Jens Montanana CEO

Ivan Dittrich CFO

Executive directors' report

It has been a difficult transition year that ended with an escalation of challenges. We are nearing completion of the global SAP ERP system implementation and BPO transformation for Westcon-Comstor but many operating challenges still remain. We are committed to resolving these issues and focusing on improving key financial metrics, profitability and cash generation.

Strategic priorities

Target above industry revenue growth

Pursuing quality of revenue in competitive markets.

Improve operating margins

Maintaining gross margins and improving operating margins through cost containment and operating leverage.

Increase ROIC

Targeting higher ROIC to enhance value.

Market conditions

We have seen some stabilisation in the markets in which the Group operates but some areas remain challenging. There is a gradual return to a normalisation of monetary policy at a sovereign level in major economies and this may start feeding into higher interest rates.

We believe that the oil-consuming economies will fare much better than the producing ones. Europe is showing relative stability.

At a macro-and industry level, we remain aligned to strong secular trends which are driving our network security product sales and managed services businesses. We believe there will be a continual shift to cloud-based delivery of IT but in a hybrid public and private configuration for businesses and enterprises. This will help drive mobility solutions, network security and converged computing applications built in increasingly virtual environments using external data centres.

Financial review

The Group’s trading was materially affected in the last quarter by the roll out of the SAP ERP system and business process outsourcing (“BPO”) across Westcon-Comstor’s operations in EMEA and Asia-Pacific which saw revenue decline US$338 million year-on-year to US$6.08 billion from US$6.45 billion and Group EBITDA was US$118.9 million (FY16: US$162.1 million). Underlying* earnings per share (“UEPS”) was 11.0 US cents compared to 32.0US cents for the financial year ended 29 February 2016 (“FY16”).

As the Board’s stated dividend policy is to maintain a fixed three times cover relative to underlying* earnings when declaring dividends, no final dividend for FY17 is being declared.

Over the last five years, the Group’s focus has been on modernising Westcon-Comstor’s operations through the implementation of a global SAP ERP system and BPO which continued during FY17.

These two transformation processes are now nearing completion with the final implementations expected in the first half of FY18. North America, EMEA and Asia-Pacific regions will then be operating on SAP and with BPO.

Group revenues for the period were US$6.08 billion, down 5.8% compared to FY16. In constant currency** terms, Group revenues for FY17 decreased by 4.0% to US$6.2 billion with Westcon-Comstor constant currency** revenues down 5.9% and Logicalis constant currency** revenues up 2.1%.

Group gross margins improved to 13.7% (FY16: 13.5%). Gross profit was US$833.1 million (FY16: US$868.7 million).

Overall operating costs were US$714.2 million (FY16: US$706.6 million). Included in operating costs are total restructuring costs of US$16.6 million. EBITDA was US$118.9 million (FY16: US$162.1 million) and EBITDA margin was 2.0% (FY16: 2.5%).

Adjusted EBITDA (including the same adjustments as used for underlying earnings per share*, where relevant) was US$139.0 million (FY16: US$182.1 million). This excludes restructuring costs of US$16.6 million, unrealised foreign exchange losses of US$1.9 million and other items of US$1.0 million.

Depreciation and amortisation were higher at US$58.4 million (FY16: US$51.5 million) primarily as a result of increased capital expenditure and investment in systems in Westcon-Comstor.

Operating profit was US$60.5 million (FY16: US$110.5 million).

The net interest charge increased slightly to US$24.2 million (FY16: US$23.9 million).

Profit before tax was US$41.7 million (FY16: US$88.4 million).

The Group’s reported effective tax rate for FY17 is 74.2% (FY16: 45.2%). This is higher than the South African rate of 28% due to the profits arising in jurisdictions with higher tax rates, in particular North and Latin America. The effective tax rate in FY17 is abnormally high, reflecting the pattern of taxable profits earned in North America and Latin America but losses arising in Westcon-Comstor’s Middle East and Africa and Asia-Pacific regions with a lower rate of tax benefit or no tax benefit at all. As in FY16, limited deferred tax assets have been recognised in respect of losses which have arisen in Africa and Asia-Pacific.

UEPS* were 11.0 US cents (FY16: 32.0 US cents). Headline earnings per share (“HEPS”) were 2.0 US cents (FY16: 19.4 US cents).

The Group utilised US$37.3 million of cash in operations during FY17 (FY16 cash generated: US$129.1 million) and ended the period with net debt of US$396.5 million (FY16: US$205.4 million). The increase in net debt is due to reduced cash earnings and funding of increased working capital and capital expenditure.

* Excluding impairments of goodwill and intangible assets, profit or loss on sale of investments and assets, amortisation of acquired intangible assets, unrealised foreign exchange movements, acquisition-related adjustments, fair value movements on acquisition-related financial instruments, restructuring costs relating to fundamental reorganisations and the taxation effect on all of the aforementioned.

