Remuneration report

FY18 remuneration implementation report

Datatec Group base salary and benefits

For FY18, the Remuneration Committee determined that the base salary of the CEO would not increase from the previous year. The CFO relocated to the USA during the year and his base salary was realigned in accordance with US benchmarks as approved by the Remuneration Committee.

During the year, the Group contributed an amount of 15% of the executive directors' base salaries to their private pension schemes, with the individuals contributing 5% of their salary. The total base salary and value of benefits received by each director is shown in Note 23 to the consolidated annual financial statements.

SYNNEX transaction success bonus

Successful completion of the SYNNEX transaction was seen by the Board as a critical step in executing its strategy. Accordingly, the Remuneration Committee approved a deal success bonus after completion of the deal on 1 September 2017.

The bonus was payable to the executives who had played a key role in the transaction as follows:

The executive directors' deal success bonus is included in their remuneration shown later in this report and in Note 23 to the consolidated annual financial statements.

Datatec Group short-term incentives

The Remuneration Committee set special targets for the FY18 annual bonus, given the exceptional nature of the year and the SYNNEX transaction bonus noted above. The targets were as follows:

• SYNNEX transaction earn-out – separately from the deal bonus (above) the achievement of additional contingent consideration through the earn-out agreement based on the gross profit of Westcon Americas;
• Group adjusted EBITDA excluding Westcon – the target was the budget for the Group excluding Westcon;
• Share price growth – targeting value realisation for shareholders; and
• Westcon International restructuring – a qualitative metric to be evaluated by the committee in terms of a realistic executable plan being put in place for the restructuring of Westcon International which will reshape the business and return it to profitability.

Each of the above targets was given equal weighting by the committee (ie each contributes 25% of the potential bonus). There was no personal performance element for FY18 and the above targets were considered the key performance indicators for FY18.

The on-target bonus level for FY18 remained the same as for FY17, being 125% of base salary for the CEO capped at 200%; and 75% of base salary for the CFO capped at 120%.

The targets and resultant composition of the annual bonuses of the executive directors for the year under review, shown as a percentage of base salary and split by the bonus elements, is shown below.

The SYNNEX transaction earn-out was not determined at the date of this report and therefore no bonus relating to it was awarded in FY18. The consideration of any bonus due in relation to this metric was deferred until the earn-out is determined.

The Group adjusted EBITDA excluding Westcon metric was exceeded. EBITDA (adjusted for the same items as underlying EPS) for the Group excluding Westcon was more than 10% higher than the budget for the equivalent business units. This resulted in this element of the bonus being paid at the maximum level.

The share price growth metric was not achieved as the closing share price (30-day VWAP) was below the share price, adjusted for the special dividend in January 2018, at the start of FY18.

The qualitative metric for Westcon International restructuring was evaluated by the Remuneration Committee to be 80% achieved resulting in 20% of the 25% on-target amount being paid.

The total base salary, bonus and value of benefits received by each director are shown later in this implementation report and in Note 23 to the consolidated annual financial statements.

Datatec Group long-term incentives

The operation of Datatec’s share-based remuneration plans during FY18 is detailed on the following pages.

The share plans operating during FY18 were originally established in 2005 and were extensively updated and refreshed in 2010 and 2011 (“the 2005 schemes”). The latest version of the plan rules was approved by shareholders at the Annual General Meeting on 14 September 2011. The schemes are all equity-settled and their earnings dilution effect is included in the diluted EPS figure.

At the Annual General Meeting on 14 September 2017, shareholders approved two new share schemes to replace the three previous schemes. A summary of the new schemes was presented in the Annual General Meeting notice in the FY17 Integrated Report. The first grants under the new schemes will be made in May 2018 after publication of the FY18 financial results.

No further grants will be made under the 2005 schemes and existing grants will be assessed for vesting in accordance with the scheme rules over their remaining life.

The Board has appointed Simon Morris as the Compliance Officer (as defined by section 97 of the Companies Act) for the Datatec share-based remuneration schemes, to be responsible for their administration.

Datatec’s subsidiaries also operate a number of cash-settled share-based incentive schemes for their senior employees based on the subsidiary’s equity value as determined by annual valuations by independent valuers. These schemes are cash-settled, meaning no Datatec shares or subsidiary shares are transferred to participants on vesting (with the small exception of the Analysys Mason Performance Share Scheme which is partly settled in Analysys Mason shares). None of these subsidiary share schemes have any dilutive effect on EPS as Datatec shares are not involved in their settlement.

