Stephen Davidson
Chairman

We will continue to execute our strategy through portfolio management and the development of our principal operating divisions in technology solutions and services to targeted customers in identified markets.

Stephen Davidson
Chairman

Chairman's review

Introduction

The twelve months ended 28 February 2017 was again marked by difficult market conditions. Whilst solid progress was made in the first half of the year, the second half, and particularly the last few months of the year, saw Westcon-Comstor suffer a marked decline in performance exacerbated by issues transitioning to the new ERP platform in Europe, Middle East and Africa.

At the same time, we received an unsolicited approach from US-based SYNNEX Corporation to acquire part of Westcon-Comstor for a consideration which reaffirms the value of our distribution business and our commitment to long-term, sustainable returns to shareholders.

We will continue to execute our strategy through portfolio management and the development of our principal operating divisions in technology solutions and services to targeted customers in identified markets.

Key to the sustainability of our strategy is developing our people to build a sustainable skills pool that supports our business and the industry at large.

After 31 years, we remain close to our South African roots and we continue to place a particular focus on protecting our environment and supporting communities in which we operate, globally. This Integrated Report contains a number of examples of the social commitment our employees demonstrate and you can find an update on the work of the Datatec Education and Technology Foundation over the past year in this report from pages 58 to 64.

All Group activities and those of its employees are guided by our Code of Conduct which enshrines the ten principles of the UN Global Compact and helps to direct the Group’s actions within our global context.

Governance

Excellence in governance is a fundamental contributor to the sustainability of our business and we are committed to being ethical and socially responsible corporate citizens.

Our Board remains acutely conscious of the need to strike a balance in its constitution between experience, continuity and regeneration whilst always ensuring a high level of independence. Further details on changes to the Board and information on my fellow directors are included in this report.

Datatec operates on a truly international scale and in increasingly complex and fast-changing markets. As such, risk management is particularly important and we will continue to implement measures to improve processes and procedures involving the Group’s divisions in order to identify, manage and mitigate risks at an early stage. This risk management policy is set by the Board and reviewed periodically to ensure that a risk management framework is implemented across the Group effectively.

Financial overview

The Group’s underlying businesses were stable during the financial year ended 28 February 2017 but, as mentioned earlier in this report, our Westcon-Comstor business delivered an unexpectedly poor performance in the second half, particularly in the final months of the year as the EMEA region was transitioning to the new ERP platform. Group revenues of US$6.08 billion were 5.75% lower than the previous year and the Westcon-Comstor performance seriously impacted the Group’s profitability and underlying earnings per share.

Proposed SYNNEX transaction

On 6 June 2017, the Group announced that it had agreed terms with SYNNEX Corporation, a well-respected Fortune 500 corporation, to dispose of the Westcon-Comstor North America and Latin America businesses for up to US$800 million together with a 10% stake in the remaining part of Westcon-Comstor (Westcon International) for US$30 million.

This transaction presents a unique opportunity for Datatec to partner with a leading distribution business in North America and benefit from its significant scale. The transaction also enables Westcon International to complete its multi-year business transformation aimed at improving operating efficiencies and modernising its global IT systems and commercial supply chain. This process will further enhance the value of Westcon International in the medium term.

Closing of the transaction is subject to a number of conditions including shareholder and regulatory approvals. A circular containing full details of the transaction, and convening a general meeting, will be sent to shareholders in due course.

Scrip distribution with cash dividend alternative

We continued to structure our returns to shareholders as scrip distributions with a cash dividend alternative to support continued growth and improved liquidity. The alternative provides shareholders with the option to increase their shareholding in Datatec or to receive a cash dividend if they prefer.

The Board’s dividend policy is to maintain a cover of three times underlying earnings per share.

The Company paid an interim scrip distribution with cash dividend alternative of 60 ZAR cents (approximately 4.2 US cents) to shareholders on 28 November 2016. The proportion of the Company’s total shares which received the scrip distribution was 30.1% with the balance opting to receive the cash dividend.

The Board’s dividend cover policy does not allow a final distribution to be declared for the financial year ended 28 February 2017 due to the poor financial performance.

Shareholders

Datatec’s shares are listed on the JSE and on AIM. Although we have over 4 000 shareholders internationally, our largest shareholder base remains in South Africa

I welcome interactions with key Datatec stakeholders at any time and especially at the AGM which is scheduled on 14 September this year.

Appreciation and Board Changes

We have navigated a challenging year and I would like to extend my gratitude to our 9 200 plus employees for their support and commitment. Their many contributions not only continue to advance Datatec and the industry at large but also the communities in which they live and work.

I would also like to thank my fellow directors for their guidance and support. During the financial year, I was delighted to welcome Ivan Dittrich back to the Board as CFO on 30 May 2016 and Johnson Njeke who joined the Board as an independent non-executive director on 1 September 2016. Johnson is Chairman of the Social and Ethics Committee and a member of the Audit, Risk and Compliance Committee and the Remuneration Committee.

Finally, I thank our customers and vendor partners for their continued support.

Stephen Davidson
Chairman
30 June 2017