JSE-listed technology solutions company Datacentrix has lifted revenue by 9% to R1,9bn in its financial year ended February 2013, but sharp downward pressure on margins led to a 16% decline in headline earnings per share.

“The past few years, though profitable, have been challenging for the group,” Datacentrix says.

“As a consequence of both market dynamics and the change in the technology landscape, Datacentrix has strategically repositioned itself in the market, moving from being a pure hardware supplier to a fully fledged systems integrator and solutions provider. This strategy has necessitated investment in infrastructure, as well as technical and managerial resources that were previously not required.”

However, the strategy has led to a change in the client and portfolio mix for Datacentrix, it says.

Investments in resources and capital projects and “sustained gross margin pressures” caused by a “dip in the industry cycle” weakened operating margins from 8% to 6%.

“The business is yet to reach optimal functionality in some areas, as certain of these investments have not yielded returns at this stage and, in some cases, have negatively affected profitability.”

Public sector revenue has also “dwindled significantly”. At the peak, government revenue contributed as much as 45% to Datacentrix’s top line; it now makes up less than 10%.

The balance sheet remains strong, with a closing cash balance for the year of R274m and no interest-bearing debt.

The traditional infrastructure division contributed 35% of group profit after tax (operating margin: 2,8%), while the managed services and business solutions divisions added 38% (margin: 10,7%) and 22% (margin: 17,9%) respectively.

Datacentrix says the phase of big investments it made in recent years in capital expenditure and resources is drawing to an end, putting it in a strong position for growth.

Commenting on the broader IT industry in South Africa, Datacentrix says the sector is under pressure from the telecommunications industry. “Telecoms companies are facing their own challenges in the form of slowing revenues in their traditional voice business and are attempting to supplement this by extending offerings in the traditional IT sector, such as cloud computing, a strategy that they hope will diversify their income base and, in the process, drive data revenues.”

Yet, it says, market conditions continue to be constrained, with industry growth estimated to be in single digits. “Some competitors continue to seek growth through aggressive acquisition strategies, while others are facing sustainability challenges. Further consolidation of the industry is inevitable and, where appropriate, Datacentrix will play a proactive role in these market changes.”