Cellnet revenue and share price take a hit

Cellnet revenue and share price take a hit

Telco sales slump blamed for first-half decline

ASX-listed distributor, Cellnet, has reported a 15 per cent drop in first-half revenues from $319 million to $269 million to December 31.

The company's net profits increased year-on-year from $0.7 million to $2.9 million, buoyed by the $2 million sale of a property in New Zealand.

Managing director, Adam Davenport, laid the blame for the revenue decline on its telco business, which was still reeling from Telstra's decision to source mobile handsets solely from Brightstar in early 2006. The contract had been worth $40 million annually. The distributor's Telecom New Zealand business had also slowed, further reducing revenue.

Davenport said difficult IT and telecoms market conditions would prolong Cellnet's restructuring program. But despite the disappointing bottom line, there were "encouraging signs", he said. For example, the company experienced a slight percentage increase in gross margins through its imported telco products, as well as IT goods. This resulted from better process and inventory management. Inventory value has steadied at just under $25 million.

Davenport said its sales division, headed up by Martin Bicknell, was another area of ongoing improvement. It had now established a new high-tech call centre and online service and rationalised external sales staff. He declined to specify how many field staff had been cut.

"We are focusing on online and inside sales and making more investments in these areas while reducing our investment into field sales," he said.

"Take-up of the online ordering system has been very good. We're not disclosing what the percentage of total volume is coming from online, but we are close to the first milestone we set."

Cellnet's acquisition of SanDisk and flash memory distributor, VME Systems, was also a noted contributor in the last three months of the year, reporting an after-tax profit of $406,000. The distributor also purchased South Australian-based HiTech Distribution in December.

Davenport hopes to finalise several other potential acquisitions in coming months.

Cellnet's shares have taken a tumble in recent weeks, falling from a high of $1.49 on January 29 to $1.18 at close of play on February 26 following the results announcements. Davenport said its shares were narrowly held and influenced by relatively small transaction volumes.

He said Cellnet needed to address the issue.

"I don't think we can expect shareholders to put up with low profit levels and dividends for too much longer," Davenport said. "There's been some good progress made, but there's still work to be done on our sales business. It is a challenge for us."

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