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Westcon-Comstor negotiations are still on

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The Datatec group is still negotiating to sell Westcon-Comstor, accounting for about 74% of its revenues, for more than $800-million.
The Group’s trading was materially affected in the last quarter by the roll out of the SAP ERP system and business process outsourcing (BPO) across Westcon-Comstor’s operations in EMEA and Asia-Pacific which saw revenue decline $338-million year on year to $6,08-billion from $6,45-billion and group EBITDA was $118,9-million.
Underlying earnings per share (UEPS) was 11 US cents compared to 32 US cents for the financial year ending 29 February 2016 period.
As the board’s stated dividend policy is to maintain a fixed three times cover relative to underlying earnings when declaring dividends, no final dividend for FY17 is being declared.
Over the last five years, the Group’s focus has been on modernising Westcon-Comstor’s operations through the implementation of a global SAP ERP system and BPO which continued during FY17.
These two transformation processes are now nearing completion with the final implementation expected in the first half of FY18. North America, EMEA and Asia-Pacific regions will then be on SAP and BPO.
Meanwhile, Datatec has renewed a cautionary announcement advising shareholders that negotiations are in progress relating to a possible sale of a major share of Westcon-Comstor’s operations for a consideration (current and deferred) of more than $800-million.
Negotiations are continuing and the proposed transaction is subject to contract and exclusivity provisions
Group revenues for the period were $6,08-billion, down 5,8% compared to FY16. In constant currency terms, group revenues for FY17 decreased by 4% to $6,2-billion with Westcon-Comstor constant currency revenues down 5,9% and Logicalis constant currency revenues up 2,1%.
Group gross margins improved to 13,7%, with gross profit at $833,1-million.
Overall operating costs were $714,2-million. Included in operating costs are total restructuring costs of $16,,6-million. EBITDA was $118,9-million and EBITDA margin was 2%.
Westcon-Comstor accounted for 74% of the group’s revenues and 40% of its EBITDA.
Westcon-Comstor’s revenues declined by 6,9% to $4,,5-billion, with lower revenues across all regions except Latin America and Asia-Pacific. Constant currency sales were 5,9% lower.
Westcon-Comstor’s gross margins were 10,1% due to unfavourable geographic mix with lower margins in Latin America and MEA. Gross profit was $456-million as a result of lower revenues.
There was a notable decline in the financial performance in the EMEA region. Transformation challenges in EMEA led to a drop in revenues of $262,7-million (12%) in FY17, which constituted 77,9% of the overall year over year revenue decline for Westcon-Comstor.
The drop in revenue resulted in a reduction in gross profit of $31,4-million in EMEA, representing 76,4% 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 BPO implementation 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.
Jens Montanana, chief executive of Datatec, comments: “The year ended with a very challenging set of circumstances as Westcon-Comstor’s SAP and BPO implementation
negatively impacted the results of the EMEA region.
“Logicalis’ performance was satisfactory with a continuing trend towards a higher margin services business.
“The strategic value of our businesses is affirmed by the unsolicited approach for a major share of Westcon-Comstor’s operations.”