Technology firm Datatec is anticipating growth in its businesses driven by the recovery in some markets such as South America, whose downturn over the past year dented its latest full-year earnings, eclipsing news of the group’s first ordinary dividend since 2017.
Datatec, whose operations span more than 50 countries, has two main divisions: Logicalis, its ICT infrastructure services unit, and Westcon International (WI), which distributes security and networking technology products.
Lockdown restrictions had negatively affected the group’s business, particularly in Brazil. As a result, Logicalis — which is the largest contributor to group profit and has the widest geographical exposure — saw its revenue reduced by 13.8% to $1.45bn (R20.1bn) in the year to end-February, compared with $1.68bn, restated revenue, previously.
CEO Jens Montanana said on Tuesday the business was expecting to recover some of these loss as restrictions ease and economies in its territories start to grow once again, taking advantage of increased demand for technology and remote working trends.
“The path of the pandemic and environment in many places remains uncertain, however, most economies are expecting growth this year after significant contraction this year.
“Our businesses are in good shape everywhere, with stronger balance sheets and improved liquidity. The secular trends in our industry are very favourable. We need to maximise on the opportunity, while ensuring we continue to adapt the group for next-generation technologies and services,” he said at a presentation of the company’s results.
Datatec announced the resumption of an ordinary dividend for the first time in almost four years, after the technology group cut its net debt by more than half in the year to end-February, leaving its balance sheet in much better shape.
The company has declared a dividend of R1 per share. Shareholders have the option to choose cash or shares.
Despite the news, market reaction was negative by the close of trade on Tuesday, with the shares weakening 2.8% to R28.12 on the JSE, valuing the company at R5.865bn.
Analysts believe the negative sentiment was driven by the decline in the group’s Logacalis unit in Latin America.
Peter Takaendesa, head of equities at Mergence Investment Managers, said the dividend came as a surprise. “No-one was expecting them to pay a dividend. However, what seems to have taken away the excitement is the revenue decline in Logicalis. That was a sharper decline than what the market expected.”
Better fortunes for Logalis would require a recovery in South American economies, as well as a weakening of the US dollar, which would make buying of technology from the US cheaper, he said.
Datatec slashed its net debt 56% to $60.9m, after Westcon International secured two refinancing arrangements, which it said were on favourable terms. Cash from operations rose to $234.4m from $215m a year before.
Earnings before interest, taxes, depreciation and amortisation — a measure of operational profitability — dropped to $118.6m from $158.7m, affected by exceptional items. Ebitda in the 2020 financial year included a tax credit in Logicalis Brazil of about $14m.
“By taking responsible actions and focusing on execution, we have performed well,” Montanana said.
“Our divisions provide many of the products and services required to support a remote IT networked-based way of doing business. This digitisation trend is set to continue and we have already seen a structural shift in our business away from many forms of traditional hardware, to software and services with growing annuity revenue,” he said.
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