Major Brit IT provider denies turning to fellow resellers after burning up lines of credit

Mutterings tell of another refinance for Azzurri

British comms provider Azzurri has rejected suggestions that its finances are so precarious it has been forced it to tap up fellow resellers for product.

Azzurri provides various well-known UK firms and government departments with comms and data services, reselling a range of vendor products in the telecomms, networking and cloud sectors. But well-placed sources claim that the business is close to hitting the limits of its credit lines with its wholesalers.

However, in a statement sent to The Channel, CEO Vim Vithaldas firmly denied our sources' suggestion that the his firm has had to turn to fellow integrators and resellers with purchase orders.

The chief exec - who came on board after previous boss Mark Quartermaine resigned to join Capita - insisted his company will "fulfil customer orders", adding:

"We have sufficient credit limits with all our suppliers and we continue to settle our liabilities in a timely manner."

Our contacts, meanwhile, claim that insurers have assigned the Aldridge-based communications integrator the lowest possible credit rating short of withdrawing trade insurance entirely, due to concerns over its debt levels in relation to profits.

"Azzurri have been sniffing around," said the boss at one reseller, who claimed his firm had been approached on more than one occasion recently by Azzurri.

"They are struggling to get credit. A competitor is highly unlikely to go to the reseller market to process deals unless it can't get credit from distribution," our source claimed.

Another confirmed that his business has been approached but said it had decided not to trade over concerns about Azzurri's debt profile after getting a credit reference on the firm.

Azzuri underwent the commercial equivalent of open heart surgery in December 2011 when its seven-strong banking syndicate effectively removed private equity partner Silverfleet and wrote off some £224m of unpaid interest, carrying forward losses, bonds and loans.

It refinanced with the support of the syndicate, which includes Barclays Converted Investments, Allied Irish Bank, the Bank of Ireland and the National Australian Bank.

The Aldridge-based business has seen revenues tumble from £149m in fiscal 2009 ended 30 June to £126m in fiscal 2012, and during that time it has been forced to initiate restructuring exercises.

According to a Companies House filing for parent Azzurri Holdings, the operation made a gross profit of £19.94m in fiscal '12 but after admin and exceptional expenses for restructuring, operating profit was £7.8m compared to £11m a year earlier.

Taking out depreciation and amortisation, group operating profit was £5.5m but finance costs of £23.5m turned a profit into a net loss of around £18m compared to a loss of £106.5m in the previous year.

The shares of the business were transferred to a new ultimate parent Warden Holdco Ltd. This was incorporated in November 2011 and does not need to file numbers for nine months after year end.

The underlying bank debt now stands at £97.2m with a revolving credit facility of £4.9m, payable by June 2014.

In its heyday Azzurri was highly acquisitive, purchasing numerous firms including Sirocom and Chisholm Computers.

Sources said they suspect Azzurri is talking to financiers about another refinancing package because it is unlikely, given the profit ratios, to satisfy its existing loans in the near term.

"Principal suppliers are squeezing Azzurri on terms because they are uncertain about the refinancing that will inevitably be required, and because they don't like what has happened," said a channel source.

Nonetheless the balance sheet is looking stronger since the company last refinanced - total negative equity declined by £247.8m in fiscal '11 to £23.2m in fiscal '12.

Vithaldes said:

"Azzurri has a very strong cash position and possesses clear headroom on funding. Our most recent FY11-12 accounts were filed on time and clearly articulate the funding position. We still have over a year of funding to run, which we look forward to extending with our extremely supportive stakeholders.

"In the meantime, Azzurri continues to trade strongly in challenging macro conditions," Vithaldes added. ®

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