Other holdings in Africa and Middle East divisional report

"The growth in the Middle East market has been sustained this year and is expected to remain buoyant during the next 12 months with investments expected in the finance, health and hospitality sectors."


WESTCON AFRICA MIDDLE EAST (PTY) LTD ("WAME")
was formed in 2007 to be the holding company for Datatec Ltd's 55% stake in Westcon SA (Pty) Ltd ("Westcon SA"). During the year it also acquired 51% of International Technology Distributors FZCo ("ITD") and 100% of Jet Distribution Ltd ("Jet") and Resolv Computers Ltd ("Resolv") (collectively: "other WAME operations"). These other WAME operations are principally African-focused businesses which distribute similar products to the rest of Westcon. 

Following the transaction ITD was renamed Westcon Africa FZCo ("Westcon Africa") and the businesses of Jet and Resolv were acquired by Westcon Africa from WAME. All of these acquisitions were funded by interestbearing loans from Datatec Ltd. 

For the year under review, the WAME group of companies produced revenue of US$135,6 million and a profit before tax of US$2,1 million. Of this, Westcon SA contributed revenue of US$84,8 million (2007: US$69,2 million) which represents 23% growth. Gross margins were 10,3% down from 12,1% in the prior year, however, management does not believe this to be representative of a trend and the margins in FY2009 are expected to be stable at around 12%. 

The net profit before tax for Westcon SA was US$2 million. 

These other WAME operations produced revenues of US$50,8 million at a gross margin of 9,6%. This margin is in line with expectations and we anticipate only a slow upward trend on gross margin. This will be achieved by better procurement capability and gradual extension of Westcon's value-add distribution model. 

The net profit before tax for these other WAME operations was US$0,1 million during this period. 

The growth outlook in Westcon SA remains strong. However, management believes that other WAME operations will take a further 12 months before they start to realise their full potential to develop opportunities in the high-growth market in Africa. Thereafter they are expected to deliver margins in line with the rest of the Group. 

ONLINE DISTRIBUTION LIMITED
is a value-added distributor for networking products and services covering the Middle East, Western Asia, and North Africa. Through its network of resellers Online has developed the business of the vendor partners across these geographies.

During FY2008, Online's revenue increased by 24% to US$56 million (2007: US$45 million) and EBITDA increased marginally by 7% to US$2,9 million. By virtue of developing a wider product portfolio and expansioninto new geographies Online is poised for an increased growth in revenue in the next 12 months. 

The growth in the Middle East market was sustained throughout the year and is expected to remain buoyant during the next 12 months with investments expected in the fi nance, health and hospitality sectors. Competition from the broadline distributors continues to depress margins. However, management remains confi dent that Online's value-added approach will help it to maintain the current levels of operating margins. 

COMSTOR MIDDLE EAST LTD
started its operations in the Middle East in February 2007. During the year Comstor ME achieved overall revenue of US$13 million. However, being the start-up year, the company made a small loss. Comstor expects to generate increased revenue growth during the next 12 months due to the growing market in the Middle East. 

AFRICAN LEGEND INDIGO
AL Indigo is a provider of Enterprise Management Solutions including the supply of soft/hardware and support, confi guration support, software customisation, initial installation planning as well as professional services including implementation and project management, disaster recovery, maintenance, knowledge transfer and system integration. AL Indigo provides ITsolutions to the telecommunications industry, to financial services, to the public sector with its vendor partners Sun Microsystems, BEA Software, BMC Software, Remedy, Symantec (Veritas), IBM, Netapp, Optec and provides wireless mobile technology systems integration business and mobile supply chain solutions to sectors such as retail, industrial, manufacturing, transport and logistics. 

For the year ended 29 February 2008 the company achieved revenues of US$51,1 million (2007: US$28,3 million) and EBITDA US$1,7 million (2007: loss of US$0,2 million).

2008 OPERATIONAL HIGHLIGHTS

  • Improvements in market share, geographic reach and new vendors
  • Significant revenue growth (73%) mainly acquisitive 
  • Pan Africa footprint established 
  • Investments in organic startups (Comstor ME) impacted margins 
  • South African IT services group "AL Indigo" performing profitably