West­con out­sourc­ing ex­er­cise turns into a costly les­son for Datatec

The Mercury - - BUSINESS REPORT - Siseko Njobeni

DATATEC rose more than 6 per­cent in early trade on the JSE yes­ter­day, af­ter re­port­ing that rev­enue from its West­con op­er­a­tions de­creased 1.5 per­cent to $2.32 bil­lion (R29bn) for the year ended on Feb­ru­ary 28.

Datatec chief ex­ec­u­tive Jens Mon­tana yes­ter­day said that the tran­si­tion to the busi­ness process out­sourc­ing at its sub­sidiary West­con proved costly and led to poor cus­tomer ser­vice.

Mon­tana said West­con’s pre­vi­ous man­age­ment failed to re­spond ad­e­quately to the out­sourc­ing, es­pe­cially in Europe, the Mid­dle East and Africa.

He said that Datatec’s im­me­di­ate fo­cus was to im­prove the West­con bal­ance sheet and rev­enue. “We had taken a big bet with the pre­vi­ous West­con lead­er­ship on busi­ness process out­sourc­ing trans­for­ma­tion to im­prove our cost base and ex­e­cu­tion around SAP. It did nei­ther,” Mon­tana said.

“In fact we ended up with greater costs and poorer ser­vice. We learnt a lot in the process.”

Datatec yes­ter­day said that its gross prof­its slumped 10.6 per­cent to $227.4 mil­lion dur­ing the pe­riod, with West­con ac­count­ing for 59 per­cent of the losses.

Mon­tana said West­con lost func­tion­al­ity and com­pro­mised cus­tomer ser­vice qual­ity in its pur­suit for am­bi­tious ad­min­is­tra­tive and sup­port-cost re­duc­tions.

He ex­pressed con­fi­dence in the com­pany’s move to build in­ter­nal shared ser­vices ca­pa­bil­i­ties in South Africa and the Philip­pines to ser­vice Europe, the Mid­dle East and Africa and Asia-Pa­cific re­gions.

He said West­con’s per­for­mance was dis­ap­point­ing, es­pe­cially in Europe, Mid­dle East and the Africa re­gion. “Our plans to re­turn West­con In­ter­na­tional to prof­itabil­ity and growth are pro­gress­ing and the cen­tral cost base is be­ing ac­tively ad­dressed,” said Mon­tana.

Datatec said in a state­ment that the tran­si­tion to busi­ness process out­sourc­ing in the last two years had been dis­rup­tive and costly and had af­fected West­con In­ter­na­tional’s level of cus­tomer ser­vice and fi­nan­cial per­for­mance. The com­pany that said it de­cided to bring back the work cur­rently out­sourced to im­prove cus­tomer ex­pe­ri­ence.

The com­pany’s other busi­ness, Log­i­calis, ex­pe­ri­enced a solid year, which could have been bet­ter had it not been for weak con­tri­bu­tion from North Amer­ica. Log­i­calis, which ac­counted for 40 per­cent of Datatec’s con­tin­u­ing rev­enues, in­creased rev­enues from con­tin­u­ing op­er­a­tions from $1.5bn to $1.6bn. Rev­enue in­creases in Latin Amer­ica, Europe and Asia-Pa­cific were par­tially off­set by a fall in North Amer­ica. Gross profit from con­tin­u­ing op­er­a­tions in­creased 10.6 per­cent to $391.7m. Oper­at­ing profit in­creased 10 per­cent.

“For Log­i­calis, it was a pleas­ing year. All re­gions grew, ex­cept North Amer­ica, which was dis­ap­point­ing. Ac­tions to ad­dress this are on­go­ing,” said Mon­tanana.

Datatec sold West­con Amer­i­cas for $630m and the non-core Log­i­calis SMC for $42m dur­ing the pe­riod.

“This has been a land­mark year for Datatec dur­ing which we gen­er­ated ex­cep­tional value for share­hold­ers through the suc­cess­ful sale of West­con Amer­i­cas and the dis­posal of Log­i­calis SMC. We re­main fo­cused on clos­ing the val­u­a­tion gap through strategic ini­tia­tives and other cor­po­rate ac­tions,” said Mon­tanana.

Datatec shares in­creased 0.92 per­cent on the JSE yes­ter­day to close at R20.81.

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