DATATEC LIMITED - Short form announcement: Summary of unaudited results for the six months ended 31 August 2020
22 October 2020 8:00
Short form announcement: Summary of unaudited results for the six months ended 31 August 2020

Incorporated in the Republic of South Africa
Registration number: 1994/005004/06 
Share code JSE: DTC
ISIN: ZAE000017745 
("Datatec", the "Company" or the "Group")

Short form announcement: Summary of unaudited results for the six months ended 31 August 2020 

Datatec Limited ("Datatec", the "Company" or the "Group"), the international information and communications 
technology ("ICT") group, published its condensed unaudited results for the six months ended 31 August 2020 
("the Period" or "H1 FY21") on SENS which are available on and via the JSE link:

Operational highlights
- Solid operational execution maintained across all divisions in difficult environment 
- Strong demand for the Group's technology solutions and services 
- Significantly improved operating cash generation and proactive working capital management
- Enhanced liquidity following refinancing of key facilities

                                                                       Unaudited         Unaudited                 
                                                                      six months        six months                 
                                                                           ended             ended                
                                                                  31 August 2020    31 August 2019    Movement    
Revenue (USD' million)                                                   2 031.2           2 056.3         (1%)   
EBITDA (USD' million)                                                       60.7              70.0        (13%)   
Adjusted EBITDA** (USD' million)                                            66.7              70.0         (5%)   
Earnings per share (^from continuing and discontinued 
operations) (US cents)                                                       1.6               2.9^       (1.3)   
Headline Earnings per share (US cents)                                       1.6               2.3        (0.7)   
Underlying* earnings per share (US cents)                                    3.9               5.3        (1.4)   
Dividends per share (US cents)                                               Nil               Nil           -    
Net asset value per share (US cents)                                       287.9             288.7        (0.8)   


Jens Montanana, Chief Executive of Datatec, commented: 
"Datatec showed great resilience during a period of unprecedented Covid-19 related disruptions. Our divisions provide
many of the products and services required to support a remote IT networked based way of doing business, an increasing
trend that we see continuing well beyond the current pandemic.

"EBITDA performance improved, when excluding the impact of a tax credit in the prior year's first half, supported by
several multi-year investments in advanced technology systems that underpin our internal processes and operational

"Working capital has been well managed and liquidity continued to improve considerably during the period. Our ability
to refinance facilities on substantially improved terms in the current environment reflects the improvement in
fundamentals across the business over the last few years.

"Whilst the path of Covid-19 remains uncertain, Datatec is well positioned to support its customers' requirements and
we anticipate the positive momentum experienced during the first half to continue throughout 2020 and into 2021."

Datatec's strategy is to improve shareholder returns over the medium-term through a combination of corporate and
business development actions aimed at enhancing the competitiveness and profitability of its subsidiaries and operating

The Group achieved a solid operational performance in the six months ended 31 August 2020 ("H1 FY21") with all
divisions showing resilient trading with strong operating cash flows and significantly enhanced liquidity. This was achieved
despite the challenging socio-economic environment resulting from the declaration of Covid-19 as a pandemic by the World
Health Organization ("WHO") on 11 March 2020, at the start of the Group's new financial year. 

Following this declaration and subsequent lockdowns, the Group's immediate priority was to keep employees safe in
accordance with government guidelines in all geographies of operation. This typically involved maximising working from 
home, social distancing and implementation of advised measures to limit the spread of Covid-19.

The multi-year investments in Westcon International's advanced systems and business automation enabled business
continuity plans to be deployed effectively with almost the entire workforce switching to remote working. Most of Logicalis'
global workforce was also able to work remotely, limiting operational disruptions during lockdown periods.

Although some delays and supply disruptions were experienced, especially in countries with highly restrictive
lockdowns, the business operations coped very well and performed ahead of the expectations set at the start of the year.

Logicalis is the largest contributor to the Group in terms of profitability. The division also has the widest
geographical exposure and Datatec intends to continue to develop and grow Logicalis globally, both organically and through

Even though global trading uncertainties are expected to persist for the short to medium term, Logicalis is confident
in its ability to continue to respond to market needs caused by Covid-19 disruptions. The technology segments that
Logicalis specialises in are key parts of the remote access computing solutions necessary for enterprises to adjust.

Whilst the potential listing of Logicalis' Latin American business on the Brazilian stock exchange remains of high
interest, current market conditions make the timing of any potential listing undeterminable.
Westcon International remains focussed on continuing to improve profitability by driving business improvement through
revenue growth and margin expansion supported by cost controls. Whilst a number of macro-economic risks exist, including
those related to Covid-19 and Brexit, the H1 FY21 results highlight Westcon International's ability to respond
effectively in challenging circumstances.

Westcon International was 90% owned by Datatec following the sale of Westcon Americas to SYNNEX Corporation ("SYNNEX")
together with 10% of Westcon International in FY18. Effective 19 June 2020, Datatec Plc (an intermediate holding
company), increased its shareholding in Westcon International to 92.1% as a result of a capitalisation transaction, 
resulting in a reduction of the minority interest of SYNNEX from 10% to 7.9%. The Group's strategy for Westcon International
remains set on continuing to improve profitability. 

Group revenues were US$2.03 billion in H1 FY21, down by 1.2% on the US$2.06 billion revenues recorded in the six-month
financial period ended 31 August 2019 ("the Comparable Period" or "H1 FY20"). 

Group gross margins in H1 FY21 were 16.0% (H1 FY20: 17.5%) with the headline decrease being caused by The Tax Credit
in H1 FY20 (as defined in the paragraph below). Gross profit was US$324.2 million (H1 FY20: US$359.8 million).

The EBITDA in the Comparable Period included a tax credit in Logicalis Brazil of approximately US$14 million relating
to certain overpaid indirect taxes and interest income included approximately US$7 million in regard to those overpaid
taxes ("The Tax Credit").

EBITDA for H1 FY21 was US$60.7 million, representing a 13.3% decrease on H1 FY20 (US$70.0 million) or 8.4% increase
when excluding The Tax Credit in H1 FY20. Adjusted EBITDA** excluding H1 FY21 restructuring costs was US$66.7 million 
(H1 FY20: US$70.0 million). 

Overall operating costs were US$263.5 million (H1 FY20: US$289.8 million). Included in the H1 FY21 operating costs
were total restructuring costs of US$6.0 million as the Group initiated its response to Covid-19 and transformation
initiatives to bring the business model in line with the new structures and processes rolled out over the past few years.

Depreciation decreased by US$3.2 million to US$25.3 million (H1 FY20: US$28.5 million). Amortisation was US$7.5
million (H1 FY20: US$7.5 million).

Operating profit was US$28.0 million (H1 FY20: US$34.0 million).

Underlying* earnings per share were 3.9 US cents in H1 FY21 compared to underlying* earnings per share of 5.3 US cents
for H1 FY20 which also reflected the impact of The Tax Credit. 

Foreign exchange losses consisted of unrealised foreign exchange gains of US$4.1 million (H1 FY20: unrealised foreign
exchange losses of US$4.2 million) and realised foreign exchange losses of US$6.3 million (H1 FY20: realised foreign
exchange gains of US$4.8 million). Unrealised foreign exchange differences are excluded from Underlying* earnings per

The net interest charge increased to US$13.4 million (H1 FY20: US$8.0 million) and profit before tax was US$15.4 million 
(H1 FY20: US$26.2 million). The main reason for the higher net interest charge in H1 FY21 is approximately US$7 million 
interest income recognised by Logicalis Brazil in H1 FY20 pursuant to The Tax Credit.

A tax charge of US$10.0 million has arisen on half year profits of US$15.4 million. The effective tax rate of 64.8%
continues to be adversely affected by losses arising in Westcon International's Asia operations for which no deferred tax
assets have been recognised and its UK operation for which deferred tax assets are only partially recognised at a low
rate of tax credit. As at 31 August 2020, there are estimated tax loss carry forwards of US$224.8 million with an
estimated future tax benefit of US$49.6 million, of which only US$19.5 million has been recognised as a deferred tax asset. 

The Group ended H1 FY21 with enhanced liquidity and the Group statement of financial position remains strong. The Group generated
US$134.2 million of cash from operations during H1 FY21 (H1 FY20: US$77.8 million) and ended the period with a net debt 
of US$73.2 million (FY20: US$139.9 million; H1 FY20: US$193.7 million). 

