Beleaguered Datalex to cut jobs in bid to save €9m

Datalex plans to cut jobs and contracted roles to save up to $10 million (€8.87 million) annually, as the software provider to the travel industry seeks to restructure following a massive profit warning and disclosure of possible accounting problems.

The company, in which billionaire Dermot Desmond has a 26.4 per cent stake, saw its stock slump 59 per cent on January 15th, when it warned it expected to post up to a $4 million (€3.5 million) earnings before interest, tax, depreciation and amortisation (ebitda) loss for 2018. This mainly relates to it not being able to recover all the set-up costs for its overhaul of German airline Lufthansa's digital commerce offering, which has gone way over budget and missed key deadlines.

Dublin-listed Datalex said in a statement on Thursday that its ebitda for this year is expected to fall to $3 million-$3.5 million, before rising to $12 million-$13.5 million for 2020. The restructuring programme will cost $2 million to implement and is forecast to result in up to $8.5 million of cost savings in 2019, increasing to as much as $10 million thereafter.

Analysts had expected 2018’s earnings to amount to $16 million before last month’s alert, and had built their 2019 and 2020 estimates on the group’s prior guidance that ebitda would grow by a double-digit percentage a year.

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Shares in the company plunged as much as 17.7 per cent on Thursday.

Job losses

The company declined to say how many employees would lose their jobs or to what extent outsourced contractor positions would be eliminated. About 500 people work for Datalex, including employees and contractors.

Last month's statement disclosed that the company may have misstated revenues and earnings for the first half of 2018, mainly due to the "accelerated recognition" of income associated with its biggest customer, known to be Lufthansa. Datalex's auditors, EY, warned in its 2017 annual report that management was applying a "heightened degree of subjectivity" in calculating service revenues it could book for that period, based on the estimated stage of the project.

The company provided no update on this matter on Thursday, other than to confirm that accountancy group PwC was carrying out an independent review of the issue.

Datalex chief executive Aidan Brogan has described 2019 as a "year of transition" and said the board remains "confident" in the future growth of the business. He did not provide an outlook for its cash position, which stood at $8.8 million at the end of December, having fallen by almost half within 12 months.

‘Challenging year’

Last year “was challenging for our business following a period of rapid expansion and accelerated product investment”, said Mr Brogan. “We have a solid pipeline of customers that will transfer to our new platform over the course of 2019 and will have a significant positive impact on our revenue and ebitda from 2020.”

Still, the company disclosed that next year’s results will be partially hit “by the non-renewal of an existing Latin American airline customer contract with effect from February 2020”.

The Irish Times reported last week that the Central Bank had opened an investigation into Datalex. This is understood to centre on the company's trading statement on November 23rd – less than eight weeks before the profit warning – which said it was performing in line with expectations and was "confident" about posting double-digit percentage earnings growth for 2018.