International ICT solutions and services group Datatec warns that its headline earnings per share (HEPS) for the year ended 28 February 2017 could drop by 90%, from 19.4 US cents last year to just 2 US cents.
On 7 April, the company had already warned that HEPS and earnings per share (EPS) would likely be more than 50% lower than the prior year, but an updated trading statement has now cautioned an even bigger drop.
EPS are expected to be just 1.4 US cents for the year, which is 93% lower than the 19.3 US cents reported a year ago. Underlying earnings per share are expected to be 11 US cents, a 66% decline on the previous year. Consolidated revenue for the Datatec group is expected to be $6.08 billion (R81.3 billion), a 5.7% drop on the $6.45 billion (R86.2 billion) reported 12 months ago.
Datatec is an international ICT solutions and services group operating in more than 70 countries across North America, Latin America, Europe, Africa, Middle East and Asia-Pacific. The group's service offering spans the technology, integration and consulting sectors of the ICT market.
The dual-listed group says 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. Value-added technology distributor Westcon-Comstor's revenue declined by 7% year on year due to weak results in its Europe, Middle East and Africa (EMEA) business.
In April 2017, the group announced it was looking to sell a major stake in Westcon-Comstor for $800 million. The latest statement reiterates previous cautionary announcements about the possible sale, but gives no new info.
Datatec's Logicalis business also saw full-year revenue slightly down, from $1.53 billion to $1.51 billion. Datatec says Logicalis' results continue to be impacted by the weak performance of its UK operations, which are undergoing restructuring.
The group says earnings were further impacted by higher finance charges, depreciation, amortisation expense and effective tax rate than in the prior year.
The declines come after Datatec reported weaker interim results for the six months ended 31 August 2016, when revenue fell 7.6% year on year and HEPS dropped by 24% to 9.1 US cents.
The company expects to release its full-year results on 22 May.
Huge blow
Westcon-Comstor's revenue took a major hit in the EMEA region during the year, with revenue dropping $263 million, or 12%, compared to the previous year, which constituted 78% of the overall year-on-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," Datatec says.
It notes Europe went live on SAP during November 2016, resulting in transitional challenges and delayed financial reporting, exacerbated by the business process outsourcing in that region. Trading conditions in MEA were also weak, resulting in a poor performance across the region, with additional receivables write-offs in Africa and the Middle East.
North American revenue was down $111 million, or 6% year on year, mainly due to softer Cisco and Avaya sales. On the flip-side, Latin America performed well, with revenue up 5% to $518 million, and the Asia-Pacific region's revenue grew 2.5% to $488 million.
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