'Traumatising' SAP rollout sends Mitre 10 NZ deeper into the red

'Traumatising' SAP rollout sends Mitre 10 NZ deeper into the red

Hardware chain has negotiated a temporary change in its debt covenants with banker BNZ.

Mitre 10 NZ recorded a pre-tax loss of $69.4 million for the year to 30 June, up from $27.7 million in 2022 due to the costs of an SAP software rollout.

The cooperative's net assets declined from $146.5 million to $96 million year on year and cash flows were negative to the tune of $38.9 million, slightly better than the $41.5 million reported in 2022.

The company's directors had reviewed forecasts for 2024 and found there was sufficient headroom in the company's debt facility to fund ongoing operations and future rollout costs.

However, it also forecast that a debt covenant with BNZ could be breached in the December 2023 and March 2024 quarters due to a combination of the higher costs and weaker forecast earnings. A temporary change in the covenant's ratio had been negotiated with the bank to accommodate that possibility.

Before the rollout, in the year to 30 June 2021, Mitre 10 recorded a $1.3 million pre-tax profit.

The retailer, which last year had around 85 stores, is known to have been rolling out cloud-based ERP software from SAP, for which it won an award last year.

The rollout coincided with a change in accounting rules that require certain cloud software costs to be expensed rather than capitalised and depreciated over time.

Many companies have been affected by the change. Last year, for instance, kiwifruit cooperative Zespri had to write off $42.3 million of SaaS spending recognised as an intangible asset in 2021 but later reclassified as an operating cost.

The former programme director of the Mitre 10 project, Asbjorn Aakjaer, told an SAP user group in 2021 the company was two years into a business-wide transformation named Programme One. 

He said the project included a refresh of all the IT systems used to serve Mitre 10's stores and would result in an entirely new technology stack.

“We’ve set about to change everything, from the foundation all the way up, including the way we work and the systems that support our work, with a focus on our customers and team members,” Aakjaer said.

Mitre 10 CEO Andrea Scown appeared throughout Aakjaer's presentation in video excerpts where she outlined the size of the organisation, pointing out it had a collective turnover of $2 billion a year, with 60 per cent of its business in retail and 40 per cent in trade customers. 

She described the five-year transformation project as “traumatising”, noting the “significant burn rate of programme cost” at the time, which was making everyone mindful of the responsibility to get it right.

Mitre 10 reported a lift in sales for 2023 from $307.4 million to $315.8 million and a net loss of $50.8 million up from $20.2 million.

Mitre 10 has been asked for comment.

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