Southern Cross on comeback after bank woes

Thirty-three year old Melbourne reseller Southern Cross Computer Systems has fought back from a loss-making financial year and subsequent investigation brought on by financier Commonwealth Bank.

The private company's annual report, released to ASIC, showed a net loss of $1.89 million for the year ending 30 June 2014. Losses before tax credit amounted to $2.58 million, on the back of $73.2 million of revenue.

In August, the company's financier, Commonwealth Bank, informed Southern Cross that it was in breach of "various bank covenants" and brought in investigative accountants 333 Group to review the books. The bank also withdrew a $1 million unused loan facility while expressing concerns about the reseller's profitability.

The difficulties look like a blip. CBA resumed its support one month later and Southern Cross has already posted a gross profit of $550,000 for the first four months of the current financial year.

"As Paul Keating said, it was the difficult year we had to have," said Southern Cross executive director Mark Kalmus in an interview with CRN. "We had to prove our worth to CBA, 333 Group and the auditors."

Kalmus said that transformation of Southern Cross' focus from products to services started five years ago, but it was impacted during a particularly nasty three-month period heading into the 2013-14 year.

"A huge drop off in product income came in just two or three months – it was like lemmings dropping off a cliff," said Kalmus. "The GFC had hit and the big end of town, who we deal with, put off decisions about their technology spending."

Over the past five years, Southern Cross gradually reduced its dependence on products from 70 percent of the profit to about 35 percent, according to Kalmus. "If we didn’t plan this from five years ago, we wouldn’t be in business now – there are so many things to get right in order to transform to a services provider.

"But it's one thing having a strategic plan to reform the company, but it is quite another to execute the plan in a timely manner while also showing due respect to our staff, suppliers and customers."

He said that the company had started laying off Australian staff 12 to 18 months ago, but with high costs of redundancy payments, the fiscal benefits had not been seen until now.

"We have now reduced the [Australian] head count by about 30 and have added 15 staff in Vietnam, where the labour cost structures are very different," said Kalmus. "The bulk of the [staff reduction] has been done now."

Kalmus said that the positive result for the first quarter of financial year 2015 was led by managed services activities, which grew 52 percent. "Even our product revenues have grown 6 percent year-on-year."

The IT landscape has changed irrevocably in recent times, Kalmus told CRN, saying: "Customers, for one, are so much more knowledgeable now than 15 years ago.

"We knew we had to move from one-off project work to a predictable income stream… We've had to instil strong ITIL and frameworks to get our services right."

He talked up Southern Cross' "device-as-a-service" offering and said tools such as ServiceNow and ScienceLogic would lead the company into the future.

"Three months is a year now in our industry. If you're not doing something new every three months, you're being left behind."

Southern Cross saw a major windfall only recently, when it beat its own vendor, Lenovo, to be named the prime Lenovo supplier to the Victorian government's PC panel.

The reseller, established in 1981, has offices in Melbourne, Sydney, Brisbane, Perth and Ho Chi Minh City, Vietnam.