Datatec Limited (DTC) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Datatec Limited full year annual results presentation and conference call. [Operator Instructions] Please also note that this event is being recorded. I would now like to turn the conference over to Jens Montanana. Please go ahead, sir.

Thank you. Good day, everyone. I hope you can hear us in this virtual format. Today, we are covering our FY 2020 Feb year-end results. I'm going to start with an expanded summary section because of the global COVID pandemic situation, we are providing extra information today around our current trading so far this year. I will then hand over to Ivan to go through the detail of the financial results, and I will present the individual operating divisions before wrapping up with our prospects and outlook. So moving on to the introduction, Slide 4. We had very good results, especially considering where we have come from in the past 3 years with our Westcon division. The quality of profits was much improved as was the working capital and strengths on the balance sheet. While our revenues were flat in reported dollar terms, they were up 3.6% in constant currency, mainly as a consequence of the emerging market currencies, especially Brazil. Our gross margins grew by 8%, and this growth, coupled with our reduced operating costs and improving efficiencies, allowed us to deliver significant operational leverage. Notwithstanding this, the benefit of IFRS 16 to the -- had benefits to EBITDA reporting. Our EBITDA jumped by over 80% to $159 million. And impressively, our underlying earnings per share grew by 50% and almost USD 0.10. All divisions showed solid growth with operating leverage. There was continued significant progress in the Westcon International division. The benefits of our multiyear investment in our global ERP system with additional business -- and with additional significant business automation have really helped us in this environment of restricted mobility and virtual operating. The continuing strong performance in Latin America with Logicalis, helped boost Logicalis, which had EBITDA growth in all regions aided also by IFRS 16. Analysys Mason produced a superb set of results, their best ever, by continuing to exploit strong demand of 5G skills and advisory services. We had a much improved cash position since our last reporting period as a result of our strong working capital management. It has been a very challenging environment since January when the COVID crisis starts to spread throughout Asia and now is affecting just about every country whether developed or developing. Economic disruption and market volatility has fueled dollar strength, risk appetite has evaporated and emerging markets are weak. Some industries are being permanently reshaped or downsized, while others are increasing their relevance in a more technology dependent and digitally enabled world. The technology solutions and services that facilitate remote connectivity, security, unified communications and the virtual office anywhere, have been supported by the significant amount of public and private cloud infrastructure now available. Our order intake so far this year has been similar to last year, and our revenues are holding up. With this backdrop in place, we remain focused on our cash and liquidity. We will continue to monitor the opportunity to IPO Logicalis LATAM, subject to favorable market conditions returning. We believe it is a compelling project however, the timing has become more indeterminable at this stage. During the year, we returned almost $60 million or approximately 25% of our current market cap to shareholders through dividends and special -- sorry, for our special dividend and share repurchases, whilst also reducing our net debt. Logicalis boosted a skill set around Microsoft with acquisitions in Europe, while Analysys Mason made a big step forward in Germany with the acquisition of Allolio&Konrad from Ericsson after the year-end. I'll hand over now to Ivan to take you through the detailed financial results.

Thank you, Jens, and good afternoon to everybody in South Africa and the U.K., and good morning to everybody in the U.S. The solid operational execution and delivery on commitments from the prior financial year continued during FY '20 with a vastly improved performance from Westcon International. FY '20 was the first in many years that we did not have any fundamental restructuring costs. Moving to Slide 9, financial performance. From a group perspective, revenues were down ever so slightly with revenues in Westcon flat and revenues in Logicalis, down 2%. In constant currency, however, revenues were up 4%, showing the translation foreign exchange impact on our numbers. Overall, gross margin increased to 17.2%. Operating costs decreased by 3%. The prior year operating costs included a benefit of $15 million reduction in costs relating to the SYNNEX transitional services obligations in H1 last year, which had been accrued previously against the profit on disposal of the sale to SYNNEX in FY '18. Foreign exchange losses in the P&L were $1.7 million, of which $1.2 million were unrealized. In the prior year, we had foreign exchange gains of $8.2 million. EBITDA increased by 83% to $159 million, and the large increase in depreciation is mainly as a result of the adoption of IFRS 16. Operating profit was 71% higher than in the prior year. Interest income included $7.5 million as a result of the positive Logicalis Brazil tax ruling in the first half. Interest expense increased as a result of the adoption of IFRS 16. Profit before tax more than doubled, and all our earnings metrics were substantially higher than in the prior year. This slide, Slide 11, shows the impact of IFRS 16 on our P&L. We are providing pro forma FY '20 numbers to enable a like-for-like comparison to the previous financial year. The adoption of IFRS 16 has resulted in an improvement of EBITDA of $35 million and an increase of $30 million in depreciation and $5 million in net finance costs. There was no impact on underlying earnings per share. Slide 12, revenue and gross profit contribution by geography. We had a greater revenue contribution from Middle East and Africa in FY '20 and a lower contribution from Europe. We had a larger gross profit contribution from Latin America and Middle East and Africa this year. Moving on to the balance sheet, Slide 13. Goodwill represents goodwill associated with Logicalis and Analysys Mason, we had a very strong operating cash generation in the past year as a result of improved working capital performance in both Westcon and Logicalis. The reduction in shareholders' funds is largely due to exchange differences arising on translation to presentation currency as well as share repurchases during the financial year. Net debt increased over February 2019, mainly as a result of the adoption of IFRS 16. Excluding IFRS 16, net debt would have been $55 million compared to $101 million in February last year. Tangible net asset value was $281 million. We're also showing the pro forma impact of IFRS 16 on the balance sheet. And the main impact was the change in the accounting treatment of leases that were previously classified as operating leases. And under IFRS 16, such leases give right to the recognition of right-of-use assets and related lease liabilities, and these lease liabilities are then included in net debt. Moving to the cash flow, Slide 15. Operating cash flows were much stronger than the prior year, driven by higher operating profits as well as much improved working capital. $57 million of cash was used for share repurchases and dividends during the year, in addition to $44 million of cash that was used for share repurchases in the prior year. I will now hand over to Jens to cover the remainder of the presentation.

Thanks, Ivan. So I'll begin the divisional operating reviews with Logicalis, Slide '18. A pleasing overall year that included multiple weak currency headwinds, especially in Latin America and the impact -- and the early impact of the COVID outbreak in Asia, which was in late January and February. Notwithstanding the tax credit benefit in Brazil, trading gross profit increased on a year -- on similar year-over-year revenues which in dollar terms, fell by 2%, but in constant currency, grew at 4%. Our operating costs were broadly flat allowing most of the increase in gross profit to flow through to EBITDA. Some of the EBITDA increase includes reclassifications arising from IFRS 16 adoption. Most of this, excluding interest, nets out of the operating profit level where profits grew by 10%. Slide '19. On this slide, we show specifically what the P&L would have been on a pre-IFRS 16 like-for-like basis. There is hardly any change from the top to bottom. The effects are all below gross profit and above profit before tax. At the PBT line, profits grew by 17%. Slide '20. The contribution from Latin America fell slightly due to the weaker local currencies versus the dollar. Especially the Brazilian real. The jump in LATAM's gross profit was mainly as a result of the $14 million tax credit in Brazil in H1. Elsewhere, progress was pretty similar across all regions, except for the U.K., which reduced as part of the EMEA segment. Slide 21. Services grew to over 40% of the total revenue mix. Typically, in terms of economic uncertainty, product sales decline, while services grow in proportion. Last year was a period of sustained dollar strength, and our product sales fell in the U.K. and Brazil. While services grew in all regions. Annuity managed services are now around 1/4 of our revenues. All services were over 40% of total revenues but drove more than half of the gross profit. Cisco remains over half of the vendor product mix, while the segment referred to as other grew the most. This includes mainly security solutions and Microsoft. Slide 22. There was a pretty stable gross profit contribution from every region. Latin America was, of course, boosted by the tax credit in Brazil. All regions delivered an increase in EBITDA, while central costs fell. 2/3 of the EBITDA increase was from the positive impact of applying IFRS 16. On a like-for-like basis, year-over-year, EBITDA grew by 11%. On Slide 23, working capital. Overall, net working capital reduced. The biggest component was the unwind of inventory and accounts receivable coming from the front-end loaded large multiyear telco project in Latin America. As this project progresses, product sales decline, while services grow. This is a normal cycle of design, build and maintain our networks. The net debt increase was mainly due to IFRS 16 adoption of leases mainly and some cash out for small acquisitions. Slide 24. In the current crisis, we have modeled and prepared multiple scenarios. In most cases, our preferred scenario is to keep our full workforce intact while reducing other fixed operating and support costs. In this type of business, there is always a cost to contract as well as to grow. We are trying to anticipate the depth and breadth of the valley we have to cross. So far this year, we have seen a modest reduction in revenues partly due to the weaker Brazilian economy and currency. But elsewhere, everything is pretty much in line. Our order intake has held up similar to last year, but converting some of these order bookings into revenues has slowed in some areas, largely due to logistics and the ability to be on site. Our cash position and collections remain strong. Our businesses are all B2B, and we provide technology and services that enable remote working and migration to the cloud. Above all, we are focused on the health and well-being of our people everywhere. Slide 25. Outlook. The outlook remains uncertain. Right now, some economies appear to be gradually opening up. And there may be a cycle of renewed economic activity and business investment later this year. The cycle in Europe, Asia and Australia in our business seems to be ahead of that in North and South America. Our focus is on maintaining high levels of service to our customers and ensuring we remain at the cutting-edge of new technological developments. We are seeing many opportunities to help our customers apply technology to overcome office environments and staff becoming more decentralized. Overall, the business remains in a strong position. Moving on to Westcon International, Slide 27. A very pleasing year. While revenues were almost identical to the prior year, the P&L shape and operational leverage within the business improved significantly, a 6% increase in gross profit and a 7% reduction in operating costs drove a large increase in EBITDA. Over 2 years, there has been a swing of almost $80 million of EBITDA minus $48 million in FY '18 with small profit last year in FY '19 and now in the year reporting positive $40 million. Operating profit was also healthily in the black at close to $20 million. Slide 28. This slide shows this year versus last year on a comparative pre-IFRS 16 basis. Notwithstanding the positive IFRS 16 impact, EBITDA a like-for-like basis jumped more than fourfold, and operating profit grew by over $20 million. Similar to the other divisions, there was negligible change to gross profit at the top or PBT at the bottom of the income statement. The PBT swing of over $25 million from loss to profit was very encouraging. Slide 29. Asia Pacific and the Middle East and Africa grew slightly in proportion, while Europe reduced. Some of this change was currency-related as the U.K. pound fell against the dollar, and that market also remained weak. Revenue