Directors' Report

PROFILE AND GROUP STRUCTURE

Datatec and its subsidiaries ("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 ("Logicalis") and strategic telecommunications consulting ("Analysys Mason").  The Group also has other interests, which are included with the Group Head Office under Other Holdings. These interests include the subsidiaries Westcon AME (operating in Africa), OnLine Distribution (operating in the Middle East) and RangeGate (operating in SA).

Commentary on the Group financial results is given in the Finance Report on pages 34 to 38. Full details of the financial position and financial results of the Group are set out in the Financial Statements on pages 64 to 117.

The authorised share capital of the Company is made up of R2 000 000,00, divided into 200 000 000 ordinary shares of one cent each. There has been no change since the prior year.

As at 28 February 2006, the issued share capital is made up of R1 463 594,68 divided into 146 359 468 ordinary shares of one cent each (2005: R1 384 437,06 comprising 138 443 706 ordinary shares).

During the year, 1 724 717 shares were issued to settle obligations in terms of The Datatec Share Option Scheme and 6 191 045 in termsof acquisitions.

The authorised and issued share capital of the Company, and full details of the movement in share capital have been reflected in the Statement of Changes in Equity on page 110 in the Annual Financial Statements.

Westcon AME (Pty) Limited, a wholly owned subsidiary of the Company, purchased 684 069 shares in the Company during the year for a consideration of R11,5 million.

Full details of the current Board of Directors appear on pages 10 and 11. There were no changes in the composition of the Board.

All directors, including non-executive directors, are required, in terms of the Company’s Articles of Association, to retire but may offer themselves for re-election at least every three years. All directors are subject to re-election by shareholders at the first opportunity after their appointment in addition to re-election at least every three years.

J Montanana, D Pfaff and N Temple retire at the forthcoming Annual General Meeting (“AGM”) and, being eligible, offer themselves for re-election. Refer pages 10 and 11 for brief curriculum vitae’s of directors.

More details on the directors and their interests are provided in the Remuneration Report set out on pages 50 to 60.

GOING CONCERN

The directors believe that the Datatec Group has adequate financial resources to continue in operation for the foreseeable future and accordingly the financial statements have been prepared on a going concern basis.

The following factors support the going concern assumption:

The Group is solvent and has access to sufficient cash resources. With shareholders’ funds of $448,8 million (2005: $412,2 million), working capital remains well controlled. Receivables and inventory are of sound quality and adequate provisions are held against both. The Group has sufficient liquidity and borrowing capacity to meet its ongoing operating needs, including approved capital expenditure.

The Group has no need to undertake a capital restructuring and key executive management is in place. The Board is not aware of any new material changes that may adversely impact the Group relative to customers, suppliers, services or markets. The Board is not aware of any material non-compliance with statutory or regulatory requirements and there are no pending legal proceedings other than in the normal course of business. The Board is not aware of any pending changes in legislation in any of the major countries in which it operates, that may affect the Group.

Financial information relating to the Group's investments and interests in subsidiaries is contained in note 13 as well as Annexure 1 of the Group Financial Statements and note 4 of the Company Financial Statements.

The following significant acquisitions were concluded during 2006:

On 1 March 2005, Logicalis Group Limited (“Logicalis”), a wholly-owned subsidiary of Datatec International Limited, acquired 100% of the issued share capital of Notability Solutions Limited (“Notability”), a $40 million-a-year revenue UK IBM partner that focuses on IBM’s i-Series server solutions and IBM software solutions, for $17,9 million in cash and $2,3 million in Datatec shares. In terms of the purchase agreement, additional consideration of a maximum of $2 million was payable if certain profit targets were met in the year to 31 December 2005. These targets were not met and therefore no additional consideration is payable.

On 17 March 2005, Logicalis’ US subsidiary Logicalis US Holdings, Inc. acquired Eisco Technology, Inc., a $15 million annual revenue US IBM solution provider that focuses on high-end IBM z-Series mainframe solutions, for $2,6 million in cash. In terms of the purchase agreement, additional consideration of a maximum of $0,7 million was payable if certain profit targets were met in the period to 28 February 2006. These targets were not met and therefore no additional consideration is payable.

On 29 July 2005, Logicalis acquired Hawke Systems Limited, a $25 million annual revenue HP Enterprise Partner in the UK, for aconsideration of $3,6 million in cash. There was no additional contingent consideration relating to this acquisition.

