Durban - Information and communication technology group Datatec has said the implementation of business process outsourcing (BPO), as well as systems, applications and products (SAP), at its Westcon-Comstor division have reached the final stages, but at a high cost to the company.
The group said the BPO and SAP implementations resulted in a decline in profits for the financial year to the end of February.
However, Datatec said it was preparing for better results in the 2018 financial year, because some of those projects were nearly finished.
“These two transformation (BPO and SAP) processes are now nearing completion, with the final implementation expected in the first half of financial year 2018. North America, Europe, the Middle East and Africa (EMEA) and the Asia-Pacific regions will then be on SAP and BPO,” the group said.
Datatec operates two main divisions: Westcon-Comstor, a distributor of security, unified communications, networking and data-centre products, which accounts for 74 percent of the group’s revenue; while Logicalis, an infrastructure solutions and services unit, accounts for 25 percent of the group’s revenue. Corporate, Consulting and Financial Services account for 1 percent of the group’s revenue.
Affected
The group said that trading during the period was materially affected in the last quarter by the roll out of the SAP ERP system and BPO across Westcon-Comstor’s operations in the EMEA and Asia-Pacific regions, with revenue declining by $338 million (R4.46 billion) year-on-year.
As a result, the group reported revenue of $6.08 billion, down from $6.45 billion, while earnings before interest, tax, depreciation and amortisation came in at $118.9m, down from $162.1m compared with 2016.
Underlying earnings per share dropped to 11 US cents, down from 32c in 2016.
The group did not declare a dividend for the period.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the results were in line with the trading update provided on May 11, but were weaker than the market expected.
“The weaker performance is largely due to a combination of company-specific execution challenges with the implementation of the SAP system and weaker economic activity in some of their operating countries.
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It looks [as though] the new SAP system implementation in the Westcon EMEA operations brought that division to a standstill in the second half of the financial year to February 2017,” Takaendesa said.
He added that headline earnings were further depressed by restructuring costs of $17 million and an abnormally high effective tax rate of 74 percent, resulting in the reported 66 percent decline in underlying earnings per share, compared with a decline of only 4 percent in group gross profit.
According to Takaendesa, Datatec experienced similar SAP implementation disruptions in North America a few years ago, but the recovery in sales was quick. Datatech shares fell 1.19 percent on the JSE to close at R55.83.