DTC
DTC
DTC - Datatec - Unaudited Interim Results For The Six Months Ended
31 August 2009
DATATEC LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1994/005004/06
ISIN: ZAE000017745
JSE and LSE Share Code: DTC
("Datatec" or the "Group")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2009
OPERATIONAL HIGHLIGHTS
- Group`s scale and diversity continues to be a strong asset - providing
resilience in a difficult environment
- South America, Middle East and Asia remain robust
- Signs of improvement in US and Europe in recent months
FINANCIAL HIGHLIGHTS
Revenue $1,8 billion
(H1 FY09: $2,3 billion and H2 FY09: $1,9 billion)
EBITDA $44,6 million
(H1 FY09: $71,4 million and H2 FY09: $54,2 million)
Underlying* earnings per share 11,5 US cents
(H1 FY09: 22,5 US cents and H2 FY09: 10,6 US cents)
Cash generated from operations $184 million
(H1 FY09: $66 million and H2 FY09: $129 million)
*Excluding goodwill and intangibles impairment, amortisation of acquired
intangible assets, profit or loss on sale of assets and businesses, fair value
movements on put/call arrangements and unrealised foreign exchange movements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 August 2009
Unaudited Unaudited Audited
six months to six months to year ended
USD`000 31 Aug 09 31 Aug 08 28 Feb 09
Revenue 1 798 662 2 265 970 4 191 671
Continuing operations 1 792 744 2 159 870 3 980 830
Acquisitions 5 918 106 100 210 841
Cost of sales (1 563 231) (1 962 550) (3 627 835)
Gross profit 235 431 303 420 563 836
Operating costs (190 276) (227 175) (438 574)
Unrealised foreign exchange (588) (4 841) 386
(losses)/gains
Operating profit before
finance costs, depreciation
and amortisation ("EBITDA") 44 567 71 404 125 648
Depreciation (8 237) (8 305) (16 751)
Amortisation of acquired (7 558) (8 808) (17 711)
intangible assets
Operating profit before 28 772 54 291 91 186
impairments
Impairment of acquired - - (6 375)
intangible assets
Operating profit 28 772 54 291 84 811
Interest income 1 889 4 052 6 194
Financing costs (7 499) (11 443) (22 655)
Fair value movements on put (6 375) - 16 829
option liabilities
Share of equity accounted (280) 275 333
investment (losses)/earnings
Profit before taxation 16 507 47 175 85 512
Taxation (7 780) (15 102) (25 493)
Profit for the period/year 8 727 32 073 60 019
Other comprehensive income
Initial recognition of put - (49 302) (43 125)
option liabilities
Translation of foreign 76 684 (3 980) (109 323)
subsidiaries
Transfers and other items 595 - 1 561
Translation of equity loans (9 244) (2 293) 2 778
net of tax effect
Total comprehensive 76 762 (23 502) (88 089)
income/(loss) for the
period/year
Profit attributable to:
Owners of the parent 8 543 30 412 58 696
Non-controlling interests 184 1 661 1 323
8 727 32 073 60 019
Total comprehensive
income/(loss) attributable to:
Owners of the parent 70 756 (24 388) (80 012)
Non-controlling interests 6 006 886 (8 077)
76 762 (23 502) (88 089)
Number of shares issued
(millions)
Issued 176 175 176
Weighted average 176 173 174
Diluted weighted average 178 175 176
Earnings per share ("EPS") (US
cents)
Basic EPS 4,9 17,6 33,7
Diluted basic EPS 4,8 17,4 33,4
SALIENT FINANCIAL FEATURES
Headline earnings 8 553 30 411 63 258
Headline earnings per share
(US cents)
Headline 4,9 17,6 36,3
Diluted headline 4,8 17,4 36,0
Underlying earnings 20 147 38 999 57 655
Underlying earnings per share
(US cents)
Underlying 11,5 22,5 33,1
Diluted underlying 11,3 22,3 32,8
Net asset value per share (US 355,0 361,7 328,0
cents)
Operating cash generation per 104,6 38,0 111,0
share (US cents)
KEY RATIOS
Gross margin (%) 13,1 13,4 13,5
EBITDA (%) 2,5 3,2 3,0
Effective tax rate (%) 47,1 32,0 29,8
Effective tax rate (%)
excluding fair value movements
on put option liabilities 34,0 32,0 37,0
