UAE exit hits Tech Data

Broadliner made to pay for its decision to axe Middle East arm as related losses amount to almost US$9m.

Tech Data has been forced to take a hit of US$8.8 million in relation to the recent closure of its UAE office. The distributor also revealed that its Middle East arm suffered operating losses of US$5m in the same quarter that its components and enterprise units were taken over by Aptec.

In a filing to the SEC, Tech Data confirmed that the majority of the US$8.8m deficit it has recorded for disposing its UAE office relates to foreign currency translation losses.

These were previously recorded in shareholders' equity as ‘accumulated other comprehensive income'. Just US$400,000 was attributed to severance costs and certain asset write-offs.

"The company decided to close the UAE operations during the quarter of fiscal 2008 as part of its ongoing initiatives to optimise profitability worldwide," said Tech Data in a statement outlining its fiscal first quarter results.

The admission continued: "In addition, the UAE operations incurred an operating loss of approximately US$5m for the first quarter of fiscal 2008, which was primarily the result of an increase in credit and inventory costs related to the closure. This operating loss is reflected in both the GAAP and non-GAAP results and did not generate any tax benefit in the quarter."

The closure of the UAE arm, coupled with higher inventory costs, was also blamed for a first quarter slump in gross margin from 4.80% to 4.72% year-on-year. Despite growing quarterly EMEA sales by 2.1% year-on-year in local currencies to US$2.9 billion, ongoing restructuring in Europe led to charges of US$6.5 million for the three months to the end of April, while consulting costs for the same period amounted to US$4.1 billion.

EMEA operating losses narrowed to US$6.09m - compared with US$6.5m last year - but would have been smaller had it not been for the Middle East closure.

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