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Shape-shifting box shifter Systemax made cash... from non-IT kit

2013 financials: Sales down, losses widen

A write-off of deferred tax assets helped to widen losses at ailing Systemax during Q4 as the tanking consumer biz in North America more than offset sales growth in the Industrial Products division.

It was an eventful end to another eventful year for the shrinking reseller, with turnover in the final three months of 2013 down 7.1 per cent in constant currency to $874.2m.

Split by category, Technology Products made up $748.9m of sales, down 11.1 per cent on the same period a year ago.

Systemax said B2B and consumer tech revenues in North America dropped 16.7 per cent but did break down the figures further.

"Our consumer business remain challenged," said CEO Richard Leeds on a conference call with analysts. He said this reflected the "very competitive and promotional customer environment".

Leeds is scrutinising consumer unit profit margins and described its US web shops as an "excellent acquisition vehicle for our B2B business, as we find that small businesses like to buy from our sites".

He added its consumer strategy was to continue lure in commercial buyers via its retail fronts and "get the consumer business into profitability".

The company said it shuttered some "under-performing" bricks-and-mortar retail stores in the US last year, but didn't specify how many.

All this sounds a bit like a reseller that, in the absence of a better plan, is minimising losses in consumer to buy the time to work out what it will do with the retail biz long term.

Closer to home, the EMEA operation run by ambitious boss Pim Dale declined 1.5 per cent in constant currency, but again unhelpfully the company did not provide the exact dollar revenue number.

"On an overall basis our EMEA businesses were soft this quarter," Leeds added.

The reseller has opened a Shared Service Centre in Hungary staffed by 215 peeps and this will continue to scale this year and next to "significantly improve our operating structure by lowering costs".

The shining star across the group was the Industrial Products division - power tools, office equipment - which operates in North America and bounced 26 per cent to $123m in the quarter. It also yielded an operating profit of $9.6m compared to losses of $7.2m in Tech Products.

Systemax is a business in the middle of a massive transformation and as such, a closer look under the bonnet showed that some fundamentals appear to be headed in the right direction.

Gross profit improved to $129.3m, up from $120.4m a year earlier, with gross margin rising to 14.8 per cent from 12.9 per cent.

CEO Leeds said the top line benefited from "outstanding performance" in the industrial business and from a strategic move to "focus more efforts on B2B channels" and to not chase "commercial pricing" in the Chrimbo sales season.

S,G&A expenses fell $2.1m to $124.9m, and Systemax booked special charges of $5.7m - including severance charges in EMEA - leaving an operating loss of $1.3m versus an operating loss of $46.8m a year ago when the restructuring process began.

After expenses and a $17.5m tax charge were recorded, the net loss was $19.8m – compared to $27.1m in Q4 2012.

For the calendar year, turnover was down 5.4 per cent to $3.54bn. An 8.4 per cent year-on-year drop in Technology Products to $3.1bn was made less harsh by a near 18 per cent hike in Industrial Products to $402m.

Consumer channel sales fell 16.8 to $1.434bn - the third consecutive year of decline ($1.8bn was reported in 2011) and B2B - including Industrial kit - was up 2.3 per cent to $2.109bn.

Gross profit for the year was $486.7m, down from $488.1m and after expenses, charges and the hefty $22m tax write off were discounted, the net loss was $43.8m versus $8.3m in Q4 '12. ®

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