Exchange rates
Average Rand/US exchange rate 8,2 7,7 8,7
Closing Rand/US exchange rate 7,8 7,7 10,1
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 August 2009
Unaudited Unaudited Audited
USD`000 31 Aug 09 31 Aug 08 28 Feb 09
ASSETS
Non-current assets 442 613 517 531 429 998
Property, plant and equipment 30 476 33 975 29 938
Capitalised development 12 867 15 919 15 268
expenditure
Goodwill 307 062 354 465 292 033
Other intangible assets 53 739 82 933 53 356
Investments 7 011 3 796 6 646
Deferred tax assets 31 458 26 443 32 757
Current assets 1 351 751 1 572 597 1 246 001
Inventories 254 399 401 703 249 910
Trade and other receivables 779 262 939 775 777 606
Cash and cash equivalents 318 090 231 119 218 485
Total assets 1 794 364 2 090 128 1 675 999
EQUITY AND LIABILITIES
Ordinary shareholders` funds 625 490 632 373 575 863
Non-controlling interest 49 517 54 557 46 536
Total equity 675 007 686 930 622 399
Long term liabilities 21 269 57 789 49 904
Amounts owing to vendors 33 722 62 231 27 337
Deferred taxation liabilities 24 752 37 258 22 006
Current liabilities 1 039 614 1 245 920 954 353
Payables and provisions 927 372 1 009 654 794 338
Amounts owing to vendors 14 194 16 631 23 736
Taxation 11 689 10 792 12 855
Bank overdrafts 86 359 208 843 123 424
Total equity and liabilities 1 794 364 2 090 128 1 675 999
Capital expenditure incurred 4 893 10 053 15 025
in current period/year
Capital commitments at end of 5 471 11 194 7 021
period/year
Lease commitments at end of 95 584 110 695 89 843
period/year
Payable within one year 19 008 19 364 19 870
Payable after one year 76 576 91 331 69 973
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 31 August 2009
Unaudited Unaudited Audited
six months to six months to year ended
USD`000 31 Aug 09 31 Aug 08 28 Feb 09
Operating profit before
finance costs, depreciation
and amortisation (EBITDA) 44 567 71 404 125 648
Loss/(profit) on disposal of 10 (1) 66
property, plant and equipment
Non-cash items 5 882 (4 486) 27 023
Cash generated before working 50 459 66 917 152 737
capital changes
Working capital changes 133 352 (569) 42 162
Decrease/(increase) in 5 696 (56 643) 77 074
inventories
Decrease/(increase) in 32 116 (57 746) 20 923
receivables
Increase/(decrease) in 95 540 113 820 (55 835)
payables
Cash generated from operations 183 811 66 348 194 899
Net finance costs paid (5 607) (7 391) (16 586)
Taxation paid (7 728) (19 418) (26 643)
Net cash inflow from operating 170 476 39 539 151 670
activities
Investment in subsidiaries (2 569) (49 496) (42 430)
Net cash outflow from other (5 553) (7 843) (21 404)
investing activities
Net cash inflow from financing 857 20 860 15 731
activities
Capital distribution to (21 982) (20 485) (20 485)
shareholders
Net increase/(decrease) in 141 229 (17 425) 83 082
cash and cash equivalents
Cash and cash equivalents at
the beginning of
period/year 95 061 34 179 34 179
Translation differences on (4 558) 5 522 (22 200)
opening cash position
Cash and cash equivalents at 231 732 22 276 95 061
the end of period/year (*)
(*) Comprises cash resources, net of bank overdrafts and trade finance advances.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
for the six months ended 31 August 2009
Unaudited Unaudited Audited
six months to six months to year ended
USD`000 31 Aug 09 31 Aug 08 28 Feb 09
Balance at beginning of the 622 399 678 283 678 283
period/year
Total comprehensive 76 762 (23 502) (88 089)
income/(loss)
New share issues 1 014 26 540 26 540
Capital distribution to (21 982) (20 485) (20 485)
shareholders
Share buy-back - (4 014) (4 014)
Share-based payments (162) 780 (873)
Non-controlling interests (3 024) 29 328 31 037
Balance at end of the 675 007 686 930 622 399
period/year
Determination of headline and
underlying earnings
