NetComm showing no sign of return to profitability

Stuart Corner
Tuesday, 27 February 2007 10:33

IT Industry - Deals

After going into the red in the year to 31 June 2006  as a result of acquisitions and moves to shift its product set to high value items for the SME market, Netcomm was forecasting a return to profitability in the second half of this year. Its half year results show a move in the opposite direction.

Net loss after tax was $1.35 million, exceeding the one year loss of $1.2 million for 2005/2006. That came after a $0.97 million profit the previous year. The company reported a 7.8 percent increase in revenue to $11.1 million for the half year to 31 December 2006.

Managing director, David Stewart said at the announcement of last year's results: "This has been a transformational year for NetComm...We have invested significantly to strategically reposition the company to compete with higher value, higher margin technologies targeted at the small to medium business sector. While this investment and the associated acquisition costs have resulted in a loss this financial year, we are already starting to see the benefits of this strategy and the company remains confident that it will deliver enhanced shareholder value over the longer term."

At is AGM last November, chairman Terry Winters said: "The board and management of NetComm remain confident that the company’s repositioning and growth strategies are sound – and above all necessary, to maintain our competitiveness, open up new markets, and drive an increase in shareholder returns and value.
Having said this, we do not expect to see consistent growth in monthly profitability until the second half of this fiscal year."

In its report for the half year to 31 December the company noted that "At the 2006 AGM, the board foreshadowed a loss in the first half to be followed by a return to profitability in the second half." No updated guidance was offered nor was there any indication of when this would be provided.

The company attributed the increased loss in the December half year to a number of one off items totalling $727,000:
- Final restructuring costs of the New Zealand operation, resulting in one-off costs of $186,000, included retrenchments, termination of ex-owners and closure of one facility;
-  Gross margin was reduced by $359,000 as it cleared a range of products at below cost in order to sell-off product lines that were no longer appropriate for its new focus on higher value market segments;
- There was as additional one-off expense of $182,000 relating to final product development and approval of the new VoIP product range prior to the release of these products for sale in the June 2007 half year.