The solid operational execution across the board underpinned the Group's strong financial performance in all divisions, including Westcon International. We are particularly pleased with Westcon International's return to profitability in all regions following multiple years of restructuring as well as system and process changes.
I am pleased to report that the Group demonstrated its ability to deliver on its strategic objectives and produced solid operational and financial results for the year ended 29 February 2020 ("FY20") despite continuing global macrovolatility. We are particularly pleased with Westcon International's return to profitability in all regions following multiple years of restructuring as well as system and process changes. Logicalis had a strong performance especially in its Latin America region and the Management Consulting division continued to benefit from demand for 5G expertise.
Our changing world
During FY20, our team successfully strengthened the foundations to deliver on the Group's strategy and did so while navigating very volatile environments. These foundations are more important than ever as we have seen our world change dramatically since the beginning of the new financial year.
The global COVID-19 pandemic, which was declared by the WHO on 11 March 2020, is the worst humanitarian crisis the world has faced since World War II according to the United Nations. Our management team responded swiftly to the crisis with a focus on ensuring the safety of our work colleagues around the world. To this end, measures were put in place to limit the spread of the virus and enable our colleagues to operate safely in line with WHO guidelines and the regulations of individual countries.
The multi-year investments in technology systems and business automation proved prescient with business continuity plans deployed effectively, enabling employees to work remotely and successfully limiting operational disruptions during prolonged lockdown periods.
Now more than ever businesses have realised the value of digital transformation. Business leaders have converted their organisations very rapidly, increasing demand for connectivity, cloud access and robust security. We are well positioned to support our customers in these transformations.
Financial and operational overview
The solid operational execution across the board underpinned the Group's strong financial performance in all divisions, including Westcon International.
Cash generation was strong while balance sheet and liquidity management remained priorities. Key banking facilities for both Westcon International and Logicalis were secured in May and February respectively.
In light of the COVID-19 crisis, particular attention has been given to assessing the outlook for liquidity across the Group and ensure that sufficient cash will continue to be generated to settle liabilities as they fall due. Each division has carried out scenario planning and stress testing; the necessary contingency plans are in place.
The Group produced flat revenues of US$4.30 billion compared to FY19 US$4.33 billion. However, in constant currency*** terms, revenues were up 4%. EBITDA grew by 83% to US$158.7 million or 42% to US$123.5 million when excluding the impact of IFRS 16. Underlying earnings per share ("uEPS") increased 50% to 9.9 US cents from 6.6 US cents a year ago.
We also returned US$60 million to shareholders through a special dividend and ongoing share repurchases during the year. Further details are included below.
Logicalis, the Group's largest profit contributor, had a strong performance particularly in its Latin America region despite currency headwinds. The Board explored the possibility of listing Logicalis' Latin American business on the B3 S.A. - Brasil, Bolsa, Balcão (www.b3.com.br - Brazilian stock exchange). However, due to the pandemic and its stock market consequences, timing for such an IPO is becoming increasingly indeterminable.
Westcon International returned to profitability in FY20. Following several years of transformation, systems and process investments, no restructuring costs were incurred in FY20. The business also exceeded its target for central costs reduction with central costs reduced to US$29 million in FY20 compared to the published target of US$33 million.
While the near term remains very uncertain, current conditions are driving demand for insight-led transformation and technologies that support remote access computing, cloud, the Internet of Things ("IoT"), virtualisation, security and unified communications.
Dividend and share repurchases
Following an arbitration process, the earn-out payment relating to the disposal of Westcon Americas to SYNNEX was determined to be US$14 million and this was returned to shareholders by way of a cash dividend of R1.00 per share with scrip distribution alternative on 29 July 2019 which totalled US$15.4 million. The special dividend resulted in US$12.2 million of cash being distributed to shareholders while 1.25 million shares were issued to shareholders who elected the scrip distribution alternative.
During FY20 the Company undertook general share repurchases under three separate shareholder mandates provided at general meetings on 15 January 2019 and 26 June 2019 and at the AGM on 29 August 2019. These repurchases amounted to US$44.3 million and totalled 19.0 million shares which have been cancelled, reducing the Company's shares in issue to 201.45 million at 29 February 2020.
