Technology group Alviva Holdings reported a slump in earnings for the six months ended 31 December 2019 due to woes in its ICT distribution segment, a change in accounting rules and foreign exchange losses.
The group, led by CEO Pierre Spies, also warned of a tough second half, with an expected reduction in full-year earnings.
Headline earnings per ordinary share for the interim period fell 35.7% to 94c, despite a reduction in the number of shares in issue, while revenue declined by 4%. Alviva – whose distribution businesses include Axiz and Pinnacle – described the results as “below par”.
“We were able to slightly improve our gross profit margins although not sufficiently to offset the lost revenue,” it said.
Axiz was particularly hard hit in the latest reporting period due to a declining market and major once-off events faced by several key customers, primarily in the consumer retail and public sector segments.
The distributor has modernised its IT systems and processes to be “digitally ready and to ensure delivery of cloud products and services to the channel in a more digital manner”, Alviva said. “New demands on, and opportunities for, distributors globally are calling for services to be provided with many of these new and existing product offerings.”
The new enterprise resource planning system – Sage X3 – means Axiz has migrated off a “legacy and high-risk” ERP platform that was no longer supported and “eliminated the single biggest risk and inhibitor facing the business”.
‘Lacklustre market’
Pinnacle performed “reasonably in a lacklustre market” but did not enjoy any sizeable deals during the period. It will move to the same ERP system that Axiz is using, a project that should be concluded by the end of this financial year in June.
VH Fibre, also part of the distribution segment, suffered due to a “sharp contraction” in the South African fibre market. “One of the principle players, and a driver of the fibre growth over the last three years, reduced its capital expenditure considerably due to the lower than expected uptake by end customers on the fibre that was ‘laid down’. VHF has also seen a marked slowdown in the demand for its higher-end products and services as the major metropolitan areas reached saturation points. Also, as fibre network owners expand into the less dense areas, their choice has been for a lower-end product than that offered by VHF.”
VH Fibre is making progress in diversifying into the wireless backhaul market, as the lack of investment in fixed-line metro links is reducing and this presents an opportunity, Alviva said. Cross-border activity on products and services in this business continues to grow at a faster rate than in South Africa.
In services and solutions, Datacentrix grew its revenue by 7% in a tough market and delivered nearly the same profit before tax as in the year-ago six-month period.
DG grew revenue by 15% and profit before tax by 51%. The unit was able to take advantage of meaningful one-off deals.
In renewable energy, Solareff has increased its order book to its highest levels, thanks in part to the constant load shedding by Eskom. However, this has not yet translated into profitability due to logistics and execution delays.
GridCars completed its roll-out of charging stations on the major highways between Johannesburg, Cape Town and Durban. It remains loss-making but the losses are “insignificant from a group perspective”.
In applications and intellectual property, Sintrex has had a difficult six months with certain maintenance and service contracts not renewed in the government sector. Merlynn has encountered “frustrating delays” in securing contracts in developed markets.
Synerg, Alviva’s new acquisition in the ERP solutions and implementation area, delivered profits in line with expectations.
The financial services segment had a good six months with revenue growing by 10% and earnings before interest, tax, depreciation and amortisation by 26%.
Cash generation
Group cash generated by operating activities was a “healthy” R595-million, compared to R130-million a year ago.
However, Alviva warned that the outlook for the full financial year is “uncertain” with the weak first-half results will make it difficult for the group to match last year’s earnings.
“The board does not see any change to the economic conditions that will create an environment of growth. In addition, the group nervously awaits the resolution of the coronavirus, which, if not speedily resolved, could have an impact on Alviva’s ability to source products quickly and efficiently.” — © 2020 NewsCentral Media
