Datatec shareholders will probably have to wait up to a year for the group’s Westcon International business to turn a profit, and a further 12 months before that unit reaches a full turnaround, management said on Thursday.
Westcon International, which contributes 59% of Datatec’s revenues, but has weighed on earnings in recent years, recorded a loss from continuing operations in the year to February of $147m. Because of this, Datatec’s losses widened from $53m to $118m.
Datatec is an information and communications technology firm that generates about half of its revenues from Europe.
Datatec CEO Jens Montanana said the loss was partly the result of the costs associated with providing certain services to Westcon Americas, the business Datatec has sold but to which it remains tied during a handover period to August 2018. Montanana said Westcon International’s decision to outsource certain services – a two-year project – had backfired, as this had pushed up costs and led to “poorer service”.
The failed outsourcing prompted Datatec to build its own shared services centres in the Philippines and SA. “From these hubs we’ll service EMEA [Europe, the Middle East and Africa] and the Asia Pacific, with our own skills and control over training and customer service levels and knowledge transfer,” he said. “We … believe our own management control of regional shared services centres will yield good results quite rapidly.”
Datatec aimed to slash Westcon International’s centralised costs, including information technology infrastructure and global account services, over the next two years.
“We think it may be possible to get to almost half of where we were in financial year 2017 by 2020 – a two-year programme from now. Our target is to get these costs to below 1% of our revenues,” he said.
Westcon International, which had returned to revenue growth in the new financial year, would also reduce other costs and pay off debts. At the same time, Montanana said the business had “a big opportunity to grow our security portfolio, especially in many emerging markets where broadband services are accelerating”.
Montanana said Datatec’s Logicalis business was faring better. The unit made a profit of $39m in the year to February. “Logicalis has numerous organic and acquisitive opportunities to explore in markets it already has a strong presence in.”
Datatec, which raised $672m by selling Westcon Americas, a portion of Westcon International and a Logicalis unit, planned to continue with its share buy-back programme after its next annual general meeting, he said.
Datatec shares closed 0.4% up at R20.70 on Thursday.