AI demand lifts the international businesses
The technology group, which operates in more than 50 countries and ranks among the JSE's largest ICT services companies, reported results for the six months ended August 31, 2026. Its two main divisions are IT services business Logicalis and networking and cybersecurity distributor Westcon International.
Datatec said the spread of AI into businesses and the internet's edge is increasing investment in infrastructure and the need for secure networks. It expects public- and private-sector customers to devote a larger share of their budgets to IT infrastructure.
Speaking to investors on October 29, CEO Jens Montanana said large telecommunications operators accounted for the biggest growth at Westcon, with many building data center infrastructure. The division's order intake reached a record during the half-year.
Logicalis International also delivered record results. Its US gross invoiced income increased 34%, or about $135 million, while the division's adjusted EBITDA rose 36% to $71 million. Montanana noted that the latter figure approached the $74 million earned in the whole of its 2024 financial year.
Westcon nevertheless faced pressure on profitability. After excluding a $15.5 million tax credit in the prior-year period, its gross margin declined from about 25% to 22.8%. Montanana said discounts on large networking and cybersecurity contracts, rather than a change in product mix, explained the decline.
Earnings growth includes a Brazilian tax benefit
Across Datatec, gross invoiced income reached $4.835 billion, an 18% increase from a year earlier. Recognized revenue was $2.024 billion, up 13.9%.
Reported earnings before interest, taxes, depreciation and amortization fell 7.8% to $128.1 million. On an adjusted basis, excluding restructuring and corporate action costs, EBITDA increased 16.6% to $150.7 million. Headline earnings per share, which excludes one-off items, rose 1.4% to 22.3 US cents; underlying earnings per share increased 56.5% to 30.2 US cents.
A Brazilian tax case contributed to the underlying earnings increase. In March 2026, a Logicalis Latin America subsidiary secured a final ruling in litigation begun in 2018. The decision made about $38.4 million recoverable, comprising $21.3 million in corporate income taxes paid from 2013 through 2022 and $17.1 million in interest.
TechCentral calculates that, without the $17.1 million in tax-free interest alone, underlying earnings per share would have grown about 19%, rather than 56.5%.
The tax benefit came alongside weak operating results in Latin America. Logicalis Latin America recorded a $6.7 million operating loss, and adjusted EBITDA became negative for the first time. Total gross invoiced income dropped 16%, while recurring gross invoiced income declined 18%.
Montanana described the downturn as a "structural decline" linked to the business's concentration on telecom customers. Logicalis Latin America is pursuing customers in finance and oil and gas and expanding its exposure to mid-market businesses. Datatec said improving the division's performance remains a priority, alongside better operating leverage, earnings quality and cash generation.
Supply shortages accompany the AI build-out
Montanana said renewed component shortages were concentrated in high-end Cisco routers and switches used for AI infrastructure. The constraints had lasted roughly nine to 12 months, although he said they were less acute than those experienced about five years earlier.
He attributed the shortages to heavy purchasing by hyperscalers and said that buying was driving supply inflation across technology. About 30% of Datatec's business still depends on hardware and appliances.
Despite those constraints, Montanana characterized AI as a lasting "technology supercycle," drawing a comparison with the commercialization of the internet about 25 years ago. In his view, data center construction for AI will eventually peak, but the installed base of IT assets has increased permanently and will not return to its previous level. He expects cybersecurity demand to continue growing rather than peak.
"Strong AI infrastructure demand supports a robust full-year outlook," he said. Datatec also described current trading as robust.
Westcon refinancing reshapes the second half
Datatec cautioned that its second-half performance would be affected by Westcon's refinancing and minority investment transaction, as well as the extra shares issued to investors who chose shares instead of cash for the special dividend.
The refinancing agreements were concluded in June with General Atlantic's Atlantic Park Strategic Capital II Designated Activity Company and Atlantic Park Strategic Master Fund III. The transaction, involving Westcon International Group Holdings, the Westcon group's intermediate holding company, closed on August 4, 2026.
General Atlantic supplied a six-year, $375 million senior secured debt facility carrying 9% interest. Westcon combined those funds with $75 million drawn from existing facilities to repay its $450 million intercompany shareholder loan in full. General Atlantic separately invested $25 million in cash for a 5% equity stake in the holding company.
Following the transaction, Westcon's leverage was just over 3.5 times trailing adjusted EBITDA. Management expects that ratio to decline progressively.
Montanana said the refinancing returned R7.1 billion ($438 million) to shareholders, taking cumulative shareholder returns since Datatec's inception to $1.5 billion. The transaction forms part of his effort to restore value through corporate actions that have reduced the group's size, following losses of value largely in its international operations.
Larger dividend and share count
Datatec set its interim dividend at R2.50 per share, a 42.9% increase from the comparable period. According to TechCentral, the dividend is equivalent to 15 US cents, an increase of 50% in dollar terms.
TechCentral reported that investors' election to receive shares rather than cash from the special dividend resulted in 94.3 million new shares. With that larger share count, the total interim payout more than doubles to R844 million.
Datatec shares ended Thursday at R59.77, down 2.02%.
