Our operating context

 

Where we operate

Datatec operates in more than 50 countries across North America, Latin America, Europe, Africa, Middle East and Asia-Pacific.

Our biggest revenue contribution is from Europe followed by Asia-Pacific.

There has been a decreased revenue contribution from Latin America in Logicalis as a result of the decline of the Brazilian Real against the US Dollar. Westcon International continues to see geographic improvements in the Africa and Middle East region.

Revenue % contribution by geography

Our products and services

Our vendors

ICT infrastructure solutions   Cisco Juniper
Digital enablement services   Avaya F5
Security   IBM Palo Alto Networks
Collaboration   HPE Symantec
Networking   Extreme NetApp
Data centre products and solutions   Check Point  Oracle 
    Microsoft among others

Our operating environment

As an ICT group with operations and activities across both established and emerging markets, we face challenging risks as well as numerous opportunities. The strategic objectives affected by each key risk are illustrated using our strategic objectives icons.

COVID-19

On 11 March 2020, the World Health Organization ("WHO") declared COVID-19 a global pandemic. This was followed by most countries in which the Group operates instituting lockdown restrictions to slow the spread of the disease. The countries in which the Group operates are all in different stages of lockdown, including travel and trade restrictions as well as social distancing measures. Datatec is monitoring the developments closely and continuously adjusting across all its operations.

Global macroeconomic uncertainty

The most recent months have shown the potential for economic risk on the downside with global macroeconomic volatility. We are impacted by global trade disputes and have yet to see the full impact of the coronavirus. We are faced with a great deal of uncertainty and this has the potential to negatively affect our results.

Fluctuating exchange rates

Exchange rate volatility has a big impact on Datatec, especially in emerging markets. We are exposed to the effects of negative fluctuations in the Brazilian Real and South African Rand in particular. This affects both Logicalis and Westcon International. Our revenue growth is generally significantly higher when viewed in constant currency terms.

Our key risks

Impact of COVID-19

The economic effects arising from the COVID-19 outbreak may materially affect the consolidated results of the Group for the first half and full year of its FY21 financial year and the social impact could negatively affect staff's wellbeing.

Our strategic response

  • Review of future profit and cash flow projections including performing sensitivity analyses and stress testing of various possible scenarios, varying in severity, related to COVID-19
  • Monitoring developments closely and continuously adjusting across all operations
  • Contingency planning in place for restructuring actions to be taken in response to the more severe scenarios
  • Follow WHO guidelines and ensure employee wellbeing
  • Leverage demand for remote working solutions

Technological market disruption

The Group's operations focus on the higher value, faster growing products and services in the ICT supply chain. It is essential to anticipate the impact of the rapid technological change which is a feature of the sector.

Our strategic response

  • Careful partner selection in terms of vendors
  • Work closely with our vendor partners
  • Employ qualified staff at operating divisions who can pre-empt market changes resulting from new technology
  • Provide products and services ahead of competitors

Dependence on key vendors

The Group is dependent on certain vendors, particularly Cisco, whose products and services accounted for approximately 40% of the Group's revenue.

If any one of the Group's principal vendors terminates, fails to renew or adversely changes its agreement or arrangements with the Group materially, it could materially reduce the Group's revenue and operating profit and thereby seriously harm the Group's business, financial condition and results of operations.

Our strategic response

  • Maintain strong and transparent relationships

Internal technological risks

The Group's internal systems are at risk, both from planned changes leading to business interruption and disruption by external "cyber" threats.

The Group continued to face the threat of financial crime attempted by "phishing" emails and "social engineering". The Group has high dependence on its key information systems.

Our strategic response

  • Deploy significant resources on its own information security defences
  • Utilise enhanced data privacy policies and procedures
  • Utilise technological means such as anti-virus and anti-phishing software as well as the expertise of IT experts
  • Education/awareness campaigns among employees

Dependence on key customers

The Group's customer base is much larger than its vendor base but nevertheless includes large individual customers in specific regions. Accordingly, the exposure to credit risk must be noted as a key risk of the business.

Our strategic response

  • Maintain close relationships with key customers of the Group
  • Operate rigorous credit assessment and control procedures

Mismanagement of payment discounts, product rebates and allowances

The Group receives significant benefits from purchase and prompt payment discounts, product rebates, allowances and other programmes from vendors based on various factors.

A decrease in purchases and/or sales of a particular vendor's products could negatively affect the amount of discounts and volume rebates the Group receives.

Because some purchase discounts, product rebates and allowances are based on percentage increases in purchases and/or sales of products, it may become more difficult for the Group to achieve the percentage growth in volume required for larger discounts.

In addition, vendors may exclude the Group from time to time from participation in some of their programmes.

Our strategic response

  • Maintain strong and transparent relationships with our vendor partners

Execution risk of major projects

The implementation of major new systems carries particular risks.

Our strategic response

  • Perform detailed risk assessment of major projects at the planning stage
  • Perform careful planning and phased introduction of new systems

Risk of failure to fund working capital needs sufficiently

The Group's business is working capital intensive; this is particularly relevant for Westcon International.

Westcon International's financing facilities are utilised to finance accounts receivable and inventories.

Westcon International largely relies on asset backed and vendor inventory purchase financing for its working capital needs.

The availability of these facilities and any material changes thereto may affect the business's ability to fund its working capital requirements.

Our strategic response

  • Manage working capital through inventory control and effective accounts receivable management
  • Working capital is a key focus area of management
  • Working capital is a key focus area of the review processes in the risk management framework
  • Ensure sufficient liquidity available

Value generation: disposals and acquisition risk

The execution of the Group's strategy requires:

  • reshaping the Westcon International business; and
  • further growth and improvement of the Logicalis business.

Both these goals will continue to place additional demand on management, customer support, administrative and technical resources. If the Group is unable to manage its restructuring and growth effectively, its business operations or financial conditions may deteriorate.

If the Group is unable to successfully integrate an acquired company or business, it could lead to business disruptions.

Our strategic response

  • Consider further acquisition opportunities
  • Undertake extensive due diligence of potential acquisitions, including detailed integration planning
  • Process management and oversight by Datatec's central team

Risk of overdependence on key personnel

The Group's future success depends largely on the continued employment of its executive directors, senior management and key sales, technical and marketing personnel.

Certain key employees have relationships with principal vendors and customers which are particularly important to the business of the Group.

The executive directors, senior management team and key technical personnel would be difficult to replace and the loss of any of these key employees could harm the business and prospects of the Group.

Our strategic response

  • Maintain a high standard of employment conditions and working environment
  • Provide benefits and share incentive schemes
  • Ensure proper succession planning in place