Datatec revenue up by 14 percent

Datatec Ltd., the international ICT networking and services group, Thursday reported that its revenue rose by 14 percent from US$2.1 billion to $2.3 billion in the year to end-February.

Operating profit before financing costs, depreciation and amortization (Ebitda), says the group, amounted to $23.8 million, compared to $18.2 million the previous year. According to the group, Ebitda from ongoing operations of $18.7 million -- excluding the disposal of Logicalis Australia and New Zealand subsequent to year-end -- was down on the $20 million of the previous year.

Chief executive, Jens Montanana, says the low operating profit is largely a result of continuing margin pressure in the industry, as a consequence of difficult trading conditions in the sector, costs associated with consolidating operations and foreign exchange translations losses from the continuing strength of the Rand.

The group reports a headline loss per share of 6.59 cents, an improvement on the 2003 headline loss per share of 7.14 cents.

"Improving global economic conditions and better sentiment in the ICT sector are only gradually and tentatively being translated into stronger demand. For much of the 2004 financial year, Datatec operated in the same tough environment as it did in the previous three years," says Montanana.

Datatec's revenue growth came mostly, it says, from Westcon, which benefited from the 2002 Landis acquisition in Europe, and an increase in sales of convergence, security, wireless access and complementary products.

Westcon's revenue of $1.8 billion was 13.2 percent up in the previous year, says the group, with gross margins slightly down from 8.9 percent to 8.8 percent. The increased revenue for Westcon, and anticipated future growth, required an additional $32 million in working capital, it notes. According to the group, Westcon closed the year with a net cash position of $41.5 million (2003: $68.8 million).

It says that sales of Cisco Systems Inc, products made up 56 percent of Westcon's revenue, followed by Nortel Networks Corp. (10 percent), Avaya Inc. (9 percent) and network extensions (25 percent). The Americas, says the group, generated more than half of Westcon revenue (56 percent), followed by Europe (38 percent) and Asia-Pacific (6 percent).

The group says that Logicalis, the services and integration subsidiary that was re-branded during the year, achieved revenue of $362.9 million, compared to $313.5 million in the 11 months to end-February 2003, an overall increase of 16 percent.

It says that the increase was mainly due to improved product sales by Logicalis operations in the U.S. and Australia. While annuity revenue from maintenance and managed services improved by 32 percent, the group says, overall services revenue at Logicalis was down by 12 percent, as the improved product sales did not lead to demand for increased professional and technical services.

Lower demand for services resulted, it says, in lower utilization of Logicalis staff and affected gross margins from continuing operations which decreased from 23,2 percent in 2003 to 22.4 percent in the 2004 financial year.

The group says a continuing concerted focus on cost saw operating expenses increase by 7 percent compared with the 16 percent increase in revenue. Ebitda from continuing operations at Logicalis amounted, according to the group, to a loss of $0.4 million compared to a positive $0.6 million the previous year.

"We are pleased with the continuing strength of our balance sheet and our strong net cash position of $89 million," says Montanana. "We have made a number of strategic disposals including the sale of Affinity Logic to UCS, and the sale of Datanet and Westcon Cabinet Manufacturers. In addition, Logicalis Australia and New Zealand was sold to IBM Corp. for $66 million post year-end. We will remain focused on our core competencies and will continue to operate our businesses in line with the prevailing conditions. We believe that we are well positioned to exploit any opportunities for growth as conditions improve."

Montanana says the worst of the conditions of the past few years may be over for Datatec, with the group seeing a gradual improvement in its markets in the first few months of the year.

"This has been reflected in modest improvements in revenue, increasing order books and stabilizing margins as well as other indicators that may be a sign of tentative recovery. This could translate into better profitability for the group in all its key operating areas," he concludes.

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