| Tue 4 Nov 2003, 16:15 | | RESULTS FOR THE SIX MONTHS ENDED 31 AUG 03 |
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DATATEC LIMITED - UNAUDITED RESULTS OF THE GROUP FOR THE SIX MONTHS ENDED 31
AUGUST 2003
DATATEC LIMITED
("Datatec")
Registration number 1994/005004/06
Share code: DTC ISIN: ZAE000017745
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2003
* Datatec now stated in US$
* Revenue up 10% to $1,1 billion
* Breakeven headline earnings
* Net cash at August of $100 million
* Net tangible asset value per share of $1,94
Consolidated income statements
Unaudited Unaudited Audited
six months to six months to period ended
(USD 000"s) 31 August 2003 30 September 2002 28 February 2003
Revenue 1 130 071 1 025 461 2 062 541
Continuing operations 1 108 200 984 078 1 931 269
Acquisitions - 25 656 103 468
Revenue from ongoing operations 1 108 200 1 009 734 2 034 737
Discontinued operations 21 871 15 727 27 804
Cost of sales (987 838) (895 913) (1 810 326)
Gross margin 142 233 129 548 252 215
Operating costs (129 915) (113 048) (233 965)
Operating profit before
financing costs depreciation
and amortisation ("EBITDA") 12 318 16 500 18 250
Ongoing operations 10 320 18 029 20 354
Discontinued operations 1 998 (1 529) (2 104)
Depreciation (12 238) (11 944) (23 606)
Operating profit/(loss) 80 4 556 (5 356)
Interest income 3 341 3 917 6 950
AC133 Imputed interest on
receivables 5 901 - -
Financing costs (3 375) (5 042) (8 994)
AC133 Imputed interest on payables (5 117) - -
Share of associate company losses - (46) 8
Profit/(loss) before exceptional
items and goodwill 830 3 385 (7 392)
Goodwill amortisation (6 218) (5 037) (11 662)
Goodwill impairment - - (14 883)
Exceptional items (5 160) (2 671) 4 857
Loss before taxation (10 548) (4 323) (29 080)
Taxation (267) (883) (2 603)
Loss after taxation (10 815) (5 206) (31 683)
(Profit)/loss attributable to
outside shareholders (290) (517) 170
Attributable loss (11 105) (5 723) (31 513)
KEY RATIOS
Gross margin % 12,6 12,6 12,2
EBITDA% on ongoing operations 0,9 1,8 1,0
Normal tax rate before exceptional
items and goodwill % 57,4 40,3 75,2
Exchange rates
Average Rand/US$ exchange rate 7,5:1 10,3:1 9,7:1
Closing Rand/US$ exchange rate 7,3:1 10,5:1 8,1:1
SALIENT FINANCIAL FEATURES
Headline earnings/(loss) 50 1 556 (9 842)
Number of shares (millions)
Issued 138 138 138
Weighted average 138 138 138
Diluted weighted average 138 138 138
Earnings per share (cents)
Headline 0,04 1,13 (7,14)
Diluted headline 0,04 1,13 (7,14)
Basic (8,06) (4,15) (22,84)
Diluted (8,06) (4,15) (22,84)
Net asset value per share (cents) 241 257 245
Net tangible asset value per share
(cents) 194 201 195
Consolidated balance sheets
Unaudited Unaudited Audited
(USD 000"s) 31 August 2003 30 September 2002 28 February 2003
ASSETS
Non-current assets 121 325 139 552 144 326
Property, plant and equipment 29 822 43 503 45 400
Capitalised development
expenditure 10 961 11 512 11 079
Goodwill 53 400 65 489 57 165
Associated companies and
investments 667 2 155 2 022
Deferred tax asset 26 475 16 893 28 660
Current assets 782 100 764 435 747 351
Inventories 203 273 213 305 204 837
Receivables 401 577 385 459 346 848
Cash and cash equivalents 177 250 165 671 195 666
Total assets 903 425 903 987 891 677
EQUITY AND LIABILITIES
Ordinary shareholders" funds 331 724 354 703 337 886
Outside shareholders" interest 18 377 19 508 18 782
Total equity 350 101 374 211 356 668
Long-term liabilities 1 187 6 220 14 168
Deferred tax liability 10 494 1 914 9 514
Current liabilities 541 643 521 642 511 327
Payables 455 231 419 463 420 103
Amounts owing to vendors 1 399 3 194 7 571
Taxation 7 422 2 058 3 591
Bank overdrafts and trade
finance advances 77 591 96 927 80 062
Total equity and liabilities 903 425 903 987 891 677
Capital expenditure incurred in
current period 4 273 9 580 14 243
Capital commitments at end of period 2 971 1 936 8 938
