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SCH returns to profitability

Microscope contributor
SCH Group has returned to profitability, albeit marginal, but is not yet confident enough to call an end to the toughest recession in history amid concerns about expected cuts in UK public sector IT spending. 

The Birmingham-based hybrid player has released unaudited numbers for the year to 31 March 2010, showing flat revenues of £2.4bn. It expects post-tax profits to be around £15m, compared to a £13m loss a year earlier. 

James Rigby, managing director of the UK business at SCH, said it had taken a lot of cost out of the business in the last eighteen months that was boosting the underlying profitability but the market had also improved toward year-end.

"Whether we can call the end of this recession yet I don't know, it is probably too early to do that but the market was pretty strong in the fourth quarter," he told MicroScope. 

The banking sector "came back to life" in Q4 and the public sector was again one of the more buoyant segments in the year, but SCH is not alone in thinking the salad days will soon be over, for the time being at least.

"We are a little concerned about public sector going forward with the election and the need to reduce the national debt...we have to stop spending as a country so we are expecting to see cuts across the board," said Rigby.

However, as became apparent in the commercial sector during the recession, the growth in technologies and services designed to cut costs will become prevalent in Government. 

The decline in op-ex at SCH was not made available but Rigby said the results vindicated its decision to dispose of the German and Italian operations last year, which incurred exceptional charges of £12.8m in fiscal 2009.

In the UK, SCH made pre-tax profits of £9.8m, compared to £820,000 last year and across Europe grew 26% to £8.2m. Net debt was down 35% to £51m, the company said. 

Reselling accounted for 55% of group sales with distribution making up the remainder. Services sales were responsible for 25% of revenues and 55% of gross margin. 

Other changes in the year included the acquisition of IQsys and the two-part purchase of French integrator Ares. Rigby said it was on the look for additional targets but unlike rival Computacenter would not exit distribution.

"We see legs in the hardware model as there is a lot of synergy in the supply chain between the [reselling and distribution] businesses. 

"We have managed a Chinese wall very well between the two and see a bright future on both models, so we have no plans to follow CC and the direction they have taken," he said. 

One hindrance on all distributors' businesses during the downturn has been the tightening of credit availability, as the underwriters cut insured limits to reduce their exposure to the IT channel.

Rigby said he expected things to improve throughout 2010 but had not yet received formal confirmation of this from the credit insurers and urged resellers to maintain open dialogue as they had done. 


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