All the share-based remuneration schemes operating in the Group generate a charge or credit to the income statement.

The Datatec Limited Share Appreciation Rights Scheme 2005 (“SAR Scheme”)

Eligible employees received annual grants of share appreciation rights ("SARs"), which are rights to receive shares equal to the value of the difference between the exercise price and the grant price. Eligible employees are executive directors and managers employed in Datatec head office functions. The number of SARs granted was proportional to the base salary of the recipient and awards are approved by the Remuneration Committee. The grant price is the "face value" of a SAR that is taken to be the 30-day volume weighted average Datatec share price on the grant date. In July 2017, participants were granted SARs with a face value in the range 100% to 150% of their annual base salary.

Vesting of the SARs is subject to performance conditions. The duration and specific nature of the performance conditions and performance period are stated in the letter of grant. The condition that was imposed for the grants of SARs in 2017 was the same as in 2016: that the Datatec share price must increase by 2% per annum above South African inflation (ZAR CPI) over a three-year performance period in order for the SARs to vest. The SARs will only have any value for participants if Datatec's share price increases above the grant price and the performance condition will ensure the effect of inflation is eliminated.

During FY18, no SARs awards vested: the May 2014 grant lapsed having failed the performance condition test based on underlying EPS growth.

After vesting, the SARs become exercisable. Upon exercise by a participant, the Company will settle the value of the difference between the exercise price and the grant price by delivering shares. SARs are not entitled to receive any dividends.

The SARs in issue at 28 February 2018 constitute a potential 0.50% (FY17: 0.02%) dilution of the Company’s weighted average shares for the year, based on the assumption that new shares will be issued to settle them.

No grants of SARs have vested since the May 2010 grant and at the date of this report there are no vested SARs held by participants available for exercise.

The Datatec Limited Long-Term Incentive Plan 2005 ("LTIP")

Eligible employees, being executive directors and managers employed in Datatec head office functions, receive annual grants of conditional awards. The number of conditional awards granted is proportional to the base salary of the recipient and awards are approved by the Remuneration Committee. The face value of a conditional award is taken to be the 30-day volume weighted Datatec share price on the grant date. In July 2017, recipients were granted conditional awards with a face value in the range 67% to 150% of their base salary. The conditional awards will vest after the performance period if and to the extent that the performance conditions have been satisfied.

The duration and specifics of the performance conditions and performance period are stated in the letter of grant. For all grants made to date, the performance period has been three years.

For the July 2017 LTIP grant, the Remuneration Committee set the same performance conditions as the prior year as follows:

• For half of the grant: the performance condition will be that underlying EPS (in US cents) must increase by 2% per annum above US CPI inflation over a three-year performance period in order for 50% of the grant to vest. For the other 50% of the LTIP conditional awards to vest, underlying EPS (in US cents) must increase by 4% per annum above US CPI inflation over a three-year performance period. Between these two limits, a sliding scale of vesting between 50% and 100% will operate.
• For half of the grant: the performance condition will be that return on invested capital ("ROIC") must be 8% per annum in the final year of the three-year performance period in order for 50% of the grant to vest. For the other 50% of the LTIP conditional awards to vest, ROIC must be 12% in the final year of the three-year performance period. Between these two limits, a sliding scale of vesting between 50% and 100% will operate.

The performance condition will determine if, and to what extent, the conditional award will vest. Upon vesting of the conditional award, the Company will procure the delivery of shares to settle the vested portion of the award. The conditional awards which do not vest at the end of the three-year performance period will lapse.

The commitment to issue shares under the LTIP for the conditional awards in existence at 28 February 2018 constitutes a potential 0.43% (FY17: 0.36%) dilution of the Company’s weighted average shares for the year, based on the assumption that new shares will be issued to settle them.

Vesting of the LTIP conditional awards is also subject to the participant remaining in the employ of the Group for the LTIP minimum employment period. Conditional award holders under the LTIP are not entitled to receive any dividends during the vesting period.

In May 2017, the performance condition for the conditional awards granted under the LTIP in May 2014 (three years previously) was computed by an independent third party. The performance condition involved comparing Datatec’s CAGR in TSR with those of an international peer group and Datatec was found to rank below the median of the Group. This meant that 0% of the conditional awards vested and accordingly they lapsed.

No LTIP conditional awards have vested since the awards granted in May 2010.

