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DATATEC GROUP UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2003 Jens Montanana. TRADING ENVIRONMENT. Modest recovery so far Broader IT CAPEX planning is starting Significant Rand appreciation Limited opportunities for improving value added services. - PowerPoint PPT Presentation
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DATATEC GROUP UNAUDITED INTERIM RESULTS FOR THE SIX
MONTHS ENDED 31 AUGUST 2003
Jens Montanana
TRADING ENVIRONMENT
> Modest recovery so far
> Broader IT CAPEX planning is starting
> Significant Rand appreciation
> Limited opportunities for improving value added services
PERFORMANCE HIGHLIGHTS
> 10 % improvement in dollar revenues
> Break even result despite effects of rapidly appreciating Rand
> Westcon - Landis businesses had first month of operating profit
(normalised)
> Logical – growth in revenues and EBITDA
> Mason – yet to recover from end-of-cycle contraction
CONTINUED IMPROVEMENT IN FINANCIAL MANAGEMENT
> Group Net cash $100 million
> Financing capacity in under utilised facilities
> Sale of non-core operations
- Affinity Logic – R63 million (shares + loans)
- Datanet & WCM - R18 million
> Corporate overhead cost reductions
> Move to US Dollar stated financials
> Adoption of AC 133
GROUP REVENUES
$1.0 B
$1.0 B $1.1 B
1H 042H 031H 03
Sequential and comparative improvement
REVENUES BY REGIONS
9%
6%
50%
1%34%
North America
South America Europe
Asia
Africa+ME
GROSS MARGIN – ONGOING OPERATIONS
$115.1 M
$123.3 M$129.4 M
1H 041H 03 2H 03
Sequential and comparative improvement
EBITDA – ONGOING OPERATIONS
$2.3 M
$18.0 M
2H 031H 03 1H 04
$10.3 M
TOTAL HEADLINE EARNINGS PER SHARE
US cents
(8.27)
1.13
2H 03
1H 03 1H 04
0.04
TOTAL HEADLINE EARNINGS PER SHARE
SA cents
(80.4)
12.5
2H 03
1H 03 1H 04
1.1
BALANCE SHEET
$ million
ASSETS
Current Assets
Tangible Fixed Assets (NBV)
Intangible Assets (primarily goodwill)
Total Assets
LIABILITIES & SHAREHOLDER FUNDS
Current Liabilities
Non-current Liabilities
Total Equity
Total Liabilities and Shareholder Funds
Non-current Assets
28-Feb-03
782 747
30 46
64 68
903 892
541 511
12 24
350 357
903 892
27 31
31-Aug-03
GROUP NET CASH
Cash position remains strong
$116 M
$69 M
FY 031H 03 1H 04
$100 M
SEGMENTAL ANALYSIS
Revenue Gross Margin
EBITDA
81%
1%
18%
84%
4%
12%
62%
4%
34%
Westcon
Mason
Logical
OUTLOOK
> Recovery underway but remains fragile
> Improving indicators but sustainability questionable
> Equity markets predicting technology rebound
WESTCON GROUP RESULTS FOR THE 6 MONTHS ENDED
31 AUGUST 2003
Alan Marc Smith
CONSOLIDATED RESULTS Highlights
Operating Results:
> Stable revenues – 9% revenue growth over comparable period; 2.3%
organic growth
> Continued gross margin pressure from largest vendor
> Planned SG&A reductions realized. Further re-organization and
consolidation planned in US and Europe. Westcon I SG&A expenses down
2.7% on a normalized basis over comparable period
> Capital expenditures down $4.0 million over comparable period
> U.S. economy still uncertain
> Interest rates remain low
Financial Position and Cash Flow:
> Working capital improvements continue to generate positive cash flows
and reduce indebtedness.
