Growth in the South African information technology (IT) sector was "much better" than in the US and Europe, but lagged faster-growing emerging markets in the Middle East, Datatec chief executive Jens Montanana said yesterday.
US and Europe had slowed and South Africa was on a par with emerging markets such as Brazil and Turkey, Montanana said after announcing the company's first-half results.
Markets for hardware sales, as opposed to services in South Africa and Australia, "faced headwinds at the moment" due to sharp falls in currencies, he said. South Africa made up only "2 percent to 3 percent" of Datatec's business, with controlling stakes in Westcon and African Legend Indigo.
Hardware distributor Westcon's revenue in the six months to August was up 10 percent to $42.5 million (R409 million at yesterday's exchange rate), compared to the same period a year ago. Global revenue was up 18 percent to $2.27 billion.
Westcon earnings before interest, tax, depreciation and amortisation (Ebitda) were up 7 percent to $1.6 million.
Montanana said global geographic diversification into faster-growing emerging markets had helped mitigate slowing growth in developed markets. Three years ago 90 percent of profit had been generated in Europe and North America, with the balance from emerging markets.
He said the change in emphasis, which predated the Western financial crisis, had come after "pressure" from hardware manufacturers.
Group net profit was up 10.8 percent to $30.4 million.
Underlying Ebitda, which excluded profit and losses on sales of assets, unrealised foreign exchange movements and other items, was up 25 percent to $76 million.
The company said the market outlook for the sector was uncertain. Nevertheless, it expected second-half earnings a share to be "similar to or exceed that of the first half".
During the downturn, the group had increased its exposure to its cash generative services and consulting businesses, Logicalis and Analysys Mason, relative to hardware distribution business Westcon.
This boosted operating cash flow to $66 million compared to $3 million a year ago.
Jason Kombo, an equity analyst at Coronation Fund Managers, said cash flow at the company was good because of improved working capital management and a prepayment from a client.
Kombo said it had been a correct strategy for Datatec to pursue growth in emerging markets in recent years.
Shares were 14.16 percent lower at R19.40.