Executive directors' report

Executive directors report

Jens Montanana CEO

Ivan Dittrich CFO

The Group delivered on the commitments set in the prior year, resulting in a much-improved financial and operational performance across all divisions.

Logicalis produced strong results despite emerging market currency headwinds, especially in its key Latin America region.

Westcon International's recovery is now established, having met the principal objectives around shared services and central cost reductions, with further improvements expected.

Building on the successful turnaround of FY19, we are confident that our operations are well positioned to improve their performances further and support our Group strategy.

Strategic overview

Datatec’s strategy is to improve shareholder returns over the medium term through a combination of corporate and business development actions aimed at enhancing the competitiveness and profi tability of its subsidiaries and operating divisions.

Logicalis is the largest profit contributor to the Group. The division also has the widest geographical exposure and Datatec intends to continue to develop and grow Logicalis globally, through organic and acquisition activities.

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In FY19, Logicalis delivered a strong performance while executing on its strategy. Revenue grew by 11.3% and earnings before interest, taxation, depreciation and amortisation ("EBITDA") by 8.4% in relation to the financial year ended 28 February 2018 ("FY18").

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Westcon International is 90% owned by Datatec and 10% by SYNNEX Corporation ("SYNNEX"). In line with the commitment made at the beginning of the year, the division has returned to EBITDA profitability and the central cost base has been reduced. Further central cost-reduction targets previously published are expected to be met in FY20.

The ERP system is now operating effectively after a long and disruptive multi-year implementation process. A full BPO reversal was completed with in-house shared service centres established in the Philippines and South Africa.

The earn-out payment relating to the disposal of Westcon Americas to SYNNEX had not yet been determined at the date of this report (16 May 2019) and the parties remain engaged in an arbitration process.

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For more information refer to the Chairman’s report.

The comparative results for FY18 are reported in the form of "continuing operations". These exclude the Westcon Americas and Logicalis SMC businesses which were classified as a "Disposal Group" in accordance with IFRS 5 in the prior year. Where comparative figures are stated as "Combined", they include the Disposal Group.

Group results

US$'000  February 
4 332 381     3 923 715    
Gross profit 
687 744     636 045    
Gross margin (%) 15.9     16.2    
Operating costs 
(600 983)    (609 348)   
Operating profit before interest, tax, depreciation and amortisation ("EBITDA")
86 761     26 697    
EBITDA margin (%) 2.0     0.7    
Operating profit/(loss)
48 423     (80 978)   
Net finance costs 
(22 577)    (18 403)   
Profit/(loss) before taxation 
24 215     (99 352)   
(20 959)    (18 465)   
Profit/(loss) for the year from continuing operations  3 256     (117 817)   
Underlying* earnings/(loss) per share ("UEPS") (US cents)
6.6     (5.6)   
Continuing operations  6.6     (17.2)   
Discontinued operations  –     11.6    
* 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.

SYNNEX earn-out

The earn-out payment relating to the disposal of Westcon Americas to SYNNEX had not yet been determined at the reporting date (16 May 2019) while the parties remained engaged in an arbitration process. The FY19 results contain an estimate of the minimum earn-out payment receivable of US$11.7 million after costs, which is included in profit from discontinued operations in accordance with IFRS 5. The profit of US$11.7 million is included in basic earnings per share, but not in underlying* earnings per share. The Group has recognised an asset for the minimum earn-out receivable and disclosed a contingent asset for any additional earn-out above the minimum which may be receivable if so determined by the arbitration.

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For more information refer to the Chairman's review.


The Group is expected to generate sufficient cash to settle liabilities as they fall due. Working capital remains well controlled across the Group and net working capital days improved markedly in Westcon International as detailed in the divisional review. Trade receivables and inventory are of a sound quality and adequate provisions are held against both.

Shareholder distributions: dividend policy and share repurchases

The Group's policy is to maintain a fixed three times cover relative to underlying* earnings when declaring dividends. The level of underlying* earnings in FY19 would only support a small dividend under this policy and as a result, the Board has decided not to declare a dividend for FY19.

The Board has instituted a structured programme of general share repurchases in order to return cash to shareholders. During FY19 the Company undertook three separate general share repurchase exercises under separate shareholder mandates:

  • General meeting on 24 July 2018 — 4.97 million shares
  • AGM on 20 September 2018 — 11.89 million shares
  • General meeting on 15 January 2019 — 6.90 million shares up to 28 February 2019

These repurchases amounted to US$43.9 million and totalled 23.8 million shares which have been cancelled, reducing the Company's shares in issue to 219.2 million at 28 February 2019.

Improving shareholder returns

The repurchase under the shareholder mandate given at the general meeting on 15 January 2019 has continued during the Company's closed period ending 16 May 2019 under a fixed mandate to the Company's broker in accordance with paragraph 5.72(h) of the JSE Listings Requirements and following notification to the JSE prior to the start of the closed period. From 1 March to 14 May 2019, the Company's broker repurchased 3.1 million shares under the fixed mandate at a cost of US$6.9 million.

The Company has limited the shareholder mandates for repurchases to 5% of the issued share capital having obtained legal advice that section 48(8) of the Companies Act would be applicable to a general repurchase of shares undertaken in accordance with the JSE Listings Requirements.

Section 48(8) of the Companies Act stipulates that any decision by the Board of directors of a company that involves the repurchase of more than 5% of the company's issued securities of a particular class must be approved by a special resolution of the shareholders of the company compliant with sections 114 and 115 of the Companies Act, which require, inter alia, an independent expert report on the repurchase.

