Datatec Limited (DTC) Earnings Call Transcript & Summary

This is a webcast only. So for those who are listening in and watching in, please type any questions you have as we go, and we will be able to answer it -- address them at the end of this presentation session. So the agenda today follows a similar format to previous reporting with some additional information, given the current global COVID situation. I will start with a summary update and then hand over to Ivan to present the detailed financial results, followed by my operational review and closing remarks on prospects and outlook. So Slide 4, financial results summary. Our overall revenues were broadly flat. There was growth in Westcon but decline in Logicalis. This mix change affected overall gross profits -- gross margins as margins are lower in the distribution segment. All divisions delivered solid performance as falling operating costs cushioned the effect of lower gross profits, meaning, that we managed to deliver good profitability in this period despite the difficult environment. EBITDA fell by $9 million to $61 million and underlying earnings per share by $0.014 to just under $0.04. Technology has been widely leaned upon in the past few months, as organizations, large and small, adapt to network IT and cloud computing. The solid performance across the divisions was mirrored in all regions. Some emerging markets such as Brazil, Mexico, Indonesia and South Africa were impacted by local currency weakness, which reduced their contribution when reported in U.S. dollars. There has been some credit expansion from suppliers in our industry, which has helped working capital in a lower growth environment. During this period, we have refinanced the major subsidiaries of Westcon and Logicalis on more favorable terms and with greater liquidity while also generating strong cash flow. This has reduced our net debt and created extra buffer. At this stage, our assumption is that we're going to have to continue to live with the pandemic and, as such, plan to operate in a moment of risk -- I'm sorry, in a movement-restricted world. Despite the blow in many parts of the economy in most countries, our businesses have remained relatively resilient as technology in general continues to be linked upon to support commerce. The sectors we operate in, along with our broad international presence, provides us with a diversified business mix, which is driving this relatively strong performance. The technology solutions we provide are helping our customers adapt to an increasingly network IT and cloud-based way of operating. This allows a lot of organizations to internalize many functions [ of their ] field. Our own automation and digitization are driving further efficiencies within the business. So I'm now on Slide 7. Our geographic diversification and technology positioning has helped us as we provide solutions and services that are growing in demand everywhere, so, too, have our investments in advanced systems and new processes. This has allowed us to seamlessly move the bulk of our employees into remote working with limited disruption. Our brands are well-established as our entrenched and long-standing relationships with both our customers and our technology suppliers. I'll hand over to Ivan now.

Thank you, Jens, and good afternoon to everybody in South Africa and the U.K., and good morning to those in the U.S. The solid operational execution and delivery on our commitments from the previous financial year continued during FY '21 under vastly different circumstances. And this set of results is pretty straightforward with improved quality of earnings. Slide 9, the group financial performance. From a group perspective, revenues were down ever so slightly with revenues in Westcon up 4% and revenues in Logicalis down 10%. In constant currency, however, group revenues were up almost 3%, showing the translation foreign exchange impact on our numbers. Operating costs were significantly lower, resulting in EBITDA of $61 million or adjusted EBITDA of $67 million before restructuring costs. The prior year EBITDA of $70 million included a $14 million benefit relating to an indirect Brazil tax credit. Excluding this prior year benefit, EBITDA would have shown healthy growth. Net foreign exchange losses in the P&L were $2.2 million, consisting of unrealized gains of $4.1 million and realized losses of $6.3 million. By definition, the unrealized gains of $4.1 million are excluded from underlying earnings per share. In the prior year, $4.2 million of unrealized foreign exchange losses were excluded from underlying earnings, further boosting the prior year underlying EPS number. Net finance costs are higher than the prior year as the prior year benefited from interest income of approximately $7 million on the Brazil tax credit. Underlying earnings per share for the period were USD 0.39. Moving to Slide 10, the segmental P&L. We have changed the format of our presentation slightly from prior years by showing the divisional P&Ls now upfront in the financial overview section. We produced a very pleasing performance in all of our divisions despite very difficult market conditions. Excluding the prior year tax credit in Logicalis, Logicalis adjusted EBITDA grew despite a reduction in revenue. The Westcon financial performance was robust, delivering both revenue and EBITDA growth building on the strong momentum from the previous year. Analysys Mason once, again, had a superb performance. Slide 11, revenue and gross profit and contribution by geography. We have seen an increased revenue and gross profit contribution from Europe with reductions in Latin America. Focusing on the balance sheet for the group, Slide 12. The balance sheet continues to remain strong, driven by solid working capital performance and management. Collections from our customers have remained in line with recent historic norms, and our suppliers have assisted their channels by providing extra payment days in certain instances. In addition, we recently refinanced our major facilities in Westcon Europe and Westcon Asia, providing additional liquidity at improved terms. We also successfully renegotiated future covenants in our Logicalis financing arrangements to ensure even more future covenant headroom. These are major achievements in the current difficult credit environment. So basically, overall liquidity is significantly enhanced from the year-end position. Similar to the changes we made in terms of the P&L format, we are now also showing the segmental balance sheet in the financial overview section, you can see this on Slide 13. There has been a significant reduction in net debt in both the Westcon and Logicalis segments. Cash flow statement, Slide 14. We had a very strong operating cash flow performance driven mainly by improved working capital cash flows. This resulted in an improved cash position and enhanced liquidity. I will now hand over to Jens to cover the remainder of the presentation.

