Alviva earnings cut in half but shares rally

Alviva Holdings, the JSE-listed parent of technology companies such as Axiz, Pinnacle and Datacentrix, has reported a 50% decline in full-year headline earnings per share but will pay a dividend of 15c/share, down from 30c previously.

Revenue for the 12 months to end-June 2020 fell by 7% to R14.8-billion, while core earnings per share fell by 36%. Cash generated from operations came in at a whopping R1.8-billion, from R275 000 previously, but Alviva warned this massive spike was temporary.

The group’s shares rallied more than 10% on the numbers, to R7.26 apiece as at 2.30pm in Johannesburg, on higher-than-average trading volumes.

“Although the financial results are disappointing when compared to those in prior periods, a great deal has been achieved despite the enormous challenges,” the group said in commentary alongside the annual financial statements, saying the second half of the year was “obviously affected by Covid-19”.

Even before the lockdown started in late March, Alviva group companies were experiencing a delay in product supplies from China. Then the lockdown hit, “ensuring there would be no chance of the group recovering lost ground in its financial performance”.

Unlike many other sectors, however, Alviva’s businesses were able to trade through the lockdown, albeit at reduced capacity and within the limits set by the government’s Covid-19 regulations.

Rigorous tests

“The distribution businesses then had to cope, using reduced resources, with handling April and May’s order load in one month when stage 4 was declared at the beginning of May. Notwithstanding these obstacles, May and June were reasonable trading periods.”

Given the uncertain economic outlook, Alviva said it conducted “rigorous tests” of its intangible assets and decided on “substantial” write-downs in the carrying of goodwill, especially related to its VH Fibre subsidiary – to the tune of R50-million. (Goodwill is the price paid for an acquisition above its net fair asset value.)

Alviva said it placed a “huge emphasis” on maintaining and improving liquidity since the imposition of the lockdown due the uncertainty it created. A R100-million redemption of preference shares to Absa was postponed for three months to 20 August 2020, a share repurchase programme was put on hold “despite the temptation of the attractive share price” and discretionary capital expenditure was suspended.

The group reported “extraordinarily high” cash generated from operations. The substantial cash holdings at the reporting date – 30 June – were largely due to the extension of credit terms granted by vendors to aid the businesses through the post-lockdown period.

“Substantial repayments to the supportive vendors have been made in the ensuing months, the R100-million preference shares have been redeemed and the cash holdings have decreased subsequent to the reporting date to normalised levels.”

Margin squeeze

In the ICT distribution segment – by far Alviva’s largest – revenue decreased by 11% and earnings before interest, tax, depreciation and amortisation by 25%. The segment comprises Axiz, Axiz Services, Obscure, Pinnacle and VH Fibre. Axiz is the most significant of the businesses in this segment.

On the services side, Datacentrix maintained its revenue despite the impact of the pandemic in the second half. “Due to a change in mix and competitive market pressures, margins weakened, resulting in the profit before tax declining by 35%,” the group said. However, Datacentrix reported strong cash flows despite the tough market conditions.  — (c) 2020 NewsCentral Media