Datatec Limited Further Trading Statement (7851E)

TIDMDTC

RNS Number : 7851E

Datatec Limited

11 May 2017

11 May 2017

Datatec Limited

FURTHER TRADING STATEMENT

Datatec Limited ("Datatec" or the "Group", JSE/AIM: DTC), the international Information and Communications Technology (ICT) group, is publishing a further trading statement for the year ended 28 February 2017.

On 7 April 2017, the Group issued a trading statement to the effect that underlying earnings per share* for the financial year ended 28 February 2017 ("FY17") was expected to be more than 50% lower (or at least 16 US cents per share lower) than the prior year ("FY16"). Datatec also advised that headline earnings per share and earnings per share were also expected to be more than 50% lower (or at least 10 US cents lower) than the prior year.

In compliance with rule 3.4(b)(iii)(3) of the JSE Listings Requirements the Company can now advise that:

-- Underlying earnings per share is expected to be 11.0 US cents for FY17 (66% lower than FY16: 32.0 US cents)

-- Headline earnings per share is expected to be 2.0 US cents for FY17 (90% lower than FY16: 19.4 US cents)

-- Earnings per share is expected to be 1.4 US cents for FY17 (93% lower than FY16: 19.3 US cents)

Consolidated revenue for FY17 was $6.08 billion (FY16: $6.45 billion) with a gross margin of 13.7% (FY16: 13.5%).

The year over year decline in earnings is as a result of a worse than expected performance in the Company's Westcon subsidiary ("Westcon-Comstor"), particularly in the fourth quarter. Westcon-Comstor experienced disruption to the business as a result of the final SAP implementation in Europe Middle East and Africa ("EMEA"). Further details are given in the Westcon-Comstor section below.

Earnings were further impacted by higher finance charges, depreciation, amortisation expense and effective tax rate than in the prior year.

Westcon-Comstor

Westcon-Comstor revenues declined by 7% year over year.

 
                    FY17    FY16    Movement 
-----------------  ------  ------  --------- 
 Revenue            $'m     $'m     $'m 
-----------------  ------  ------  --------- 
 North America      1 662   1 773   (111) 
-----------------  ------  ------  --------- 
 Latin America       518     494     24 
-----------------  ------  ------  --------- 
 Europe             1 484   1 626   (142) 
-----------------  ------  ------  --------- 
 Middle East and 
  Africa             380     501    (121) 
-----------------  ------  ------  --------- 
 Asia-Pacific        488     476    12 
-----------------  ------  ------  --------- 
 Total Revenue      4 532   4 870   (338) 
-----------------  ------  ------  --------- 
 
 
                       FY17   FY16   Movement 
--------------------  -----  -----  --------- 
 Gross profit          $'m    $'m    $'m 
--------------------  -----  -----  --------- 
 North America         121    129    (8) 
--------------------  -----  -----  --------- 
 Latin America          80     84    (4) 
--------------------  -----  -----  --------- 
 Europe                165    173    (8) 
--------------------  -----  -----  --------- 
 Middle East and 
  Africa                33     56    (23) 
--------------------  -----  -----  --------- 
 Asia-Pacific           57     55    2 
--------------------  -----  -----  --------- 
 Total gross profit    456    497    (41) 
--------------------  -----  -----  --------- 
 
 
                      FY17   FY16   Movement 
-------------------  -----  -----  --------- 
 Adjusted EBITDA**    $'m    $'m    $'m 
-------------------  -----  -----  --------- 
 North America        66     70      (4) 
-------------------  -----  -----  --------- 
 Latin America        26     24      2 
-------------------  -----  -----  --------- 
 Europe               49     54      (5) 
-------------------  -----  -----  --------- 
 Middle East and 
  Africa              (12)    6     (18) 
-------------------  -----  -----  --------- 
 Asia-Pacific          6     14      (8) 
-------------------  -----  -----  --------- 
 Central costs        (63)   (59)    (4) 
-------------------  -----  -----  --------- 
 Total adjusted 
  EBITDA**            72     109    (37) 
-------------------  -----  -----  --------- 
 
