East London company had a long list of commercial setbacks

Budget snacks business Elzea Manufacturing racked up financial losses of R26.5m in the two years before the coronavirus affected its operations and it sought liquidation by the high court.

When 320 workers at the company’s factory in East London lost their jobs a few weeks before Christmas in 2020, owner Tyron Power blamed tough economic conditions as a result of the Covid-19 pandemic and the inability to secure government relief funds.

But Power’s application to the East London High Court for the winding up of the company reveals Elzea’s financial viability was in jeopardy long before the coronavirus hit SA’s shores, accumulating massive debt and multimillion-rand operating losses.

Financial statements which have now been finalised for the year to February 29 2020 show a R9.9m loss for that period, with a similar loss for the previous financial year.

The company’s current liabilities exceeded the current assets by R20.8m, while total liabilities were R26.5m more than total assets.

Independent auditors Klinkradt Chartered Accountants issued a disclaimer of opinion on the financial statements because of Elzea’s severe “solvency and liquidity situation”, and a suspicion that opening balances for the financial year were misstated.

It also could not verify so-called consignment stock with an indicative value of R4.7m held at a different location to Elzea’s factory.

“We were unable to attend the stock count at these premises at year-end and were unable to confirm this balance by performing the alternative audit procedures,” Klinkradt noted in its disclaimer.

The Dispatch asked Power on Monday if he stood by the veracity of his December statement that Elzea shut its doors due to the Covid-19 pandemic.

He said: “With all due respect to you, I have no comment.”

Power told the high court Elzea was commercially and factually insolvent and that the winding up was the just and equitable thing to do.

The firm was unable to repay shareholder loans totalling R12.7m, owed the SA Revenue Service R5m in deferred tax, First National Bank R7.7m on its overdraft, and R1.87m to Business Fuel.

The 40-year-old business, formerly trading as Cheefprops 1020,  sold low cost maize snacks for between 50 cents and R5 per packet.

Power obtained a $4m ([about R32m at the then exchange rate] loan from an unnamed private equity partner in 2009  to purchase the members’ interest in the Cheefprops business and converted it to Elzea.

Repayments of R425,000 per month reduced the debt by R9m and the private equity partner acquired a 60% equity share in the company, with Power’s Power Trust retaining the remaining 40%.

Power said the business could not repay the private equity partner’s loan account of R11.8m.

In the court papers, Power detailed a slew of problems in the business, including a three-month strike by workers in 2015 which affected production and cash flow, theft by financial staff from 2017 to 2019 totalling R4.7m, and losses of R1m in cash heists of the firm’s delivery trucks in rural parts of the Eastern Cape.

On the production side, input costs had increased from R119 to R300 per bag of maize, R7,000 to R18,000 per ton of oil, and R250,000 to R600,000 per month for electricity.

Labour costs also increased two years ago when Elzea had to raise workers’ wages from R10,50 to R20,75 per hour to meet the national minimum wage.

The rand-dollar exchange rate also hit imported supplies.

Power told the court that when the national lockdown started, the business could not secure any financial assistance.

On Tuesday he said the firm had a huge dive for a good eight months but declined to comment on the accumulated financial problems in the business revealed in the auditor’s statements.

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