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Alviva's revenue growth slows, acquisitions increase

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 06 Mar 2018
Alviva CEO Pierre Spies.
Alviva CEO Pierre Spies.

Alviva Holdings saw muted revenue growth for the six months to 31 December 2017, with an increase of just 1.3% in overall revenue, to R6.4 billion. This is in comparison to a 47% increase in interim revenue a year ago, to R6.3 billion.

"Demand for infrastructural products was considerably down compared to the prior period and, although the enterprise product set remained well supported, there was a decrease in the income earned from this section of the market across all segments," the group says in its results statement.

The ICT products and services provider, formally known as Pinnacle Holdings, says the performance was "as expected in tough market conditions". It had previously cautioned it anticipated this period to be a difficult one due to "uncertainty created in the political arena".

Despite the tough conditions, it believes it still delivered good returns to shareholders, largely due to the quality of recent investments, mainly the acquisition of the balance of Datacentrix Holdings in February 2017. Datacentrix now forms part of Alviva's services and solutions division, which also includes renewable energy company Solareff.

Headline earnings rose 17% to R208.6 million while basic headline earnings per share (HEPS) were up 25% to 133cps. In line with previous years, no interim dividend was declared. Earnings before interest, taxation, depreciation and amortisation (EBITDA) declined by 1.7% to R402.6 million compared to the previous corresponding period.

"Gross profit margins increased, and we invested in certain areas of the business from which we expect future growth, which resulted in increased expenses. This left the group's operating profit marginally down at R350 million," the group says.

The ICT distribution segment increased its revenue by 4% to R4.95 billion and EBITDA by 7% to R225 million. Centrafin, which makes up the financial services segment, saw revenue grow by 1.9% to R87 million year-on-year but EBITDA dropped 1.6% to R61.4 million.

Meanwhile, the services and solutions segment saw revenue decline by almost 1% to R1.8 billion and EBITDA was down almost 8% to R124 million.

The company says the segment experienced many delayed projects and was unable to repeat some of the large projects executed in the comparable period, even though the activity levels and quote registers have increased ahead of expectation over the period. It says corporate and government awards appear to have been delayed due to a 'wait and see approach'.

Acquisitions

The group made a number of acquisitions during the period.

Effective 31 October 2017, Alviva, through its subsidiary DCT Holdings, entered into an agreement to acquire 51% of the shareholding in Sintrex for R102 million. It has an option to acquire a further 24% within a two-year period. Sintrex is an infrastructure management company, based in South Africa, providing end-to-end IT solutions and services.

"The Sintrex acquisition will not only add a specialised products and services offering, but also a higher margin business to the group," Alviva says.

In the two months to the reporting date, Sintrex contributed revenue of R14.7 million and net profit of R1.1 million to the group's results.

On 31 August 2017, through its 51%-held subsidiary Solareff, the company also subscribed for a 75% stake in Gridcars for R3 million. Gridcars is a Pretoria-based developer of electric vehicle charge-point software management systems and supplier of charge points.

The acquisition forms part of Alviva's renewable energy business strategy and it believes that growing a network of charge points in South Africa will be the enabler of a carbon-free transport system.

As of 30 November 2017, DCT also acquired 100% of the equity of VH Fibre for a total purchase consideration of R110 million. R46 million was settled in cash in December and the remaining consideration is payable over the next two years. VH Fibre specialises in supplying fibre-to-the-home and fibre-to-the-building passive network solutions.

"This acquisition will give us access to the fibre infrastructure business that we had not really addressed properly and will enhance our margin in these product sets."

In the month to the reporting date, VH Fibre contributed revenue of R11.3 million and net profit of R1 million to the group's results.

The group also made two more acquisitions outside of the reporting period. As of 31 January 2018, DCT acquired a 72% shareholding in Obscure Enterprises, which provides innovative information cyber security technology and solutions to system integrators.

"Through the acquisition, Alviva gains access to prominent cyber security vendors, scarce cyber security skills and existing customers."

Subsidiary Datacentrix acquired a 70% shareholding in DG Store, which provides hardware and software procurement and consulting solutions, including specialised services such as product lifecycle management, highly secure cloud and hybrid data storage solutions as an on-demand backup service and cloud computing.

The transaction is still subject to a number of conditions precedent that are expected to be fulfilled during March 2018, including the approval of the Competition Commission.

Alviva says the outlook for the rest of the financial year to 30 June 2018 is positive, with earnings per share expected to be higher than a year ago.

"Our new acquisitions will hopefully contribute positively to the group and the renewed confidence being felt in the commercial arena should translate into greater business activity than that experienced in 2017," the group concludes.

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