Thank you, Ivan. I will start with the Logicalis review, which is our IT solutions and services division. Moving to Slide 17, highlights. The performance of Logicalis has been very solid in the midst of economic uncertainty and the reduced ability of many of our customers to operate optimally. The biggest impact to revenues came through currency conversion from emerging markets such as Brazil, Argentina, Chile and Indonesia. In constant currency, revenues were down only 2%. Our operating cost reductions more than matched the lower contribution from gross profit and, as a result, our EBITDA and trading profits, excluding exceptional items such as last year's Brazil tax Credit, actually grew. Within our business mix, both services and annuity revenue contributions continued to grow in the quarter in the quarter. Working capital was tightly managed and debt fell while liquidity and financing headroom increased. Revenue and gross profit by geography. EMEA was the only region to increase its revenues. Overall revenues were down 10%, particularly impacted by currency weakness in emerging markets, such as in Latin America and parts of Asia. In constant currency, as I mentioned, Logicalis revenues would have been down 2%. Gross profit declined by 16%. Over 100% of this decline came from Latin America driven by extreme currency weakness and, of course, the exceptional benefit that we had to compare against last year of the $14 million tax credit in Brazil. Gross profits rose in EMEA and were modestly lower in Asia Pac and North America. EBITDA. Our overall operating costs fell by $20 million. In all regions other than Latin America, operating cost reductions helped to support EBITDA. From a quality of earnings perspective, including last year's Brazil tax credit, Logicalis would have shown growth in EBITDA. Overall EBITDA, excluding COVID-related restructuring was $45 million. Revenue by segment and product revenue by vendor. Product sales reduced while services grew in proportion. Overall services are approaching half of the total revenue mix, the highest they've ever been. Within the product sales category, Cisco remains the dominant contributor and the foundation of many of the solutions and services that are provided. Working capital. Debt as days outstanding have remained steady. We have not experienced any degradation in the quality of our receivables this year. Some vendors have provided extra payment terms to mitigate any credit pressures, and support increased demand in some sectors. Compared to H1 last year, payables were slightly higher. Inventory levels remain tightly controlled. The overall impact on our balance sheet has been favorable, with net working capital more than halving, down 50% since the -- over the last -- since the year-end in February. Logicalis outlook. This has been a transformative year from many perspectives. Adjusting the business to a different way of working is putting new pressures and demands on human resources management that requires personal interaction, which has not reduced even as people are not colocated. Remote working has accelerated the use of digital technologies, which has meant that organizations are moving more quickly to the cloud in order to support this. We are adjusting our business and workforce to align with this trend and anticipate that many of these aspects may not be reversed. Moving on to Westcon, the technology distribution division. Highlights. A very strong performance at all levels. All regions increased revenues year-over-year, a very solid performance when considering the broad impact pandemic has had over many economies. In part, this growth is down to the increase in demand within many of the sectors we operate as network IT heightened demand for cloud usage and remote security solutions has shot up. In parallel with this, we have reduced costs as we have transitioned to making more use of process automation around our advanced systems and also accelerated our own digital transformation to better adapt post-COVID. Technology, in general, will continue to be leaned upon for both B2B and B2C as computer-based conferencing and collaborative online working increasingly becomes part of our daily routine. Revenue and gross profit by geography. Overall revenues rose 4% with all regions showing growth. In constant currency, the