Datatec : Provisional audited results for year ended 28 February 2022 - cash dividend with scrip alternative of $15 million

DATATEC LIMITED

Incorporated in the Republic of South Africa Registration number: 1994/005004/06

JSE Share code: DTC

ISIN: ZAE000017745

("Datatec", the "Company" or the "Group")

Provisional audited results for year ended 28 February 2022 ‐ cash dividend with scrip alternative of $15 million

Datatec Limited, the international information and communications technology (ICT) group, today publishes its Provisional audited results for the year ended 28 February 2022 ("the Period" or "FY22") on the Stock Exchange News Service ("SENS") which are available on www.datatec.com and via the JSE link: https://senspdf.jse.co.za/documents/2022/JSE/ISSE/DTC/FY22.pdf

‐Strong operational execution in all divisions driving improved financial performance ‐Sustained demand for networking, cyber security and cloud infrastructure

"We have continued to benefit from the successful positioning of our businesses to take full advantage of technology demand for networking, security and cloud infrastructure with an increased software and services mix driving higher recurring income.

"Unlocking value for shareholders remains a priority through our ongoing Strategic Review process. During the year we paid a special dividend of $70 million and are now declaring a final dividend of US$15 million for FY22.

"Whilst we see continued demand for our products and services across the world, and have positioned our operations to take full advantage of this, the supply chain headwinds compounded by various factors, including the war in Ukraine, lockdowns in China and global inflationary pressures will impact our performance in FY23."

STRATEGIC OVERVIEW

Datatec's strategy is to improve shareholder returns over the medium term through a combination of corporate and business development actions aimed at enhancing the competitiveness and profitability of its subsidiaries and operating divisions.

As previously announced, the Board engaged Lazard & Co. Limited to assist with a comprehensive evaluation of strategic options and initiatives (the "Strategic Review") to unlock and maximise shareholder value going forward. The Strategic Review seeks to address the persistent gap between Datatec's valuation and the inherent value of its underlying assets whilst also ensuring that the Group is positioned to take full advantage of the positive market dynamics for its technology solutions and services.

The Board will continue to consider potential options including, but not limited to, private equity participation, joint ventures, international listings, divisional asset unbundling and other value‐creation structures.

From an operational perspective, the Group achieved a strong performance in the year ended 28 February 2022 ("FY22") as it continued to benefit from increased networking, cloud usage and cyber security trends. Datatec's positioning enabled all divisions to deliver robust revenue and profit growth.

The supply chain issues, and global semiconductor shortage created extended lead times on certain hardware product deliveries in FY22 which impeded revenue and resulted in significantly higher closing backlog (sales orders waiting to be fulfilled) in both Logicalis and Westcon International. Whilst an improvement in the situation was expected, further supply chain disruptions resulting from Covid‐19‐related lockdowns in China, the Russian invasion of Ukraine and spiralling energy costs have already had an adverse impact on the current financial year.

Overall, the Group's businesses have successfully repositioned away from many forms of traditional hardware to software, subscriptions and services with growing annuity revenue. The Group continues to focus on supporting the digitisation trends and the requirements for increased cyber security.

Dividends

Following the sale of Westcon Americas to SYNNEX in September 2017, Datatec advanced funds to Westcon International (the part of the Westcon business retained in the Group with a minority interest held by SYNNEX) to fund working capital as the business restructured. During H1 FY22, Westcon International repaid approximately US$70 million of intercompany loans to Datatec. Thereafter, US$70 million was returned to shareholders in the form of a special cash dividend with a scrip distribution alternative in November 2021.

The Group's policy is to maintain a three times cover relative to underlying* earnings when declaring ordinary dividends. Accordingly, the Board has declared a final dividend for FY22 of 111 RSA cents per share equivalent to 7 US cents per share, in total US$15 million, with the customary form of a cash dividend with a scrip distribution alternative.

GROUP RESULTS

All divisions delivered solid performances with strong revenue and bottom‐line growth. This is despite South America suffering most from supply chain constraints.

There were no restructuring costs incurred in FY22 (FY21: US$22.4 million of restructuring costs).

Revenue

Group revenue was US$4.6 billion in FY22, up by 12.8% on the US$4.1 billion revenue recorded in FY21. (In constant currency***, Group revenue increased by 11.8%).

Supply chain delays had a marked effect on slowing the sales process from order to delivery causing a notable increase in the quantum of open, unfulfilled sales orders, termed "backlog" at the year end. Open product orders at the end of FY22 were approximately US$1 224 million compared with US$467 million for FY21.

