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 profitability of its subsidiaries and
operating divisions.
As previously announced, the Board engaged Lazard & Co.
Limited to assist with a comprehensive evaluation of strategic
options and initiatives to unlock and maximise shareholder
value going forward. 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. The Board
will continue to consider potential options including, but not
limited to, private equity participation, joint ventures,
international listings, divisional asset unbundling and other
value-creation structures.
From an operational perspective, the Group achieved a strong
performance in the year ended 28 February 2022 (“FY22”) as
it continued to benefit from increased networking, cloud usage
and cyber security trends. Datatec’s positioning enabled all
divisions to deliver robust revenue and profit growth.
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.
Overall, the Group’s businesses have successfully
repositioned away from many forms of traditional hardware
to software, subscriptions and services with growing annuity
revenue. The Group continues to focus on supporting the
digitisation trends and the requirements for increased
cyber security.
DIVIDENDS
Following the sale of Westcon Americas to SYNNEX in
September 2017, Datatec advanced funds to Westcon
International (the part of the Westcon business retained in
the Group with a minority interest held by SYNNEX) to fund
working capital as the business restructured. During H1 FY22,
Westcon International repaid approximately US$70 million of
inter-company loans to Datatec. Thereafter, US$70 million was
returned to shareholders in the form of a special cash dividend
with a scrip distribution alternative in November 2021.
The Group’s policy is to maintain a three times cover relative
to underlying* earnings when declaring ordinary dividends.
Accordingly, the Board has declared a final dividend for FY22
of 111 ZAR cents per share equivalent to 7 US cents per
share, in total US$15 million, with the customary form of a
cash dividend with a scrip distribution alternative.
GROUP RESULTS
All divisions delivered solid performances with strong revenue
and bottom-line growth. This is despite South America
suffering most from supply chain constraints.
Supply chain delays had a marked effect on slowing the sales
process from order to delivery causing a notable increase in
the quantum of open, unfulfilled sales orders, termed
“backlog” at the year-end.
Refer to Executive directors’ report on Group results in the
Measuring value section for an overview of the Group’s FY22
financial performance.
Liquidity and borrowing facilities
The Group continues to closely monitor the outlook for
liquidity in its divisions to ensure that sufficient cash will
continue to be generated to settle liabilities as they fall due.
Logicalis is supported by a corporate facility of
US$155.0 million, covering all operations outside of Latin
America, comprising a rolling credit facility to fund working
capital requirements and an acquisition facility. The Latin
America region is supported separately via a number of
uncommitted overdraft facilities and short-term lending
arrangements.
Westcon International has an invoice assignment facility of
EUR390.6 million (recently increased from EUR275.0 million)
for its European subsidiaries, as well as an extended payables
facility of US$65.7 million. Westcon International has a
securitisation facility of US$100.0 million for its Asia-Pacific
facilities (up from US$80 million in the prior year). In addition,
Westcon International utilises accounts receivable facilities
in the Middle East (US$15.0 million) and Indonesia
(US$11.0 million) as well as overdraft facilities in Europe
(EUR4.0 million) and Africa (US$1.0 million), a securitisation
facility in South Africa (ZAR250.0 million) and a line of credit
in Singapore (US$1.2 million) to finance the business.
Analysys Mason repaid its inter-company borrowing from
Datatec during H2 FY22 and has access to bank overdraft
facilities to support its working capital requirements.
The Group continues to monitor the funding needs of its
individual operations and works closely with various financial
institutions to ensure adequate liquidity.
The Group has performed covenant projections for the next
12 months to confirm that banking covenants are expected
to be met.
Acquisitions
On 1 March 2021, Logicalis Group’s 65% held subsidiary
PromonLogicalis Latin America Limited, exercised its option
to acquire an additional interest of 20.1% of the issued share
capital in Kumulus for US$1.2 million. Kumulus will continue
to be equity-accounted for in the Group’s results because the
Group does not have management control.
On 31 March 2021, Logicalis acquired 70% of the issued
share capital in Áudea, a Spanish company which specialises
in cyber security and data protection, governance and
compliance, for a consideration of US$2.1 million in cash.
Áudea’s cyber security capabilities are complementary to
Logicalis Spain’s security portfolio, creating a much broader
professional and managed service offering.
On 1 June 2021, Logicalis acquired Siticom, a German
company that is a leading services and solutions provider in
the software-defined networking and 5G market, through a
new company Logicalis Siticom GmbH. The transaction
involved the acquisition of 100% of the issued share capital for
a consideration of US$12.7 million followed by the immediate
disposal of 29.6% of the issued share capital to two of the
previous owners/managers for a consideration of
US$5.4 million. There are two options for Logicalis to
repurchase this non-controlling interest for an agreed amount
of up to US$10.5 million over the next two years, whereafter
Logicalis will own 100% of Siticom. Of this agreed amount,
US$9.3 million is required to settle these options and has been
placed in an escrow account that is not reflected as part of
cash and cash equivalents, but included in other receivables.
A potential maximum EUR1.0 million approximately
US$1.2 million) earn-out liability, subject to certain
performance conditions, is included in the purchase price and
payable in the financial year ending 29 February 2024. Due to
these fixed priced options, Logicalis consolidated 100% of the
results of Siticom for the period it was owned in FY22, and will
continue to do so in the future. The total purchase price of the
Siticom acquisition (including the options and earn-out liability)
is up to a maximum of EUR15.0 million (approximately
US$17.9 million), of which US$10.5 million was accounted
for as a liability at the acquisition date and included in
acquisition‑related liabilities. In H2 FY22, US$5.9 million of
this liability was settled, as at 28 February 2022.