**The pro forma constant currency information, which is the responsibility of the directors of Datatec, presents the Group’s revenue for the current year had it been translated at the average foreign currency exchange rates of the prior year. This information is for illustrative purposes only and because of its nature, may not fairly present the Group’s revenues. The Group’s auditors, Deloitte & Touche have issued an unmodified reasonable assurance report (ISAE 3420: Reasonable Assurance Engagements to Report on the Compilation of Pro Forma Financial Information) on the pro forma financial information presented, a copy of which is available for inspection at the Company’s registered office.

To determine the revenues in constant currency terms, the current financial reporting period’s monthly revenues in local currency have been converted to US Dollar at the average monthly exchange rates prevailing over the same period in the prior year. The calculation has been prepared for each of the Group’s material currencies listed below using the average exchange rates against the US Dollar shown:

Average US Dollar exchange rates FY17   FY16
British Pound 1.32   1.51
Euro 1.10   1.10
Brazilian Real 0.30   0.28
Australian Dollar 0.75   0.74
Canadian Dollar 0.76   0.76
Singapore Dollar 0.72   0.72
Mexican Peso 0.05   0.05
South African Rand 14.17   13.68

Divisional reviews


Westcon-Comstor is a value-added distributor of category-leading security, unified communications, network infrastructure and data centre solutions with a global network of speciality resellers. Westcon-Comstor is represented across six continents, distributes to 180 plus countries and territories, operates more than 20 logistics/staging facilities and transacts with more than 20 000 customers globally. It creates unique programmes and provides support to grow the business of its global partners. Westcon-Comstor’s portfolio of market-leading vendors includes: Cisco, Avaya, Polycom, Juniper, Check Point, F5, Palo Alto and Symantec.

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.

Westcon-Comstor’s gross margins were 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.

Operating expenses were reduced to US$402.5 million (FY16: US$408.6 million). The 1% decrease is due to lower foreign exchange losses in Africa 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%).

There was a notable decline in the financial performance in the EMEA region. Transformation challenges in EMEA led to a drop in revenues of US$262.7 million (12%) in FY17, which constituted 77.9% of the overall year-over-year revenue decline for Westcon-Comstor.

The drop in revenue resulted in a reduction in gross profit of US$31.4 million in EMEA, representing 76.4% of the overall year-over-year gross profit decline for Westcon-Comstor.

Europe went live on SAP during November 2016, resulting in transitional challenges and delayed financial reporting, exacerbated by the BPO implementation in that region. Trading conditions in MEA were weak, resulting in a poor performance across the region, with additional receivable write-offs in Africa and the Middle East.

North America revenues were down US$111.1 million or 6.7% year-over-year. This was mainly due to softer Cisco and Avaya sales. The year-over-year decrease in EBITDA was mainly as a result of lower gross profits associated with the lower revenues.

Latin America performed well, with revenues up US$24.0 million (4.6%) to US$517.8 million, and adjusted EBITDA increasing by 7.8% to US$26.3 million.

In the Asia-Pacific region, revenues were up 2.6% and gross profits were up slightly over the prior year. This was mainly attributable to a strong performance in the Asia security business. EBITDA was lower than the prior year, due to higher operating costs, which included additional one-time employee-related costs, sales tax reserves and increased investment costs in China.

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 earning, higher net working capital requirements, US$40.0 million of capital expenditures 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 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 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.

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.


Logicalis is an international IT solutions and managed services provider with expertise in IT infrastructure and networking solutions, communications and collaboration, data centre, cloud solutions and managed services.

Revenues were US$1.5 billion (FY16: US$1.5 billion), including US$2.2 million of revenue from acquisitions made during the period. Services revenues were up 9.3% with strong growth in both professional services and annuity revenue.

Revenue decreases in Europe and North America were offset by increases in Latin America and Asia-Pacific.

In Europe, the UK results were impacted by the continuing restructuring of the UK operation. Latin America was adversely impacted by weak trading conditions in Brazil in the first half and the strong performance of the US Dollar which was mitigated by increased performance in Argentina following relaxation of exchange controls and the subsequent buoyant trading environment.

Revenues from product were down 6.2%, with decreases in Cisco, HPE and IBM offset by strong growth in other vendor categories including Oracle, NetApp, VMware and ServiceNow.

Logicalis’ gross margins were 24.1% (FY16: 23.1%), benefiting from the improved services mix.

Gross profit was up 2.8% to US$363.3 million (FY16: US$353.4 million).

Operating expenses in Logicalis increased by 4.3%, due in part to incremental integration costs of acquisitions incurred during the period.

