Despite a record year for revenues Cellnet has indicated it will need to restructure and reduce its inventory if it wants to turn that into profit.
The company has confirmed its earlier guidance of an after tax profit in the region of $6.1 million for the full fiscal year ending June 30. The result was a disappointment after the company’s first half results put it on track for a record year.
The “disappointing” result was impacted by lower than expected performance in the distributors higher margin products coupled with a decline in average margin. “Frankly the second half result was very disappointing,” said Cellnet chairman Dr. Darryl McDonough.
McDonough confrmed that the first job assigned to new Managing Director Adam Davenport was to hold a reviewof the company’s operations with a view to changing the complex structure which grew from the many acquisitions made over the past few years. Although this program of restructuring has been approved by the board, little detail has emerged.
In the company’s results presentation to analysts and investors, a new organisation chart details six general managers reporting into Davenport; CFO Mark Bloomer, GM for the company’s New Zealand operations Mike O’Brien, Darryl Tucker as GM for Corporate, Peter George, GM for Retail and Ben Grootemaat as GM for the company’s mobile phone content production business Mercury Mobile.
A sixth spot, for a General Manager of Supply Chain is as yet unfilled as the company searchers for a logistics specialist to take the role.
Apart from lower margins in the mobile phone accessories business, Cellnet pointed to costs associated with inventory management as a drain on second half profits. In fact, the company elected to write off an increased amount of inventory to free up warehouse space for product from newly signed vendors. The company has done well from industry consolidation (the TechPac/Ingram Micro merger) and says it picked up additional vendors as a result. Both Toshiba and HP signed with the distributor soon after the merger took place.
“We intend to make substantial reductions to the number of individual stock items held and our levels of inventory,” said Davenport.
“Cellnet has recently attracted many new vendor partners and the stock rationalisation programme currently being undertaken will liberate additional warehouse capacity needed to service the new relationships.”
The poor result prompted the board to cancel any plans for a further dividend payment, though the company paid a 7 cents per share dividend in April this year.