ASX-listed distributor, Cellnet (ASX: CLT), has reported a net loss of $836,000 for the six months to December 31.
According to its half-yearly results, the company experienced an 8.1 per cent drop in revenue year-on-year, from $265.8 million in 2006 to $244.3 million in 2007. Cellnet attributed 70 per cent of this to the loss of distribution contracts with Apple and HP.
Net profits of $2.8 million in the first half of 2006 were due largely to a $2.2 million profit on the sale of its New Zealand premises.
The company attributed the profit wipeout in the first-half to a substantial provision for "doubtful debts" of $3.1 million. This followed a review of Cellnet's credit collection process, which found $2.7 million worth of debts at June 30, 2007, had not been provided against.
"As a result of the review and changing in accounting estimate ...management concluded that there was a weakness in the internal control over financial reporting in this respect. The directors have taken further steps to strengthen the internal control over financial reporting, in particular, the control processes and procedures over credit collection," Cellnet's financial report stated. "We have employed consultants, provided additional training and supplemented existing internal policies and procedures in order to improve governance in this area."
In an ASX statement, Cellnet's chairman, Alexander Beard, said it was on-track to restoring customer and vendor support, with the launch of a new go-to market strategy around SMB and retail, as well as a re-energised management team led by Cellnet founder and managing director, Stephen Harrison.
"The six months have been a tough period with significant effort expended in addressing deficiencies in internal controls and in restoring confidence and credibility to Cellnet's product offerings," he said in the statement. "The next six months will see a significant focus on operational efficiencies, release of working capital and earnings accretive growth but at this stage no guidance can be given as to the expected full-year results."
Cellnet reported its average gross margins had improved slightly, rising from 7.3 per cent in the first half of 2006 to 7.7 per cent in 2007.