and gross profit trends tend to correlate. Slide 30. Our business unit mix was unchanged last year, essentially Cisco products versus other. Similarly, in our customer mix, there were only small changes between customer segments. In the technology category, security solutions continued to edge up and now make up approximately 1/3 of total sales. In the past few months, we have seen this trend accelerate as increased remote working has fueled a greater need for network security as well as unified communications to support the expansion of virtual office environments. Slide 31. This is our second year of sequential quarterly growth. Revenues were flat year-over-year, with each quarter, fairly evenly spread. In constant currency, revenues have grown more progressively year-over-year. Slide 32. All regions grew gross profit and EBITDA. In Europe, the combination of cost reductions and gross profit improvement drove the greatest EBITDA increase. Elsewhere in the other regions, recovering margins and market share gains supported profit growth. Last year's central costs are not comparative as they include $15 million credit in support of the transition services post the disposal of the Westcon Americas division. Slide 33. We have made considerable progress on our central cost reductions with further optimization still to come. Some of these costs are nonoperational, but the most significant part is IT for our global systems. We expect these costs to trend below $30 million from this year. Slide 34. Working capital. There was significant improvement in working capital and the balance sheet. The massive 1/3 reduction in net working capital of almost $100 million helped reduce net debt to below $50 million at year-end from over $100 million last year, and that, of course, includes the extra debt classified and associated to IFRS 16. Our underlying net debt improved by over $90 million on a pre-IFRS 16 basis. Almost every metric in absolute terms improved on this table, including paying our creditors earlier. Slide 35. Our multiyear investments in our SAP ERP platform plus numerous workflow and business automation tools have proven to be critical assets during this pandemic crisis. We have not experienced significant business interruption or any execution issues and have been able to transact and process business fairly seamlessly during this extended lockdown. The industry appears to remain robust and we have seen increased demand in many areas to support remote working and distributed office functions that all require enhanced networking. We expect our Q1 revenues to be similar to last year. And so far, we have maintained a comparable run rate of order bookings with a bias to larger orders. We have seen a slight increase in our backlog due to longer lead times and deliveries, but the overall picture is encouraging. Slide 36. Our balance sheet is strong and our recapitalization is taking place at the end of this month to further strengthen. We have renewed existing financing facilities with our banks and we expect interest rates to remain low. And of course, this will have a positive effect on lowering our total financing costs. We think most businesses will configure themselves of hybrid or virtual office setups with increasing functions in many organizations, working remotely. There are further optimization benefits to gain in the business through process improvement, automation and leveraging our digital platforms. So that concludes the Westcon segment. I'll finally go through Analysys Mason, the management consulting division. Just a couple of slides on that. We are now on Slide 38. Analysys Mason, just to remind you all, is a boutique management consultancy business focused on the TMT sector and has an international presence. Its main customers are telecommunications operators, governments, regulators, web scalers as well as enterprise and private equity clients. They provide strategic and technical advisory services and have a separate research capability. The performance has been very robust in the past few years, driven by the acceleration of 5G networks and demand for high-capacity optical networks fueled by the growth in cloud technologies. Slide 39. Last year's performance in Analysys Mason was a record for this division. The top line growth raised utilization and productivity, which drove margins to their highest levels. Gross margins were above 40%, while EBITDA and operating profit margins reached 16% and 10%, respectively. While this financial performance will be hard to repeat, in the current environment, it demonstrates the inroads the business and its reputation has made to becoming one of the leaders in their segment. The secular and underlying technological market forces remain strong as Internet communications and the online digital world become more vital in modern business. So in summary, to wrap up, Slide 41, the last slide, there has been a tremendous amount of uncertainty in the past few months. And it will take time for many countries to get back to normality economically and some industries will fundamentally need to change. Many areas of technology will be relied upon to deliver a more digitally interconnected world. In this area, the U.S. leads with by far the greater number of companies in this sector. This can also be seen by how U.S. stock markets have outperformed their peers in the rest of the world. To ensure we remain at the forefront of any recovery when it comes, we are focusing on ensuring the financial strength of the group continues to remain strong. So that concludes the presentation. I will now hand over to any questions. If we could perhaps start with questions from the conference call first, and then we'll cut over to the webcast.

