The Citizen (KZN)

Datatec looks set to sell Westcon

TALKS AROUND MAJOR SHARE OF 11BN The company has made adjustment­s to the operating model for a rapid recovery.

- Sasha Planting Share price jumps Back in form

Internatio­nal ICT company Datatec is in talks to sell a major share of subsidiary Westcon’s operations for more than R11.1 billion. Datatec, which is listed on the JSE with a secondary listing on London’s AIM, operates across three core divisions, controllin­g technology distributi­on through Westcon Group, integratio­n and managed services through Logicalis and consulting and research through Analysys Mason. The Datatec share price rose 7.14% to R57 on the news. It was trading at R56.70 yesterday afternoon.

Westcon-Comstor (the go-to market brand) accounted for 75% of Datatec’s $6.5 billion revenue earned in the year to February 2016, and 52% of its $162.1 million Ebitda.

Logicalis, which was boosted by no less than three strategic acquisitio­ns in the 2016 year, accounted for 24% of revenue and 47% of Ebitda.

Reasons for the sale were not divulged, but there is considerab­le consolidat­ion taking place in the distributi­on world and it is no secret that Weston-Comstor has struggled financiall­y recently.

In its last set of results, interim numbers for the six months ended August 31, 2016, Datatec’s revenues and Ebitda were both down year on year.

At the time, CEO Jens Montana warned that emerging markets were showing signs of a slow recovery and the move to transform the business processes at Westcon would take until June this year.

In its latest trading update, the company has advised that underlying earnings per share for the year ended February 2017, is expected to be more than 50% lower (or at least 16 US cents per share lower) than the prior year (FY16: 32 US cents).

Headline earnings per share and earnings per share are also expected to be more than 50% lower (or at least 10 US cents lower) than the prior year (FY16: 19.4 US cents and 19.3 US cents respective­ly).

These are worse-than-expected results, with the company guiding in October that the second half of the year would see an improvemen­t in underlying earnings per share. The year-over-year expected decline in earnings is as a result of a below-expectatio­ns result in Westcon-Comstor. There was a decline in fourth quarter financial performanc­e in the Europe Middle East and Africa (EMEA) region. Westcon-Comstor experience­d disruption to the business as a result of final stages of SAP implementa­tion in EMEA.

The company has made adjustment­s to the operating model and Datatec expects this to support a rapid recovery.

Datatec share price rose 7.14% to R57 on the news

Logicalis was trading in line with management’s expectatio­ns.

Datatec spent $160 million in June 1998, to purchase a 92.5% stake in US distributo­r Westcon. This allowed the consolidat­ion of Datatec’s distributi­on businesses on five continents under the Westcon brand and transition­ed the company from a regional player into a truly internatio­nal operation.

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