EBITDA was US$79.0 million (FY16: US$80.9 million), with a corresponding EBITDA margin of 5.2% (FY16: 5.3%). EBITDA before restructuring charges was US$81.2 million. Operating profit was US$54.4 million (FY16: US$56.3 million).

Logicalis remained in a net cash position of US$18.1 million (FY16: US$77.6 million). The reduction in net cash was caused primarily by significant prepaid expenses in Latin America.

Logicalis continues to have a contingent liability in respect of a possible tax liability at its PromonLogicalis subsidiary in Brazil.

The transition to cloud-based infrastructure solutions remains a dominant feature of the ICT market and Logicalis continues to adapt its go-to-market model and develop its services to address this change.

The global market for IT products and services remains stable and Logicalis is seeking to build on its position in higher growth segments such as analytics and security.

Corporate, Consulting and Financial Services

The Consulting unit comprised: Analysys Mason, a provider of strategic, trusted advisory, modelling and market intelligence services to the telecoms, media and technology industries; and Mason Advisory, an independent and impartial IT consultancy providing related strategic, technical and operational advice to the public and private sectors.

Consulting revenues were US$39.1 million (FY16: US$51.4 million) with growth in EBITDA to US$2.3 million (FY16: US$1.9 million).

Effective 1 March 2016, the Via Group was transferred to Logicalis and, effective 1 September 2016, Datatec’s shareholding in Mason Advisory decreased to 44.7%, from which date Mason Advisory is classified as an associate and accordingly equity accounted.

Datatec Financial Services is continuing its development of financing/leasing solutions for ICT customers through proof of concept to business model and growth prospects. The business recorded revenues of US$1.9 million in FY17 (FY16: US$1.0 million) and an EBITDA loss of US$1.4 million (FY16: loss of US$1.1 million).

Corporate includes the net operating costs of the Datatec head office entities which were US$11.3 million (FY16: US$12.3 million). These costs include the remuneration of the Board and head office staff, consulting and audit fees. In addition, foreign exchange losses of US$3.3 million (FY16: US$4.1 million gains) are included in this segment.


The Group made one acquisition during FY17. Effective 1 June 2016, Logicalis acquired 100% of the share capital of Lantares Europe, S.L. (“Lantares”), a leader in the implementation of strategic solutions for corporate performance management and information management, in Madrid, Spain.

Shareholder distributions and dividend policy

The Group paid US$28.9 million (paid during FY16: US$33.2 million) to shareholders during the year: a final scrip distribution with cash dividend alternative in respect of FY16 in July 2016; and an interim scrip distribution with cash dividend alternative in respect of FY17 in November 2016.

The total value returned to shareholders in the FY16 final distribution was US$19.9 million of which US$5.2 million (26.4%) was distributed to shareholders in the form of scrip (1.7 million new shares issued) and US$14.7 million (73.6%) was settled in cash to those shareholders who had elected the cash dividend alternative.

The total value returned to shareholders in the FY17 interim distribution was US$9.0 million of which US$2.8 million (30.1%) was distributed to shareholders in the form of scrip (0.8 million new shares issued) and US$6.2 million (69.9%) was settled in cash to those shareholders who had elected the cash dividend alternative.

The Board has stated that it intends to maintain a fixed three times cover relative to underlying* earnings when declaring dividends. In accordance with this policy no final dividend for FY17 is declared.


The Group’s strategy remains to deliver long-term, sustainable and above-average returns to shareholders through portfolio management and the development of its principal operating divisions providing technology solutions and services to targeted customers in identified markets.

Westcon-Comstor management is focused on translating the benefits of the SAP investment and extracting efficiencies where possible from the BPO operations while not affecting its service levels and transaction execution.

Growing profitability and improving cash generation by better working capital management are key areas of focus for Westcon-Comstor management.

Logicalis is transitioning itself into a “digital enabler” for its customers, recognising that business technology is undergoing a major shift. Driven by the explosion of data, the rise of mobile and the cloud, the role of the IT department is changing. Logicalis is responding to this change by tapping into themes such as security to augment its strong networking heritage, and is investing in areas such as data analytics to grow its data centre infrastructure offerings as well as developing new software capabilities for software defined networks, development and operations and multi-cloud, as well as vertical specific solutions such as smart cities, banking, retail and IoT.

Logicalis management continues to look at areas where it can increase scale, increase its services mix and add new capabilities to deliver a better service to customers in a highly competitive market.

Current trading and outlook

The Group has been challenged in FY17 by the implementation of BPO and SAP within Westcon-Comstor which has had an adverse impact on profitability, working capital and cash generation. The Group is in the final phase of this process and expects an improved performance in the financial year ahead.

Jens Montanana

Ivan Dittrich

22 May 2017