Profit attributable to owners
of the parent per the
income statement 8 543 30 412 58 696
Headline earnings adjustments 10 (1) 6 441
Intangible impairment - - 6 375
Loss/(profit) on disposal of 10 (1) 66
property, plant and equipment
Tax effect - - (1 764)
Non-controlling interest - - (115)
Headline earnings 8 553 30 411 63 258
Determination of underlying
earnings
Headline earnings 8 553 30 411 63 258
Underlying earnings 14 521 13 649 496
adjustments
Unrealised foreign exchange 588 4 841 (386)
losses/(gains)
Fair value movements on put 6 375 - (16 829)
option arrangements
Amortisation of acquired 7 558 8 808 17 711
intangible assets
Tax effect (2 756) (2 821) (5 689)
Non-controlling interest (171) (2 240) (410)
Underlying earnings 20 147 38 999 57 655
SEGMENTAL ANALYSIS
for the six months ended 31 August 2009
Unaudited Unaudited Audited
six months to six months to year ended
USD`000 31 Aug 09 31 Aug 08 28 Feb 09
Revenue
Westcon 1 237 225 1 509 645 2 779 410
Westcon Emerging Markets 128 704 150 263 283 294
Logicalis 393 976 542 309 1 005 355
Consulting Services 31 342 38 745 72 885
Corporate and other 7 415 25 008 50 727
Revenue from continuing 1 798 662 2 265 970 4 191 671
operations
EBITDA
Westcon 36 001 44 146 67 758
Westcon Emerging Markets 2 027 956 601
Logicalis 16 514 31 363 56 959
Consulting Services 235 3 018 6 582
Corporate and other (10 210) (8 079) (6 252)
EBITDA from ongoing operations 44 567 71 404 125 648
Operating profit before
goodwill adjustment
Westcon 29 711 36 852 53 804
Westcon Emerging Markets 1 449 521 (487)
Logicalis 8 290 22 579 39 313
Consulting Services (303) 2 322 5 352
Corporate and other (10 375) (7 983) (6 796)
Operating profit from ongoing 28 772 54 291 91 186
operations
Total assets
Westcon 1 095 084 1 285 091 1 058 118
Westcon Emerging Markets 115 909 120 578 99 281
Logicalis 479 977 602 056 415 142
Consulting Services 55 365 59 043 63 140
Corporate and other 48 029 23 360 40 318
1 794 364 2 090 128 1 675 999
COMMENTARY
Jens Montanana, Chief Executive of Datatec, commented:
"We have delivered another sound performance with stable gross margins and
further improvements in working capital management driving strong cash
generation. Our underlying earnings per share for the first half of the current
financial year have improved over the second half of the previous financial
year.
Whilst trading conditions remain challenging, they are becoming more predictable
and we are confident of a return to overall revenue growth in our traditionally
stronger second half, compared to the first half of this financial year and the
second half of the previous financial year. We expect our overall financial
performance to improve, as we benefit from high operational gearing as a result
of the significantly reduced cost base.
Our divisional structure, with multiple lines of business and geographic
diversification, continues to be a strength. We remain committed to widening our
global reach and are now well positioned to embark upon the next stage of our
international expansion.
In keeping with our recent successful advances in Brazil and India, we are now
actively reviewing a number of potentially strategically significant initiatives
in China and parts of Asia, which we see as key strategic market opportunities."
PROFILE AND GROUP STRUCTURE
Datatec Group is an international Information Communications Technology ("ICT")
networking and related services business 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" and "Westcon Emerging Markets"); ICT infrastructure solutions and
services ("Logicalis"); and Consulting Services ("Analysys Mason" and "Intact").
"Corporate and Other" encompass the operating costs of the Group`s head office
entities and two months` trading of African Legend Indigo ("ALI").
