Datatec increases final dividend after strong annual financial performance

Datatec, the international information and communications technology (ICT) group, lifted its final dividend to 200 cents for the year ended February 28 versus 130 cents at the same time last year after solid profit improvements in its biggest subsidiaries.

The dividend policy was being changed to a more shareholder-accommodative two times dividend cover ratio, versus three times cover previously, due to a management incentive plan in some of the divisions that has resulted in upstreaming of cash to the parent company in the form of returns on fixed return equity instruments, resulting in more cash at the parent company.

"I am pleased to report a very strong operating and financial performance across all regions and metrics for the group," chief executive Jens Montanana said in the results.

He said the improving profitability and cash generation of the group's divisions enabled them to increase their dividend payout policy to 50% of underlying earnings per share.

Earnings before interest, tax, depreciation, and amortisation (Ebitda) increased 24.6% to $221.3 million (R4 billion) from $177.6m. Revenue fell 8.8% to $3.99bn. Headline earnings per share increased 79.6% to 25.5 US cents, from 14.2 US cents. Net debt fell to $62.1m from $123.1m previously.

Montanana said increasing IT complexity driven by AI and the big rise in interconnected digital communities was driving infrastructure demand in areas like networking and cyber security, where the group has "deep domain knowledge and many years of experience."

Revenue declined mainly due to a mix change and more software and services being accounted for in net revenue. Gross profit increased 5.6% to $910.3m, largely due to changes in the revenue mix, contributing to a big gross profit increase in Westcon International and Logicalis International.

He said their strategy was to improve shareholder returns over the medium term through a combination of corporate and business development actions, to enhance the competitiveness and profitability of the subsidiaries and operating divisions.

"The group continues to see good demand for its technology solutions and services worldwide," said Montanana.

He said a strategic review continued to address the gap between Datatec's valuation and the inherent value of its subsidiaries, while also ensuring the group was positioned to take advantage of the positive market dynamics for its technology solutions and services.

"We expect that the trend toward higher software sales and annuity services will continue, improving the group's margins and cash flow profile. There is continued strong demand for the group's products and solutions, which positions the group well in an increasingly complex environment," the board said in the results.

"The board expects that all divisions will continue to improve their financial performance in the year ahead," it said in a statement.

Westcon International revenue decreased by 11.3% to $2bn due to changes in revenue mix and a greater percentage of revenue being accounted for on a net revenue basis. Its gross profit increased 9.4% to $441.2m, with growth in all regions and a significant increase in Asia-Pacific.

Logicalis International revenue decreased by 5.9% to $1.2bn due to a mix change with more net revenue accounted for software and services. There was, however, a notable gross margin improvement due to higher product margins achieved and a strong professional services margin.

Logicalis Latin America revenue decreased 11.3% to $455.1m. This was driven by reduced volume in Brazil and a lower opening backlog. Gross profit fell to $103.6m from $117.9m due to the decrease in revenue mainly from Brazil.

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