We've made a profit, shouts Azzurri Comms. Yeah, 'made' is right
Just ignore that multi-million pound inter-firm loan
Azzurri Communications is out of intensive care now it has its debts under control but it still took a whopping £58m inter-company loan to turn a loss-making year into a profitable one, avoiding any board level blushes.
The integrator majors on unified comms (UC) with Avaya and Mitel, and sells connectivity, security services and mobility to mid-market clients, including insurance firm Endsleigh and University College Hospitals.
But in fiscal ’14 ended June last year, Azzurri suffered some sales shrinkage, down nearly six per cent to £104.5m from £111m in the prior year, way down on the peak of close to £150m in 2009.
Chris Jagusz, CEO at Azzurri – the sixth in eight years – said several reasons were to blame including growth of cloud services in which customers pay for tech each month rather than upfront.
“We saw a big shift in customers that were buying big tin going to the cloud… two or three years ago it was hype, the availability of services wasn’t there.”
He added “mobile termination rates depressed pricing on the whole and we had some sales execution issues that had an impact as well”. Numerous senior sales staff have left the company in the past months and years.
Azzurri doesn’t break out its cloud-only numbers, but the CEO told us to look in its data division where sales grew 12.4 per cent to £32m.
Sadly – for the management team – nearly every other biz tentacle declined. Mobile was down by nearly a fifth to £15.5m, ICT fell 17 per cent to £16.8m, support services dipped five per cent to £18.38m, and consultancy, calls and lines fell 9.5 per cent to £21.7m.
Gross profit slipped to £14.2m, down from £16.8 in the previous troubled year, and despite a drop in admin expenses, exceptional items including depreciation, amortisation and restructuring left the company nursing an operating loss of £1.5m and a loss before tax of £5.7m.
The underlying operation still isn’t firing on all cylinders, but we are assured by the CEO that this will change and the reduced debt burden will help.
Balance sheet restructuring following group refinancing in October 2013, the second restructuring in as many years, saw £58.6m in bank loans held by sister company Azzurri Capital reassigned to Warden Midco “via an inter company loan” in fiscal ’14.
Warden Midco is the new parent for Azzurri Holdings, which was created for the purposes of refinancing. To date, the seven-strong banking syndicate has written off £282m of Azzurri debt.
All this meant the company actually reported a profit for the first time in years – even if it was financial engineering – totallin, £52.9m.
The firm consolidated its real estate holdings, closing the High Wycombe office and folding it into the Weybridge location. It also exited a lease on another property in Surrey and shuttered a small logistics store in Aldridge. Azzurri now operates out of six premises.
Headcount dropped from 692 to 656 with cuts made “across the business”.
Effort was also put into improving efficiencies, tightening up the operation and addressing processes. The introduction of Six Sigma techniques had resulted in “cleaner orders” to vendors, the firm said - it costs money to take a customer order, place it with a vendor and re-work it at a later date.
Jagusz expects bigger things from cloud and reckons customers are “starting to understand what UC means”. In fact, we understand Azzurri is about to form a relationship with a certain company in Redmond.
Given the UC business at Azzurri it is likely any agreement will centre on Lync, but the company refused to be drawn on the details.
Mobility is also a hot market with workforces increasingly on the go and IT admins trying to help them access data, know where the assets are based and keep things secure. The company can probably make more of this.
Interest bearing debt still stands at £25m, but total debt is £45.17m which is serviceable by the end of next year. There had been nervousness among credit circles that Azzurri was too highly geared and may go the same dark route as 2e2.
Jagusz said “refinancing has stopped those questions, and we don’t get customers asking us about sustainability any longer”. He added management’s focus was on running the business, not its debts.
He said the company is in better shape, just past the half-way stage of fiscal ’15, a new sales director Brendan Lynch on board and staff recruitment ongoing.
“We are on a much sounder footing,” he told us. ®