| Thu 27 May 2004, 9:08 | | Results For The Year Ended 29 February 2004 |
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Datatec - Audited Results For The Year Ended 29 February 2004
Release Date: 27/05/2004 08:09:11 Code(s): DTC
DATATEC - AUDITED RESULTS FOR THE YEAR ENDED 29 FEBRUARY 2004
AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Datatec
Connecting Minds
DATATEC LIMITED (`Datatec`).
Registration number 1994/005004/06.
Share code: DTC. ISIN: ZAE000017745.
* Revenue up 14% to $2,3 billion
* EBITDA up 30% to $23,8 million
* Headline loss per share of 6,59 cents
* Net tangible asset value per share of $2,04
* Net cash at year-end of $88,7 million
Audited results for the year ended 29 February 2004
and withdrawal of cautionary announcement
Group income statements
Year ended Period ended
29 February 2004 28 February 2003
USD 000`s USD 000`s
Revenue 2 346 948 2 062 541
Continuing operations 2 230 692 1 863 335
Acquisitions - 103 467
Ongoing operations 2 230 692 1 966 802
Discontinuing operations 116 256 95 739
Cost of sales (2 071 528) (1 810 326)
Gross margin 275 420 252 215
Operating costs (251 632) (233 965)
Operating profit before financing
costs, depreciation
and amortisation (`EBITDA`) 23 788 18 250
Ongoing operations 18 668 20 024
Discontinuing operations 5 120 (1 774)
Depreciation and other amortisation (22 727) (23 606)
Operating profit/(loss) before
goodwill amortisation 1 061 (5 356)
Goodwill amortisation (12 091) (11 662)
Goodwill impairment (14 361) (14 883)
Other income 81 127
Operating loss (25 310) (31 774)
Exceptional items (6 438) 4 730
Interest received 5 150 6 950
Financing costs (9 570) (8 994)
Share of associate company earnings - 8
Loss before taxation (36 168) (29 080)
Taxation (5 336) (2 603)
Loss after taxation (41 504) (31 683)
Loss attributable to outside
shareholders 521 170
Attributable loss (40 983) (31 513)
Loss per share (cents)
Headline (6,59) (7,14)
Diluted headline (6,47) (7,14)
Basic (29,75) (22,84)
Diluted (29,22) (22,84)
KEY RATIOS
Gross margin % 11,7 12,2
EBITDA on ongoing operations % 0,8 1,0
Exchange rates
Average Rand/US$ exchange rate 7,2:1 9,7:1
Closing Rand/US$ exchange rate 6,6:1 8,1:1
SALIENT FINANCIAL FEATURES
Headline loss (9 082) (9 842)
Number of shares (millions)
Issued 138 138
Weighted average 138 138
Diluted weighted average 140 138
Net asset value per share (cents) 241 245
Net tangible asset value per share
(cents) 204 195
Group balance sheets
As at As at
29 February 2004 28 February 2003
USD 000`s USD 000`s
ASSETS
Non-current assets 105 439 144 326
Property, plant and equipment 27 726 45 400
Capitalised development expenditure 11 769 11 079
Goodwill 38 923 57 165
Investments 920 2 022
Deferred tax asset 26 101 28 660
Current assets 860 956 747 351
Inventories 247 045 204 837
Receivables 428 810 346 848
Cash and cash equivalents 185 101 195 666
Total assets 966 395 891 677
EQUITY AND LIABILITIES
Ordinary shareholders` funds 332 506 337 886
Outside shareholders` interest 18 464 18 782
Total equity 350 970 356 668
Long-term liabilities 3 656 14 168
Deferred tax liability 3 987 9 514
Current liabilities 607 782 511 327
Payables 497 342 420 103
Amounts owing to vendors 438 7 571
Taxation 13 604 3 591
Bank overdrafts 96 398 80 062
Total equity and liabilities 966 395 891 677
Capital expenditure incurred
in current period 9 809 14 243
Capital commitments at end of period 9 267 8 939
Lease commitments at end of period 127 196 98 711
Payable within one year 22 355 16 866
Payable after one year 104 841 81 845
Abridged group cash flow statements
Year ended Period ended
29 February 2004 28 February 2003
USD 000`s USD 000`s
EBITDA 23 788 18 250
Loss on disposal of property,
plant and equipment 352 774
Non-cash items 5 833 4 728
Cash generated before
working capital changes 29 973 23 752
Working capital changes (58 995) 119 706
(Increase)/Decrease in inventories (41 457) 7 464
(Increase)/Decrease in receivables (84 494) 30 699
Increase in payables 66 956 81 543
Cash (utilised)/generated
from operations (29 022) 143 458
Net financing costs paid (4 420) (2 044)
Taxation refunded/(paid) 1 494 (14 802)
Net cash (outflow)/inflow from
operating activities (31 948) 126 612
Net cash outflow from
investing activities (8 243) (32 594)
Net cash inflow/(outflow) from
disposal of operations
and investments 4 878 (1 911)
Net cash (outflow)/inflow from
financing activities (12 213) 2 274
(Decrease)/Increase in cash and
cash equivalents (47 526) 94 381
Translation difference on
opening cash position 20 625 6 574
Cash and cash equivalents at
beginning of period 115 604 14 649
Cash and cash equivalents at
end of period (*) 88 703 115 604
*Comprises cash resources net of bank
overdrafts.