> Cash flow generation has slowed. Will be difficult to repeat prior period
performances
> Record August cash balance
CONSOLIDATED RESULTS Highlights
Financial Position and Cash Flow (cont):
> DSO and inventory turnover consistent; DPO increases
> $175M US syndicated working capital facility completed
> Westcon UK refinancing completed
> Syndicated Pan European refinancing in process
> Consolidated net debt maintained below zero (net cash position)
Westcon II Subsidiaries:
> Gross margin improvement; reduction in operating loss
> Continued SG&A reductions realized
> Subsidiaries properly capitalized with “push down” of loans
> No further cash support provided to subsidiaries.
> Norway, Sweden, Denmark, Netherlands, and France financings completed
FINANCIAL OVERVIEWHistorical Six Month Period Sales – US GAAP(Includes Datatec intercompany revenue)
$556
$716
$1,042 $1,024
$781 $767 $798$756
$931
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
Mar-Aug Sep-Feb Mar-Aug Sep-Feb Mar-Aug Sep-Feb Mar-Aug Sep-Feb Mar-Aug
2000 2001 2002 2003 2004
$807 $842$880
Represents Westcon II (Landis) Sales
FINANCIAL OVERVIEW
Cisco 53.8% 52.5% 50.9% 53.3%
Nortel 11.8% 12.4% 10.9% 10.6%
Avaya 12.7% 12.0% 11.1% 10.3%
Security 9.3% 10.2% 11.4% 11.1%
IP Devices 12.4% 12.9% 15.7% 14.7%
Total 100.0% 100.0% 100.0% 100.0%
6 months 6 months 6 months 6 months ended ended ended endedVendor 2/02 8/02 2/03 8/03
(% of total revenue)
Consolidated Sales by Vendor %’s
Americas 62% 61% 58% 57%
Europe 31% 32% 37% 37%
Asia Pacific 7% 7% 5% 6%
Total 100% 100% 100% 100%
(% of total revenue)
FINANCIAL OVERVIEWConsolidated Sales by Geography
6 months 6 months 6 months 6 months ended ended ended endedRegion 2/02 8/02 2/03 8/03
Westcon I 922 932 879 836
Westcon II - 536 429 265
Consolidated 922 1,468 1,308 1,101
Revenueper Employee ($000’s)
Westcon I $821 $837 $873 $955
Westcon II - 48 177 309
FINANCIAL OVERVIEWHeadcount Analysis
2/28/02 8/31/02 2/28/03 8/31/03
(a) Represents 3.5 months of activity.
(a)
FINANCIAL OVERVIEW
Sales $748 $795 $831 $860
Gross Profit 71 71 73 76Gross Profit % 9.6% 9.0% 8.8% 8.9%
SG&A 44 52 59 58SG&A % 5.9% 6.5% 7.1% 6.8%
EBITDA 27 20 14 18EBITDA % 3.6% 2.5% 1.7% 2.1%
Dep & Amort 10 10 25 11D&A % 1.3% 1.2% 3.0% 1.3%
Interest Exp, Net 8 2 1 1Int Exp % 1.0% 0.2% 0.2% 0.1%
Pre-tax Income (Loss) 10 8 (12) 6Pre-tax % 1.3% 1.0% (1.5)% 0.7%
Consolidated Results of Operations – SA GAAP
(US $, in millions) 6 months 6 months 6 months 6 months ended ended ended ended 2/02 8/02 2/03 8/03
Note: Excludes Datatec Intercompany transactions
FINANCIAL OVERVIEW
Sales $748 $795 $831 $860
Gross Profit 73 72 77 76Gross Profit % 9.8% 9.0% 9.2% 8.9%
SG&A 44 52 59 56SG&A % 5.9% 6.5% 7.1% 6.5%
EBITDA 29 20 18 20EBITDA % 3.8% 2.5% 2.1% 2.4%
Dep & Amort 10 10 10 11D&A % 1.3% 1.2% 1.2% 1.3%
Interest Exp, Net 8 2 1 1Int Exp % 1.0% 0.2% 0.2% 0.1%
Pre-tax Income 11 8 6 8Pre-tax % 1.5% 1.1% 0.8% 1.0%
Consolidated Results of Operations – Normalized
