Virtual Communities remains strong

Virtual Communities remains strong

Virtual Communities remains a strongly capitalised company with an exciting future, despite the recent writedown of its value by one of its investors, according to CEO Ed Smith.

The company turned more than a few heads on the PC scene last year with its affinity offerings to groups such as the ACTU and the Catholic Church - shipping more than 30,000 PC bundles in its first six months of operation.

Despite this, Amcil, an offshoot of JB Were, recently wrote down its $2.28 million investment in Virtual Communities.

The move comes on a particularly flat quarter in the PC market that left many channel players, including Virtual Communities, holding excess inventory. However, Smith remains philosophical about the valuation by Amcil, describing it as "a fact of life".

"It is part of the challenge of being a business," he said.

"Virtual Communities is a highly capitalised company, with over $40 million in cash and equivalents. Over the past 12 months, listed technology companies have experienced major share valuation movements, and the downward valuation trend of such listed entities has, to an extent, also had a consequential effect on unlisted technology companies."

Amcil is a relatively small investor amongst a number of shareholders, including the ACTU, the Packers and St George, which took a 5 per cent, $18 million stake in the company in January.

"As a shareholder, Amcil has made an independent assessment of its investment in Virtual Communities, taking into consideration the share movements of listed technology companies. Any independent valuation of Amcil's investment in Virtual Communities has no impact on the operations of Virtual Communities, nor the valuation of the business that may be determined by other shareholders," Smith said.

Smith admits the last quarter has been a difficult one in terms of PC sales, but maintains Virtual Communities is still a strong company.

"There has been a lot of overhang of stock and so a number of the other channels have been quitting stock at below cost, and that has affected our sales," Smith told ARN. "We were holding excess inventory in January, [but] we have cleared much of that now. So yes, we have had a difficult first quarter, but I don't believe there are any companies that are coming close to what we do in terms of affinity marketing, nor the back-end integration of that."

The affinity arena has seen increased competition in the last 12 months, with the likes of Harvey Norman moving to offer bundled PC, Internet, service and financing packages. But Smith maintains Virtual Communities will continue to be the dominant player in the market.

"It is important to remember what our core product is; it is an IBM computer and we finance the purchase, delivery, and installation, and connect the computer to the Internet in the customer's home. We then support [the customers] for the period of the contract, so we really are adding a lot of value in terms of a one-stop shop for a fully integrated PC and Internet communications solution."

The company is now looking at offering a broadband solution to customers, although the idea is still very much a long-term strategy.

"One of the noteworthy aspects of our business is we are particularly good at assisting late adopters of technology, so when a technology is very new we will tend to wait a while for that technology's worth to be proven," Smith said.

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