6.06 | ||
Rest of Africa | 2.05 | ||||||||
Early Bird | % | 1.68 | 0.88 |
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved