| Fri 25 May 2001, 0:00 | | Datatec Limited - Annual Results 2001 Announcement |
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AUDITED FINANCIAL results for the YEAR ended 31 March 2001
- REVENUE +85% - OPERATINGPROFIT +61% - HEADLINE EARNINGS PER SHARE +15%
CONSOLIDATED INCOME STATEMENTS
Audited Pro forma Audited
year ended % year ended year ended
(R million) 31 March Change 31 March 31 March
2001 2000 2000
Revenue 20 158 11 524 12 217
Continuing operations 17 800 7 802 8 495
Acquisitions 1 537 2 655 2 655
19 337 85% 10 457 11 150
Discontinued
operations 821 1 067 1 067
Cost of sales 16 853 9 087 9 807
Gross margin 3 305 2 437 2 410
Operating costs (2 248) (1 729) (1 635)
Operating profit
before depreciation
and finance costs
("EBITDA") 1 057 708 775
Continuing operations 1 114 52% 733 800
Discontinued
operations (57) (25) (25)
Depreciation (168) (155) (158)
Operating profit 889 61% 553 617
Income from
investments 146 92 92
Financing costs (250) (144) (153)
Share of associate
company (losses)
earnings (13) 14 14
Profit before
exceptional items and
goodwill 772 515 570
Restructuring costs (82) (39) (39)
Goodwill amortisation (80) - -
Exceptional items 706 63 42
Profit before
taxation 1 316 539 573
Taxation (301) (151) (175)
Profit after taxation 1 015 388 398
Profit attributable to
outside shareholders (57) (9) (11)
Attributable earnings 958 379 387
Headline earnings
excluding
restructuring costs 474 30% 364 393
KEY RATIOS
EBITDA% on continuing
operations 6% 7% 7%
Effective tax rate
- gross 23% 28% 31%
- before exceptional
items and goodwill 33% 31% 32%
Average rand/$
exchange rate 7.3:1 6.2:1 6.2:1
SALIENT FINANCIAL FEATURES
Number of shares
(millions)
Issued 128 119 119
Weighted average 126 112 112
Diluted weighted
average 126 116 116
Earnings per share
(cents)
Headline earnings
excluding
restructuring costs 376.2 15% 325.8 351.6
Headline (including
restructuring costs) 325.2 8% 299.9 328.1
Basic 760.7 124% 339.7 346.3
Diluted basic 760.7 133% 325.9 332.9
CONSOLIDATED BALANCE SHEETS
Audited Pro forma Audited
(R million) 31 March 31 March 31 March
2001 2000 2000
ASSETS
Non-current assets 1 308 705 716
Property, plant and equipment 535 471 478
Goodwill 571 - -
Associated companies 8 86 86
Investments 35 98 98
Deferred taxation 159 50 54
Current assets 8 454 5 670 6 068
Inventories 3 032 1 981 2 033
Accounts receivable 3 268 2 429 2 648
Other receivables 308 369 369
Cash resources 1 846 891 1 018
Total assets 9 762 6 375 6 784
EQUITY AND LIABILITIES
Ordinary shareholders' funds 3 205 1 403 1 437
Outside shareholders' interest 260 138 141
Amounts owing to vendors - 383 383
Long-term liabilities 74 224 95
Current liabilities 6 223 4 227 4 728
Accounts payable 3 584 2 345 2 865
Amounts owing to vendors 413 425 461
Taxation 118 81 86
Bank overdrafts and trade finance
facilities 2 108 1 376 1 316
Total equity and other liabilities 9 762 6 375 6 784
Capital expenditure in current
year 345 396 403
Capital commitments at end of year 143 54 54
Lease commitments at end of year 510 726 726
ABRIDGED CONSOLIDATED CASH FLOW STATEMENTS
Audited Pro forma Audited
year ended year ended year ended
(R million) 31 March 31 March 31 March
2001 2000 2000
Cash generated from operations 621 71 386
Net interest paid (104) (51) (61)
Taxation paid (230) (185) (200)
Net cash inflow (outflow) from
operating activities 287 (165) 125
Net cash outflow to restructuring
costs and exceptional items (82) (38) (38)
Net cash outflow to investing
activities (1 097) (2 032) (2 043)
Net cash inflow from disposal of
operations and investments 1 118 10 10
Net cash inflow from financing
activities 148 1 353 1 261
Increase (decrease) in cash and
cash equivalents 374 (872) (685)
Foreign exchange movements (151) (18) (18)
Change of accounting period for
Westcon (187) - -
Cash and cash equivalents at
beginning of year (298) 405 405
Cash and cash equivalents at
end of year (*) (262) (485) (298)
(*) comprises net of cash resources, bank overdrafts and trade finance
facilities
SEGMENTALANALYSIS
Audited Pro forma Audited
year ended year ended year ended
(R million) 31 March 31 March 31 March
2001 2000 2000
Revenue
Westcon 14 871 7 308 8 001
Logical 3 655 2 753 2 753
Mason 222 55 55
Other Holdings 589 341 341
Continuing operations 19 337 10 457 11 150
Discontinued operations 821 1 067 1 067
20 158 11 524 12 217
EBITDA
Westcon 828 6% 466 6% 533 7%
Logical 153 4% 190 7% 190 7%
Mason 40 18% 6 11% 6 11%
Other Holdings 93 16% 71 21% 71 21%
Continuing operations 1 114 6% 733 7% 800 7%
Discontinued operations (57) (7%) (25) (2%) (25) (2%)
1 057 5% 708 6% 775 6%
DETERMINATION OF HEADLINE EARNINGS
Attributable earnings per the
income statement 958 379 387
Headline earnings adjustments:
Restructuring costs 82 39 39
Goodwill amortisation 80 - -
Loss on disposal of property,
plant and equipment 11 19 19
Exceptional items:
Impairments of property, plant and
equipment 109 - -
Loss on disposal and closure of
discontinued operations 92 - -
Net surplus on disposal of
operations and investments (1 068) (67) (46)
Write-down of carrying value
of investments 161 4 4
425 374 403
Tax effect 44 (9) (9)
Outside shareholders' interest 5 (1) (1)
