Finance Report

GROUP ACCOUNTING POLICIES

The Annual Financial Statements have been prepared in accordance with the Group's published accounting policies, which comply with International Financial Reporting Standards (“IFRS”). On 1 March 2005, the Group adopted the requirements of IFRS 2 Share-Based Payments. In accordance with the transition provisions, IFRS 2 has been applied to all grants after 7 November 2002 and that were unvested as of 1 March 2005. The Group has also applied the requirements of IFRS 5 Discontinuing Operations. Comparative figures in respect of 2005 have been restated to reflect the changes resulting from the adoption of these two accounting standards, which are the only two that have a material impact on the Group’s results.

REVENUE

The Group's financial results for the year ended 28 February 2006 reflected revenue of $3,0 billion compared with revenue in the previous period of $2,5 billion, an increase of 18%. Revenue per division is as follows:

Westcon achieved revenue of $2,3 billion in 2006 compared to revenue of $2,1 billion in 2005, an increase of 11%. This reflects an increase across all geographic regions due to strong demand for Cisco product, coupled with moderate increases in sales of Nortel and Avaya product.

Logicalis achieved revenue of $545,6 million in 2006 compared to revenue of $340,9 million in 2005, an increase of 60% which includes $105,3 million arising from the acquisitions made during the year. Excluding the impact of acquisitions, revenue increased by 16% over the prior year on a like-for-like basis.

Analysys Mason achieved revenue of £33,4 million in 2006 compared to £28,2 million in 2005. Continued geographic expansion has seen non-UK revenues rise from 25% to 37%. Client synergies have continued to be achieved and over 11% of revenues in 2006 came from successful joint bids.

OPERATING PROFIT BEFORE FINANCE COSTS, DEPRECIATION AND AMORTISATION ("EBITDA")

EBITDA amounted to $85,1 million compared with the prior period of $28,4 million. This increase is as a result of improved performances in all three major divisions.

In Westcon, the main contributor, increased gross margins were achieved across all regions attributable to strong performances in the Americas and Asia-Pacific, coupled with an improved performance in Europe in the second half of 2006. Lucent Technologies agreed to a settlement pursuant to which it paid Westcon $7,5 million to finally settle the dispute between the parties.

The 2006 EBITDA includes charges of $3,5 million relating to share-based payments under the requirements of IFRS 2 which have been applied for the first time.

PROFIT/(LOSS) ON DISPOSAL AND CLOSURE OF DISCONTINUED OPERATIONS

TAXATION

The tax charge has increased to $24,5 million from a restated $2,5 million in 2005. The effective tax rate increased from a restated 35,1% to 38,6%. This is higher than the statutory South African tax rate, primarily due to the fact that the Group's profits in the year have been earned mainly in the US where tax rates are higher. In addition, losses incurred in certain subsidiaries in this year have not been recognised in deferred tax. The effective rate of tax for the prior year has increased as a result of the revised accounting standards relating to discontinued operations, whereby the associated tax effects are excluded from the effective rate of taxation.

MINORITY INTERESTS

Minority interests relate to the 2,6% in Westcon, 25,0% in Logical Softnet (in Argentina) and 15,4% in Analysys Mason not owned by the Group.

HEADLINE EARNINGS PER SHARE

Headline earnings per share increased from a restated 3,59 cents in 2005 to 26,91 cents in 2006. Basic earnings per share decreased from 37,48 cents in 2005 to 26,54 cents in 2006. Diluted headline earnings per share of 26,28 cents in 2006 was higher than the 3,53 cents in 2005 and diluted earnings per share of 25,93 cents compared to 36,82 cents in 2005.

The weighted average number of shares in issue for the year was 142,3 million which increased from last year's 138,1 million due to the additional shares issued on the exercise of share options under the Datatec Share Option Scheme and to settle some acquisitions.

DIVIDEND POLICY

The Company has for the first time decided to make a cash distribution to shareholders out of share premium, which represents a cover of 5,7 times headline earnings.

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.

BALANCE SHEET

Ordinary shareholders’ funds at the reporting date were $448,8 million, representing a $36,6 million increase from the $412,2 million in 2005. This amounts to a net tangible asset value per share of $2,07 (2005: $2,28).

