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Datatec Limited - Audited Results For The Year Ended 28 February 2006 And
Capital Distribution
DATATEC LIMITED
Registration number 1994/005004/06
Share code: DTC
ISIN: ZAE000017745
("Datatec" or "the Company")
AUDITED RESULTS FOR THE YEAR ENDED 28 February 2006 AND CAPITAL DISTRIBUTION
- Revenue up 18% to $3 billion
- Operating profit up 532% to $69 million from $11 million
- Net cash up 23% to $172 million
- Headline earnings per share up 650% to 26,9 US cents
- Cash distribution of 30 RSA cents per share (approximately 5 US cents)
GROUP INCOME STATEMENT
Restated
Audited Audited
year ended year ended
US$ 000"s 28 Feb 28 Feb 2005
2006
Revenue 2 975 635 2 524 769
Continuing operations 2 870 381 2 434 509
Acquisitions 105 254 90 260
Cost of sales (2 637 (2 261 321)
471)
Gross margin 338 164 263 448
Operating costs (249 545) (234 531)
Share-based payments (3 468) (501)
Operating profit before finance 85 151 28 416
costs, depreciation and
amortisation ("EBITDA")
Depreciation and amortisation (15 757) (14 196)
Operating profit before goodwill 69 394 14 220
impairment
Goodwill impairment (425) (3 315)
Operating profit 68 969 10 905
Interest received 6 380 5 001
Financing costs (11 554) (8 810)
Profit before taxation 63 795 7 096
Taxation (24 532) (2 491)
Profit for the year from 39 263 4 605
continuing operations
(Loss)/profit for the year from (76) 47 259
discontinuing operations
Profit for the year 39 187 51 864
Attributable to:
Minority interests 1 415 107
Equity holders of the parent 37 772 51 757
39 187 51 864
KEY RATIOS
Gross margin % 11,4 10,4
EBITDA on ongoing operations % 2,9 1,1
Effective tax rate % 38,5 35,1
Exchange rates
Average Rand/US$ exchange rate 6,4:1 6,2:1
Closing Rand/US$ exchange rate 6,5:1 5,8:1
SALIENT FINANCIAL FEATURES
Headline earnings 38 293 4 958
Number of shares (millions)
Issued 146 138
Weighted average 142 138
Diluted weighted average 146 141
Earnings per share (cents)
Basic EPS 26,54 37,48
Diluted EPS 25,93 36,82
Headline EPS 26,91 3,59
Diluted HEPS 26,28 3,53
Net asset value per share (cents) 307 298
Net tangible asset value per share 207 228
(cents)
Cash generation per share (cents) 59 27
GROUP BALANCE SHEET
Restated
Audited Audited
US$ 000"s 28 Feb 28 Feb 2005
2006
ASSETS
Non-current assets 189 959 138 608
Property, plant and equipment 20 178 20 251
Capitalised development 12 317 12 506
expenditure
Goodwill 125 294 81 925
Other intangible assets 8 098 1 842
Deferred tax assets 24 072 22 084
Current assets 951 613 841 778
Inventories 210 728 205 771
Receivables 492 782 417 461
Cash and cash equivalents 248 103 218 546
Total assets 1 141 572 980 386
EQUITY AND LIABILITIES
Ordinary shareholders" funds 448 846 412 227
Minorities" interest 12 505 24 089
Total equity 461 351 436 316
Long-term liabilities 45 005 1 450
Deferred tax liabilities 5 875 2 500
Current liabilities 629 341 540 120
Payables and provisions 542 302 446 949
Amounts owing to vendors 1 695 3 048
Taxation 9 492 11 847
Bank overdrafts 75 852 78 276
Total equity and liabilities 1 141 572 980 386
Capital expenditure incurred in 12 115 10 009
current year
Capital commitments at end of year 10 105 10 198
Lease commitments at end of year 97 170 109 286
Payable within one year 16 546 17 234
Payable after one year 80 624 92 052
DETERMINATION OF HEADLINE EARNINGS
Restated
Audited Audited
year ended year ended
US$ 000"s 28 Feb 28 Feb 2005
2006
Equity holders of the parent per 37 772 51 757
the Group income statement
Headline earnings adjustments: 547 (46 797)
Goodwill impairment 425 3 315
Loss on disposal of plant and 46 595
equipment
Loss/(Profit) on disposal and 76 (50 707)
closure of discontinued operations
Tax effect (16) (2)
Minorities" interest (10) -
Headline earnings 38 293 4 958
ABRIDGED GROUP CASH FLOW STATEMENT
Restated
Audited Audited
year ended year ended
US$ 000"s 28 Feb 28 Feb 2005
2006
EBITDA 85 151 24 363
Loss on disposal of property, 46 595
plant and equipment
Non-cash items 1 691 12 999
Cash generated before working 86 888 37 957
capital changes
Working capital changes (9 203) (9 114)
(Increase)/Decrease in inventories (12 361) 41 439
(Increase)/Decrease in receivables (68 303) 21 950
Increase/(Decrease) in payables 71 461 (72 503)
Cash generated from operations 77 685 28 843
Net finance costs paid (5 174) (3 831)
Taxation paid (20 304) (5 473)
Net cash inflow from operating 52 207 19 539
activities
Net cash outflow from investing (54 588) (41 332)
activities
Net cash inflow from disposal of 206 65 801
operations and investments
Net cash inflow from financing 40 740 1 067
activities
Increase in cash and cash 38 565 45 075
equivalents
Translation difference on opening (6 584) 6 492
cash position
Cash and cash equivalents 140 270 88 703
atbeginning of year
Cash and cash equivalents at end 172 251 140 270
of year (*)
(*) Comprises cash resources, net of bank overdrafts and trade finance advances.