(US $, in millions) 6 months 6 months 6 months 6 months ended ended ended ended
2/02 8/02 2/03 8/03
Note: Excludes Datatec Intercompany transactions
FINANCIAL OVERVIEW
> Excludes Lucent inventory reserves of $5.6M, $250K and $3.8M for the six
months ended 2/02, 8/02 and 2/03, respectively (COGS)
> Excludes $3.9 million UK duty tax refund for the six months ended 2/02
> Excludes Comstor division goodwill write-down of $15 million for the six
months ended 2/03 (SG&A)
> Excludes US and European restructuring costs of $2.5M for the six months
ended 8/03. (COGS & SG&A)
Normalized Items
FINANCIAL OVERVIEWConsolidated Balance Sheets - Working Capital – US GAAP
(US $, in millions) As of As of As of As of
2/28/02 8/31/02 2/28/03 8/31/03
Accounts Receivable $251 $270 $236 $255
DSO (days) 54 60 51 54
Inventory $179 $183 $171 $175
Inventory Turns 8.5x 8.2x 9.0x 9.0x
Accounts Payable $207 $285 $278 $303
DPO (days) 50 70 66 70
Current Ratio 1.5 1.5 1.5 1.5
Note: DSO, DPO, and inventory turns calculated using trailing twelve month amounts.
FINANCIAL OVERVIEW
Cash $97 $111 $141 $133
Working Capital Debt 127 86 72 63
Acquisition Debt 10 - - -
Net (Debt) / Cash (63) (1) 34 36
Equity 344 358 261 268
Debt to Capitalization 0.32 0.24 0.29 0.27
Liabilities to TNW 1.68 1.78 1.61 1.68
Consolidated Balance Sheets – Capitalization – US GAAP
(US $, in millions As of As of As of As of
2/28/02 8/31/02 2/28/03 8/31/03
Note: 2/28/03 and 8/31/03 balance sheets include impact of Comstor division goodwill write-down.
FINANCIAL OVERVIEW
Operations: Cash Earnings $17 $13 $4 $13
Working Capital 85 59 40 (7)Total 103 72 44 6
Investing:Fixed Assets (5) (7) (5) (3)Acquisitions (3) (10) (6) (1)
Financing:WC Line (80) (48) (41) (2)Acquisition Line (15) (10) - -(To) from Datatec - 3 8 -
Consolidated Cash Flows – US GAAP
Cash generated by (used in)
(US $, in millions) 6 months 6 months 6 months 6 months ended ended ended ended 2/02 8/02 2/03 8/03
Note: Chart assumes no change in cash
FINANCIAL OVERVIEW Net Debt Trend - Feb 2000 to Current
-$100,000,000
-$50,000,000
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
Net Debt
WESTCON I NORMALIZED RESULTS Comparison to Comparable Prior Year Period
> Revenues:
- Organic revenues up 2.3% compared to comparable prior year period
- Growth in IP devices sales volume ($196M vs.$177M)
> Gross Margin down from 8.8% to 8.3%
- Cisco revenue increases as a percentage of total revenue (54.1% vs.
52.6%)
- Cisco margins decline
- Less vendor sponsored margin enhancement programs
- Price wars continue
- Higher IP device product sales somewhat offset margin degradation.
(13.4% of total revenue opposed to 12.6% for the comparable period)
WESTCON I NORMALIZED RESULTS Comparison to Comparable Prior Year Period
> Selling expenses decline by $2.1 million or 11.8%
- Lower communication costs
- Increased vendor co-op funding in Westcon division.
> General and administrative expenses increase by $845K or 3.0%
- Increased bad debt expense in Comstor division
- Increased insurance costs.
