Datatec, (“Datatec” or the “group”, JSE and LSE: DTC), the international ICT group, is today publishing a trading statement and IMS (interim management statement) covering the period from 1 September 2008 to 31 December 2008.
Group
Group trading in the first four months of the second half of the financial year has been relatively resilient when compared with the overall market conditions, albeit below the board's prior expectations at the interim results published on 15 October 2008.
Revenue and gross profit margins have held up relatively well despite the sharp deterioration in economic activity in most markets. The board remains confident that Datatec is well positioned to deliver a satisfactory financial performance for the full year in the context of the current environment and expects the group to achieve revenue of approximately $4.3 billion for the financial year to 28 February 2009. (2008: $4 billion).
Group profit has been impacted by the cost base, which had been sized for higher revenue than achieved, and has also been adversely impacted by the rapid appreciation of the US dollar during recent months, particularly against Sterling, the Australian dollar, the Brazilian real, the Turkish lira and South African rand.
The group remains focused on reducing operating expenses in all areas and on continuing to improve its cash generation. More than $20 million of annualised cost reductions have been completed or initiated during the second half year across all operations. The costs of these actions are included in the operating results. The group has historically proven its ability to take early action in managing its cost base in tough market conditions.
The board currently expects, based on current exchange rates, that operating profit before finance costs, depreciation and amortisation (EBITDA) will amount to approximately $120 million for the year ended 28 February 2009 (2008: $151 million). The board further expects, based on current exchange rates, that earnings per share and headline earnings per share for the year ended 28 February 2009 will be between 25 and 29 US cents (2008: 45 US cents) and that underlying* earnings per share will be between 31 and 35 US cents (2008: 47 US cents). The group's effective tax rate is expected to be higher than the prior year rate, due to profit being earned in higher taxing jurisdictions.
Despite the difficult market conditions, the group has remained profitable in each of its divisions. Gross margins have held broadly steady as the group's main operating divisions have focused on maintaining sales quality and services mix.
The group enjoys a comfortable headroom against its working capital lines and is benefiting from the reduction in interest payments, as rates have declined. Operating cash flows have continued to improve as the group de-leverages on the back of lower than expected revenue and improvements in working capital.
Westcon
Westcon's performance for the 10 months ended 31 December 2008 has tracked the trends seen in many of the world's major economies. Continued weakness in demand in the US and European revenue has been partially offset by a strong sales result in South America and Asia Pacific.
Revenue for the second half is expected to be somewhat lower than that achieved in the first half of the current financial year. This will reduce operating profit and margins, which have also been impacted by currency and translation losses that have been incurred, due to the rapid strengthening of the US dollar.
Westcon has continued to align its cost base to the slower market conditions, and will enter the new financial year starting 1 March 2009 with a much lower operating cost base than that of the prior year.
Westcon Emerging Markets
The Westcon Emerging Markets division, consisting of Datatec's distribution businesses in Africa, the Middle East and India, has continued to grow revenue. The acquisition of a 50.01% stake in Inflow Technologies, in India, completed during the second half, has contributed positively in this period.
Logicalis
The strong performance from Logicalis in the first half of the financial year remained robust up to the period ended 31 December 2008. This second half performance has been impacted by the weakening of the Brazilian Real against the US dollar, which is expected to result in a reduced contribution from South America in the second half. Operating expenses across Logicalis are being reduced further in line with market conditions and a solid performance is expected for the full year.
Analysys Mason
Analysys Mason's underlying performance is in line with management expectations, but has been impacted by currency translation given the appreciation of the US dollar.
Jens Montanana, Chief Executive Officer, said: “Our diversified business model, with global scale and no single geographic, technological or business segment dependency is a demonstrable advantage in these challenging times. We have continued to reduce our cost base to reflect the market conditions. Good balance sheet management and strong cash generation remain a priority to help insulate us against the worst effects of the current economic climate and prepare for recovery when it arrives.”
* Preliminary results
The group expects to release its preliminary results for the year ended 28 February 2009 on Wednesday 13 May 2009.
* Underlying earnings per share excludes goodwill impairment, amortisation of intangible fixed assets, profit or loss on sale of assets and businesses, fair value movements on put/call arrangements and unrealised foreign exchange movements.
The financial information on which this statement is based has not been reviewed and reported on by Datatec's auditors.
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