Siltek profit warning

The board of Siltek advises shareholders that earnings for the interim period ending 31 December 2000 are expected to be substantially lower when compared to the prior corresponding reporting period.

Siltek has been affected by the world-wide slow down in the demand for computer products in the 2nd and 3rd quarter of 2000.

The business units of the Specialist Division and the Supply Chain Services Division have performed well given the reduced demand. However, the Volume Distribution business in South Africa and Australia has been adversely affected, resulting in lower profits and has necessitated remedial action.

SA Business Volume:
The decline in business volumes and profitability is attributed to the reduced demand for PC's, specifically desktop products, and increased competition as a result thereof; as well as a shortage of certain hardware components.

PC sales contributed 60% of the gross profit generated in Volume Distribution during the corresponding period last year, and are a major contributor to the product mix.

Remedial steps have already been undertaken to realign the group's Volume Distribution businesses: Siltek Distribution Dynamics (SDD); One Technology Group (OTG) and Memtek/MMW to trade profitably given the revised anticipated demand.

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"The refocusing of these distribution businesses will generate additional back-office efficiencies and savings. Our expectations are that the consolidation of our Volume Distribution business will result in an estimated annual saving in excess of R20 million on an annualised basis; simultaneously, an estimated R5 million saving per annum is projected through our initiative to co-source our own brands," says Siltek CEO, Dave Lello.

Australia:
"Where Siltek's operations were subject to the low business confidence levels experienced in southern Africa, our Australian operations experienced a similar drop-off in PC sales," explains Lello.

The lower PC demand brought about increased margin pressure, culminating in surplus stock and stock write offs. Other external factors the business had to contend with included the hard drive shortages in certain product segments which affected sales levels at Agate in particular. Internally, inadequate operational systems impacted on service levels and affected sales in the short term. After installing new in-house operational systems with additional management skills, we believe that we have now overcome these issues.

Conclusion:
"To remain a leader in the information technology supply chain requires continuous adaptation to the way we conduct business, as well as of our business model. It is always difficult to accept change, but it is essential in guaranteeing the group's continued growth and offshore profitability. Siltek continues to trade profitably in South Africa, where the changes to the volume business will provide the platform for servicing the market more efficiently and profitably in future," Lello concludes.