Sun shines on Datatec despite Logicalis' sales 'n' contract woes

It was the Westcon distribution arm that kept the tills ringing for parent Datatec, as integrator sub Logicalis was struck by a “significant” contract loss in Blighty and weaker product reselling.

Across the group – which also includes consultancy Analysis Mason – revenues leapt by 13.3 per cent to $6.4bn for fiscal ’15, ended February, but only Westcon contributed to this expansion.

In an about-turn from the prior financial year, Westcon motored ahead with sales up 19.4 per cent to $4.85bn, including a 41.9 per cent hike in North America sales to $1.649bn, following the resolution of a bothersome ERP roll out.

In other operations, Europe was up 9.1 per cent to $1.55bn, Latin America grew 30 per cent to $582m, Asia Pacific fell 0.6 per cent to $485m, and Africa & Middle East was flat at $582m.

Cisco was the biggest vendor for Westcon, accounting for 46 per cent of total product sales, while Unified Comms represented 21 per cent, Security some 25 per cent and data centre and others eight per cent.

Gross margin at Westcon was 11.2 per cent, flat year-on-year, as gains across all territories were offset by lower profits in Europe, caused by a drop in maintenance and renewal sales.

Operating costs went up 15 per cent to $417.1m, but decreased as a proportion of revenue to 8.6 per cent from 8.9 per cent. Operating profit came in at $100.2m, up from $62m in fiscal ’14.

The business swallowed cloud service aggregator Verecloud in the year for $12m and it took control of sister company Intact Integrated Services to sell project, support and managed services.

Datatec said in its blurb accompanying the results that it is to launch new services and a cloud practice, and will create an EMEA shared-services organisation – this should help it cuts costs but may be a cause for concern for back office workers in the region.

Elsewhere in the group, Logicalis had already flagged up concerns at the half-way point of the fiscal year when it complained the World Cup had disrupted its Brazillian business – its largest operation – while Europe, particularly the UK biz, was struck by falling demand for IBM kit.

The business recovered, comparatively speaking, in the second half of the financial year and ended fiscal ’15 with sales of $1.5bn, including $21.9m from acquisitions, versus $1.6bn in the previous year.

The reduction, the firm said, reflected lower product sales across its major vendors (Cisco, HP and IBM), which dropped 4.9 per cent to a little over $1bn, or 67 per cent of total turnover.

In contrast, the services top line was up 7.9 per cent, and this is where management are trying to steer the business, away from reselling and toward annuity revenues. Professional, maintenance and managed services represented a $500m haul.

Logicalis’ trade across the regions was “mixed”, said parent Datatec: increases in North and Latin America were more than offset by Asia Pacific (specifically Australia), where macroeconomic conditions are “weakening”.

“In Europe, the UK results were significantly impacted by the loss of a long-term contract with the Welsh Assembly,” the firm said.

The loss of the Wales PSN gig – Logicalis signed an inaugural deal in 2007 to build the network and subsequently manage it – was played down by former UK boss Mark Starkey before he quit.

Gross margins rose to 24.2 per cent from 23.3 per cent. Overall service margins fell, but better transaction margins on product sales helped out.

Opex was up one per cent to $274.6m and operating profit expanded to $74.2m, up ten per cent.

The relatively small consulting services unit, Analysis Mason – representing one per cent of group turnover – reported sales of $55.2m from $72.6m: this was due to the transfer of the Intact outfit to Westcon.

At group level, operating costs were $716.4m (up from $660.6m) and when depreciation and amortisation were accounted for, operating profit was $157.7m, up 29.2 per cent. ®