> Reduction in outstanding debt and interest rates significantly lower interest
expense
FINANCIAL OVERVIEW
Sales $748 $770 $755 $778
Gross Profit 71 69 66 67Gross Profit % 9.6% 8.9% 8.7% 8.6%
SG&A 44 45 48 57SG&A % 5.9% 5.9% 6.3% 7.3%
EBITDA 27 23 18 10EBITDA % 3.6% 3.0% 2.4% 1.3%
Dep & Amort 10 9 25 11D&A % 1.3% 1.2% 3.3% 1.4%
Interest Exp, Net 8 1 0 2Int Exp % 1.0% 0.2% 0.1% 0.2%
Pre-tax Income (Loss) 10 13 (8) (2)Pre-tax % 1.3% 1.7% -0.9% -0.3%
Westcon I Results of Operations – SA GAAP
(US $, in millions) 6 months 6 months 6 months 6 months
ended ended ended ended2/02 8/02 2/03 8/03
FINANCIAL OVERVIEW
Sales $748 $770 $755 $778
Gross Profit 73 69 70 67Gross Profit % 9.8% 8.9% 9.2% 8.6%
SG&A 44 45 48 46SG&A % 5.9% 5.9% 6.3% 6.0%
EBITDA 29 24 22 21EBITDA % 3.8% 3.1% 2.9% 2.7%
Dep & Amort 10 9 10 11D&A % 1.3% 1.2% 1.3% 1.4%
Interest Exp, Net 8 1 0 0Int Exp % 1.0% 0.2% 0.1% 0.1%
Pre-tax Income 11 13 12 10Pre-tax % 1.5% 1.7% 1.5% 1.3%
Westcon I Results of Operations – Normalized
(US $, in millions) 6 months 6 months 6 months 6 months
ended ended ended ended
2/02 8/02 2/03 8/03
FINANCIAL OVERVIEW
> Excludes Lucent inventory reserves of $5.6M, $250K and $3.8M for the six
months ended 2/02, 8/02 and 2/03, respectively (COGS).
> Excludes $3.9 million UK duty tax refund for the six months ended 2/02.
> Excludes Comstor division goodwill write-down of $15 million for the six
months ended 2/03 (Dep & Amort).
> Excludes US restructuring costs of $311K for the six months ended 8/03.
(SG&A)
> Excludes impact of capitalization of intercompany debt between Westcon II
subsidiaries and Westcon Group for six months ended 8/03 - $10.2 million
($8.1M operating costs, $2.1M interest expense)
> Excludes reversal of $2.1M in accrued management fees between Westcon
II subsidiaries and Westcon I (Operating costs)
Westcon I Normalized Items
WESTCON II NORMALIZED RESULTS Comparison to Previous Six Month Period
> Revenues:
- Revenue grew $6.0 million or 7.9% over the six months ended 2/28/03.
- Revenue growth driven by increased Cisco and 3Com sales
> Gross Margin increases from 9.2% to 11.4%
- Increased vendor rebates
- Cisco MBO achievement
- Lower warehouse expense and professional services staffing vs. prior six
month period
> Headcount reductions drive SG&A expense down by $1.5 million or 13.0%
compared to six months ended 2/28/03.
FINANCIAL OVERVIEW
Sales $75.8 $81.8
Gross Profit 7.0 9.3Gross Profit % 9.2% 11.4%
SG&A 11.8 10.3SG&A % 15.6% 12.6%
EBITDA (6.6) (1.7)EBITDA % (8.6%) (2.1%)
Dep & Amort 0.3 0.2D&A % 0.3% 0.3%
Interest Exp, Net 1.0 0.9Int Exp % 1.4% 1.1%
Pre-tax Income (5.3) (1.6)Pre-tax % (6.9%) (1.9%)
Westcon II Results of Operations – Normalized Results
(US $, in millions) 6 months 6 monthsended ended
2/03 8/03
Note: Six months ended 8/31/03 exclude exceptional costs of 2,142,803 and impact of intercompany debt capitalization and reversal of accrued management fees.