The Datatec Limited Deferred Bonus Plan 2005 ("DBP")

Eligible employees, being the executive directors and Company Secretary, are permitted to use a portion of the after-tax component of their annual bonus to acquire shares (pledged shares). A matching award will be made to the participant after a three-year pledge period, on the condition that the participant remains in the employ of the Company and retains the pledged shares over the period and subject to certain performance conditions. In this context, a matching award means a conditional right to receive shares at no cost to the employee at the end of the three-year pledge period, subject to the employment condition and the performance condition being satisfied. The performance condition in place for the DBP pledged shares purchased in 2014 was such that the number of shares that can be acquired under the matching award is as follows:

• 50% without performance conditions (but with the employment condition).
• A further 50% if EPS increases over the three-year matching period by US CPI +4% per annum giving 100% matching in total.
• A further 50% if underlying EPS increases over the three-year matching period by US CPI +8% per annum, giving 150% matching in total.

In July 2017, the matching shares for the May 2014 grant were transferred to participants in accordance with the scheme rules. Only the 50% vesting without performance conditions occurred.

For the 2015 and 2016 DBP pledged share purchase, the Remuneration Committee set the performance conditions such that the number of shares that can be acquired under the matching award is as follows:

• 100% without performance conditions (but with the employment condition).
• An additional 50% if underlying EPS increases over the three-year matching period by US CPI +8% per annum, giving 150% matching in total.

A participant remains the full owner of the pledged shares for the duration of the pledge period and will enjoy all shareholder rights in respect of the pledged shares. Pledged shares can be withdrawn from the pledge at any stage, but the matching award is then forfeited. The shares subject to the matching award are only acquired by the eligible employee at the end of the pledge period and he/she has no shareholder rights in respect of those shares before then.

Participants are entitled to receive additional shares on matching, equal in value to the notional accrued dividends arising on the matched shares during the pledge period. The matching shares will not hold any voting rights until vesting.

The main purpose of the matching award is to encourage the employees concerned to acquire and retain shares in the Company through the pledged shares and to retain their services throughout the pledge period. By holding shares in the Company, the interests of participants are also directly aligned with those of shareholders.

The Remuneration Committee decided there would be no grants under the term of the DBP in FY18.

The commitment to issue matching shares for the pledged shares held at 28 February 2018 constitutes a potential 0.23% (FY17: 0.18%) dilution of the Company’s weighted average shares for the year, based on the assumption that new shares will be issued to settle them.

Limits applicable to the SAR Scheme, LTIP and DBP

The aggregate number of shares that may be issued under the SARs Scheme, the LTIP and the DBP is limited to 9 250 000. This limit applies to the issue of new shares and not to shares purchased in the market for the purposes of share scheme settlements.

From the inception of the schemes up to 28 February 2017, 2 029 167 shares have been issued in settlement of the schemes. No shares were issued during FY18 so the number of shares which could still be issued before reaching the above limit is 7 220 833.

The maximum number of shares that can be allocated to any single participant under the SARs Scheme, the LTIP and the DBP is 4 625 000.

The face value of the grants made to an employee in any financial year under the SARs Scheme cannot exceed 150% of his/her base salary at the date of the offer. The face value of the grants made to an employee in any financial year under the LTIP cannot exceed 150% of his/her base salary at the date of the offer. The face value of the matching shares in any financial year made under an award to an employee under the DBP cannot exceed 75% of his/her base salary at the date of the offer. The expected value of the annual awards under the schemes to any individual cannot exceed two times his/her base salary.

Modification to the SAR Scheme and LTIP in FY18

Modification

The Datatec share-based remuneration plans were modified to account for the special dividend paid in January 2018 so that the participants' interest was not detrimentally affected. The number of SARs and LTIP awards in existence at the time of the special dividend were increased by 69.7% and the exercise price for the SARs was reduced by a factor of 1.697. Both these adjustments are based on the amount of the special dividend. No adjustment was required for the DBP because, on settlement, the matching shares will have additional shares added in lieu of the dividends arising during the performance period.

Directors’ emoluments

The following tables set out the remuneration of individual directors who held office during FY18 and FY17:

During FY18, the Remuneration Committee awarded a deal completion bonus of US$3 500 000 to Mr Montanana and US$1 750 000 to Mr Dittrich, following the successful completion of the disposal of Westcon Americas to SYNNEX.

Other benefits include private medical insurance, permanent health insurance, life assurance and fuel for private vehicles.

Of the emoluments shown above, US$887 000 (FY17: US$860 000) was paid by Datatec Limited and US$8 357 000 (FY17: US$2 405 000) was paid by subsidiaries of Datatec Limited.

There were no changes to the Board of Directors (appointments, resignations or retirements) during the year.

