Datatec Limited ($DTC)

Good morning. Today, we are presenting our FY '26 annual results in the normal format with divisional detail. I will start with a summary. Ivan, the CFO, will cover the financial results, and then I will go through the divisional reviews and have some closing remarks. In summary, another year of excellent performance with AI investment fueled growth in most of the areas we operate. Adjusted EBITDA grew at almost double the rate of both gross invoiced income and gross profit. Underlying earnings per share grew at double that rate again. This resulted in an almost 4x leverage between top and bottom line growth. In turn, this has driven a record high ordinary dividend payment of $0.24 or approximately ZAR 4 per share. The environment recently has been far from normal. There seems to be a degree of decoupling between the AI-enabled digital world and more traditional non-technology industries. However, inflation, energy shortages and supply chain disruption could impact all areas of the economy. Our performance last year was exceptional despite challenges in Latin America, where progress was also made. Our role as a digital channel organization, spanning distribution and IT services, covers a growing and critical segment of the industry. It was another high watermark of performance for both Westcon and Logicalis International. We operate in an ecosystem where AI is driving dramatic change and forcing organizations to rapidly retool their IT environments. The exponential power of the hyperscaler build-out is akin to the generational change brought about by Internet adoption. Organizations will need to invest to remain competitive. This investment will be profound as the reshaping of the traditional enterprise workplace will be transformative. We are adapting to this ourselves as the business mix changes and our productivity improves. This is helping to drive our enhanced financial performance. I will hand over now to Ivan to take us through the financial results.

Thank you, Jens. Good morning. As we indicated with our half year results, with effect from our 2026 financial year, we changed the definition of underlying earnings per share to further align to our adjusted EBITDA definition and to also align with peer reporting. Underlying earnings per share now exclude IFRS 2 share-based payment charges. The comparatives have been recalculated. Slide 8, our financial performance. As we have reported over the last couple of years, our reported revenues continue to be impacted by an increasing portion of software and services being reported on a net basis. Under net revenue accounting, where the company acts as an agent in a transaction, the commission or gross profit earned is recognized as revenue. To understand the real growth of the business, we now also show gross invoiced income, which is essentially the gross sales or gross revenues for the group. Gross invoiced income is not an IFRS term. Gross profit is also a sensible proxy for growth, growing by 9.6% year-over-year. We had solid operating leverage with over 29% of gross profit converting to adjusted EBITDA compared to 27% in the prior year. Reported EBITDA grew by 22% and included $15 million of settled tax litigation credits in Westcon. These tax credits are excluded from adjusted EBITDA. Net finance costs were significantly lower than the prior year due to lower interest rates and improved working capital management. All of our earnings metrics improved significantly over the prior year. Slide 9, the segmental P&L. All 3 divisions had much improved financial performance over the prior year. We had a very strong performance in Westcon International, an excellent Logicalis International performance and improved performance in Latin America. Gross profit increased by 13% in Westcon, 8% in Logicalis International and 1% in Latin America. Adjusted EBITDA increased by 15% in Westcon, 22% in Logicalis International and 21% in Latin America. We had improved gross profit to EBITDA conversion in all of our businesses. Slide 10. Our geographic mix has remained stable year-over-year with Europe remaining over half of the business. Slide 11. Software and services continued its growth path in line with trends seen in recent reporting periods. This analysis is presented on a gross invoiced income basis. Slide 12, the balance sheet. The balance sheet remains strong. Net debt continues to reduce with excellent cash performance, especially in both the Logicalis businesses. Working capital management remains a key priority. Equity was impacted by a $70 million debit cash flow hedge reserve in Westcon. This resulted from Westcon's hedge accounting program and is due to the much weaker U.S. dollar prevailing during the year. Return on invested capital increased to 22%, well in excess of the group's cost of capital. Slide 13. This slide shows the divisional balance sheet. Net debt significantly reduced in Logicalis International to an almost neutral position, whereas net cash in Latin America increased. Net debt in Westcon increased due to working capital requirements. Slide 14, the cash flow statement. Positive cash was generated from operating activities. There was a significant reduction in cash interest paid compared to the prior year. Cash dividends paid to shareholders increased. We declared a final dividend of approximately $0.14 per share, bringing the total dividend for the year to approximately $0.24. I will now hand over to Jens to cover the remainder of the presentation.