OVERVIEW
Despite continued challenging market conditions in the first half of the
financial year, the Group has delivered a sound financial and operational
performance with further improvements in operating cash flow. Datatec`s
geographic diversity, global presence and improving mix of business continue to
mitigate the impacts of the global economic downturn. While all markets have
been affected by credit contraction and lower economic growth, South America,
the Middle East and Asia continue to remain robust which has helped to
compensate for softer business conditions in the USA and Europe.
The challenging conditions of the second half of the 2009 financial year ("H2
FY09") continued into the first quarter of the current financial year. However,
trading conditions started to improve in the second quarter and the Group is
confident of a return to sequential growth in the second half of the year.
Westcon`s performance in particular exceeded the Board`s expectations,
continuing the sequential improvement in operating performance reported at the
Interim Management Statement in July 2009, with stable gross margins, EBITDA
margin expansion and improved profitability.
The performance of Logicalis was impacted by challenging conditions in the US
and the UK. Trading and profitability in South America remained robust and in
line with our expectations. An overall better financial performance is expected
in the second half of the financial year at Logicalis as a result of the
traditionally stronger trading period in the second half of the year.
Consulting Services, as expected, had a difficult start to the year as a result
of deterioration in demand for discretionary and strategic consulting services.
Additional cost reductions have been made to improve profitability, with an
improved financial performance expected in the second half.
In the six months to 31 August 2009 ("H1 FY10"), Datatec achieved revenues of
$1,8 billion compared to $2,3 billion in the first half of the 2009 financial
year ("H1 FY09") and $1,9 billion in H2 FY09. Gross margins held above 13% at
13,1% (H1 FY09:13,4%).
Reported EDITDA was $44,6 million compared to $71,4 million in H1 FY09 (H2 FY09:
$54,2 million), and EBITDA margins reduced to 2,5% from 3,2% in H1 FY09 (2,9% in
H2 FY09). Profit after tax was $8,7 million (H1 FY09: $32,1 million and H2 FY09:
$27,9 million).
Underlying earnings was 11,5 cents per share, compared to 22,5 cents in H1 FY09
(10,6 cents in H2 FY09).
Of the $1,8 billion revenues generated during H1 FY10, some 76% came from
Distribution; 17% from ICT Solutions and 7% from Consulting and Services.
Analysis by business stream Revenue % Gross Profit %
($ million) H1 FY10 H1 FY09
Distribution 1 366 76 140 60
ICT Solutions 310 17 53 22
Consulting and Services 123 7 42 18
1 799 235
The Group achieved strong operating cash generation during H1 FY10 as a result
of continued effective working capital management. Datatec ended the period with
a net cash position of $172 million (H1 FY09: Net debt of $47,7 million).
Westcon, in particular continued to be strongly cash generative, as reported in
the second half of the previous financial year.
STRATEGY
Despite the economic downturn, Datatec has maintained its focus on its long term
strategy: to deliver sustainable above average returns to shareholders by
focussing on a combination of organic growth in the faster growing sectors of
the ICT market, geographic expansion and earnings enhancing acquisitions.
The successful reduction in the Group`s dependency on any single market,
territory or technology sector, as well as improving supplier and customer
diversification and increasing internationalisation, has resulted in Datatec
being in a strong market position in the current climate.
Datatec is creating shareholder value through actively managing its
complementary but standalone businesses. In addition to the allocation of
capital and financing resources for each activity, the central team supports
each division`s growth strategies, providing corporate opportunities, market and
sector intelligence plus geographical and industry expertise.
The Group`s increasing scale and international reach continues to attract
significant vendor and customer interest, with Westcon`s appointment as Cisco`s
first global distributor in April 2009, a good example. This agreement enables
both companies to conduct international and multi-regional transactions more
efficiently in any country, while at the same time increasing both
organisations` ability to access emerging market opportunities.
The Group continued its focus during H1 FY10 on improving operational
performance and cash generation and completed one small acquisition in Germany
during the period. However, the Board is now looking at organic initiatives and
acquisitions that can deliver enhanced margins over the longer term, facilitate
consolidation in proven markets and extend geographical reach. Having
successfully expanded in Brazil and India, the Board is now actively evaluating
new opportunities in other markets especially China and parts of Asia.
