New Lows, page-3

Still on the topic

In the implementation of managements plan to return to profitability at current revenue levels it is worth discussing where the savings may have to be made.

Clearly employee expenses have to be trimmed significantly. Based on the latest first half figure of approx 66% of revenue it would show clearly that a number of staff need to be made redundant. Some tough decisions to be made where the cuts to non productive staff should occur. It is just not sustainable at this level with employee costs ideally for a mature company in the SaaS arena probably should be in the region of 20-30% of gross revenue. Even allowing for a rebuild, anything over 40% is perhaps too high. With improvements implemented within internal management systems over the last year or so you would expect most of the savings would have to be in the head office administration area. Obviously this is a difficult task and can be bad for morale initially but it should already be obvious to all concerned that it is necessary. Clearly only very conservative cuts should be made in the product research and development areas, marketing or customer service (retaining innovative and productive members). Caution is needed in these areas as neglect in the past are somewhat responsible for the current situation.

This is an unfortunate situation to be in. The fact is that the Corum Board has not been able to deal with the changing pharmacy business environment in a totally satisfactory manner. Also has been their inability to find or develop tack on business opportunities to produce additional revenue streams. Failure to utilise cash reserves to invest in other profitable business opportunities synergistic with existing operations is a major reason why some staff unfortunately will probably have to go.

Currently occupancy costs (before any amortisation) are running at approx 8% of gross revenue (higher if you deduct revenue from non-operational sources). Hard to justify a head office in the Sydney CBD with revenue at current levels.

Other areas for cutting costs would have to be made at State levels. Given the current reduced customer base, maintaining offices in Vic, SA, WA & Qld would seem an unnecessary expense. Surely any on the ground customer service could be provided by employees operating from a home office. Training sessions could be set up on an as needed basis in suitable locations. Alternatively as most software issues are handled remotely from head office the requirement for staff in the other States to provide good levels of service should be minimal. Hardware maintenance issues could be contracted out as it seems Corum want to divest themselves of responsibilities for hardware anyway.

Looking at Corum's two main competitors (Fred & Minfos) it appears that they operate primarily from only their head office.

Food for thought. It will be interesting to see how management progresses their current plan for profit.