Thank you, Ivan. I will now go through the operational review and start with Westcon International. Another strong year for Westcon and a record year in terms of historical profitability. It was also the seventh year of successive top and bottom line growth with an adjusted EBITDA compound annual growth rate of 24% over this period. Demand for new network infrastructure to support AI in enterprise environments is increasing. AI is also increasing the cyber-threat landscape as more sophisticated attacks exponentially ramp up. On the other side, AI is also helping to solve many threats and aid faster development in cyber-defense solutions. The business execution is strong with excellent financial performance and cash management. Total sales or gross invoiced income rose by close to 10%. The proportion of total sales that are capable of being renewed increased faster at nearly 13%. Essentially, almost 70% of the business is either sold as a repeatable software license or a delivered service. This changing dynamic is dramatically different to a few years ago when the majority of the business was one-off CapEx sales. Technology distributors are an integral part of vendor supply chains for license management, customer support and renewals. There was strong top line growth in all regions. The Middle East and Africa had the fastest growth rate at over 20%. Total sales of $5.7 billion translated into IFRS revenues of $1.9 billion, which grew 3% year-over-year. The mix change in recent years and the impact of agent versus principal on software license sales has driven this new representation. The business goes to market as Westcon-Comstor. Analysis of the business mix shows a steady proportion of around 30% is derived from the Comstor Cisco unit with the rest coming from all other vendors, mainly in cybersecurity. The split between customer types has barely moved in recent years. Major telecommunications companies and service providers account for 12% of the total, while the majority of the business comes from SMB value-added resellers. Cybersecurity continues to grow faster than all other categories and accounts for over half the total. Cybersecurity is also closely embedded with networking and forms a growing part of Cisco's portfolio as an example. The business has one of the richest sector relevant portfolios amongst our major competitors. These technologies are sold as both hardware and software and then attach to post-sales maintenance and recurring services. The cycle of this business is both sticky and high value added. Gross profit rose in line with gross invoiced income touching almost $500 million. As reported at our interim results, $15 million of this arose from a positive release of a previous accrual for importation taxes, which are part of cost of sales. Net of this tax credit item, there was a very healthy 10% increase in gross profit with growth in all regions. Adjusted EBITDA growth of 15% was 50% higher than the normalized gross profit growth mentioned previously. This would have been higher in constant currency, which we don't report as most of our costs are in non-U.S. dollar, which weakened year-over-year. Reported EBITDA had the benefit of the tax accrual releases flowing through, offset by other one-off corporate development costs and restructuring, mainly in Europe. The 20% increase in EBITDA includes a higher IFRS 2 charge as the valuation jumped. For most of last year, our quarter, half, and full year ends coincided with weekends, which was slightly negative for month-end closing cash collections. To stay in balance, debtors and creditor days both grew and amounts outstanding were closely matched. The result of this was greater working capital and about $100 million more of net debt compared to the previous year-end. The consequence of the increased net working capital is illustrated here. There was an exaggeration in January '26 of peak debt, which quickly reduced by the end of February. Plotted over 3 years, the average net debt has been $280 million. In summary, we believe we are entering a secular trend that will be very positive for networking. Refer, for example, to Cisco's recent reporting. The thesis driving this is the sheer amount of data being processed throughout by AI automation. This is starting to hit enterprises, which need significantly faster infrastructure. This will not be a one-off as this rising tide of infrastructure investment will have to be maintained at higher levels to support the processing and inferencing of AI applications. These inferencing conclusions or outputs of machine learning form the AI solutions, which increasingly are being run locally on enterprise premises, not just at hyperscalers. It is going to be very positive for our sector and for cybersecurity and networking in particular. Logicalis Group, starting with Logicalis International. An exceptional year for Logicalis International and a high watermark for both top line sales and bottom line profitability. The momentum in orders increasingly includes multiyear contracts, which is improving predictability and operational planning. Cloud-based sales now drive almost 1/4 of the total top line. This excellent performance has been matched with better working capital and a reduction in debt. Overall, the quality of earnings has significantly improved. Total sales gross invoiced income rose by 12% to $2.1 billion. The recurring element grew faster at 17% to now represent 63% of the total. This has been a broader industry trend where a lot of hardware and software is being bundled with managed services and consumed as a service and then operated over multiple years. Gross invoiced income and reported revenue grew in all regions. The U.S. had the best top line growth of 14% with strong demand for both products and services. Overall, reported revenues grew by 6% as a greater proportion of the total sales was net accounted. 