Datatec, saddled by a 57% rise in net debt to $174.8 million (R3.3 billion), has raised revenues and gross profit for the half year to end August 2023 by 15% and 23.7%, respectively, but is skipping paying a dividend for the period under review as it gears up for a robust second-half performance.
Despite solidly declaring that “all divisions are expecting improved performance” for the full year to February 2024, Datatec said “no interim dividend is declared” for the half-year period to the end of August.
This was despite the company registering $2.7bn in half-year revenues that yielded a gross profit of $417.9m, which was 23.7% up on the prior year. The higher revenue outturn for the period came on the back of stronger demand for the company’s products and services.
Jens Montanana, the CEO of Datatec, said: “The group delivered another strong operational performance during the first half of FY24 benefiting from continuing trends in networking and cybersecurity.
“The quality of earnings improved in an environment where our strong growth met the challenges of higher interest rates and expanded working capital requirements… We remain optimistic about our full-year prospects despite uncertain political and economic challenges in many parts of the world,” he said.
In terms of operations, Datatec said “all divisions delivered improved financial performances” in the first-half period under review. Its Westcon International division had “delivered another excellent performance” while “Logicalis International had a strong result” for the period.
Despite macroeconomic pressures such as currency weakness and hyperinflation in Argentina continuing to exert pressure on Logicalis Latin America, the unit also posted an improved performance.
“The group continues to see good demand for its technology solutions and services across the world with subsidiaries well positioned to service customers in their respective markets,” said Datatec.
Combined earnings per share for the period shot up 166.7% to $0.96 cents against marginally improved gross margins of 15.1% compared to 14% in the previous contrasting period.
The increase in gross margin has been attributed to “a return to more stable foreign exchange rates compared to H1 FY23 when the rapid strengthening of the US dollar against the euro and pound sterling had a significant negative impact” on gross margins in Europe.
However, these negative impacts, which were more pronounced in Westcon International in the prior year contrasting period, have partially been “offset by foreign exchange hedging” gains.
“The quality of earnings improved in an environment where our strong growth met the challenges of higher interest rates and expanded working capital requirements. We remain optimistic about our full-year prospects despite uncertain political and economic challenges in many parts of the world,” said Montanana.
Revenues in Westcon International for the interim period were up 14.9% at $1.85bn, attributable to strong demand for network infrastructure, remote access solutions with enhanced cybersecurity as well as unified collaboration for flexible working and virtual office environments.
Logicalis International revenues also paced up by 12.1% to $645.4m while Logicalis Latin America revenues firmed up 20.2% to $262.9m.
Datatec will continue to closely monitor the liquidity outlook for its divisions, it said, as it seeks to ensure that sufficient cash is generated to settle liabilities as they fall due.
It said Westcon International had an invoice assignment facility of €390.6m (R7.8bn) for its European subsidiaries, as well as an extended payables facility of $116.2m. This is in addition to a securitisation facility of $120m for its Asia-Pacific facilities.
Logicalis International on the other hand is supported by a corporate facility of $135m that covers its operations and is comprised of a rolling credit facility to fund working capital requirements and an acquisition facility.
“The group continues to monitor the funding needs of its individual operations and works closely with various financial institutions to ensure adequate liquidity. The group has performed covenant projections for the next 12 months to confirm that banking covenants are expected to be met,” said Datatec.
Katherine Thompson, an analyst at Edison, said: “The company is seeing strong demand for cybersecurity and networking solutions, and while challenges still persist in Latin America, it expects FY24 performance to improve versus FY23 for all divisions.”