DTC
DTC
DTC - Datatec Limited - Unaudited results for the period ended 31 August 2010
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 RESULTS FOR THE PERIOD ENDED 31 AUGUST 2010
Operational highlights
Revenue growth in all divisions
Strong recovery in the US and parts of continental Europe
Continued expansion in Asia and Latin America
Group continues to benefit from international scale and business diversification
Financial highlights
Revenue up 19% to $2,13 billion (H1 FY10: $1,80 billion)
EBITDA up 31% to $58,5 million (H1 FY10: $44,6 million)
Underlying* earnings per share up 37% to 15,8 US cents
(H1 FY10: 11,5 US cents)
*Excluding goodwill and intangibles impairment, amortisation of acquired
intangible assets, profit or loss on sale of assets and businesses, fair value
movements on acquisition related financial instruments and unrealised foreign
exchange movements
Condensed Group statement of comprehensive income
for the six months ended August 2010
Unaudited Unaudited Audited
six months six months year
to to ended
USD`000 August 2010 August 2009 February 2010
Revenue 2 132 992 1 798 662 3 738 026
Continuing operations 2 132 616 1 792 744 3 698 134
Acquisitions 376 5 918 39 892
Cost of sales (1 851 038) (1 563 231) (3 239 650)
Gross profit 281 954 235 431 498 376
Operating costs (222 265) (190 276) (387 750)
Unrealised foreign (1 235) (588) (2 090)
exchange losses
Operating profit before
finance costs,
depreciation
and amortisation 58 454 44 567 108 536
("EBITDA")
Depreciation (10 290) (8 237) (17 132)
Amortisation of acquired (8 070) (7 558) (15 438)
intangible assets
Operating profit 40 094 28 772 75 966
Interest income 2 178 1 889 3 904
Financing costs (6 435) (7 499) (13 478)
Fair value movements on (6 797) (6 375) (12 010)
put option liabilities
Share of equity (66) (280) (278)
accounted investment
losses
Profit before taxation 28 974 16 507 54 104
Taxation (11 976) (7 780) (22 465)
Profit for the 16 998 8 727 31 639
period/year
Other comprehensive
income
Translation of foreign (1 898) 76 684 77 498
subsidiaries
Initial recognition and - - 843
transfers related to put
option liabilities
Translation of equity (1 474) (9 244) (10 582)
loans net of tax effect
Other items 402 595 1 075
Total comprehensive 14 028 76 762 100 473
income for the
period/year
Profit attributable to:
Owners of the parent 16 064 8 543 29 974
Non-controlling 934 184 1 665
interests
16 998 8 727 31 639
Total comprehensive
income attributable to:
Owners of the parent 12 224 70 756 92 029
Non-controlling 1 804 6 006 8 444
interests
14 028 76 762 100 473
Number of shares issued
(millions)
Issued 185 176 182
Weighted average 183 176 177
Diluted weighted average 186 178 178
Earnings per share
("EPS") (US cents)
Basic EPS 8,8 4,9 17,0
Diluted basic EPS 8,7 4,8 16,8
SALIENT FINANCIAL
FEATURES
Headline earnings 16 116 8 553 29 978
Headline earnings per
share (US cents)
?Headline 8,8 4,9 17,0
?Diluted headline 8,7 4,8 16,8
Underlying earnings 28 935 20 147 53 553
Underlying earnings per
share (US cents)
?Underlying 15,8 11,5 30,3
?Diluted underlying 15,6 11,3 30,0
Net asset value per 361,2 355,0 366,4
share (US cents)
KEY RATIOS
Gross margin (%) 13,2% 13,1% 13,3%
EBITDA (%) 2,7% 2,5% 2,9%
Effective tax rate (%) 41,3% 47,1% 41,5%
Effective tax rate (%)
excluding fair value
movements on put
option liabilities 33,5% 34,0% 34,0%
Exchange rates
Average Rand/USD 7,5 8,2 7,9
exchange rate
Closing Rand/USD 7,4 7,8 7,6
exchange rate
Condensed Group statement of cash flows
for the six months ended August 2010
Unaudited Unaudited Audited
six months six months year
to to ended
USD`000 August 2010 August 2009 February 2010
EBITDA 58 454 44 567 108 536
Loss on disposal of 79 10 6
property, plant and
equipment
Non-cash items 7 147 5 882 23 051
Cash generated before 65 680 50 459 131 593
working capital changes
Working capital changes (257 752) 133 352 93 902
(Increase)/decrease in (38 375) 5 696 (7 852)
inventories
(Increase)/decrease in (114 894) 32 116 (27 630)
receivables
(Decrease)/increase in (104 483) 95 540 129 384
payables
Cash (utilised (192 072) 183 811 225 495
by)/generated from
operations
Net finance costs paid (4 257) (5 607) (9 574)
Taxation paid (13 025) (7 728) (19 842)
Net cash (209 354) 170 476 196 079
(outflow)/inflow from
operating activities
Investment in (111) (2 569) (29 689)
subsidiaries
Net cash outflow from (15 999) (5 553) (23 765)
other investing
activities
Net cash (23 075) 857 8 591
(outflow)/inflow from
other financing
activities
Capital distribution to (21 713) (21 982) (21 982)
shareholders
Net (decrease)/increase (270 252) 141 229 129 234
in cash and cash
equivalents
Cash and cash
equivalents at the
beginning of
period/year 239 834 95 061 95 061
Translation differences (305) (4 558) 15 539
on opening cash position
Cash and cash (30 723) 231 732 239 834
equivalents at the end
of period/year (1)
(1) Comprises cash resources, net of bank overdrafts and trade finance advances.
Condensed Group statement of financial position
as at August 2010
Unaudited Unaudited Audited
USD`000 August 2010 August 2009 February 2010
ASSETS
Non-current assets 457 344 442 613 459 963
Property, plant and 47 062 30 476 43 436
equipment
Capitalised development 14 108 12 867 12 181
expenditure
Goodwill 316 160 307 062 315 131
Acquired intangible 43 401 53 739 51 780
assets
Investments 6 738 7 011 6 818
Deferred tax assets 29 875 31 458 30 617
Current assets 1 455 136 1 351 751 1 442 081
Inventories 316 563 254 399 277 832
Trade and other 953 758 779 262 852 390
receivables
Cash and cash 184 815 318 090 311 859
equivalents
Total assets 1 912 480 1 794 364 1 902 044
EQUITY AND LIABILITIES
Ordinary shareholders` 666 609 625 490 667 879
funds
Non-controlling 51 923 49 517 50 900
interests
Total equity 718 532 675 007 718 779
Non-current liabilities 79 766 83 839 73 360
Long term liabilities 19 598 21 269 17 676
Amounts owing to vendors 23 356 33 722 19 958
Liability for share- 11 491 4 096 12 260
based payments
Deferred taxation 25 321 24 752 23 466
liabilities
Current liabilities 1 114 182 1 035 518 1 109 905
Payables and provisions 863 692 923 276 992 830
Amounts owing to vendors 27 202 14 194 32 853
Taxation 7 750 11 689 12 197
Bank overdrafts 215 538 86 359 72 025
Total equity and 1 912 480 1 794 364 1 902 044
liabilities
Capital expenditure 11 832 4 893 21 531
incurred in current
period/year
Capital commitments at 12 329 5 471 14 675
end of period/year
Lease commitments at end 86 188 95 584 97 993
of period/year
Payable within one year 20 013 19 008 22 064
Payable after one year 66 175 76 576 75 929
Condensed Group statement of changes in total equity
for the six months ended August 2010
Unaudited Unaudited Audited
six months six months year
to to ended
USD`000 August 2010 August 2009 February 2010
Balance at beginning of 718 779 622 399 622 399
the period/year
Total comprehensive 14 028 76 762 100 473
income
New share issues 9 036 1 014 21 296
Capital distribution to (21 713) (21 982) (21 982)
shareholders
Share-based payments (617) (162) 673
Acquisition (200) - -
Non-controlling (781) (3 024) (4 080)
interests
Balance at end of the 718 532 675 007 718 779
period/year
Determination of headline and underlying earnings
For the six months ended August 2010
Unaudited Unaudited Audited
six months six months year
to to ended
August 2010 August 2009 February 2010
USD`000 Unaudited Unaudited Audited
Profit attributable to 16 064 8 543 29 974
equity holders of the
parent
Headline earnings 79 10 6
adjustments
Loss on disposal of 79 10 6
property, plant and
equipment
?Tax effect (27) - (2)
?Non-controlling - - -
interests
Headline earnings 16 116 8 553 29 978
Underlying earnings 16 102 14 521 29 538
adjustments
Unrealised foreign 1 235 588 2 090
exchange losses
Fair value movements on 6 797 6 375 12 010
put option liabilities
Amortisation of 8 070 7 558 15 438
intangible assets
?Tax effect (3 129) (2 756) (5 906)
?Non-controlling (154) (171) (57)
interests
Underlying earnings 28 935 20 147 53 553
Segmental analysis
for the six months ended August 2010
Unaudited Unaudited Audited
six months six months year
to to ended
USD`000 August 2010 August 2009 February 2010
Revenue