growth was higher at around 5%. Gross profits were very similar to last year, falling slightly in Asia Pacific due to weaker currencies and also the impact of increased freight. While in Europe, the U.K. pound was weaker up until July. Most pleasing, EBITDA slide. The most pleasing outcome in the first half was the consistency of results. There were no excessively weak months of trading and the profits accumulated across the whole of the first half. All regions met or exceeded last year's performance before accounting for any COVID-related restructuring expenses. Revenue by business unit, customer and technology category. Growth in non-Cisco product lines grew faster during H1. We anticipate this dynamic may change going forward as pent-up demand for core network infrastructure increases in order to support the pressure from public and private networks. We believe this will start to benefit Cisco as network access points and backbone capacity will have to be increased at all levels to match demand. Cybersecurity has shown the biggest increase in activity during this period. This category was behind the resilience in our performance across the world. Sales of security solutions are now far larger than any other category at close to 40% of the mix and include products and the leading vendors including Cisco, Palo Alto, Check Point, Broadcom, Symantec, F5. Our customer segmentation has remained virtually unchanged. 55% of our business comes from over 10,000 SMB customers while 40% -- sorry, 45% comes from approximately 100 of our largest customers. We had our biggest step-up in Q1 to Q2 performance than we have had in many years. At close to $700 million, Q2 was the highest in 7 years from continuing operations. Working capital. Equally impressive in this first half performance has been the tight control over working capital and ongoing debt reduction. Debtors, DSO days and inventory management improved year-over-year. Payables outstanding to creditors were lower and inventory turns increased. Outlook. We've been able to position the business appropriately to ensure the best outcome for our employees, while improving our customer service levels and operating efficiencies. Many of the technologies we sell are seeing enhanced demand. We don't see any significant changes to our business model. We are gaining better scale in most markets, deriving benefits from our digital transformation and improving our financial performance at all levels. So moving on lastly to Analysys Mason, the management consulting division. Some highlights. Another excellent operating period. Strong secular trends from 5G adoption are driving broad telco service provider investment. Overall revenues grew and utilization improved, driving better productivity and gross profit. EBITDA margins were approximately 18%. In particular, this division has shown a lot of M&A activity in the work we do, with our clients requiring transaction support. Financial performance. All levels of the P&L improved, albeit with the inclusion of acquisition earlier this year. There was positive operating leverage as the growth in EBITDA exceeded the growth in revenues and gross profit contribution. Margins were strong and gross margins held over 40% while EBITDA started to [ improve ]. We've been extremely pleased by the resilience of this division, which is often impacted by abrupt reductions in company's discretionary spending, especially in times of economic stress. 5G is a continuing and accelerating theme as most countries have either started to or are planning deployment. Furthermore, this technology will be used outside of public networks and will complement or replace wireless access network in many situations going forward. These dynamics are playing well with the focus of the business. So in summary, just wrapping up. The group is positioned in highly relevant areas of the technology world, providing solutions and services to enable networking and cloud access. We have diversified business streams and operate in many markets, all within similar segments of the IT industry. Most parts of our business are well-optimized, performing well, and we have a rich skills base across the group. I will now hand over to questions from the webcast, and we can take those through -- to be moderated through Fred. If I could hand over to you, Fred.

