UPDATED: Commander revises pre-tax guidance

UPDATED: Commander revises pre-tax guidance

Profit estimate drops by at least $13 million

ASX-listed integrator, Commander (CDR), has blamed full-year profit guidance cuts on rapidly declining hardware sales.

The Commander board has now set FY08 pre-tax profits (EBITDA) for the year to June 30 between $4.5 million and $7 million excluding abnormal charges. The figure is a substantial drop from its pre-tax profit forecasts of $20 million to $30 million set in late January.

In a letter to shareholders, managing director and CEO, Amanda Lacaze, said the primary reason for the shortfall was faster-than-expected decline in IT hardware sales. Commander announced its intention to largely exit the hardware reselling business in January as part of a broad turnaround plan to restore the company to profitability.

Elaborating further on the results, Lacaze told ARN the drop-off in IT hardware sales had happened earlier than expected.

"We assumed that there would be a pipeline of sales in that [IT hardware] business and scheduled that as falling off to June 30, then settling at a significantly lower number from July onwards," she said. "What we found was that there was no pipeline and we dropped straight to the number we assumed from July."

While agreeing the drop-off could have resulted from cautious market sentiment around the global economic climate, Lacaze largely attributed the hardware sales fall-off to customers transitioning faster to alternative suppliers.

"We're not alarmed by that - I'd rather have had a nice pipeline, but it's not inconsistent with our strategy," she said.

Other factors listed as contributing to the lower pre-tax forecast included a $1.2 million negative variance in performance of Commander's Nexon subsidiary over previous guidance. Commander sold the Nexon business back to its founders, the Assaf brothers, at the end of March and just 12 months after acquiring it. The deal enabled Commander to wipe $9.1 million in debt repayments off its books.

Guidance figures were also adjusted to reflect actual performance during December and January, which was $4.4 million less than expected, Lacaze said.

"Initial results from the turnaround plan implementation indicated these shortfalls may have been retrievable. However, the rate of recovery has been inconsistent across the period and it is only now apparent that this shortfall will not be recovered before the end of this financial year," she said in the letter. "It is important to note the transformation of Commander is not a short-term task and will take two to three years to complete."

Lacaze said the EBITDA figure was a notional one and stressed the importance of what was happening across its various business units. On a more positive note, Lacaze pointed out cash flow had experienced a significant turnaround in the second half of the current financial year and reached $5.5 million in the five months to May 31. Commander reported a negative cash flow of $118 million and net losses of $245 million in the six months to December 31.

"It doesn't matter what you have in P&L statement - it's the amount of money coming in and going out of your business that means you trade effectively and I'm pleased our team has addressed that," Lacaze said.

The company also reported success in its core business areas - managed services, SMB and enterprise. Recent wins included providing a communications system for the AFL, a contact centre for Melbourne-based PCI and providing its OneStream voice services to Abey Australia.

Commander has also signalled its intention to continuing selling non-core business assets. Over the past 12 months this has seen the integrator offload wholesale network arm, M2, and its Western Australian enterprise ICT business.

"I had hoped we could have provided an announcement today about a future sale but unfortunately we couldn't," Lacaze told ARN. "We are still active in this space."

Earlier this week, Commander was also cleared of breaches of conduct by the Workplace Ombudsman for axing 600 staff on January 31.

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