Directors holding office during FY18 held the following SARs under the rules of the SARs Scheme:

The underlying earnings per share growth performance condition for the vesting of the 2014 SARs was not met and accordingly the awards did not vest and lapsed in May 2017. The SARs in issue at 15 January 2018 were modified to account for the special dividend on that date; the number of awards was increased by 69.7% and the grant price was reduced by a factor of 1.697. No SARs were available for exercise during FY18 or FY17.

Directors holding office during FY18 held the following conditional awards under the LTIP:

The total shareholder return ("TSR") performance condition for the vesting of the 2014 conditional awards under the LTIP was not met and accordingly the awards did not vest and lapsed in May 2017. The LTIP conditional awards in issue at 15 January 2018 were modified to account for the special dividend on that date; the number of awards was increased by 69.7%.

Directors holding office during FY18 held the following Datatec shares acquired and pledged under the terms of the Deferred Bonus Plan (“DBP”):

No modification is required to account for the special dividend on 15 January 2018 because the rules of the DBP specify that the matching shares will receive dividends in the three-year holding period.

During FY18, shares were transferred to Mr Montanana on 22 June 2017 in settlement of the 25 000 matching shares under the DBP which vested (50% of the pledged shares) plus 2 903 shares (FY17: 2 536 shares) in lieu of dividends on the matching shares during the three-year performance period. The value of the shares transferred to Mr Montanana on that date was US$124 000 (FY17: US$81 000).

Mr McCartney’s holding of SARs in Westcon Group, Inc. which he was awarded as a non-executive director of Westcon Group in line with American practice for directors’ fees and awards (as approved by the Remuneration Committee) is shown below:

During the year the Westcon SAR Plan terminated in accordance with the change of control provisions in its rules on completion of the SYNNEX transaction. All vested and 50% of unvested SARs were settled based on the cash completion valuation.

The proceeds paid to Mr McCartney on termination of the Westcon SARs Scheme were US$66 570 (FY17: US$2 500).

The Remuneration Committee has approved the executive directors' emoluments.

Other than the executive directors whose remuneration is disclosed in this implementation report, Datatec does not have any prescribed officers as defined by the Companies Act and hence no other prescribed officers' remuneration is disclosed.

Non-executive directors' remuneration

During FY18, non-executive directors received fees, as approved by shareholders at the Annual General Meeting on 14 September 2017, as follows:

• Chairman of the Board: US$201 552 total fee inclusive of all committee and subsidiary board work;
• Senior non-executive director's fee: US$74 256;
• Non-executive director's fee: US$63 648;
• Chairman of the Audit, Risk and Compliance Committee: US$31 824;
• Member of the Audit, Risk and Compliance Committee: US$15 912;
• Chairman of the Social and Ethics Committee: US$10 608;
• Chairman of the Remuneration Committee: US$15 912;
• Member of the Remuneration Committee: US$7 956;
• Member of the Nominations Committee: US$5 304; and
• Trustee of Datatec trusts: US$7 426.

Non-executive directors are reimbursed for travel costs necessary for attending Board meetings and do not receive any employment benefits.

New share schemes

A new conditional share plan ("CSP") will replace the old SARs scheme and LTIP following shareholder approval at the Annual General Meeting in September 2017. The CSP will provide for the grant of conditional awards to participants which would, subject to performance conditions, vest after three years and be settled with the Company's shares. The committee plans to base the performance conditions on the same metrics as currently used for the LTIP, namely EPS growth and ROIC.

The first grants under the new CSP will be made in June 2018 after the FY18 results are announced.

In addition, the current DBP has been replaced with a new DBP following shareholder approval at the September 2017 Annual General Meeting. Under the new DBP participants would make a pre-tax deferral (at the election of the employee) of up to 100% of the bonus. Should the employee elect to defer the bonus, there will be an uplift of up to 100% of the deferred element. Both the deferred bonus and uplift element will be in the form of forfeitable shares which will accumulate dividends and will be released to the participant after three years provided the participant is still in employment.

The first bonus deferrals under the new DBP will be made in June 2018 using the FY18 bonuses reported under the "short-term incentives" heading on page 46.

Other remuneration matters

Subsidiary share-based remuneration schemes

Share-based remuneration plans are in operation within the Group’s subsidiary operations. These schemes are based on the subsidiaries’ share price, determined by an annual valuation of the subsidiary by an independent third-party adviser (rather than on Datatec’s share price) and are cash-settled (except in the case of Analysys Mason – see below). The annual valuation of the subsidiary is used to mark the liability to the valuation share price and to establish both a grant price for new awards and the exercise price for vested awards.

