Executive directors’ report

The weakened economic environment contrasts with the many positive secular forces in our segment of the ICT industry.

Jens Montanana CEO

Jurgens Myburgh CFO

Founded in 1986, Datatec this year celebrates 30 years in the ICT industry. As innovation remains a key driver for the industry, success is founded on the ability to adapt to changes. We aim to deliver value to all our stakeholders by leveraging our extensive global footprint, remaining focused on high-value ICT solutions through distribution and integration services businesses and collaboration with best-in-class technology vendor partners.

Market conditions

The global macroeconomic environment has failed to achieve robust and synchronised growth in the six years since emerging from recession in 2010. Economic growth in many of the countries in which the Group operates has fallen short of expectations and this trend continued in the period under review. This slower to negative growth, combined with the recent declines in oil and mineral prices, is adversely impacting many commodity producing countries, particularly in Africa and Latin America.

Forecast economic growth remains mixed. The IMF recently revised forecast world GDP growth for 2016 down to 3.2%, with further risk to the downside. The United States is expected to continue its modest recovery with weak external factors weighing against domestic strength, leading to reserved monetary policy. In Europe, the economic environment remains varied with expectations of resilient but subdued growth. Asia-Pacific continues to be impacted by concerns over Chinese economic growth whereas Africa and Latin America will struggle to restore growth in the absence of a recovery in exports.

The weakened economic environment contrasts with the many positive secular forces in our segment of the ICT industry, evidenced by the Group’s constant currency revenue growth.

Decline in value of currencies against US$

  • EUR 
  • GBP 
  • BRL 
  • ZAR 
  • AU$
Source: Xe.com based from 100 from 1 March 2014.

GDP growth (%)

  • 2014 
  • 2015
Source: IMF 2016
Financial review

FY16 was a notably challenging year for the Group. Results were affected by the strong US Dollar, impacting the contribution from emerging market operations, and an increase in operating costs due to US$14.7 million of foreign exchange losses relating to Angola, a US$19.2 million charge against trade receivables and US$15.3 million of restructuring costs, mainly related to the WestconGroup EMEA transformation and BPO.

Group revenues were flat at US$6.5 billion (FY15: US$6.4 billion) compared to the prior financial period (FY15) in US Dollar (reporting currency) terms. In constant currency terms, using the exchange rates prevailing in FY15, Group revenues for FY16 increased 8.6% to US$7.0 billion (FY15: US$6.4 billion) with WestconGroup constant currency revenues up 7.6% and Logicalis constant currency revenues up 12.0%.

Gross margins deteriorated in comparison with FY15 but improved in the second half of FY16. Group gross margins were 13.5% (FY15: 14.5%). From FY16 onwards, WestconGroup is disclosing outbound freight as part of cost of sales rather than operating costs as this matches the expense with corresponding revenues more accurately. The adjusted gross margin for FY15 was 13.9%. Group gross margins were impacted by the mix of geographic contribution and the lower services contribution to Logicalis revenues. Gross profit was US$868.7 million (FY15: US$932.9 million). Adjusted for the reclassification of outbound freight costs, gross profit was down 2.7% (adjusted FY15: US$892.9 million).

Overall operating costs were US$706.6 million (FY15: US$726.5 million). This reduction reflects the reclassification of outbound freight costs and various cost saving initiatives offset by a US$14.0 million increase in net foreign exchange losses to US$17.3 million (FY15: US$3.3 million). Included in operating costs are total restructuring costs of US$15.3 million, the majority of which relates to the WestconGroup EMEA transformation and BPO, and a charge for provisions against accounts receivable of US$19.2 million (FY15: US$7.8 million).

During FY16, the Group completed the following transactions:

Effective 1 May 2015, Logicalis acquired 100% of White Label Intelligence Limited (“Trovus”), a UK business intelligence consultancy, which provides business insight solutions, professional services and managed services to large enterprise clients. The fair value of Trovus was US$2.2 million, with an initial cash consideration of US$1.6 million and deferred cash consideration up to a maximum of £0.4 million (US$0.6 million equivalent), payable over three years. The acquisition will strengthen Logicalis’ Business Analytics and Information Management offering.

Effective 1 September 2015, Logicalis completed the acquisition of Advanced Technology Integration Group (“ATIG”), a solution provider offering system integration and professional services to enterprise and commercial customers, for a total consideration of up to US$42.0 million, funded partly by the issue of 3.7 million new Datatec ordinary shares in terms of a US$18.0 million vendor consideration placing. The consideration payable comprised an initial cash consideration of US$37.0 million and deferred cash consideration up to a maximum of $5.0 million payable in one year. The acquisition will consolidate Logicalis’ presence in the key Midwest region of the US and present significant cross selling opportunities for its services offering.

Effective 1 October 2015, Logicalis acquired Lekscom Limited, a Channel Islands-based provider of networking and collaboration services to large enterprise and commercial clients, for a total consideration of up to US$2.4 million with US$1.8 million initial cash consideration and deferred cash consideration up to a maximum of £0.4 million (US$0.6 million equivalent), split into two payments over two years.

