Dolph Westerbos
Westcon-Group CEO


Cathy Jessup
Westcon-Group CFO


 

Westcon-Comstor divisional report


Corporate overview

WestconGroup, which goes to market under the Westcon-Comstor brand, is a value-added distributor of category leading security, unified communications and collaboration, network infrastructure and data centre solutions with a global network of speciality resellers. It also has strong capability practices in cloud, services and global deployment solutions.

Westcon-Comstor is represented across six continents, with operations in more than 70 countries, and distributes to 180-plus countries and territories, operates more than 20 logistics/staging facilities and transacts with more than 20 000 customers globally.

Performance

Revenue of US$4 532.1 million

Gross margins of 10.1%

Increased revenue in Latin America and Asia-Pacific

EBITDA of US$53.5 million

Strong growth in the security segment


Westcon

Operating in North America, Latin America, Asia-Pacific, Europe, Middle East and Africa, Westcon provides solutions from a broad portfolio of premier vendors. Westcon has deep expertise in the following technologies:

  • Security solutions: Blue Coat (acquired by Symantec), Check Point, F5 Networks, FireEye, Fortinet, HP, Juniper Networks and Palo Alto Networks;
  • Unified communications and collaboration: AudioCodes, Avaya, Jabra, MultiTech Systems, Plantronics and Polycom;
  • Networking infrastructure: Aruba (Hewlett Packard Enterprise), Extreme Networks and Juniper Networks; and
  • Data centre: Citrix, Fujitsu, NetApp, Riverbed and VMware.

Comstor

Comstor is the Cisco-centred business unit of Westcon-Comstor, shipping to more than 100 countries. The business distributes the full line of Cisco solutions:

  • Cisco Open Network Environment ("ONE") enterprise networking: routing, switching, wireless LAN and network management;
  • Security: adaptive security appliances, email and web security (formerly IronPort), Sourcefire, Prime Security Manager, Meraki MX UTM appliances;
  • Collaboration: call control, presence, UC clients (desktop and mobile), contact management, content management, voicemail, web conferencing, video/ telepresence infrastructure and end points social networking (on premise and hosted);
  • Data centre: rack and blade servers, UCS Director, Intelligent Automation for Cloud, Tidal Enterprise Scheduler, Nexus DC Switch Range;
  • SolutionsPlus and DevNet ecosystem partner applications;
  • Cisco Services: SMARTnet, Smart Care and Advanced Services; and
  • Software and IoT: delivery of more outcome-based capabilities through software and networked connections, fulfilling the vision of Internet of Things.

Westcon-Comstor

Westcon-Comstor also has capability practices, or specialities, that it offers globally under its Westcon-Comstor brand:

  • Cloud: Amazon Web Services and Microsoft Azure and Office 365;
  • Services: supply chain, financial, education, technical support and professional and;
  • Global deployment solutions: logistics, staging, strategic stocking, configuration, project coordination, VAT recoverability; and global contracting, credit applications, and terms and conditions.

Despite a difficult year in a number of its markets, Westcon-Comstor has continued to invest in common tools and processes with the goal of creating exceptional customer experiences, driving operational excellence and expanding its capabilities around services and cloud.

Part of this investment includes the roll out of its SAP, ERP software and systems and BPO. Westcon-Comstor is nearing the end of a multi-year business transformation aimed at improving operational efficiency. It is beginning to see the benefits of a common platform and its investment in new capabilities in its cloud solutions and services business.

How Westcon-Comstor creates value

Vision and value proposition

Westcon-Comstor knows it takes more than anticipating technology trends to empower its channel customers. Understanding how those trends change the way businesses operate, delivering scale, and managing complexity in the channel, ensures its value.

Westcon-Comstor does that through education, technical design and business services – to become the trusted advisers of its customers. Westcon-Comstor works with the world's best known and most innovative technology vendors to create effective routes to technology markets critical to its growth while also providing fast time to revenue. By providing the right products, services, fast-changing technologies and resources to capitalise on fast-changing market opportunities, Westcon-Comstor has become the ICT channel's go-to source for security, unified communications, network infrastructure, data centre, cloud and services solutions.

As a global value-added distributor at the centre of the technology supply chain, Westcon-Comstor is ideally positioned to enable both IT vendors (suppliers) and solution providers (customers) to effectively reach and support businesses of all sizes in any industry.

