Systemax CEO points to 'competitive' UK reseller environment as local losses widen
Misco UK hit by slow trade in wake of Brexit vote but France and the Netherlands enjoy double-digit growth
Misco UK hired nearly 20 new sales heads last quarter, parent company Systemax said as it admitted the business continues to drag on its overall results.
In a Q3 earnings statement, Systemax revealed that non-GAAP revenues at its European Technology Products Group grew one per cent year on year to $219m (£179m) during the quarter, in constant currencies. That figure excludes Misco Germany, which it sold to Cancom in the summer.
Systemax CEO Larry Reinhold dubbed Misco France - its largest market in Europe - a "model of success" as it delivered an 11th consecutive quarter of double-digit organic growth. Its Dutch business, which it acquired from SCC in 2014, also generated a third straight quarter of double-digit organic growth.
However, EMEA operating losses for the three months ending 30 September 2016 almost quadrupled from $1.1m to $4.1m, driven by increased losses in the UK.
EMEA gross profit for the quarter also shrank by 13.2 per cent to $26.4m, with gross margin slipping 130 basis points to 12.1 per cent. Reinhold said this was "primarily the result of changes in sales mix and aggressive pricing in the UK".
Although the top-line decline in the UK narrowed in the quarter, operating losses here widened. A number of public sector and large enterprise account wins were "positive for the business" but carried "somewhat lower margins", Reinhold admitted.
"The post-Brexit market in the UK is slow and the environment among IT resellers is competitive. We have aggressively priced large deals in an effort to gain traction with our customer base," Reinhold said on a Q3 earnings call, a transcript of which can be found here.
"Efforts to improve the business included adding nearly 20 new sales representatives and expanding our solutions team and offerings."
NYSE-listed Systemax exited its North American reseller business at the end of last year but still operates in its home market through its Industrial Products Group. It grew sales 4.1 per cent to $187.4m in Q3 - its 27th consecutive quarter of growth.
Shorn of its North American B2B resell and retail activities and its German business, the latter of which generated losses of over $25m over five years, Reinhold struck a positive note in his Q3 commentary, highlighting a new $75m credit agreement the firm entered into last month.
"This new credit line reflects our streamlined focus on the Industrial Products Group and EMEA and substantially reduces cost versus the previous agreement, while increasing flexibility," he said.
"We have a strong cash position and significant flexibility to execute our business plan and pursue strategic M&A."