Datatec’s annual results to 28 February 2011, released yesterday, reveal strong revenue growth of 15% to $4,3-billion, up from $3,7-billion for the previous period.
Revenue growth was accompanied by a robust 31% increase in EBITDA to $142,2-million from $108,5-million, and an increase in EBITDA margin to 3,3%. Underlying earnings per share increased year-on-year by 25% to 37,9 US cents, somewhat ahead of expectations.
Revenue growth was buoyed by Logicalis, the group’s IT solutions and managed services provider, which increased revenues by 25% to $1,05-billion against Westcon’s growth of 13% to $3,2-billion. As the largest subsidiary, Westcon, a specialist ICT distributor, has increased its contribution to group EBITDA to 66,3%, reflecting improved margins in the business.
Frost & Sullivan ICT industry analyst Protea Hirschel comments: “Careful and timeous attention to cost structures and working capital management over the last few years has laid the basis for Datatec’s strong revenue growth, enhancing operational leverage which now works in the group’s favour.”
She adds: “Scale is important for Westcon, but the subsidiary’s focus on high growth areas of ICT, such as cloud computing, data centres, security and unified communications, has given the company a definite advantage.” This focus is complemented by Logicalis, which has strengthened its solutions and services capabilities through a number of acquisitions in the last year.”
The United States and Europe remain the largest contributors to group revenues. “Business recovery has been an important driver of IT spending in those regions” says Hirschel. “However, concerns remain around the UK market where the recovery remains fragile.” The UK market contributes around 15% of Datatec’s revenues.”
Current results highlight the importance of markets outside the US and Europe to the company’s future. Judicious acquisitions over the last few years have grown the contribution from these markets to 29% of Datatec’s revenue. Hirschel comments: “This is where Datatec’s geographic diversification strategy has paid off, because it exposes the company to higher growth markets.”
Key growth markets include Brazil, the Middle East and Asia. Hirschel suggests: “IT markets in these countries are more fragmented resulting in lower levels of competition for companies such as Datatec leading to higher margins.”
While the rejection of Datatec’s offer for Comztek, a distributor with a wide African footprint, was disappointing for the group, the company is less focused on its home region. Although strong economic growth is projected for many African countries, Hirschel concurs: “Growth in IT markets on the continent lag behind other emerging markets as the focus is still on infrastructure development.” Demand for IT related services in Africa is, however, expected to pick up by 2013.
Datatec declared an increased capital distribution of 13 US cents per share.