Westcon-Comstor revenue % by technology category

Westcon-Comstor revenue % by customer

Westcon-Comstor revenue % by business unit

Westcon-Comstor, through its Accelerate Programme, continually scans the market for emerging technology vendors who can help expand its portfolio of exceptional products and create the greatest opportunities for its customers. The skills, expertise, loyalty and dedication of its employees worldwide are the driving force behind not only the success of the organisation, but also that of its vendor and solution provider partners. Westcon-Comstor operates under the highest ethical standards and actively supports the communities, industries and markets where it conducts business through charitable and socially responsible programmes.

Westcon-Comstor’s strategy

For over 30 years, Westcon-Comstor has evolved its business model with one clear principle in mind: enabling partners through focus and value-added capabilities. This strategy has allowed Westcon-Comstor to successfully navigate myriad market changes over the years, emerging stronger and more responsive to vendor and solution provider needs. Westcon-Comstor's leadership team continues this practice today using five strategic priorities as its foundation:

  • Create efficiencies – drive operational excellence, deliver a consistent customer experience and provide a more automated, self-service business model. This is accomplished by standardising processes, a common technology foundation, developing shared services and optimising internal systems.
  • Enhance vendor portfolio – ensure the most relevant, fastest growing categories are represented, available and supported by adjacent technology practices. This heightens Westcon-Comstor's ability to anticipate technology evolution, maintain its thought leadership position and accelerate incubation of promising vendor technologies globally.
  • Strengthen partner enablement – create a clear and compelling value proposition that makes Westcon-Comstor the distributor of choice for technology solution providers worldwide. Enhancements to ecommerce and self-service tools, business intelligence capabilities and globalisation of the Westcon-Comstor EDGE partner framework ("Engage, Develop, Grow and Extend") help drive this initiative and build strategic relationships with global accounts.
  • Globalise services capabilities – become the worldwide channel leader in value-added, complementary white-labelled technology and business operations services. Technical services include first- and secondlevel technical support; new automated provisioning and configuration capabilities; and remote monitoring and professional services such as deployment, maintenance and solution design. These services are being enhanced with new capabilities in financial, marketing and business operations services.
  • Create channel cloud capabilities – build the most compelling offering combining technology with managed and digital services. Westcon-Comstor continues to evolve this new practice, optimising partner enablement services for the cloud. Westcon-Comstor's BlueSky Cloud and Service Management platform, built to keep its channel customers at the core of the ongoing digital services lifecycle, reports key information and offers real-time analytics to help customers manage and grow their cloud business.

A key objective for Westcon-Comstor is improving profitability through its strategic priority actions. The company is driving its mix to services and other higher margin offerings, managing its operating costs and driving efficiencies. Examples include centralising and outsourcing transactional work; consolidating businesses, management, processes and locations; creating and deploying better tools for automation; and investing overall in IT.

Markets

Westcon-Comstor experienced growth in its Asia-Pacific market due to sales expansion in China and growth throughout Asia. The Latin America market also experienced growth particularly in Chile, Peru and Argentina. Sales in Brazil were down year-over-year, but showed steady improvement over the course of FY17. Westcon-Comstor experienced sales slowdown in its North America market due to challenges in its Comstor division as well as in its Europe market due to challenges associated with the SAP and BPO business transformation roll outs. Continued macroeconomic pressures resulted in volatility in its Middle East, Africa and Latin America markets. The company has taken necessary steps to normalise operations in Europe and manage costs in challenged markets while increasing sales motion across all regions.

Performance

Westcon-Comstor accounted for 74% of Datatec's revenues (FY16: 75%) and 40% of its EBITDA (FY16: 52%).

Westcon-Comstor's revenues declined by 6.9% to US$4.5 billion (FY16: US$4.9 billion) with lower revenues across all regions except Latin America and Asia-Pacific. Constant currency sales were 5.9% lower. Gross margins declined slightly to 10.1% (FY16: 10.2%) due to unfavourable geographic mix with lower margins in Latin America and MEA. Gross profit was US$456.0 million (FY16: US$497.1 million) as a result of lower revenues.

Progress against strategic objectives

FY17 priorities   FY17 execution of priorities   FY18 priorities
Create efficiencies  
  • Finalisation of SAP roll out across Asia-Pacific, Europe and the Middle East and Africa
  • Finalisation of BPO in Asia-Pacific, Europe and the Middle East. Africa and North America in progress
  • Rolled out productivity enhancement tools in North America and Europe including 1View Quote Automation
  • Salesforce CRM system rolled out in North America
 