Lease commitments at end of period 95 376 96 222 94 989
Payable within one year 18 328 14 063 16 866
Payable after one year 77 048 82 159 78 123
Abridged consolidated cash flow statements
Unaudited Unaudited Audited
six months to six months to period ended
(USD 000"s) 31 August 2003 30 September 2002 28 February 2003
EBITDA 12 318 16 500 18 250
Loss on disposal of
property, plant and
equipment - - 774
Non-cash items - unrealised
foreign exchange losses and
AC133 imputed interest 3 989 2 125 4 728
Cash generated before working
capital changes 16 307 18 625 23 752
Working capital changes (20 355) 66 370 119 706
Decrease/(increase) in inventories 1 240 (277) 7 464
(Increase)/decrease in receivables(57 191) (17 300) 30 699
Increase in payables 35 596 83 947 81 543
Cash (utilised)/generated from
operations (4 048) 84 995 143 458
Net financing costs paid (34) (1 125) (2 044)
Taxation refunded/(paid) 3 410 (12 436) (14 802)
Net cash (outflow)/inflow from
operating activities (672) 71 434 126 612
Net cash outflow from investing
activities (3 424) (19 740) (32 594)
Net cash inflow/(outflow) from
disposal of operations and
investments 2 363 (1 897) (1 911)
Net cash (outflow)/inflow from
financing activities (16 908) (2 011) 2 274
(Decrease)/increase in cash and
cash equivalents (18 641) 47 786 94 381
Translation difference on
opening cash position 2 696 6 309 6 574
Cash and cash equivalents at
beginning of period 115 604 14 649 14 649
Cash and cash equivalents at
end of period (*) 99 659 68 744 115 604
*Comprises cash resources net of bank overdrafts and trade finance advances.
Segmental analysis
Unaudited Unaudited Audited
six months to six months to period ended
(USD 000"s) 31 August 2003 30 September 2002 28 February 2003
Revenue
Westcon 859 724 795 302 1 626 437
Logical 186 919 164 676 307 501
Mason 13 783 13 277 25 161
Other Holdings 47 774 36 479 75 638
Revenue from ongoing operations 1 108 200 1 009 734 2 034 737
Discontinued operations 21 871 15 727 27 804
1 130 071 1 025 461 2 062 541
EBITDA
Westcon 17 815 19 596 33 666
Logical 2 645 2 292 993
Mason 895 1 515 2 716
Other Holdings (7 112) (2 626) (6 229)
Datatec foreign exchange losses (3 923) (2 748) (10 792)
EBITDA from ongoing operations 10 320 18 029 20 354
Discontinued operations 1 998 (1 529) (2 104)
12 318 16 500 18 250
Operating profit/(loss)
Westcon 11 470 13 167 20 908
Logical (812) (1 244) (5 851)
Mason 449 1 166 2 106
Other Holdings (7 433) (2 898) (6 768)
Datatec foreign exchange losses (3 923) (2 748) (10 792)
Operating (loss)/profit from
ongoing operations (249) 7 443 (397)
Discontinued operations 329 (2 887) (4 959)
80 4 556 (5 356)
Determination of headline earnings
Attributable loss per the consolidated
income statements (11 105) (5 723) (31 513)
Headline earnings adjustments
(net of taxation and
outside shareholders):
Goodwill amortisation 6 218 5 037 11 662
Loss on disposal of property, plant
and equipment - 84 542
Exceptional items: 4 937 2 158 (5 416)
Loss on disposal and closure of
discontinued operations 4 951 1 839 529
Write-down of carrying value of
Investments - 319 528
Recoupment of goodwill and trademarks
previously charged to equity - - (6 391)
Other (14) - (82)
Goodwill impairment - - 14 883
Headline earnings 50 1 556 (9 842)
Statement of changes in ordinary
shareholders" funds
Balance at beginning of period 337 886 402 203 402 203
Attributable loss (11 105) (5 723) (31 513)
Shares issued - 544 524
First time adoption of AC133 (1 303) - -
Foreign exchange difference on equity
loans net of tax (4 444) 873 (14 978)
Translation of foreign subsidiaries 10 690 (43 194) (18 350)
Balance at end of period 331 724 354 703 337 886
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 communications convergence 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) and an 84% interest in RangeGate (operating in SA and the United
Kingdom ("UK")).
2. US DOLLAR REPORTING
The Group has changed its reporting currency from South African Rands to US
Dollars with effect from the current financial year and restated comparative
information accordingly. The parent company, Datatec Limited, will continue to
report in South African Rands.
Our objective is to report financial information for the Group that is
consistent with the economic substance of the underlying events and
circumstances of the Group"s businesses. The US Dollar is the functional
currency in which the major part of the Group"s trading is conducted as over 95%
of the Group"s revenue is earned offshore in hard currency. By reducing the
distorting effects of changes in currency exchange rates this will simplify
financial analysis and enhance the transparency of our financial results.
Presenting financial information in US Dollars will also be more meaningful
to global investors and international benchmarking.
The policy of reporting in US Dollars will be consistently applied in future
using the following method:
* assets and liabilities for balance sheets (including comparatives) have been
translated at the closing rate ruling at the date of each balance sheet; and
* income and expense items for all periods presented (including comparatives)
have been translated at an average rate that approximates the actual exchange
rates at the dates of the transactions.
3. COMMENTARY ON RESULTS
The Group"s financial results for the period ended 31 August 2003 reflected
revenue from ongoing operations of $1,1 billion compared with revenue in the
previous period of $1,0 billion. Operating profit before financing costs,
depreciation and amortisation ("EBITDA") from ongoing operations amounted to
$10,3 million compared with EBITDA in the corresponding period of $18,0 million.
This decline is largely as a result of lower margins in the industry as a
consequence of difficult conditions in the sector, costs associated with
consolidating operations and foreign exchange translation losses from the
appreciation of the Rand.
Headline earnings per share for 2004 amounted to 0,04 cent compared to
earnings of 1,13 cents for the previous period.
Financing costs decreased during the period due to the reduction in offshore
interest rates.
Exceptional items of $5,2 million were incurred during the period, related to
the net loss realised on the closure of Logical France and, the sale of Datanet
and Westcon Cabinet Manufacturing in SA.
The effective rate of taxation on profit before exceptional items and
goodwill increased from 40,3% for the half-year in 2003 to 57,4% in 2004. The
effective rate is disproportionate due to the fact that certain subsidiaries
made losses which will be carried forward for tax purposes, while other
subsidiaries made taxable profits in countries with tax rates equal to or higher
than the South African tax rate. Management has taken a very prudent approach to
recognising deferred tax assets.
Amounts owing to vendors in the balance sheet represent purchase
considerations still outstanding in respect of acquisitions. At the end of the
period, the Group reflected an amount of $1,4 million as owing to vendors.
Capitalised development costs in the balance sheet have remained relatively
static at $11,0 million, with amortisation amounting to $1,5 million. Costs
capitalised during the period were in respect of Westcon"s internally developed
enterprise resource planning system known as Compass.
At the end of August, the Group showed a net cash position of $99,7 million
compared to prior comparable period of $68,7 million and atyear-end a balance of
$115,6 million.
