Cellnet’s managing director has admitted South Australian hardware distributor, HiTech Distribution, was poorly integrated into the company’s overall structure following its acquisition in December 2006. The comments came after Cellnet reported a $4.6 million net loss in the year to June 30.
The disappointing result was delivered despite a $14.9 million profit from the demerger of its Mercury Mobility business. The company also made $2 million from the sale of other assets. But a goodwill write-off of $8.5 million relating to historical acquisitions and poor operations, along with $3.1 million in doubtful debts, saw its bottom line plunge into the red.
Over the past couple of years Cellnet has acquired SanDisk distributor, VME Systems, as well as HiTech Distribution.
“HiTech wasn’t a good acquisition – in all fairness on both sides, it wasn’t implemented or integrated properly,” Cellnet managing director, Stephen Harrison, said. “When I came on-board it wasn’t a pretty sight from a cultural or financial perspective. It’s sad in some respects as it was a good local business in South Australia – when taking a small family-run business into a big corporate you have the possibility that things won’t integrate properly.”
Harrison said it had since had a complete change of staff in South Australia and “broken some ground”.
Cellnet’s revenues also took a tumble in the past financial year, falling from $528 million to $439 million. In its report, Cellnet attributed the 16 per cent drop to the loss of HP and Apple business.
HP terminated its relationship with Cellnet in December. At the time, Harrison told ARN he was “unfazed” by HP’s decision and claimed Cellnet’s bottom line could actually improve after the loss of the Personal Systems Group contract.
“We did drop a lot of revenue, but we still had fixed costs of doing much bigger business in the second half of the year,” Harrison said. “We have addressed that now and reduced our fixed costs through back-end processes.”
He said the full-year result was disappointing for Cellnet but stressed the company was now debt-free and had reduced stockholdings to appropriate levels. It has also set up an internal sales and marketing team.
“You can put this down to a really big tidy up over the last 12 months,” Harrison said. “We were looking to break even or have a slight profit, but the market has been pretty tough and we have gone through a lot of changes with vendors, resellers and internal redundancies. I think things have now settled down – where we are going compared to the last year is chalk and cheese.”
However, Harrison didn’t rule out further redundancies or operational changes if the market climate continued to decline.
“It’s tough going out there for IT distributors and resellers,” he said.