 
                                FY17   FY16 
-----------------------------  -----  ----- 
                                $'m    $'m 
-----------------------------  -----  ----- 
 Adjusted EBITDA**              72     109 
-----------------------------  -----  ----- 
 Restructuring costs            (14)   (15) 
-----------------------------  -----  ----- 
 Unrealised foreign exchange 
  losses                        (3)    (5) 
-----------------------------  -----  ----- 
 Other                          (1)    - 
-----------------------------  -----  ----- 
 EBITDA                         54     89 
-----------------------------  -----  ----- 
 

** Adjusted EBITDA includes the same adjustments as used for underlying earnings per share*, where relevant.

There was a decline in the financial performance in the EMEA region. Transformation challenges in EMEA led to a drop in revenues of $263 million (12%) in FY17 compared to FY16, which constituted 78% of the overall year over year revenue decline for Westcon-Comstor. The drop in revenue resulted in a reduction in gross profit of $31 million in EMEA, representing 76% of the overall year over year gross profit decline for Westcon-Comstor.

Europe went live on SAP during November 2016, resulting in transitional challenges and delayed financial reporting, exacerbated by the business process outsourcing ("BPO") in that region. Trading conditions in MEA were weak, resulting in a poor performance across the region, with additional receivables write-offs in Africa and the Middle East.

North America ("NA") revenues were down $111 million or 6% year over year. This was mainly due to softer Cisco and Avaya sales. The year over year decrease in EBITDA was mainly as a result of lower gross profits associated with the lower revenues.

Latin America performed well, with revenues up $24 million (5%) to $518 million, and adjusted EBITDA increasing by 8% to $26 million.

In the Asia-Pacific region revenues were up 2% and gross profits were up slightly over the prior year. This was mainly attributable to a strong performance in the Asia security business. EBITDA was lower than the prior year, due to higher operating costs, which included additional one-time employee related costs, sales tax reserves and increased investment costs in China.

Logicalis

Logicalis performed in line with expectation and produced revenues of $1.51 billion (FY16: $1.53 billion) and EBITDA of $79.0 million (FY16: $80.9 million). Logicalis EBITDA before restructuring charges was $81.2 million. Logicalis results continued to be impacted by the weak performance of its UK operations, which are undergoing restructuring.

Forecast information

The forecast financial information contained in this trading statement has not been reviewed or reported on by the Company's auditors.

The company expects to release its full year results on 22 May 2017.

This announcement contains inside information.

Cautionary Announcement

Shareholders are reminded that the Company released a cautionary announcement on 25 January 2017, which was renewed on 8 March 2017 and updated on 7 April 2017, advising shareholders that negotiations are in progress in relation to a possible sale of a major share of Westcon-Comstor's operations, which, if successfully concluded, may have a material effect on the price of the Company's shares.

There can be no certainty that the transaction will be completed, nor as to the precise terms on which the transaction might be completed. Shareholders are therefore advised to continue to exercise caution when dealing in the Company's securities.

*underlying earnings per share excludes impairments of goodwill and intangible assets, profit or loss on sale of investments and assets, amortisation of acquired intangible assets, unrealised foreign exchange movements, acquisition-related adjustments, fair value movements on acquisition-related financial instruments, restructuring costs relating to fundamental reorganisations and the taxation effect of all of the aforementioned

Enquiries:

 
 Datatec Limited (www.datatec.co.za) 
 Ivan Dittrich, Chief Financial Officer    [phone] 
 
 Jefferies International Limited - Nominated Adviser and 
  Broker 
 Nick Adams/Simon Hardy                    [phone] 
 
 Instinctif Partners 
 Frederic Cornet/Pietman Roos (SA)         [phone] 
 Adrian Duffield/Chantal Woolcock (UK)     [phone] 
 

This information is provided by RNS

The company news service from the London Stock Exchange

END

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May 11, 2017 02:00 ET (06:00 GMT)