Datatec: Profitability Rises as the Business Shifts Gears

Improved margins, rising cash flow, and capital discipline position Datatec for long-term growth. Is this a shift that the market can’t ignore? More from EasyAssetManagement.

Summary

• Cash generation surged to $286.8M, helping Datatec cut debt by 58% and raise its dividend.
  
  

• Earnings per share rose 78%, driven by higher profit margins and more income from software and services.
  
  

• 69% of revenue now comes from software and services, showing a shift away from hardware toward recurring, high-margin business.

Datatec’s FY25 results offer a clear signal: this is a business in transition. While top-line revenue remains under pressure, improvements in profitability, margin mix, and free cash flow tell a different story, one focused on resilience, capital discipline, and the growing weight of software and services in its earnings base.

The group continues to see a movement away from low-margin hardware distribution toward annuity-based, service-led revenue. A trend seen across both the company’s major operating segments. It’s a shift that’s showing up more in margins than in sales for now, but one that may reshape how the market values this business going forward.

FY25 Highlights at a Glance

To anchor the story, here are three numbers that matter:

• Cash generated from operations US$286.8 million (FY24: US$175.6 million), supporting a 58% reduction in net debt and enabling a higher dividend payout.
  
  
• Underlying EPS rose 78% year-on-year, a result of improved operational leverage, better working capital discipline, and higher-margin contribution from services and software.
  
  
• Gross Invoiced Income (GII) increased by 1.5%, while reported revenue declined 8.8% vs 2024 restated revenue.

These three data points, cash flow, earnings quality, and the mix shift are at the centre of the Datatec narrative today.

Business Model and Structure

Datatec is structured around three core operating businesses. First, Westcon International, a global distributor of cybersecurity, networking, collaboration, and cloud infrastructure products, acting as a key channel partner to top vendors like Cisco, Palo Alto Networks, Microsoft, and AWS.

Second and third are the two arms of its Logicalis business: Logicalis International and Logicalis Latin America. Both offer IT consulting, systems integration, hybrid cloud deployments, and managed services, but operate across distinct global regions. Logicalis International spans Europe, North America, Africa, and Asia-Pacific, while Logicalis Latin America focuses on Brazil and the broader Latin American region.

Together, these divisions position Datatec across the full IT value chain—from product distribution to recurring, strategic services. The group operates in more than 50 countries, with gross invoiced income (GII) primarily drawn from Europe (~52%), Asia-Pacific (~24%), and Latin America (~16%). It has limited exposure to the U.S. market (~ 9% of GII), having sold its Westcon Americas operations in a prior cycle.

Source:Datatec FY25 Annual Results Presentation

The Shift: Software and Services in Focus

What’s most notable in FY25 is the continued shift in Datatec’s revenue mix. For the year, 69% of gross invoiced income was derived from software and services, up from 64% in FY24. This includes annuity-based managed services, cloud subscriptions, and software resale agreements.

Source:Datatec FY25 Annual Results Presentation

This mix shift is already improving earnings quality and capital efficiency—cash flow is rising, working capital intensity is falling, and profitability metrics are moving in the right direction.

FY25 Financial Performance: Margin Over Volume

 
Source:Datatec FY25 Annual Results Presentation

Datatec’s reported revenue of $4.22 billion reflects a decline of 8.8% from the prior year. But that headline number understates the operational improvement beneath it.

Gross profit rose by 5.6%, while adjusted EBITDA increased 28.2% year-on-year. Underlying earnings per share (uEPS) jumped by 78.4% to 30.5 US cents. Margins improved across the board, with adjusted EBITDA margin expanding to 6.8% (up from 4.8% FY2024) and operating profit margin expanding to 4.4% (up from 2.9% FY2024)

Net operating cash inflow reached $189.7 million ($93 million FY24), resulting in strong free cash flow and a net debt reduction of 58% to $52.1 million. This cleared the way for an increase Datatec’s dividend payout target from ~33% to 50% of uEPS, with a total dividend of 275 ZAR/15.2 US cents declared for the year.

Strategic Tailwinds and Operational Them

Source:Datatec FY25 Annual Results Presentation

Several macro trends are working in Datatec’s favour. The continued global shift to cloud computing, rising demand for AI-ready infrastructure, and the growth of enterprise cybersecurity spending all directly support both Westcon and Logicalis. Cloud infrastructure rollouts, hybrid network architectures, and zero-trust security models all require the kind of hardware, software, and services that Datatec delivers.

In particular, management has called out increasing customer demand for complex integration projects around AI infrastructure and secure cloud environments, especially in emerging markets like Asia-Pacific, where growth was strong in FY25.

That said, headwinds remain. Currency volatility especially in Latin America continues to affect earnings translation and local purchasing power. Global macro uncertainty and potential IT budget compression in Europe are also potential risks. Meanwhile, competition in distribution remains intense, placing pressure on margins and vendor incentives.

Final Thoughts

Datatec’s FY25 performance suggests a business that is gaining financial strength even without material top-line growth. Operational leverage, working capital efficiency, and a better product mix are all contributing to rising profitability and stronger free cash flow.

The market will likely want to see more evidence that the group can deliver consistent growth in software and services, at scale and across regions, before re-rating the share fully.

Still, the direction is clear. Datatec is moving steadily toward a more recurring, higher-quality earnings base. FY25 shows it’s on the right path, the task now is maintaining momentum and turning margin gains into durable growth.

EasyAssetMangement holds a position Datatec in our EasyETFs Balanced Actively Managed ETF . If you are looking for exposure to global or AI themed equities check out our EasyETFs Global Equity Actively Managed ETF and our EasyETFs AI World Actively Managed ETF. 

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