Thank you, Jens. The first question comes from [ Sandile Mahula from Mutamba Well ] asking, is the Logicalis net working capital cycle sustainable at the current level? And the second question is around should we expect continued favorable creditor terms going forward for both Logicalis and Westcon?

I can answer that first, and I can hand over to Ivan. So I think on the first one, which Ivan can extend, in general, the working capital improvements across the group, but your other question was around Logicalis, are a step change in terms of how we've been operating. And most of that improvement is, let's say, installed in the format of the business going forward. So you wouldn't expect large gyrations back to where we came from. The second question was what, Fred? The...

The second question was around favorable terms for creditors going forward for Logicalis and Westcon, if that's going to continue.

Some will -- and some will and some might change. But for the moment, we haven't seen -- so some of it is a change in how we operate, more software and cloud-as-a-service type products has tended to come with gains in terms. But there's also obviously, some credit expansion now where markets are requiring some more credit latitude.

Jens, if I could maybe just add to your response to the first question. So [ Sun Deli ] in the Logicalis business, historically, the bulk of the operating profits had turned into cash. But as you're aware, over the last few years, we've seen some working capital dynamics related to the large multiyear deals that we had in Latin America, in particular, where there was a mismatch between new accounts receivables and payables. So you had to pay the supplier within normal terms, but you would collect from the customer, say, over a 12-month period. Over the last few reporting periods, that position, to a large extent, has unwound, and that contributed to the improved operating cash performance that we've seen in H1.

Thanks, Ivan. The next question is from [ Rondy Pici from Eveo ], asking what was underlying EPS growth, if we normalize for the tax credits and related interest, net of tax and minorities?

Yes. So [ Ron ], essentially, if you look at it prudently, and it's obviously not possible to do an exact calculation, but if you look at it, there was $14 million contribution towards EBITDA. There was $7 million contribution towards interest. So that's circa, at the PBT level, say, what, $21 million. The tax rate in Brazil -- the effective, tax rate is about 35%. So you would basically take 35% of tax off, and then we've got a 35% minority in the Latin American business, so you would take another 35% off. And if you then take -- divide that by sort of circa 200 million shares, I guess, you'd probably get sort of close to $0.04, sort of back of the envelope calculation.

Thank you, Ivan.

Well, $0.04 associated to the tax credit, which you should -- should then exclude to look at year-over-year performance.

Thank you, Ivan. There are no questions in the queue at the moment. Maybe we can wait a moment or 2 for someone that may want to submit another one. The next question is from Keith Mclachlan from AlphaWealth asking, given the current geopolitical challenges, particularly in the networking space around Huawei and the U.S.-China relationship, or are you finding engagements with customers around the world change with regards to Cisco products? Is it positive or negative in your engagements?

There's been a -- there's 2 sides to that. I mean, we don't -- we're not a big provider to public networks where Cisco play in a bit, but also companies like Ericsson and Nokia and others operate. So there's definitely been a positive halo effect for the Huawei competitors in the public network infrastructure. And some of that has rippled over to the enterprise and commercial markets that we operate in. Yes. So we have seen some countries back away from use of Huawei technologies, which mainly is, as I said, in public networks, but then some of that has obviously overlap consequences with private networks and the networks that telcos and service providers use for their -- to their clients as well. So it's a kind of multi -- it's a sort of multidimensional answer. But I think, in general, there's -- it's a benefit to U.S. semiconductor industry and the users of these technologies and the manufacturers, not Cisco and quite a few others.

Thank you, Jens. Next question, it's a set of questions from [ Franca Di Silvestro ] from Titanium Capital. I'll go through them one by one. The first question is why the impediments remain to reducing OpEx in tax distribution further?

So what -- do you say what impediments?

Yes.

To reducing, what?

OpEx. OpEx.

In our businesses?

Yes.

