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DTC - Datatec Limited - Audited results for the year ended 28 February 2007
DATATEC LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1994/005004/06)
ISIN: ZAE000017745
Share Code: DTC
("Datatec" or "the Group")
Audited results for the year ended 28 February 2007
Highlights
* Revenue up 17% to $3.2 billion (2006 restated: $2.7 billion)
* Continued margin improvement at all levels
* Operating profit* up 45% to $100 million at a margin of 3.2%
* Headline earnings per share up 52% to 40.8 US cents (2006: 26.9 US cents)
* Distribution to shareholders doubles to approximately 10 US cents
* London listing underpins acquisition programme
Jens Montanana, Chief Executive of Datatec commented:
"We have achieved another year of strong organic growth across the Group with
notable increases in profitability and market share from Westcon and Logicalis,
and an increasing contribution from emerging markets. We have also completed a
number of acquisitions around the world which have significantly increased
Datatec`s scale, as well as enhanced our product mix and geographical presence.
All of these factors have enabled us to grow our profits and improve our
margins.
"The current financial year has started in line with our expectations. We are
confident that the scale of the Group`s operations and its improving business
mix should deliver further efficiency gains resulting in continued margin
improvement."
* Operating profit before goodwill adjustment
PROFILE AND GROUP STRUCTURE
Datatec`s (the "Group") business is in international ICT networking and related
services with operations in many of the world`s leading economies. The Group`s
main lines of business comprise: the global distribution of advanced networking
and communications convergence products ("Westcon"); ICT infrastructure
solutions and network integration ("Logicalis"); and telecommunication strategy
consulting ("Analysys Mason"). The Group`s "Other Holdings" include African
Legend Indigo ("ALI") (operating in SA), Westcon SA (operating in Africa),
Online Distribution (operating in the Middle East) and Head Office.
STRATEGY
The Group`s strategy is to deliver long-term, sustainable, above average returns
to shareholders through the development of its three principal operating
divisions. These divisions are run as focused standalone businesses to
facilitate enhanced operational and financial performance as well as to react
faster to technology change.
The key elements of the Group`s strategy are: continued focus on the higher
value, faster growing sectors of the ICT market; targeted geographical
expansion; investment in higher margin services activities and value-enhancing
acquisitions.
OVERVIEW
In a fifth year of successive improvement, Datatec has seen strong increases in
revenues, profits and earnings with significant progress in performance reported
across all businesses for the year ended 28 February 2007.
In an increasingly global market, where scale is becoming a key competitive
advantage, Datatec has been able to leverage its scale and geographic reach to
establish a strong position as a leading channel intermediary of ICT products,
solutions and professional services. The Group has long established, strategic
relationships with all of the leading product vendors in the high growth sectors
of the global ICT market, and is a key partner for most of these vendors in each
of the Group`s key geographic markets.
Growth has also been underpinned by market share gains. Westcon and Logicalis
have both benefited from increased vendor support as a result of their ability
to add significant value in the converged voice and data network space, as well
as a growing exposure to key growth geographies.
Datatec successfully listed in London in October 2006, raising $25 million
(before issue expenses) by way of an institutional placing of 7.2 million
ordinary shares.
FINANCIAL RESULTS
Revenue increased by 17% (9% organic growth) to $3.2 billion (2006 restated:
$2.7 billion), while gross margin increased from 12.5% to 13.1%. The 2006
revenue and margin percentages have been restated for the effect of the change
in accounting for revenue recognition of vendor maintenance contracts as
explained more fully below.
Of the Group`s $3.2 billion revenue in FY07, 48% was generated from North
America, 38% from Europe, 7% from Asia Pacific, 2% from South America and 5%
from Middle East and Africa.
EBITDA increased 40% to $119 million (2006: $85 million). This includes an
unrealised foreign exchange gain on intercompany loans of approximately $6
million (2006: $2 million).
Operating profit* increased by 45% to $100 million (2006: $69 million). Profit
before tax increase by 40% to $89 million (2006: $54 million).
The goodwill adjustment of $1 million relates to a write down of the goodwill
related to a pre-acquisition deferred tax asset recognised in Analysys Mason
during 2007.
