Burntsand Inc.’s new management team has taken the first steps to restructure its business in an effort to boost sagging revenues.

“”Clearly we need to get profitable,”” said Blair Baxter, interim CFO of the business solutions integrator, in an interview yesterday. “”You look at where costs are

in the cost services line and admin.””

For its third quarter fiscal 2003 results released in late-October, Burntsand reported a decrease of 37.7 per cent or $28.92 million in revenue on a year to date basis from the $46.4 million reported for the same period in 2002.

While the industry is down in the 12 to 15 per cent range on average, according to a recent CDN study of the health of the industry, Burntsand is doing worse than that, said Albert Daoust, market analyst of Evans Research Corp of Toronto.

A couple of weeks after the third quarter results were announced, David Rea, former corporate controller, stepped down from his post. In the same announcement the company said Baxter was rejoining Burntsand as interim CFO.

Five days later, on Nov. 19, the company announced CEO Mel Steinke was leaving, to be replaced by company founder and chairman Jim Yeates.

Stephen Li, equity analyst for Raymond James Ltd., says the market was expecting something, as evidenced by Burntsand’s stock price, which fell the day after the Nov. 19 announcement from 31 cents a share to 26 cents. It dropped as low as 17 cents on Nov. 25, but earlier this month was as high as 26 cents.

“”I guess the market was expecting hearing about the announcement,”” he said. “”They knew something probably along the lines of what took place was going to happen. Unless you start to see (Burntsand’s) revenue run rates stabilize, you won’t see the sentiment be more positive on the stock.””

Asked about the meaning of the management change, he said: “”The previous management had set a target which has not been met. The board decided to go in a different direction.””

Last week’s announcement confirmed that when the company closed its Ottawa office and cut 23 per cent of its entire staff. The recent downsizing leaves Burntsand with a total of 175 employees.

“”Unfortunately our investment in Ottawa has been slower in realizing a reasonable return and, with the current uncertainties associated with this market, we have decided to exit this industry segment,”” said Yeates, in a prepared statement last week.

Baxter said that until there’s a clear definition in leadership from the federal government, the political direction (or lack thereof) delays the company’s sales within the federal government.

(In May, the Department of Foreign Affairs and International Trade, DFAIT, awarded Burntsand the contract to sell its computer integration solutions.)

Baxter worked in Ottawa during the Gulf War and recalls an expression that he and his colleagues used back then to describe the Ottawa market.

“”If it looks like a Scud, smells like a Scud, you could sell it to the government,”” he said. “”If you weren’t selling that, you weren’t selling much.””

The Ottawa office made up six per cent of Burntsand’s employee base, but generated only two per cent of the company’s professional services revenue.

“”We talked about it from the percentage of employees versus the percentage of revenue,”” said Baxter. “”You look at that and say, ‘is that the right investment decision for the company?'””

Baxter admits the company made some poor investments in Sun Microsystems as well.

“”We make the best judgements we can based upon the information we have. Sun has historically been a big partner,”” he said. “”We have made some investments in Sun and sometimes they pay off, and sometimes they don’t.””

Burntsand also confirmed that it would continue to invest in its strongest technology partners, Documentum, Microsoft, Remedy, and FrontRange, as well as simplify its geographical representation to Toronto, Canada West, U.S. West, and U.S. East.

At the time when the third quarter results were announced, Steinke said the company does not expect to reach “”operating profitability”” until fiscal year 2004. Baxter declined to comment on when the firm would return to profitability.

Daoust is cautiously optimistic about Burnstand’s chance of recovery with Yeates in charge.

“”Jimmy Yeates over the years has been a creative, visionary man of the market,”” said Daoust, citing Yeates as the key man in building NexInnovations. “”He’s a big man with a big vision. But this is a market that favours re-trenchers rather than visionaries.””

Li also hopes Burntsand is able to turn their situation around.

“”Some of the large players in the systems integration area are talking about a rebound in the North American market,”” said Li. “”I’m hoping that (Burntsand) at some point will be seeing some kind of rebound. But obviously at this point, looking at what they’ve recently announced, it doesn’t seem that they are seeing that rebound yet.””

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