Westcon2 1 619 130 1 365 930 2 828 238
Logicalis 479 160 393 976 838 492
Consulting Services 34 702 31 342 63 882
Corporate and other - 7 414 7 414
Revenue from continuing 2 132 992 1 798 662 3 738 026
operations
EBITDA
Westcon2 43 067 38 028 80 100
Logicalis 21 768 16 514 42 357
Consulting Services 1 032 235 1 905
Corporate and other3 (7 413) (10 210) (15 826)
EBITDA from ongoing 58 454 44 567 108 536
operations
Operating profit before
goodwill adjustment
Westcon2 35 755 31 160 66 040
Logicalis 11 369 8 290 25 203
Consulting Services 461 (303) 790
Corporate and other3 (7 491) (10 375) (16 067)
Operating profit from 40 094 28 772 75 966
ongoing operations
Total assets
Westcon2 1 233 850 1 210 993 1 254 719
Logicalis 612 779 479 977 566 711
Consulting Services 54 834 55 365 51 542
Corporate and other 11 017 48 029 29 072
1 912 480 1 794 364 1 902 044
(2) Now combined with Westcon Emerging Markets, comparatives restated
accordingly.
(3) Includes unrealised and realised foreign exchange losses of $0,1 million and
$0,3 million respectively (H1 FY10: $1,5 million and $3,0 million and FY10: $3,6
million and $0,9 million).
Commentary
Jens Montanana, Chief Executive of Datatec, commented:
"We are delighted to report a very encouraging and consistent performance - in
line with our expectations - marked by strong revenue growth with stable gross
margins, and benefiting from both the Group`s financial and operational
leverage.
The improvement in trading and profitability reported at our full year results
has continued in all of the divisions with trading conditions improving in most
of our major markets, albeit that the pace of the recovery is staggered.
Overall we are cautiously optimistic about the market`s recovery, which is still
fragile in places. We are confident that our profitability and margin expansion
across all divisions will continue in line with our previously published
forecasts."
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 and developing economies. The Group`s main lines of business comprise:
the global distribution of advanced networking and communications convergence
products ("Westcon") and Westcon Emerging Markets, now a region of Westcon
defined as Africa, India and Middle East ("AIME");
ICT infrastructure solutions and services ("Logicalis"); and Consulting Services
("Analysys Mason" and "Intact"). "Corporate and other" encompasses the net
operating costs of the Group`s head office entities.
Overview
Datatec delivered a very encouraging performance in the first half of the year,
in line with expectation.
The Group`s geographic diversity, global reach and improving business mix
continue to provide a resilient business model. This helped to mitigate the
impact of the economic downturn in prior years, and is now helping to insulate
the Group against any variations in the staggered recovery of Datatec`s
geographies.
Trading conditions in the US, which is Datatec`s largest market, continue to
improve with the Group`s operations reporting robust top line growth. The UK
remains a challenging market, whilst conditions in the rest of Europe remain
stable. Brazil remains the most promising of the major developing economies in
which the Group operates, followed by the Middle East. Operations in Asia
Pacific reported a solid performance in a relatively robust market.
Trading and profitability continued to improve in all of the Group`s divisions,
driven by robust top line growth in both Westcon and Logicalis, up 19% and 22%
respectively in comparison to the six months ended 31 August 2009 ("H1 FY10").
As expected, Westcon`s gross margins reduced slightly due mostly to larger sized
deals, from telecommunications service providers. Logicalis was able to expand
its margins through a combination of strong revenue growth, an improving
business mix, with an increased contribution from annuity services. The
Consulting Services division increased its revenues and profits but is still
impacted by a reduction in discretionary spending amongst its corporate and
telecommunications customer base and its relatively large dependency on the UK
market.
