| Thu 15 Nov 2001, 0:00 | | Datatec - Unaudited Interim Results For The Period |
|
and further cautionary announcement
DATATEC LIMITED
connecting minds TM
(Registration number 1994/005004/06)
Share code: DTC ISDN Number ZAE000017745
("Datatec")
* Headline earnings per share maintained
* Cash generated from operations of R570 million
Unaudited interim results for the period ended 30 September 2001
and further cautionary announcement
Consolidated income statements
Unaudited Pro forma Unaudited Audited
6 months 6 months 6 months year ended
to 30 Sept % to 30 Sept to 30 Sept 31 March
(R million) 2001 Change 2000 2000 2001
Revenue 9 745 9 476 9 552 20 158
Continuing operations 9 640 8 586 8 657 17 652
Acquisitions 52 571 576 1 537
9 692 6% 9 157 9 233 19 189
Discontinued operations 53 319 319 969
Cost of sales (8 293) (7 910) (7 988) (16 853)
Gross margin 1 452 1 566 1 564 3 305
Operating costs (1 018) (1 069) (1 076) (2 248)
Operating profit before
depreciation and
finance costs
("EBITDA") 434 497 488 1 057
Continuing operations 447 (6%) 475 466 1 112
Discontinued operations (13) 22 22 (55)
Depreciation (78) (79) (80) (168)
Restructuring costs - (63) (63) (82)
Operating profit 356 355 345 807
Income from investments 48 58 59 146
Financing costs (98) (134) (138) (250)
Share of associate
company earnings/
(losses) - 4 4 (13)
Profit before
exceptional items
and goodwill 306 283 270 690
Goodwill amortisation (70) (44) (48) (80)
Exceptional items (5) 77 99 706
Profit before taxation 231 316 321 1 316
Taxation (104) (184) (175) (301)
Profit after taxation 127 132 146 1 015
Profit attributable to
outside shareholders (21) (28) (29) (57)
Attributable earnings 106 104 117 958
Headline earnings 182 6% 172 168 410
Key ratios:
Gross margin % 14,9% 16,5% 16,4% 16,4%
EDITDA % on
continuing operations 4,6% 5,2% 5,1% 5,8%
Normal tax rate before
exceptional items
and goodwill 34,1% 35,0% 33,3% 34,2%
Salient financial features
Exchange Rates
Average
Rand/$ exchange rate 8,3:1 6,9:1 6,9:1 7,3:1
Closing
Rand/$ exchange rate 8,9:1 7,3:1 7,3:1 8,0:1
Number of shares (millions)
Issued 129 128 128 128
Weighted average 129 123 123 126
Diluted weighted
average 129 127 127 126
Earnings per share (cents)
Headline 141,8 1% 139,8 136,8 325,2
Basic 82,2 (3%) 84,6 94,9 760,7
Diluted basic 82,2 0% 81,9 93,4 760,7
Headline (excluding
restructuring costs) 141,8 (16%) 168,8 165,8 376,2
Consolidated balance sheets
Unaudited Pro forma Unaudited Audited
30 Sept 30 Sept 30 Sept 31 March
(R million) 2001 2000 2000 2001
ASSETS
Non-current assets 1 646 1 443 1 491 1 308
Property, plant and equipment 574 558 562 535
Goodwill 843 655 691 571
Associated companies and
investments 46 149 149 43
Deferred taxation 183 81 89 159
Current assets 7 010 7 693 8 025 8 454
Inventories 2 377 2 498 3 074 3 032
Receivables 3 495 4 143 4 033 3 576
Cash resources 1 138 1 052 918 1 846
Total assets 8 656 9 136 9 516 9 762
EQUITY AND LIABILITIES
Ordinary shareholders' funds 3 524 2 196 2 222 3 205
Outside shareholders' interest 144 177 183 260
Non-current liabilities 86 930 935 74
Long-term liabilities 86 272 277 74
Amounts owing to vendors - 658 658 -
Current liabilities 4 902 5 833 6 176 6 223
Payables 2 974 3 908 4 434 3 584
Amounts owing to vendors 112 31 31 413
Taxation 72 207 228 118
Bank overdrafts and
trade finance facilities 1 744 1 687 1 483 2 108
Total equity and liabilities 8 656 9 136 9 516 9 762
Capital expenditure
in current year 139 180 180 345
Capital commitments at
end of year 81 31 31 143
Lease commitments at
end of year 961 579 579 788
Abridged consolidated
cash flow statements
Unaudited Pro forma Unaudited Audited
6 months 6 months 6 months year ended
to 30 Sept to 30 Sept to 30 Sept 31 March
(R million) 2001 2000 2000 2001
EBITDA 434 497 488 1 057
Loss on disposal of property,
plant and equipment 1 1 1 11
Operating profit before
working capital changes 435 498 489 1 068
Working capital changes: 135 (388) (322) (447)
Decrease/(increase) in inventories 783 (229) (868) (683)
Decrease/(increase) in receivables 217 (776) (654) (214)
(Decrease)/increase in payables (865) 617 1 200 450
Cash generated from operations 570 110 167 621
Net finance costs paid (50) (76) (79) (104)
