Datatec, the international ICT group best known in the UK for its Westcon and Logicalis operations, has announced its trading update for the six months ended 31 August 2006 and at the same time also announced its intention to seek a listing of its shares on AIM.
The Group has three principal operating divisions: Westcon – a global distributor of advanced networking and communications convergence products from vendors such as Cisco, Nortel, Avaya, Checkpoint and Nokia in North and South America, Europe and the Asia Pacific region. In FY06, Westcon represented 77% of the Group’s revenue and 78% of the Group’s EBITDA;
Logicalis – an international provider of integrated ICT solutions, delivering secure, converged computing and communications infrastructure and services. Logicalis, headquartered in Slough, UK and with operations in nine countries in North America, South America and Europe and approximately 1,000 employees, provides the architecture, deployment, integration and management of networks and systems to deliver solutions for customers. In FY06, Logicalis represented 18% of the Group’s revenue and 20% of the Group’s EBITDA.
The third part of the Group, Analysys Mason, is an ICT consultancy, headquartered in Manchester in the UK, with operations in seven countries and approximately 250 employees. Analysys Mason’s activities include strategic telecommunications and networking consulting, technology consulting and implementation. In FY06, Analysys Mason represented 2% of the Group’s revenue and 7% of the Group’s EBITDA.
The announcement from Datatec notes that trading during the first half of the year has been in line with management’s expectations, with the Group delivering a good performance in terms of overall revenues and margins.
“Westcon has continued to make good progress with its European businesses, in particular, improving financial performance across all of its divisions. Westcon’s gross margin for the period was 8.2%, remaining constant with last year (excluding the benefit from non-recurring items last year). Operating costs have also remained tightly controlled. During the period, Westcon US acquired the distribution arm of Ronco Communications and Electronics (now renamed Ronco Distribution). The acquisition expanded Westcon’s core convergence expertise, specifically in the voice arena, and resulted in Nortel becoming Westcon’s second largest vendor by revenue after Cisco.
Trading in Logicalis has also been in line with management’s expectations, with growth in all regions and a strong performance in the UK. Overall gross margin for the period remained relatively constant at approximately 20.0% (2005: 20.1%), despite the increase in product-based business as a result of the strategic acquisitions made over the last 18 months. Operating costs have remained under tight control and there remains scope for further improvement, particularly in the US, as the benefits of scale are realised.
During the period, Logicalis US acquired the US Southwest focused consulting business of Alliance Consulting Inc., and Computech Resources Inc., an IBM Premier Business Partner and solutions business. Logicalis also acquired an equity interest in a small German ICT services organisation called re:solution, and announced plans to establish offices in Chile and Peru, to extend the Group’s presence in South America.
Analysys Mason has made good progress during the period, with the impact of the completion of the Vodafone contract offset by a strong performance by its strategy consulting business. The EBITDA margin for the period was 10.5% (2005: 10.9%). Opportunities remain to broaden and deepen both the service offering and the geographic footprint, as well as improve productivity and operational synergies from the integrated businesses.
The Group’s net working capital at the period end increased to approximately US$259.7 million (FY06: US$196.9 million), with a significant proportion of this increase resulting from the investment in working capital in newly acquired businesses. The Group’s net cash position (after taking into account long term liabilities) at the period end was US$80.7 million (FY06: US$129.4 million).
The Directors remain confident about the Group’s prospects for the remainder of the financial year and encouraged by the continued development of the operations and management of the Group’s businesses. Extracting further operating efficiencies from recent and planned acquisitions remains an important driver in the performance expectations of both Westcon and Logicalis.
Datatec’s interim financial results for the six months ended 31 August 2006 are expected to be released on 1 November 2006.