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Asbis reflects on tough 2009

by Stuart Wilson, Wednesday 31 March 2010

Emerging markets distribution powerhouse Asbis has published its annual report for 2009. In a frank letter to shareholders, Siarhei Kostevitch, Asbis chairman and CEO, admitted: “Last year was the most challenging and certainly the most difficult year of my business life. The world’s financial crisis had affected all sectors of the economy and IT distribution could not be an exemption. The consequences of this crisis were multiple and in all countries of the group’s operations.”

While full year 2009 was undoubtedly a brutal year for many distributors, it is important to point out that Asbis’ management are upbeat about prospects for 2010, predicting growth in terms of both sales and profitability. Asbis claimed that its strong sales for the fourth quarter of 2009 indicated that an EMEA market recovery was already underway. Fourth quarter sales were up 12.8% year-on-year to US$409.7m. After-tax profits came in at US$2.41m compared to a loss of US$6.4m a year earlier. Read more here

Asbis’ 126-page annual report serves up some useful morsels of information about the distributor’s business in EMEA, which we intend to cover in this feature. Alternatively, you can download the entire report here

Currency losses

Kostevitch also informed shareholders that decreased purchasing power from both consumers and businesses led to a dramatic decrease in demand for IT products leading to lower revenues – especially in the Russia & CIS region.

“In addition to this, the [economic] crisis has led to enormous risk aversion, which led to many investors withdrawing funds from the emerging markets of Europe causing a steep depreciation of the local currencies against our reporting currency, the US Dollar,” he explained.

“As a result the group suffered from a vast amount of currency losses reaching the amount of about US$4m for the year.”

Asbis slipped to a full year loss in 2009 – the first time this had happened since the company’s inception in 1990. Kostevitch believes that the company will rebound strongly in 2010 thanks in part to the number of new distribution agreements it managed to sign last year.

“All these new distribution agreements, the significant reshaping of our private products portfolio and the strict control of our costs have created the foundations for a successful 2010,” he explained.

Annual figures

Overall, Asbis’ annual sales slipped 22% year-on-year to US$1.16 billion in 2009. The company posted an after-tax loss of just under US$3m compared to a profit of US$4.1m in 2008. Currency fluctuations and channel credit have become major operational issues for Asbis and the distributor pulls no punches in its annual report.

“Due to the recent market developments following the credit crisis that affected all countries the group operates in, credit risk has become one of the most important factors that might affect the group’s results in the future,” declared Asbis.

“Despite the fact that the group has managed to credit insure a large portion of its receivables, credit insurance companies are nowadays more risk averse and they are cancelling and/or withdrawing credit limits to customers. As a result the group is exposed to more credit risk and the ability of the group to analyse and assess its credit risk is of extremely high importance,” continued the report.

Asbis’ IT4Profit online trading platform handled transactions that contributed 55% of the distributor’s revenues in 2009. With 33 warehouses in 26 countries, Asbis reckons that it is now supplying to customers in some 75 countries overall.

Sales in Central & Eastern Europe contributed 39% of revenues in 2009, followed by the former Soviet Union with 32%, Middle East & Africa with 16%, Western Europe with 10% and 3% from other territories. Asbis sold 3.75 million CPUs and just under 3 million hard drives in 2009. Asbis currently employs 470 sales managers across its business, according to the annual report. During 2009, Asbis served more than 30,000 separate channel customers.

Distribution model

Asbis annual report also provides interesting insight into the distributor’s logistics model. “We have developed our distribution model for small emerging markets and countries with less developed infrastructure over a period exceeding ten years,” Asbis stated. “Our key distribution objectives are to maintain availability of adequate in-country stock levels in order to meet customers’ demands, while keeping stock levels at our regional warehouses for periods no longer than 10 to 14 days of lag time behind in-country sales.”

Vendors typically deliver products to Asbis’ three regional warehouses located in Dubai, Prague and Shenzhen. The local in-country Asbis operations order from these centres through the IT4Profit online trading platform. This model does not apply to some developing markets.

The annual report explained: “In countries where infrastructure is not optimum, such as Russia, Ukraine, Egypt, Kazakhstan, [and] countries of the Middle East and North Africa, we operate through a system of authorized resellers (dealers). In these countries, sales and marketing efforts are carried out by our representative offices. We sell to resellers directly from our Cyprus headquarters, ship the products from our regional distribution centres, and provide different loyalty schemes designed on a country-specific basis.”

Looking ahead

Asbis predicts that it will increase sales by 10% in 2010 as the market picks up once again. The company believes that its geographic coverage allows it to reach parts of the channel that other major distributors cannot reach.

“While some consolidation has taken place in the last few years, the biggest international competitors such as Ingram Micro Europe (with its dedicated components sales force), Tech Data and Actebis have not managed to establish themselves locally in Central & Eastern Europe and [the] former Soviet Union and rely on trade-desk teams to sell into these countries,” explained the report.

“While these trade desk teams are strong competitors with respect to larger accounts in the region (such as regional operations of multinational OEMs), the directors consider that they are not significantly impacting the lower distribution tiers due to their inability to support large numbers of geographically dispersed customers,” Asbis stated.

In terms of competition from local distributors, Asbis identifies the following companies: Elko in the Baltics, Russia and Ukraine; Kvazar Micro in the former Soviet Union; AB, ABC Data and Action in Poland; AT Computers, Ed System and BGS Levi in the Czech Republic and Slovakia; plus CT Group and Msan in the Balkans and Adriatic region.

“As the global financial crisis deepens more consolidation is expected to happen in the next couple of years,” stated Asbis. “Many small competitors might be forced to seek alliances with bigger and more solid distributors in the market place. The directors believe that this might create opportunities that Asbis will benefit from.”

“The recent world financial crisis led some of our competitors to bankruptcy or to [the] decision of moving out of particular markets,” stated the annual report. “Additionally we have signed a significant number of agreements with suppliers for many countries, including Slovakia, Ukraine and the Middle East countries. This resulted in increased market share and sales even though the market was significantly smaller than the year before.”

Major countries

Russia remained Asbis’ largest national market in 2009, despite the fact that in-country sales fell 53% year-on-year to US$203.1m. Interestingly, Slovakia was Asbis’ second largest national market with sales of US$168.2m followed by the Ukraine with US$119m.

Asbis currently holds two major credit insurance policies with Atradius and Euler Hermes. During 2009 the distributor insured more than 50% of its annual revenues. The distributor’s overall headcount reduced to 1,090 at the end of 2009, down from 1,260 a year earlier.

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