Headline earnings excluding
restructuring costs 474 30% 364 393
Headline earnings (including
restructuring costs) 410 335 364
STATEMENT OF CHANGES IN EQUITY
Balance at beginning of year 1 437 897 897
Change of accounting period
for Westcon (34) (26) -
403 871 897
Attributable earnings 958 379 387
Shares issued 482 1 409 1 409
Translation of foreign
subsidiaries 186 47 47
Goodwill reversed/(written off) 176 (1 303) (1 303)
Balance at end of year 3 205 1 403 1 437
1. PROFILE AND GROUP STRUCTURE
Datatec (the "Group") is an international networking and IT Services group
with operations in many of the world's leading economies. The Group's main
lines of business comprise the channel provision of advanced networking and
Internet access products ("Westcon"), integration and professional services
("Logical") and strategic telecommunications consulting ("Mason"). The Group
also has a number of other interests in South Africa ("SA"), which are
included with the Group Head Office under Other Holdings.
2. COMMENTARY ON RESULTS
As communicated to shareholders on 15 March 2001, as a consequence of the
rules of the Securities Exchange Commission ("SEC") in the United States of
America ("USA"), and in order to comply with the requirements of fair
disclosure of information to shareholders and third parties, Westcon has
been consolidated based on its results to its financial year ended 28
February 2001. The prior year has therefore been restated, on a pro forma
basis, to reflect this change in the basis of consolidation and to provide
shareholders with a proper comparison of the current year's results. The
impact of this change in accounting treatment, had it been applied for the
financial year ended 31 March 2000, would have been a reduction in headline
earnings per share excluding restructuring costs from 351.6 to 325.8 cents
per share.
The Group's results for the year ended 31 March 2001 reflect an increase in
revenues from continuing operations from R10.5bn to R19.3bn, an increase of
85%. Operating profit before depreciation and finance costs ("EBITDA")
exceeded R1bn for the first time this year, reflecting an increase of 52% on
the prior year. Headline earnings per share, excluding the effects of
restructuring costs, increased from 325.8 to 376.2 cents per share, an
increase of 15%.
The profit warranty with Wooltru Limited in respect of Affinity Logic was
finalised during the year. This resulted in the realisation of a profit of
R30m in excess of the normal profit warranty entitlement being included in
attributable earnings for the year. A further profit of R20m was included in
exceptional items. All vendor amounts in respect of Affinity Logic have been
settled after the year-end.
Included in attributable earnings are forex profits of R40m relating to the
UUNET SA proceeds that were received in dollars and which arose as a result
of the depreciation of the rand in the last quarter of the financial year.
Had these proceeds been received in rands, a portion of these forex profits
would have been earned in the form of interest income as a result of the
higher interest rates prevailing in South Africa.
The Group incurred restructuring costs of R82m and expensed a further R92m
to exit certain non-core business areas during the year. The majority of
these costs (R137m) were incurred in Logical. These costs relate principally
to the integration and refocusing of Logical's existing businesses into the
higher margin professional services arena (R81m) as well as costs incurred
(R56m) in the exiting and termination of the low end desktop PC and server
market as well as the loss making SA operations of Logical. Logical
completed the restructuring programme for all of its constituent parts as at
31 March 2001.
During the year, the Group realised significant gains, in excess of R1.1bn,
from the disposal of its shares held in UUNET SA in SA and Cisco Systems in
the USA. These proceeds were used largely to reduce debt as well as being
set aside to cover future obligations to vendors in terms of existing
earnouts.
With effect from 1 April 2000, goodwill arising on the acquisition of
subsidiaries and associate companies has been capitalised and is amortised
over its estimated useful life, not exceeding 7 years. Goodwill arising
prior to 1 April 2000 has been written off, in prior periods, directly to
the share premium account.
Amounts owing to vendors in the balance sheet represent purchase
considerations owing in respect of acquisitions and may, at the election of
the Group, be funded out of the issue of new shares or by cash, pending the
achievement of the relevant profit warranty milestones by the vendors of the
businesses. Amounts owing are recognised once the suspensive conditions
relating to the future earnout payments have been met. At the end of the
financial year the Group had an estimated contingent liability of R249m
relating to future earnout obligations. Prior year comparative numbers have
not been restated to take account of these changes in accounting treatment
for goodwill and vendors as permitted by the transitional provisions of
Accounting Statement AC131.