SEGMENTAL ANALYSIS
Restated
Audited Audited
year ended year ended
US$ 000"s 28 Feb 28 Feb 2005
2006
Revenue
Westcon 2 283 398 2 055 015
Logicalis 545 598 340 875
Analysys Mason 59 750 52 058
Other Holdings 86 889 76 821
Revenue from ongoing operations 2 975 635 2 524 769
Discontinuing operations - 13 194
2 975 635 2 537 963
EBITDA
Westcon 66 635 25 043
Logicalis 16 707 9 637
Analysys Mason 6 223 3 340
Other Holdings (4 414) (9 604)
EBITDA from ongoing operations 85 151 28 416
Discontinuing operations - (4 053)
85 151 24 363
Operating profit before goodwill
impairment
Westcon 56 861 15 420
Logicalis 11 546 6 081
Analysys Mason 5 835 3 007
Other Holdings (4 848) (10 288)
Operating profit from ongoing 69 394 14 220
operations
Discontinuing operations - (4 256)
69 394 9 964
Total assets
Westcon 793 070 724 605
Logicalis 237 693 163 943
Analysys Mason 41 140 43 027
Other Holdings 69 669 48 811
1 141 572 980 386
ABRIDGED STATEMENT OF CHANGES IN TOTAL EQUITY
Restated
Audited Audited
year ended year ended
US$ 000"s 28 Feb 28 Feb 2005
2006
Balance at beginning of year - as 436 316 363 559
restated
Translation of foreign (14 129) 18 268
subsidiaries
Translation difference on equity 1 615 (2 841)
loans
Tax effect of equity loans 34 (315)
movement
Attributable profit for year 37 772 51 757
Shares issued 15 498 574
Share buy back (1 863) -
Share based payments 1 358 501
Repurchase of equity interest (3 666) -
Minorities" interest (11 584) 4 813
Balance at end of year 461 351 436 316
COMMENTARY
PROFILE AND GROUP STRUCTURE
Datatec ("the Group") is an international IT networking and services group 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"), IT infrastructure solutions and
network integration ("Logicalis") and strategic telecommunications consulting
("Analysys Mason"). The Group also has other interests, which are included with
the Group Head Office under Other Holdings. These interests include the
subsidiaries Westcon AME (operating in Africa), OnLine Distribution (operating
in the Middle East) and RangeGate (operating in SA).
IFRS REPORTING
This report has been prepared 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 and
the Companies Act of South Africa. On 1 March 2005, the Group adopted the
requirements of IFRS2 Share-Based Payments. In accordance with the transition
provisions, IFRS2 has been applied to all grants after 7 November 2002 and that
were unvested as of 1 March 2005. The Group has also applied the requirements of
IFRS5 Discontinuing Operations. Comparative figures in respect of 2005 have been
restated to reflect the changes resulting from the adoption of these two
accounting standards. These are the only two revised statements that have had a
material impact on the Group"s results. The impact of the adoption of IFRS2 on
basic EPS amounts to 2,44 cents (2005: 0,3 cents) and on diluted EPS amounts to
2,38 cents (2005: 0,4 cents).
The financial information has been audited by Deloitte & Touche whose
unqualified audit report is available for inspection at the Group"s registered
office.
COMMENTARY ON FINANCIAL RESULTS
Revenues from continuing operations rose by 18% to $2,98 billion (2005: $2,52
billion), while gross margin increased from 10,4% to 11,4%. Operating profit
increased to $69,0 million (2005: $10,9 million). The 2006 operating profit
includes charges of $3,5 million relating to share-based payments under the
requirements of IFRS2 which have been applied for the first time. Headline
earnings per share grew commensurately to 26,91 cents (2005: 3,59 cents) and the
Group ended the year with increased net cash on hand of $172,3 million.
