Ingram Micro: Consolidated financials 'not a true view'

Ingram Micro NZ Holdings may have posted a consolidated net loss of $13.3 million for 2013, but that's not the story for the IT distribution business itself says local boss Gary Bigwood, who says business for New Zealand's largest IT distributor is good – and getting better.

While Bigwood, Ingram Micro New Zealand managing director, won't disclose figures, he says the IT distribution business closed out 2013 with positive operating income and an operating profit, and says the consolidated financials don't truly reflect the local business.

Ingram Micro New Zealand Holdings' posted a consolidated net loss of $13.3 million for the year ending 31 December 2013. The losses, up from $7.4 million the previous year, come on the back of reduced revenue from sales of goods and services of $528 million, down from 2012's $583 million.

Gross profit was down just over $1 million, from $36.2 million to $34.9 million.

However, Bigwood says the results don't tell the true story of the IT distribution business itself – one he says is instead of a company with an evolving business model, making significant investments and recording profits.

“Operating profit in 2013 for Ingram Micro NZ Limited – the IT distributor – was definitely positive and met with expectations,” Bigwood says.

“The 2013 results lodged with the Companies Office are for Ingram Micro Holdings, not for Ingram Micro (NZ) Limited, the IT distributor.

"So the results are a consolidated view. [And] because the accounts are consolidated, you can't see this view [of profit for the IT distribution business] in the report.”

While he won't disclose local revenue and profit for the distributor – the company is part of a Fortune 100 company and strictly governed by what it can disclose – he's adamant business was good.

“I'm pleased with the 2013 outcome and excited by the opportunities that lay ahead. IT distribution is changing and it is exciting to lead some of this change, rather than have it happen to you.”

Third party success...

One area proving successful for Ingram Micro New Zealand is the 'very large third party logistics business the company runs, which Bigwood says is proving profitable – and yes, is 'profitable'.

Bigwood says a series of contracts involve full service distribution for hundreds of millions of dollars worth of products annually.

“In these agreements, Ingram Micro takes delivery of the product, warehouses it, takes the orders from the channel, completes the pick, pack and ship, invoices for the value of the goods, and collects the money from the channel, but at no time do we take title of the goods.

“Instead, we are doing all of this as a service offering for the vendor.

“Consequently, under accounting rules, we cannot count the value of these invoices as revenue. So although our New Zealand business has grown significantly in these areas, you won't see it in the annual report.

Last year saw some big changes for the company. Among those was the shedding of around 20 vendors and 'refocusing resource where there was better opportunity'.

“It was overdue,” says Bigwood. “We had not had a focused restructure of vendors for more than five years, and some pieces of the business just did not make sense anymore.”

Bigwood says the company will be announcing new vendors and an expansion on some existing distribution deals in the coming months.

The company also invested, in the millions of dollars, in setting up and modifying new business divisions in 2013.

“Moving the box is very important but there is so much more value that a distributor can add to the channel.

“This investment will continue as the market and models evolve and we position ourselves to take best advantage of the opportunities ahead of us.”

Debt servicing...

Bigwood says the loss in the New Zealand consolidated accounts is, in fact, the result of debt servicing.

“Over the last decade, Ingram Micro has made a number of large acquisitions in the New Zealand market, including Tech Pacific, VAD, Vantex and Brightpoint, and those acquisitions have been funded through interest bearing intercompany debt.

The records show that Ingram Micro New Zealand Holdings has bonds payable in June 2018 to Ingram Micro Global Holdings, with a face value of $162,756,253, with the directors 'confident' of a favourable outcome prior to the due date of the bond.

“Looking at this in isolation will not give a complete picture,” Bigwood says.

“Ingram Micro New Zealand is approximately 1% of the Ingram Micro global business and the results of the corporation have been published and have been well received by the market, reflected in the rising share price over the last 18 months.

As to 2014, Bigwood says the year has started strongly.

“We are seeing growth again in some of our very large volume categories that have been in a slow decline in recent years.

“As the economy tightened, many companies and consumers made a conscious decision to pull back on spending and sweat assets.

“Computers and printers are two great examples where businesses extended the refresh cycle. But sooner or later it becomes a false economy, with lost productivity and reliability having an impact.

“The market has definitely surged ahead in 2014 in many of these categories, which is very exciting to see.”