Azzurri CEO: No longer distracted by uncertainty and debt

Vim Vithaldas explains that the firm's new banking owners are allowing him to run it as he wishes and tells us why he wants to helm a "boring" business

When Vim Vithaldas took the reins at Azzurri Communications late last year, the former Datapoint boss was stepping into arguably one the channel's hottest hot seats.

Following a consolidation spree and a private equity buyout in the early- to mid-noughties, the comms integrator has long been carrying a worryingly hefty debt burden. Vithaldas, the fourth chief executive inside four years, inherited a firm that had just been refinanced, with banks taking a chunk of the company off the hands of private equity backer Silverfleet. The business was able to realise an extra £238m of equity on its balance sheet.

Five months on, Vithaldas is celebrating a successful second half of Azzurri's fiscal year and claims the stability brought to the company by its new-look financial setup will allow it to grow profitably in the coming years.

Meanwhile, numbers for the 12 months to the end of June 2011, which were filed at Companies House this month, show that FY11 sales fell 8.2 per cent annually to £129.5m. Operating profit dropped 23.5 per cent to £8.9m. ChannelWeb caught up with Vithaldas to discuss the ins and outs of Azzurri's new ownership and his plans for the future.

ChannelWeb: How is FY12 shaping up compared with FY11?
Vim Vithaldas: We expect FY12 revenue to be flat on 2011. The first half of the year, when we didn't have a CEO and were going through a refinancing process, was OK at best. The second half of the year, since 1 January, we are very bullish: these are strong numbers, as good a six-month period as we have had in two or three years.

What have been the key successes in the past four months?
The first headline is that there are no headline deals. It has not come off the back of a one-off project, a multimillion-pound deal that is recognised all in one year. It has been a number of deals.

Are there any technologies or service offerings that have been particularly successful?
Our data offering is one. We have spent the best part of £1m on the fabric and if we look at [recent customer win] Clear Channel, that was on the back of the new data offering. There is also more focus on existing customers and selling more to them. That resonates well in the marketplace; customers want to do more with one supplier.
We have experienced real growth in the first half of this year in ICT projects and in mobility. We have had some new wins: the Southern Co-op, that is almost the marquee account. It is not the biggest, but we are delivering the majority of the services we sell into that customer.
ICT is good revenue in its own right and it also helps to populate future recurring contracted revenue.

In FY11 more than 70 per cent of the top line came from recurring revenue streams. Will driving annuity business be a continued focus?
Absolutely. We have a very high percentage of contracted revenue and, since 1 January, I can hang my hat on having almost four fifths of my revenue target. I can say ‘this is done', in terms of de-risking the business.
This is something we will absolutely continue with going forward. The focus is selling more services into that existing client base. If we are doing A, B and C with a customer, we can now add D and E.

What have been the key effects of the refinancing of the business?
The business was very highly leveraged and it is not any more. For our funders and shareholders that removes all the confusion and uncertainty. From an intangible perspective, customers can sign up with us knowing they are signing up with a well-funded business. Before, [there was the concern that] ‘how many customers did we not sign up because of that [perceived] problem?'
The boot is on the other foot now for competitors who have pointed to a weak balance sheet position. But we can now lead with our funding and structural position. We have a good degree of certainty.

One might assume a group of bankers would want to keep a tight rein on your P&L; how much autonomy have the new owners allowed you?
The banks have been very grown-up about it. Our remit from day one was to go into the business and see what was in our hands. Since then we have clearly signed up to a set of numbers. It is a very hands-off [approach], they allow me to run the business. I have a very capable team and [the banks] do not tell me how to run the business.

Are the buy-and-build days ostensibly over? Would you consider a merger or even a sale of the company?
At the end of the day, my brief is to turn this into an efficient, effective business that is performing to its full potential. Any M&A activity at this stage would be a distraction.

You mentioned that you've signed up to a two-and-a-half-year plan; where do you want to take the business from here, and what are your priorities?
There are three things: one is increasing the recurring revenue. [Second], I want to sell more services into existing customers, which has a lower cost of sale and increases customer stickiness. Third is making the business as profitable as possible. If I do the first two things right, the business will become predictable, profitable and cash-generative. And those are the three things that any chief executive looks for.
I genuinely believe this is an excellent business which has been distracted in the past by its funding position and general uncertainty. The focus going forward is to have a boringly predictable business, and the customers will know they have a strong, stable managed services provider. Employees, shareholders and funders will know this is a good business that is growing its top and bottom line.