FINANCIAL RESULTS
In line with expectations, Group revenue in H1 FY10 were $1,8 billion (H1 FY09:
$2,3 billion), while gross margin remained stable at 13,1% (H1 FY09:13,4%).
Revenues decreased mainly as a result of tougher trading conditions during H1
FY10, compared to H1 FY09.
Of the Group`s $1,8 billion revenue in H1 FY10, 39% was generated from North
America (H1 FY09: 35%), 38% from Europe (H1 FY09: 42%), 8% from Asia Pacific (H1
FY09: 6%), 8% from South America (H1 FY09: 9%) and 7% from Middle East and
Africa (H1 FY09: 8%).
Gross profit was $235,4 million (H1 FY09: $303,4 million), while operating costs
were 17% lower at $190,3 million (H1 FY09: $227,2 million) as a result of
significant cost reduction activities across the Group.
EBITDA was $44,6 million (H1 FY09: $71,4 million), which includes unrealised
foreign exchange losses of $0,6 million (H1 FY09: $4,8 million) and realised
foreign exchange losses of $5,0 million (H1 FY09: gains of $5,2 million).
Amortisation of intangible fixed assets arising from acquisitions was $7,6
million (H1 FY09: $8,8 million).
Operating profit was $28,8 million (H1 FY09: $54,3 million). The net financing
costs were $5,6 million (H1 FY09: $7,4 million). Net financing costs reduced as
a result of working capital leverage, cash flow generation, decreased debt
levels and lower interest rates.
Profit before tax was $16,5 million (H1 FY09: $47,2 million).
The Group`s effective tax rate increased to 47% from 32% in H1 FY09, primarily
due to profit reduction as a result of fair value movements on put option
liabilities. If the charges arising from the fair value movements on put option
liabilities are excluded from profit before tax, the effective tax rate would
have been 34%. This increase is attributable to profits being realised for a
number of business units in jurisdictions with higher effective tax rates, most
notably North and South America.
Gains of $76,7 million (H1 FY09: losses of $109,3 million) arising on the
translation of non USD denominated subsidiaries are included in comprehensive
income of $76,8 million (H1 FY09 losses of $88,1 million). Under previous
accounting standards these figures were included in the statement of changes in
equity.
Underlying earnings per share were 11,5 US cents compared to 22,5 US cents in H1
FY09 (10,6 US cents in H2 FY09). Headline earnings per share ("HEPS") were 4,9
US cents (H1 FY09: 17,6 US cents). This includes the effects of the fair value
adjustments of the put option liabilities detailed below. If the effect of these
put option fair value adjustments were to be excluded, HEPS would be 8,5 US
cents (H1 FY09: 17,6 US cents).
Working capital remained tightly controlled and $133 million operating cash was
generated as a result of working capital changes (H1 FY09: $0,6 million cash
outflow from working capital changes). The Group enjoys comfortable headroom in
terms of its working capital needs.
Outstanding liabilities to vendors of businesses acquired have decreased since
last year-end from $51 million to $48 million, of which $33,7 million is
included under long term liabilities. Liabilities owing to vendors comprise
potential future cash payments to the sellers of businesses acquired based on
future profitability and performance of the Datatec share price, as well as
liabilities initially raised against equity in accordance with IFRS. Companies
are required to re-measure such liabilities at each reporting date, with changes
in the fair values booked in the income statement. An increase in put option
liabilities has resulted in a non-operating charge of $6,4 million being
recognised (H2 FY09: gain of $16,8 million).
Operating cash flows have continued to improve as the Group de-leveraged on the
back of lower revenues, better payment terms from major creditors and other
improvements in working capital. Cash generated from operating activities (after
working capital changes) amounted to $183,8 million which represents an increase
of 180% over H1 FY09 during which the Group had generated cash of $66,3 million.
The Group paid $22 million to shareholders as a capital distribution in July
2009.
The Group had net cash of $172 million on 31 August 2009, including long-term
debt of $21,3 million and short term debt of $39 million included in the
payables and provisions line on the balance sheet (H1 FY09: net debt of $47,7
million and H2 FY09: net cash of $36,2 million).