Excluding leases, net cash would have been US$75.6 million (FY20: net debt US$10.4 million; H1 FY20: net debt US$60.9 million). 
The net debt has been calculated as: cash of US$135.6 million (FY20: US$83.4 million; H1 FY20:US$37.5 million); short-term 
borrowings and current portion of long-term debt of US$71.8 million (FY20: US$109.5 million; H1 FY20:US$127.9 million); 
and long-term debt of US$137.0 million (FY20: US$113.8 million; H1 FY20: US$103.3 million).  

Liquidity and borrowing facilities
In light of the Covid-19 crisis, particular attention has been given to assessing the outlook for liquidity across the
Group and ensuring that sufficient cash will continue to be generated to settle liabilities as they fall due. 

In January 2020, Logicalis completed a new three-year US$155 million banking facility for its subsidiaries. This
senior facility covers Logicalis' operations throughout the world, excluding Latin America, which has its own separate credit
facilities. The facility is used to fund working capital requirements and also includes a new acquisition credit line.
Subsequent to H1 FY21, Logicalis successfully renegotiated the covenants under this facility, to ensure greater covenant
headroom. In addition, the Latin American credit facilities are considered adequate in the current environment. 

In August 2020, Westcon International Limited's European subsidiaries ("Westcon Europe") entered into a EUR275 million
new banking facility with a European banking syndicate, led by Credit Agricole Leasing & Factoring. This invoice
assignment facility replaced Westcon Europe's previous invoice financing facility of US$224 million with effect from 
1 October 2020. The new committed facility will be for an initial period of 3 years. It will be used to fund Westcon 
Europe's working capital requirements and will bear interest at a much reduced rate compared to the previous facility.

Westcon International Limited's Asia-Pacific subsidiaries ("Westcon APAC") also entered into a two-year US$80 million
new receivables securitisation facility with Westpac Banking Corporation, replacing Westcon APAC's previous financing
facilities in Australia, New Zealand and Singapore. This will provide an incremental US$25 million working capital
facility for Westcon APAC, compared to its previous uncommitted facilities and will be at improved interest rates. 
This became effective on 25 September 2020.

The Group performed covenant projections for the next twelve months to confirm that banking covenants are likely to 
be met. 

The new financing facilities, as well as the very strong operating cash flow generated during H1 FY21, significantly
improved the Group's liquidity position.

Dividend policy 
The Group's policy is to maintain a fixed three times cover relative to underlying* earnings when declaring ordinary
dividends. Given the small H1 FY21 earnings, no interim dividend is proposed. A final full year dividend for FY21 will 
be considered at year end based on the full year results and the economic outlook at that time.

Foreign exchange translation
Losses of US$11.9 million (H1 FY20: US$24.0 million) arising on translation to presentation currency are included in
total comprehensive loss of US$6.2 million (H1 FY20: US$8.9 million). The majority of these losses arise from weakening
in the Rand/US$ exchange rate from 15.61 at 29 February 2020 to 16.59 at 31 August 2020 and weakening in the Brazilian
Real/US$ exchange rate from 4.47 at 29 February 2020 to 5.39 at 31 August 2020. 

The positive momentum of the first half continued into the second half of the year with a strong performance recorded
in September. The Group's backlog and order intake have remained solid. The Group provides many of the solutions and
services required for an increased IT networked way of doing business, such as remote working, cloud access and fixed 
or mobile secured networking and the business is currently benefiting from this.

Operationally, the Group's focus remains on optimising business performance and internal processes for the current
environment. Priorities in the second half will include digital transformation and restructuring initiatives to align 
the business model and drive the benefits of the investments in advanced technology systems rolled-out over the past few

The refinancing of the major subsidiaries of Westcon International on more favourable terms will improve liquidity and
reduce interest expense going forward.

The path of the Covid-19 pandemic remains uncertain and the unpredictable business and economic effects arising may
materially affect the consolidated results of the Group for the rest of the FY21 financial year. Accordingly, Datatec 
will not be issuing any forward-looking guidance.

Subsequent events 
On 30 September 2020, Logicalis acquired the minority stake in NubeliU Limited which then became a 100% subsidiary of
PromonLogicalis Latin America Limited

As previously announced: Stephen Davidson, the Group Chairman, and John McCartney stepped down from their committee
roles on the Audit Risk and Compliance Committee ("ARCC") and Remuneration Committee on 31 May 2020; and Ekta Singh-Bushell
was appointed to the Remuneration Committee effective 31 May 2020.