[Operator Instructions] So we have no questions on the conference call at the moment.

Let's move to your questions on the webcast. Fred, are there any that have come through?

We do have some questions on the webcast. The first one is from Keith McLachlan from AlphaWealth. And I'll read it in the in the prior reporting period, the weak revenue growth in Westcon International was blamed on outsourcing system changes, et cetera, all disrupting the sales process. Now that these things are behind us, the revenue did not appear to have grown and/or recovered lost market share over this period. Is that a fair assessment? If so, why did Westcon International not recover lost market share?

Yes. It's an appropriate question, but it's a year late. Last year, we remarked on the recovery in business momentum or improving execution, our recovery in market share and stability across the business. So that was FY '19. So the FY '19 was a year of -- if you look at FY '19 over '18 and go back to the -- so the presentation last year, you will notice we were embarked on exactly these trends. So this year to last year, we've obviously had less market share recovery because we've recovered most of the collateral damage we suffered in terms of our execution and -- or sorry, poor execution and so on, which were the years FY '16 and '17 and '18. And this year was a year of, I guess, growth aligned -- the constant currency growth was about 4%. And I guess that was pretty much aligned to what the market was growing at. We had slightly better-than-average growth in Southern Africa and the rest of Africa as well as Middle East and Asia Pacific, but that was directly correlated to our improving execution after -- in Africa, you might recall, we had many years of -- we had 3 or 4 years of quite weak performance in losses, and it was quite a significant turnaround. In fact, last year, we had no countries which -- we had no losses in any countries or in any markets for the first time in many years. So I don't know if that will answer that. So basically, the like-for-like market share recovery execution improvement, we saw all of that in FY '19. And this year was basically a year of market -- maintaining market share, there was no real growth overall because of the strong dollar. And we made significant inroads in terms of our profitability and growing our gross margins. And the reason that we could do that is because of our execution improvements over the last 18 months or so as we return to a more competitively precision business.

Moving on to the next question, which is from [ Sandy Nuscula from Vontobel ]. Please, can you provide some color on the GDP margin and expectation going forward? Secondly, can you please provide guidance on capital allocation going forward, especially share buybacks?

Well, [ Sandy ], I'll start, and we'll split this question between myself and Ivan. We have obviously provide guidance, but talking about our future gross margins, it's pretty easy to extrapolate. They've been -- in Logicalis, our gross margins have been between 22% and 24% for a decade, and they rarely go out of this range. And the reason they were slightly higher this year, we have laid it out in almost a repeated bridge is the approximately $14 million tax credit that we received in Brazil, which was in the first half in H1, and that obviously has a flattering effect on gross profit. But notwithstanding that, our gross profits are always within that range. Particularly, in Westcon, our gross margins could move around by 1% or so. But it always, again, if you look back in certainly recent history, our gross profits are generally pretty good at over 10%. I mean they have been below 10% but rarely and extremely rarely, they're above 11%. So again, that's -- I don't think -- in times of economic stress, they tend to trend lower. In terms of strong demand where we are price setter or price maker, they tend to trend higher. But this is -- we're talking clearly small changes. Our -- we can operate slightly better or slightly reduced margins because sometimes that's a trade-off between volume and it depends how you're in control of your operating costs. But across our business or across our industry, gross margins don't really change that much. Analysys Mason had fantastic gross margins because they saw growth. And of course, growth in an advisory business means that your workforce utilization and productivity zooms up. So their gross margins were over 40% and traditionally have been $35 million to $37 million but that -- but obviously, there, the numbers are relatively small. The second part was capital allocation. We've completed the share buyback. We've been buying back shares for over 2 years. We made an announcement now -- announcement today that as of the end of February or by March, we'd have concluded the current share buyback program. That's not to say we're never going to buy back shares again, of course, but this will depend on market and so on. And just to remind everyone, we've -- our shares outstanding have gone from prior to the sale of Westcon Americas and the -- sorry, after the sale of Westcon Americas, sorry and the special dividend, which was 2 and a bit years ago in -- we have -- in January '18, we have returned well over $100 million in terms of the effect of our share buybacks over those 2 and a bit years. We've gone from 256 million shares in issue to just over 200 million. I think it's 201 million or 202 million shares in issue. So that's a significant capital reduction. And we don't expect -- right now, we're obviously going to keep our powder dry. We've reduced -- we did a tremendous job last year in terms of the balance sheet and reducing net debt, whilst also returning close to $60 million to shareholders. And we think that's a pretty strong and powerful position for us to be in. But we don't have any designs right now. We don't need to keep shrinking our working capital. We think we've got a good balance now between cash, a bit of reserve in terms of firepower. And we just want to make sure that we are in the most prudent -- positioned in the most prudent way for the medium term.

