Chair's review

OUR CHANGING WORLD

From a human perspective, the past year began on a more positive note as life began to normalise supported by accelerated vaccine rollouts and a new approach to manage successive waves by many governments.

However, macroeconomic conditions remained under pressure with the anticipated global economic recovery delayed by stubborn global supply chain disruptions, fuel price escalations and extended backlogs. Furthermore, new variants of Covid-19 resulted in further lockdowns towards the end of 2021, exacerbating the situation.

While the impact of the past two years on our value chain persists, we remain exceptionally well positioned to assist organisations with the digital transformation that will ensure their continued resilience as new disruptions continue for the foreseeable future.

FINANCIAL AND OPERATIONAL OVERVIEW

Strong operational execution despite the global semiconductor shortages and supply chain constraints resulted in an improved financial performance across all divisions.

The Group’s revenues increased 12.8% to US$4.6 billion compared to US$4.1 billion in FY21 and EBITDA rose 30.3% to US$154.5 million compared to US$118.6 million in the prior year. uEPS increased 38% to 18.7 US cents from 13.6 US cents.

Our overall balance sheet was strengthened during the year, supported by excellent working capital management and liquidity enhancements though new banking facilities on improved terms for Westcon International, positioning the business well as we enter a higher interest rate cycle environment.

FINANCIAL PERFORMANCE

Logicalis is the Group’s largest profit contributor and its revenue increased by 14.2% to US$1 656.0 million. All regions performed well but Latin America was particularly impacted by the ongoing supply chain issues.

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

Westcon International revenue increased by 11.8% to US$2 890.4 million as good demand continues for network infrastructure, remote access solutions, enhanced cyber security for flexible working and virtual office environments as well as unified collaboration.

The supply chain issues and global semiconductor shortage created extended lead times on certain hardware product deliveries in FY22, which impeded revenue and resulted in significantly higher closing backlog (sales orders waiting to be fulfilled) in both Logicalis and Westcon International.

While an improvement in the situation was expected, further supply chain disruptions resulting from Covid-19-related lockdowns in China, the Russian invasion of Ukraine and spiralling energy costs have already had an adverse impact on the current financial year. This is expected to especially impact Logicalis in Latin America during the first half of the current financial year as regional macroeconomic challenges are compounded by these severe supply chain constraints.

 Strategic Review

During the year, the Board engaged Lazard & Co. Limited to assist with a comprehensive evaluation of strategic options and initiatives ("the Strategic Review") to unlock and maximise shareholder value.

The Strategic Review seeks to address the persistent gap between Datatec's valuation and the inherent value of its underlying assets while also ensuring that the Group is positioned to take full advantage of the positive market dynamics for its technology solutions and services.

Dividends

During H1 FY22, Westcon International repaid approximately US$70 million of inter-company loans to Datatec. The loans were put in place following the sale of Westcon Americas to SYNNEX in September 2017 to fund working capital as the remainder of the business was being restructured.

The full US$70 million was returned to shareholders in the form of a special dividend in November 2021.

In addition, the Board declared a US$15 million final dividend for FY22 in line with the Group's policy to maintain a three times cover relative to underlying* earnings when declaring ordinary dividends.

As is customary, both dividends were offered as a cash dividend with a scrip distribution alternative.

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.

In line with Datatec's succession processes, I was honoured to take over the role of Chair of the Board from Stephen Davidson on 1 March 2022. I am very pleased that Stephen remains a non-executive director on the Board and we look forward to benefit from his wise counsel beyond his initial 15 years of dedicated service.

In addition, our Board evolution process is making good progress:

Deepa Sita joined the Board on 1 March 2022. She is currently the CFO of Tiger Brands Limited with prior experience in a wide range of roles including at Massmart Holdings Limited and at the University of Pretoria's Gordon Institute of Business Science ("GIBS"). Deepa serves on the Remuneration Committee and will also join the Audit, Risk and Compliance Committee from 1 July 2022.

Luis Rapparini, who is currently the Chair of the Logicalis Latin America audit committee, will join the Datatec Board on 1 September 2022. Luis has extensive experience as a finance and internal audit executive developed over his career with British American Tobacco, Raízen and Royal Dutch Shell.

Ekta Singh-Bushell, who has served as an independent non-executive director since June 2018 will retire from the Board at our AGM in July 2022 and will not seek re-election in order to focus on her other commitments. Ekta has been a valuable member of the Board over the past four years, and I would like to thank her for her dedication and commitment to Datatec during her tenure.

Stephen Davidson and John McCartney, two long-serving directors, will continue to impart their wisdom and experience until the end of their terms of office in July 2023.

I would like to extend my appreciation to all my colleagues for their ongoing dedication and support as I took over the role of Chair. Their robust oversight on the implementation of the strategy remains critical.

Responsible Business

Datatec's dedication to conducting business in a responsible and sustainable way was amplified in FY22 with the appointment of a Group Head of Responsible Business, the establishment of a Datatec Responsible Business Committee, and the initiation of a global network of Responsible Business champions all dramatically upgrading this important agenda.

A shared-value Responsible Business strategy was developed for the Group to align with our commitment to environmental performance, our responsibility to support society and communities, and to continue to work from an ethical business platform with strong corporate governance.

The focus over the past year was placed heavily on building capacity across our internal stakeholders around the world, improving governance practices, and embedding the strategy within each Datatec subsidiary. We now look forward to formalising and communicating the Group's Responsible Business targets in FY23.

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 November 2021, Stephen Davidson and I held a combination of face-to-face and online shareholder consultations covering a range of ESG and remuneration matters. We will continue with these engagements in FY23, as we find them extremely valuable in better understanding shareholder perspectives.

We encourage our shareholders to attend the AGM on 27 July 2022 which is being held as a virtual meeting to allow broad participation.

Appreciation

I would like to express my thanks on behalf of the Board to Jens Montanana and Ivan Dittrich for their leadership and to our more than 10 000 employees whose commitment has contributed to the Group's success.

Their resilience and fortitude through two years of unprecedented challenges have been admirable and it is their spirit that has positioned us so robustly today.

Outlook

While global supply chain issues are set to persist for the foreseeable future, the underlying trends in our industry remain positive and our businesses are well positioned to benefit from continuing demand for software and services in networking, cyber security and cloud infrastructure.

Across the Group, our teams continue to manage headwinds resulting from semiconductor shortages, the war in Ukraine, ongoing lockdowns and global inflationary pressures. Datatec's solid financial position and operational capabilities provide a firm foundation to support growth and new initiatives through the recovery over time.

I am also confident that we have strong leadership in place across the entire Group to take advantage of opportunities in our sector and implement any plans arising from the Strategic Review in order to drive value for shareholders and all our stakeholders.

Maya Makanjee
Chair

5 July 2022