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Alviva: Distribution weighs on group results

Recessionary market conditions, declining hardware sales and coronavirus spell tough times ahead for the local channel.
Read time 3min 30sec
Alviva group CEO Pierre Spies.
Alviva group CEO Pierre Spies.

Alviva Holdings had a tough end to 2019, admits group CEO Pierre Spies, blaming a near ‘recession’ environment, among other factors for somewhat depressed interim results. Things aren’t expected to get much better, especially with the impact of the coronavirus set to throw uncertainty over future outlooks, he adds.

With group revenue down 4.4% year-on-year to R7.4 billion, and EBIDTA down 8% to R425 million for the half-year ended 31 December 2019, Spies blames tough market conditions. Return on net equity was also "the worst in many years", he says, at 11.2%, down from 19.9% the year prior.

“We’re seeing the most pressure we’ve seen from vendors or resellers in many years. I can’t say it’s a recession, but it’s close to a recession if it isn’t technically one,” he says.

“We’re definitely feeling it in the market.”

Specifically, Spies notes the group’s distribution entities, which experienced a ‘blip’ with revenue down 9%, weighed on the group’s general figures. This would have been worse, he says, had the group not undertaken a diversification strategy five years ago to expand holdings beyond ICT distribution. In 2015, distribution accounted for 86% of group EBITDA, but is now just 46% with growth in its services and solutions and financial services divisions redressing the balance.

Hardware sales experienced a downturn, with desktops and notebook units sold down 35% from 2012, and server units down 54% from 2012, but Spies says revenue had been increasing over the period due to improved efficiencies. There is also a focus on the software and enterprise and infrastructure units as growth areas, he adds.

The implementation of a new Sage X3 ERP system at Axiz, which despite being successful now, Spies says "cost the company dearly", due to delays fulfilling orders and underestimating the change management required when implementing the new system. The lessons learned at Axiz meant the ERP implementation at sister distributor Pinnacle has been delayed, and is expected to go live in May.

There were reasons to be positive, however. The group was using approximately the same amount of working capital as five years ago (R1.2 billion) but revenue had grown from R3.6 billion in 2015 to R7.4 billion in that timeframe. The cash generated from its operations had increased from R130 million in the second half of 2018 to R595 million for the same period in 2019. Part of the cash flow strategy for the year ahead is to slow down acquisition and give more back to shareholders with share buybacks and dividends; the group had increased shareholder value by repurchasing R100 million worth of its shares during the second half of 2019.

As the largest solutions integrator in the group, Datacentrix secured new agreements with AB Inbev, Anglo and Afrgi, and had grown revenue by 7% during the second half of the year, as well as implementing its digital strategy, which included an upgrade to its ERP system, and security operations centre, service desk and monitoring centre. It’s end-to-end security as a service offering was a growth area, Spies adds.

In terms of future outlook, the economy is uncertain but unlikely to be positive, with Alviva warning in a statement that its board doesn’t see "any change to the economic conditions that will create an environment of growth".

The statement also noted that coronavirus COVID19 "could have an impact on Alviva’s ability to source products quickly and efficiently". Spies highlights that he’s expecting challenges with stock from Huawei and Lenovo, although he adds that any of the brands that have hardware coming from China will be hit. “Where we can get additional stock, we’re buying stock. We’re looking to extend [our stocks] wherever possible.”

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