Executive directors’ report

The Group delivered a strong operational performance during FY24 benefiting from continuing trends in networking and cyber security.

“The Group maintained a strong operational performance in the second half of the year to deliver a solid full-year result as global demand continues for our technology solutions and services. We have managed to successfully capture growth opportunities across many markets to deliver improved quality of earnings.

Operationally, Westcon International continues on its growth trajectory, delivering an exceptional performance in FY24. Logicalis International also performed well, however Logicalis Latin America faced numerous challenges in Argentina and Brazil, which impacted its financial performance.

Despite uncertain political and economic challenges in many parts of the world, all the Group’s divisions are expected to deliver improved financial performance in FY25 and benefit from strong technology fundamentals.

We are optimistic about FY25 and remain focused on unlocking value for shareholders.”

Jens Montanana
CEO

Strategic overview

Datatec’s goal is to improve shareholder returns over the medium term through a combination of corporate and business development actions aimed to enhance the competitiveness and profitability of its subsidiaries and operating divisions.

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

In line with the Strategic Review, Datatec worked with a leading corporate advisory firm to develop new executive long-term incentive plans for its subsidiaries to better align divisional leadership remuneration with Datatec shareholders. These management incentive plans focus on maximising shareholder value by engaging key management in the businesses as shareholders with their own money invested alongside Datatec. Their investment can only be realised at the same time as Datatec through future value realisation events. New management incentive plans for Logicalis International and Westcon International were implemented during FY24. The executive directors of Datatec do not participate in these incentive plans.

In December 2023, the Group invested further in Mason Advisory taking its shareholding from 42.5% to 80%. Mason Advisory holds a strategic position as a specialised independent management consultancy and the Board sees high growth potential based on positive market fundamentals, a strong management team and its track record.

From an operational perspective, Westcon International continued to deliver an excellent financial performance throughout FY24. Logicalis International also performed well with a strong second half, which included greater net revenue reported software sales. Logicalis Latin America faced difficult market conditions, especially in Argentina and Brazil, which adversely affected its performance in the second half of FY24.

The Group continues to see good demand for its technology solutions and services worldwide with subsidiaries well‑positioned to service customers in their respective markets.

Dividends

On 27 May 2024, the Board declared a final cash dividend with a scrip distribution alternative for FY24 of 130 ZAR cents per share (approximately 7 US cents per share), amounting to ZAR298.4 million.

Liquidity and borrowing facilities

The Group continues to closely monitor the outlook for liquidity in its divisions to ensure that sufficient cash is generated to settle liabilities as they fall due.

Westcon International has an invoice assignment facility of EUR390.6 million for its European subsidiaries, as well as an extended payables facility of US$71.5 million. Westcon International has a securitisation facility of US$130.0 million for its Asia-Pacific facilities. 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), and a securitisation facility in South Africa (ZAR200.0 million).

Logicalis International is supported by a corporate facility of US$135 million, covering all its operations, comprising a rolling credit facility to fund working capital requirements and an acquisition facility.

Logicalis Latin America is supported separately via a number of uncommitted overdraft facilities and short-term lending arrangements and is predominantly sourced via Tier 1 banks in Brazil as it is the largest territory in the region.

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

Westcon International

During FY24, Westcon Group European Operations Limited, acquired 100% of the shares of Rebura Holding Limited, which in turn owns 100% of Rebura Limited and Rebura GmbH, a UK and Swiss entity respectively. From the acquisition date the results of Rebura have been consolidated in the Group’s annual financial statements.

Logicalis International

In FY24, Logicalis Spain, SL increased its shareholding in Audea Seguridad de la Informacion, SL by 2.3% and 13.85% respectively to an effective shareholding of 86.15% as at 29 February 2024.

Logicalis Latin America

Datatec PLC, a 100%-owned subsidiary of Datatec Limited, owns 100% of the issued share capital of Logicalis Group Limited which owned 65% of Logicalis Latin America Holding SA prior to the share repurchase. In September 2023, Logicalis Latin America Holding repurchased 5.0% of its shares from Promon SA for subsequent cancellation. This resulted in an effective shareholding of 68.42% (FY23: 65.0%) for Logicalis Group Limited and current shareholding of 31.58% (FY23: 35.0%) for Promon SA.

Mason Advisory Limited

Datatec PLC increased its shareholding in Mason Advisory Limited on 1 December 2023 acquiring an additional 40% from the management team, taking its interest to a majority shareholding of 80%. From acquisition date the results of Mason Advisory Limited have been consolidated in the Group’s annual financial statements.

Divisional reviews

Westcon International

Westcon International delivered strong revenue and profit growth in all regions. Westcon International remains focused on delivering outstanding financial performance and accelerating its transformation into a leading global data-driven technology provider and specialist distributor of cyber security and networking solutions.

Westcon International’s hardware and software backlog has reduced as supply chain constraints have eased. Product backlog at the end of FY24 was approximately US$446 million (FY23: US$768 million).

Westcon International continues to prioritise financial and operating performance while investing in advanced digital systems, data platforms and business automation, which are accelerating its transformation into the world’s leading, data-driven technology provider and specialist distributor of cyber security and networking solutions. Westcon International will continue to mitigate the effects of high interest rates through effective working capital management and expects improved financial performance in FY25 compared to FY24.

Refer to Westcon International performance in the measuring value section for an overview of Westcon International’s financial performance.

Logicalis International

Logicalis International saw a significant fall of 40.4% in product backlog over the last 12 months primarily as a result of improving supplier lead times, while order intake was down 2.2% from FY23. Logicalis International’s product backlog at the end of FY24 was approximately US$161.4 million (FY23: US$271.0 million).

Revenue growth was impacted in FY24 as a result of a higher proportion of net revenue accounted software sales.

Logicalis International continues to develop its capabilities within cloud, IoT, software, security, data management and intelligent networks in support of its strategy to provide full lifecycle solutions around IT infrastructure to its customers.

The future will likely involve hybrid workplaces for part-time office and remote workers. Preparing and planning for this environment will be essential in providing a better digital experience for customers, partners and employees.

Despite short-term uncertain macroeconomic conditions, Logicalis International expects a better financial performance in FY25 compared to FY24.

Refer to Logicalis International performance in the measuring value section for an overview of Logicalis International's financial performance.

Logicalis Latin America

Logicalis Latin America results for FY24 were driven by a strong order intake in FY23 combined with an improved lead time for products, optimised delivery times and reduced order-to-cash cycles. Order intake in FY24 showed a deceleration when compared to the same period in FY23, especially in Brazil, generating a product backlog at the end of FY24 of approximately US$98.8 million (FY23: US$140.0 million).

Special attention will be given to the evolution of the macroeconomic scenario in Argentina during the next financial year. Logicalis Latin America continues to focus on improving its customer diversification, driving high-value added services and expanding its product portfolio.

Refer to Logicalis Latin America performance in the measuring value section for an overview of Logicalis Latin America’s financial performance.

Corporate and Management Consulting

Management Consulting comprises Mason Advisory Limited in the current year. Datatec PLC increased its shareholding in Mason Advisory Limited from 42.5% to 80% effective 1 December 2023 by acquiring additional shares in Mason Advisory Limited from its management team for a consideration of US$18.2 million. The results of Mason Advisory Limited have been consolidated in the Group’s annual financial statements from this acquisition date, based on control as defined in terms of IFRS 10. Revenue of US$9.6 million and EBITDA of US$1.2 million have been included in the FY24 results. As at 29 February 2024, Mason Advisory had cash of US$2.8 million.

The Corporate segment includes the net operating costs of the Datatec head office entities, which were US$22.6 million (FY23: US$30.4 million), including share-based payment charges of US$6.3 million (FY23: US$15.4 million). Corporate costs include the remuneration of the Board and head office staff, share-based payments, as well as consulting fees and audit fees. In FY24, net foreign exchange gains were US$0.6 million (FY23: net foreign exchange gains of US$8.6 million).

As at 29 February 2024, Datatec head office entities held cash of US$40.0 million (FY23: US$78.0 million) of which US$10.5 million (FY23: US$16.4 million) is held in South Africa and subject to the South African Reserve Bank regulations. These cash balances decreased by US$38.0 million from 28 February 2023 mainly as a result of the settlement of the Westcon Equity Appreciation Plan for Datatec executives, the increased investment in MAL and the cash portion of the FY23 final dividend paid to shareholders of Datatec.

Subsequent events

Increased shareholding in subsidiaries

In April 2024, Logicalis Group Limited purchased 7.04% of Cirrus Participações SAC in Brazil ("Cirrus") from the minority shareholders. As the Group owns 68.4% of Promon Logicalis Latin America Limited, this resulted in a current effective shareholding in Cirrus of 67.4%. The Group will consolidate the results of Cirrus from this date in the FY25 financial year.

Management incentive plan – Mason Advisory Limited

Mason Advisory implemented the Mason Advisory Long-Term Incentive Plan (“MALTIP”) on 9 April 2024 following a corporate restructuring. Two intermediate holding companies called Mason Advisory Group Ltd (“MAGL”) and Mason Advisory Group Holdings Ltd (“MAGHL”) were incorporated into the Group structure. Management purchased shares in MAGHL constituting 6.25% of the ordinary equity and MAGL holds the remaining 93.75%. Datatec owns an 80.0% shareholding in MAGL. MAGHL also issued a fixed return instrument to MAGL.

Current trading and outlook

Despite uncertain political and economic challenges in many parts of the world, all the Group’s divisions are expected to deliver improved financial performance in FY25 and benefit from strong technology fundamentals.

The adoption of Artificial Intelligence should lead to a new cycle of PC and networking refresh.

The Group continues to manage its businesses efficiently and mitigate the effects of high interest rates through effective working capital management and improving supply chains.

27 May 2024