The Group`s effective tax rate decreased from 38.5% to 30.5%, primarily due to
the recognition of deferred tax assets resulting from previously unrecognised US
tax losses and the lowering of the Group`s weighted standard rate of tax based
on the mix of profits by jurisdiction.
Headline earnings per share, increased by 52% to 40.8 US cents (2006: 26.9
cents). Basic earnings per share are 40.0 US cents (2006: 26.5 US cents). In
addition to the 7.2 million new shares issued during the year in connection with
the London listing, the Group also issued 0.9 million shares to share option
holders and 0.7 million shares for acquisitions.
The Group intends to make a cash distribution to shareholders out of share
premium of approximately 10 US cents (70 RSA cents per share) (2006:
approximately 5 US cents, 30 RSA cents per share), which represents a cover of
3.7 times headline earnings.
Cash generated before working capital amounted to $122 million (2006: $87
million) and cash generated from operations was $20 million (2006: $78 million),
reflecting the increased investment in working capital in newly acquired
businesses during the year. Following this investment in working capital and
expenditure on acquisitions, the Group ended the year with net cash, after long-
term and short-term debt, of $99 million (2006: $129 million).
DIVISIONAL REVIEWS
Westcon
Westcon accounted for 72% of the Group`s revenues and 69% of EBITDA.
Westcon`s revenue increased by 10% to $2.3 billion (2006 restated: $2.1
billion). This reflects an increase across all geographic regions due to strong
demand for Cisco and Nortel products in particular. Cisco product sales
comprised 60% of Westcon`s revenue, Nortel 13%, Avaya 9%, security solutions 4%
and other 14%. North and South America made up 50% of Westcon`s revenue, Europe
40% and Asia Pacific 10%.
Gross margin increased to 9.5% (2006 restated: 9.4%) resulting in an 11%
increase in gross profit to $216 million (2006: $195 million). The increase in
gross margin was attributable to strong performances in Europe and Asia Pacific.
Westcon`s EBITDA increased 24% to $83 million (2006: $67 million), the EBITDA
margin increased to 3.6% (2006 restated: 3.2%) and operating profit increased
by 28% to $73 million (2006: $57 million). These increases were as a result of
the strong revenue performance, improved gross margins and more efficient
operating costs.
In Europe Westcon continued to consolidate in regions including the UK, France
and Sweden by simplifying the legal structure. Westcon also developed its
operations further in the Asia-Pacific region by opening up offices in Malaysia
and New Zealand.
In April 2006, Westcon completed a key acquisition in North America. It
purchased the distribution arm of Ronco Communications and Electronics for $13
million in cash and is now the leading distributor of Nortel equipment. The fair
value of the net assets acquired was $5 million and goodwill recognised amounted
to $8 million. During the year Ronco contributed revenue of $50 million.
Logicalis
Logicalis accounted for 22% of the Group`s revenues and 22% of EBITDA.
Revenue increased by 37% to $693 million (2006 restated: $505 million). This
included $43 million arising from acquisitions made during the year. Excluding
the impact of acquisitions made during 2006 and 2007, revenue increased by 11%
over the prior year on a like-for-like basis. IBM sales comprised 43% of
Logicalis`s revenue, Cisco 22%, HP 21%, EMC 3% and other 11%. North America made
up 60% of Logicalis`s revenue, Europe 34% and South America 6%.
Gross margin for the year increased to 22.3% (2006 restated: 21.6%) with
stronger rebates offsetting weaker transactional margins, while EBITDA for the
year rose by 60% to $27 million (2006: $17 million). Operating profit increased
to $19 million (2006: $12 million).
On 1 May 2006, Logicalis US acquired the consulting business of Alliance
Consulting Inc for $5 million in cash and shares. The fair value of the net
assets acquired was $2 million and the goodwill recognised amounted to $3
million. On 1 September 2006, Logicalis US acquired Computech Resources Inc., an
IBM Premier Business Partner and solutions business for $6 million in cash (net
of cash acquired of $1 million). The fair value of the net assets acquired was
$1 million and the goodwill recognised amounted to $5 million.
On 1 December 2006 Logicalis UK acquired CSF Solutions, an IBM and HP enterprise
IT solutions provider for $11 million in cash and shares (net of cash acquired
of $1 million). The fair value of the net assets acquired was $3 million and the
goodwill recognised amounted to $8 million. Logicalis also acquired an equity
interest in re:solution a small German ICT services business, and extended its
presence in South America by opening offices in Chile and Peru.