3. DIVISIONAL REVIEWS
3.1 Westcon
Westcon achieved revenues of R14.9bn (2000: R7.3bn) for the year under
review, generating EBITDA of R828m (2000: R466m). Working capital
requirements in Westcon continue to be significant, but improvements were
made in line with the level of trading activity. Westcon's working capital
comprises 80% of the total Group working capital requirements.
Cisco products continue to fuel growth in Westcon, with Cisco products
representing 65.5% of Westcon's revenue for the year ended 28 February 2001.
Nortel, Lucent and Avaya represent a further 22.47% of total revenues with
value products making up the balance.
3.2 Logical
Logical reported revenue growth from continuing operations of 33% to R3.7bn
(2000: R2.8bn), generating EBITDA of R153m (2000: R190m). This represents a
disappointing trading margin of 4.2%, compared with 6.9% in the prior
financial year.
As previously communicated to shareholders, Logical has undergone an
extensive restructuring programme during the financial year under review in
Australia, France, Switzerland, SA, the USA and the United Kingdom.
Headcount has reduced by in excess of 30% compared with the beginning of the
financial year. Whilst the restructuring of Logical has had a significant
impact on the current year's profitability, the Group is confident that the
foundation has now been laid for solid growth in profitability.
Logical is now well positioned to take advantage of the many opportunities
available to provide solutions to customers who are embracing the benefits
of the pervasive convergence of voice, data and other media through the
Internet and the Broadband economy.
3.3 Mason
Mason posted record revenue and profits for the year under review. Revenues
rose an annualised 72% to R222m and trading profit by 153% to R40m. Mason
recently acquired Catalyst and is now in a position to offer call centre
consultancy in addition to its core skills in the telecommunication
technology arena. Key customer contracts in the area of 3rd generation
licence wireless operators across Europe as well as strong growth in the
Utilities sector of telecommunications networks helped propel the business.
The Group remains optimistic about the long-term prospects of Mason,
especially in the aftermath of European telecommunications deregulation.
3.4 Other Holdings
Other Holdings comprise Group Head Office and the Group's equity investments
in SA assets, which do not form part of the Group's core business divisions
of Westcon and Logical. The Group's intention is to divest or realign those
investments and businesses that are no longer core or synergistic in nature.
Investments have been written down to their current market values.
4. STRATEGIC INITIATIVES AND PROSPECTS
4.1 Strategic Initiatives
The Group is proceeding with its plans, subject to receiving all the
necessary regulatory approvals, to separately list Westcon in the USA. The
Group anticipates maintaining a majority stake in Westcon after the separate
listing. Shareholders will be notified of any developments with respect to
the Westcon IPO as soon as these are known.
Logical will focus on executing its strategy of developing its professional
and managed services capabilities as it continues to develop solutions for
complex customer infrastructure and applications projects. The Group will
continue to identify areas where Logical's global capability can be expanded
and leveraged for the benefit of customers and other stakeholders.
Mason continues to work with its professional advisors to determine
appropriate alternatives to realise value for Datatec shareholders. The
Group anticipates being in a position to determine and execute on an
appropriate value realisation mechanism for the investment in Mason within
the first half of the new financial year.
Other Holdings will continue to be assessed and reviewed with the objective
of consolidating existing businesses and disposing of certain identified non-
core investments. Again, the focus will be to streamline the management of
the Group's assets with a view to maximising overall shareholder value.
4.2 Prospects
The early approach to restructuring and rationalization, especially in
Logical, should enhance the Group's competitiveness and leave its businesses
well positioned for any future market improvements. The Group's outlook
remains stable with encouraging signs of improving profitability.
The Group intends to proceed with its plans to maximise shareholder value by
providing mechanisms to unlock the latent value in each of its core
divisions. The Group remains positive about its long-term prospects and
positioning. It is anticipated that the benefits of the independent listing
of Westcon in the USA and the restructuring of Logical will provide
increased returns for shareholders in the future.
4.3 Further cautionary announcement
Further to the cautionary announcement dated 11 May 2001, Rand Merchant Bank
is authorised to advise shareholders that negotiations are still in progress
which, if successfully concluded, may have an effect on the price of
Datatec's ordinary shares. Accordingly, shareholders ofDatatec are advised
to continue to exercise caution when dealing in their shares until a further
announcement is made.
5. DIVIDENDS
The Group's policy of retaining attributable income for future growth
without a dividend distribution to shareholders remains in place.
On behalf of the Board:
JP Montanana RS Rindel JS James
Executive Chairman Group Finance Director Executive Director
24 May 2001
A copy of this announcement and the annual results presentation is available
on the website.
www.datatec-group.com DATATEC LIMITED ("DATATEC") (Registration number
1994/005004/06)
Directors: JP Montanana* (Executive Chairman), JS James, M Karpul, MJ
Lamberti#, SFLawrence*, JF McCartney#**, RS Rindel, CS Seabrooke# *British
**American #non-executive
