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Robust growth for Datatec

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Global ICT solutions and services provider, Datatec, posted a strong set of interim results yesterday as a diversified business profile enabled the company to achieve robust growth, despite market fragilities in certain key territories.

In the six-month period ending August 2011, Datatec grew its overall revenues to $2,4-billion, up from $2,1-billion in the corresponding period of 2010. Operational efficiencies and an optimised business mix enabled it to increase the gross profit margin by 14% and EBITDA by 46% from the previous year. A successful diversification strategy has paid off handsomely with an even revenue split across its three main operating platforms of North America, Europe and the rest of the world.

“Datatec’s most valuable strength is its diversified business scope, in terms of territories, business lines and range of partners. The group’s global reach and large scale of operations has enabled it to broaden the scope of its suppliers and customers, thus reducing its overall business risk, a very critical success factor in the current global context,” states Frost & Sullivan’s ICT industry analyst, Ishe Zingoni. “Most importantly, this has been driven by a management team that remains focused on a consistent strategy of targeting earnings-enhancing acquisitions.”

Over the reporting period, Datatec finalised three distinct acquisitions that will optimise their overall product mix and create higher margins.

Although North America and Europe remain Datatec’s core markets, in recent years the company has sought to increase its exposure to dynamic emerging markets. Datatec expects capital investment levels to remain robust in Latin America, Asia, Middle East and Africa, and it will thus continue to invest in these high-growth markets. Furthermore, the high margins that are characteristic of these fledgling markets make them hugely attractive. These emerging and developing markets now account for 33% of Datatec’s total revenues, and 39% in terms of gross profit.

In developed markets such as the US and Europe, economic recovery remains fragile, and enterprises have been reluctant to commit to capital projects. The result has been a steady shift in enterprise preference towards third-party managed service providers, as opposed to building in-house data centres. Datatec is already leveraging the trend towards increased demand for data centre hosting and cloud-based services. Annuity service revenue in Logicalis, a Datatec subsidiary operating in this space, grew strongly by 38%, compared with 23% for pure product sales.

The surging demand for third-party services means that security solutions have become a key opportunity area, and Datatec is uniquely positioned to benefit from it. IT security is a non-discretionary expenditure for firms, and a highly segmented area with high margins. Cognisant of this trend, Datatec has thus completed the acquisition of a leading Germany-based IT security products distributor in July 2011.

Datatec’s long-term future outlook thus remains positive as it expands into fast-growing territories, and continues to consolidate its position in key mature markets.

Although Africa still represents a relatively small proportion of Datatec’s revenues, there is tremendous scope for future growth with the on-going IT infrastructural developments and increasing broadband penetration. According to the latest report by Frost & Sullivan released in September 2011, the South African managed services market is currently valued at over $2-billion, with infrastructure support and data centre services as the key components. There is already a definite trend towards increased adoption of cloud-based offerings, an area that holds enormous potential for the future of computing in South Africa.

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