In Rand terms, the Group"s revenue for the period ended 31 August 2003 from
ongoing operations mounted to R8,4 billion compared with revenue in the previous
period of R10,6 billion. EBITDA from ongoing operations amounted to R78 million
compared with EBITDA in the previous period of R189 million. Operating profit
amounted to R1 million compared to the previous period of R49 million, after
taking foreign exchange translation losses at the company level of R30 million
(2003: R29 million) from the strengthening of the Rand.
Headline earnings per share for 2004 amounted to 1 cent compared to 12 cents
for the previous period.
Ordinary shareholders" funds at the reporting date were R2,5 billion, which
represents a net tangible asset value per share of R14,23 at an exchange rate of
R7,3:$1. At 31 August 2003 the Group"s net cash position was R731 million
(September 2002: R723 million).
4. DIVISIONAL REVIEWS
4.1 Westcon
Westcon group generated revenue of $860 million, which exceeded revenue in
2003 by $65 million or 8%. Most of this revenue growth was generated by the
newly acquired Landis subsidiaries while organic revenue growth was
approximately 2,3% over the comparable prior period.
The gross margin for the period was 8,9% versus 9,0% generated in the comparable
period. Westcon"s gross margin performance reflects continued pressure on global
channel margins - particularly margins realised on sales of Cisco products,
which comprise the largest percentage of Westcon"s vendor sales. EBITDA margins
decreased from 2,5% in 2003 to 2,1% for the first six months of 2004. This was
partially due to the decrease in gross margin coupled with consolidation costs
incurred to reduce selling, general and administrative costs in order to be in
line with current operating levels.
At 31 August 2003 Westcon"s net cash position was $70,6 million (September 2002:
$25,6 million).
For the six-month period Cisco product made up 53% of Westcon group"s
revenue followed by Nortel (11%), Avaya (10%) and security and IP devices (26%).
From a geographic perspective 57% of Westcon group revenue was generated in the
Americas followed by Europe (37%) and Asia-Pacific (6%).
4.2 Logical
Logical achieved revenue from continuing operations of $187 million for the
period under review compared to revenue of $165 million in 2003, an increase of
14%. This increase was primarily a result of $20 million of additional product
sales by the operations in the United States and Australia producing strong
performances. Annuity revenue from maintenance and managed services also
improved on last year by 27%.
Overall service revenue was down year-on-year by 15% with the improvement in
product sales not driving additional professional and technical services.
The decline in demand for services resulted in a lower utilisation of staff
and impacted overall gross margins from continuing operations which decreased
from 24,4% in 2003 to 22,2% in 2004. Product margins remained under pressure in
the six-month period and declined overall by 0,8%. The increase in revenue
however improved total gross margin which increased by $1,3 million.
Management continued to maintain a concerted focus on controlling the
operating expenses which increased by 2,4% or $0,9 million compared with the 14%
increase in revenue. EBITDA from continuing operations amounted to $2,5 million
for the period compared to $2,3 million for last year.
Including discontinued operations the EBITDA was $2,6 million compared to $0,2
million last year. After charges for depreciation and amortisation the operating
losses amounted to $0,9 million (2003: $1,3 million).
During the period Logical sold its French subsidiary, Logical France,
removing a loss-making operation.
Significant emphasis also remained on the management of working capital. At 31
August 2003 Logical"s net cash position was $18,1 million (September 2002: $16,9
million). Management continues to work to increase revenue and reduce operating
expenses where possible in order to improve profitability in the current
difficult trading environment in which visibility remains limited.
Logical"s evolution into an integration solutions business will be marked by
a shift to a better differentiated and more distinguishable name "Logicalis". It
has the advantage of evolving from the current brand and, together with the new
strap line "integration solutions, it reflects the more distinctive
repositioning (LOGICAL + IS). The Logicalis vision is to become the partner of
choice for IT solutions, integrating best-in-class offerings from leading IT
vendors.
4.3. Mason
Mason achieved revenue of $14 million (GBP8,6 million) during the period
under review compared to $13 million (GBP8,7 million) in 2003. EBITDA decreased
from $2 million (GBP0,9 million) in 2003 to $1 million (GBP0,6 million) for the
current period and operating profit amounted to $1 million (GBP0,2 million)
(2003: $1 million; GBP0,7 million).