Taxation paid (163) (104) (83) (230)
Net cash inflow/(outflow)
from operating activities 357 (70) 5 287
Net cash outflow and restructuring
Costs and exceptional items - (70) (48) (82)
Net cash outflow to
investing activities (228) (701) (733) (1 097)
Net cash inflow from disposal of
operations and investments 2 227 227 1 118
Net cash (outflow)/inflow from
financing activities (465) 356 361 148
(Decrease)/increase in cash and
cash equivalents (334) (258) (188) 374
Foreign exchange movements (10) (79) (79) (151)
Pro forma Change in Westcon
cash position - 187 - (187)
Cash and cash equivalents at
beginning of period (262) (485) (298) (298)
Cash and cash equivalents at
end of period (*) (606) (635) (565) (262)
(*) comprises net of cash resources, bank overdrafts and trade finance
facilities
Segmental analysis
Unaudited Pro forma Unaudited Audited
6 months 6 months 6 months year ended
to 30 Sept to 30 Sept to 30 Sept 31 March
(R million) 2001 2000 2000 2001
Revenue
Westcon 7 469 7 092 7 168 14 871
Logical 1 702 1 836 1 836 3 533
Mason 139 98 98 222
Other holdings 382 131 131 563
9 692 9 157 9 233 19 189
Discontinued operations 53 319 319 969
9 745 9 476 9 552 20 158
EBITDA AND EBITDA %
Westcon 370 5,0% 372 5,3% 363 5,1% 828 5,6%
Logical 16 0,9% 81 4,4% 81 4,4% 141 4,0%
Mason 24 17,3% 12 12,2% 12 12,2% 40 18,0%
Other holdings 37 9,7% 10 7,6% 10 7,6% 103 18,3%
447 4,6% 475 5,2% 466 5,1% 1 112 5,8%
Discontinued operations (13) (24,5%) 22 6,9% 22 6,9% (55)
(5,7%)
434 4,5% 497 5,2% 488 5,1% 1 057 5,2%
Determination of headline earnings
Attributable earnings per
the income statement 106 104 117 958
Headline earnings adjustments:
Goodwill amortisation 70 44 48 80
Loss on disposal of
property, plant
and equipment 1 1 1 11
Restructuring provisions
added back - 10 10 -
Exceptional items:
Impairments of property,
plant and equipment - 28 28 109
Loss on disposal and
closure of discontinued
operations 5 - - 92
Net surplus on disposal
of operations and
investments - (153) (175) (1 068)
Write down of carrying
value of investments - 48 48 161
182 82 77 343
Tax effect - 85 85 62
Outside shareholders'
interest - 5 6 5
Headline earnings 182 172 168 410
Restructuring costs net
of taxation and
outside shareholders - 37 37 64
Headline earnings
(excluding
restructuring costs) 182 209 205 474
Statement of changes
in equity
Balance at
beginning of period 3 205 1 437 1 437 1 437
Change of accounting
period for Westcon - (15) - (34)
3 205 1 422 1 437 1 403
Attributable earnings 106 104 117 958
Shares issued - 430 430 482
Translation of foreign
subsidiaries 128 84 82 186
Goodwill reversed 85 151 151 176
Other movements - 5 5 -
Balance at end of period 3 524 2 196 2 222 3 205
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 global distribution of advanced networking
and communication products ("Westcon"), professional services and IT network
integration ("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.
These interests predominantly include Westcon AME (operating in Africa and
the Middle East), a 47,5% interest in Affinity Logic and a 76% interest in
Rangegate (operating in SA and the United Kingdom).
2. COMMENTARY ON RESULTS
The Group's results for the period ended 30 September 2001 reflected
revenues from continuing operations of R9,7 billion compared with revenues
in the pro forma period for 2000 of R9,2 billion. Operating profit before
depreciation and finance costs ("EBITDA") from continuing operations
amounted to R447 million compared with EBITDA in the pro forma period for
2000 of R475 million. This decline is largely as a result of the difficult
economic trading conditions and the disappointing results achieved by
Logical. Headline earnings per share for the period amounted to 141,8 cents
compared to 139,8 cents per share for the pro forma period for 2000.
Finance costs decreased during the period due to the lower levels of
working capital utilised and the reduction in interest rates in the United
States of America ("USA"). Exceptional items of R5 million were incurred
during the period, which predominantly related to the net loss realised on
disposal of Logical Switzerland, DataSoft, Destiny and Network I.