Analysys Mason
Analysys Mason accounted for 2% of the Group`s revenues and 5% of EBITDA.
Analysys Mason revenues increased to $61 million (2006 $60 million) despite the
completion of a significant multiyear 3rd Generation wireless network roll-out
programme which came to an end at the start of the year. Its core telecoms
consulting revenues improved significantly with a 26% growth to $44 million
(2006: $35 million). Rapid geographic expansion has also resulted in non-UK
revenues rising from 37% to 55%. Benefits of merger synergies continue to be
derived as the business achieves further integration with revenues from cross
group bidding currently accounting for 17% of total revenues.
EBITDA amounted to $6 million at a margin of 10.1% (2006: $6 million at 10.4%)
and operating profit* to $6 million at 9.3% of revenues (2006: $6 million at
9.7%).
Analysys Mason has invested heavily in the year on its ICT infrastructure and
has made a number of key strategic appointments. It is now well placed to take
advantage of current growth in the Telecoms sector. This growth is driven by an
increasing emphasis on media, networked IT and fixed mobile convergence issues,
plus growing global regulatory and consolidation activities.
Other Holdings
Datatec`s Middle East and Africa operations made up 4% of the Group`s revenue
and 4% of EBITDA (excluding head office costs).
On 1 September 2006, Datatec merged its South African operation with African
Legend Technologies as part of South Africa`s Black Economic Empowerment
programme, retaining a 55% shareholding. The merged services entity was named
African Legend Indigo. During the year this business generated revenue of $28
million (2006: $4 million) and EBITDA of $1 million (2006: loss of $1 million).
Westcon SA achieved revenues of $69 million (2006: $48 million). EBITDA was
$2 million (2006: $1 million).
Online Distribution, Datatec`s leading value-added distributor for data
networking products and services, covering the Middle East, Western Asia and
North Africa, increased revenues by 32% to $45 million (2006: $34 million).
EBITDA was $3 million (2006: $2 million).
ACQUISITIONS AND FUND RAISING POST YEAR END
After the year-end, Westcon completed two significant acquisitions in Europe;
NOXS Europe B.V, a leading European security distributor for approximately $69
million in cash, and Crane Telecommunications Group, a leading UK-based European
value added distributor of voice, data and converged communications solutions
for approximately $41 million in cash and shares. These acquisitions are
important steps in Datatec`s strategic plans to leverage Westcon`s financial
strength and scale of operations in Europe, including both broadening and
strengthening its vendor relationships. These two businesses also bring new
opportunities in convergence, security and mobility to both new and existing
customers.
On 3 May 2007 the Group raised $35 million by an institutional placing of
ordinary shares. $23 million of the proceeds was used to fund the cash
consideration of the Crane acquisition and $11 million of cash (net of costs)
has been retained in the business to fund further acquisitions.
The number of shares now in issue is 166.5 million.
PROSPECTS
Although growth in the US has moderated, there is continued strong demand for
ICT products and services in all the Group`s major markets. The growth trend
established by the Group during the last few years remains encouraging, as do
the fundamentals of its addressable markets.
The US and Europe operations continue to account for a large portion of the
Group`s revenues and profits. However, emerging market operations are
contributing an increasing proportion of the total business mix.
The Group is targeting an increase of around $1 billion of annualised revenues
during the next year which will see it make further inroads into consolidating
its industry leading position in a number of key sectors of the networking,
security, convergence and ICT services markets. The scale of the Group`s
operations and its improving business mix should deliver continued operating
leverage and drive further margin expansion.
REPORTING AND CHANGE IN ACCOUNTING FOR REVENUE RECOGNITION ON VENDOR MAINTENANCE
CONTRACTS
This report has been prepared in terms of IAS 34 and in accordance with the
Group`s accounting policies which comply with International Financial Reporting
Standards ("IFRS") of the International Accounting Standards Board, the JSE`s
Listings Requirements, the AIM Rules and the Companies Act of South Africa.