DIVISIONAL REVIEWS
Logicalis
Logicalis is the largest contributor to the Group in terms of
profitability. The division also has the widest geographical
exposure and Datatec intends to continue to develop and
grow Logicalis globally, both organically and through
acquisitions.
Logicalis had a strong order intake during FY22. Shipment
delays as a result of the global supply chain issues resulted in
a significant increase in backlog impacting Europe, the Middle
East and Africa with South America suffering the most.
Product backlog at the end of FY22 was approximately
US$400 million compared with US$206 million for FY21.
While Logicalis is ideally positioned to continue to respond to
changing market needs as technology plays an even more
integral role in the global economy, the supply chain shortages
experienced as the world emerged from the Covid-19
pandemic remain mostly unresolved. This, coupled with recent
geopolitical issues such as the war in Ukraine, energy prices,
economic uncertainty in South America and China’s ongoing
response to Covid-19, have created a lot of uncertainty, both
in the short and medium term, that will impact on the division’s
performance.
Refer to Logicalis performance in the Measuring value section
for an overview of Logicalis’ FY22 financial performance.
Westcon International
Westcon International’s product backlog also increased
significantly because of the semiconductor shortage and
supply chain constraints. Backlog at the end of FY22 was
approximately US$824 million compared with US$261 million
for FY21.
Datatec Financial Services provides financing/ leasing
solutions for ICT customers. The business has been moved to
Westcon International during FY22 to leverage the capabilities
and scale of both businesses.
Westcon International remains focused on revenue growth
and margin expansion supported by continued investment in
process automation, digital tools to support the channel and
cost controls. While several macroeconomic risks exist, the
FY22 results highlight Westcon International’s continued
improvement in financial performance over the last four years.
Refer to Westcon International performance in the Measuring
value section for an overview of Westcon Internationals’ FY22
financial performance.
Corporate and Management Consulting
The Management Consulting unit, comprising Analysys
Mason, delivered an excellent performance in FY22; the fifth
successive year of growth. Revenue increased by 23.5% to
US$90.4 million (FY21: US$73.2 million). Gross profit increased
by 31.0% to US$40.6 million from US$31.0 million in FY21.
EBITDA increased by 8.8% to US$11.1 million
(FY21: US$10.2 million) and EBITDA margin decreased to
12.3% compared to 13.9% in FY21.
Analysys Mason has a strategy focused on specialisation
in the TMT sector where increasingly the industries of
telecommunications and information technology are
converging and driving rapid digitisation across many
industries often brought about by the move to cloud
computing.
Analysys Mason delivers bespoke consultancy on strategy,
transaction support, transformation, regulation and policy,
further strengthened by globally respected research. Although
markets remain challenging and unpredictable in the short to
medium term, management believes that the overall outlook
is positive for the business.
Datatec Financial Services, previously reported in the
“Corporate and Management Consulting” segment has been
moved to Westcon International during FY22 in order to
leverage the capabilities and scale of both businesses and is
now reported in the Westcon International segment.
Corporate includes the net operating costs of the Datatec
head office entities which were US$18.1 million (FY21:
US$17.2 million). Corporate costs comprise the remuneration
of the Board and head office staff including share-based
payments as well as consulting and audit fees. In FY22,
foreign exchange gains were US$1.0 million (FY21: foreign
exchange losses of US$0.4 million).
As at 28 February 2022, Datatec head office entities held cash
of US$103.1 million of which US$30.8 million is held in South
Africa and subject to the South African Reserve Bank
regulations. These cash balances increased by
US$28.9 million from 28 February 2021 mainly as a result of
settlement of inter-company loans from subsidiaries net of
dividends paid to shareholders of Datatec.
SUBSEQUENT EVENTS
Effective 30 April 2022, Access Markets International (AMI)
Partners, Inc. a 100% owned subsidiary of Analysys Mason
Limited acquired 100% of the membership interests in
Northern Sky Research, LLC (“NSR”). NSR is based in the
US and specialises in research and consulting services to the
space and satellite sector.
On 1 March 2022, Logicalis acquired the remaining 30% of
the issued share capital from the non-controlling interest in
Logicalis Portugal, a Cisco systems integrator and managed
services business in Portugal, for a deferred consideration of
US$5.4 million payable in September 2022.
IFRS 5 disposal group
Subsequent to the year-end, the Board has classified its
management consultancy division, Analysys Mason, as a
disposal group held for sale as the IFRS 5 criteria have
been met.
Analysys Mason is included in the “Corporate and
Management Consulting” segment of the Group.
The proposed sale is in terms of a process initiated by the
Board pursuant to its Strategic Review and a transaction is
expected to occur within 12 months from the date of the
financial statements. Shareholders will be advised of any
developments in this regard.
CURRENT TRADING AND OUTLOOK
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. This is further evidenced
by increased order intake and backlog.
However, headwinds from semiconductor shortages,
compounded by various factors, including the war in Ukraine,
Covid-19 lockdowns in China and global inflationary pressures
will continue to disrupt global supply chains for the
foreseeable future.
This is expected to especially impact Logicalis in Latin
America during the first half of the current financial year as
macroeconomic challenges are compounded by these severe
supply chain constraints.
Datatec’s strong financial position provides a firm foundation
to support growth and new initiatives as most economies
start to recover and supply chain constraints ease over time.
The Board is focused on driving shareholder value and
implementing opportunities arising from the Strategic Review.
24 May 2022