Logicalis and PLLAL SAR Schemes

Under the terms of the Logicalis Share Appreciation Rights Scheme 2005 (“the Logicalis SARs Scheme”), SARs are granted annually to senior managers. Vesting of the SARs is subject to certain earnings performance conditions. Provided that the performance conditions are met, 50% of the SARs vest after 24 months and the remainder after 36 months. All rights lapse if not exercised by the end of the seventh year after grant.

Logicalis also operates the PLLAL SARs Scheme, for its 65% subsidiary PromonLogicalis Latin America Limited. The terms of this scheme are the same as those of the Logicalis SARs Scheme, but the grants are made to key employees of PLLAL and the annual valuations and appreciation rights are based on the equity value of PLLAL.

Westcon Group, Inc. SAR Scheme

The Westcon Group, Inc. Share Incentive Plan, which provided for grants of SARs based on Westcon Group, Inc. common shares to employees and directors (including non-executive directors), terminated during FY18 in accordance with the change of control provisions set out in the scheme rules. This was triggered by the SYNNEX transaction completing on 1 September 2017. Participants received cash settlement for their vested SARs to the extent the value of Westcon shares implicit in the SYNNEX transaction exceeded the grant price of the SARs.

Westcon International

The Remuneration Committee is in the process of implementing an equity appreciation plan for Westcon International senior management to incentivise value generation.

Analysys Mason Performance Share Scheme

Analysys Mason operates a performance share plan, approved by its board of directors and shareholders, under the terms of which conditional shares are granted to participants. 25% of the conditional shares vest unconditionally after three years if the participant is still an employee and is settled with the same number of Analysys Mason ordinary shares. The vesting of the remaining 75% is conditional on an earnings-based performance condition and may be settled in cash or shares.

Details of the operation of the subsidiary division share schemes, including grants, exercises and lapses during FY18 and the prior year, are included in Note 2 to the consolidated annual financial statements.

The Remuneration Committee determines the fee structure for non-executive directors, including the Chairman, based on benchmarking studies prepared by external advisers using data from comparable companies.

For the year ending 28 February 2019, the Remuneration Committee proposes that fees for non-executive directors will remain at the levels set out above and these fees will be presented for approval by shareholders at the Annual General Meeting on 20 September 2018.

The terms and conditions of appointment of non-executive directors are available on request from the Company Secretary. Non-executive directors are not eligible to participate in the annual bonus plan or any of the Datatec share incentive schemes. However, John McCartney, as a non-executive director of Westcon- Comstor, participated in the Westcon Group, Inc. SARs Scheme described above which terminated during FY18.

External appointments

Subject to the approval of the Board, executive directors are permitted to hold a directorship in one non-Group listed company and to retain the fees payable from this appointment.

Jens Montanana is non-executive Chairman of Corero plc, an AIM-listed software development business.

Directors’ service contracts

In order to properly reflect their spread of responsibilities, executive directors have employment contracts as follows: Jens Montanana has a contract with Datatec International Holdings Limited and Ivan Dittrich had contracts with Datatec Limited and Datatec International Holdings Limited until 31 December 2017 at which time they were superseded by a contract with Logicalis, Inc. a 100% subsidiary of the Group registered in the USA to reflect his relocation to that jurisdiction. The employment contracts of executive directors are terminable at six months’ notice by either party and contain contractual provisions for payment on termination.

All non-executive directors have letters of appointment with Datatec Limited. Under these contracts, non-executive directors retire in accordance with the Memorandum of Incorporation of the Company, which is at least every three years. Retiring directors may offer themselves for re-election.

Senior management emoluments

The aggregate remuneration of the most senior executives employed by the Group subsidiaries during FY18 and FY17 is set out below:

Key management personnel compensation comprises the compensation of 12 (FY17 re-presented: 14) senior executives of the Group's divisions. The FY18 short-term employee benefits of key management personnel include US$679 000 of deal completion bonuses that has been included in the profit on disposal of discontinued operation (refer to Note 36). The remuneration of Datatec's executive directors is included in Note 3 and in the tables on page 50. There were no other prescribed officers in the Company.

Directors' share interests

Directors' interests in the ordinary shares of the Company at 28 February 2018:

Directors’ interests in ordinary shares of the Company shown above are unchanged as at the date of this report.

Directors’ interests in the ordinary shares of the Company at 28 February 2017 were as follows: