| Tue 21 May 2002, 0:00 | | Datatec Limited - Audited Financial Results For Th |
|
DATATEC LIMITED - AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 MARCH 2002
DATATEC LIMITED
Registration number 1994/005004/06
Share code : DTC
ISIN code : ZAE000017745
("Datatec")
www.datatec-group.com
* Cash generated from operations of R2 billion
* Net debt eliminated at end of year
audited financial results for the year ended 31 March 2002
Consolidated income statements
Audited Audited
year ended year ended
31 March % 31 March
(R million) 2002 change 2001
Revenue 20 677 20 158
Continuing operations 20 360 17 500
Acquisitions 202 1 537
Revenue from ongoing operations 20 562 8% 19 037
Discontinued operations 115 1 121
Cost of sales 17 759 16 853
Gross margin 2 918 3 305
Operating costs (2 072) (2 248)
Operating profit before depreciation
and finance costs ("EBITDA") 846 1 057
Continuing operations 873 (22%) 1 125
Discontinued operations (27) (68)
Depreciation (200) (168)
Restructuring costs - (82)
Operating profit 646 (20%) 807
Income from investments 76 146
Financing costs (172) (250)
Share of associate company losses (3) (13)
Profit before exceptional items
and goodwill 547 690
Goodwill amortisation (133) (80)
Impairment of goodwill (397) -
Exceptional items (164) 706
(Loss)/profit before taxation (147) 1 316
Taxation (178) (301)
(Loss)/profit after taxation (325) 1 015
Profit attributable to
outside shareholders (11) (57)
Attributable (loss)/earnings (336) 958
Headline earnings 346 (16%) 410
Key ratios:
Gross margin % 14,1% 16,4%
EBITDA % on ongoing operations 4,2% 5,9%
Normal tax rate before
exceptional items and goodwill 30,6% 34,2%
Exchange Rates
Average Rand/$ exchange rate 9,6:1 7,3:1
Closing Rand/$ exchange rate 11,4:1 8,0:1
Salient financial features:
Number of shares (millions)
Issued 137 128
Weighted average 131 126
Diluted weighted average 133 126
Earnings per share (cents)
Headline 265 (18%) 325
Basic (257) 761
Diluted basic (253) 761
Net asset value per share (cents) 2 720 9% 2 504
Net tangible asset value
per share (cents) 2 414 17% 2 058
Consolidated balance sheets
Audited Audited
31 March 31 March
(R million) 2002 2001
ASSETS
Non-current assets 1 275 1 308
Property, plant and equipment 644 535
Goodwill 419 571
Associated companies and investments 30 43
Net deferred taxation 182 159
Current assets 8 420 8 454
Inventories 2 397 3 032
Receivables 4 147 3 576
Cash resources 1 876 1 846
Total assets 9 695 9 762
EQUITY AND LIABILITIES
Ordinary shareholders` equity 3 726 3 205
Outside shareholders` interest 199 260
Long-term liabilities 58 74
Current liabilities 5 712 6 223
Payables 3 771 3 584
Amounts owing to vendors 90 413
Taxation 143 118
Bank overdrafts and
trade finance facilities 1 708 2 108
Total equity and liabilities 9 695 9 762
Capital expenditure incurred
in current year 136 345
Capital commitments at end of year 61 143
Lease commitments at end of year 1 067 788
Abridged consolidated cash flow statements
Audited Audited
year ended year ended
31 March 31 March
(R million) 2002 2001
EBITDA 846 1 057
Loss on disposal of plant
and equipment 1 11
Non cash items
- unrealised forex gains (95) -
Operating profit before
working capital changes 752 1 068
Working capital changes 1 299 (447)
Cash generated from operations 2 051 621
Net finance costs paid (96) (104)
Taxation paid (268) (230)
Net cash inflow from
operating activities 1 687 287
Net cash outflow for restructuring
costs and exceptional items - (82)
Net cash outflow for
investing activities (520) (1 097)
Net cash inflow from disposal
of operations and investments - 1 118
Net cash (outflow)/inflow from
financing activities (100) 148
Increase in cash and cash equivalents 1 067 374
Translation difference in opening
net debt position (637) (151)
Pro forma change in Westcon
cash position - (187)
Cash and cash equivalents at
beginning of year (262) (298)
Cash and cash equivalents at
end of year (*) 168 (262)
(*) comprises cash resources net of bank overdrafts and trade finance
facilities
Segmental analysis
Audited Audited
year ended year ended
31 March % 31 March %
(R million) 2002 EBITDA 2001 EBITDA
Revenue
Westcon 15 595 14 871
Logical 3 799 3 381
Mason 282 222
Other Holdings 886 563
Revenue
from ongoing operations 20 562 19 037
Discontinued Operations 115 1 121
20 677 20 158
EBITDA
Westcon 685 4,4% 828 5,6%
Logical 52 1,4% 151 4,5%
Mason 13 4,6% 40 18,0%
Other Holdings 123 13,9% 106 18,8%
EBITDA from ongoing operations 873 4,2% 1 125 5,9%
Discontinued Operations (27) (23,5%) (68) (6,1%)
846 4,1% 1 057 5,2%
Determination of headline earnings
Attributable (loss)/earnings
per the consolidated
income statements (336) 958
Headline earnings adjustments
(net of taxation and
outside shareholders):
Goodwill amortisation 133 80
Impairment of goodwill 397 -
Loss on disposal of plant
and equipment 1 8
Exceptional items:
Write-down of carrying value
of investments 58 161
Loss on disposal and closure
of discontinued operations 64 59
Proposed listing costs 27 -
Impairments of property,
plant and equipment 1 89
Net loss (surplus) on disposal
of operations and
investments 1 (945)
Headline earnings 346 410
Statement of changes in ordinary shareholders` equity
Balance at beginning of year 3 205 1 437
Change of accounting period
for Westcon - (34)
3 205 1 403
Attributable (loss)/earnings (336) 958
Shares issued 163 482
Translation of foreign
subsidiaries 305 186
Goodwill reversed 389 176
Balance at end of year 3 726 3 205
1. 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 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 include Westcon AME (operating in Africa and
the Middle East), a 47,5% interest in Affinity Logic and a 78,6% interest in
RangeGate (operating in SA and the United Kingdom).
2. COMMENTARY ON RESULTS
The Group`s financial results for the year ended 31 March 2002 reflected
revenues from ongoing operations of R20,6 billion compared with revenues in
the previous year of R19,0 billion. Operating profit before depreciation and
finance costs ("EBITDA") from continuing operations amounted to R873 million
compared with EBITDA in the previous year of R1 125 million. This decline is
largely as a result of the difficult economic trading conditions,
disappointing results achieved by Logical and an increase in provisions in
Westcon. Headline earnings per share for 2002 amounted to 265 cents compared
to 325 cents for 2001, a decline of 18%.
Included in operating profit are foreign exchange gains of R136 million
(2001: R49 million) attributable to the substantial decline in the value of
the Rand against the Group`s trading currencies in the latter part of the
year and an amount of R39 million relating to a refund of customs duty paid,
to be received by Westcon from the taxation authorities in the United
Kingdom. Finance costs decreased during the year due to the reduction in
interest rates in the United States of America ("USA") and the operating
cash flows generated in Westcon and Logical that lowered the levels of
working capital.
Logical charged an amount of R86 million against the restructuring
provisions created during the financial year ended 31 March 2001. At the end
of the year, R24 million of the restructuring provisions remained, which
provisions are considered adequate to meet outstanding restructuring costs
mainly relating to future rentals on premises vacated.
Exceptional items of R164 million were incurred during the year, which
predominantly related to the net loss realised on disposal of certain
operations, the write-down in the carrying value of investments and the
write-off of costs relating to Westcon`s proposed listing previously
included in the balance sheet.
The Group reviewed the value of goodwill carried on its balance sheet at
the end of the year. Given the historical trading losses of Logical and
certain of its Other Holdings, the Group has written-off the remaining
amounts of goodwill totalling R397 million relating to those loss- making
operations.
Cash generated from operations of R2,1 billion was driven by improvements
to working capital of R1,3 billion mainly as a result of a reduction in
inventories. At year end the Group`s balance sheet had improved to a net
cash positive position of R168 million compared with net debt of R262
million in the prior year, an improvement of R430 million.
Amounts owing to vendors in the balance sheet represent purchase
considerations still outstanding in respect of acquisitions. During the year
the Group settled R632 million of the amounts owing to vendors. These
amounts were settled out of the internal cash resources. At the end of the
year, the Group reflected an amount of R90 million as owing to vendors, with
a further maximum contingent liability of R65 million (2001: R395 million)
relating to possible future earnout obligations.
As set out in the Interim results announcement, during the year Datatec
acquired a further 5,0% of Westcon from the original founders and certain
other shareholders for an amount of United States Dollars ("$") 22 million
and 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 reduction in the outside shareholders`
interest during the year is due mainly to these acquisitions.
3. DIVISIONAL REVIEWS
3.1 Westcon
Westcon achieved revenues of R15,6 billion ($1,67 billion) in 2002
compared to revenues of R14,9 billion ($2,06 billion) in 2001, a decline of
19% in dollars reflecting the weak economic trading conditions and the
effects of September 11, 2001 events. Gross margins decreased from 11,2% in
2001 to 10,4% for 2002, a decline of 7,0%. This decline is due mainly to the
reduction and elimination in the second half of the year of margin enhancing
programmes associated with the sales of Cisco products and the provision
made during the year in respect of the Lucent litigation (refer below).
EBITDA margins reduced from 5,6% in 2001 to 4,4% in 2002, due mainly to the
reduction in gross margins. Westcon successfully contained operating
expenses by restricting these to current levels of operation through
reductions in staff and other expenses.
Substantial operating cash flows were generated during the year as a
result of significant improvements in working capital. The improvements in
working capital were primarily a result of a reduction in inventories of
$184 million, a decline of 51% from the previous year. These cash flows
allowed Westcon to reduce its net debt by $131 million including a repayment
of $65 million of its original $75 million dollar acquisition facility.
As noted in the Group`s 2001 Annual Report, Westcon held $24 million of
inventory purchased from Lucent and in July 2001 commenced litigation to
require Lucent to abide by the distribution agreement between the parties
and accept return of this inventory. Westcon management believe that Westcon
has a meritorious case against Lucent and is continuing with the litigation.
Management has, however, decided to adopt a prudent approach and,
accordingly, Westcon during the year has provided an amount of $13 million
(R123 million) against its remaining Lucent inventory of $16 million.
Cisco products contributed 57,2% (2001: 65,5%), Nortel`s products
contributed 11,6% (2001: 12,7%) and Avaya`s products contributed 11,8%
(2001: 6,7%) to Westcon`s revenue. North America amounted to 63,8% (2001:
61,2%) and the UK and Europe amounted to 29,0% (2001: 31,6%) of Westcon`s
revenue.
The Landis Business Partners transaction was completed on 14 May 2002
with the purchase consideration expected to amount to approximately $5
million. As a result of cash flow constraints and the subsequent bankruptcy
of Landis Group NV the activities of Landis Business Partners were severely
restricted in recent months. This, together with the start up and
integration costs, will result in Landis Business Partners` activities
initially incurring losses.
3.2 Logical
Logical achieved revenues from continuing operations of R3,8 billion
($395 million) in 2002 compared to revenues of R3,4 billion ($460 million)
in 2001, a decline of 14% in dollars. This decline is primarily a result of
the weak economic conditions together with customers in the US and Europe
postponing IT projects in a climate of reduced confidence in the economy.
Gross margins decreased from 27,6% in 2001 to 24,4% in 2002 as product
margins declined under increasing competition and the declining use of
professional services.
During the year Logical disposed of its e-business applications
subsidiary in Switzerland and its systems subsidiary in France. These
disposals removed the largest source of losses for Europe (for the periods
held, losses before tax of $3 million were incurred for the year).
EBITDA from continuing operations amounted to R52 million ($5 million)
for 2002 when compared to R151 million ($20 million) excluding restructuring
costs for 2001. All restructuring costs incurred in 2002, which amounted to
R19 million ($2 million) were included in EBITDA. The effects of Logical`s
cost cutting and reorganisation that started in 2001 were reflected in total
EBITDA increasing in the second six months of 2002 to R23 million ($2
million), from R7 million ($1 million) achieved in the first six months.
Management is continually focusing on reducing operating expenses in order
to improve productivity in this current lower growth environment.
3.3 Mason
Mason achieved revenues of R282 million ( 20 million) in 2002 compared to
R222 million ( 21 million) in 2001. EBITDA declined substantially from R40
million ( 4 million) in 2001 to R13 million ( 1 million) for the current
year.
The collapse of technology stock prices and the turmoil in the
telecommunications industry had a major effect on Mason, with many of
Mason`s telecommunication customers suffering financially and consequently
reducing their spending on external consultancy. This resulted in revenue
reducing from 11,7 million in the first six months to 8,7 million in the
second six months, a reduction of 26%. As a result of the market conditions,
Mason reduced its staff from over 260 to 200 during the second half of the
year. Despite these cost reductions the profitability for the year was
inevitably affected.
The weak market conditions have continued into the new year and although
there are a large number of enquiries for new work, closing of new contracts
is difficult. However, Mason management believe that with the reduction of
operating expenses it is in a strong position to increase its profitability
when the market improves.
3.4 Other Holdings
Westcon Africa Middle East ("Westcon AME")
Westcon AME maintained its focus on territorial expansion and
successfully concluded the acquisitions of Dubai-based OnLine and
DataConnect in Botswana during the year.
Revenues for the year amounted to R713 million and operating profits
amounted to R17 million. During the year significant cost savings were
achieved through the consolidation of various back office functions.
Accordingly, in the year ahead Westcon AME is expected to show both
increased revenues through the inclusion of the acquisitions for the full
year and operating profit enhanced by the cost savings achieved.
Affinity Logic
Affinity Logic`s core business is the provision of outsource services for
the delivery of computing infrastructure and application solutions to the
retail and consumer goods sector.
During the year, as a result of the settlement of the profit warrantees
with Wooltru at the end of the previous year, Affinity Logic accelerated
investments in the development of its core outsourcing platform and related
new service platforms. In addition, a number of long-term outsourcing
contracts were restructured and new contracts entered into. As set out in
the Interim Results announcement these factors impacted on profitability
with an operating loss of R20 million incurred (after charging R14 million
to research and development costs related to the development of its core
outsourcing and new service platforms) on revenues of R191 million for the
year.
After investing substantially in upgrading its service offering and
developing a comprehensive growth and marketing strategy, Affinity Logic
management is anticipating a year of increased revenues and a break-even
situation.
RangeGate
RangeGate, located in SA and the United Kingdom, represents the Group`s
mobile technology systems integration business, and provides mobile
solutions into specific market sectors such as retail, industrial and
manufacturing and transport and logistics.
The proposed sale of RangeGate to Versatile Mobile Systems was not
concluded as not all regulatory approvals were received. Datatec intends to
continue developing RangeGate, whilst seeking appropriate opportunities to
maximise its inherent value.
Although RangeGate grew revenues to R83 million, it incurred an operating
loss of R24 million. Accordingly, substantial reductions in costs were
implemented, and together with anticipated increases in revenues, RangeGate
is expected to improve to break-even in the year ahead.
4. PROSPECTS
The networking and telecommunications sector remains subdued as a result
of the over investment that has occurred during recent years. Steps have
been taken to improve profitability over the next year through lower
operating costs and reductions in personnel and the belief that revenues
appear to have stabilised and confidence is improving. The Group feels that
there will be no meaningful recovery in this sector until the early part of
calendar 2003 as IT capital expenditure recovers.
5. REPORTING
This report has been prepared in accordance with the Group`s published
and consistently applied accounting policies which comply with South African
Statements of Generally Accepted Accounting Practice.
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:
L Boyd J P Montanana R S Rindel
Chairman Chief Executive Officer Group Finance Director
21 May 2002
A copy of this announcement and the results presentation is available on the
website.
Directors:
L Boyd* (Chairman), J P Montanana# (CEO), C B Brayshaw*, M Karpul*,
S F Lawrence#, J F McCartney*+, D B Pfaff, R S Rindel, C M L Savage*,
C S Seabrooke*, A M Smith+ #British +American *Non-executive
DATATEC LIMITED ("Datatec"). Registration number 1994/005004/06.
Share code: DTC. ISIN: ZAE000017745. www.datatec-group.com
Date: 21/05/2002 05:00:00 PM Produced by the SENS Department
