US ERP roll out amid a downturn? That's what hit Datatec in H1

Tech giant reports slow sales growth and falling operating profits

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A twitchy Datatec today pulled down full-year revenue guidance at the half-way point of fiscal '14 blaming choppy waters around its distie biz Westcon as well as a complex ERP roll out for zapping sales.

The South-Africa listed giant, which also houses integrator Logicalis and a consulting arm, said sales for the six months to 31 August edged up 5.7 per cent to $2.77bn as operating profit fell 5.6 per cent to $67m.

Distribution wing Westcon - accounting for 71 per cent of group sales - saw turnover rise by three per cent to $1.96bn but operating profit dived more than a third to $35m despite a currency tailwind.

Westcon acquisitions in the six months generated $32m in revenues for the business, meaning that organic growth was a more modest 1.5 per cent.

"Performance in parts of Westcon's North America business, where the new ERP system has been implemented, has been disappointing. The volume shortfall in that region has been the main reason for the group's underperformance," said Datatec chief Jens Montanana.

As a result, EMEA became the largest sales region for Westcon (35 per cent of revenues versus 33 per cent a year ago) as North America contributed 28 per cent of revenues, compared to 34 per cent.

Westcon is migrating to a new global ERP system, being rolled out first in North America, and as with Ingram Micro in Australia, has felt an impact on business.

"The transition in North America has caused operating disruptions which have adversely impacted revenues, particularly in the high volume transaction business. The roll out schedule has been adjusted and the amount of disruption is expected to decline," said Datatec.

It added that "market conditions" facing Westcon "are expected to remain challenging" in Europe and North America during the second half of the year.

On the flip side, integrator unit Logicalis enjoyed relatively good fortune, with sales bouncing 12 per cent to $767.3m including a $58.4m chunk acquired from channel zombie 2e2, which went down in January. Organic growth was up four per cent.

Operating profit at Logicalis grew 45 per cent to $32.7m as the integrator continued to emerge from tougher times.

Trade at Logicalis remains "challenging but stable" in the mature tech markets, said Datatec, and it expects H2 to be "seasonally better than the first half".

Consulting revenues contracted to $37.1m from $38.3m in the same period a year ago with healthy growth in Analysis Mason - consulting management, advisory, modelling and market intelligence to telecoms, IT and digital media industries - more than offset by a decline at professional services arm Intact. The unit made an operating profit of $1.7m versus $1m a year ago.

Datatec Corporate encompassed the net operating costs of the group's HQ entities of $5.5m, a drop on the $6.4m reported in H1 fiscal '13.

The group expects to turn over between $5.6bn to $5.8bn during the year which ends next February. ®


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