Chairman's statement

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Chairman's statement

"This is my first report as Chairman of Datatec, and whilst I am delighted to report continued success in the growth and development of our business, the satisfaction my colleagues and I share is greatly diminished by the untimely death of our previous Chairman, Leslie Boyd, who died on 28 March 2008 after a short illness."

Leslie Boyd

OBITUARY LESLIE BOYD
Leslie became Chairman of Datatec in December 2001 and made an invaluable contribution to the Group as Chairman of the Board at an important stage of the Group's development. He will be fondly remembered and we all owe him a debt of gratitude for his wise stewardship over the last six years.

I am pleased to report that 2008 was another year of strong performance for the Group with further increases in revenues and earnings, and significant progress reported across all areas of the business. As a result of strong organic growth and acquisitions, we exceeded our revenue target of US$4 billion (up by 27%) over the prior year. Despite a slowdown in the US, the preemptive steps we took during the middle of last year, coupled with tight operating cost controls and improving productivity, have underpinned our solid progress. Profits grew at all levels of the income statement and gross margins increased in all divisions.

The Group continues to benefit from its international reach, geographic diversity and sector focus on providing Information Communications Technology solutions and services to multinational corporate customers, integrators, service providers and business users around the world. We believe we are well-attuned to improving our business through a combination of organic and acquisitive growth and that our business model has proved to be relatively defensive in more difficult market conditions. Significantly, over half of our business is now derived from outside the US.

During the year, the Group completed a number of acquisitions which have improved its competitive position, geographic reach and enhanced our operational leverage around the world. Our increased scale and broader international reach, together with our comprehensive solutions and services, have helped the Group to expand into high-growth emerging markets and developing economies.

By virtue of this strong market position, the Group has been able to take advantage of favourable market conditions in most regions and markets. Whilst trading conditions remain subdued in the US, as yet there appears to have been little impact on demand in the rest of the world. Europe, South America, Asia-Pacific and, in particular, emerging markets have continued to produce solid and predictable growth. In fact, the weakening US Dollar has helped to underpin the broadbased global demand for technology products (which are mostly priced in US dollars) and the lower growth conditions in the US have been largely offset by stronger growth elsewhere.

The US and European operations continued to account for a large proportion of the Group's revenues and profits but, as planned, the higher growth emerging market operations are now contributing an ever increasing proportion of the Group's business. Now 58% of the Group's revenues are derived from outside North America with European revenues exceeding those of the US for the first time. This is as a result of faster organic growth in regions outside the US. We expect this trend to continue in the next financial year as a result of acquisitions in Europe and South America.

For the year as a whole 42% of revenues were generated from North America, 43% from Europe, 6% from Asia-Pacific, 6% from the Middle East and Africa and 3% from South America.

The growth in South American operations is particularly notable. We firmly believe that this continent represents a major growth market for advanced technology products and expanding services and we have made a number of strategic investments in the region which we expect to have a significant impact on our business in the year ahead.

In March 2008, Logicalis announced the merger of its Latin American operations with those of Promon Tecnologia, the leading Brazilian network integrator and Cisco's largest partner in Brazil. This is a key strategic transaction for Datatec as it catapults Logicalis into becoming the leading independent integrator, not only in Brazil, but across South America.

This earnings enhancing transaction came shortly after Westcon also increased its presence in Brazil, by adding a full service capability to distribute and support Cisco products and services to its existing operations in the country.

Both initiatives should transform our operations in South America and we look forward to reporting on progress in these markets later in the year.

PERFORMANCE
In the year ending 29 February 2008, Group revenue increased by 27% (12% organic) to over US$4 billion (2007: US$3,2 billion), while gross margin increased from 13,1% to 13,7%. Gross profit increased by 32% from US$415,2 million to US$547,1 million, while operating costs increased 34% from US$295,8 million to US$396,4 million, mainly as a result of the European businesses acquired, which operate at higher margins with higher operating costs.

In line with revenue growth, earnings before interest, tax, depreciation and amortisation ("EBITDA") increased by 26% to US$150,8 million (2007: US$119,4 million). Operating profits increased by 25% to US$123,6 million (2007: US$99,1 million).

Underlying earnings per share rose 21% to 47,3 US cents (2007: 39,2 US cents) and headline earnings per share ("HEPS") increased by 12% to 45,6 US cents (2007: 40,8 US cents).

Shareholders will benefit from a 20% increase in capital distribution of approximately 12 US cents per share (90 SA cents) (2007: 10 US cents per share (72 SA cents)) out of share premium, which represents a cover of 3,8 times relative to headline earnings.

CORPORATE GOVERNANCE
Datatec and its directors are fully committed to good corporate governance and to the principles of openness, integrity and accountability in dealing with shareholders and all other stakeholders. We endorse the Code of Corporate Practices and Conduct recommended in the King Report on Corporate Governance in South Africa 2002 ("King II Report"). In addition, we have taken steps to adopt the principles of corporate governance contained in the Combined Code on Corporate Governance issued in 2006 by the Financial Reporting Council (the "Combined Code") for UK companies.

PROSPECTS
During the coming year we believe that the Group will continue to benefit from its improving business mix and geographic diversity across its principal operating divisions. The increased exposure to high-growth emerging markets and developing economies should help balance any slowdown in the more mature markets of the US and Western Europe.

We remain confident that the Group's business model will remain resilient and continue to deliver growth as the shift in global IT purchasing power, as a result of the weakening dollar, has helped underpin global IT demand, even as other areas of the global economy show signs of weakness.

The Board expects that the quality of the Group's businesses will continue to improve driven by recent system and process enhancements, the depth of its management and operating leverage brought through scale and geographic diversity. However, we will maintain prudent management of the Group's cost base and tight controls on working capital.

The current year has started well and in line with expectations. The Board remains vigilant to any deterioration in global markets, but is confident of continuing improvement in Datatec's financial performance in the year ahead.

BOARD AND APPRECIATION
During the year we made a number of significant Board changes, including my own appointment to Deputy Chairman (with effect from 6 August 2007) and subsequent appointment to Chairman following the death of Leslie Boyd on 28 March 2008.

On 16 July 2007, we welcomed back John McCartney, who was re-appointed as a non-executive director to the Board of Datatec. John has considerable experience in the ICT area. John served as non-executive director of Datatec between 1998 and 2002 and has been the non-executive chairman of Westcon since 2002.

We said goodbye to Colin Brayshaw, a non-executive director, and chairman of the audit, risk and compliance committee, who stood down from the Board at the Group's annual general meeting on 6 August 2007. I would like to take this opportunity to acknowledge Colin's significant contribution to the Group's affairs since he joined the Board in 2001.

In January 2008, David Pfaff gave notice of his resignation from the Group in order to pursue alternative investment opportunities. He was replaced by Ivan Dittrich, who was appointed as Group Finance Director with effect from 1 May 2008, after joining the Board on 1 March 2008.

Ivan is well-known to us, having worked in a number of roles across the Group for nine years. Prior to taking up his new position he was Group corporate director, reporting to the chief executive, with responsibility for the Group's corporate Head Office functions and emerging markets mergers and acquisitions. Before that, he was Group company secretary for five years, and successfully managed the Group's dual listing in London during 2006.

Finally, on behalf of the Board, I would like to thank my fellow directors for their continued contribution and support. I express my sincere appreciation to all of Datatec's employees for their splendid efforts throughout the year.

Stephen Davidson
Chairman