Dual-listed Datatec, which has again benefited from its diverse geographic portfolio, says the current economic climate is conducive to facilitating consolidation in proven markets and extending its geographical reach.
The group yesterday reported its results for the six months to August and said revenue gained 7%, to $2.62 billion. Its operating profit gained 7.3%, to $71 million, despite a 10.4% increase in operating costs.
Datatec says it is on track to hit revenue of between $5.5 billion and $5.8 billion in the full year, a gain on last year's $5.03 billion. Its unchanged full-year forecast is despite an increasingly uncertain economic outlook.
CEO Jens Montanana says: "The diversity of our business streams and our global footprint continue to be strong assets, allowing the group to deliver a relatively strong performance against a disappointing market.
"Based on current exchange rates and trading conditions, our full-year forecast remains unchanged, but has become more challenging than we anticipated in May."
The listed company says market conditions deteriorated in the past few months, and while the US has shown resilience, Europe is weak. Latin America remains the most "robust" region for the group.
Geographic spread
In a presentation to analysts yesterday, the group indicated its largest source of income is still North America, which added $878.4 million to revenue in the first half. This was followed by Europe - $824.4 million - and then Latin America at $371.8 million.
CFO Rob Evans says Datatec's long-term target is to generate 50% of revenue from developing markets. "Over time, we see non-distribution businesses approaching 50% of gross profit, with Logicalis accounting for the vast majority."
Datatec continues to look for suitable bolt-on acquisitions that fit Logicalis, with a regional focus on Asia Pacific, Eastern Europe and Germany, says Evans.
Datatec recently expanded significantly into Latin America and announced the purchase of security, virtualisation and data centre solutions distributor Afina Group, in July. The Iberian and Latin America company will fit into the Westcon stable.
Asia accounted for $331.1 million and is Datatec's fourth-largest revenue source, while Africa, India and the Middle East added $215.6 million.
Datatec says there are compelling merger and acquisition opportunities in more mature markets, and its strategy includes a period of near-term consolidation to improve working capital efficiencies.
Evans explains Afina will be integrated into Westcon over the next year, and part of this process will include consolidating banking and working capital facilities. There are no plans to merge units, he adds.
Follow the money
Frost & Sullivan's ICT industry analyst, Ishe Zingoni, says Datatec has been able to rely on its diversified position to sustain growth. "The group's most important strength lies in its diversified scope in terms of both global footprint and business lines."
The research company notes that, as the outlook in developed markets has been uncertain, companies are increasing their exposure to high-growth markets, such as Asia and Latin America.
In line with this trend, Datatec has moved to consolidate its presence in emerging markets, through acquisitions in Indonesia, Latin America and Australia. "As part of its growth strategy, Datatec has also increased its presence in select product segments in order to offset margin pressures currently experienced in IT markets," says Zingoni.
"Recent acquisitions, concluded by both Westcon and Logicalis, have sought to enhance margins, while at the same time broaden and deepen Datatec's overall product mix."
Key areas that have been prioritised by Datatec in its growth strategy include cloud computing, virtualisation, managed services and security solutions; all part of the high-growth segments predicted in the next five years, says Frost & Sullivan.
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