Westcon divisional report
Overview
Westcon Group, Inc.™ is the world’s leading specialty distributor of networking, security, mobility and convergence products for leading technology vendors, including Cisco, Nortel, Avaya, Juniper and Polycom. Through its Comstor, Westcon and Voda One business units, Westcon Group 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 (“VoIP”) security for networking and communications systems, videoconferencing and wireless connectivity.
Westcon’s customers consist of value-added resellers, systems integrators and service providers that resell networking products and solutions to small- and medium-sized businesses, enterprise organisations and governments around the world.
From left: Dean Douglas, Chief Executive Officer
John O’Malley, Chief Financial Officer
Westcon adds value to its distribution activities on a global scale by providing resources such as reseller-oriented solutions programmes, technical and managed services capabilities, sales and product training, engineering support and a unique global procurement and logistics capability. Among the solutions Westcon Group provides is the design and configuration of convergence and mobility networks, network extensions such as videoconferencing, network storage, unified messaging and network security. Westcon also provides a full range of services to complement these solutions.
Organisational structure
Westcon Group operates its multinational distribution business through its branded business units: Westcon, Comstor and Voda One.
- Comstor is focused on delivering Cisco-oriented advanced technology solutions and operates in North America, Europe, Australia, Asia and the Middle East. Comstor’s targeted programme offerings are centred on convergence, security, mobility and unified communications, and include OneDefense, OneVoice OneNetwork and OneWave.
- Westcon, which operates in North and South America, Central and Latin America and Europe, delivers solutions from vendors such as Avaya and Nortel, while providing a wide range of complementary solutions. The Westcon practice also offers security solutions from vendors like Blue Coat, Trend Micro, Check Point, RSA, F5, Secure Computing, Nokia and many others. Westcon programmes include ConvergencePoint, VoicePoint, SecurityPoint, MobilityPoint and CollaborationPoint.
- Westcon also has a Voda One business unit in the United States, which is focused on delivering Avayaoriented convergence and unified communications solutions as well as a broad range of complementary VoIP hardware and applications.
The year under review
Westcon Group operated in a difficult economic climate that permeated global markets, particularly during the second half of the fiscal year. As a result, the Company’s overall revenues experienced a decrease of 3% year-on-year. EBITDA was US$68 million (2008: US$102 million) and gross margin was 10,1%.
Westcon took very early action to ensure it could weather continually difficult market conditions and emerge a stronger company. Prior to the onset of the global economic crisis Westcon increased and secured substantial credit lines through its international banking relationships. During FY2009 Westcon instituted cost controls and reductions, and increased its focus on working capital management. As a result, the Company is able to continue operating successfully within the current economic climate and is extremely well positioned to maintain its business within a reduced revenue structure.
Westcon filled several key senior executive positions during the financial year. Dean Douglas was named Chief Operating Officer as part of a succession plan in which he would assume the role of President and CEO in the 2010 financial year. Douglas was previously Chief Executive Officer of LCC International, the largest independent wireless engineering company in the world. Douglas also held senior executive positions at IBM and Motorola. In Europe, Westcon reorganised its management structure along divisional lines and, Richard Hodgetts, a veteran of the Westcon European management team, was appointed to the position of European Financial Director. In the United States, Westcon announced several key executive appointments across its vendor focused product teams.
Divisional highlights
- Significant cash generation of over US$120 million
- Dean Douglas assumed role of CEO in April 2009
- Westcon named Cisco’s “Global Distributor of the Year” and “Multi-Theatre Partner”
- First distributor to sign global contract with Cisco
This year, as in the case of previous years, Westcon was recognised for its outstanding performance by several of its vendor partners. Cisco presented Westcon’s Comstor business unit with several distinguished awards including
“Global Distributor of the Year” and “Multi-Theatre Partner of the Year,” which has never before been awarded to a distributor. Meanwhile, Avaya named Westcon as “Distributor of the Year” in North America and in Europe, the Middle East and Africa (“EMEA”) – a region in which it has held that distinction for five consecutive years. Secure Computing also made Westcon its “North American Distributor of the Year”.
Westcon also added and extended significant brands within its global vendor portfolio. Juniper was added in Canada (where it is currently the only distributor in that country carrying Cisco, Avaya, Nortel and Juniper); Cisco, Google and Crossbeam and IronPort were added in Brazil; Linksys, and AirMagnet, Advatel and Easynet were added in the UK; Avaya was added in Italy; Ascom and RedSky were added in the US and Secure Computing was added in South America among many others.