The difficult market conditions experienced during 2003 continued into 2004.
Revenue remained flat and there was a reduction in margins caused by increased
competition and lower consultancy rates. Work in the Government sector continued
to grow but this was offset by a decline in the Enterprise sector, particularly
financial services. The decline in Telecommunications and service providers
sector revenue has stabilised and there are early signs of a recovery for this
sector.
The current market conditions are likely to prevail for some time and any
recovery is likely to be modest. However, Mason has proven its ability to
rapidly respond to changing market conditions and is in an excellent position to
continue its growth and geographic expansion when market conditions improve.
4.4 Other Holdings
Westcon Africa Middle East ("Westcon AME ")
Westcon AME"s operations mirror those of the Westcon group. Revenue for the
period amounted to $26 million (R197 million) (2003: $24million; R243 million),
which was substantially below expectation, mainly attributable to the
appreciation of the Rand, as well as weak market conditions. Operating losses
amounted to $2 million (R17,0 million) (2003: profit of R1,6 million) after
foreign exchange losses of R3,3 million, and re-organisation costs of R16,2
million.
With effect from 31 July 2003, Westcon AME sold its interest in the Datanet and
Westcon Cabinet Manufacturing and substantial reductions in costs have been, and
are being, implemented under a new management team.
Affinity Logic
Affinity Logic"s core business is the provision of consulting and outsource
services for the delivery of computing infrastructure and application solutions
to the retail and consumer goods sector. Affinity Logic reported an operating
loss of $0,3 million (R2,3 million) (2003: R12,3 million) on revenue of $11
million (R82,7 million) (2003: R103,9 million).
Datatec sold its 55,2% shareholding in Affinity Logic to UCS Group Limited
for R19,3 million and R43,7 million for shares and loan accounts, respectively,
with effect from 31 August 2003.
RangeGate
RangeGate, located in SA and the UK, represents the Group"s mobile
technology systems integration business, and provides mobile supply chain
solutions to sectors such as retail, industrial, manufacturing and transport and
logistics.
Revenue for the period amounted to $3 million (R24,5 million) (2003: R34,8
million) and operating losses amounted to $1 million (R8 million) (2003: R13
million). Difficult market conditions contributed to lower than expected
revenue. By instituting pro-active cost control measures, the company was able
to reduce losses whilst still investing in core product research and
development.
5. REPORTING
This report has been prepared in accordance with the Group"s published
accounting policies which comply with South African Statements of Generally
Accepted Accounting Practice, and are consistent with those of the previous
accounting period, other than the introduction of AC133, which did not have a
material effect on the Groups earnings. As a result of change of our year-end
from March to February, the unaudited results presented are as at 31 August
2003. The September 2002 and August 2003 are six month periods.
6. PROSPECTS
Despite signs that the industry seems to have stabilised, the Group remains
vigilant to any potential weakening of economic conditions. So far increases in
revenues and volumes have been made in tough market conditions where margins
remain tight and pressure on operating margins intense. The effects of global
currency movements make it difficult to forecast.
7. DIRECTORATE
Mendel Karpul has resigned from the Group board with effect from 31 August
2003, after seven years of service.
8. DIVIDENDS
Under current international market and business conditions, it is not
considered prudent to declare a dividend at the present time.
On behalf of the Board
L Boyd J P Montanana D B Pfaff
Chairman Chief Executive Officer Group Finance Director
4 November 2003
Sponsor
RAND MERCHANT BANK
(A division of FirstRand Bank Limited)
CORPORATE FINANCE
Directors: L Boyd* (Chairman), J P Montanana# (CEO), C B Brayshaw*,
J F McCartney*
, D B Pfaff, C M L Savage*, C S Seabrooke*,
A M Smith
, N J Temple*#
#British
American *Non-executive
DATATEC LIMITED
("Datatec")
Registration number 1994/005004/06
Share code: DTC ISIN: ZAE000017745
www.datatec.co.za
Date: 04/11/2003 09:00:59 AM Produced by the JSE SENS Department
