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Datatec sees revenue decline

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 22 May 2017
Jens Montanana, chief executive of Datatec.
Jens Montanana, chief executive of Datatec.

International ICT solutions and services group Datatec's revenue declined by 5.8% ($338 million) year-on-year to $6.08 billion from $6.45 billion last year.

The company announced its audited provisional results for the year ended 28 February 2017 this morning.

The group's earnings before interest, taxes, depreciation and amortisation (EBITDA) was $118.9 million (FY16: $162.1 million).

Datatec operates in more than 70 countries across North America, Latin America, Europe, Africa, Middle East and Asia-Pacific. The group's service offering spans the technology, integration and consulting sectors of the ICT market.

It operates two main divisions - technology distribution, under Westcon-Comstor; as well as integration and managed services, under Logicalis.

"The year ended with a very challenging set of circumstances as Westcon-Comstor's SAP and BPO [business process outsourcing] implementation negatively impacted the results of the EMEA region," says Jens Montanana, chief executive of Datatec.

"Logicalis' performance was satisfactory with a continuing trend towards a higher margin services business. The strategic value of our businesses is affirmed by the unsolicited approach for a major share of Westcon-Comstor's operations."

Last month, Datatec said it was looking to sell a major stake in value-added technology distributor Westcon-Comstor for $800 million.

This morning, the company said underlying earnings per share was 11 US cents compared to 32 US cents for the financial year ending 29 February 2016 period. In constant currency terms, group revenues for FY17 decreased by 4.0% to $6.2 billion with Westcon-Comstor constant currency revenues down 5.9% and Logicalis constant currency revenues up 2.1%.

Group gross margins improved to 13.7% (FY16: 13.5%). Gross profit was $833.1 million (FY16: $868.7 million). Overall operating costs were $714.2 million (FY16: $706.6 million). Included in operating costs are total restructuring costs of $16.6 million. EBITDA was $118.9 million (FY16: $162.1 million) and EBITDA margin was 2.0% (FY16: 2.5%).

Adjusted EBITDA, including the same adjustments as used for underlying earnings per share, where relevant, was $139 million (FY16: $182.1 million). This excludes restructuring costs of $16.6 million, unrealised foreign exchange losses of $1.9 million and other items of $1 million.

Depreciation and amortisation were higher at $58.4 million (FY16: $51.5 million) primarily as a result of increased capital expenditure and investment in systems in Westcon-Comstor, says Datatec. It adds that operating profit was $60.5 million (FY16: $110.5 million). The net interest charge increased slightly to $24.2 million (FY16: $23.9 million). Profit before tax was $41.7 million (FY16: $88.4 million).

The dual-listed company says the group's trading was materially affected in the last quarter by the roll out of the SAP ERP system and BPO across Westcon-Comstor's operations in EMEA and Asia-Pacific.

Over the last five years, the company says its focus has been on modernising Westcon-Comstor's operations through the implementation of a global SAP ERP system and BPO which continued during FY17.

These two transformation processes are now nearing completion with the final implementation expected in the first half of FY18. North America, EMEA and Asia-Pacific regions will then be on SAP and BPO, it says.

Datatec released a cautionary announcement on 25 January 2017, which was renewed on 8 March 2017, advising shareholders that negotiations are in progress in relation to a transaction, which, if successfully concluded, may have a material effect on the price of Datatec's shares.

This was updated on 7 April 2017 when Datatec disclosed the additional information that the cautionary announcement relates to a possible sale of a major share of Westcon-Comstor's operations for a consideration (current and deferred) of more than $800 million.

The company says negotiations are continuing and the proposed transaction is subject to contract and exclusivity provisions. "There can be no certainty that the transaction will be completed, nor as to the precise terms on which the transaction might be completed. Shareholders are therefore advised to continue to exercise caution when dealing in Datatec's securities," the company says.

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