Well, our OpEx has come down, and some of it will stay down. There are 2 -- obviously, just 2 axises. There's people and then there are other variables from office rent to T&E and so on. And we do expect there's going to be some meaningful permanent reductions in some of those variable, nonpeople operating costs as we and a lot of companies will move to a different way of operating. So that's basically technology instead of traditional travel and other ways of meeting and engaging customers and selling, and -- but that's basically the digitization that we will refer to. So that will mostly continue. But I think there's been a kind of quite a cliff now on most companies rushing towards that. So I don't think there are further -- I don't think there's going to be further step changes in that regard. Now in terms of how we operate and the use of our own business automation technology and other digital processes in terms of refining our processes, that is an ongoing project in our organization. And there must -- will be -- continue to be slight improvements in the year ahead. But we would imagine after next year, that the next step in our margin improvements in terms of our bottom line profitability will come from -- starting to get revenue growth because, obviously, at some point, you can optimize and cost-reduce your business to best -- to the best format possible. But ultimately, you need real growth to support that. And we're starting to see that. I mean we had growth in Westcon this year of -- sorry, this first half of 5% in constant currency and 4% dollar reporting in a pretty tough environment. And we had exceptional growth in some areas, and we obviously had contraction in other areas. But a lot of that obviously has to do with the ebbs and flows now of what the -- it's pretty difficult to get on site and commission large infrastructure projects. So that part of the business has suffered more. Sales and production in those areas have suffered more than where you don't -- where we have a very light touch to be able to send t technology to your clients and customers. So it's a multifaceted answer, I know. But, I think, in summary, there is some further optimization to go as a result of digitization, the improvements in our systems, which are now working well across the group. And we think we are well-placed to continue to expect some more OpEx benefits, but our focus has already started to shift in terms of plans for next year and beyond. But we expect good -- our revenue growth. And so we've shown revenue growth in a very difficult period. So it will be interesting to see what sort of revenue growth we can put on when the things normalize.

Thank you, Jens. Next question from [ Franca ] is asking if you can expand on the increase in revenue related assets over the last 2 sequential reporting periods? And that relates to the cash flow statement.

Revenue related -- do you want to take this one, Ivan?

I'll take that. So in terms of the sort of the cash flow statement -- sorry, just give me a second, just go to that page. The revenue-related assets is essentially our sort of contract costs. So that's the line of the balance sheet that, that would sort of relate to is -- sorry, just give me a second, it's your contract assets and your contract costs, which is essentially accrued income in the sort of in the Logicalis business mainly. And a large chunk of this relates to Latin America, to the long -- or the multiyear projects. Under IFRS 15 reporting, we had to split accrued income out separately and the term used on the balance sheet for that is contract assets and contract costs. And in the cash flow, the movement in revenue-related assets relates to that line.

Thank you, Ivan. Next is which vendors in your mix, do you expect will be the largest beneficiaries of remote working? Could Cisco be the weaker beneficiary of this trend in the short term?

Well, I think the vendors that are hardware-lights and don't require so much physical -- that have a lower Physical component are obviously benefit -- benefits from the fact that you don't need to be able to get on site and install and commission and so on. But it's a slightly more complex product that are pictured in there because there are many fast-growing areas of technology, especially in security, where there's often an appliance involved. So it's just an essential way of doing business. But, in general, security products, cybersecurity products, network virtualization products and anything to do with the Microsoft and, I guess, enhanced desktop user world of around VMware virtualization, hooking up of -- moving from traditional license infrastructure to everything in the cloud, these are the main beneficiaries at the moment. But all of that, of course, is creating a surge in traffic on, as I think I mentioned, both on public and private networks. And those public and private networks, which are very often big iron projects are, themselves, going to start requiring upgrades. So it's not a simple case of if you're a hardware-centric, you're going to lose out. And if you're hardware-light or software-centric, you're going to score. It's really about how you're going to look at what the different technologies are. And obviously, the hardware-light solutions in the last few months have been much quicker to deploy and get out there and so on. A lot of this has been obviously unplanned from a budget perspective. There's nobody who's expecting this. But I think as things settle down, you'll see there'll absolutely be a return of the big iron because it's going to be needed. These are the core building blocks of the network arteries and highways, which all this traffic runs across.

Thank you. And lastly, what made up the $6 million COVID-related restructuring costs?

Sorry...

Didn't hear that.

Sorry, Jens...

You want to take that? Sorry.

Yes. Sure. So we've incurred $6 million of restructuring costs as a result of COVID. Of the $6 million, $4 million was incurred in Westcon, and $2 million was incurred in Logicalis. And the bulk of the Westcon restructuring expenses were incurred in Europe. And it's mainly people-related in both businesses.

Thank you. The next question is from Shane Watkins from AllWeather Capital. Do you consider Datatec to be an acquisition target given valuation? Or do you see opportunities for you to be the acquirer?