In FY2009, Westcon continued to extend its solutions programmes offerings around the world: OneVoice and OneDefense, Comstor’s Cisco-centric convergence and security programmes, were launched in Brazil, and Westcon also launched MobilityPoint in North America, a programme designed to help resellers capture opportunities in the wireless market. Within its solutions programmes, Westcon developed valuable sales and training resources for its customers; among these, two comprehensive, internationally distributed selling guides: the global Cisco Solutions Handbook (“tenth edition”) and the Network Security Handbook. Westcon also introduced groundbreaking training initiatives, including “Westcon Academy” – a modular and scalable series of technology training courses for resellers.
During the year, Westcon took several measures to increase its own capitalisation and extend credit to customers around the world. In particular, in North America, Westcon announced its emerging partner credit programme, enabling qualified resellers to access significant credit lines in a challenging market. Westcon also continued to offer a host of other financing vehicles for customers, including leasing, lockbox and others.
Markets
While IT markets contracted on a global basis overall, some technology sectors, particularly security and unified communications, have continued to display modest growth. The end-user community remains under intense pressure to become more efficient both across the enterprise and within the mobile workforce. Therefore, a reasonable demand still exists for productivity-enhancing applications. Also, given the increased regulatory environment businesses are operating in and the increased security threats they face, it is incumbent on every organisation to protect their informational assets, regardless of where they may reside on the network. This has led to above average sales in security applications.
Strategy – focus on advanced technology, global offerings and services Westcon’s focus on advanced technologies is the differentiator between the Group and its broad-line multinational competitors. Management believes that its core vendors – Cisco, Nortel, Avaya, Polycom and Juniper – will continue to develop new technology categories for which Westcon can offer solutions based on core vendors plus complementary vendors.
Additionally, as customers increasingly rely on global business to remain successful, Westcon’s ability to facilitate multinational transactions for its customers is a key differentiator. In FY2009, Westcon completed over
20 000 multinational transactions for its international customer base. Westcon’s global logistics capabilities help its customers conduct international business with greater efficiency while mitigating many of the risks associated with trading internationally.
Westcon continues to increase its overall services offerings in addition to providing its core logistics capabilities. The Company introduced reverse logistics services in the United Kingdom, enabling companies to dispose of networking equipment in an ecologically responsible fashion. Additionally, Westcon is able to perform complex integrations and configurations on behalf of its vendor partners at its various warehousing facilities around the world.
Financial performance
During the year, Westcon’s revenue decreased 3% from US$2,9 billion in 2008 to US$2,8 billion with decreases in the US and Europe offset by increases in Asia-Pacific and Brazil. Gross margins decreased from 10,4% in 2008 to 10,1% in 2009 with gross profit decreasing 5% from US$297 million to US$281 million. The decrease is attributable to reduced gross margins in Europe and the Americas offset by increasing gross margins in Asia-Pacific.
Westcon’s EBITDA was US$68 million (2008: US$102 million) while EBITDA margins were 2,4% (2008:3,6%) as lower EBITDA margins in Europe and the Americas were partly offset by increasing EBITDA margins in Asia-Pacific.
Westcon’s net working capital days decreased 22% from 41 days in 2008 to 32 days in 2009 due to increased inventory turns and higher days payable outstanding (“DPO”). Net debt decreased as reduced working capital needs increased cash and drove down debt balances.
During the year, Westcon’s operating activities generated US$126 million of cash compared to cash usage of US$5 million in 2008 as effective working capital management resulted in lower accounts receivable and inventory balances.
For the year Cisco products made up 54% of Westcon’s revenue followed by 10% for Nortel, 10% for Avaya, 16% for security and 10% for Development/Affinity vendors. From a geographic perspective, 48% of Westcon’s revenue was generated in Europe followed by 43% in the Americas and 9% in Asia-Pacific.
People
Key to Westcon Group’s success around the world is its diverse and talented employees. With over 1 500 employees around the world, the Company’s employee retention rate for employees with five years’ seniority is strong at 40%. Westcon continues its internal training initiatives by offering Westcon University, an internal training and career development programme for employees. 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
While there are indications of a slight recovery in the US economy, the overall market outlook remains unclear. Westcon will continue to leverage its global capabilities as its customers and vendors look to grow their regional market presence. In addition, Westcon will continue to invest in its services offerings and strengthen its management team on a global basis.
Westcon’s appointment as Cisco’s first global distributor in April 2009, will enable both companies to conduct international and multi-regional transactions more efficiently in any country, while at the same time increasing both organisations’ ability to access emerging market opportunities in many parts of Africa and the Middle East, South America and across Asia.
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