Yes. Yes. I think that's a very comprehensive response. So we've -- as you've said, we've completed our share repurchase program. At the moment, our focus is on preserving cash. And we've -- in the last 2.5 years, we've actually repurchased more -- north of $120 million in shares. So it's a substantial amount of capital that had been deployed towards share buybacks over 2.5 years.

Moving on to Muneer Ahmed from Prescient. A couple of questions from him. First, well done on some really good improvements in Westcon. First question is some significant EBITDA improvements in Logicalis EMEA, is this monthly IFRS 16 or were the operational improvement? First question. Second, if I adjust Logicalis Group, net profit before tax of $59 million for the one-off benefit of tax credit and related interest of $21.1 million Logicalis profit is down significantly on last year. This is all LATAM. Why is LATAM performance so bad on this adjusted basis, even see a similar story in constant currency.

So Jens, I can take the second one, and then you could talk about the sort of the EMEA operating performance in Logicalis. So if you look at sort of Logicalis versus last year, even if you were to strip out the impact of the tax credit, there was a significant impact of translation FX. So -- and the Brazilian real, in particular, and some of the other Latin American currencies were a lot weaker compared to the U.S. dollars. And that had an impact of almost sort of $10 million at least at the EBITDA level. So in a constant currency -- on a constant currency basis, the underlying performance was better. And Jens, if you could maybe just take the EMEA part of the question.

Yes. So stripping out IFRS, I think I made some comment. I mean the question was about Logicalis EMEA, which is a pretty meaningful segment. Yes, absolutely. Some of it was -- I pointed out before, I think 60% or 2/3 of it might have been IFRS 16, but there's a solid increase in non-IFRS 16 adjustments when it comes to profitability in Europe. And that was -- actually that was made up of 3 buckets, which are all really performance related. It was -- it was Germany, the U.K. and Spain, these markets. So Germany, we had a pretty solid performance. It's just a fundamental performance, and so we did in Spain. And in the U.K., we moved from loss to profit. And you might remember, the U.K. has been a perennial loss maker for us. And whilst the revenues went down in the U.K. as we reshape the business and we basically start the transformation in the business in terms of improving services on a much reduced resized business, that -- all of that, all of those remodeling actions, obviously, which has taken us a few years, have resulted now in the less profits and, in fact, loss to profit, and that was a contributor in EMEA. So it's not all IFRS 16, definitely not.

And the last question from Muneer is around the rationale for the separate listing of the business in Brazil, which is relatively small. And even though it's not delayed, is it still on the table?

Well it's not the business just in Brazil. It's a whole of Logicalis in Latin America. And it's not that small. It's a business of -- obviously, it depends on the currency, but it's a business that produces close to pretty much half of Logicalis Group profits. It's had as EBITDA of $60 million. And obviously, we've been looking at this project for some time, and the compelling drivers are its -- the dominant position of Logicalis LATAM in its market or markets, the mix of business, the type of customers, the bench of skills that we have. There's a whole cocktail of reasons. And clearly, the valuation and what we've been told that we can expect to achieve in terms of our relative novelty in that market has made this a compelling -- a possibility to consider. And we don't think that's changed at all. In fact, we think we can't tell you when it would be. But coming out of this, we think we'll -- as a relatively dominant player, and we have an early move advantage in many of those markets. We think that the rarity factor and novelty of this business could probably only improve and be enhanced coming out of this current crisis. And I guess that's what we're going to be focusing on. We're going to be focusing on making sure that the -- that this business is as compelling or more compelling in terms of what we're focusing on and what we're delivering. And then we'll update the market, but we're not withdrawing the concept. We're just pretty much -- we're just saying at the moment, it's -- I think I used the words indeterminable when it was obviously based on local market conditions. It's based on currencies. It's based on stock markets, based on the things that are directly out of our control. The only thing that's in our control is the strategy, management and operations of the businesses we have.

Moving on to [ Marche Quinde from Respa Asset Management ]. Two questions. Could you briefly describe the structure of the multiyear contract in Brazil with regards to product mix? And -- or is the product mix evolved? And what do you expect going forward? The second question is, could you please speak to any progress, if any, that you have made on selling Westcon International?

