Product squeeze hits Logicalis' top line

Slower flow: Datatec says the decline in activity at Logicalis was largely anticipated

A collapse in product revenues has hit Logicalis' top line hard as the integrator suffered a 27 per cent plunge in first-half sales.

According to parent company Datatec's unaudited interim results, Logicalis logged sales of $394m (£247m) in the six months to 31 August, down from $542.3m a year earlier.

Product revenues shrank by a third with declines across all major vendors including Cisco, HP and IBM. Datatec said the decrease in activity had been largely anticipated but admitted the VAR’s performance was hit by " challenging " conditions in the US and the UK.

In contrast, Logicalis' services revenues fell by just two per cent, with maintenance revenues improving by 16 per cent. Close attention to the cost base prevented a large fall in the bottom line, Datatec said, with EBITDA (earnings before interest, tax, depreciation and amortisation) slipping from 5.8 to 4.2 per cent year-on-year.

Johannesburg-listed Datatec's other main interest, Westcon, exceeded expectations as conditions began to pick up in the second quarter.

Datatec chief executive Jens Montanana said it had been a "sound" start to the year for the group. Total revenue fell from $2.3bn to $1.8bn year-on-year, while EBITDA fell from $71.4m to $44.6m.

"While trading conditions remain challenging, they are becoming more predictable and we are confident of a return to overall revenue growth in our traditionally stronger second half, compared with the first half of this financial year and the second half of the previous financial year," Montanana stated.

Westcon's revenue dropped from $1.5bn to $1.2bn year-on-year. The distributor's EBITDA fell from $44m to $36m.

Despite Westcon recently making moves to diversify from its roots as a Cisco house, Cisco revenues increased from 55 to 57 per cent of the distributor's total revenues. Avaya kit generated 10 per cent of sales, Nortel eight per cent, security 17 per cent and developing vendors eight per cent.

Datatec said Westcon had prospered from steps taken last year to increase its cash position and implement better payment terms with its suppliers.

"As a result, Westcon has been able to continue operating successfully within the current economic climate and is well positioned to maintain its margins, even with reduced revenues," it stated.