Well, we don't -- we -- I mean obviously we're not the only company in the world at the moment, but we obviously think that we are trading on a very -- a very depressed or suppressed value in terms of -- but we don't manage the company looking at the share price every day. We manage the company in terms of our profits and balance sheet and working capital and cash generation and so on. They're the things that we fly by. And in that respect, we're in a good position. We are absolutely able to do acquisitions in all of our divisions as you've seen, and we're not -- we're reasonably cautious at the moment. But we think there are going to be decent opportunities out there, and we remain highly vigilant. In Westcon, now that our execution has improved in all areas, you haven't seen us do any M&A in Westcon in 3 years, but we have obviously good confidence now in our operations, processes, systems, management and the like. And there are some areas where perhaps we could move in terms of geographic fill-in where there are some areas that are adjacent to where we have strong operations so it would be obvious for us to step into. And similarly in Logicalis, we are continually on the hunt for a quick way to enhance skill sets. We've done a few acquisitions in the Microsoft cloud migration, cloud onboarding, and we see that as a continuing area that we could -- that we need to broaden our play. And as you've seen in Analysys Mason, again, we've got very good operating performance across that business. And there are areas where we can continue to acquire more customers quickly or augment. We tend to do acquisitions either to augment skills or drive a business model in existing market or an existing region. That's, I think, the answer. And that's what we're focused. We're focused on continuing to improve all of our businesses.

Thank you. Next question is from Peter Takaendesa from Mergence. Now please can you comment on the divergence between Westcon International revenue growth and Cisco? And please comment on industry consolidation in both the distribution and IT services markets? And finally...

Westcon -- can you say that again? I missed the first part.

No problem. Can you comment on the divergence between Westcon International revenue and that of Cisco?

Well, the divergence in our -- there is no divergence in our revenues coming from Comstor, our Cisco division. That division has been down slightly in revenues in this first half, I think, by about 7% or 8%, which is pretty consistent with Cisco's reporting. And you would expect that to correlate because we're a broad proxy in our Cisco distribution side of the business to what Cisco will provide or flows through to market. That shows, which I addressed before, that shows a really good growth in other areas, security, of which, by the way, Cisco are also a participant in security, and software virtualization and other technologies. They had grown very robustly in the first half. So it's not a decoupling of Westcon to Cisco because within our business, there's a Cisco division and a non-Cisco division. And that has basically mirrored what's going on in the marketplace. So if you look at most of the companies really representing the non-Cisco side are all public companies. So you can look at the reportings of Palo Alto and Check Point and Fortinet, Symantec, F5 and they're all there. Most of these companies are public. So you'll be able to see a divergence in the fortunes and growth rates of some of these companies, and you'll be able to see also where they sit. And there's hardware versus nonhardware core network infrastructure versus edge and network access and WiFi and all the rest. The second question -- part of the question was what, Fred, sorry?

The second part of the question was, please, can you comment on industry consolidation both for distribution and IT services markets?

Yes. There's actually quite a bit of -- maybe not consolidation. There's quite a lot of public to private activity going on in the world that we're in. In -- I mean the biggest transaction over the last 6 months in the distribution space was the take-private of Tech Data by Apollo, the very large investment fund and private equity group. I think that was a $5.5 billion transaction. And there've been similar take-privates of public companies in the Logicalis space. Presidio in the U.S. was the most recent one. I think that was at the end of last year, beginning of the year. And there've been a couple others in other geos. So PE has been interested in this space, but that doesn't necessarily lead to consolidation. Some of that is business transformation, and sometimes these assets come back on the market or they get paired up with -- which is consolidation that they get paired up with other assets. But I wouldn't say we're seeing a tremendous amount of consolidation, a lot of the consolidation in the distribution world has taken place in the last 6, 7 years. And sure, there might be some more, but at the end of the day, for every act of consolidation, there's often an opportunity for a new business to start when you sequence in businesses starting because they're addressing new and different opportunities. It's a very fertile landscape, tech services and IT supply chain.

Thank you. And finally, is the listing in Latin America still viable?

Yes, absolutely viable. We haven't gone any update now, obviously. But as soon as we have, we will be updating.

Next is [ Ilan Ishmael from Prudential ] asking on the Logicalis EBITDA side on a like-for-like basis, adjusting for the tax benefits. It was up, but revenue declined. Can you unpack the OpEx savings that drove this?

