South-African headquartered Datatec has issued a trading update for the period from 1st March to 30th June showing improvements in revenue and profitability. The bit of Datatec we’re really interested in is UK-based, Logicalis, which makes up about 24% of Datatec’s total revenues. We’re told of a “steadily improving performance” at Logicalis, with revenue, gross profits and operating margin all moving in the right direction. Apart from that, there’s very little ‘meat’ in the statement.
We’ve not paid a great deal of attention to Logicalis in the past (see Logicalis opens in Asia with Netstar acquisition and Logicalis inks Inca buy from Avisen for previous posts) due to it being a ‘hardware heavy’ network integration player. However, Anthony Miller and I had an interesting session with the UK management team – Tom Kelly, Logicalis UK MD, and, Simon Daykin, UK CTO – last week. In its last financial year, the UK made up 28% ($293 million or c£190 million) of Logicalis group revenues. Most interestingly, the UK derives 32% of its revenues from services (compared to just 22% across the whole of Logicalis). So, UK IT services revenues stand at about £60 million.
Logicalis’ push into services continues both organically and acquisitively. Although it won’t move away from its focus on hardware sales, the management team is looking to increase the ‘services wrap’ by offering more managed services from its own data centres. Great emphasis is being placed on the company’s cloud proposition, which it launched 18 months ago with key partner, Cisco. The company has made some major investments, for example in its new Slough data centre. It continues to predominantly target the mid–market (commercial and distributed government), believing that “margins at the enterprise level are too thin”.
We heard some bold statements from Kelly and his team, for example, “our co-operative cloud proposition is unrivalled without a shadow of a doubt”. We’re sure there are plenty of competitors that would argue against them, and, to be frank, there are likely to be plenty of mid-market customers who would struggle to differentiate one cloud offering from another. Nonetheless, a bit of bravado won’t do them any harm. The good news is that Kelly reckons the Slough data centre will have paid for itself should one potential contract win come off in the next 4-5 weeks. Fingers crossed.