The Group spent approximately $2,6 million (net of cash acquired) on the Minters
acquisition in Germany. As a result, goodwill and intangible assets increased by
$2,4 million and $0,4 million, respectively. The balance of the increase in
goodwill over the prior financial year is a consequence of foreign exchange
variances, where non Dollar denominated goodwill is converted to Dollars at
period end.
The revenue included from the acquisition in H1 FY10 was $5,9 million. Had the
acquisition date been 1 March 2009, the pro-forma revenue would have been
approximately $7 million. Since this acquisition is fully integrated into
existing operations, it is not practical to establish the profit after tax
contributed by the acquisition in H1 FY10, or the profit after tax which the
acquisition would have contributed to the Group if it had been included for the
entire first half.
DIVISIONAL REVIEWS
WESTCON
Westcon accounted for 69% of the Group`s revenues (H1 FY09: 67%) and 66% of
EBITDA (H1 FY09: 55%).
Westcon is the world`s leading specialty distributor in networking, security,
mobility and convergence for major technology vendors, including Cisco, Nortel,
Avaya, Juniper and Polycom. Westcon`s revenue was $1,2 billion (H1 FY09: $1,5
billion and H2 FY09: $1,3 billion) with softening experienced across all three
operating regions.
Trading in the Americas improved modestly from H2 FY09, with conditions in
Europe remaining stable and performance of the Asia Pacific region still strong.
Strong working capital and operating cash flow management has continued.
Gross margins increased from 10,1% in H1 FY09 to 10,2% in H1 FY10 with gross
profit of $126 million achieved (H1 FY09: $152 million). The increase in gross
margins is attributable to higher margins in Europe and Asia Pacific offset by
lower gross margins in the Americas.
Restructuring and cost control initiatives which commenced in FY09, resulted in
operating expenses decreasing 17% from $108 million to $90 million, mainly due
to a reduction in headcount, lower outbound freight costs, reduced professional
fees and lower travel expenses.
Westcon`s EBITDA was $36 million compared to $44 million in H1 FY09 ($24 million
in H2 FY09). Overall EBITDA margins improved to 2,9%, having been 1,9% in H2
FY09, with higher margins in Europe and Asia Pacific offset by lower margins in
the Americas.
After charges for depreciation and amortisation of intangible assets, operating
profit was $30 million (H1 FY09: $37 million).
Westcon generated $127 million of cash from operations, compared to cash usage
of $0,1 million in H1 FY09, driven by effective working capital management and
better payment terms from suppliers.
In terms of revenue split by vendor, Cisco products made up 57% (H1 FY09: 55%)
with 10% for Avaya (H1 FY09:10%), 8% for Nortel (H1 FY09: 10%), 17% for security
(H1 FY09: 15%) and 8% other developing vendors (H1 FY09: 10%). 46% of Westcon`s
revenue was generated in the Americas followed by 43% in Europe and 11% in Asia-
Pacific.
Over the course of FY09, and particularly at the onset of the global economic
downturn, Westcon took significant measures to ensure it could weather the
difficult market conditions and emerge as a stronger company. These measures
included significantly increasing its overall cash position and utilising better
payment terms from certain suppliers. As a result, Westcon has been able to
continue operating successfully within the current economic climate and is very
well positioned to maintain its margins even with reduced revenues.
In April 2009, Westcon announced that it had become Cisco`s first global
distributor, signing a partnership that effectively increased both
organisations` ability to access emerging market opportunities in many parts of
Africa and the Middle East, South America and across Asia. As a result of this
agreement, Westcon opened new offices in the Philippines, Thailand and Vietnam
in Asia, and the Czech Republic in Europe.
To consolidate the early success of this partnership, Westcon announced in
September 2009 the creation of Comstor Worldwide, a new global business unit
focused on its Cisco solutions offerings in order to better manage growth and
investments in its Cisco-oriented business. This new business unit accounts for
over 50% of Westcon`s revenue.
Although trading in Europe so far this year has been flat, a modest improvement
is being seen in the US, with Brazil and Asia Pacific performing strongly. The
Group expects Westcon`s profitability to continue to improve for the remainder
of this financial year, particularly as this business continues to benefit
strongly from the high operational gearing that now exists as a result of the
significantly reduced cost base and improved operational efficiencies.