Right. I mean I can answer these questions, but we obviously don't provide specific details. So on the first one, we did lay out in broad terms, what this project looked like 2 years ago. It was a -- at the time, it was -- we basically telegraphed that it was a $400 million, $500 million project over 7 years, potentially more, that it would be, as all design, build and manage or operate network infrastructure projects. You obviously go through a phase where once the project goes live, there's obviously -- there are more assets and CapEx upfront. As the network gets rolled out, there are more services later on as the network moves to full commercial operations. And the products thereafter are either upgrades or additional connections. So I think at the beginning, it was about 80%, maybe more, 80%, 85% products. And I think the last year, it's the excess as opposed to we switched to 60% and almost probably end up at 30% or 40%. But you can't just look at the revenue versus services spread because the margin profile on selling the products is different or less than the margin profile or smaller than the margin profile on the services. So if you lose -- if you if you switch $1 million of product sales, and in return, you end up with 300,000 or 400,000 of services or 200,000 services, I'm not saying they're the same margins, but I mean, they are entirely different, they are apples and oranges. But where we are right now, I would say we're most probably halfway through the project from a product perspective, and we're most probably 1/3 of the way through the project in terms of life cycle from a services perspective. And of course, when these projects come to an end, it doesn't mean there's nothing. It means that there's a new -- there will be a new configurational opportunity at the end of the life cycle of the assets, which will either mean we would normally expect or hope to be the incumbent that gets the next refresh cycle or whatever the changes are to the -- to this obviously massive in-store network. The second question, and we've never opined on this other than to say that we're obviously going to work -- we are working on delivering the best performance we can in Westcon International. We're not actively pursuing any transaction around this business. Clearly, there has been speculation out there or is speculation out there as to what might happen. But we think we've been in this business for a long time, over 30 years. We think we could be -- there's a combination of outcomes for us. We could be -- we could bully up with other assets, we could be an acquirer, we could be a kingmaker. We could be a number of things. But what we do know is that this is a core asset for us. Where we didn't dispose of Westcon International with the Westcon Americas [ PENTAX ] at the time, it's because we thought and believed that we could do better with these assets than how they were operating at that moment in time, which was loss-making. And the reason they were loss making, as most of you know, was because of the business process changes that we had gone through. And of course, the multiyear effect of the big IT upgrade, which should cost us or punish the business in terms of its performance. It was nothing to do with the market and nothing to do with the technologies we sell and nothing to do with the customers we have. It was all to do with our internal issues. And I think we have demonstrated hence, the $80 million swing from losses to profit in the last 2 years, but this is clearly a better business now than when we explained to the market why we had decided to keep it as a result of the Westcon Americas, SYNNEX transaction. So I think that's pretty much where we are now. It's not impossible that we're not -- we're here basically to own and operate good businesses. And if there are opportunities out there to either do more with our assets or combine our assets or as I say, do one of a number of things, we'll be on to it. But right now, we're focused on operating the assets we've got and coming through this crisis. And we plan to be stronger and more relevant coming out of it. And we mentioned we have a lot of other market observers and competitors out there that would be interested in the progress that we've made so far and will continue to be.

Okay Fred, any more questions from the webcast?

Sorry, one second, we're moving on to [ Ryan Tebon ]. Will the current working capital days be sustainable? And is there scope for improvement? The second question from [ Ryan ] is under the current financial constraints facing smaller firms due to COVID, are there any distressed acquisitions?

I can answer the last one first. Of course they are, and of course, we remain vigilant. Just often in times like this that you can discover or execute very transformative transactions. However, it's hard to have a strategy for such opportunities because it obviously depends on the relative fortunes and dynamics of what's out there. But obviously, yes, we're looking -- but we're not proactively turning ourselves into a -- we're not staffing up a gear on M&A activity in an environment like this. I mean normally, it's better to sort of take a step back and observe what's going on and focus on your own house. And we think, yes, there will be -- certainly will be in time to come, there will be -- I think the used term before, we could be -- in some areas, we could be a consolidator and kingmaker given our -- given the one significant asset we've got in all of our businesses, our footprint and that the years we've spent building and running truly international businesses from a business process, systems, management, I take it's -- we think that's a big competitive edge for us. Second part of the question, which is to deal with working capital, Ivan, do you want to talk about it?

Yes, sure. So our working capital is seasonal, and it fluctuates over the cycle. If you look at the various components of working capital, I'd say, our inventory in Westcon, in particular, is pretty optimized in terms of receivables. So far in the new financial year, our collections have, pretty much across our group, still been in line with historic norms. We're obviously not able to comment on how that may or may not change in the sort of -- in the coming months. But clearly, if we start seeing sort of a deterioration of sort in terms of receivables, we'll obviously work with our suppliers as well to essentially help assist the channel because at the end of the day, we're a channel intermediary. So we could really only comment on what we're seeing right at this minute. And for Q1, which is pretty much over, certainly, our receivables collections have been in line with recent historic norms.

Moving on to a question from [ Frank Disilvestro from Titanium Capital ]. Has Cisco's restructuring affected the group? And should we expect any challenges in the year ahead? With Cisco's desire to grow market share present any working capital challenges for the group in the year ahead, which vendors are best placed to profit from the remote working trend? Has the market become too fragmented to expect any upside? And we not press comments on the COVID situation across LATAM, is this impacting business trading?

