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Systemax turnaround plan off the rails as losses widen

Sales down, US and UK blamed

It could be a case of returning to the drawing board for the Systemax execs who drafted the 2013 turnaround blueprint: the company's Q2 financial results are steeped in red ink amid sliding sales.

The misfiring dealer drew up an operational review last year that it put in place during the autumn. Yet the benefits didn't show up in Q1 and failed to materialise in the most recent quarter.

Systemax, which trades as Misco in Europe, reported a 5.1 per cent fall in Q2 revenues to $805.8m as operating losses widened to $6.1m, compared $2.3m a year ago.

Sales to business customers grew 1.3 per cent to $527.6m, but it was again the retail side of the house that let things slip: turnover in the consumer unit was down by more than 15 per cent to $278.2m. The corporate arm contributed $1.4m worth of inter-company trade.

Technology kit sales fell eight per cent year-on-year to $685.8m, and it was in this area of the business that Systemax booked the operating losses, which included a one-off charge of $2.7m related to the closure of some US retail stores and opening a European shared service centre.

The firm said it expects one-time pre-tax exit, severance and start-up costs to range between $19m to $20m for the remainder of this year and next.

The Industrial Products arm was the only part of the business to report growth, with sales up 15.3 per cent to $118.6m.

The North America business - largely consumer - remained "weak in absolute terms", said CEO Richard Leeds, as management "continues to address the top line erosion and bottom line losses".

But the output from the Euro ops - once the darling of Systemax shareholders - was also branded "disappointing" by the CEO, who gave special mention to the UK.

"While the market remains soft, we under performed in several geographies, including UK. We are making substantial investments in transforming our EMEA Technology business to operate on a pan-European basis and lower its cost structure and losses even in the interim are not acceptable," said a tough-talking Leeds.

He said Misco has pushed through a "number of initiatives" in Europe, specifically investing in sales agents in the UK which are "ramping slower than anticipated".

"We are currently undertaking actions to improve our sales performance, further drive operating efficiencies and optimise pricing," said Leeds.

The Shared Services facility in Europe is up and running, designed to cut costs to service delivery, and even more back office functions than initially planned will be ploughed into this area over 18 months, it said. ®

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