As reported on 3 May 2007 and in line with its peers, the Group has changed its
accounting for revenue recognition on vendor maintenance contracts. In previous
financial statements the Group had included the total revenue from these
contracts on a gross basis. However, from the current year, only the gross
profit element from these contracts will now be included in the Group`s
revenues. This resulted in the restatement of $325 million in revenue and cost
of sales in 2007 and $261 million in 2006. This change had no effect on the
Group`s profit, EBITDA, net income, earnings per share figures, balance sheet or
cashflow statement.
The financial information has been audited by Deloitte & Touche whose unmodified
audit report is available for inspection at the Group`s registered office.
DIRECTORATE
Professor Wiseman Nkuhlu and Mr Stephen Davidson were appointed non-executive
directors to the Board with effect from 1 September 2006 and 1 February 2007
respectively.
CAPITAL DISTRIBUTION
The Group will distribute to shareholders out of share premium, in lieu of a
dividend, approximately 10 US cents per share (70 RSA cents per share) for the
year ended 28 February 2007 ("the general payment"), in terms of the general
authority granted to directors at the Annual General Meeting held on 15 August
2006. (For shareholders on the Jersey register, the capital distribution will be
paid in GBP translated at the closing exchange rate on Friday 6 July 2007).
The salient dates will be as follows:
Last day to trade Friday, 29 June 2007
Shares to commence trading
"ex" the distribution Monday, 2 July 2007
Record date Friday, 6 July 2007
Payment date Monday, 9 July 2007
Share certificates may not be dematerialised or rematerialised between Monday, 2
July 2007 and Friday, 6 July 2007, both days inclusive.
On behalf of the Board:
L Boyd J P Montanana D B Pfaff
Chairman Chief Executive Officer Group Finance Director
16 May 2007
GROUP INCOME STATEMENT
Audited Restated
year ended year ended
US$ 000`s 28 Feb 07 28 Feb 06
Revenue 3,167,772 2,714,751
Continuing operations 3,075,344 2,609,497
Acquisitions 92,428 105,254
Cost of sales (2,752,601) (2,376,587)
Gross margin 415,171 338,164
Operating costs (286,872) (249,545)
Share-based payments (8,943) (3,468)
Operating profit before finance costs, 119,356 85,151
depreciation and mortization ("EBITDA")
Depreciation and amortisation (19,072) (15,757)
Operating profit before goodwill 100,284 69,394
adjustment
Goodwill adjustment (1,142) (425)
Operating profit 99,142 68,969
Interest received 9,641 6,380
Financing costs (19,295) (11,554)
Loss on disposal of investments (55) 0
Profit before taxation 89,433 63,795
Taxation (27,305) (24,532)
Profit for the year from continuing 62,128 39,263
operations
Profit / (Loss) for the year from 24 (76)
discontinued operations
Profit for the year 62,152 39,187
Attributable to:
Minority interests 2,103 1,415
Equity holders of the parent 60,049 37,772
62,152 39,187
Number of shares (millions)
Issued 155 146
Weighted average 150 142
Diluted weighted average 153 146
Earnings per share (US cents)
Basic EPS 40.0 26.5
Diluted Basic EPS 39.2 25.9
SALIENT FINANCIAL FEATURES
Headline earnings 61,226 38,293
Headline earnings per share (US cents)
Headline EPS 40.8 26.9
Diluted HEPS 40.0 26.3
Net asset value per share (US cents) 346.9 306.7
Cash generation per share (US cents) 12.9 53.1
KEY RATIOS
Gross margin % 13.1 12.5
EBITDA on ongoing operations % 3.8 3.1
Effective tax rate % 30.5 38.5
Exchange Rates
Average Rand / US$ exchange rate 7.0:1 6.4:1
Closing Rand / US$ exchange rate 7.2:1 6.2:1
CONDENSED GROUP BALANCE SHEET Audited Restated
year ended year ended
US$ 000`s 28 Feb 07 28 Feb 06
ASSETS
Non-current assets 242,096 189,959
Property, plant and equipment 22,307 20,178
Capitalised development expenditure 14,068 12,317
Goodwill 162,586 125,294
Other intangible assets 20,720 8,098