The effective tax rate increased from a restated 35,1% to 38,5%. This is higher
than the statutory South African tax rate, primarily due to the fact that the
Group"s profits in the year have been earned mainly in the USA where tax rates
are higher. In addition, losses incurred in certain subsidiaries in this year
have not been recognised in deferred tax. The effective rate of tax for the
prior year has increased as a result of the revised accounting standards
relating to discontinued operations, whereby the associated tax effects are
excluded from the effective rate of taxation.
The Company has for the first time decided to make a cash distribution to
shareholders out of share premium which represents a cover of 5,7 times headline
earnings.
DIVISIONAL REVIEWS
Westcon
During the year, Westcon"s revenue increased 11,1% from $2,06 billion in 2005 to
$2,28 billion. This reflects an increase across all geographic regions due to
strong demand for Cisco product, coupled with moderate increases in sales of
Nortel and Avaya product. Gross margins increased from 7,7% in 2005 to 8,5% in
this financial year, resulting in a 23% increase in gross profit from $158
million to $195 million.
The increase in gross margin was attributable to strong performances in the
Americas and Asia Pacific, coupled with an improved performance in Europe in the
second half of 2006. Furthermore, Lucent Technologies agreed to a settlement
pursuant to which it paid Westcon $7,5 million to finally settle the dispute
between the parties which resulted in a $4,3 million contribution to gross
margin. Westcon"s EBITDA increased by 166% from $25 million to $67 million and
the EBITDA margin from 1,2% to 2,9%.
This was due to the increased gross margins that were achieved across all
regions, combined with a $5,1 million or 3,8% decrease in operating costs during
2006. The 2006 EBITDA includes charges of $1,5 million relating to share-based
payments under the requirements of IFRS2 which have been applied for the first
time.
During the year, Westcon"s operating activities generated $37 million of cash as
compared to $6 million in 2005, as increased accounts receivable were partially
offset primarily in Europe by lower inventory as well as increased payables, and
increased earnings.
During the year, Westcon secured a $150 million working capital facility to
finance its operations in North America and a $40 million second lien term loan
which will provide additional long-term capital to fund growth of the Westcon
businesses and to repay certain debt obligations to Datatec.
For the year Cisco products made up 59% of Westcon"s revenue followed by 10% for
Nortel, 9% for Avaya, 7% for security and 15% for Development/ Affinity vendors.
Westcon actively promotes partnerships with smaller specialist and niche
players. From a geographic perspective, 55% of Westcon"s revenue was generated
in the Americas followed by 37% in Europe and 8% in Asia-Pacific.
An overall improvement in the financial performance of Westcon is expected, with
a growing contribution from Europe.
Logicalis
Revenue was $545,6 million for the year ended 28 February 2006, which includes
$105,3 million arising from the acquisitions made during the year. This compares
to revenue of $340,9 million from continuing operations in 2005. Excluding the
impact of acquisitions, revenue increased by 16% over the prior year on a like-
for-like basis.
The average gross margin for the year was 20,0% (2005: 21,2%) reflecting an
increase in product-based business due to acquisitions, a sector where margins
remain under pressure.
Although operating expenses overall increased by 47% over the previous financial
year, 31% of this increase resulted from the impact of acquisitions and the
remainder from an increase in sales and marketing costs in line with organic
revenue growth.
The EBITDA for the year rose to $16,7 million compared to $9,6 million in the
previous year. The 2006 EBITDA includes a charge of $1,0 million relating to
share-based payments under the requirements of IFRS2 which have been applied for
the first time. The acquisitions made during the year contributed $3,7 million
to EBITDA.
Net cash reduced from $56,9 million at 28 February 2005 to $26,6 million at 28
February 2006 with the reduction primarily due to $37,0 million being spent on
acquisitions during the year. In August 2005, Logicalis concluded a four-year
$50,0 million loan facility with HSBC Bank in the USA to finance growth and in
September 2005, a GBP5,0 million ($8,75 million) three-year loan facility was
agreed with Barclays Bank PLC in the UK.
Logicalis made five acquisitions during the review period. In March 2005, it
acquired Notability Solutions Limited (subsequently renamed Logicalis Computing
Solutions Limited), a $50 million-a-year IBM business partner in the UK and also
acquired Eisco Technology Inc., a $20 million-a-year US IBM solution provider
focused on high-end IBM z-Series mainframe solutions. In July 2005, Logicalis
acquired Hawke Systems Limited, a $25 million-a-year supplier of advanced
computing infrastructure and one of HP"s leading Enterprise Partners in the UK.