There's a number of questions there. So you might have to come back to me.

No problem.

The first one was about Cisco and Cisco's reorganization, which they had a major reorganization almost a year ago in terms of a [Audio Gap] as a service type of commercial model and so on. I think the -- I think thematically, the most important thing to understand about Cisco is that it's a very large business. It operates in many -- its many areas of the market. It's a sort of industrial technology player in terms of a large -- in terms of, let's call it, the core network infrastructure. And -- but they also have many pockets of fast-growing lines of business. And one of them is security, which, of course, is a multi-threaded sector. And I'll talk to that a little bit in a second, because that was the second question. But no, we're not seeing any pressure on our working capital as a consequence of Cisco's desire to grow. In fact, we would welcome it because, obviously, there hasn't been -- there's been a slight contraction in their business and channel in the last 2 quarters, and we expect some of that to turn. I mean I think if you look at where Cisco are in terms of their core strengths, they're not -- it's only a small part of their business. That's been able to be, let's call it, immediately positively affected by the jump in remote working and so on. I think the longer-term benefits for Cisco are going to be the consequence of the jump in remote working virtual office more online. And of course, the 5G pull-through and so on, that -- that's going to require new networks in years to come. They're going to be new enterprise networks, there's going to have to be greater access to data centers and cloud infrastructure. There's going to have to be just more backbone capacity because of 5G. There's going to have to be more corporate network infrastructure, not necessarily corporate IT infrastructure, but corporate network infrastructure as more to take the load of all this remote connectivity. Now that you haven't seen in the last few months because enterprises just can't go out there and build new networks, to take to -- take into consideration that there's been a dramatic movement in their workforce from on-campus to at home. That's all taking place over the Internet. And over -- and using cloud technologies and the like, but there will be. As a result of all of this, there will be -- that there will be this -- I think you'll see massive underpin to Cisco's basic business of routers and switches as another generation of ultra-high capacity networks needs to get built, not just with the telco operators, but with web scalers, online companies and enterprises. That's the first question about Cisco. The second question, should we welcome any growth? It doesn't put any strain on our working capital because generally, working capital in this game is matched by terms. That answers that. The second question was the -- is the winners out of this? The winners out of this, I mean, other than if follow Microsoft, which obviously is the most significant beneficiary of the capital. I'm not -- I mean, obviously, there are other beneficiaries from Amazon and Netflix and other, let's call it, at-home plays. But I'm talking about in the world that we -- technology B2B that we live in. Obviously, Microsoft is in a very unique position in terms of operating most of the IT world in terms of what we have at our fingertips every day. But in terms of the sectors that we're in, clearly, security, which is a reasonably fragmented market has been -- has had a very significant run. And you can -- you don't have to follow us. You can follow those vendors that we represent, which now make up over 1/3 of the business in Westcon, if you know, names like Palo Alto, Fortinet, Check Point, F5, there are many extreme networks. There are many other players in this space. There must be 20 or 30 publicly traded all U.S.-based. I made the observation before U.S.-based companies in the security, network security, remote access, cloud access space and we don't think -- far from it, we're actually going to find -- you're actually going to find there's more business reproduction now in the next few years than ever before in terms of the amount of players in this space. We think there's almost unlimited space for further fragmentation, the new entrance because of the -- just because of the pace in which technology is evolving. And we think that's -- if we can be in the right place for some of these suppliers and vendors, that's a key part of our business development. And then the third question, I have forgotten what it was.

It's a question that links for a number of analysts that have asked on the similar trends. Latin America, the impact of COVID or it's impacting business trading and how sustainable with profitability be in Brazil in the year ahead? So that covers...

Ivan has commented on this a bit. I mean the situation right now in Brazil is I mean the currency is about -- it's 10% up from its lows. It almost touches 6 to the real -- so BRL 6 to the dollar, 3 weeks ago, a bit like the rand. Most of these really smashed currencies will bounce back 10% or 15%, the real has as well. It's quite -- Brazil as a country is quite late and quite large in this pandemic crisis. So we're not -- we're obviously expecting a delayed -- as markets start to recover. I opined on this before. We're seeing the Americas in general, including the U.S. being slightly -- being later in the cycle compared to what we're seeing in certainly Asia Pacific, ANZ, Middle East, Europe. And now Europe has been on a mixed picture, but obviously, Germany and so on Switzerland and the Scandinavia are already -- their economy is already starting to open up, like parts of Asia Pac. And we obviously see South America most probably being later in the cycle. In terms of what we see on the ground every day, we haven't made significant changes to the business. Our customers are large infrastructure hungry users. We think technology is going to be relied upon to pull businesses and economies out of this. We can't imagine that there's going to be cutbacks in large connectivity projects when absolutely the onset is needed. So I think we've kind of got these cross wins. You've got the macro situation in countries like Brazil, could be very weak for some time. But the areas that are going to be needed to create a recovery are many of the sectors and technologies that we operate in. So we haven't seen other than -- and other than the currency, we haven't seen a -- let's call it a local currency level, which is obviously where we are matching our costs with the business. We haven't really seen a -- obviously, there's going to be a hit because just the conversion of those -- of that P&L back into dollars, which we report in, but we haven't seen -- we haven't seen really a -- we haven't seen a significant degradation there or anywhere else. It's more all-around -- it's really all more around currency.

