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Datatec reports strong growth

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The Datatec Group has delivered good revenue growth of 18,2% for the period 1 March 2015 to 30 June 2015, compared to the four months ended 30 June 2014.

Westcon continues to report excellent revenue growth, particularly in North America. Logicalis also delivered revenue growth in relation to the comparable period in a challenging market.

Gross margins have been lower across both divisions, notably in developed markets where product sales have increased on the back of a number of large volume deals.

Growth in emerging markets has been affected by the sustained strength of the US Dollar. Group operating margin improvement from increased revenues and cost containment initiatives has been offset by restructuring expenditure and foreign exchange losses.

Jens Montanana, CEO of Datatec, says: “We have continued to deliver sustainable revenue growth as a result of our international scale and operational diversity.

“Westcon is contributing strongly to FY16 growth and continues to make progress in improving operating efficiency although the division was impacted by foreign exchange losses.

“Logicalis continues to adjust to changing market conditions and is addressing business structures to improve its market positioning and operating efficiency.”

Westcon continues to experience strong revenue growth, especially in North America. Westcon has reported revenue growth of 19.8% over the Comparative Period.  However, gross margins were lower due in part to the increased weighting of North America and volume increases, which were above market growth rate trends.

From FY16 onwards, Westcon will disclose outbound freight as part of cost of sales rather than operating costs as this matches the expense with corresponding revenues more accurately and aligns with preferred IFRS classification. The effect of this is a reduction of approximately 0.8% and 0.6% in Westcon’s and Datatec’s gross margins respectively when compared to FY15. This reclassification will have no effect on operating profit or operating margins.

Westcon will be implementing a restructuring of its Europe, Middle East and Africa (EMEA) operations in the second half of FY16 aimed at delivering future improvements in operational efficiency through the creation of a shared services function. The extent of the restructuring, as well as its anticipated cost, is in the process of being finalised and will be communicated with the interim results in October.

The imposition of capital controls at the end of 2014 in Angola, and the recent devaluation of the Kwanza, has resulted in foreign exchange losses in that market. A series of actions have been instituted to reduce the exposure and limit the losses. Total current assets in Angola at 30 June 2015 were $51 million.

Logicalis reported revenue growth of 14.7% (6.8% excluding the effect of acquisitions) over the Comparable Period. Gross margins have come under pressure due to a small number of high volume transactions, in particular in the United States, and lower services margins.

EBITDA increased strongly due to operating leverage in contrast with the lower performance in the Comparable Period.

As highlighted in the FY15 results announcement, Logicalis UK is undergoing a reorganisation to improve the business model and enhance operating margins and profitability. This is expected to have an adverse impact on profitability in FY16. Other regions continue to be affected by the strength of the US Dollar, particularly Latin America.

Yesterday, Logicalis conditionally agreed to acquire Advanced Technology Integration Group (ATIG), a solution provider offering system integration and professional services to enterprise and commercial customers across the Midwest region of the United States, for up to $42m. The acquisition will consolidate Logicalis’ presence in the key Midwest region and present significant cross-selling opportunities for its services offering.

Consulting services experienced a slow start to the year due partly to softer conditions in the UK and the weaker Euro. The management team is taking action to improve performance in the second half of FY16.