Segmental analysis
Year ended Period ended
29 February 2004 28 February 2003
USD 000`s USD 000`s
Revenue
Westcon 1 840 500 1 626 437
Logicalis 263 663 238 826
Mason 27 352 25 161
Other Holdings 99 177 76 378
Revenue from ongoing operations 2 230 692 1 966 802
Discontinuing operations 116 256 95 739
2 346 948 2 062 541
EBITDA
Westcon 36 171 33 666
Logicalis (382) 529
Mason (723) 2 700
Other Holdings (9 671) (6 141)
Datatec Limited foreign exchange
losses (6 727) (10 730)
EBITDA from ongoing operations 18 668 20 024
Discontinuing operations 5 120 (1 774)
23 788 18 250
Operating profit/(loss) before
goodwill amortisation
Westcon 23 781 20 908
Logicalis (5 803) (4 784)
Mason (1 400) 2 056
Other Holdings (10 330) (6 642)
Datatec Limited foreign
exchange losses (6 727) (10 730)
Operating (loss)/profit from
ongoing operations (479) 808
Discontinuing operations 1 540 (6 164)
1 061 (5 356)
Determination of headline loss
Attributable loss per the
consolidated income statements (40 983) (31 513)
Headline loss adjustments
(net of taxation and
outside shareholders):
Goodwill amortisation 10 949 11 662
Loss on disposal of plant
and equipment 209 542
Exceptional items: 6 382 (5 416)
Loss on disposal and closure
of discontinued operations 6 438 529
Write-down of carrying value
of investments - 528
Recoupment of goodwill and trademarks
previously charged to equity - (6 392)
Other (56) (81)
Goodwill impairment 14 361 14 883
Headline loss (9 082) (9 842)
Statement of changes in ordinary
shareholders` funds
Balance at beginning of period 337 886 353 737
Attributable loss for the period (40 983) (31 513)
Shares issued 341 524
Transitional adjustment - adoption of
AC 133 (393) -
Translation difference on equity loans (26 258) (14 449)
Tax effect of equity loans movement (245) (529)
Deferred tax on goodwill previously
charged directly to equity 859 898
Translation difference arising on
translation into USD 61 299 29 218
Balance at end of period 332 506 337 886
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`), IT infrastructure solutions
and network integration (`Logicalis`) and strategic telecommunications
consulting (`Mason`). The Group also has other interests which are included
with the Group Head Office under Other Holdings. These interests include
Westcon AME (operating in Africa), Online Distribution (operating in the
Middle East) and an 84% interest in RangeGate (operating in South Africa
(`SA`) and the United Kingdom (`UK`)).
2. US DOLLAR FINANCIAL 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
97% 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 has been and will be applied in future
using the following bases:
* 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 years presented (including comparatives)
have been translated at an average rate that approximates the actual exchange
rates at the dates of transactions.
3. COMMENTARY ON RESULTS
The Group`s financial results for the year ended 29 February 2004 reflected
revenue of $2,3 billion compared with revenue in the previous year of $2,1
billion, an increase of 14%. Operating profit before financing costs,
depreciation and amortisation (`EBITDA`) amounted to $23,8 million compared
with the corresponding year of $18,2 million. Operating profit before goodwill
amortisation amounted to $1,1 million compared to the previous year loss of
$5,4 million.
Revenue from ongoing operations (which excludes the disposal of Logicalis
Australia and New Zealand subsequent to year-end) amounted to $2,2 billion
(2003: $1,9 billion) and EBITDA of $18,7 million (2003: $20,0 million). This
comparative decline is largely as a result of continued margin pressure as the
IT and networking sectors have been slow to recover, as well as costs
associated with consolidating operations and foreign exchange translation
losses from the appreciation of the Rand.
Headline loss per share for 2004 amounted to 6,59 cents compared to 7,14 cents
for the previous year.
