€140 million wiped off value of DCC

SHARES in DCC plunged almost 10% yesterday after the company said its first half earnings will be lower because of falling profits at its IT division.

The fall wiped €140 million off value of DCC group as it warned earnings in the six months to end September would be 10% lower than a year ago.

The company blamed the poor performance on its IT division, which distributes computer hardware and software across Europe and accounts for 21% of the overall profits.

In a trading statement DCC said there was a "significant deterioration" in trading over the summer because of a sharp fall in consumer spending on computer products.

"The UK software distribution business, Gem Distribution, has been particularly impacted by the sharp decline in retail consumer expenditure on technology and entertainment products in July and August," the company said.

"While it is anticipated the games market will benefit from the forthcoming release of the Microsoft Xbox 360 console later this year, this is not expected to have a material impact in the current financial year."

The IT division has been under pressure with operating profits in the year to end March 2005 declining by 12% to €27.5m.

DCC said it continues to be affected by "severe" price deflation in the computer hardware division across Europe.

"It is expected the IT distribution division's operating profits will decline by approximately 45% in the first half of the financial year compared with the first half of the prior year," the statement added.

"However, with the benefit of the profit contribution from the recently acquired Pilton Group, the division is expected to earn broadly similar profits in the second half compared with the second half of the prior year."

DCC said its energy, healthcare and food environmental divisions, which make up nearly 80% of profits, were trading in line with market expectations. It is budgeting for a loss at Shell Direct, which it bought last October.

The company said its expects at group level it will resume double-digit earnings growth in the seasonally more important second half of the current financial year which ends next March.

Shares in DCC ended the day down €1.69 at €16.70.

DCC did not disclose how much it has spent defending itself in court against claims of insider dealing in Fyffes shares. It is believed DCC's legal bill for the case this year could be €4m.