BORROWINGS

The Group is dependent on its bank overdrafts, working capital line of credit and trade finance facilities to operate. These facilities generally consist of either a fixed term or fixed period, are repayable on demand and secured against the assets of the company to which the facility is made available and contain certain covenants which include financial covenants such as minimum liquidity, maximum leverage and pre-tax earnings coverage. If these covenants are breached and a waiver is not obtained for such violation, this may, amongst other things, result in that breached facility becoming repayable immediately.

During the year, Westcon secured a $150 million working capital facility to finance its operations in North America and a $40 million second lien term loan which will provide additional long-term capital to fund growth of the Westcon businesses and to repay certain debt obligations to Datatec. In August, Logicalis concluded a four-year $50,0 million loan facility with HSBC Bank in the US to finance growth and in September a £5,0 million ($8,75 million) three-year loan facility was agreed with Barclays Bank PLC in the UK.

One technical breach of covenants occurred during the year. This breach was waived by the financial institution and no facilities were withdrawn as a result of the technical breach. Refer to note 22 of the Annual Financial Statements.

Datatec has no restrictions on its borrowing powers in terms of its Memorandum and Articles of Association.

CAPITALISED DEVELOPMENT EXPENDITURE

Westcon

Westcon has implemented an enterprise resource planning system known as Compass. The system is based on a J D Edwards application running on an Oracle platform and has been customised by the company to meet its specific requirements. Compass has been installed in substantially all of the companies, which operations amount to 98,8% of Westcon's total 2006 revenue. Westcon has no plans for further implementation or development of this system during the next 12 months.

Development costs are amortised over a maximum of seven years with $2,97 million amortised in the year under review.

AMOUNTS OWING TO VENDORS

Amounts owing to vendors represent purchase considerations owing in respect of acquisitions. These purchase considerations are to be settled with the vendors in cash or shares on fulfilment of the relevant profit warranties. The amounts owing are interest free and will be settled within the next year. Any additional amounts payable to vendors will be allocated to intangibles or goodwill arising on acquisition and will have no effect on the income statement.

Amounts owing to vendors decreased during the year from $3,0 million in 2005 to $1,7 million.

CASH FLOW

Cash generated from operations was $77,7 million, and $40,7 million was received from additional financing. At financial year-end the Group's balance sheet reflected a net cash position of $172,3 million compared with $140,3 million in the prior period.

OPERATING LEASE COMMITMENTS

Operating lease commitments have decreased from $109,3 million in 2005 to $97,2 million in 2006, the decrease arising mainly in Westcon.

More detail on operating lease commitments can be found in note 23.2 of the Group Annual Financial Statements.

The operating lease commitments in Westcon relate mainly to future property rentals of warehouses and office properties. The balance relates to future rentals in respect of office equipment and computer equipment.

The majority of the operating lease commitments in Logicalis relate to property rentals. Included in these rentals is an amount of $33,4 million which relates to the Logicalis and Logicalis UK premises in Slough, where a twenty-five year lease was entered into in April 2000. Approximately 32% of the building has been sublet for a period of five years (with annual break clauses) from January 2005. The balance of the operating lease commitments relate to future rentals on computer equipment and vehicles.

The operating lease commitments for Analysys Mason relate predominantly to future property rentals of warehouses and office properties.

FOREIGN CURRENCY

The Group earns over 56% of its revenue in US Dollars and approximately 96% of its revenue is denominated in US Dollars as Westcon, Logicalis and OnLine report their consolidated results in US Dollars. As a result a similar amount of the Group's balance sheet, including net debt and cash deposits, is denominated in US Dollars.

The Group conducts business in many foreign currencies and, as a result, it is subject to currency risks owing to exchange rate movements which will affect its costs and translation of the profits of subsidiaries whose functional currency is not the South African Rand or the US Dollar. The most significant other currencies in which the Group trades are Pound Sterling, the Euro and the Australian Dollar.

The following table reflects the average and year-end exchange rates against the US Dollar:

POST-RETIREMENT BENEFITS

The Group's retirement benefit funds comprise a number of defined contribution funds throughout the world. The Group has no liability to these funds other than the monthly payment of staff contributions. The Group has no liability in terms of post retirement medical aid contributions for staff.