On 16 September 2005, Logicalis acquired TBC Group Limited, a $50 million-a-year business IBM Premier Partner and supplier of advanced computing infrastructure and managed service solutions, based mainly around the IBM Unix range, database applications and IBM middleware, for $6,7 million in cash and $1,9 million in Datatec shares. In terms of the purchase agreement, additional consideration of a maximum of $1,7 million is payable if certain profit targets were met in the six month period to 31 December 2005. Preliminary indications are that the maximum contingent consideration will be paid.

On 9 January 2006, Logicalis’ US subsidiary Logicalis, Inc. acquired from Avnet, Inc. its US enterprise end-user HP business, a $100 milliona-year business focused primarily on HP’s server and storage solutions, for a total maximum consideration of $12,0 million of which $6,0 million was paid in cash on closing and $6,0 million in Datatec shares. In terms of the purchase agreement, additional consideration of a maximum of $6,0 million is payable if revenue targets are met in the first two years following the acquisition.

Following a strategic review, in February 2005 the board of Logicalis decided to exit the design and manufacture of niche proprietary networking products (Vados division). The UK business which had total revenue in 2005 of $3,7 million and an EBITDA loss of $1,9 million was sold to the management in April 2005.

Datatec Mobile Solutions Limited (a wholly-owned subsidiary of Datatec International Limited) disposed of 80,1% of the shares in RangeGate Mobile Solutions Limited to a share trust for the benefit of current and past employees for a total consideration of £8 010. All the conditions precedent in the agreement have been met.

On 13 September 2005 the Company registered a special resolution after receiving shareholder approval at the AGM to repurchase its own securities.

Datatec Limited has committed to spending a further R10 million on corporate social investment. The Datatec Education and Technology Trust was established in March 2000 with an initial grant allocation from the Company of R10 million. The principal ideal of the Trust is to grow SA’s mathematics, science and technology talent, with a primary focus on providing sustainable infrastructure dedicated to developing these skills. The Group believes that this development, at grassroots level, provides a platform from which SA can build its expertise in fields such as mathematics, science and technology.

A statement on the Group's Corporate Governance policies and procedures is set out on pages 39 to 45.

Details of the Group's share option and other management incentive schemes are set out in the Remuneration Report on pages 50 to 60.

Westcon Group acquired the distribution arm of Ronco Communications and Electronics. The new operation has been renamed Ronco Distribution.

The successful acquisition will transform Westcon into the number one distributor of Nortel voice and data products in North America. Nortel is now Westcon group’s second largest vendor by revenue.

On 1 May 2006, Logicalis’ US subsidiary Logicalis, Inc. acquired from Alliance Consulting, Inc. its US Southwest focused business, headquartered in Scottsdale, Arizona, for $4,5 million, of which $3,0 million was settled in cash and $1,5 million in Datatec shares. The Alliance Southwest business is a $15 million annual revenue operation providing consulting services to its customer base principally in the states of Arizona, California and Texas. In terms of the purchase agreement, additional consideration of a maximum of $2,0 million is payable if certain profit targets are met in the nine month period following the acquisition.

CAPITAL DISTRIBUTION

The Company will distribute out of share premium, in lieu of a dividend, 30 RSA cents per share (approximately 5 US cents per share) for the year ended 28 February 2006, in terms of the general authority granted to directors at the AGM held on 16 August 2005.

The salient dates were as follows:

Last day to trade Friday, 30 June 2006
Shares to commence trading "ex" the distribution Monday,3  July 
Record date Friday, 7 July 2006
Payment date Monday, 10 July 2006

Share certificates may not be dematerialised or rematerialised between Monday, 3 July 2006 and Friday, 7 July 2006, both days inclusive.

The Company has instituted a policy of making an annual distribution to shareholders subject to annual review which will be influenced by business growth, acquisition activity, or changes in reported earnings resulting from applying fair value accounting principles.

ANNUAL GENERAL MEETING

The AGM will be held at 14:00 on 15 August 2006 at the Sandton Sun Intercontinental, 5 Street, Sandhurst. In addition to the ordinary business of the meeting, as special business, shareholder consent will be sought to authorise directors to repurchase the Company shares from time to time according to certain guidelines. Refer to the notice to the AGM on pages 119 to 124 of this Report for further details.