Tech Data reliant on SDG to deliver growth

In its first official financial statements since early 2013, Tech Data reveals SDG has been a vital tonic for its business

Distributor Tech Data has shed some light on its financial performance in the past year and revealed that its 2012 acquisition of SDG has been extremely beneficial to its top line.

Having just wrapped up an extensive and long-running internal investigation into account irregularities that held up several quarterly results statement and at one point saw US financial authorities threaten to throw Tech Data off the NASDAQ index altogether, the firm has now dropped an extensive set of results covering not only its third quarter and nine months to 31 October 2013, but also its preliminary Q4 numbers.

The data show that in the third quarter, SDG contributed $560m to European sales of $3.8bn – up 4% – and worldwide sales of $6.4bn, up 6%.

The impact of the £220m purchase of SDG from service provider SCC was laid bare when its parent admitted that without its contribution, its European sales in Q3 would have dropped 12% year-on-year in US Dollars and 16% in Euros, and its global sales would have been down 7%.

This, it said, was mostly due to weak economic conditions in a number of markets, and a decline in marketshare in the region.

Third quarter global GAAP net income of $38m was down 12% year-on-year.

Over the nine months to 31 October, the picture was repeated to some extent, with worldwide sales dropping 5% and European sales dropping 9% in US Dollars and 11% in Euros, again without accounting for SDG’s contribution. With SDG taken into account, global sales grew 5% and European sales 6%.

Net income for the nine month was down from $132m to $70m.

Fourth quarter preliminaries showed consolidated net sales of about $8bn, reflecting mid-single digit growth in all geographies, and non-GAAP operating income of between $110m and $120m.

Despite its apparent dependence on SDG for any growth recently, the message from on high suggested that even its performance was not good enough, as CEO Bob Dutkowsky indicated on an analyst conference call.

“While we have made good progress integrating SDG, like most of Europe, SDG sales were below our expectations, reflecting a weak European datacentre market,” he said.

Turning to its recent accounting scandal, Dutkowsky had little to say beyond restating his belief that the measures outlined in its recent 10-K filing were, as previously reported, sufficient to “remediate the material weaknesses identified.”

“[We] will continue to strengthen our internal financial controls, our organisation and our people,” he said. “Let me assure you that the Audit Committee, our Board, the executive leadership team, are absolutely committed to improving and further institutionalising rigorous internal financial controls and oversight.”

The firm indicated that the probe had caused no disruption to its vendor relationships and caused little to no problems in terms of its declining sales and profits.

“There could have been something, but it really probably paled in comparison to the market dynamics in Europe, and our decision [to go] for quality on the revenue side,” noted CFO Jeffery Howells.

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