Datatec sees revenue increase, positive earnings

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Jens Montanana, CEO of Datatec.
Jens Montanana, CEO of Datatec.

International ICT solutions and services group, Datatec, seems to have turned the corner, reporting improved interim results for the six months ended 31 August 2018 after two years of declining revenues.

The group this morning reported a revenue increase of 8.7% to $2 billion, up from $1.84 billion in the six months ended 31 August 2017. Earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $42.6 million, representing a 5.5 times increase on the EBITDA of $7.7 million a year ago.

"The group's first half results came in ahead of our expectations, backed by improved operational execution across all divisions," says CEO Jens Montanana.

This as the group reported underlying* earnings per share of 3.6 US cents, compared to a loss per share of 8.7 US cents in the previous interim period. Headline earnings per share were 0.7 US cents, compared to a loss per share of 14.4 US cents a year ago.

However, the company still reported a combined headline loss per share of 5.8 US cents. This included earnings of the Westcon Americas and Logicalis SMC businesses which were disposed of last year.

Interim operating profit was $24.1 million, contrasting with a $19 million operating loss in the previous interim period. No interim dividend was declared.

Datatec is an international ICT solutions and services group operating in more than 50 countries across North America, Latin America, Europe, Africa, Middle East and Asia-Pacific. Datatec operates two main divisions: integration and managed services business, Logicalis, and technology distribution company, Westcon International.

"Logicalis performed well in the first half and produced good results despite emerging market currency headwinds, especially in its key Latin America region. Westcon International's recovery is under way and we are delivering on our commitments for this division with the ERP system now stable, the BPO reversal almost complete and central cost reductions on track," Montanana adds.

The group says its balance sheet was strengthened in comparison with the first half of the previous year, pre the disposal of Westcon Americas. Net debt was $63.1 million at 31 August 2018 compared to $273.4 million at 31 August 2017. Losses arising from translation to presentation currency resulted in a reduction in tangible net asset value to $397 million, from $452 million at February 2018.

"Looking ahead, we expect the improved operational and financial performance to continue for the remainder of the year. We are addressing the valuation gap through improved execution at Westcon International and the ongoing share buy-back programme. We continue to pursue small acquisitions that enhance Logicalis' positioning in the long term," he says.

Divisional performance

Logicalis is the largest contributor to the group in terms of profitability, and gross profit for the segment was up 10.2% to $188.8 million. Logicalis accounted for 39% of the group's revenue for the year. The division also continues to provide the widest geographical exposure and Datatec intends to continue to develop and grow Logicalis globally.

Datatec says Logicalis delivered a good interim performance, with revenue growing by 14.4% to $775.5 million and EBITDA by 37.2% in year-on-year. This was supported by a significant multi-year project in Latin America.

Latin America also contributed the most to Logicalis revenue, accounting for 32%; while Europe, Middle East and Africa (MEA) made up 27% of revenue; North America accounted for 25%; and Asia-Pacific provided the remaining 16%.

The group says the improvement in Europe was driven mainly by Germany and Spain. Latin America showed improvement, notably in Brazil, which was supported by a large multi-year deal, despite currency headwinds. North America also returned to growth and Asia-Pacific benefited from the impact of M&A activity in Indonesia in the second half of last year.

Westcon International contributed 60% of the group revenue during the six months. Revenue increased by 5.1% to $1.2 billion, with higher revenue in Europe and double-digit growth in Asia-Pacific offset by lower sales in MEA. Westcon International's gross profit increased by 0.7% to $121.7 million, with increases in Europe and Asia-Pacific offset by lower profit in MEA.

Sixty-two percent of Westcon International's revenue comes from Europe, 25% from Asia-Pacific and 13% from MEA.

Westcon International is 90% owned by Datatec following the sale of Westcon Americas to Synnex together with 10% of Westcon International in the previous financial year.

"As highlighted in the prior year, the group's strategy to reshape the Westcon International business in order to restore profitability and reduce the central cost base which was retained after the Synnex transaction, is well under way," the group says.

The corporate, consulting and financial services segment accounted for 1% of the group's revenue. The unit comprises Analysys Mason, a provider of strategic, trusted advisory, modelling and market intelligence services to the telecoms, media and technology industries. Consulting revenue for the half year was $22.4 million and EBITDA was $2.2 million.

As of 17 July 2018, Analysys Mason acquired 100% of the issued share capital of Access Markets International-Partners, based in the US, for $3.6 million.

The board expects the improved financial performance across all divisions to continue into the second half of the financial year.

It says Logicalis' financial performance is expected to be maintained throughout the rest of the year, although its results may continue to be impacted by currency weakness especially in Latin America. Westcon International will benefit further from the reorganisation, targeting monthly operating profitability by early next year.

* Underlying earnings exclude impairments of goodwill and intangible assets, profit or loss on sale of investments and assets, amortisation of acquired intangible assets, unrealised foreign exchange movements, acquisition-related adjustments, fair value movements on acquisition-related financial instruments, restructuring costs relating to fundamental reorganisations, Synnex deal-related expenses and the taxation effect on all of the aforementioned.

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