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Bleeding Engin bandages wounds

Engin's drastic cost-cutting initiatives over the past year had started to take effect on its bottom line, the troubled internet telephony seller claimed today.
Written by Suzanne Tindal, Contributor

Engin's drastic cost-cutting initiatives over the past year had started to take effect on its bottom line, the troubled internet telephony seller claimed today.

"The organisation has a lower cost base," Engin chief executive Mark Zworestine told ZDNet.com.au this morning as the company released its preliminary report for the past 12 months. "The company is far stronger than it was."

Although he wouldn't comment on when Engin, which is still losing money, would be able to pull itself into the black, Zworestine said the company's cost-cutting moves over the past year, which have included reducing staff numbers from 160 to 88, had had a significant effect.

He drew attention to the fact that despite year-on-year improvements being small, Engin's earnings before interest, taxation, depreciation and amortisation (EBITDA) loss reduced from $4.2 million in the company's first quarter, to $1 million in the fourth quarter, just completed in June.

Year-on-year EBITDA loss decreased to 12.1 million for the year to 30 June, from 12.4 million in 2007, once the positive impact of the sale of Engin's stake in Unwired to the Seven Network was taken into effect.

Engin commenced looking at operations last year, hoping to reduce cash burn. "It was imperative that we worked on our costs and our overheads," said Zworestine.

This has resulted in the company revamping processes to obtain better efficiency. It has reduced its staff numbers by 45 per cent, as well as chopping its marketing spend by $2.1 million. In June 2007, the Engin team numbered 160, while it only held 88 at June 2008.

Some of the cuts were made possible by productivity increases, such as using instant messaging to service customer queries. "Agents can talk to three to five people at the same time," Zworestine said.

Other cuts were made possible by projects coming to an end, such as the implementation in July last year of a new billing system.

Strangely, despite slashing the number of employees, personnel costs increased year-on-year by 27 per cent or $2.6 million, $1.1 million of which were restructuring costs. Zworestine said that the benefits of the staff reductions were only really felt in the last quarter. "You can rest assured that the remuneration costs are lower," he said.

There were "multiple" other initiatives, according to Zworestine, such as going back to suppliers to review agreements and rationalising network infrastructure. "It wasn't just about marching people out the door and cutting marketing costs," he said.

Some funds for the restructure were raised with a rights issue earlier this year, where Seven increased its stake in the company to 58.36 per cent. Other money will be used for future projects such as revamping Engin's website and introducing an ADSL2+ service broadband.

Engin is back to basics with its planned ADSL2+ product, which it had put on ice last year while the strategic review took place. It plans to introduce it somewhere between October and December this year.

"Development is going smoothly at the moment," Zworestine said. Currently, Engin is working on building the ADSL2+ product into its systems, setting up the provisioning process and working on the pricing plans.

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