Effective 1 December 2015, Logicalis acquired Thomas Duryea Consulting Pty. Limited (“Thomas Duryea”), an Australian ICT services and solutions provider, for a total consideration of up to US$12.4 million with US$9.5 million as an initial cash consideration and deferred cash consideration up to a maximum of AU$4.0 million (US$2.9 million equivalent), split into two payments over two years. Thomas Duryea is a provider of data centre, cloud and Microsoft solutions and services with operations in Melbourne and Sydney. The acquisition will enhance Logicalis’ scale and capabilities in the Australian ICT market.

Contribution to Group revenue

Contribution to Group EBITDA

  • Westcon 
  • Logicalis 
  • Consulting

EBITDA was US$162.1 million (FY15: US$206.4 million) and EBITDA margins 2.5% (FY15: 3.2%).

Depreciation and amortisation were in line with the prior period. Operating profit was 30% lower at US$110.5 million (FY15: US$157.8 million).

The net interest charge increased to US$23.9 million (FY15: US$17.6 million) reflecting an increase in average net debt. Profit before tax was US$88.4 million (FY15: US$140.2 million).

The Group’s reported effective tax rate for FY16 is 45.2% (FY15: 36.8%). The abnormally high effective tax rate in FY16 reflects the increased proportion of profits earned in North America, unrecognised foreign exchange losses in Angola and trading losses in Africa and parts of Asia-Pacific. The Group continues to target a normalised effective tax rate below 35%.

Underlying* earnings per share (“UEPS”) were 32.0 US cents (FY15: 41.8 US cents). Headline earnings per share (“HEPS”) were 19.4 US cents (FY15: 37.0 US cents).

The Group generated US$129.1 million of cash from operations during FY16 (FY15: US$186.2 million) and ended the period with net debt of US$205.4 million (FY15: US$87.1 million). The increase in net debt is due to reduced cash earnings and funding increased working capital, capital expenditure and acquisitions.

The Group paid US$33.2 million (paid during FY15: US$33.3 million) to shareholders during the year: a final scrip distribution with cash dividend alternative in respect of FY15 in July 2015; and an interim scrip distribution with cash dividend alternative in respect of FY16 in November 2015.

*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 and the taxation effect on all of the aforementioned.

Divisional performance

WestconGroup is a value added distributor of category leading security, unified communications, network infrastructure and data centre solutions with a global network of speciality resellers. The division goes to market under the Westcon and Comstor brands and has a portfolio of market leading vendors, including: Cisco, Avaya, Polycom, Juniper, Check Point, F5, Palo Alto and Blue Coat. Security is now the single largest technology category in WestconGroup and remains the fastest growing area.

WestconGroup has had a year of weaker growth with negative currency translation effects and foreign exchange losses. Revenues were unchanged at US$4.9 billion (FY15: US$4.9 billion) with revenue growth in North America, Europe and Asia-Pacific offset by lower results in Latin America and AME. Constant currency sales increased 7.6% with higher results across all regions except AME.

Angola, in recent years, has been an important contributor to the AME region within WestconGroup. In FY15, revenue in the country totalled US$61.1 million. The weakened economic conditions in Angola, mainly as a consequence of the fall in the price of crude oil, have led to a material decline in the exchange rate of the Kwanza to the US Dollar. The National Bank of Angola has instituted capital controls that render the timing and quantum of conversion from Kwanza to the US Dollar unpredictable. This has resulted in foreign exchange losses of US$14.7 million in FY16. Management has implemented a series of actions to control the exposure and reduce further losses.

WestconGroup has successfully implemented a restructuring and BPO transformation of its EMEA operations to deliver future improvements in operational efficiency. Total costs in FY16 were US$13.2 million and a further US$1.4 million is expected to be spent in FY17, as planned.

The success of this project has resulted in similar initiatives contemplated in Asia-Pacific and possibly North America. In Asia-Pacific, the scope of this project has been finalised and will include elements of the finance and operations functions. Total costs in FY17 are expected to be approximately US$7.0 million and deliver a payback in four years.

The roll out of SAP across WestconGroup will continue in FY17. The remaining few countries in Asia are expected to go live in H1 FY17, with the EMEA roll-out beginning in H2 FY17.


Logicalis is an international IT solutions and managed services provider with a breadth of knowledge and expertise in IT infrastructure and networking solutions, communications and collaboration, data centre, cloud solutions and managed services.

Revenue was US$1.5 billion (FY15: US$1.5 billion), including US$53.6 million of revenue from the acquisitions made during the year. Product sales were up 3% with strong growth in HP and Oracle, the latter driven by the full year effect of the Inforsacom acquisition made in H2 FY15.