FINANCIAL OVERVIEW
Sales $1.0 $24.7 $34.4 $41.5 $40.0 $42.0
Gross Profit 0.1 2.8 3.4 3.6 4.4 4.9Gross Profit % 6.7% 11.3% 10.0% 8.6% 11.0%
11.7%
SG&A 1.2 5.3 5.6 6.3 5.6 4.7SG&A % 125.4% 21.6% 16.3% 15.1 14.1%
11.2%
EBITDA (1.1) (2.7) (2.7) (3.8) (1.7) (0.1)EBITDA % (119.2%) (10.8%) (8.0%) (9.2%) (4.2%)
(0.1%)
Dep & Amort 0.1 0.5 0.1 0.2 0.1 0.1D&A % 5.9% 2.1% 0.2% (0.5%) 0.2%
0.3%
Interest Exp, Net 0 0.3 0.5 0.6 0.6 0.3Int Exp % 0.0% 1.1% 1.4% 1.3% 1.4%
0.8%
Pre-tax Income (1.2) (3.4) (2.9) (2.3) (1.8) 0.3Pre-tax % (125.1%) (13.7%) (7.0%) (5.6%) (4.6%)
0.6%
Westcon II Quarterly Results of Operations - Normalized
(US $, in millions) FY 03 FY 03 FY 03 FY 03 FY 04 FY 04Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. 1 Qtr. 2
Notes: Q1 and Q2 of FY04 exclude exceptional costs of 900,009 and 1,242,794, respectively.Q2 FY04 normalized to exclude impact of intercompany debt capitalization and reversal of accrued management fees.
STRATEGIC DIRECTION
Hardware FocusTechnology Driven Markets
Software FocusROI Driven Markets
• Routing
• Switching
• Telco
• Transmission Equipment
• Mobility
• Unified Messaging
• CRM
• Network Management
PRODUCT LINE STRATEGY
Strategic product solutions leveraging our leading vendors’ strength and assisting our customers to be more successful in the marketplace by focusing on:
Convergence Solutions- Secure market position in anticipated of emerging growth- Forge relationships with key emerging vendors
Security- Capitalize on growth and strength of this market- Retain and further develop expertise in this area of increasing
complexity
IP Devices- Add to network infrastructure solution set- Gain additional profitability from main networking sales- Enhance competitiveness in specific sales situations
FUTURE OUTLOOK
> Trends show networking and communications market still in an overall
“neutral” state with no defined trend on margins
- Vendors make quota 1 quarter and fall behind the next and vice versa
- WG market share gains 1 quarter are given back the next due to price wars
- LAN/WAN market still declining
- Large PBX market “soft”
- Hybrid/Key systems market very price sensitive and being attacked by “non-
traditional” competitors – Panasonic, Hitachi, Siemens
- VOIP – growing at a nice rate – projected to be 12% of revenues in FY04, up
from 6%
- Security – still a strong market. Nokia and Checkpoint, suffering from price
attacks and market share losses – Symantec, Netscreen, Watchguard,
Network Associates, etc.
- IP Devices –revenues from this portfolio now up to 25.8% of sales (including
security). Margin is still strong, but off 2-3% from peak.
