Buoyant Logicalis shores up 'underperforming' Westcon

Mixed bag of FY14 results for Datatec, as HP, IBM, and Cisco reward changes challenge channel giant's margins

Datatec has posted a mixed set of FY14 numbers, with a robust year from Logicalis offsetting a Westcon business that "underperformed".

For the year to 28 February, group revenue jumped eight per cent year on year to $5.69bn (£3.39bn). But profitability took a hit, as gross margins slipped by 10 basis points to 14.8 per cent and EBITDA fell by more than $10m to $175.3m.

Europe established itself as Datatec's biggest revenue-generator, with 34 per cent of total turnover coming from the region, up from 32 per cent in the prior year. North America's slice of the pie dropped from 32 to 27 per cent, while Asia-Pacific's contribution dipped from 12 to 11 per cent. Africa and the Middle East and Latin America each saw their sales as a percentage of the overall figure climb two points, rising to 10 and 18 per cent respectively.

Westcon's annual revenue climbed six per cent to $4.1bn, representing 72 per cent of the total. About 30 per cent of the turnover increase can be attributed to acquisitions. But the distributor's gross margins fell from 11.6 to 11.2 per cent, as EBITDA fell 22.2 per cent to $91.3m.

The decline in profitability was chalked up to a tough competitive environment across the globe, as well as "a reduction in early payment discounts for Cisco products in Europe".

"Westcon's performance was [also] impacted adversely by [an] ERP system rollout in North America – which had a big effect on transaction volumes – and by one-off asset write-offs," adds the annual report.

2e2 boost
Logicalis saw yearly turnover rise 15 per cent to $1.55bn in FY14, with a third of this coming organically. The acquisition of 2e2's European, Irish and Channel Islands businesses was the major accretive force in growing the top line.

The integrator also enjoyed a spike in profitability, with gross margins increasing by 30 basis points to 23.3 per cent. This is despite a decline in product margins, resulting from lower rebates on HP and IBM wares. The VAR's EBITDA increased 15 per cent to $90.3m.

The annual report states that "Logicalis performed very well" in FY14, but warned that the firm's trading environment could encounter some turbulence this year in the burgeoning South and Central American market.

"Trading conditions are stable, although the outlook for the Latin America region has weakened over the last few months," explains the report. "In Argentina the government-imposed import restrictions are continuing to disrupt normal business activities."

Datatec's consulting arm – including the Analysys Mason, Via and Intact brands – saw FY14 revenue fall 1.9 per cent to $72.6m, with EBITDA dropping by about a third to $2.1m. Group chief executive Jens Montanana hinted that another mixed year may lie ahead.

"We continued to grow revenue [in FY14] and our gross margins have been stable," he said. "Logicalis had a notably strong year, reporting operating profits up 23 per cent, whilst Westcon underperformed as a result of several factors.

"We remain confident in the sustainability of our long-term growth strategy and have maintained our capital distribution at the same level as the previous year. The secular trends in our industry remain favourable. In the current financial year, we anticipate another robust performance for Logicalis while Westcon will continue to consolidate and focus on improving operational leverage."