The Group's gross margin in FY22 was 16.6% compared to 16.8% in FY21. Gross profit was US$770.4 million (FY21: US$690.5 million).

Overall operating costs were US$615.9 million (FY21: US$571.9 million). Restructuring costs of US$22.4 million were included in the prior period relating to fundamental reorganisations and Covid‐19‐related restructuring. There were no such restructuring costs in FY22.

Operating costs included US$1.9 million of foreign exchange gains (FY21: losses of US$7.9 million). Foreign exchange

gains consisted of unrealised foreign exchange gains of US$0.5 million (FY21 losses: US$0.3 million) and realised

foreign exchange gains of US$1.4 million (FY21: losses US$7.6 million). Unrealised foreign exchange differences are excluded from underlying* earnings per share.

EBITDA was US$154.5 million (FY21: US$118.6 million) an increase of 30% and EBITDA margin was 3.3% (FY21: 2.9%).

The share‐based payment charge under IFRS 2 included in operating expenses was $22.5 million, almost double the equivalent charge in FY21 of US$11.5 million which reflects the increasing valuations of the divisions' cash‐settled share‐based payment plans, particularly Westcon International and Analysys Mason. To be more in line with international peers, the Group is now presenting the Adjusted** figure for EBITDA excluding share‐based payment charges as well as restructuring costs. On this basis, Adjusted** EBITDA in FY22 was US$177.0 (FY21: US$152.5 million) and Adjusted** EBITDA margin was 3.8% (FY21: 3.7%).

Depreciation and amortisation increased to US$72.4 million (FY21: US$68.6 million) and operating profit was US$82.1

million, 64% up on FY21 (FY21: US$50.0 million).

The net interest charge increased to US$31.3 million (FY21: US$25.7 million) mainly due to increased interest rates in

Latin America and profit before tax more than doubled to US$50.9 million (FY21: US$25.2 million).

1. tax charge of US$10.6 million (FY21: US$19.5 million) has arisen on the pre‐tax profits. The effective tax rate of 20.8% has benefited from an increase in UK tax losses recognised as deferred tax assets, part of which arose from the increase in the UK corporation tax rate enacted earlier in the year. The effective tax rate reduced as profits grew and the profit mix continued to improve. As at 28 February 2022, there are estimated tax loss carry forwards of US$231.2 million with an estimated future tax benefit of US$57.2 million, of which US$36.3 million has been recognised as a deferred tax asset.

Underlying* earnings per share were 18.7 US cents (FY21: 13.6 US cents). Headline earnings per share were 16.2 US cents

(FY21: 1.8 US cents). Earnings per share were 16.7 US cents (FY21: 1.3 US cents).

DIVISIONAL SUMMARY Logicalis

Logicalis is the largest contributor to the Group in terms of profitability. The division also has the widest geographical exposure and Datatec intends to continue to develop and grow Logicalis globally, both organically and through acquisitions.

Logicalis revenue increased by 14.2% to US$1,656.0 million compared to US$1,449.5 million revenue for FY21. EBITDA increased by 12.9% to US$92.5 million (FY21: US$81.9 million).

Westcon International

Westcon International revenue increased by 11.8% to US$2,890.4 million (FY21: US$2,585.7 million) due to strong demand for network infrastructure, remote access solutions with enhanced cybersecurity for flexible working and virtual office environments and unified collaboration. In constant currency***, revenue improved by 10.0%. EBITDA increased by 52.0% to US$68.1 million (FY21: US$44.8 million).

Management Consulting

Analysys Mason revenue increased by 23.5% to US$90.4 million (FY21: US$73.2 million). EBITDA increased by 8.8% to

US$11.1 million (FY21: US$10.2 million).

Cash and net debt

The Group generated US$95.7 million of cash from operations during FY22 (FY21: cash generated of US$234.4 million) and

ended the period with a net debt of US$130.1 million (FY21: US$60.9 million). Excluding lease liabilities, net debt

would have been US$35.7 million (FY21: net cash of US$53.4 million).

Liquidity and borrowing facilities

The Group continues to closely monitor the outlook for liquidity in its divisions to ensure that sufficient cash will continue to be generated to settle liabilities as they fall due.

Logicalis is supported by a corporate facility of US$155.0 million, covering all operations outside Latin America, comprising a rolling credit facility to fund working capital requirements and an acquisition facility. The Latin America region is supported separately via a number of uncommitted overdraft facilities and short‐term lending arrangements.

Westcon International has an invoice assignment facility of EUR390.6 million (recently increased from EUR275.0 million) for its European subsidiaries, as well as an extended payables facility of US$65.7 million. Westcon International has a securitisation facility of US$100.0 million for its Asia‐Pacific facilities (up from US$80 million in the prior year).

In addition, Westcon International utilises accounts receivable facilities in the Middle East (US$15.0 million) and Indonesia (US$11.0 million) as well as overdraft facilities in Europe (EUR4.0 million) and Africa (US$1.0 million), a securitisation facility in South Africa (ZAR250.0 million) and a line of credit in Singapore (US$1.2 million) to finance the business.

CURRENT TRADING AND OUTLOOK

The underlying trends in our industry remain positive and our businesses are well positioned to benefit from continuing demand for software and services in networking, cyber security and cloud infrastructure. This is further evidenced by increased order intake and backlog.

However, headwinds from semiconductor shortages, compounded by various factors, including the war in Ukraine, Covid‐19 lockdowns in China and global inflationary pressures will continue to disrupt global supply chains for the foreseeable future. This is expected to especially impact Logicalis in Latin America during the first half of the current financial year as macroeconomic challenges are compounded by these severe supply chain constraints.

Datatec's strong financial position provides a firm foundation to support growth and new initiatives as most economies start to recover and supply chain constraints ease over time. The board is focussed on driving shareholder value and implementing opportunities arising from the Strategic Review.

SUBSEQUENT EVENTS Acquisitions

Effective 30 April 2022, Access Markets International (AMI) Partners, Inc. a 100% owned subsidiary of Analysys Mason Limited acquired 100% of the membership interests in Northern Sky Research, LLC ("NSR"). NSR is based in the US and specialises in research and consulting services to the space and satellite sector.

On 1 March 2022, Logicalis acquired the remaining 30% of the issued share capital from the non‐controlling interest in Logicalis Portugal, a Cisco systems integrator and managed services business in Portugal, for a deferred consideration of US$5.4 million payable in September 2022.

IFRS 5 Disposal group

Subsequent to the year end, the board has classified its management consultancy division, Analysys Mason, as a disposal group held for sale as the IFRS 5 criteria have been met.

Analysys Mason is included in the "Corporate and Management Consulting" segment of the Group.

The proposed sale is in terms of a process initiated by the Board pursuant to its Strategic Review and a transaction is expected to occur within 12 months from the date of these financial statements. Shareholders will be advised of any developments in this regard.

BOARD CHANGES

Ms Deepa Sita joined the Board as an independent non‐executive director of the Company with effect from 1 March 2022 as previously announced.

The following changes to the functions of Directors have also taken place during FY22 and to date as previously announced.

With effect from 1 March 2021, Johnson Njeke, independent non‐executive director of the Company, was appointed to the Social & Ethics Committee.

With effect from 1 March 2022:

‐Maya Makanjee, independent non‐executive director of the Company, became Chair of the Board in succession to Stephen Davidson;

‐Maya Makanjee stepped down as Chair of the Remuneration and Social and Ethics Committees and remained a member of both committees;

‐Maya Makanjee became Chair of the Nominations Committee in succession to Stephen Davidson who remained a member of the committee;

‐Deepa Sita became a member of the Remuneration Committee;

‐Stephen Davidson was appointed Chair of the Remuneration and Social and Ethics Committees.

CASH DIVIDEND AND SCRIP DISTRIBUTION ALTERNATIVE INTRODUCTION

Notice is hereby given that the Board of Datatec has declared a final distribution for the year ended 28 February 2022, by way of a cash dividend of 111 ZAR cents per Datatec ordinary share ("Cash Dividend") payable to the ordinary shareholders (the "Shareholders"), which will be in proportion to their ordinary shareholding in Datatec at the close of business on the record date, being Friday, 15 July 2022.

Shareholders will be entitled, in respect of all or part of their shareholding, to elect to receive new, fully paid ordinary Datatec shares in proportion to their ordinary shareholding on the record date as an alternative to the cash dividend (the "Scrip Distribution"). The Cash Dividend has been declared and paid out of Datatec's distributable retained profits. A dividend withholding tax of 20% will be applicable in respect of the Cash Dividend to all shareholders not exempt therefrom after deduction of which, the net Cash Dividend is 88.8 ZAR cents per share.

The new ordinary shares will, pursuant to the Scrip Distribution, not by subject to a dividend withholding tax, and the issue price of the Scrip Distribution (which will equal the volume weighted average price ("VWAP") of Datatec's ordinary shares traded on the JSE for the 30‐day trading day period ending on Monday, 4 July 2022) will be settled by way of a capitalisation of Datatec's distributable retained profits.

The Company's total number of issued ordinary shares as at 24 May 2022 is 216,957,874. Datatec's income tax reference number is 9999/493/71/2.