  • Continue roll out of 1View Quote and order productivity automation
  • com and ecommerce roll out
  • Focus on renewals data
  • Continue to evolve BlueSky cloud platform
  • Accelerate and simplify vendor integrations
  • Rectify the outstanding issues with SAP and BPO
Enhance vendor portfolio  
  • Consolidated position as global leader in security distribution
  • Expanded selected relationships in every region
  • Global customer contracts and engagement drove additional opportunities with key vendors and services
  • Accelerate Programme included SD-WAN vendors in high growth sector
 
  • Consolidation of market leading position with the Global 8 vendors in terms of growth, share and objectives alignment
  • Review of portfolio to ensure alignment to growth objectives and medium-term market opportunities
  • Selective new portfolio additions
Strengthen partner enablement  
  • Created global enablement programmes for new customer acceleration ("EDGE") and Comstor Security
  • New tools developed for greater integration and automation, self-service and customer satisfaction
 
  • Digital enablement of customers' technology tools to drive satisfaction, operational excellence and enhance "ease of doing business"
  • Deliver an expanded portfolio of resources to enable customers to grow profitably
  • Adapt go-to-market engagement to cover SMB as well as SP/SI regional and channels
Globalise services capabilities  
  • Accelerated services business through stronger sales enablement
  • Globalised renewals support capabilities
  • Rolled out new supply chain services capabilities
 
  • Invest in offer and delivery capability for service providers, XaaS and supply chain
  • Improve solution offerings, develop sales and marketing motion
  • Drive operational quality and efficiency
  • Focus on global accounts, global vendors and Accelerate vendors
Create channel cloud capabilities  
  • Launched BlueSky in 19 countries and five languages
  • Developed APIaaS for all vendors to accelerate integration with BlueSky
  • Built anchor relationships with Microsoft and Amazon Web Services
 
  • Provide customers the ability to integrate with cloud vendors to replenish and manage orders at the customer level
  • Offer powerful cloud marketplace and reseller white-label services
  • Continue to bolster cloud data acquisition, aggregation and billing capabilities; and value-added service offerings

Operating expenses decreased to US$402.5 million (FY16: US$408.6 million). The 1% decrease is attributable to lower foreign exchange losses in Angola and a reduction in bad debt expense offset by increased headcount costs. Operating expenses as a proportion of revenue increased to 8.9% (FY16: 8.4%).

Restructuring expenses of US$14.1 million (FY16: US$14.9 million) were incurred, mainly in North America, Europe and Asia-Pacific, primarily relating to the BPO transformation.

EBITDA was US$53.5 million (FY16: US$88.5 million). EBITDA margins were 1.2% (FY16: 1.8%).

Depreciation and amortisation were US$33.2 million (FY16: US$26.3 million) resulting in operating profit of US$20.3 million (FY16: US$62.2 million).

Net working capital days increased to 39 days (FY16: 34 days) due to a combination of extended collection days and lower inventory turns. The combination of lower cash earnings, higher net working capital requirements, US$40.0 million of capital expenditure and the further purchase of US$9.2 million Angolan government bonds resulted in an increase of US$132.4 million in net debt to to US$403.4 million.

Of the US$27.9 million incurred in capitalised development expenditure during FY17, the majority is attributable to the SAP ERP system transition, cloud development and digital transformation.

Westcon-Comstor has implemented a business transformation programme over the last three years in the following regions – Asia-Pacific, EMEA and North America. This included the roll out of SAP to 54 countries, and BPO to 50+ countries. A further US$3.1 million is expected to be spent in FY18, as planned. The completion of the transformation provides Westcon-Comstor with a common business foundation and enhances its ability to serve partners on a global scale. While the overall positive results of a common business platform will contribute to the company's success going forward, business disruptions related to the implementation of these projects contributed to a drop in sales performance in FY17. This was particularly seen in Europe which experienced a decline in net sales from US$1 626 million to US$1 484 million this year. Additionally, North America experienced lower year-over-year sales due to lower Avaya sales and challenges related to their Comstor business, resulting in net sales of US$1.7 million versus FY16 sales of US$1.8 million. Management has implemented a series of actions to ensure operations will resume growth going forward.

Westcon-Comstor has invested US$19.2 million (FY16: US$10.0 million) of its cash which is trapped in Angola in US Dollar-indexed Angolan Government bonds, to mitigate the risk of foreign exchange fluctuations. The coupon rate on all the bonds is 7.0% and the US Dollar equivalent will be settled in Kwanza. Westcon-Comstor intends to roll the bonds into new issues of the same type when they mature until such time as the economic situation in Angola improves.