In the six months to 31 August 2010 ("H1 FY11") Datatec achieved revenues of
$2,13 billion, up 19% (H1 FY10: $1,80 billion). Organic growth was 14% and
overall gross margins remained stable at 13,2%.
The Group continues to benefit strongly from operational leverage, with EBITDA
increasing faster than revenues ($58,5 million, up 31% (H1 FY10: $44,6 million))
and underlying earnings per share up 37% to 15,8 cents per share, (H1 FY10: 11,5
cents). The Group expects an improved performance in its seasonally stronger
second half.
Of the $2,13 billion revenues, some 76% came from Distribution; 17% from ICT
Solutions (Logicalis product sales) and 7% is attributable to revenues derived
from Services (Logicalis and Consulting services).
Analysis by business stream ($`million)
Revenue H1 % Gross %
FY11 profit
H1 FY11
Distribution 1 619 76 159 57
ICT Solutions 372 17 71 25
Services 142 7 52 18
2,133 100 282 100
Strategy
As a result of the Group`s strategy of international and business
diversification, Datatec enjoys a strong market position with no particular
dependency on any single market, territory or technology sector, as well as
improving supplier and customer mix.
During the first half of the year, Datatec has continued to pursue its long term
strategy to deliver sustainable above average returns to shareholders by
focusing on a combination of organic growth in the faster growing sectors of the
ICT market, geographic expansion and earnings enhancing acquisitions.
In September 2010, the Group announced the acquisitions of three SMB enterprises
as part of its strategy to further expand its operations in developing markets.
The Group will continue to seek to improve its competitive position and believes
that the current uncertain economic climate has created a window of opportunity
for further attractive consolidation opportunities.
Financial results
Group revenues increased by 19% to $2,13 billion (H1 FY10: $1,80 billion) with
35% of Group revenue generated from North America (H1 FY10: 39%), 37% from
Europe (H1 FY10: 38%), 11% from Asia Pacific (H1 FY10: 8%), 10% from Latin
America (H1 FY10: 8%) and 7% from AIME (H1 FY10: 7%).
Gross margins remained stable at 13,2% (H1 FY10: 13,1%). Gross profit increased
by 20% to $282,0 million
(H1 FY10: $235,4 million), while operating costs increased at a lower rate than
revenues by 17% to $222,3 million (H1 FY10:
$190,3 million).
EBITDA increased 31% to $58,5 million (H1 FY10: $44,6 million), which includes
net unrealised foreign exchange losses of
$1,2 million (H1 FY10: losses of $0,6 million). Amortisation of intangible fixed
assets arising from acquisitions was $8,1 million (H1 FY10: $7,6 million) as a
result of intangible assets recognised on the acquisitions made during current
and prior years.
Operating profit increased by 39% to $40,1 million (H1 FY10: $28,8 million). The
net interest charge was reduced, as a result of strong opening cash balances and
lower interest rates, to $4,3 million (H1 FY10: $5,6 million).
Profit before tax increased 76% to $29,0 million (H1 FY10: $16,5 million), after
fair value movements on put option liabilities referred to below.
The Group`s reported effective tax rate decreased to 41% from 47% in H1 FY10. If
the fair value movements on put option liabilities are excluded from profit
before tax, the effective tax rate would have been 34% (H1 FY10: 34%). The
Group`s effective tax rate is higher than the South African statutory tax rate
of 28%, primarily due to profits being realised for a number of business units
in jurisdictions with higher effective tax rates, most notably North and South
America. The effective tax rate for the financial year ended 28 February 2011 is
expected to be approximately 34%.
Underlying earnings per share increased by 37% to 15,8 US cents (H1 FY10: 11,5
US cents). Headline earnings per share ("HEPS") increased by 80% to 8,8 US cents
(H1 FY10: 4,9 US cents). This includes the effects of the fair value adjustments
of the put option liabilities detailed below. HEPS, excluding the effect of
these put option fair value adjustments, is 12,5 US cents (H1 FY10: 8,5 US
cents), reflecting an increase of 47%.
