Cellnet profit forecast shrinks

Queensland-based distributor Cellnet Group has revised its profit expectations downwards for the financial 2004-05 year -- a prediction that may make last year's 75 percent profit jump to $9.1 million after tax look like a blip on the radar.

Cellnet had already predicted lower profits for this full year, but yesterday issued a new profit guidance to the ASX advising that the amount would fall further still.

Darryl McDonough, chair of Cellnet, said net profit after tax for the full financial 2004-05 year was now expected to reach "approximately" $6.1 million. "This final profit figure is less than the company's previous forecast net profit after tax of between $7.3 million and $7.5 million," he said.

"The company continued its trend of strong year-on-year revenue growth but did not convert this growth to profit."

Previous annual reports reveal that last year Cellnet achieved a full year profit of $9.1 million after tax on revenue -- up 75 percent on its 2002-03 net gain of $5.2 million.

McDonough said the full financials for Cellnet 2004-05 were expected early September. The 2003-4 result was on revenue of $447.1 million and sales were up 40 percent on the previous year.

He blamed poor margins and poor performance over the last few months in higher margin products carried by Cellnet for the result.

The distributor reported profit after tax for the first half of 2004-05 of $5.4 million, up six percent on the first half of 2003-04, according to a statement released to the ASX.

McDonough said average margins had declined. Also, Cellnet had decided to write off a "substantial" amount of inventory, he added.

New managing director Adam Davenport had begun a review of Cellnet structures and operations and restructuring had already started, McDonough said.

"The Group intends to make substantial reductions to the number of items held and to its levels of inventory. It will focus on holding that inventory which has both high demand and profitability," he said.

A new supply chain general manager had also been appointed. The restructure would affect the business into 2006, but should free up warehousing space and produce a simpler, more efficient setup and lift customer service, McDonough said.

Cellnet -- once mainly known for its mobile phone business -- has been working to broaden its portfolio and vendor contracts -- including with Samsung, Toshiba, Sony, Belkin and Acer -- over the last couple of years.

It lost a large distribution contract with Motorola in early 2005, but Cellnet has maintained that the loss of that contract was immaterial, protesting that it no longer relied solely on mobile handset contracts to survive.

Cellnet acquired specialist IT components distributor Cassa in July 2003 and mobile phone accessories provider Jatek. It was heavily investing in GSM and CDMA content provider Mercury Mobility in a deal expected to be concluded next year. It had also launched a consumer products division with an eye to the audio-visual markets.

Cellnet bought a new Brisbane warehouse for $2.95 million in February to supplement its existing facilities and support its prepackaged accessories business and logistics operations. That was funded from existing bank facilities, company secretary Laura Pick said at the time.