Yes. I think I pointed out -- let me have a look at the slides. There was quite a significant -- yes, I made a point that our operating cost reductions more than matched the lower contribution from gross profit, which means that our gross profit was down, but our operating costs were down by even more. That was -- so we could obviously -- we can reverse out that bridge. But it's -- basically, you just have to look at the -- at our operating cost line in the -- upfront in the presentation in the -- I'm having a look at it.

So yes, Jens, maybe if I could add...

You can add, yes.

So it's obviously a function of very tight cost management. But there was also, in terms of the cost base, there was also a degree of sort of currency translation at the end of the day. So a large part of our cost base is in Latin America. And that was -- sort of the series of currencies in Latin America experienced some of the sort of greatest weakness against the dollar during this period of time. So from a translation impact, that also sort of helped the sort of the dollar-based -- sorry, the dollar-reported cost base.

Some people are moving. I mean there's almost 7,000 people in Logicalis as -- a lot of people stopped moving, a lot of [ traffic ]. And even real estate, we have flexible real estate where, generally, you can't turn on and turn off real estate in a month or in a short -- in a few months, but we do have some instances where we've been able to reduce real estate footprint in some markets like the U.S. And there's obviously been an abrupt and quite sudden reduction in T&E, which is quite significant in a business like that, where a lot of -- where there's continual and very broad spread travel. So some of that, obviously, will come back, but we're going to be -- we're going to be on top of this to ensure that we calibrate that there's obviously cost increases going forward are matched by revenue increase opportunities. But we would expect, as I said earlier on, that some of these optimizing way of doing business now, some of it will be here to stay.

Thank you. Next question is from [ Senile Seaway from AllWeather ]. What has been the engagement with SYNNEX lately? Are they interested in Westcon International? And are you still willing to sell?

No. That's -- we're not actively -- we're not -- our focus, I think, I've addressed this earlier, our focus is in operating our businesses and creating the best environment for those businesses. And we -- as you know, we didn't sell the Westcon International business at the time to SYNNEX, but the people we could do much better with the business, which we proved we can do. And it's quite possible. We've been at this for over 30 years in this line of business. It's very possible that we will be able to continue to improve that business. And there's no, by no means, necessary or desire. But we have to do any transaction. In fact, we might be able to prove that we can operate better. We might have opportunities there to pair up with other assets or enlarge that business through M&A or whatever. But I don't think -- I must assure you that we are operating this business for anything other than trying to turn it into a better business. Now SYNNEX haven't showed any interest. We haven't had any approaches. We get asked this over time. They were a 7 -- they were a 10% shareholder. They've reduced their stakes slightly down to 7-and-a-bit percent, which we went through a recap at the beginning of the year. So that doesn't really lend itself to increased participation. If anything, their participation is [ granted ]. But they -- we have an alliance with them. We have a joint venture with some certain global customers around the world. And their -- some of their operations bear the same brand. They sit on our Board in that division. So we don't see -- no, we don't really see any -- we don't see any change to the status quo, and it's all working very well.

Next question is from [ Anil Asmet from Crescent], asking if you would consider taking Datatec Limited private via a management vote?

Can't. I mean, not we can't. I mean, we can't answer that. I mean, we've -- again, we've been going for over -- we've been public for 26 years, and the company's been going for 34 years. So I think you need to look at the history.

Thank you. And final question, which is a follow-on from Keith Mclachlan, which you have addressed to some extent already, but he's asking how much office space and other fixed costs will you save with start working remotely? And what's the future office model looking like for your divisions?

I think there will be some permanent real estate reduction opportunities through -- we're going to need less footprint, and we're also going to see a reduction in rental cost per unit, per square meter or whatever, so I think both. It's too difficult. We're going through an exercise now -- not too difficult. It's not -- it's too early to say what not exactly that's going to be, but it could be meaningful, but it's not our biggest -- real estate costs are not the biggest driver to our OpEx. It's 60% to 70% is people.

Thank you. We don't seem to have any further questions at the moment. If you want to share a closing remark?

Well, thank you all for attending. As I said, we continue to focus diligently on all the operations and we will be providing appropriate updates and so on as we go along as we always do. And we'll be obviously having our full year reporting in the middle of May and look forward to addressing you all again at that point. Thank you very much.