The Department of Trade and Industry in South Africa has recently proposed changes to the Companies Act among which is a proposal to specifically exclude share repurchases undertaken on a recognised stock exchange from the scope of section 48(8). The proposed changes to the Companies Act will align the Companies Act to the JSE Listings Requirements in this regard, which will allow general share repurchases up to 20% of the issued share capital.


AMI Partners

On 17 July 2018, Analysys Mason Limited acquired 100% of the issued share capital of AMI Partners based in the United States for US$3.5 million. AMI Partners is a SMB ICT-focused global research and consulting firm that specialises in go-to-market ("GTM") opportunity assessment, tracking buying behaviour, customer segmentation, channel partner ecosystem dynamics and sales enablement enhanced with predictive analytics.

Coasin Chile

Effective 3 September 2018, Logicalis completed the acquisition of 100% of the issued share capital of Coasin, a Chilean ICT services and solutions provider, which also owns 100% of C2 Mining Solutions S.A.C. based in Peru. This interest was acquired for a cash consideration of US$17.3 million from Logicalis' resources. Coasin's experience in the mining and financial services verticals creates opportunities for Logicalis to better serve its multinational clients while broadening its services scope to new customer groups.


Effective 3 September 2018, Logicalis acquired 100% of the issued share capital of Clarotech, an IPT cloud and managed services business based in Cape Town. The 100% interest was acquired for a cash consideration of US$3.4 million. This acquisition enables Logicalis to combine a focused managed services operation with its existing business in South Africa, to support SMBs as well as larger corporates.


On 8 October 2018, Logicalis acquired 100% of the issued share capital of CNI for a cash consideration of US$3.1 million. CNI is a Microsoft-certified gold partner based in Melbourne, Australia and this acquisition brings Logicalis a full suite of leading Microsoft cloud service capabilities, significantly strengthening the Group's position in this growing market segment and enabling Logicalis to deliver a broader scope of services to new and existing customers.


As a result of these acquisitions, goodwill and other intangible assets increased by US$13.1 million and US$8.9 million respectively. None of the goodwill recognised is expected to be deductible for income tax purposes. The revenue and EBITDA included from the acquisitions in FY19 are US$55.2 million and US$4.1 million respectively; profit after tax included from these acquisitions was US$2.9 million. Had the acquisition dates been 1 March 2018, revenue attributable to these acquisitions would have been approximately US$110 million. It is not practical to establish EBITDA and profit after tax that would have been contributed to the Group if they had been included for the entire year. All identifiable intangible assets have been recognised and accounted for at fair value.

Acquisition-related costs of the above acquisitions of US$0.3 million are included in operating costs in the consolidated statement of comprehensive income.

Divisional reviews


A review of Logicalis' financial performance can be found in the Logicalis divisional review. Logicalis will maintain its strategy of making smaller bolt-on acquisitions financed using its own balance sheet and external credit lines as appropriate.

Digital innovation is accelerating; business technology is undergoing a major shift. With a clear focus on understanding its customer business priorities in areas such as risk and compliance, operational costs, data governance and innovation, Logicalis is helping customers succeed by ensuring its transformation outpaces the momentum of change in its sector.

Logicalis' investments in flexible consumption models, lifecycle management services to maximise business outcomes and innovative solutions to unlock new possibilities, all contribute to delivering a better customer experience.

Logicalis continues to enhance its capabilities in cloud, IoT, software, security, data management and intelligent networks to promote long-term value and insight-led transformation to its customers.

Logicalis remains confident about the prospects for the industry and its positioning within it. Emerging markets currencies are expected to remain volatile over the short term.

Westcon International

A review of Westcon International's financial performance can be found in the Westcon International divisional review.

Westcon International has completed the reverse transition of all previously outsourced functions to its own shared services centres during FY19. The decision to exit the BPO, which was announced in last year's report, has resulted in a clear improvement in customer service and transaction execution. The improving financial performance and regained market share are evidence that not only was the decision necessary, but has proved pivotal to the turnaround.

The reshaping of Westcon International is going according to plan and the business is now operating profitably. Management is confident that improvements will continue.

Corporate, Consulting and Financial Services

This segment accounted for 1% of the Group's revenues (FY18: 1%).

The Consulting unit comprises Analysys Mason, a provider of strategic, trusted advisory, modelling and market intelligence services to the telecoms, media and technology industries.

Consulting revenues were US$45.7 million (FY18: US$42.0 million) and EBITDA was US$2.8 million (FY18: US$2.5 million).

The Datatec Financial Services business, which provides financing/leasing solutions for ICT customers, remains in a development phase. The business recorded revenues of US$0.9 million in FY19 (FY18: US$1.4 million) and an EBITDA loss of US$1.7 million (FY18: US$1.4 million).

Corporate includes the net operating costs of the Datatec head office entities which were US$16.8 million (FY18: US$13.5 million). These costs include the remuneration of the Board and head office staff, consulting and audit fees. The main reason for the increase in central costs in FY19 is increased share-based payments expense. In FY19, foreign exchange gains were US$3.5 million (FY18: US$1.0 million).

As at 28 February 2019, Datatec head office entities held cash of US$112.9 million of which US$37.8 million (the equivalent of R526.8 million) is held in South Africa and subject to the South African Reserve Bank regulations.

Current trading and outlook

Despite global economic uncertainty, the Board expects a continued improvement in the financial performance for FY20.

Logicalis' performance is expected to strengthen over the next financial year with its results potentially impacted by currency movements, especially in Latin America.

Building on the successful turnaround of FY19, Westcon International is expected to deliver a significant improvement in its operational performance and further central cost reductions.

Jens Montanana


Ivan Dittrich


16 May 2019