Datatec, the international IT networking and services group, today reported that its revenue rose 14% from $2,1-billion to $2,3-billion in the year to end-February.
Operating profit before financing costs, depreciation and amortisation (EBITDA) amounted to $23,8-million compared to $18,2-million the previous year. EBITDA from ongoing operations of $18.7-million (which excludes the disposal of Logicalis Australia and New Zealand subsequent to year-end) was down on the $20-million the previous year.
Chief executive Jens Montanana says the low operating profit is largely a result of continuing margin pressure in the industry as a consequence of difficult trading conditions in the sector, costs associated with consolidating operations and foreign exchange translations losses from the continuing strength of the Rand.
The Group reported a headline loss per share of 6,59 cents, an improvement on the 2003 headline loss per share of 7,14 cents.
"Improving global economic conditions and better sentiment in the IT sector are only gradually and tentatively being translated into stronger demand. For much of the 2004 financial year, Datatec operated in the same tough environment of the previous three years," says Montanana.
Datatec`s revenue growth came mostly from Westcon which benefited from the 2002 Landis acquisition in Europe, and an increase in sales of convergence, security, wireless access and complementary products.
Westcon`s revenue of $1,8-billion was 13,2% up on the previous year, with gross margins slightly down from 8,9% to 8,8%. The increased revenue for Westcon, and anticipated future growth, required an additional $32-million in working capital. Westcon closed the year with a net cash position of $41,5-million (2003: $68,8-million).
Sales of Cisco products made up 56% of Westcon`s revenue, followed by Nortel (10%), Avaya (9%) and network extensions (25%). The Americas generated more than half of Westcon revenue (56%), followed by Europe (38%) and Asia-Pacific (6%).
Logicalis, the services and integration subsidiary that was re-branded during the year, achieved revenue of $362,9-million, compared to $313,5-million in the 11 months to end-February 2003, an overall increase of 16%.
The increase was due mainly to improved product sales by Logicalis operations in the United States and Australia. While annuity revenue from maintenance and managed services improved by 32%, overall services revenue at Logicalis was down by 12% as the improved product sales did not lead to demand for increased professional and technical services.
Lower demand for services resulted in lower utilisation of Logicalis staff and affected gross margins from continuing operations which decreased from 23,2% in 2003 to 22,4% in the 2004 financial year.
A continuing concerted focus on cost saw operating expenses increase by 7% compared with the 16% increase in revenue. EBITDA from continuing operations at Logicalis amounted to a loss of $0,4-million compared to a positive $0,6-million the previous year.
"We are pleased with the continuing strength of our balance sheet and our strong net cash position of $89-million," says Montanana. "We have made a number of strategic disposals including the sale of Affinity Logic to UCS, and the sale of Datanet and Westcon Cabinet Manufacturers. In addition, Logicalis Australia and New Zealand were sold to IBM for $66-million post year-end. We`ll remain focused on our core competencies and we will continue to operate our businesses in line with the prevailing conditions. We believe we are well positioned to exploit any opportunities for growth as conditions improve."
Montanana says the worst of the conditions of the past few years may be over for Datatec, with the Group seeing a gradual improvement in its markets in the first few months of the year.
"This has been reflected in modest improvements in revenue, increasing order books and stabilising margins as well as other indicators that may be a sign of tentative recovery. This could translate into better profitability for the Group in all its key operating areas."
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