Datatec reports 18% earnings decline

IT networking and services group Datatec has reported an 18% decline in year-end headline earnings per share, but the group says while economic conditions are not improving, the worst is over.

"Even though in dollar terms our ongoing revenue fell 16% to $2.19 billion from $2.61 billion the year before, we have more than held our own compared with our industry sector and peer group where some have posted revenue declines of more than 40%," says CEO Jens Montanana.

He adds that revenue in dollar terms was fairly stable in the second half of the financial year to 31 March compared to the first half.

Montanana says Datatec has coped with the turmoil in the IT sector by adapting to the early signs of a slowdown, aggressively making changes in all areas of its business and by creating an efficient group and streamlined subsidiaries.

He adds that the networking and telecommunications sector remains subdued as a result of over-investment in recent years.

"The group feels that there will be no meaningful recovery in this sector until the early part of calendar 2003 as IT capital expenditure recovers."

The telecommunications consulting division, Mason Group, experienced a difficult second half. Staff have been cut to 200 from more than 260 and operating expenses have been reduced, and the group is expecting profit growth at the division as the market improves.

"Other African and Middle-East operations, including Affinity Logic SA, RangeGate SA and the UK, and Westcon Africa and Middle East, performed in line with expectations," Montanana says.

North America accounted for 58% of Datatec`s consolidated revenues but only 31% of the consolidated earnings before interest, taxation, depreciation and amortisation (EBITDA), while Europe accounted for 28% of the revenue and 38% of the EBITDA.

The shift in profit mix was attributed to the poor economic and trading conditions in the US, rather than an improvement in Europe`s contribution.

"The group expects a larger contribution from North America operations in the new financial year. However, the acquisition of the Landis business partners activities will add impetus to Westcon`s European operations and increase the overall proportion that Europe contributes to revenue and profit."

Montanana says while the trading environment remains challenging, the outlook is reasonably stable. "Downsizing in the industry is largely complete, confidence is starting to return and corporate spending is poised to pick up.

"We hope to be able to report better gross and operating margins in the future as the dynamics of growth return to the industry and demand starts appearing ahead of supply. This should be seen in distribution and product supply first with services following behind."

The group`s share was trading 40c or 1.98% down at 1 980c on the JSE in early trade this morning.