SCH rocked by massive drop in profits


SCH rocked by massive drop in profits

Microscope contributor

Deteriorating economic conditions coupled with continued downward pressure on pricing and vendors taking more business direct weighed heavily on SCH's profits for the year, dragging them down a staggering 95%.

Group sales for the twelve months ended 31 March 2008 were flat at just over £2bn but net profits fell from £8.83m a year ago to £455,000. Operating profits fell 37% to £14.1m.

The figures included £1.2m worth of exceptional costs largely related to the closure and relocating of three French operations into its office in Paris.

"The product business, in line with most of our markets in Europe continued to face downward price pressure and competition from vendors seeking to sell directly an increasing volume of commodity products," said SCH chairman Sir Peter Rigby.

In the UK, total revenues for the group fell 11.6% year-on-year to £766m, sales in Continental Europe grew 8.3% to £1,26bn and 30.3% for the rest of the world to £8.9m.

The SCC system integration business decreased, Rigby said but the distribution businesses ETC and Interchange grew. Services accounted for 19.4% of total revenues for the UK.

In France, sales fell 6.7% to 1.16bn € (£983m), in the Netherlands and Italy revenues were flat, while Spain saw a drop in top line growth of around 4% though profits in the country grew.

The German operation "continued to fall" said SCC, "as the business focused on a smaller number of customers in the face of continued competition."

During the financial year, SCH acquired the trade and assets of Ltd for £66,000 and a 25% interest in Intoscape, both in the UK. It also bought the IT services trade of French IT group CEGID for 450,000 € (£381,948).

Since the year-end, the group has completed the purchase of Interface Solutions International in the UK and the principal division of Ares SA in France as the firm continues to invest in a long term strategy of growth and acquisitions.

Many industry watchers are expecting the recession to continue for 2009 and potentially into 2010 and Rigby delivered a sobering prognosis for the short term outlook of the market.

"The markets in which we operate remain extremely challenging and this has been exacerbated in recent months by tough economic conditions which are expected to continue for the foreseeable future," he said.

The market had deteriorated significantly since the spring when SCH's fiscal 2008 ended said Alistair Edwards, senior analyst at Canalys, particularly in the finance sector.

However, privately-owned SCH would be able to take actions to weather the market slowdown that listed rivals may not be able to get past shareholders, he added and pointed out the corporate integrator-come reseller could benefit in the current climate.

"SCC is in a position to think about acquisitions because there will be small specialists that may be finding life tough from a cash perspective and are looking for an exit," said Edwards.

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