The Group`s operations utilised $192 million cash during the period (H1 FY10:
cash generation of $184 million). As anticipated, working capital requirements
expanded due to a normalisation of prior year extended credit terms by certain
suppliers and Westcon`s refinancing activities in Europe, which resulted in cash
utilised of $90 million and $150 million respectively. By substituting its
European vendor financing arrangements with a new more flexible $200 million
bank facility, Westcon can now take advantage of vendor supplier prompt pay
initiatives, which are earnings enhancing. Overall, Westcon`s net liabilities
have not changed significantly.
Amounts drawn under the new banking facility are disclosed under bank
overdrafts, and form part of net debt / cash where previously the vendor
financing arrangements were disclosed with payables on the balance sheet and
included in operating activities. Consequently, the Group ended the period with
net debt of $62,2 million (H1 FY10: net cash $172,0 million), including long-
term debt of $19,6 million and short-term debt of $11,9 million included in the
payables and provisions line on the balance sheet.
Had the refinancing taken place before the prior year end, the pro-forma net
debt would have been approximately $36 million as at 28 February 2010 versus a
reported net cash of $186 million, and the pro-forma working capital utilisation
during the current period would have been approximately $35 million versus a
reported $258 million. The Group continues to enjoy comfortable head room in
terms of its working capital lines.
The Group issued 2,3 million new shares during the period with 2,0 million
shares issued as part of acquisition activities, while 0,3 million shares were
issued to satisfy exercised share options. The Group paid $22 million to
shareholders as a capital distribution in July 2010.
Outstanding liabilities to vendors of businesses acquired have decreased
slightly since last year-end from $52,8 million to a total of $50,6 million, of
which $27,2 million is included under short term liabilities. The largest
portion of the total balance relates to two elements of the Promon acquisition -
potential further cash payments of $6,0 million to the sellers, based on the
performance of the Datatec share price, as well as a liability of $39,4 million
recognised in accordance with IAS 32 Financial Instruments: Presentation, for a
put option held by minority shareholders. Under IAS 39 Financial Instruments:
Recognition and Measurement, 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 non-cash charge of $6,8 million being recognised in the period (H1
FY10: $6,4 million).
Losses of $1,9 million (H1 FY10: gains $76,7 million) arising on translation of
non USD denominated subsidiaries are included in comprehensive income of $14,0
million (H1 FY10: 76,8 million). Under previous accounting standards these
figures were included in the statement of changes in equity.
DIVISIONAL REVIEWS
Westcon (including AIME, formerly Westcon Emerging Markets)
Westcon accounted for 76% of the Group`s revenues and 65% of EBITDA.
Westcon is the world`s leading specialty distributor in networking, security,
mobility and convergence for leading technology vendors, including Cisco, Avaya,
Check Point, Bluecoat, Juniper and other complementary manufacturers. Through
its Comstor, Westcon Convergence and Westcon Security business units, Westcon
sells products and services to resellers, systems integrators and service
providers. Westcon has particular expertise in the convergence of voice, data
and video applications and technologies, including voice-over internet protocol
(VoIP) security for networking and communications systems, data centre
technologies, videoconferencing and wireless connectivity.
Westcon`s solid financial performance during the previous financial year
continued in the first half, with strong revenue growth and trading in all
regions showing an improvement over the previous year. Revenue increased 19%
from $1,37 billion in H1 FY10 to $1,62 billion. During the period, 38% of
Westcon`s revenue was generated in Europe (H1 FY10: 39%), 36% in North America
(H1 FY10: 38%), 12% in Asia Pacific (H1 FY10: 10%), 5% in Latin America (H1
FY10: 4%) and 9% in AIME (H1 FY10: 9%).
Asia-Pacific, AIME and Latin America showed solid growth as they collectively
grew faster than Europe and North America.
Cisco products made up 55% of Westcon`s revenue (H1 FY10: 53%), 16% for
Avaya/Nortel (H1 FY10: 16%), 15% for security (H1 FY10: 16%) and 14% for other
Affinity/development vendors (H1 FY10: 15%).
Westcon`s AIME subsidiaries started the year in a stronger position, following
an extensive restructuring programme and continued to trade well with an
improved performance. As previously announced, these subsidiaries will be fully
integrated into Westcon during the second half of this financial year and their
performance is now consolidated.
