Altough operating conditions over the past year deteriorated considerably, Datatec has managed to maintain a steady performance.
The group increased revenues and operating cash flows for the past reporting period, with integrated solutions provider Logicalis providing the most significant increase in contribution to group revenues.
The ICT group released year-end results today, revealing a 5% increase in revenues, but a 25% drop in profit for the year. The group noted that approximately 50% of operating profit before finance costs, depreciation and amortisation accrued from integration, services and consulting. Revenues from Logicalis increased by 19%.
"Just like DiData, Datatec has experienced a decline in product-driven sales," says Frost & Sullivan ICT analyst Spiwe Chireka. "Companies are looking more to services to provide them with the tools for surviving this economic crisis based on the infrastructure they already have."
She says that due to difficult market conditions there have been growing pressures on Datatec's margins, especially for Westcon. The group did however focus on controlling its cost structures during the latter part of 2008 to mitigate these difficulties.
The continued weakness in demand in the US and Europe has also been partially offset by a strong sales result in South America and Asia Pacific.
"Datatec has done well to consolidate its business operations into a few profitable operations," Chireka adds. "For instance, the company released its shareholding in Africa Indigo operations and increased its interests in Westcon – its highest revenue earning subsidiary.
"Having many subsidiaries may have paid off in the past, but due to current crisis and the resource heaviness of such models, we are likely to see this trend continue in the short term."
Chireka believes that Westcon's recent appointment as Cisco's first global distributor will be a key plus for the group. Cisko products contributed 54% of Westcon's revenue in the past year and this deal will further increase the importance of this revenue stream.
"Westcon is the first Cisco multinational distributor to secure an agreement of this type and breadth," she says. "In addition to increasing Datatec's geographical coverage, it helps the company to serve its multinational clients efficiently."
Chireka does, however, caution that it is important to ensure that Westcon's offering includes services to gain the most out of its position.
She says that one of Datatec's strongest advantages is that its diversified business has no single geographic, technological or business segment dependency. Having this range of revenue streams has cushioned it against declines in certain segments.
Chireka believes that the group will continue to focus on this diversification strategy.
"The emerging markets businesses will be the key driver for any growth over the next year," Chireka says. "Continued focus on services in troubled markets will also be important."