By Matthew Henry

SYDNEY: Cellnet Group is disappointed with its net profit of $2.9 million for the six months ended 31 December and blames difficult market conditions, even though it anticipated the figure in its forecast report last year.

The IT and telecommuniations distributor credited a one-off asset sale of an office and warehouse facility in Auckland for the jump in net profit from $0.7 million in the corresponding previous period.

The company said today that an ongoing restructure to streamline its business helped offset difficult conditions in the telecommunications and IT distribution markets in which the company experienced a 15 per cent downturn in sales to $269 million (from $319 million).

However, the company’s profit was bolstered by an after tax gain of $2 million from property sales in New Zealand. Earnings before interest and tax jumped to $4.2 million compared with $2.7 million in the corresponding period the year before.

“While the bottom line itself fell short of the company’s potential, there were nonetheless encouraging signs for Cellnet,” said Cellnet managing director, Adam Davenport.

“Our telco business is operating in a turbulent environment and we are working hard to overcome some substantial challenges that are not of our making.

“The changes in the market environment mean that Cellnet’s restructuring program will take longer than we anticipated, but Cellnet is in far better shape now than 12 months ago and there is no doubt we can, and will, do better in the future.”

Davenport said Cellnet lost significant revenue after Telstra decided to source its mobile handsets from another distributor, and difficult market conditions mean it is taking longer for the benefits of the restructure to become apparent.

“The markets in which Cellnet operates – telecommunications and information technology – are tight and highly competitive and are expected to be so for the remainder of financial year 2007. However, sales are expected to improve as the new sales strategy is settled.

“Some events beyond our control have delayed the benefits we would expect to see from all the changes we have made to the business. However, the hard work we’ve done over the past 12 months to restructure Cellnet means the company is well positioned to compete in our key markets and take advantage of opportunities as they arise.”

Cellnet also confirmed it will continue with its plan of unlocking value from its mobile phone content business, Mercury Mobile, which offers third-party ringtones, music and wallpapers and internally-created media.