As expected, with the improvement in trading conditions there was a return to
larger deal sizes particularly from service providers and global systems
integrators, resulting in increased customer leverage and some pressure on
margins. As a result, gross margins decreased slightly from 10,3% in H1 FY10 to
9,8% in H1 FY11 due to lower margins in Europe and Asia Pacific, offset partly
by higher margins in North America, Latin America and AIME. Gross profit
increased 14% from $140 million to $159 million.
Operating expenses increased 14% to $116 million (H1 FY10: $102 million) due to
increased outbound freight, foreign exchange expense and increased headcount
levels, while operating expenses as a percentage of revenue decreased from 7,5%
to 7,2%. Westcon`s EBITDA increased 13% to $43 million (H1 FY10: $38 million)
with increases reported in all regions except Asia Pacific. EBITDA margins
decreased from 2,8% to 2,7%. After charges for depreciation and amortisation of
intangible assets, operating profit was up 15% to $36 million (H1 FY10: $31
million).
During H1 FY11, Westcon`s operating activities used $203 million of cash
compared to $146 million of cash generated in the first half of FY10, due to a
decrease in accounts payables resulting from the expiration of extended payment
terms for Cisco product in Europe and the decision to take advantage of early
pay discounts for Cisco product in Europe. Westcon expects improvements to
operating cash flows in the second half.
Westcon centralised its data centre, using Cisco Unified Computing System and
EMC storage area network (SAN) technology and thereby increasing its network
efficiency.
Westcon expects traction to continue to improve in all regions, as we are headed
into the seasonally stronger second half of the financial year.
Logicalis
Logicalis accounted for 22% of the Group`s revenues and 33% of EBITDA.
Logicalis is an international provider of ICT solutions and services with a
breadth of knowledge and expertise in IT infrastructure and networking,
communications and collaboration, data centre and professional and managed
services.
The steadily improving performance of Logicalis from the end of the previous
financial year continued during the first half of the year, with revenues, gross
and operating margins all improving relative to the prior year. In particular,
profitability in the US improved significantly on the back of continued recovery
and an overall increase in the proportion of maintenance and managed services in
the revenue mix.
Revenue was up 22% to $479,2 million (H1 FY10: $394,0 million), including a
$40,0 million contribution from the Asia Pacific acquisition in January 2010,
reflecting the general improvement in demand. Organic revenue increased by 11%
(10% on a constant currency basis).
Demand in Latin America has strengthened with Brazil once again being the
standout market. The acquisition of NetStar which completed in January 2010, and
expansion into Asia Pacific made a strong contribution. Performance in the UK
was satisfactory, against the backdrop of uncertainty with respect to the long
term impact of government austerity measures which currently make the UK the
least predictable of the markets in which we operate.
Revenue from product sales was up 23% year on year, with strong increases in the
Cisco and IBM vendor categories, with Cisco revenues also boosted by the
acquisition of NetStar in January. Revenues from total services were up 17% year
on year, with strong growth in annuity service revenues of 27%.
The gross margin was 23,1% (H1 FY10: 21,6%). Product margins were up slightly
year on year, as were services margins. The gross profit was $110,7 million (H1
FY10: $85,3 million).
Operating expenses increased in line with the gross margin growth. EBITDA was
$21,8 million (H1 FY10: $16,5 million), resulting in an expanded EBITDA margin
of 4,5% (H1 FY10: 4,2%).
After charges for depreciation and amortisation of intangible assets, operating
profit was $11,4 million (H1 FY10: $8,3 million).
The management expects a continued improved performance from Logicalis in the
second half of the current financial year as it continues to benefit from
operational leverage. Although the outlook remains uncertain, traditionally
activity levels are higher for Logicalis in the second half.
Consulting Services
The Consulting Services division, consisting of Analysys Mason and Intact,
accounted for 2% of Group revenues and 2% of EBITDA. Together the businesses
have 16 offices across 11 countries although the UK remains a very important
market for the division representing around half of the overall revenues in both
the current and prior year.
Analysys Mason provides management consulting advice and market intelligence
services to the telecoms, IT and digital media industries. Its clients include
telecoms operators, financial institutions, media organisations, regulators and
a range of other public sector bodies.
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.
