Diversified ICT group Datatec`s defensive strategy has helped it keep its head above water, especially in the North American and European markets, which have been hard hit by the global economic meltdown.
However, the conservative balance-sheet-oriented plan did not stem the decline in profitability, causing the Johannesburg and London stock exchange-listed group to see its share earning fall by 20% to 33.1 US cents, although its revenue increased by 5% to $4.2 billion.
The group does not expect trading conditions to get any better, with its projected revenue for the 2010 year to decline to between $3.7 billion and $4 billion.
Datatec CEO Jens Montanana says: "Despite very tough market conditions that impacted our second half, the group has delivered a solid performance, with further improvements in revenue and increased operating cash flows."
Montanana says Datatec responded swiftly and effectively to reduce and adjust its cost base, to cope with the global economic slowdown.
"Our divisional structure, with multiple lines of business and geographic diversification, has proved to be a strong asset in the current climate. We have achieved a particularly strong performance in Logicalis (consultancy services), where all regions contributed strongly, breaking through $1 billion revenue and 5% EBITDA margin (earnings before income tax, depreciation and amortisation). As a result, integration services and consulting activities now account for approximately 50% of the group EBITDA," he says.
Of the $4.2 billion revenue generated during 2009, 73% came from distribution, 21% from ICT solutions, and 6% is attributable to revenue derived from consulting and services.
"Just like Dimension Data, Datatec has experienced a decline in product-driven sales," says Frost & Sullivan ICT analyst Spiwe Chireka. "Companies are looking more to services to provide them with the tools for surviving this economic crisis based on the infrastructure they already have."
Chireka says that due to difficult market conditions, there have been growing pressures on Datatec`s margins, especially for Westcon. The group did, however, focus on controlling its cost structures during the latter part of 2008 to mitigate these difficulties.
The continued weakness in demand in the US and Europe has also been partially offset by a strong sales result in South America and Asia Pacific.
Chireka believes Westcon`s recent appointment as Cisco`s first global distributor will be a key plus for the group. Cisco products contributed 54% of Westcon`s revenue in the past year and this deal will further increase the importance of this revenue stream.
"Westcon is the first Cisco multinational distributor to secure an agreement of this type and breadth," she says. "In addition to increasing Datatec`s geographical coverage, it helps the company to serve its multinational clients efficiently."
Datatec was last seen trading at R15.30, a rise of 10c in quiet mid-morning trade.
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