Tech Data plans US$50m EMEA restructuring

Global distribution giant Tech Data will splash out up to US$50m during the next 18 months restructuring its EMEA operations after poor results in the region dragged down first quarter earnings.

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By  Stuart Wilson Published  May 27, 2005

Global distribution giant Tech Data will splash out up to US$50m during the next 18 months restructuring its Europe, Middle East and Africa (EMEA) operations after poor results in the region dragged down first quarter earnings. Adnan Al-Falah, managing director at Tech Data Middle East, said: “From the Middle East perspective it is very much business as usual. The first quarter figures in this region were strong and we continue to invest in our operations and systems in the Middle East. I believe the bulk of the EMEA restructuring investment will be in ERP systems and the harmonisation of regional warehouses.” Globally, Tech Data posted global sales up 5.3% year-on-year at US$5.1bn for the first quarter ending April 2005 with after-tax profits slipping slightly to US$33.5m. Sales in EMEA accounted for 55% of Tech Data’s revenues with the remainder derived from the Americas region. Operating margins in EMEA came in at just 0.55% compared to 0.78% a year earlier. In contrast, operating margins in the Americas climbed from 1.57% a year earlier to 1.7%. The formal EMEA restructuring programme will cost between US$40m and US$50m during the next five to six quarters. Specific initiatives include the upgrade and harmonisation of Tech Data’s IT systems across the region. Speaking during a conference call, Steve Raymund, CEO at Tech Data, admitted that the restructuring would involve job cuts and substantial cost reductions. Tech Data currently employs approximately 5,200 staff across EMEA. Sales in EMEA slipped 16.9% from a blockbuster fourth quarter performance. During a conference call with analysts Raymund claimed that results in Italy and Germany weakened, while the UK was slower than expected. “Our Americas team drove sales to the high end of our planned range for the period, but our operating performance was adversely affected by the demand environment in EMEA,” stated Raymund. “We are swiftly responding to the challenging EMEA market conditions by launching a formal restructuring programme in the region to improve profitability.” EMEA is a vast theatre including multiple countries. As such, there will undoubtedly be some countries and sub-regions that performed satisfactorily during the first quarter and some where Tech Data believes it now needs to spend its restructuring kitty.

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