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FINANCIAL HIGHLIGHTS
The Westcon Group ("Westcon") is the world's leading specialty distributor of networking, security, mobility and IP convergence products for leading technology vendors.
Overview
Through its Westcon, Comstor and Voda One divisions, Westcon sells products and services to resellers, systems integrators and service providers. Westcon has particular expertise in the convergence of voice, data and video applications and technologies, including Voice-over Internet Protocol, or VoIP, security for networking and communication systems, remote access, Internet and e-business, virtual private networks, videoconferencing and wireless connectivity. Westcon is an effective sales and marketing channel for leading vendors specialising in the security, convergence and mobility technology sectors.
Its primary vendors are Cisco Systems, Nortel Networks and Avaya, in addition to a host of other complementary vendors. Westcon adds value to its distribution activities by providing resources such as dedicated solutions programmes, technical expertise, sales and product training, engineering support and professional services.
The organisation's customers resell networking products and solutions to small and medium sized businesses, enterprise organisations and governments around the world. Among the solutions Westcon provides is the design and configuration of convergence and mobility networks, network extensions such as video-conferencing, network storage and unified messaging and network security.
Structure
Westcon operates its multi-national distribution business via its branded sales divisions: Comstor, Voda One and Westcon. It delivers value to its customers through sales support and marketing programmes and through its highly trained sales and marketing staff.
- The Comstor division leads with Cisco products in the US, Europe, Australia, Asia and the Middle East, while offering a host of complementary products centered on convergence, security and IP devices. Its dedicated programmes include OneDefense, OneVoice and OneNetwork.
- The US-based Voda One division leads with Avaya products for convergence, unified messaging, call centre applications, PBX and data networking solutions. Its dedicated programme is ConvergencePoint.
- The Westcon division, which operates in US, Canada, Europe and Brazil, leads with Nortel solutions while providing a wide range of complementary voice and data networking equipment. Westcon is also a leading distributor of security solutions from vendors like Check Point, RSA, F5 Networks, Secure Computing, Nokia and many others. Westcon's dedicated programmes include ConvergencePoint, VoicePoint, SecurityPoint and MobilityPoint.
The year in review
2007 was a strong year for Westcon as it once again exceeded its objectives. Revenue increased by 10% and EBITDA increased by 24% over the previous year - these results were achieved through continued improvement in operational efficiencies and increased profitability across the company. On 28 April 2006, Westcon completed a key acquisition in North America, purchasing the distribution arm of Ronco Communications and Electronics ("Ronco"). Following the acquisition, Westcon became the world's leading distributor of Nortel solutions, while gaining significant expertise in the wireless market and substantially expanding its voiceoriented customer base.
During the year, Westcon developed additional platforms for its growth and international expansion, while strengthening its position with key vendors. In December, Westcon Group partnered with Datatec to open Comstor Middle East, based in Dubai, United Arab Emirates. In January, Comstor launched its OneDefense and OneVoice programmes in the Middle Eastern region, providing a proven, go-to-market environment for vendors and customers. The organisation's award-winning solutions programmes are such that they can be deployed efficiently at new locations - thereby accelerating success in new regions.
In May and October, Comstor opened offices in Malaysia and New Zealand, respectively, developing its operations further in a region that has delivered higher than expected results this year. The strength of Westcon's programme infrastructure in the Asia-Pacific region proved to be an invaluable resource for customers and has served as a catalyst to help vendors such as Trend Micro to increase their reach and presence in the Asian market.
In Europe, Westcon continued consolidation in regions including the UK, Benelux and France, simplifying the legal structure and as a result, reducing their effective tax rate. In addition Westcon's European organisation implemented process and IT enhancements which have made transactions more efficient while greatly simplifying pricing in a multi-currency business environment. The strength of Westcon Group's European operations has allowed Westcon to negotiate favourable banking relationships in the region. Comstor was named "Distributor of the Year" by Cisco in several large European countries, including the UK where it won the title for the third consecutive year.
In North America, 2007 saw the opening of a new warehouse facility in Reno, Nevada providing better service to its western US-based customers, while realising cost efficiencies for both vendors and customers on inbound and outbound shipping. Voda One announced new financing options with Avaya Financial Services that enable US customers access to enhanced financial terms and leasing options, removing purchasing obstacles from resellers. The Westcon division launched key new recruitment initiatives for the small and medium business market which set records among distributors in the USA. 2007 saw Westcon join the Global Technology Distribution Council, an international consortium of distributors that provides access to additional research data and promotes greater awareness in the role of distribution to the business community at large.
Markets
Within the networking and communications industry, opportunities in the areas of convergence, security and mobility continue to expand as the distribution market consolidates. The security, convergence and mobility markets are all being driven by productivity-enhancing applications, IP-based communications, and continued challenges in securing new networking technologies. Hand-held devices and VoIP are ushering in a need for companies to re-think security, since regulators are compelling organisations to protect both inbound and outbound messaging.
Strategy
Westcon views its focus on advanced technologies as the differentiator between itself and the broad line multinational competitors. Management believes that its core vendors - Cisco, Nortel and Avaya - will continue to develop new technology categories for which Westcon can offer solutions based on core vendors plus complementary vendors.
Westcon's advanced technology focus is a key factor supporting the higher than average gross margin that the company achieves. Enabling and supporting this success is a set of key marketing strategies which are geared to leverage the internal intellectual capital of the sales and marketing teams. These marketing strategies are embodied in Westcon's One-X and X-Point programmes which are now rolled out throughout the organisation.
Financial performance
During the year, Westcon's revenue increased by 10% to $2,3 billion (2006 restated: $2,1 billion). The Ronco acquisition contributed $50 million in revenue resulting in an organic revenue increase of 7%. This increase is reflected across all geographic regions. Cisco products comprised 60% of Westcon's revenue, Nortel 13%, Avaya 9%, security solutions 4% and other 14%. North and South America made up 50% of Westcon's revenue, Europe 40% and Asia-Pacific 10%.
Gross margins increased to 9,5% (2006 restated: 9,4%) resulting in an 11% increase in gross profit from $195 million to $216 million. The increase in gross margin was attributable to strong performances in Europe and Asia-Pacific offset by lower margins in the Americas.
Westcon's EBITDA improved 24% to $83 million (2006: $67 million) and the EBITDA margin improved to 3,6% (2006 restated: 3,2%) as a result of the strong revenue performance, increased gross margins and more efficient operating costs.
People
The key to Westcon's success around the world is its diverse and talented employees. This year, Westcon initiated a survey on its global employee base to gain insight into company morale, alignment with strategic direction and overall satisfaction. Using a similar survey from two years ago as a benchmark, the survey demonstrated overwhelmingly positive results.
Westcon continues to recruit the most experienced and capable employees in each of the markets in which it operates, and continually invests in its employees through internal training and career development programmes.
Future prospects
Westcon continues to explore possible acquisitions around the globe, looking at companies which can strengthen its vendor positions around the world while providing access to highly focused customer groups. The organisation views geographic expansion on a case-by-case basis, always looking to leverage vendor commitments, increase customer retention and improve profitability ratios. Westcon's geographic expansion and consolidation activities provide it with an opportunity to further strengthen its management team in many regions as they continue to refine their ability to execute while increasing their specialty distribution earnings capability.
In 2008, the organisation plans to:
- invest in systems and processes which will continue to improve its efficiency, lower its costs and increase its capacity to serve customers
- grow its existing businesses by leveraging its multinational position to bring more value to its customers
- where possible, acquire select distribution companies to add scale, attract new customer segments and accelerate earnings capability.
Tom Dolan
Chief executive officer
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