IT and networking services group Datatec`s headline earnings plummeted 91% in the six months to September, mainly as a result of the Landis operation and a stronger rand.
<B>Salient figures</B>
Datatec results for the six months to 30 September 2002.
Year-earlier figures in parentheses, move in square brackets:
Revenue: R10.72b (R9.75b) [+10%]
EBITDA: R173m (R434m) [-60.1%]
Operating profit: R49m (R356m) [-86.2%]
Profit before tax: -R29m (R231m) [-112.6%]
Profit after tax: -R39m (R127m) [+130.7%]
Attributable earnings: -R44m (R106m) [-141.5%]
HEPS: 12c (142c) [-91.5%]
Current assets: R5.47b (R4.9b)
Cash resources: R1.74b (R1.14b)
Current liabilities: R5.47b (R4.9b)
Cash generated from operations: R905m (R570m)
NAV per share: 2 562c (2 732c)
NTAV per share: 2 114c (2 008c)
However, CEO Jens Montanana points out that the group`s balance sheet is strong, and cash generated from operations rose from R570 million in the prior-year period to R950 million. The balance sheet improved to a net cash position of R723 million.
"In fact, Datatec`s net cash position has shown a positive swing of more than R1.3 billion in 12 months," he says. "We also settled R32 million of the amounts owing to vendors of acquired companies out of our internal cash resources."
Montanana says the strong balance sheet and cash flow mean the group is well positioned for any recovery in the IT, networking and telecommunications sector, although he believes the recovery will not take place this financial year.
"And when a recovery does emerge, it will be driven largely by replacement cycle characteristics which may drive the industry`s return to an expansionary trend."
Datatec`s margins came under pressure, mainly because of margins being squeezed on Cisco products.
The group is looking at expanding its product range beyond its current suppliers, but Montanana says it would take a lot of smaller vendors to make a dent in a 1% margin squeeze from a vendor accounting for $1 billion worth of sales.
Loss-makers closed
US subsidiary Westcon achieved revenue of R8.3 billion ($795 million), compared with R7.5 billion ($922 million) a year earlier, while gross margins fell from 11.1% to 8.7%, mainly because of the Cisco margins.
Westcon CEO Alan Marc Smith says the integration of the Landis business is proceeding well, although slower than expected. The final retrenchments should take place no later than 15 January and the Landis operation is expected to reach break-even in the first quarter of next year.
Although Logical`s revenues were flat in rand terms, R1.7 billion compared with a previous R1.6 billion, they fell 16% in dollar terms, from $199.4 million to $167.3 million. Montanana says this is mainly because of weak economic conditions in the US and uncertainty in the market after the HP/Compaq merger.
Gross margins fell from 25.4% to 24.3%. The division closed two loss-making UK subsidiaries - Logical e-Business Solutions and Logical Strategy.
Mason achieved revenue of R137.2 million (lb8.7 million) compared with a previous R139.5 million (lb11.7 million). Earnings before interest, taxation, depreciation and amortisation fell from R24.1 million (lb2.04 million) to R15.7 million (lb0.9 million).
Montanana says the steps Mason management took last year to cut staff and costs have achieved the desired effect and the division has been profitable since April.
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