At the AGM of the shareholders of Datatec held on 29 July 2020, PriceWaterhouseCoopers ("PwC") were appointed as the
new independent external auditors of the Group.

This announcement may contain statements regarding the future financial performance of the Group which may be
considered to be forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty, and
although the Group has taken reasonable care to ensure the accuracy of the information presented, no assurance can be given
that such expectations will prove to have been correct. 
The Group has attempted to identify important factors that could cause actual actions, events or results to differ
materially from those described in forward-looking statements and there may be other factors that cause actions, events or
results not to be as anticipated, estimated or intended. It is important to note, that:
(i)   unless otherwise indicated, forward-looking statements indicate the Group's expectations and have not been
      reviewed or reported on by the Group's external auditors; 
(ii)  actual results may differ materially from the Group's expectations if known and unknown risks or uncertainties
      affect its business, or if estimates or assumptions prove inaccurate; 
(iii) the Group cannot guarantee that any forward-looking statement will materialise and, accordingly, readers are
      cautioned not to place undue reliance on these forward-looking statements; and  
(iv)  the Group disclaims any intention and assumes no obligation to update or revise any forward-looking statement
      even if new information becomes available, as a result of future events or for any other reason, other than as  
      required by the JSE Limited Listings Requirements.

On behalf of the Board

SJ Davidson

JP Montanana
Chief Executive Officer 

IP Dittrich
Chief Financial Officer

22 October 2020

# SJ Davidson (Chairman), # JP Montanana (CEO), IP Dittrich (CFO), M Makanjee, ^ JF McCartney, # CRK Medlock, 
MJN Njeke, ^ E Singh-Bushell 
^ American  # British

*  Excluding impairments of goodwill and intangible assets, profit or loss on sale of investments and assets,
   amortisation of acquired intangible assets, unrealised foreign exchange movements, acquisition-related adjustments, fair 
   value movements on acquisition-related financial instruments, restructuring costs relating to fundamental reorganisations 
   and the taxation effect on all of the aforementioned.
   The underlying earnings measure is specific to Datatec and is not required in terms of International Financial
   Reporting Standards or the JSE Listings Requirements.
** Adjusted EBITDA excludes restructuring costs which have arisen as a result of Covid-19. In H1 FY20 there was no
   difference between EBITDA and adjusted EBITDA because there were no restructuring costs.

Short form announcement
The contents of this short form announcement are the responsibility of the Board of Directors of the Company
("the Board"). Shareholders are advised that this short form announcement represents a summary of the information 
contained in the full announcement, published on SENS via the JSE link and on Datatec's website on 22 October 2020, and does not contain full or 
complete details of the financial results.

None of the information in this announcement has been reviewed or reported on by the company's external auditors. 

Any investment decisions by investors and/or shareholders should be based on consideration of the full announcement as
a whole and shareholders are encouraged to review the full announcement, which is available as set out above. The full
announcement is also available for inspection at the registered office of the Company at no charge during normal
business hours from 22 October 2020 to 23 November 2020 and at the offices of Datatec's sponsor, Rand Merchant Bank 
(a division of FirstRand Bank Limited). Copies of the full announcement may be requested from

The condensed consolidated interim results have not been reviewed or audited by the Company's external auditors, PwC.

The JSE link is as follows:


Datatec Limited (                                                                                                   
Jens Montanana - Chief Executive Officer            +27 (0) 11 233 1000                                                             
Ivan Dittrich - Chief Financial Officer             +27 (0) 11 233 1000                                                             
Wilna de Villiers - Investor Relations Manager      +27 (0) 11 233 1013                                                             
Instinctif Partners                                                                                                                 
Frederic Cornet                                     +27 (0) 11 447 3030                                                             
Registered office                                   3rd Floor, Sandown Chambers, Sandown Village Office Park,                       
                                                    81 Maude Street, Sandown, 2031                                                  

Sponsor                                             Rand Merchant Bank (a division of FirstRand Bank Limited), 1 Merchant Place,    
                                                    Corner Fredman Drive and Rivonia Road, Sandton                                  

Transfer secretaries                                Computershare Investor Services (Pty) Ltd                                       

Date: 22-10-2020 08:00:00
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