Dimension Data Holdings has warned that challenging trading conditions, particularly in the product arena, will dent its full-year operating margins, which are expected to be one to two percentage points below the level reported at the interim stage.
With total turnover of $1.23 billion and operating profit of $119.78 million before goodwill amortisation, the group`s operating margin was 9.78% at the interim stage.
Investors reacted quickly to the news and hammered the share, which plunged 22.15% or R6.60 to trade at R23.20 by late this morning.
While an official statement released this morning has no mention of profit levels, market players have interpreted the announcement as a profit warning.
The statement says that product trading conditions in certain markets have deteriorated and it appears that infrastructure roll-outs and upgrades in those markets are being delayed.
"In such an environment, we have seen increased price competition for product sales," according to the official statement. "This is impacting on our margins, particularly in those regions where Dimension Data`s business is still predominantly product-led, notably the US, UK and Germany."
The group expects discounting by certain competitors and manufacturers to have a negative effect on overall achievable margin in the second half of the financial year.
The lower operating margin is also being attributed to the integration of recently acquired Proxicom.
The group says that in view of the current market conditions, it needs to accelerate the transition to its services-led model, and has hastened investment in areas of services and engineering expertise, while reducing dependence on product-led sales.
"The closing of the Proxicom acquisition is a key element of this strategy. The group is in the process of integrating the operations of Proxicom with its existing operations and this will enhance the group`s competitive positioning by adding new competencies to its overall integration and connectivity service offering."
Financial director Malcolm Rutherford was unavailable for comment, while London-based investor relations manager Karen Cramer had not returned calls by the time of publication.
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