Northamber laments inventory surfeit in Q1 update

Distributor believes its restructuring drive is starting to pay off, but warns of continuing market softness

Northamber has claimed its strategic reinvention is "starting to bear fruit", but sounded a note of caution about "reducing demand and resultant over-supply" in a mixed first-quarter update.

In an interim management statement issued today, the broadliner revealed that sales for the three months to the end of September rose nine per cent sequentially. However, revenue was down 29 per cent when compared with the same period last year. First-quarter operating losses also stood at 1.6 per cent of sales, compared with an operational profit margin of 0.4 per cent in Q1 FY11.

In a drive to maintain margins and control costs, Northamber has pledged to cast off any sales streams it views as "empty revenue". But Q1 gross profit margins stood at 6.5 per cent, down from seven per cent over the course of FY11.

"On our own volume product portfolio, we were not immune to the lower levels of demand," explained the statement. "Consequential oversupply and commensurate vendor destocking actions adversely affected our overall margins."

Northamber claims an industry-wide fall in average selling prices on overstocked products "has resulted in our costs of sale being a greater daily management challenge".

The Chessington-based distributor claims cost controls imposed on the business over recent months will begin to be realised on its balance sheet during the second half of its fiscal year. But today's statement ended on an embattled note.

"For the present, there is no clear indication of any early improvement in the industry outlook," it said. "Hopefully when the overstocking situation is resolved there may be a return to a more rational balance of product and pricing. In the meantime, we can only continue to operate as efficiently and effectively as we can."