In September 2005, Logicalis acquired TBC Group Limited, a $50 million-a-year
IBM Premier partner and supplier of advanced computing infrastructure and
managed service solutions, based mainly around the IBM Unix range, database
applications and IBM middleware. In January 2006, Logicalis acquired from Avnet
Inc. its US end-user HP business, a $100 million-a-year HP premier partner
business focused mainly on HP server and storage solutions.
The markets remain competitive with customers expected to continue to demand
solutions that deliver a quality performance with clearly defined benefits,
especially in value-added services.
Analysys Mason
Analysys Mason now has an increased complement of 316 employees and associates
working from nine offices across seven countries. Continued geographic expansion
has seen non-UK revenues rise from 25% to 37%. Client synergies have continued
to be achieved and over 11% of revenues in 2006 came from successful joint bids.
Additional savings benefits from the merger have been realised, bringing about
annualised cost savings of over $700 000.
Revenues during 2006 have increased to $59,8 million (2005: $52,1 million).
EBITDA of $6,2 million at a margin of 10,4% (2005: $3,3 million at 6,4%) and
profit before tax ("PBT") of $5,9 million at 9,9% of revenue (2005: $1,9 million
at 3,6%) have been achieved. The 2006 PBT includes charges of $0,09 million
relating to share-based payments under the requirements of IFRS2 which have been
applied for the first time. Analysys Mason closed the year with a net cash
balance of $8,8 million (2005: $9,1 million), having repaid $3,3 million of debt
during the year.
Analysys Mason is ideally 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
Westcon AME and OnLine Distribution are value-added networking equipment
distributors, in SA and the Middle East, respectively, whose operations mirror
those of the Westcon group. During the year, Westcon AME"s revenue rose to $48,2
million (2005: $43,1 million) and EBITDA amounted to $1,1 million (2005: $1,3
million).
OnLine Distribution"s revenue for the year amounted to $34,3 million (2005:
$26,8 million) and EBITDA amounted to $1,7 million (2005: $1,5 million).
RangeGate represents the Group"s wireless mobile technology systems integration
business, and provides mobile supply chain solutions to sectors such as retail,
industrial, manufacturing, transport and logistics. RangeGate"s revenue declined
to $4,4 million (2005: $6,9 million) and incurred an EBITDA loss of $0,6 million
(2005: profit of $18 000).
PROSPECTS
In spite of continued monetary tightening in the USA, and general interest rate
increases expected in the rest of the world, demand for IT hardware, networking
and services has remained robust even as growth rates have moderated. We
continue to plan prudently and expect ongoing improvements to our performance
over the cycle.
The gradual improvement in Europe"s economic growth prospects should enable the
Group"s European operations to start contributing meaningfully in the year
ahead. We believe an improved geographic mix of business helps to create a
better balance for the Group and improves the predictability of the Group"s
consolidated performance.
The Company is considering a secondary listing on London"s AIM stock exchange.
EVENTS OCCURRING SUBSEQUENT TO THE YEAR-END
Westcon group acquired the distribution arm of Ronco Communications and
Electronics. The new operation has been renamed Ronco Distribution. The
successful acquisition will transform Westcon into the number one distributor of
Nortel voice and data products in North America. Nortel is now Westcon group"s
second largest vendor by revenue.
On 1 May 2006, Logicalis" US subsidiary Logicalis, Inc. acquired from Alliance
Consulting, Inc. its US Southwest focused business, headquartered in Scottsdale,
Arizona, for $4,5 million, of which $3,0 million was settled in cash and $1,5
million in Datatec shares. The Alliance Southwest business is a $15 million
annual revenue operation providing consulting services to its customer base
principally in the states of Arizona, California and Texas. In terms of the
purchase agreement, additional consideration of a maximum of $2,0 million is
payable if certain profit targets are met in the nine month period following the
acquisition.
CAPITAL DISTRIBUTION
Notice is hereby given that the Company will distribute out of share premium, in
lieu of a dividend, 30 RSA cents per share (approximately 5 US cents per share)
for the year ended 28 February 2006 ("the general payment"), in terms of the
general authority granted to directors at the Annual General Meeting held on 16
August 2005.
The salient dates will be as follows:
Last day to trade Friday, 30 June 2006
Shares to commence trading "ex" the Monday, 3 July 2006
distribution
Record date Friday, 7 July 2006
Payment date Monday, 10 July 2006
Share certificates may not be dematerialised or rematerialised between Monday, 3
July 2006 and Friday, 7 July 2006, 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 2006
Directors: L Boyd* (Chairman), J P Montanana# (CEO), C B Brayshaw*, D B Pfaff, C
M L Savage*, C S Seabrooke*, N J Temple*#
#British
*Non-executive
www.datatec.co.za
Date: 16/05/2006 07:03:18 AM Produced by the JSE SENS Department
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