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Tightening the belt

Tightening the belt

When a company appoints somebody with a financial background to run the ship, competitors are always quick to claim it is a conservative move that suggests the company is looking to tighten its belt rather than pursue growth opportunities.

The argument is based on the perceived wisdom that an organization would normally appoint someone with sales experience to the top job when it is in an aggressive mindset. When things aren't so rosy, it's time to bring in a 'bean counter'. Or so the argument goes.

Whether this is true or not is open to debate but it isn't difficult to view recent events at Cellnet in that light. And as a listed company, the distributor is forced to do its dirty washing in public. The recent change of management came as no great surprise because the Brisbane-based company was not generating anywhere near acceptable returns for its shareholders. In its most recent half-year results, Cellnet announced a 15 per cent drop in revenue to $269 million. Net profits were $2.9 million, a low enough figure in itself on those revenues but even more disconcerting for stakeholders when it includes the $2 million sale of property in New Zealand.

So will the appointment of Mark Bloomer, formerly CFO, see the distributor make significant improvements to the bottom line? On taking up his new role, Bloomer was quick to announce that he has no major plans to change strategy and will instead focus on improving execution. He should be well suited to that task having been financial controller at Ingram Micro before and after its mammoth merger with Tech Pacific.

But this approach could be viewed as a case of papering over the cracks. Cellnet has been working for some time now on shifting the core of its business from telecommunications to IT and in many ways is better placed than any of its rivals to capitalise on the convergence of these two industries. But just like in a game of chess, building a good position is no use at all unless you can make the right moves to capitalise on it. Cellnet has so far failed to do so.

Word on the street suggests there was a major disconnect between the senior management team and the board. It is thought former managing director, Adam Davenport, and his team looked to pursue an aggressive IT acquisition strategy. This was probably part of the reason he hired Bloomer in the first place but were those aspirations reined in by a board that still views the world through telco-tinted spectacles? And where does Cellnet go from here? Major investor, CVC Limited, had just paid $725,115 to increase its holding in the company by more than a percentage point to 21.32 per cent at the time of writing. This would suggest it believes the embattled distributor can still turn the corner.

Meanwhile, the distributor's marketing costs have already come under the microscope. Last Friday, it announced it had axed its annual Inov8 national roadshow. The decision comes just two weeks before the first event was set to kick-off in Adelaide on June 5. In its place, Cellnet has promised vendors more tailored, state-based marketing programs. Only time will tell how effective these will be in improving its image to resellers.


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