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Compel suffers brutal IT downturn

And SCH wants money back

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Compel, blames a "brutal" downturn in the IT industry for turning in a loss of £13.4m for the year to June 30.

And it ain't getting any better - The Welwyn Garden City reseller reports "very difficult" market conditions in July and August. September is seeing some improvement but "this is not mirroring the normal post summer upturn". That sounds uncommonly like a profit warning to us.

On the upside, the company made an operating profit of
£4m - before goodwill - on continuing activities. But it was dragged down by a loss of £3.1m from discontinued activities - its desktop reseller division, as well as a loss on disposal of the business to SCH of £12.9m.

SCH dispute

Compel ends the year with £9.5m net of debt, flush with the £13m initial payment for Compelsource made by SCH. However, the two companies are in dispute: following a review of Compelsource's assets, SCH reckons it is due a "reduction in the purchase price of approximately £6.6m".

Compel says the claim is without merit and has referred the matter to an independent accountant for determination". In the meantime it has made a provision of &163;2m, included in the £12.9m accounting loss recorded for the CompelSource disposal. And it notes that SCH retains &163;2m of the agreed purchase price, which was to have been paid after 24 months, subject to any claims by SCH.

Downturn

Compel says that the upturn is "bound to come" at some point. But when? Compel has no more idea than the rest of us and so is "rigorously controlling the cost base".
It notes the telecommunications and finance sectors in particular are trimming their sails. Only in the public sector does demand remain strong.

"Generally within large organisations, the attitude towards IT expenditure is one of caution and conservatism. " the company said today in a statement. "We are not seeing any wholesale cancellation of IT projects, but we continue to see deferral of activities, reticence about
making major investments and a reluctance to incur material expenditure until the general economic prospects become clearer."

Until this year, Compel was the UK's third biggest IT product reseller, ranking behind only Computacenter and Specialist Computer Holdings. The company sold Compelsource, its desktop supply business to SCH, after it concluded that there was no future and no profit in this area.

Now it is a mini-Morse, but without the Sun business. The company claims it is Oracle's biggest partner in the UK and, last time we checked, the company was the biggest reseller of HP mid-range boxes. Also Compel owns a thriving IT hardware rental business. ®

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