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2007 was another year of strong performance in which we have benefited from the effects of our increased scale and improved organisational efficiencies against a backdrop of an improving global ICT market.
We achieved revenue of $3,2 billion, an increase of 17% on the previous year. The 2006 revenue has been restated to reflect the change in accounting for revenue recognition with respect to the resale of vendor maintenance contracts as explained in the finance report. With margins, profits and earnings all significantly up I am delighted to report our fourth consecutive year of improving financial performance. Consolidated EBITDA of $119 million has returned the Group to financial performance levels consistent with a trend established prior to 2000. This trend has also been repeated at the divisional operating level, with improvements reported across all major businesses and geographies. The sustainability of the recovery in information technology is being underpinned by the widespread deployment of broadband, the industrialisation of the Internet, advances in wireless connectivity and the adoption of convergence solutions in telecommunications, media and broadcasting. Profits and earnings have risen to levels and ratios more consistent with those enjoyed in the 1990s.
Whilst we have benefited from market conditions which have been generally positive, underpinning these performance improvements have been the efforts attributable to management over the last few years to reposition the businesses of the main divisions for sustainable long-term growth. We have successfully been able to improve operating efficiencies in all our businesses through increasing scale, growing employee productivity, and improving working capital efficiencies, which have collectively helped to drive margins in line with historic norms.
STRATEGIC FOCUS
The Group will continue to focus on faster growth sectors of the ICT market, providing value solutions through our products and services portfolio and continuing to lead in offering new and emerging technologies. The Group serves a broad base of customers internationally, operating in three distinct business segments; product distribution, infrastructure integration services and consulting. Each of these divisional businesses function independently providing complementary value and various points of entry into the networking, and converged IT and telecommunications markets.
With our three independent business streams, multi-sector exposure, geographic diversity and a leading vendor portfolio, we are well positioned for further expansion by being aligned with the high growth of networking, security and VoIP convergence technologies. The spread of activities across distribution, integration services and consulting not only provides the Group with multiple points of leverage in the ICT market, but also a defensive spread of combined businesses which together can act as a hedge against the decline of any one vendor, geography or technology in a fast consolidating and dynamic marketplace. Most of the major IT manufacturers continue to increasingly develop their markets using distribution and reseller channels including third party service and support organisations as routes to market. We expect this trend to continue to result in further consolidation amongst intermediaries in the ICT supply chain including those providing hardware and software solutions, integration services and various support organisations in the markets where we operate. In this environment we expect to play a principal and active role.
The Group's strategy aims to leverage further its position as a key value-added intermediary at multiple levels of the supply chain, often referred to as the channel, by extending the successful business models of each of its principal divisions to specifically target: emerging technologies, new service offerings, additional markets and extending geographies. Strong organic revenue growth of 46% over the last four years has been complemented by strategic acquisitions across all the major operating divisions in order to grow market share, broaden services capabilities and increase exposure to advanced technologies. Our successful dual listing on the AIM market of the London Stock Exchange in October 2006, gives the Group a stronger platform from which to execute this strategy by virtue of providing us with greater access to international equity capital markets to support our expansion.
The world's emerging markets are enjoying particularly strong growth, and are increasingly developing new infrastructure utilising technology for building networks, providing security and supporting the converged services being driven by telecommunication operators and service providers. All major vendors are looking to target these markets as they develop rapidly and are increasingly seeking to strike partnerships with major international distributors and infrastructure solution providers such as Westcon and Logicalis, who have the scale, channels to market, technical expertise and services capabilities to consolidate these diverse and often fragmented markets.
In December we announced that we had signed a strategic agreement with Cisco Systems which led to the establishment of a dedicated distribution operation in Dubai UAE, focused on the selling and marketing of Cisco products in the Gulf region of the Middle East. This is the first of a number of similar initiatives that we expect to announce as we seek to increase our exposure to faster growing markets in parts of eastern Europe, the Middle East, South America and Asia over the next few years.
GROUP OPERATIONS - DISTRIBUTION
Westcon Group is the world's leading speciality distributor of advanced networking, security, mobility and voice-data communications and convergence products. It forms the core of Datatec's distribution operations. Westcon is headquartered in New York and has operations in sixteen countries across fi ve continents. Westcon provides procurement outsourcing, distribution logistics, and professional technical and marketing services as well as training and sales support to over 8 000 reseller customers, service providers, OEMs and other business solution integrators worldwide. For FY07, Westcon accounted for over 70% of the Group's revenue and contributed 52% of consolidated gross profit.
Revenue at Westcon grew by 10% to $2,3 billion (2006 restated: $2,1 billion). EBITDA at Westcon increased by 24% to $83 million, driven mainly from improved performance in the European and Asia-Pacific regions. We have continued to make significant inroads towards consolidating Westcon's leadership position in a number of areas, in particular the broadening and strengthening of its vendor relationships. For example, during the period, Westcon US acquired the distribution arm of Ronco Communications and Electronics.
The acquisition expanded Westcon's core convergence expertise, specifically in the voice arena, and resulted in Westcon becoming Nortel's largest US distributor. Similarly, in Europe, the acquisitions of NOXS in April and Crane Telecommunications in May 2007 have helped to propel Westcon to a market leading position in not just data networking, but in the associated high growth markets of security and VoIP convergence technologies. The acquisitions of NOXS and Crane represent important steps in Datatec's strategic plans to leverage Westcon's financial strength and scale of operations in Europe. We expect to see a continued improvement in contribution from Westcon's European businesses as the benefits of these acquisitions are realised.
