Chairman's Report

Leslie Boyd

Chairman

It is particularly pleasing to report a much improved set of financial results in this, our 20th year of operation.

In a relatively young industry such as IT that is characterised by almost constant change, it is particularly pleasing to report a much improved set of financial results in this, our 20th year of operation. Not only did we achieve our highest annual revenues to date, but we did so while more than doubling the Group’s EBITDA margin to 3% from the previous year’s 1%.

Our confidence in our ability to sustain profitability is confirmed by way of the maiden cash distribution to shareholders out of the premium account.

The markets in which we are active have continued to improve over the past year, providing an environment that is supportive of growth but not without its challenges. Widespread consolidation has taken place within the industry globally and competition has continued to heighten despite the generally buoyant business conditions. As a result, pressure on margins has been unrelenting.

The burgeoning oil price in the wake of continuing political instability in the Middle East, a possible upward trend in inflation and hardening of interest rates, have combined to instil a degree of prudence and caution in markets that otherwise, may well have been more robust.

That said, the unexpected strength of the European market together with the long awaited resurgence of the Japanese economy to underpin the continued strength of the other Asian economies, particularly China, were welcome developments in the past year, particularly as a counter to uncertainties surrounding the US economy.

PERFORMANCE

Against this background, the Group performed well. Revenue growth of 18% was well ahead of the markets we serve, while increases in the gross margin from 10,4% to 11,4%, were clear reflections of management’s ability to grow the business profitably. EBITDA more than tripled to $85 million from $28 million the previous year and headline earnings per share (“HEPS”) climbed to 27 US cents from the previous year’s 4 US cents.

Basic earnings per share for the period amounted to 27 US cents compared with 37 US cents in the previous year, however the latter benefited substantially from the $66 million one-off sale of Logicalis’ businesses in Australasia, and therefore the growth in HEPS is a far more accurate reflection of the Group’s performance during the review period.

All divisions met their targeted margins. Particularly pleasing was the performance of Westcon group, which contributes some 80% of Group revenues and some 60% of consolidated Group profits. As such, its influence on the Group’s performance is profound and the extent and sustainability of its turn around over the past year augur well for the years ahead. A welcome contributor to this impressive performance was its previously loss making European operations, which returned to profitability during the review period, following the strengthening of management and the streamlining of operations within the region.

STRATEGIC FOCUS

The convergence of information and communications technologies (“ICT”) remains the most significant trend in the global information technology industry. Almost every major technical and service innovation is to a greater or lesser extent focused on supporting and benefiting from this macro-trend.

Datatec, with its clear focus on networking distribution, ICT systems and integration solutions and telecommunications consulting, is ideally placed to participate in and benefit from this trend. Management will continue to work towards achieving or entrenching the Group’s leadership in these areas, through both organic growth and strategic acquisitions.

In regard to acquisitions, Logicalis announced a number of strategic acquisitions during the review period. All are bedding down well and beginning to yield their anticipated benefits. With the re-scheduling of the Group’s financing facilities with HSBC during the past year, and its significant internal cash resources, the Group is well positioned to continue with this strategy. The Company is considering a secondary listing on London’s AIM stock exchange.

CORPORATE GOVERNANCE

Sound corporate governance remains a constant priority of the Board. The Group is fully compliant with the King II Report and other leading international corporate governance codes, and continually reviews corporate behaviour in this regard. With reference to the conduct of the Board, I must commend my fellow directors on their record of 100% attendance at Board meetings throughout the review period.

BOARD AND APPRECIATION

As is my custom every year, I would like to use this opportunity to express my sincere appreciation to my colleagues on the Board for their enthusiastic support during the past year, and to Jens Montanana, his management team and all the employees of Datatec for their splendid efforts in our 20th anniversary year.

PROSPECTS

In the face of the concerning global issues that I referred to earlier on in my report and which are beyond our control, we remain optimistic regarding the fortunes of Datatec in the year ahead. We believe that most, if not all, the operational challenges that confronted us at the start of the past review period have been successfully addressed and that the road to continued growth is well charted. It remains for us to address the new challenges that will certainly confront us with the same confidence, energy and insight that were hallmarks of this past year. That said, we believe that continued above market growth in HEPS should be well within the capabilities of the Group in the years ahead.

Leslie Boyd

Chairman