Dimension Data dives after shock profits warning

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The Independent Online

Dimension Data, the South African IT business, had £980m wiped off its market value yesterday, threatening its place in the FTSE 100 index, after a warning that trading conditions in the US, UK and Germany had deteriorated.

The company said that since issuing its half-year results in May, it "appears that infrastructure roll-outs and upgrades in these markets are being delayed". Increased price competition on product sales was hitting margins, particularly in those three regions, it said.

Shares in the company, which moved its primary listing to the London Stock Exchange a year ago, closed down 28.7 per cent at 189p, the biggest faller in the FTSE 100. Analysts were surprised by the timing of the downgrade, coming just over a week after the company had staged a relatively upbeat presentation to analysts and investors. It had refused, then, to discuss current trading.

Jeremy Ord, the company's executive chairman, said: "Yesterday morning, we had a discussion about this and felt it was very, very important that we tell the market immediately about what we'd seen."

The company, which also resells equipment from the likes of Cisco Systems, said it expected that the discounting on products, combined with the integration of the recently acquired Proxicom, a US-based internet IT services company, would lead to its 2001 operating margin being 1 to 2 percentage points below the level reported at the half-year period.

Michael Finney, an analyst at SG Cowen, said: "Customers are deferring purchasing. As a result, there's less business going around and companies are discounting to try and preserve their sales volumes."

Analysts, who doubted that Dimension Data would escape the downturn unscathed, were shocked by just how much profit forecasts would have to be cut. For 2001, they have slashed about $60m (£42.7m) off their profit forecasts to about $210m, on sales of $2.7bn, from $2.87bn.

Still, Dimension said yesterday that it remained "encouraged" by the interest in and uptake of its managed network services and that it needed to accelerate its move to a services-led business model and reduce its dependence on product-led sales.

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