As a result of the current COVID-19 pandemic, the Group will not declare a dividend for FY20. The Group has also completed its share repurchase programme.
Governance and Board changes
Datatec is committed to the highest standards of corporate governance, which form the foundation for the long-term sustainability of our Company and creation of value for our shareholders.
In FY20, we continued to refresh the composition of the Board and its committees. Maya Makanjee became the Chair of the Social and Ethics Committee on 1 June 2019 and also became the Chairman of the Remuneration Committee on 1 September 2019.
Ekta Singh-Bushell and Johnson Njeke stepped down from the Social and Ethics Committee on 30 November.
On 1 January 2020 we welcomed Rick Medlock as an independent non-executive director and member of the Audit, Risk and Compliance Committee. Rick brings a wealth of international experience in the technology, media and telecommunications sector where he has held several senior positions over a period of more than 30 years, specialising in fast growing globally focused technology companies, private equity-backed investments and IPOs.
John McCartney and I are the two remaining long-serving directors and we are already in the process of transferring our experience to the newer non-executives and stepping down from our committee roles. Both John and I are retiring by rotation at the forthcoming AGM and seeking re-election for a final term in office. If shareholders approve, the intention is that John will then retire within one year of re-election and I will retire within two years, having first effected Chairman succession.
I would like to extend my appreciation to the Board for its strategic direction and robust oversight on the implementation of the strategy throughout the year. I am confident that we have strong leadership in place to navigate through the current environment.
Corporate social responsibility
The Group proactively manages its environmental, social and governance impacts and performance. As a global organisation we are committed to supporting the communities in the areas we operate. Our employees actively partake in identifying areas where we can make a difference with fundraising and volunteering initiatives. Since the start of the COVID-19 pandemic, we have also seen the best in humankind, including some meaningful initiatives across our operations.
We continue to monitor our carbon footprint and we strive to reduce it as far as possible across all areas of the business.
Our Social and Ethics Committee monitors and regulates the impact of the Group on its stakeholders and reports to the Board which is ultimately responsible for Group sustainability.
Engaging with our stakeholders is essential to developing trusted relationships, a critical foundation for delivering on our strategic focus areas. In FY20, we continued our comprehensive programme of shareholder consultation covering governance matters such as Board composition and, in particular, remuneration. Maya Makanjee, the Chairman of the Remuneration Committee, accompanied me on a series of meetings and consultations with major shareholders representing about 60% of our shareholder base. This consultation process resulted in further enhancements being made to the Company's remuneration policy and implementation thereof.
We also encourage shareholders to attend the AGM on 29 July 2020 which is being held as a virtual meeting for the first time.
I would like to express my thanks on behalf of the Board to all our 10 924 employees whose commitment and capabilities contribute to the Group's success. They have shown great resilience since the onset of the pandemic and I commend them for adapting so quickly to their new working environments both remote and onsite. Our number one focus is the safety and wellbeing of our colleagues and we continue to deploy protocols set in place by local governments in the regions where we operate.
We extend our deepest gratitude to healthcare workers around the world who have shown incredible commitment and selflessness while working tirelessly to take care of those in need.
The macroeconomic indicators are extremely uncertain, but we are confident that Datatec is well positioned with good demand for its solutions and services expected to continue as the world emerges from the current crisis and investments towards digital transformation accelerate.
While our focus will remain on balance sheet strength, cash preservation and liquidity, we believe we have the right strategy in place to further unlock value for shareholders when market conditions improve.
27 May 2020
|***||Pro forma financial information is included for the Group's revenue for the current reporting period, had it been translated at the average foreign currency exchange rates of the prior reporting period ("constant currency financial information").|
|The pro forma IFRS 16 and constant currency financial information contained in this Integrated Report has been reported on by the Group's external auditors. The Group's auditors Deloitte & Touche, have issued two unmodified reasonable assurance reports (in terms of ISAE 3420: Assurance Engagements to Report on the Compilation of Pro Forma Financial Information included in the Prospectus), a copy of which is available for inspection at the Company's registered office.|