Partners: customer and vendor relationships

Westcon-Comstor's partners include technology vendors, and customers such as value-added resellers, systems integrators and service providers offering technology solutions for small and medium-sized businesses, enterprise organisations, governments and other vertical markets around the world. Solutions include the design and configuration of unified communications and collaboration, mobility and data centre networks, as well as network extensions such as video conferencing, network storage, unified messaging and network security. Westcon-Comstor also provides a range of comprehensive services to complement these solutions, such as Westcon-Comstor EDGE, its unique partner enablement platform.

Partner engagement programmes and an ongoing focus on vendor relationships continue to create new market opportunities both now and for the future. Westcon-Comstor's relationships with the company's "top eight" vendors remain the fundamental platform for driving revenue growth, opportunity for services penetration and influence for cloud solutions. As examples, the launch of the "Comstor Security Initiative", to align with Cisco's ambitions to become the global leader in infrastructure security; the investments in PAN across all regions; and growth with Checkpoint confirm the company's position as a global leader in cyber-security distribution. The expansion with Microsoft for their cloud portfolio and evolution of the Accelerate Programme to grow emerging technology vendors, underscores the deep-rooted focus on technology evolution combined with commercial opportunity.

Awards and recognition

Westcon-Comstor's leadership, vision, programmes and performance continue to draw the attention of the technology market it serves. Westcon-Comstor's relentless commitment to excellence transcends all facets of the organisation. Accolades include:

Westcon Australia/New Zealand – Distributor of the Year, Juniper
Westcon EMEA UCC – UK Distributor of the Year, Avaya
Westcon EMEA – Distributor of the Year, F5
Westcon EMEA – Best Performing Regional ATC, F5
Westcon EMEA – Unity Support Partner, F5
Westcon Academy EMEA – Biggest Growth 2015, Juniper
Westcon Sweden – Best HPE Distributor GWE 2015, Hewlett Packard Enterprise
Westcon UK – Distributor of the Year, Juniper
Westcon UCC Germany – Champion of the Year 2016, Sonus
Westcon Security Austria – Best Distributor 2015, Trend Micro
Westcon Middle East – Distributor of the Year, Ruckus
Westcon Southern Africa – Distributor of the Year, Ruckus
Westcon Southern Africa – Distributor of the Year, Zebra
Westcon Middle East – Network Security Excellence Award for Best Value Added Support, SonicWall
Westcon LATAM – Distributor of the Year, Symantec
Westcon LATAM – 2016 Distributor of the Year, Fortinet
Westcon LATAM /SOLA– Distribution Partner of the Year for Chile, Infoblox Westcon LATAM/ ROLA – Distributor Partner of the Year, Exinda
Westcon Mexico – Value Distributor, Gigamon
Westcon North America – Distributor of the Year, Palo Alto
Comstor Global – Global Distributor Partner of the Year, Cisco
Comstor Americas – 2016 Distribution Award for Innovation and Transformation, Cisco
Comstor LATAM – Distribution Partner of the Year, Cisco
Comstor Belgium – Distributor Partner of the Year, Cisco
Comstor France – Marketing Innovation Partner of the Year, Cisco
Comstor Middle East – Marketing Velocity Award EMEAR, Cisco
Comstor Middle East UAE – Distributor Partner of the Year, Cisco
Comstor Netherlands – Distributor Partner of the Year, Cisco
Comstor Spain – Distributor Partner of the Year, Cisco
Comstor UK – Distributor Partner of the Year UKI, Cisco
Westcon Czech Republic – Distributor of the Year, ChannelWorld
Comstor EMEA – Emerging Technology Distributor for IoT, CRN
Westcon-Comstor Germany – Excellent Distributor, CRN
Westcon-Comstor Middle East – Networking Distributor of the Year, Reseller World
Westcon-Comstor New Zealand – Cloud Distributor of the Year; Best Distributor Initiative, Reseller News

Westcon-Comstor's executives are active members of the industry body, the Global Technology Distribution Council ("GTDC"), and its CEO serves as executive director on the board. The GTDC is the industry consortium representing the world's leading technology distributors who together represent more than US$130 billion in annual revenue.

Outlook

Westcon-Comstor has built a strong foundation for future growth. The company has invested in best-in-class common systems and processes to drive efficiencies and create exceptional partner experiences. Post the roll out of SAP in Africa and the North America BPO launch, both concluding in the first quarter of FY18, transformations will be complete around the world.

While these transformations caused disruption to the business, particularly in Europe, the company has taken the necessary steps to stabilise the business and drive growth going forward.

With a common business foundation in place, Westcon-Comstor is poised to drive top-line growth, market share and relevancy. Westcon-Comstor is well positioned to benefit from its global reach, continued growth in security and mobile networks, investments in its cloud practice as well as improving conditions in emerging markets.