Total divisional revenues for the half year increased by 11%, from $31,3 million
in H1 FY10 to $34,7 million, driven by growth in Asia and North America. Both
units contributed to the revenue growth, although second quarter revenues for
Analysys Mason were disappointing after a strong first quarter, and this trend
is expected to continue into the third quarter. In contrast, strong first half
year sales order performance from Intact means that the business has a healthy
backlog moving into the second half.
Gross profit grew by 28% from $9,3 million in H1 FY10 to $11,9 million in the
current year due mainly to improved utilisation driving up gross margin
percentages from 29,6% to 34,2%. Operating costs increased by 19% with both
units investing in geographic expansion in Asia, and Intact also increasing its
presence in North America. On 31 March 2010 Analysys Mason acquired BDA India, a
consultancy with 15 employees based in New Delhi, as a springboard into the
Indian market.
The division delivered a significantly improved EBITDA of $1,0 million (H1 FY10:
$0,2 million) and reports a turnaround for the half year from an operating loss
of $0,3 million in H1 FY10 to an operating profit of $0,5 million.
The medium term outlook for this division is starting to improve.
Corporate and other
Corporate and other encompasses the operating costs of the Datatec head office
entities of $6,9 million (H1 FY10: $4,8 million) and unrealised and realised
foreign exchange losses of $0,1 million and $0,3 million respectively (H1 FY10:
$1,5 million and $3,0 million).
In the prior year this segment also included 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 and an EBITDA loss of $0,9 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. The financial information has not been
audited or reviewed by Deloitte & Touche.
Subsequent events
In September 2010, the Group acquired two SMB enterprises as part of its
strategy to further expand its operations in developing markets. Biodata is a
specialist South African distribution business which will enhance Westcon South
Africa`s security business. The acquisition of Touchbase Singapore, one of
Cisco`s leading Unified Communications and contact centre partners in Asia, adds
significant expertise to Logicalis and its growing presence in the Asia Pacific
region.
Datatec has made an offer to acquire 100% of Comztek Holdings (Pty) Ltd, a South
African distributor specialising in networking, security and other hardware and
software products. This offer is open for acceptance until Monday, 18 October
2010.
On 6 October 2010 Westcon repurchased 2,6% of its own shares from its remaining
minority shareholder, resulting in Datatec now owning 100% of the shares in
Westcon.
Directorate
Ms Olufunke (Funke) Ighodaro was appointed as a non-executive Director to the
Board of Datatec with effect from 1 September 2010.
Current trading and prospects
The improvement in trading and profitability reported at the full year results
has continued in all of the Group`s divisions during the first half of the
current financial year. Conditions appear to be more stable in most major
markets, albeit that the recovery remains staggered and fragile in some sectors.
The Board expects profitability and margin expansion across all divisions to
improve over the rest of the year, as the Group continues to benefit from
improved financial and operational leverage. On the assumption that there are no
significant macro-economic changes, the Board remains cautiously optimistic for
the rest of the year, in line with previously published forecasts.
The Group is well positioned to take advantage of advances in ICT in sectors
adjacent to networking, such as data centre virtualisation and shared computer
infrastructure ("cloud services"), which are driving demand for increased
network security, storage and virtualisation solutions.
The Group also expects to continue making further investments to improve its
competitive position and believes the current environment presents a window of
opportunity for attractive consolidation opportunities.
On 13 May 2010 the Group published a forecast** for FY11 of revenues of between
$4,1 billion and $4,4 billion, profit after tax of approximately $58 million,
underlying earnings per share to be approximately 35 US cents and both earnings
per share and headline earnings per share to be approximately 30 US cents. Based
on current trading conditions, these forecasts remain unchanged. The financial
information on which the above forecasts are based have not been reviewed and
reported on by Datatec`s external auditors.
On behalf of the Board:
SJ Davidson JP Montanana IP Dittrich
Chairman Chief Executive Officer Chief Financial Officer
13 October 2010
**Forecasts for profit after tax, earnings per share and headline earnings per
share do not take into account any fair value gains or losses on acquisition
related financial instruments (including put option liabilities), which are
required under IFRS.
Directors
SJ Davidson*# (Chairman), JP Montanana# (CEO), IP Dittrich (CFO), O Ighodaro, JF
McCartney+*, LW Nkuhlu*, CS Seabrooke*,
NJ Temple*#
#British *Non-executive +American Nigerian
www.datatec-group.com
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 13/10/2010 08:00:01 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. |