Cellnet blames Telstra for mobile sales drop

Mobile and IT distributor Cellnet has blamed a $10 million decline in its first quarter telco sales on Telstra’s decision to appoint Brightstar as its sole distributor for mobile phones.

At Cellnet’s annual general meeting, managing director Adam Davenport (pictured) said Telstra's signing of an exclusive distributor signalled a major change in the telco marketplace.

“We had anticipated some of this impact, but Telstra’s new approach has hurt sales and profits by more than we expected,” Davenport conceded.

“This change has contributed to a reduction in telco sales for the first quarter by about $10 million compared to the corresponding period a year ago.

“The impact has effectively neutralised the cost savings benefits we had expected to see from our reorganisation efforts last year,” he said.

The effects of Telstra’s decision would continue to have an impact on Cellnet for the second quarter of Cellnet’s 2007 financial year, said Davenport.

“We’ve incurred one-off costs to cover discounting, write-downs to clear slow moving stock and charges for redundancies, settling major legal action and exiting surplus property.

“The reorganisation distracted our sales team, causing sales to slow in the second half,” said Davenport.

He said, however, that the distributor expected to have a better second half in its telco business as “other initiatives start to take effect.”

Davenport said Cellnet has further reduced costs across the business including the centralisation of its warehouse and distribution operations at Eagle Farm, Brisbane.

Other initiatives included the restructure of its sales function which will rely on e-commerce and internal sales, rather than external sales teams.

On a more positive note, Davenport ended the meeting by saying the integration of its acquisition of VME Systems - a large distributor of flash memory products, including SanDisk – was proceeding well.

“We are encouraged by the synergies between our businesses and are delighted at the response from customers of VME and Cellnet. The acquisition is just one of a number we are exploring,” he said.

Cellnet's chairman Reg Claris also announced the possible sale of Mercury Mobility, Cellnet's mobile content business.

In a final result issued to the ASX on 8 September, Cellnet reported that its net profit after tax dropped by 76 percent to $1.6 million for the year ending 30 June, 2006.

Annual sales increased by eight percent to $565 million, up from $524 million a year earlier. Earnings before interest and income tax slipped by 62 percent to $4.5 million, down from $11.8 million the year before.

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