The Group reviewed the value of goodwill carried on its balance sheet at the
end of the period. Goodwill mainly relating to the Catalyst subsidiary in the
Mason group was considered to be impaired and an amount of $14,4 million has
accordingly been written-off.
A net exceptional loss of $6,4 million was incurred during the year, relating
to the net loss realised on the closure of Logical France, the sale of Datanet
and Westcon Cabinet Manufacturers in SA and a profit on sale of Affinity
Logic.
Taxation of $5,3 million increased from $2,6million in 2003. The effective
rate of taxation profit before goodwill amortisation is disproportionate due
to certain subsidiaries making losses in respect of which no deferred tax
asset has been recognised due to uncertainty over their recoverability,
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 for tax losses
arising in 2004.
Subsequent to year-end, Logicalis disposed of its Australian and New Zealand
operations to IBM
for $66 million in cash, inclusive of working capital adjustments. The
transaction comprises a
cash consideration of $46 million for the shares and a repayment of inter-
company loans and
payables amounting to $20 million. These operations have been disclosed as
discontinued in the 2004 results.
Capitalised development costs in the balance sheet have remained relatively
static at $11,8 million, with amortisation amounting to $3,3 million. Costs
capitalised during the year were in respect of Westcon`s internally developed
enterprise resource planning system known as Compass.
At the end of February 2004, the Group showed a net cash position of $88,7
million compared to prior comparable year of $115,6 million. This reduction is
as a result of the increased trading in Westcon which required additional
investment into working capital as revenues expanded.
In Rand terms, the Group`s revenue for the year ended 29 February 2004
amounted to R16,8 billion. EBITDA amounted to R170,2 million and operating
profit before goodwill amortisation amounted to R7,6 million, after taking
foreign exchange translation losses at the company level of R49 million due to
the strengthening of the Rand.
Headline loss per share for 2004 amounted to 46,86 cents. Ordinary
shareholders` funds at the reporting date were R2,2 billion, which represents
a net tangible asset value per share of R13,57 at an exchange rate of
R6,65:$1. At 29 February 2004 the Group`s net cash position was R589 million.
The Rand comparative amounts are not provided due to the distorting effects of
exchange translations.
4. DIVISIONAL REVIEWS
4.1 Westcon
Westcon group`s revenue increased by $214,1 million or 13,2% to $1,8 billion.
This reflects a full 12-month contribution from the Landis acquired businesses.
The gross margin for the year was 8,8% versus 8,9% generated in the comparable
year. EBITDA margins decreased from 2,07% in 2003 to 1,97% for 2004. This was
partially due to the decrease in gross margin coupled with higher costs
incurred to reduce selling, general and administrative costs.
During the year, Westcon`s operating activities used $32 million of cash as
compared to providing cash in 2003 as its working capital levels increased due
to both the increased revenue in 2004, as well as in anticipation of continued
increased demand in the future. At 29 February 2004 Westcon`s net cash position
was $41,5 million (2003: $68,6 million).
For the year Cisco sales comprised 56% of Westcon group`s revenues followed by
Nortel (10%), Avaya (9%) and other IP devices (25%). From a geographic
perspective 56% of Westcon group revenue was generated in the Americas
followed by Europe (38%) and Asia - Pacific (6%).
4.2 Logicalis
Logicalis achieved total revenue of $362,9 million for the year under review
compared to revenue of $313,5 million for the 11 months ended 28 February
2003, an overall increase of 16%. This increase is partially due to the
current reporting period including an additional month of trading and
partially the benefit of more favourable exchange rates. Product revenues grew
by 19% (on the previous
11-month period). Annuity revenues from maintenance and managed services also
improved by 32% on the previous period. However improved product sales did not
generate additional demand for consulting and technical services and revenues
from project-based services were down by 12%. The softer demand for these
services resulted in a lower utilisation of staff and impacted adversely on
overall gross margins, which decreased from 23,2% in 2003 to 22,4% in 2004.
Management continued to maintain a concerted focus on reducing operating
expenses, which increased by only 7% compared with the 16% increase in
revenue.
During the year Logicalis sold its French subsidiary, removing an operation
which was sub-scale and loss-making. Subsequent to the year-end, the
Australian and New Zealand businesses were sold to IBM for $66 million. The
net proceeds have substantially strengthened the Logicalis group balance
sheet, as well as providing funding for organic growth and potential
acquisitions in North America and the UK. For the year under review the
Australian and New Zealand businesses contributed $98,2 million of revenue and
$2,9 million of EBITDA (after the allocation of certain group costs).
