Directors’ report

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Director's report

NATURE OF THE BUSINESS

Profile and group structure

Datatec Group (“Datatec” or the “Group”, JSE and LSE: DTC) is an international information communications technology (“ICT”) networking and related services business with operations in many of the world’s leading economies. The Group’s main lines of business comprise: the global distribution of advanced networking and communications convergence products (Westcon and Westcon Emerging Markets); ICT infrastructure solutions and services (Logicalis); and Consulting Services (Analysys Mason and Intact). Other holdings encompass the Group’s head office, as well as its South African ICT services business, African Legend Indigo.

Group financial results

Commentary on the Group financial results is given in the finance report on pages 50 to 54. Full details of the financial position and financial results of the Group are set out in the financial statements on pages 90 to 150.

Share capital
Authorised share capital

The authorised share capital of the Company at 28 February 2009 and 29 February 2008 is R4 000 000 made up of 400 000 000 ordinary shares of one cent each.

Issued share capital

As at 28 February 2009, the issued share capital amounts to R1 755 461 divided into 175 546 100 ordinary shares of one cent each (2008: R1 692 069 comprising 169 206 941 ordinary shares).

Share capital changes during the year

During the year, 852 450 shares were issued to settle obligations in terms of the Datatec Share Option Scheme and 6 674 312 shares were issued as part of the consideration for acquisitions. During the 2009 financial year Datatec continued to buy back portions of its issued shares. A total of 1 187 603 shares were repurchased and subsequently cancelled. Financial details of the movement in share capital have been reflected in the statement of changes in equity on page 104, and in Note 15 in the annual financial statements.

Directors

Full details of the current Board of Directors appear on pages 18 and 19. During the year under review Mr Ivan Dittrich was appointed to the Board on 1 March 2008 to succeed Mr David Pfaff who resigned from the Board with effect from 31 May 2008. All directors, including non-executive directors, are required, in terms of the Company’s articles of association, to retire at least every three years and may offer themselves for re-election. All directors are subject to re-election by shareholders at the first opportunity after their appointment in addition to re-election at least every three years. Brief curricula vitae of directors are included on pages 18 and 19 and further information on the directors including their interests in the shares of the Company and share-based remuneration schemes are provided in the remuneration report set out on pages 66 to 77.

Going concern

The directors believe that the Datatec Group has adequate financial resources to continue in operation for the foreseeable future and accordingly the financial statements have been prepared on a going concern basis.

The Group is solvent and has access to sufficient cash resources. Shareholders’ funds are $576 million (2008: $655 million). Working capital remains well controlled. Receivables and inventory are of sound quality and adequate
provisions are held against both. The Group has sufficient liquidity and borrowing capacity to meet its ongoing operating needs, including approved capital expenditure. At 28 February 2009 the Group had cash balances on hand of $218,5 million, bank overdrafts of $123,4 million and unused borrowing facilities of $738 million of which $459 million was available for drawdown against existing collateral at that date.

The Group has no need to undertake a capital restructuring and key executive management is in place. The Board is not aware of any new material changes that may adversely impact the Group relative to customers, suppliers, services or markets. The Board is not aware of any material non-compliance with statutory or regulatory requirements and there are no pending legal proceedings other than in the normal course of business. The Board is not aware of any pending changes in legislation in any of the major countries in which it operates that may affect the Group.

Investments and subsidiaries

Financial information relating to the Group’s investments and interests in subsidiaries is contained in Annexure 1 of the Group Financial Statements and Note 4 of the Company Financial Statements.

Acquisitions

The following significant acquisitions were concluded during 2009:

On 2 May 2008, Logicalis completed the merger of its Latin American operations with the leading Brazilian network integration businesses of Promon Tecnologia (“PT”). Logicalis paid PT’s owner, Promon S.A. $77,2 million in cash and
new Datatec shares for a 70% equity holding in the combined business which has since been renamed PromonLogicalis Latin America Ltd (“PLLAL”). Promon S.A. has a 30% equity interest in PLLAL. The focus of the division has been to capture synergies across Latin America by providing cross-border solutions and services to customers in the region. The board and management of PLLAL comprise directors and executives from both Promon S.A. and Logicalis.

On 11 September 2008 Datatec acquired a 50,01% stake in Inflow Technologies Private Limited (“Inflow”), an Indian ICT distribution business. The acquisition of Inflow, with its presence in nine key Indian cities, provides Datatec with an excellent entry point and initial footprint in India.

Both acquisitions are important steps in the Group’s international strategy to increase its exposure to the world’s major emerging markets.

Investments increased to $6,6 million, as a result of the joint venture transaction in respect of The Via Group in the US. Comprehensive financial details of the acquisitions made during the year can be found in Note 32 in the annual financial statements.

Special resolutions of the group

On 14 August 2008 the Company registered a special resolution after receiving general shareholder approval at the Annual General Meeting (“AGM”) held on 6 August 2008 to repurchase its own securities or to effect the repurchase of the Company’s securities by a subsidiary of the Company.

Corporate governance compliance statements

A statement on the Group’s corporate governance policies and procedures is set out in the corporate governance report on pages 57 to 65.

Share option and management incentive schemes

Details of the Group’s share option and other management incentive schemes are set out in the remuneration report on pages 66 to 77.

Events occuring subsequent to the year-end

On 24 April 2009 Datatec increased its shareholding in Westcon SA from 55% to 74,9% through the disposal of its 55% stake in African Legend Indigo and the issue of 275 578 Datatec shares.

On 5 May 2009, Logicalis’ German business acquired Minters, a Cisco Silver Partner which will double the size of its operations in Germany. The enlarged Logicalis operation will become a substantial mid-market focused ICT integrator and provide a platform for further growth in Germany.

Capital distribution

The Company will distribute out of share premium, in lieu of a dividend, 102 RSA cents per share (approximately 12 US cents per share) for the year ended 28 February 2009, in terms of the general authority granted to directors at the AGM held on 4 August 2008. The capital distribution will be paid to shareholders on the Jersey branch register in GBP translated at the closing exchange rate on Thursday, 9 July 2009.

The salient dates will be:

Last day to trade Friday, 3 July 2009
Shares to commence trading “ex” the distribution Monday, 6 July 2009
Record date Friday, 10 July 2009
Payment date Monday, 13 July 2009

Share certificates may not be dematerialised or rematerialised between Monday, 6 July 2009 and Friday, 10 July 2009, both days inclusive.

The Company has adopted a policy to pay an annual dividend/capital distribution which will provide cover of at least three times relative to underlying earnings.

Annual general meeting

The AGM will be held at 11:00 on 12 August 2009 at the Sandton Sun Inter-Continental, 5th Street, Sandton. In addition to the ordinary business of the meeting, as special business, shareholder consent will be sought to authorise
directors to repurchase the Company’s shares from time to time according to certain guidelines. Refer to the notice to the AGM on pages 151 to 156 of this report for further details.