Datatec expects a drop in earnings

Decline as result of a worse performance by subsidiary

JSE-LISTED information communication technology company Datatec has warned shareholders that it expects a decline in earnings for the six months to end August as a result of a worse performance by its subsidiary Westcon-Comstor.

The group said underlying earnings a share would also fall between 1US cents and 2c, reflecting a decline of 84 percent and 92 percent compared with the 12.5c reported a year ago.

It said headline loss a share would be between 5c and 6c compared with 9.1c earnings a share and consolidated revenue would ease to $2.99 billion (R40.76bn), down from $3.04bn recorded during the comparable period last year, with a gross margin of 13.3 percent.

The figures included Westcon North America and Latin America, which were sold to US-listed IT supply chain services company Synnex last month for $800m. It said 10percent of Westcon-Comstor had been sold for $30m to Synnex.

Datatex said the board would provide detail on the use of the cash proceeds from the $30m Synnex transaction during the interim results presentation next month.

“The year-over-year decline in earnings is primarily as a result of a worse performance in the group’s Westcon subsidiary (Westcon-Comstor),” Datatec said.

“Westcon-Comstor continued to experience disruption to the business as a result of the final SAP implementation in Europe, Middle East and Africa (Emea).”

These regions would be represented as a disposal group and shown separately as discontinued operations in the interim financial statements.

It said earnings were expected to be further impacted by higher finance charges, amortisation expense and effective tax rate.

Datatec said it saw an improvement in North America revenues, which were up by $24m due to increased security sales. In Latin America the revenues were $67m as a result of growth in Brazil.

The Emea region declined by $51m in revenue as continued business transformation challenges persisted.

The group’s other division, Logicalis, delivered revenues of $694m, down from $757m last year.

“North America experienced a decline in product sales, but performance there is expected to improve in the second half,” the group said.

Logicalis Latin America secured a very large multi-year contract to supply and support regional network infrastructure to a global service provider. The group said this was expected to have a significant impact on the performance of the region.

Logicalis completed the acquisition of a 54 percent stake in PT Packet Systems in Indonesia last month for $6.8m.

Datatec shares declined 1.43 percent on the JSE yesterday to close at R58.51.