'Ugly duckling' Pinnacle Technology gets makeover

Loss-making VAR strips out costs and tightens focus under turnaround plan designed to return it to profitable growth

The new chief executive of Pinnacle Technologies has moved quickly to strip cost out of the business as part of a turnaround plan designed to return it to profitable growth.

The security, comms and managed services integrator suffered a miserable 2013 as the after-effects of an unsuccessful acquisition drive left it nursing heavy losses, causing its share price to nosedive.

Talking to CRN, chief executive Nicholas Scallan said the AIM-listed firm had made rapid progress under the turnaround plan enacted following his arrival.

The new-look Pinnacle will focus on fewer activities, Scallan said, with costs being pared back across several parts of its business.

This includes the decision to consolidate its entire broadband business to one supplier, Easynet - boosting its buying power - a process that will likely be repeated with its fibre network activities. In addition, its niche connectivity activities around one-off events such as music festivals have also been spun off.

Pinnacle is also in the process of closing its small datacentre on the west cost of Scotland in favour of working with third-party providers, Scallan revealed.

Scallan likened Pinnacle, which sells to SMBs and mid-market companies, to an "ugly duckling" that has the ability to flourish if it pares down its areas of focus.

"Quite clearly the business did not take advantage of the opportunities it had acquired," Scallan said, giving 2011 acquisition RMS IT Security as an example.

However, despite seeing a decline in its security business since then, security will be one area of investment for Pinnacle alongside its managed services portfolio, which Scallan said had primarily been sold only to customers in the central belt of Scotland. Pinnacle is actually adding headcount in these areas, which Scallan admitted was "controversial" during a turnaround phase.

"I've done a few turnarounds and I've got the sense this is a business that has got some ambition and has legs," he said. "It's just a case of looking under the bonnet and peeling off the things that are attractive in the market right now."

"If you look at revenue by reporting segments [since the sale of RMS Security], there was a sharp decline in revenue associated with that. My response is that we've got out of the more unattractive parts of that market and we now have a smaller, more cohesive security proposition that complements the rest of what the group is about."

Pinnacle sank to a pre-tax loss of £2.4m in its last financial year ending October 2013. Its share price has sunk from nearly 40 pence in February 2013 to its current value of less than seven pence.

But Scallan said the turnaround plan is already hitting the mark, with losses showing signs of narrowing.