CWG's Negative profit warning may contribute to Capital Market downturn

Exchange rate losses, reduction in margins in traditional reseller business and inability to transfer increased cost of doing business to customers has combined to affect the bottom-line of Computer Warehouse Group (CWG) for 2015.
The company, which is into systems integration, operating in Nigeria and other part of Africa, had sent a profit warning to the capital market community that it would end the 2015 year with a loss.

Although the company recorded a gross profit of N2.443 billion, it ended with a loss after tax of N1.796 billion. According to CWG, foreign exchange loss to the tune of N600 million was recognised arising from the fluctuations in the exchange rate, the decline in United States dollars availability and the dearth of hedging options.

“This significantly impacted CWG’s traditional business which is in most part vulnerable to foreign exchange risks (payments from customers are in naira while the corresponding payments to Original Equipment Manufacturers and other partners are in dollars),” it said.
The company added that it wrote off  N431 million following technology changes and ongoing business model changes which made some previous investments such as the investments in Very Small Aperture Terminal(VSAT)) and Multiprotocol Label Switching (MPLS) network obsolete.

“This performance occurred on the back of a challenging and uncertain macroeconomic environment including the general elections of 2015 and the subsequent takeover by a new administration which caused significant delays in investments by our traditional customers,” the company noted.

Looking ahead, CWG said despite the many challenges of 2015, it has stayed focused on re-inventing itself  to be in better control of its  costs, margins and product offering, saying it is in the last stages of  transition from a reseller of technology to being a provider of technology platforms that enable growth across a broad spectrum of the economy.

“The company is accelerating her strategic focus from the resale of technology to the provision of platforms and services sold on subscription basis or revenue share basis which are more predictable and guarantee annuity income. This is evident in a slew of new products and services including the Smart Utility Solution (SUS) provides a theft prevention solution, Energy audit, Demand Side Management, Real Time Billing Efficiency and Network Asset Management. SUS is offered to power companies in order to efficiently manage and monitor energy flow to end users.”

It added that there is the SMERP solution, which is  a business management tool that provides functionalities such as accounting management, inventory management, sales, and order tracking amongst others and   BillsnPay, which  is a  platform that provides a robust electronic bills presentment and payment service that can be carried out via channels such as mobile, web, bank branches, ATM or banking kiosks.

The Company was listed by introduction on the Nigerian Stock Exchange on 15 November 2013 at a value of $85million and a market price of ₦5.48.

The Company is ISO 9001:2008 certified across its subsidiaries and has over 334 certified professionals.

Over 80% of CWG staff are Information Technology Infrastructure Library (ITIL) Certified.

The Company enjoys an industry Pioneer Status and is thus exempt from Company Income Tax payment for five years from 2012. CWG’s total assets amounted to ₦17.4 billion while the shareholders’ funds stood at ₦5.2 billion. During the nine months ended 30 September 2013, the Company generated turnover of ₦14.1 billion and recorded profit before tax of ₦511 million.

With the downturn in the ubiquitous Systems Integration sub sector, whereby businesses are built around building computing systems for clients by combining hardware and software products from multiple vendors (mostly international), there certainly must be a paradigm shift for the industry in Nigeria. Its already a known fact that 85% of ICT companies in Nigeria are systems integrators with little or no originality or bespoke solution for the local challenges in the country. With fluctuating foreign exchange, incursion of China in mainstream IT, and the quest for local IT solution patronage, the era of re-sale of OEM systems in the sector may be in the horizon.