GROUP OPERATIONS - INFRASTRUCTURE INTEGRATION & SERVICES
Logicalis Group is an international provider of integrated ICT solutions, delivering secure, converged computing and communications infrastructure and services. Logicalis is headquartered in Slough, UK with operations in nine countries in North America, South America and Europe and approximately 1 400 employees worldwide. During the year under review Logicalis contributed over 20% of Group revenue and 37% of consolidated gross profit.
Logicalis' revenue has grown by more than $180 million or 37% (of which 11% was organic) to $693 million from a 2006 restated: $505 million. Logicalis has continued to grow margins with strong EBITDA expansion, up 60% to $27 million (2006: $17 million) driven by the improved efficiencies derived from the additional scale gained from a number of key strategic acquisitions. Consistent with the Group's overall strategy, the objective of these acquisitions has been to increase the breadth of infrastructure solutions and improves the mix of services across the major technology platforms from vendors such as IBM, Cisco Systems and HP. This diversification has allowed Logicalis to outgrow the market and gain share.
During the year Logicalis acquired the consulting business of Alliance Consulting, Inc. which added 70 consultants to Logicalis US' Contract Consulting Services Group (CCSG) making it one of the largest independent providers of contract professional services in the South and West regions of the USA. Also in the US, the acquisition of Computech Resources, Inc. an IBM Premier Business Partner, further strengthened the IBM business solutions capabilities of Logicalis' operations and boosted the total number of employees in the US to over 500.
In the UK, the acquisition of certain assets of the CSF Group signifi cantly augmented Logicalis' UK operations by bringing further scale to its strategic relationships with both IBM and HP, enhancing its enterprise computing and storage capabilities and bolstering its data-centre presence. The acquisition included CSF's data centre outside London and also strengthened Logicalis UK's managed service capabilities, a key focus for growth.
Elsewhere, Logicalis also acquired an equity interest in re:solution, a German professional and technical services organisation and established offices in Chile and Peru, to extend the Group's presence in South America. To help transition the Group to its next phase of development and international growth I took the decision during the year to plan for my succession, as the scale and growth of the organisation now requires the role of a full-time CEO to take the business forward towards a $1 billion revenue business. With effect from 1 March 2007, Ian Cook, formerly head of Logicalis' European operations, became CEO of Logicalis Group, assuming all day-to-day responsibility for the operations and management of the Group activities currently in North America, South America as well as in Europe. I will continue my involvement as Chairman of Logicalis Group with direct responsibility for corporate finance and strategy in addition to my role of Datatec Group CEO.
GROUP OPERATIONS - CONSULTING
The Analysys Mason Group (Analysys Mason) is an ICT consultancy, headquartered in London, with operations in seven countries and approximately 300 direct and contract employees. Analysys Mason's activities include strategic telecommunications and networking consulting, technology procurement services and project implementation, contact centre and customer relationship management and research. More than 55% of its business comes from outside the UK home market. Analysys Mason has a wide range of clients in over 80 countries around the world which it services from its offices in Cambridge, Dublin, Edinburgh, London, Madrid, Manchester, Milan, Paris, Singapore and Washington DC. In FY07 Analysys Mason contributed 2% of Group revenue and 5% of consolidated gross profit.
Despite the completion of a significant multi-year project (3G rollout for a major European operator) and a decline in the revenues of the call centre/CRM operations of Analysys Mason, the continuing activities managed to achieve some robust gains by securing new business streams especially in strategy consulting and technical project management assignments. Overall revenue at $61 million was slightly up on the prior year (2006: $60 million).
Given Analysys Mason's international ambitions, non-UK revenue grew by 37%. The merging of Analysys and Mason is now paying dividends with the enlarged group winning joint bid projects which require a broader spectrum of expertise. Opportunities remain to broaden and deepen both the service offering and the geographic footprint, as well as improve productivity and operational synergies from the integrated businesses. Analysys Mason has recently opened an office in Singapore, targeting the Asian market to complement its strong position in the UK and European markets.
As deregulation in many of the world's fast developing regions increases, the number of new entrants in the service provider markets seeking to consolidate through crossborder activities is gathering pace. Wireless and fixed network operators are investing heavily in deploying 3G and broadband infrastructure to meet the capacity demands brought by burgeoning usage of mobile and online consumers and businesses.
OTHER OPERATIONS IN THE MIDDLE EAST AND AFRICA
The Group's Emerging Market businesses, mainly in South Africa and the Middle East had a very strong year, fuelled by improving demand in these regions through notable increase in infrastructure spending. We expect to continue to benefit from this trend in the foreseeable future.
These other operations comprise mainly distribution activities, however, the Group is evaluating a number of opportunities in the IT service provision space especially where it has an existing presence. Currently the emerging markets' activities include the distribution business of Westcon SA in South Africa, OnLine Distribution and Comstor Middle East in Dubai, and the IT integration and services business of African Legend Indigo in South Africa.
During the year we concluded a BEE (Black Economic Empowerment) transaction with the African Legend Technology group in South Africa. This transaction, by way of a combination of assets and a cash payment, has resulted in a new structure in South Africa whereby 45% of the assets are owned by the African Legend Technology Group and the balance held by Datatec Ltd.
PROSPECTS
Although growth in the US has moderated, there is continued strong demand for ICT products and services in all the Group's major markets. The growth trend established by the Group during the last few years remains encouraging, as do the fundamentals of its addressable markets.
The US and Europe operations continue to account for a large portion of the Group's revenue and profits. However, emerging market operations are contributing an increasing proportion of the total business mix.
The Group is targeting an increase of around $1 billion of annualised revenue during the next year which will see it make further inroads into consolidating its industry leading position in a number of key sectors of the networking, security, convergence and ICT services markets. The scale of the Group's operations and its improving business mix should deliver continued operating leverage and drive further margin expansion.
Jens Montanana
Chief executive officer
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