Technology group Datatec, which operates in more than 50 countries, says its Westcon International (WI) business, which had previously been loss making, has fully turned the corner to become profitable.
Datatec is one of the largest technology companies by revenue listed on the JSE. The group’s revenue for the year ended February 2020 stood at $4.3bn (about R70bn) but its market capitalisation stands at just R4.41bn. Much of this has been attributed to its Westcon business, which offers services including networking and security, weighing down the whole group. Despite being a large revenue contributor, the unit’s costs have tended to result in losses.
The previously loss-making technology distributor WI has undergone a shake-up in recent years, terminating its business process outsourcing in Europe, the Middle East and Africa, and Asia-Pacific, for example. Datatec has said the outsourcing was costly and negatively affected customer service and financial performance.
In an interview, CEO Jens Montanana said Westcon was now making money for the group, contributing about 30% of profits for the half-year to end-August. This comes as Datatec reported that revenue fell 1% to $2.03bn (R33bn) for the period, while earnings before interest, taxation, depreciation and amortisation (ebitda) — a measure of operational profitability — fell 13% to $60.7m
“We sold that business in the Americas because we got given an offer that we couldn’t refuse,” said Montanana.
“Many of our investors and followers a few years ago were deeply sceptical that we’d be able to turn this business around after we had sold the good part of the business, which was the Americas. But we have proved that we successfully remodelled that business and turned it into a super viable operation.”
Peter Takaendesa, head of equities at Mergence Investment Managers, said the half covered “the period impacted the most by Covid-19, and they have not been immune to that impact as the related emerging markets currency weakness has affected reported profit performance, although underlying operational performance excluding currency effects appears to have been resilient.”
Takaendesa said WI's turnaround strategy continued to deliver results with revenue growing 4% in dollar terms (to $1.3bn) and its profitability continuing to recover strongly. “There is still significant room to improve profitability levels further in WI towards normalised levels achieved prior to the business disruption over the past few years,” he said.
The group said there had been strong demand for networked cloud computing, remote access solutions for home working and virtual office environments, which helped units such as WI.
Its other unit, Logicalis, which also provides services such as networking, saw revenue fall 10% to $700.2m, largely due to adverse currency effects in Latin America. Excluding currency effects, revenue for that business fell 1.9%.
Given the earnings performance, the group opted not to pay an interim dividend. The group had not paid an interim dividend previously, although it had paid a $15.4m special dividend following the disposal of one of its businesses.
A final full-year dividend will be considered at year-end based on the full-year results and the economic outlook at that time, the group said.
Datatec’s share was marginally down — 0.77% — for the day on Thursday at R22.34, having fallen just over a third so far in 2020.
With Karl Gernetzky
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.