WESTCON EMERGING MARKETS ("WEM")
WEM operations made up 7% of the Group`s revenue (H1 FY09: 7%) and 4% of EBITDA
(H1 FY09: 1%).
WEM is Datatec`s distribution division operating in Africa, the Middle East and
India. These subsidiaries previously formed part of the Group`s "Other
Holdings". Consolidation of these operations under the WEM umbrella has ensured
a more regional approach towards management and reporting, with a strong focus
on existing business development and cross-group operational efficiencies.
WEM revenues were $128,7 million (H1 FY09: $150,3 million), with the decrease
mainly attributable to softening in Africa and South African revenues as a
result of the global economic downturn.
EBITDA doubled from $1 million in H1 FY09 to $2 million as a result of a strong
performance in the Middle East and the African region having turned to
profitability with continued EBITDA pressures in South Africa.
WEM has emerged in a stronger position following an extensive restructuring
programme in Africa and South Africa despite trading conditions remaining
difficult in South Africa. The Group expects WEM`s financial performance to
continue to improve for the remainder of this financial year.
LOGICALIS
Logicalis accounted for 22% of the Group`s revenues (H1 FY09: 24%) and 30% of
EBITDA (H1 FY09: 40%).
Logicalis is an international provider of integrated information and
communication technology solutions, delivering secure, converged computing and
communications infrastructure and services. Specialising in the areas of
advanced technologies, Logicalis focuses on three main areas of integration -
data centre solutions, unified communications and professional and managed
services.
Revenue was $394,0 million (H1 FY09: $542,3 million), including a $5,9 million
contribution from an acquisition, reflecting the difficult global macroeconomic
environment (down 17% on a constant currency basis). Last year the first half
performance in South America was boosted by a large project with a
telecommunications company.
The decline in activity was largely anticipated and close attention to the cost
base resulted in an EBITDA margin of 4,2% (H1 FY09: 5,8%). Excluding the impact
of acquisitions made in FY09 and FY10, organic revenue decreased by 23% on a
constant currency basis.
Revenue from product sales was down 33% year on year with declines across all
main vendor categories, namely Cisco, HP and IBM. However, revenues from
services were more resilient, down only 2% year on year, with particularly
encouraging growth in maintenance revenues of 16% as customers in downturns
often increase their reliance on services associated with their install base.
The gross margin was 21,6% (H1 FY09: 21,7%). Product margins were under
pressure, particularly in the US and UK, but services margins were maintained
and an improved services mix kept the overall margin similar to last year. The
gross profit was $85,3 million (H1 FY09: $117,8 million).
Operating expenses were cut by 20%, reflecting the reduction in cost base by
management in anticipation of lower revenues. EBITDA was $16,5 million (H1 FY09:
$31,4 million). After charges for depreciation and amortisation of intangible
assets, operating profit was $8,3 million (H1 FY09: $22,6 million).
On 5 May 2009 Logicalis acquired Minters GmbH ("Minters"), a German Cisco
Systems Silver Partner. The enlarged Logicalis German operation is a mid-market
focused ICT integrator and provides a platform for further growth in Germany. On
28 February 2009 Logicalis transferred its Intact services business into the
Consulting Services Division. The results of Intact for the six months ended 31
August 2008 are excluded from Logicalis` comparative results on a pro forma
basis.
Management expect an improved performance from Logicalis in the second half of
the current financial year. Traditionally activity levels are higher for
Logicalis in the second half, and the business is expected to benefit from
higher operational leverage as a result of the reduced cost base.
CONSULTING SERVICES
The Group`s Consulting Services division consists of Analysys Mason and Intact.
Analysys Mason provides management consulting advice and market intelligence
services to the telecoms, IT and digital media industries. It advises clients
across the full business development cycle, from corporate strategy, financial
transactions, and policy issues to product development, marketing, and network
operations. Its clients include telecoms operators, media organisations,
financial institutions, regulators, and other public sector bodies.
As expected, Analysys Mason experienced a difficult start to the year
particularly in the area of strategy consulting where operators and service
providers have continued to reduce discretionary spend. On a local currency
(Sterling) basis, year on year revenue fell by 8%, but the strengthening of the
US$ resulted in revenue of $22,4 million (H1 FY09: $30,4 million).
