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South Africa: Datatec Revenue Rises to $4bn for the First Time
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Business Day (Johannesburg)
15 May 2008
Posted to the web 15 May 2008
Lesley Stones
Johannesburg
DATATEC has passed the $4bn milestone in annual revenue, and aims to reach $5bn in this financial year.
CEO Jens Montanana said yesterday Datatec (DTC) could grow 25% again this year, chiefly by bulking up the operations it already has, with acquisitions playing only a minor role.
Most growth will come from emerging markets in South America, Asia, India and Africa, where the demand for technology is untapped compared with first world regions.
Possibly less ambitious is a target of hitting a profit margin of 4% in the medium term, which may prove conservative as Datatec continues to pare its operating costs and gains more economies of scale. Its profit margin remained static at 3,8% in the past year.
"The upside in our business isn't bolting on acquisitions, it's getting the regional balance right and getting these areas to mirror our operating profits and efficiencies," Montanana said. "If we can do that our margins may grow to 4% or 5%."
The $4bn revenue for the year to February was up 27% , while a net profit of $80m was up from $62m. Headline earnings per share rose from $0,40 to $0,45 and shareholders will receive a cash distribution of $0,12.
Montanana said it had been "a pretty robust year" underpinned by tight cost controls and better productivity.
For the first time Datatec earned less than half its revenue in the US, which contributed 42%. "The increasing globalisation of our business is helping us spread our bets more evenly across major geographies," Montanana said. European operations still had room to become more efficient, which would nudge up the profit margin.
Its largest division is the technology supplier Westcon, which contributed almost $3bn of revenue. Its gross margin topped 10%, a level last seen in 2001, thanks to a better product mix, selling more high-margin data security products and making some acquisitions in Europe.
Softness in the US economy prompted its Logicalis division to pare its annual running costs by $3m last year, fuelling a 300% boost in performance for the second half in the US.
Last month Logicalis in Brazil completed a $77,2m merger with Promon to become a market leader in six countries, with plans to expand further.
Frost & Sullivan analyst Spiwe Chireka said the Latin America move brought exciting potential, especially since a slowdown in the US was increasing the importance of ventures in other regions.
Datatec's recent acquisition of an African technology distributor had taken it into eight more countries, including the highly lucrative markets of Ghana and Nigeria. It was now positioned to take advantage of the high growth in Africa's untapped hi-tech markets, Chireka said.
Datatec had bought itself a reasonable footprint in Africa, Montanana said, and operations in Africa and the Middle East had grown their revenue from $100m to $250m over two years. Datatec would now work to make those operations more profitable.
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Expansion into emerging countries was often triggered by working with large telecoms customers such as MTN, because they expected their suppliers to grow with them.
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