Deferred tax assets 22,415 24,072
Current assets 1,149,138 951,613
Inventories 268,944 210,728
Receivables 656,587 492,782
Cash and cash equivalents 223,607 248,103
Total assets 1,391,234 1,141,572
EQUITY AND LIABILITIES
Ordinary shareholders` funds 537,744 448,846
Minorities` interest 14,852 12,505
Total equity 552,596 461,351
Long-term liabilities 50,176 45,005
Deferred tax liabilities 13,232 5,875
Current liabilities 775,230 629,341
Payables and provisions 674,095 542,302
Amounts owing to vendors 4,044 1,695
Taxation 14,876 9,492
Bank overdrafts 82,215 75,852
Total equity and liabilities 1,391,234 1,141,572
0 0
Capital expenditure incurred in current 10,633 12,115
year
Capital commitments at end of year 11,878 10,105
Lease commitments at end of year 108,039 97,170
Payable within one year 17,871 16,546
Payable after one year 90,168 80,624
CONDENSED GROUP CASH FLOW STATEMENT
Audited Restated
year ended year ended
US$ 000`s 28 Feb 07 28 Feb 06
EBITDA 119,356 85,151
Loss on disposal of plant and equipment 6 46
Non-cash items 2,629 1,691
Cash generated before working capital 121,991 86,888
changes
Working capital changes (101,924) (9,203)
Increase in inventories (58,984) (12,361)
Increase in receivables (121,289) (68,303)
Increase in payables 78,349 71,461
Cash generated from operations 20,067 77,685
Net financing costs paid (9,654) (5,174)
Taxation paid (14,039) (20,304)
Net cash (outflow) / inflow from (3,626) 52,207
operating activities
Net cash outflow from investing (60,303) (54,588)
activities
Net cash (outflow) / inflow from (31) 206
disposal of operations and investments
Net cash inflow from financing 24,896 40,740
activities
(Decrease) / increase in cash and cash (39,064) 38,565
equivalents
Translation difference on opening cash 8,205 (6,584)
position
Cash and cash equivalents at beginning 172,251 140,270
of year
Cash and cash equivalents at end of 141,392 172,251
year (*)
(*) Comprises cash resources, net of bank overdrafts and trade
finance advances.
SEGMENTAL ANALYSIS
Audited Restated
year ended year ended
US$ 000`s 28 Feb 07 28 Feb 06
Revenue
Westcon 2,271,557 2,062,933
Logicalis 693,113 505,179
Analysys Mason 61,352 59,750
Other Holdings 141,750 86,889
Revenue from ongoing operations 3,167,772 2,714,751
EBITDA
Westcon 82,671 66,635
Logicalis 26,795 16,707
Analysys Mason 6,202 6,223
Other Holdings 3,688 (4,414)
EBITDA from ongoing operations 119,356 85,151
Operating profit before goodwill
adjustment
Westcon 72,504 56,861
Logicalis 18,783 11,546
Analysys Mason 5,752 5,835
Other Holdings 3,245 (4,848)
Operating profit from ongoing 100,284 69,394
operations
Total assets
Westcon 873,966 793,070
Logicalis 343,189 237,693
Analysys Mason 42,518 41,140
Other Holdings 131,561 69,669
1,391,234 1,141,572
DETERMINATION OF HEADLINE EARNINGS
Profit for the year attributable to 60,049 37,772
equity holders of the parent
Headline earnings adjustments: 1,179 547
Goodwill adjustment 1,142 425
Loss on disposal of plant and equipment 6 46
Loss on disposal and closure of 31 76
discontinued operations
Tax effect (2) (16)
Minorities` interest 0 (10)
Headline earnings 61,226 38,293
CONDENSED STATEMENT OF CHANGES IN EQUITY
Balance at beginning of year 461,351 436,316
Translation of foreign subsidiaries (4,290) (14,129)
Translation difference on equity loans 8,758 1,615
Tax effect of equity loans movement 0 34
Recognised directly in equity 4,468 (12,480)
Attributable profit for year 60,049 37,772
Total income recognised for the year 64,517 25,292
Shares issued 26,830 15,498
Capital distribution (6,589) -
Share buy back 0 (1,863)
Share-based payments 1,375 1,358
Acquistions / disposals 2,765 -
Repurchase of equity interest 0 (3,666)
Minority interests 2,347 (11,584)
Balance at end of year 552,596 461,351
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 16/05/2007 08:00:04 Produced by the JSE SENS Department. |