Revenue overall was flat with increases in continental Europe, North America and Asia-Pacific offset by Latin America, which was adversely impacted by weaker trading conditions in Brazil and translation effects. In Europe, the UK results were impacted by the completion of a long-term contract with the Welsh Assembly Government and the subsequent restructuring of the UK operation.

Revenues from services were down 5%, with decreases in both professional and annuity services revenues due to the completion of the Welsh Assembly Government contract, weakening demand in Brazil and currency translation.

The gross profit contributions from North America, Latin America and Europe are now all over US$100.0 million each, providing greater balance to divisions’ portfolio. Asia-Pacific is much smaller than the others and Logicalis is pursuing ways to grow Asia, without deviating from its strategic focus.

The acquisition of Inforsacom in January 2015 has created a much improved platform in Germany with broader ICT services and capabilities. Logicalis completed four acquisitions during FY16 which are expected to yield economic benefits in future years. Going forward, the acquisition strategy is based on meeting a gap analysis of strategic locations and product and services capabilities, including software, data analytics, security and managed services.


During the year, the division comprised:

  • Analysys Mason, a provider of strategic, trusted advisory, modelling and market intelligence services to the telecoms, media and technology industries;
  • Mason Advisory (“Mason”), an independent and impartial IT consultancy providing related strategic, technical and operational advice to the public and private sectors; and
  • The Via Group (“Via”), a specialist professional services organisation providing unified communications and voice solutions.

Effective 1 March 2016, Logicalis US acquired Via from the Consulting division.

Divisional revenues were US$51.4 million (FY15: US$55.2 million) with growth in Mason offset by a decline in Via. Analysys Mason had a strong recovery in the second half of FY16. Cost reduction initiatives were undertaken to limit the decline in EBITDA to US$1.9 million (FY15: US$3.2 million).

The division is focused on increasing sales and utilisation of its resources in order to improve operating margins.


The Board has maintained a final scrip distribution with cash dividend alternative for FY16 at 9 US cents (FY15: 9 US cents), including an interim dividend of 8 US cents. The dividend policy for the Group remains a cover of three times underlying earnings per share.


The Group’s strategy remains to deliver long-term, sustainable and above-average returns to shareholders through portfolio management and the development of its principal subsidiaries providing technology solutions and services to targeted customers in identified markets.

WestconGroup management is targeting moderate revenue growth and stable gross margins by pursuing quality business over quantity. Efforts in cost management and scale in emerging markets is expected to improve operating leverage across the division. A key focus on operating cash flow, including working capital and capital expenditure, should yield improved free cash flows in the coming years.

WestconGroup remains well positioned to capitalise on the growth that the industry continues to experience, especially in areas like security. However, the performance of the division will continue to be challenged with the dynamic of a strong US Dollar and the headwind it creates in emerging markets.

The ICT market is transitioning to cloud-based infrastructure solutions. Logicalis continues to adapt its go-to-market model and develop its services to address this change: Increasing exposure to areas such as security to augment its strong networking heritage and investing in data analytics to augment its data centre infrastructure offerings to clients. The strong US Dollar continues to impact the value of local currency services. While we are confident in our positioning, skill set and global coverage we remain cautious at a macro-level with the state of global growth.

The Consulting division going forward will comprise only of Analysys Mason and Mason Advisory. The focus will be on improving scale in the business and expanding the research practice of Analysys Mason. This division has a strong technical bias and a key priority for the division is to attract and retain a highly skilled workforce.


Global markets remain uncertain and Datatec has positioned itself well to support its vendors and customers through scale and broad international coverage. Technology innovation in the sectors in which the Group operates remains high. The migration to cloud-based infrastructure delivery is a trend that will require increased managed services and creates demand for networking, security and unified communications solutions, all of which are core activities for Datatec.

The profitability for FY16 was impacted by foreign exchange losses in Angola, restructuring charges and provisions against trade receivables. Management has taken actions to reduce or eliminate the impact of these negative events and charges going forward. We are confident that the Group’s diversification and geographic portfolio strategy as well as global positioning in the ICT market remain sound. As a result, our expectation at this stage is for an improvement in earnings and operating leverage in FY17.


As always, we would like to thank the Board of Directors for their guidance, counsel and support during the past year. Prof Wiseman Nkuhlu will be retiring by rotation this year and will not be available for re-election. We wish to extend our sincere appreciation to Prof Nkuhlu for his invaluable contribution to the Group over 10 years and wish him well on his retirement.

We are delighted to welcome Ivan back as our CFO. He has a very strong track record with us and has benefited from his recent experience outside the Group. Jurgens has made a very valuable contribution over the last two years and we are sorry to see him leave. We wish him every success in his new role.

We are also grateful to all our vendors, customers, shareholders and other business partners and stakeholders for their continued support and contribution to the Group.

Finally, we wish to thank our employees for their dedicated service in driving solutions for our clients, to the continued distinction of the Group.

Jens Montanana

11 May 2016

Jurgens Myburgh

11 May 2016