Rectron CEO Mark Lu says the company is making headway in a market that is still consolidating after last year`s demise of distribution giant Siltek.
"Everyone underestimated the importance of Siltek; it was more than a distributor, it also acted as a bank. Siltek effectively took an R800 million line of credit with it," says Lu.
He says the industry is now scrambling to get lines of credit. However, Lu notes that local banks are naturally wary of distribution companies, seeing it as a high-risk industry.
"Rectron is using international bank, Citi Bank, which has made our lives much easier. International banks are still quite bullish about distribution," explains Lu.
The fact that Rectron, a subsidiary of JSE-listed Mustek, is no longer listed is also working to the company`s advantage. Lu says banks are naturally more inclined to extend capital when directors are signing surety in their personal capacity.
He believes the rest of the industry will have to keep a tight rein on financial management and this challenge will be the litmus test to see if channel players will manage to stay in business.
"The cost of doing business in SA is very high. We have high logistics costs as well as a weak currency to contend with."
However, Lu says Rectron has found a good formula for conducting business and the company has debtor days of 37 and payment terms of 30 days from invoice.
In addition to its tight payment terms, Lu says the company has always been margin-focused and Rectron is still operating on gross margins of around 12%, while other hardware distributors only enjoy around 2% and 3%.
Lu says this conservative approach will see the company finish the year with a R1 billion turnover, but adds that he is not in business to worry about turnover. "At the end of the day, it`s all about profit."
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