The EBITDA profit for the year was $2,4 million compared to a loss of $1,1
million incurred in the last period. After charges for depreciation and
amortisation the operating loss (EBIT) amounted to $5,0 million (2003: $8,4
million). Continuing operations, excluding Australia, France and New Zealand,
produced revenue of $263,7 million (2003: $238,8 million) and an EBITDA loss
of $0,4 million for the year, compared with an EBITDA profit of $0,6 million
for the prior period.
Significant emphasis has continued on the management of working capital,
resulting in further improvement in the days sales outstanding for trade
debtors, to 43 days (2003: 47 days). At
29 February 2004 Logicalis` net cash position was $25,8 million (2003: $16,2
million). This net cash amount does not include the proceeds from the sale of
the Australian and New Zealand businesses.
4.3 Mason
Mason achieved revenue of $27,4 million during the year under review compared
to $25,2 million in 2003. EBITDA decreased from a profit of $2,7 million in
2003 to a loss of $0,7 million for the current year and the operating loss
amounted to $1,4 million compared to a profit of $2,1 million in 2003.
The difficult market conditions experienced in the prior year 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. Revenue decline in the
telecommunications and service providers sector has stabilised.
4.4 Other Holdings
Westcon AME and Online Distribution
Westcon AME and Online Distribution are value added networking equipment
distributors whose operations mirror those of the Westcon group. Revenue
amounted to $98,8 million (2003:
$110,2 million) for the year, which was below expectation, mainly attributable
to the appreciation of the Rand, weak market conditions and the exclusion of
full year revenues on discontinued operations. The operating loss amounted to
$1,2 million (2003: $0,5 million) after foreign exchange losses of $0,56
million and reorganisation costs of $2,8 million. With effect from 31 July
2003, Westcon AME sold its interest in the Datanet and Westcon Cabinet
Manufacturers divisions for $2,5 million and substantial reductions in costs
have been realised.
Continuing operations, excluding Datanet and Westcon Cabinet Manufacturers
divisions, produced revenues of $92,7 million (2003: $70,5 million) and an
EBITDA loss of $1,2 million for the year, compared to $0,1 million for the
prior period.
Affinity Logic
Datatec sold its 55,2% shareholding in Affinity Logic to UCS Group Limited for
$2,6 million with effect from 31 August 2003. In addition, Affinity Logic
repaid loans to Datatec amounting to $5,8 million.
Affinity Logic reported an operating profit of $0,3 million (2003: loss
of $2,5 million) on revenue of $11,0 million (2003: $11,0 million).
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 year amounted to $6,4 million (2003: $6,8 million) and
operating losses amounted to $2,2 million (2003: $1,9 million). Difficult
market conditions contributed to lower than expected revenue. By instituting
pro-active cost control measures, the company was still able to invest in core
product design and development.
5. PROSPECTS
The Group has seen a gradual improvement in market conditions in the first few
months of this year which has been reflected by improvements in revenue,
increasing order book and stablilising gross margins as well as other
indicators that may signal signs of a more sustainable recovery. This should
translate into improved results for the Group in the year ahead.
6. REPORTING
This report has been prepared in accordance with AC 127 and 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 year, other than the adoption of AC 133 of which the
net effect on the Group`s earnings was not material.
The financial information has been audited by Deloitte & Touche whose
unqualified audit report is included in the Group annual financial statements
which are available for inspection at the Group`s registered office.
7. DIRECTORATE
Messrs. R Rindel and M Karpul resigned from the Board on 14 March 2003 and 31
August 2003, respectively, and Messrs. A Smith and J McCartney resigned with
effect from 3 March 2004 in anticipation of the proposed initial public
offering of common stock of Westcon in the US.
8. DIVIDENDS
It is not considered prudent to declare a dividend at the present time.
9. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcements dated 13 January
2004, 3 March 2004, 23 March 2004 and 13 May 2004 and are advised that the
process of listing Westcon on the NASDAQ Stock Exchange is continuing. The
listing is expected to take place in this year.
As all of the information applicable to the Westcon listing has been disclosed
to shareholders and there is no price sensitive information that has not been
released, the cautionary announcement is hereby withdrawn. Shareholders will
be kept updated with all developments in the listing process.
On behalf of the Board
L Boyd J P Montanana D B Pfaff
Chairman Chief Executive Officer Group Finance Director
27 May 2004
Directors: L Boyd* (Chairman), J P Montanana# (CEO), C B Brayshaw*, D B Pfaff,
C M L Savage*, C S Seabrooke*, N J Temple*# #British *Non-executive
DATATEC LIMITED (`Datatec`). Registration number 1994/005004/06.
Share code: DTC. ISIN: ZAE000017745. www.datatec.co.za