Included in attributable earnings are forex profits of R18 million
relating to the balance of the UUNet SA disposal proceeds that were received
in dollars. 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 SA. This amount will not
be repeated in the second six months as a result of these proceeds having
been utilised predominantly to settle amounts owing to vendors and the
purchase of an additional 5% of Westcon.
During the period, in light of the current economic climate, Westcon
increased its provisions by an amount of R69,7 million ($8,6 million).
Logical charged an amount of R67,6 million ($8,2 million) against the
restructuring provisions created during the financial year ended 31 March
2001. At the end of the period, R31,5 million ($3,8 million) of the
restructuring provisions remained, which provisions are considered adequate.
No further restructuring provisions were required during the period.
Amounts owing to vendors in the balance sheet represent purchase
considerations owing in respect of acquisitions. Amounts owing are only
recognised once the suspensive conditions relating to future earnout
payments have been met. As set out in the 2001 audited results announcement,
the prior period results have not been restated to show this change in
accounting treatment. During the period the Group settled R539 million ($65
million) of the amounts owing to vendors. These amounts were settled out of
the Group's existing internal cash resources. At the end of the period, the
Group reflected an amount of R112 million as owing to vendors, with a
further maximum contingent liability of R86 million (at the closing exchange
rates) relating to possible future earnout obligations.
On 17 July 2001 Datatec acquired a further 5% of Westcon from the
original founders and certain other shareholders for an amount of $22
million. In addition, during the period Datatec exercised its rights under
the original sale agreements entered into between Datatec and certain
members of Westcon's senior management and repurchased the 2,25% of equity
capital of Westcon sold to such members during the 2000 financial year. The
consideration for such repurchase was (in each case) cancellation of the
loan amount (together with any accrued interest) owed by the relevant member
to Datatec which was created at the time of the original purchase of such
equity capital by such member. The reduction in the outside shareholders'
interest during the period is due mainly to these acquisitions.
Cash resources declined during the period due mainly to the settlement of
amounts owing to vendors and the purchase of the additional 5% of Westcon.
Cash generated from operations improved to R570 million from a pro forma
R110 million due to improvements in the working capital, mainly in respect
of a substantial reduction in inventories during the period of R783 million.
As set out in the audited results for the year ended 31 March 2001,
Westcon is consolidated based on its results for its financial year ending
February. Accordingly the prior period has been restated, on an unaudited
pro forma basis, to reflect this change in the basis of consolidation and to
provide shareholders with an appropriate comparison of the current period's
results. The impact of this change in the basis of consolidation, had it
been applied for the financial period ended 30 September 2000, would have
been an increase in headline earnings per share from 136,8 cents to 139,8
cents, an increase of 2,1%.
3. DIVISIONAL REVIEWS
3.1 Westcon
Westcon achieved revenue of R7,5 billion ($925,7 million) (2000: R7,1
billion, $1 027 million) for the period under review, generating EBITDA of
R370 million ($45,7 million) (2000: R372 million, $53,8 million) reflecting
reasonably stable margins at the EBITDA level of 4,95% (2000: 5,3%). Working
capital improved substantially with inventories reducing by approximately
$115 million in the period under review. During the period further expense
reductions were implemented and headcount to end October had been reduced by
125 people or 11,6%.
Economic trading conditions generally remained difficult, although growth
was experienced in the sectors of converged technologies, security and
virtual private networks as well as in its professional services and
training offerings. Westcon continued to increase its portfolio of products.
Comstor, Westcon's Cisco division, contributed 60% (2000: 67%) of revenue
for the period and continued to increase its market share in network
security and convergence solutions (e.g. voice over IP). In the Westcon
division, Nortel sales contributed 11% (2000: 14%) of revenues, with revenue
in Nortel's networking line of products continuing to be constrained. Voda
One, Westcon's Avaya division, contributed 11% (2000: 2%) of revenue for the
period, whilst experiencing continued growth in the telephony and
convergence sectors with relatively stable revenues from traditional voice
platforms (key systems and PBXs).
As noted in the Group's 2001 Annual Report, Westcon has commenced
litigation against Lucent. Discussions are continuing through the legal
process and directly with Lucent to reach an acceptable settlement, however
there is no certainty yet as to the outcome of the process.
Trading conditions remain difficult and have been negatively impacted as
a result of the events of 11 September 2001 in the USA. Currently, the
international listing of Westcon is on hold, however the Group still intends
to list Westcon once market conditions improve. Costs of R27,5 million ($3,3
million) relating to the listing have been included in the balance sheet
pending the listing.
3.2 Logical
Logical achieved revenue of R1,7 billion ($207 million) (2000: R1,8
billion, $266 million) for the period under review, generating EBITDA of R16
million ($2 million) (2000: R81 million, $12 million).