As a result of lower consulting utilisation, the gross margins were 27,4% (H1
FY09: 36,8%), resulting in an EBITDA loss of $0,2 million (H1 FY09: profit $2,3
million). Additional cost reductions have been made and in recent months order
intake has started to improve. Consequently, management expect a return to
growth and improvement in operating profit in the second half.
Intact is a networking services and support consultancy business focussed on
providing high end professional services to its customers. Intact`s services are
offered exclusively through its partner network, which include Value Added
Resellers, Systems Integrators, Network Integrators and Service Providers.
Intact generated revenues of $8,9 million (H1 FY09: $8,3 million) and generated
EBITDA of $0,4 million (H1 FY09: $0,7 million).
CORPORATE AND OTHER
Included in Corporate and Other are the operating costs of the Datatec head
office entities which also include unrealised and realised foreign exchange
losses of $1,5 million and $3,0 million respectively (H1 FY09: $1,4 million and
$1,4 million).
This segment also includes two months` trading for the Group`s 55% holding in
the South African ICT business, ALI, which was sold effective 30 April 2009.
During the two months ended 30 April 2009, ALI generated revenues of $7,4
million (H1 FY09: $25,0 million) and an EBITDA loss of $0,9 million (H1 FY09:
profit of $0,7 million).
REPORTING
This report complies with International Accounting Standard 34 - Interim
Financial Reporting as well as with Schedule 4 of the South African Companies
Act (Act 61 of 1973, as amended), the AIM Rules for Companies and the disclosure
requirements of the JSE Limited`s Listings Requirements. The accounting policies
comply with International Financial Reporting Standards ("IFRS") of the
International Accounting Standards Board and are consistent with those applied
in the prior year financial statements, except for the adoption by the Group of
the amendments to IAS 1 - Presentation of Financial Statements. This standard
affects the presentation of owner changes in equity and comprehensive income and
does not impact on recognition, measurement and disclosure of specific
transactions as required by any other IFRS standard. The Group has presented a
`statement of comprehensive income` which replaces the income statement and also
includes all non-owner changes in equity. All changes in equity resulting from
transactions with owners in their capacity as owners are presented in the
`statement of changes in equity`.
SUBSEQUENT EVENTS
On 1 October 2009 Westcon acquired Datastor (NZ), a New Zealand ICT distribution
business for cash. The acquisition provides Westcon with the opportunity to add
an additional operation in New Zealand to help consolidate its existing business
and create a market leading position that is complementary to Westcon`s Asia
Pacific distribution business.
CURRENT TRADING AND PROSPECTS
Trading in the first half of FY10 has been largely in line with the latter part
of FY09.
Encouragingly, the Group has seen some early signs of improvement in the macro-
economic conditions in most regions in which it operates. A recovery is now
anticipated in the US and Europe whilst South America, Middle East and Asia have
remained robust. Business conditions have become more predictable, particularly
since the second quarter. As a result, the Board is confident of a return to
revenue growth in all divisions in the second half of the year.
The Group is evaluating a number of potential strategic corporate developments
in China and parts of Asia. In keeping with the Group`s recent successful
advances in Brazil and India, Datatec believes that there are opportunities to
grow further in developing markets, especially China and parts of Asia,
representing key strategic markets for its operations.
On 14 May 2009 the Group published a forecast for FY10 of revenues of between
$3,7 billion and $4 billion, profit after tax of approximately $44 million,
underlying earnings per share of approximately 29 US cents and earnings and
headline earnings per share of approximately 23 US cents. Based on current
trading conditions, these forecasts remain unchanged.
This report has not been audited and the forecast within this current trading
and prospects section has not been reviewed and reported on by Datatec`s
auditors.
On behalf of the Board:
SJ Davidson JP Montanana IP Dittrich
Chairman Chief Executive Officer Chief Financial Officer
14 October 2009
Directors
SJ Davidson*# (Chairman), JP Montanana# (CEO), IP Dittrich (CFO), JF
McCartney+*, LW Nkuhlu*, CS Seabrooke*, NJ Temple*#
#British *Non-executive +American
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 14/10/2009 08:00:07 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS. |