Thank you. I think it's a question that moves to APAC now from [ Bilan Aldava from Nitrogen ]. Can you further split off Westcon International revenue and EBITDA under the Asia Pac region, specifically performance attributed to China? And then do you have any comments on the news that China might target Cisco as a retaliation of the U.S.A. band? I know that might affect your business.

Well, China is small for us. We have a presence in China. In all of our businesses, mainly in Westcon and Logicalis. And I can give you the numbers, we don't break our EBITDA or gross profit to China, no more than we do for individual countries, but less than 2% of our business is in China. So it's very small. And we're mainly doing business for multinational companies that have operating [ by them ]. So we're not a large domestic China play by any measure. In terms of -- I mean, there's 2 sides to the U.S.-China trade thing, I mean, obviously, we don't really mentioned it like this. But obviously, in some markets, Cisco has clearly been a beneficiary of the [ highway ] antagonism that's been building up in the U.S., but this has been going on for 2.5 years now. So -- but yes, I mean, obviously, in Europe and the U.S. and many markets that we operate in, there's -- the pendulum has swung back a bit. But we don't -- we're not really exposed to -- in China. When China stops buying -- if China stops buying non-Chinese products, of course, but it's a tiny, tiny part. It's a tiny, tiny part of our business.

We have another 2 sets of questions at the moment...

Ivan and I have another call in about 4, 5 minutes.

No problems. Can we wrap it up with those 2 last questions?

Yes.

From [ Ayron from Mitsa ], I think you've answered quite a bit, but he was asking how much authority is still currently left in relation to the buyback? And then the second question was around the relationship with SYNNEX following the arbitration award against them?

Fred, I'll take the first question, sorry, was -- if you -- did you say how much authority is still available in terms of the buyback?

That's correct.

Yes. So we've passed a shareholder resolution, I think just before the end of February. I think it was in the last week of February, where we obtained approval from shareholders again for, I think, a further 5%, which will be valid till our annual general meeting, which is going to be in sort of July, August. So the -- so we do have shareholder authority to do buybacks.

And the second one has to do with -- what was the other part? What was the other part?

The relationship with SYNNEX. If the relationship with SYNNEX...

That was -- we did a special dividend during the year of $13 million, $14 million.

No, it was a relationship with the company following the arbitration. That was the question from [ Ayron ].

Oh, no, not at all. No, not at all. We have a joint venture with them. We have a joint venture business with them, which serves global supply -- global customers. And no, not at all, absolutely. Our relationship with them is very good.

The relationship is very good. The CFO sits on the Board of Westcon International. And we see him every sort of 3 months, it's generally a pretty good relationship.

Thank you. The final question is from Irnest Kaplan from Kaplan Equity Analysts. He is asking the impact on Datatec revenue from growing global cloud momentum. And what he means is are customers buying less from the likes of resellers and distributors and more from cloud providers?

Well, it depends. If you buy more from cloud -- if you use cloud providers more, then you might need to buy more cloud access equipment, remote access equipment and security from resellers to allow you to use more cloud services. So it really depends kind of which side of the table you're on. Are you with me? If you -- if previously, you acquired from your reseller, hardware and software and IT products and service and notebooks and WiFi infrastructure and everything else to build your own private capability, then a lot of that business won't exist anymore because when you use the cloud, you don't need to collect or build your own IT assets in your own premises or in your own campus. But what you do need is a ton of other stuff to enable that cloud world to function, and that's a large part of what we do. Does that make sense? And that's also pretty much every vendor in the world has the same. If you go to Cisco and ask that question, [ they’ll tell you ] well, that's the old stuff we sell. That's the new stuff we sell, and that's the stuff that bridges between the 2. And that's often referred to as the hybrid world. So most of our customers, resellers and the like, are doing just that. They're now selling tomorrow stuff, or the next-generation technologies and less of the old way of doing things. And that's been going on for -- that's probably 5 or 6 years. That's -- it has the effect -- I think I made a comment on this before. In normal world, it has this effect and you mentioned we have lower revenue growth, but you have a stickier revenue stream because, you have greater annuity, greater software component, more licensed sales. So it's this type of change. So if anything, if this continues, I must will help the shape of the P&L and help working capital.

Thank you very much. Jens and Ivan, there are no more questions from the webcast.

Thank you very much.

Thanks, everybody.