The period under review has been one of consolidation in Logical, with
new management in Logical's operations concentrating on maintaining margins
in a difficult marketplace with the tough economic conditions impacting on
many of Logical's core markets such as the US, Europe and South America.
Operating costs and headcount in the period have been cut to reflect the
reduced revenue, with headcount down 38% compared to a fall in revenue of
23% in $ terms. These actions have resulted in three of Logical's four
regions, with the exception being Europe, generating operating profits in
the period under review.
At the end of the period Logical disposed of its subsidiary in
Switzerland, a business which concentrated on the implementation of packaged
e-business applications and therefore did not fit the revised strategic
template for Logical. This disposal removes the single largest source of
losses for Europe (for the period a loss before tax of $1,3 million was
incurred) and the benefits of this will be reflected in the second half of
this year. Due to continuing losses during the period in its French
subsidiary, Logical has issued a letter of comfort confirming its intention
to continue to provide financial support.
Logical remains focused on being a high-value specialised player in
network and advanced IT infrastructure services. This is reinforced by
continued investment in a consulting-led approach and strong technical
skills with over 80% of employees in Logical working in professional
services and sales functions.
The growth in profitability anticipated at the end of the previous year
was impacted by the deteriorating economic conditions which necessitated
further adjustments to the business. The economic outlook for the next six
months remains challenging.
3.3 Mason
Mason achieved an increase in revenues of 27% to R139,5 million ( 11,7
million) (2000: R98 million, 9,3 million) and increase in EBITDA of 100% to
R24 million ( 2,04 million) (2000: R12 million, 1,14 million) during the
period under review.
Notwithstanding the current economic climate, work in both the
Telecommunications and End-User markets continued to grow, albeit at a
slower rate than the previous period. Mason has established a strong
position in advising the new 3G mobile operators and expects this market to
be a substantial proportion of its revenues for the next five years. The
recent acquisition, Catalyst, has been integrated and is performing well in
the strong market for call/contact centre consultancy. Mason was ranked as
the leading consultancy in the UK in 'IT and telecommunications convergence'
in a recent survey by the Industry Research Group.
Mason plans to exploit the opportunities created by deregulation and
privatisation of the telecommunications industry in Europe and across the
world. The current economic conditions are likely to slow Mason's growth
rate but it is in a very strong position to expand rapidly when the market
improves.
3.4 Other Holdings
Westcon Africa Middle East ("Westcon AME")
During April 2001, Westcon AME was formed through the merger of Datatec's
SA based distribution operations, Westcon Network Enablers, Scantec and
Datanet. On 30 June 2001, Westcon AME acquired Dubai based Online
Distribution Limited.
Affinity Logic
With the settlement of the profit warranties with Wooltru Limited at the
end of the previous financial year, Affinity Logic accelerated investments
in the development of new service platforms and a number of long-term
outsourcing contracts were restructured and new contracts entered into.
These factors have impacted on the profitability for the period under review
and will continue to impact for the remainder of the current financial year.
Rangegate
Rangegate represents the Group's mobile technology systems integration
business located in SA and the UK. Rangegate has alliances with the major
international mobile hardware and software vendors and has developed its own
mobile application toolkit. During the period and through the acquisition of
certain assets from Symbol in the UK, Rangegate established its UK
operations and concluded contracts with Sainsbury's, Littlewoods, Orange and
Exel.
4. PROSPECTS
As set out in the Chairman's report in the 2001 Annual Report, the
slowdown in the overall global networking sector has dampened demand for
many of the Group's networking products and services, with continued
contraction in many areas of the Group's business. This situation has been
further exacerbated by the events of 11 September 2001 in the USA with a
marked slowdown in the latter part of September and October. The Group does
not expect trading conditions to improve in the remainder of the financial
year and accordingly expects that its profits and headline earnings per
share for the current financial year will be lower than that achieved in the
previous financial year.
5. FURTHER CAUTIONARY ANNOUNCEMENT
Further to the cautionary announcement dated 10 October 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 of Datatec
are advised to continue to exercise caution when dealing in their shares
until a further announcement is made.
6. 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:
J P Montanana R S Rindel
Executive Chairman Group Finance Director
15 November 2001
A copy of this announcement and the interim results presentation is
available on the website.
Directors:
JP Montanana* (Executive Chairman), JS James, M Karpul+, SF Lawrence*,
JF McCartney+#, DB Pfaff, RS Rindel, CS Seabrooke+, AM Smith#
* British # American + non-executive
DATATEC LIMITED ("Datatec"). Registration number 1994/005004/06. Share code:
DTC. ISIN: ZAE000017745. www.datatec-group.com
Sponsor
Rand Merchant Bank
Corporate Finance
A Division of FirstRand Bank Limited
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