Chair's review

Trend of increasing digitisation is set to continue

Trend of increasing digitisation is set to continue

The global Covid-19 pandemic was declared by the WHO on 11 March 2020, which coincided with the first weeks of the financial year. Our management team responded swiftly 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 teams 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 where possible and successfully limiting operational disruptions during prolonged lockdown periods.

Now more than ever, business leaders have realised the value of digital transformation and continue to convert 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 all divisions underpinned the Group’s strong financial performance marked by excellent cash generation and working capital management.

Our balance sheet was further strengthened and liquidity enhanced following the refinancing of key banking facilities for Westcon International and Logicalis which came on line in August and February 2020 respectively on substantially improved terms, reflecting the improvement in fundamentals across the Group.

The Group’s revenues were stable at US$4.1 billion compared to the restated US$4.2 billion in FY20. Adjusted** EBITDA was US$141.0 million compared to US$158.7 million in the prior year which included a US$14.0 million tax credit. uEPS increased 37% to 13.6 US cents from 9.9 US cents.

** Adjusted EBITDA excludes restructuring costs.

Logicalis, the Group’s largest profit contributor, saw a reduction of 13.8% in revenues (7.8% in constant currency) with an increase in Europe offset by declines in other regions. Latin America was particularly impacted by adverse currency translation and the severe effect of the Covid-19 pandemic.

The plan to list Logicalis’ Latin American business on the B3 S.A. – Brazil, Bolsa, Balcão (www.b3.com.br – Brazilian stock exchange), is still under consideration but the Board decided to pause the process while market fundamentals stabilise.

Westcon International revenues increased by 4.6% as a result of strong demand for networked cloud computing, remote access solutions for mobile working and virtual office environments, unified collaboration and enhanced network security.

While we anticipate the Covid-19 pandemic to continue to cause unpredictable disruptions, economic uncertainty and currency volatility for some time, the Group’s divisions are in a strong position to deliver on a solid order book in line with the changing business landscape.

Dividend

The Board took the decision to resume dividends and declared a cash dividend with a scrip alternative of 100 South African cents per share (approximately 7.1 US cents per share). This decision was informed by the strength of the balance sheet, enhanced liquidity, positive operating profitability across all divisions and the cautiously optimistic trading outlook for the Group.

Our policy to maintain a fixed three times cover relative to underlying earnings when declaring ordinary dividends remains unchanged. 

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 the creation of value for our shareholders.

Since January 2020, when we welcomed Rick Medlock as an independent non-executive director, the Board has held all meetings by videoconference. While this has worked very well, we all look forward to being able to resume face-to-face contact in the near future.

Our Board evolution process is making good progress with John McCartney and I, as the two remaining long-serving directors, transferring our roles to the newer non-executives after stepping down from our Committee roles in May 2020.

In June 2021, we announced that Maya Makanjee would succeed me in the role of Chair of the Board with effect from 1 March 2022. Maya joined the Datatec Board on 1 November 2018 bringing considerable experience as an executive and director of prominent companies including Vodacom, SABMiller and Nestlé. Her experience in non-executive roles is also extensive, and her current directorships include Tiger Brands, Truworths and Mpact. She is also a Trustee of the Nelson Mandela Foundation.

Maya was appointed to the Nominations Committee with effect from 1 July 2021. Her current role as Chair of the Remuneration Committee will end on 1 March 2022 with her successor as Remuneration Committee Chair to be announced in due course.

I am delighted to be passing the Chair of Datatec to such a distinguished successor who has been a highly respected and trusted Board colleague for the past few years.

I would like to extend my appreciation to all members of the Board for their strategic direction and robust oversight on the implementation of the strategy throughout this extraordinary year beset with so many restrictions. I am confident that we have strong leadership in place across the entire Group to navigate through the current environment and take advantage of opportunities in our sector.

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 where we operate. Our employees actively identify 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.

More information on our social impact can be read on Datatec social investment report of the Annual Report.

We are in the process of quantifying our carbon footprint so that we can set targets to reduce our carbon emissions 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.

Shareholder engagement

Engaging with our stakeholders, including shareholders, is essential to developing trusted relationships and a critical foundation for delivering on our strategic focus areas.

In FY21, we were unable to continue our face-to-face shareholder consultations but Maya Makanjee, the Chair of the Remuneration Committee, and I have remained available for ad hoc consultations with shareholders on all governance and remuneration matters.

We encourage shareholders to attend the AGM on 29 July 2021 which is being held as a virtual meeting to allow all shareholders to participate remotely.

Appreciation

I would like to express my thanks on behalf of the Board to all our 9 939 employees whose commitment, often in the face of very real personal challenges, contributed to the Group’s success. They have shown great resilience since the onset of the pandemic and I commend them for adapting so quickly, whether remotely or on-site. Our number one focus remains the safety and wellbeing of our colleagues and we continue to deploy protocols that are adjusted to local governments’ guidelines in all the regions where we operate.

We also 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.

Outlook

The Board believes the trend of increasing digitisation is set to continue. A structural shift away from many forms of traditional hardware to increasing software and services is underway and investments towards digital transformation will accelerate as the world emerges from the current crisis.

Datatec is well positioned to capitalise on this trend which will drive growth in annuity revenue from the products and services required to support remote IT networks. We have the right strategy in place to emerge strongly and continue our progress to grow profitability and unlock value for shareholders.

Stephen Davidson

Chair

25 May 2021