Dual-listed Datatec is confident of improving its performance as it enters the final stages of the modernisation programme of subsidiary Westcon-Comstor that had significantly dragged down the group’s financial performance in the year ended February 28.
Over the last few years, the information and communication technology solutions and services group had been focused on modernising Westcon-Comstor's operations through the implementation of a global SAP enterprise resource planning (ERP) system and business process outsourcing (BPO), which continued into the financial year under review.
“These two transformation processes are now nearing completion, with the final implementation expected in the first half of the 2018 financial year. The North America; Europe, Middle East and Africa (Emea); and Asia-Pacific regions will then be on SAP and BPO,” explained Datatec CEO Jens Montanana on Monday.
The move had an adverse impact on profitability, working capital and cash generation in the past year, with the final stages of Westcon-Comstor’s SAP/BPO implementation in the Emea, in particular, materially impacting the last few months of 2017.
The group added that Europe went live on SAP during November 2016, with the resultant transitional challenges and delayed financial reporting exacerbated by the BPO implementation in that region.
“The year ended with a very challenging set of circumstances, as Westcon-Comstor's SAP and BPO implementation negatively impacted the results of the Emea region,” Montanana noted.
The roll-out led to a group revenue decline of $338-million, or 5.8%, during the 12 months to February, falling year-on-year from $6.45-billion to $6.08-billion.
Group earnings before interest, taxes, depreciation and amortisation also declined from $162.1-million in 2016 to $118.9-million in 2017.
Headline earnings a share decreased to $0.02 during the year under review, from $0.19 apiece last year, while underlying earnings a share for the period under review were $0.11 a share, compared with the $0.32 achieved in the prior financial year.
“Logicalis's performance was satisfactory with a continuing trend towards a higher-margin services business,” Montanana pointed out, adding that the group expected an improved performance in the financial year ahead.
Further, negotiations continued for a possible disposal of a major share of Westcon-Comstor’s operations for a consideration of more than $800-million.
“The strategic value of our businesses is affirmed by the unsolicited approach for a major share of Westcon-Comstor’s operations,” Montanana said.
However, with the transaction subject to regulatory and commercial approvals, including those of the board and shareholders, there is no certainty that any transaction will be completed and there is no clarity on the precise terms that may be agreed.