LOGICAL GROUP RESULTS FOR THE SIX MONTHS ENDED
31 AUGUST 2003
Jens Montanana
HIGHLIGHTS
> Challenging trading environment
- Demand still subdued (US and UK)
- Some evidence of a start of an upturn – product led
> 14% growth in revenues
- Product sales up
- Project based services down
- Annuity services up
> Australasia operations performing well
> Sold loss-making French operation
> EBITDA positive, sequential and comparative improvement over last year
> Operating costs and working capital well managed
FINANCIAL PERFORMANCE
>Revenue and EBITDA improved
$000 ContinuingContinuing Discontinued Total Continuing Discontinued Total Variance
Revenue 186,919 1,082 188,001 164,676 3,779 168,455 14%
Gross profit 41,456 372 41,828 40,185 (47) 40,138 3%As % of revenue 22.2% 34.4% 22.2% 24.4% (1.2%) 23.8%
Operating expenses 38,811 488 39,299 37,892 2,033 39,925 2%As % of revenue 20.8% 45.1% 20.9% 23.0% 53.8% 23.7%
EBITDA 2,645 (116) 2,529 2,292 (2,079) 213 15%As % of revenue 1.4% (10.7%) 1.3% 1.4% (55.0%) 0.1%
Operating profit/(loss) (812) (137) (949) (1,244) (2,436) (3,680) 35%As % of revenue (0.4%) (12.7%) (0.5%) (0.8%) (64.5%) (2.2%)
Exceptional items 0 635 635 0 2,343 2,343 n/a
6 months to August 2003 6 months to September 2002
FINANCIAL PERFORMANCE Revenue ($M - continuing operations)
>Strong revenue growth in US and Australasia
0
20
40
60
80
100
$M
Europe North America South America Australasia
September 2002
August 2003
FINANCIAL PERFORMANCE Gross Margin % (continuing operations)
>Gross Margin % down to 22.2% (24.4% FY 2003)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Europe North America South America Australasia Total
August 2003
September 2002
FINANCIAL PERFORMANCE Operating Costs ($M - continuing operations)
>Operating costs only marginally higherUp 2.4%
0
10
20
30
40
$M
Europe North America South America Australasia Group/Journals Total
September 2002
August 2003
FINANCIAL PERFORMANCE Headcount (continuing operations)
>Total headcount reduced by 5% to 1,039 heads
0
50
100
150
200
250
300
350
Heads
Europe North America South America Australasia Group
September 2002
August 2003
FINANCIAL PERFORMANCE EBITDA ($000 - continuing operations)
>All operations EBITDA positive
0
500
1,000
1,500
2,000
$000
UK Germany USA South America Australasia
September 2002
August 2003
FINANCIAL PERFORMANCE August 2003 - Regional Contributions
Revenue Split The USA continues to contribute majority of Logical’s revenues
EBITDA SplitAustralasia contributed strongly to Group profitability
South America5%
Australasia53%
UK2%
Germany2%
USA38%
UK18%
Germany1%
USA53%
Australasia26%
South America2%
FINANCIAL PERFORMANCE Revenue Streams
>Technology product accounted for 71% of total revenue
August 2003 September 2002
Product71%
Prof. Services
12%
Maintenance11%
Managed Services
6%
Product69%
Prof. Services16%
Maintenance
10%
Managed Services5%
Networking Products
46%
Systems and Storage
51%
Other3%
FINANCIAL PERFORMANCE Key Product Vendors (Revenue %)
>HP and Cisco remain our dominant vendors but diversification improving
Cisco – 74%HP – 66%
FINANCIAL PERFORMANCE Working Capital
>Tight Working Capital Management has continued
Net Cash Improvement from September 2002 to August 2003: $1.119M
WORKING CAPITAL MANAGEMENT ($000) August 2003 February 2003 September 2002
Inventory 16,250 21,273 19,598
Average Stock Days (excluding spares stock) 22 26 33
Accounts Receivable 46,902 49,526 50,973
DSO Days 47 47 49
Accounts Payable (40,376) (41,048) (38,234)
DPO Days 71 76 73
Net Cash 18,026 16,166 16,907
BRANDING AND NAME CHANGE
> Desire to create a more distinct and differentiated brand name
> Logical name was creating brand confusion
> Multiple uses of “Logical” in various environments
New positioning: LOGICAL + Integration Solutions = LOGICALIS
PROSPECTS
> Visibility remains limited
> Still experiencing swings in performance from month to month
> New executive management team in UK/Europe
> Operations very focused on building product and services revenues
> Re-branding provides opportunity to communicate with customers
> Outlook driven by macro economic environment
QUESTIONS?
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