73% of the gross invoiced income came from services and software. Of this, 35% of the total was annuity, while all services accounted for 45%. The steady rise of annuity is from multiyear managed services and maintenance contracts. Cloud-based sales of product solutions with attached services were 24% of the mix and grew by 23%. Gross profit grew faster than revenue. Over half the gross profit generated was derived from services. The greater services contribution is driving the higher gross margins, now over 30% and best-in-class amongst peers. The key indicator for performance improvement is the percentage of gross profit contribution that converts to adjusted EBITDA. At 30%, this ratio is approaching our target of 1/3. The mix between product and services revenues affects the EBITDA margin percentage. Reported EBITDA growth at 20% tracked adjusted EBITDA. All regions showed excellent growth and no countries reported losses. The U.S. had the biggest contribution to growth. This scaling up has been transformative for profitability and down the income statement. There was significant leverage. Operating profit of $84 million has more than doubled in 2 years. Very constructive improvements in working capital. Consistent receivables and payables management with lower inventory drove better net working capital. In this business, higher EBITDA creates more cash. Net debt was almost eliminated, reducing by close to $70 million. The business is very well positioned to exploit AI-driven enterprise infrastructure investment and hybrid cloud. Network-based cybersecurity is a major growth opportunity. Strong operational management across multiple geographies is producing a compelling balance across our centers of excellence to deliver leading edge solutions. This synchronized international approach is creating more multi-country opportunities while retaining local flexibility. Logicalis, Latin America. A recovery in what has been our most challenging region. One year into the leadership change, performance is improving. The shape of the business has been resized, albeit at lower revenues, but with less large customer dependency. During this transformation, gross profit and gross margins have improved to create a better shape for the business. There's been a marked improvement in EBITDA and a big jump in PBT and net income. There was a $36 million improvement in net cash. Total sales were down slightly, but close to last year as gross invoiced income came in at $525 million. The recurring element of this grew by 6% to $308 million. Mexico saw a contraction in business and is going through a reorganization. It was the most disappointing market. In contrast to Northern Latin America, which includes Mexico, Southern Latin America, which is mainly Chile and Argentina, experienced a solid performance. SOLA was the only region that had year-over-year growth, and this was very strong at 23% in reported revenue terms. A resources-led recovery is underway in many of the economies in South America. The most encouraging performance indicator was the annuity services segment now at 40% of the total sales. Order intake and product sales have weakened in recent years as the concentration of large customer purchases has changed. This has been replaced by more midsized enterprise opportunities across a broader customer base, especially in Brazil. The reduction in gross invoiced income came from the cloud segment, where the strategic decision was taken to not renew some very low-margin Microsoft cloud licenses. This segment will rebase in the coming year. Across the region, gross profit was flat. There was a contraction in Mexico, offset by healthy growth in Argentina and Chile. The modest growth of 1% was much better in gross margin terms, which expanded to 24% on reported revenues. A solid increase in adjusted EBITDA helped mainly by the reduction in operating costs. At 23%, the conversion ratio of gross profit to adjusted EBITDA is still below the target of over 30%. This improvement, however, is a good step in the right direction after years of suboptimal performance and low profitability. The shape of the P&L is also improving. EBITDA growth of 27% way exceeded gross profit growth. There was very little change in the net movement between adjusted and reported EBITDA. A vastly improved balance sheet, good working capital management with excellent cash generation led to a strong cash position of $44 million, which was up by $36 million. The diversified business mix with less large account concentration improves debtors collection and reduces receivables volatility. The Latin America business seems to be on a sustained path of recovery. While challenges remain in some markets, there is clear progress in previously disrupted markets such as Argentina. Mexico, which represents approximately 10% of the region, is undergoing a repositioning and focus on new business areas. We are confident about the outlook and encouraged by the results. So prospects and outlook. Some closing comments. Our forward view remains very positive for our industry, but cautious with the overall environment. We are vigilant to currency volatility, inflation and supply chain disruption and any dysfunctional international trade arrangements. As our performance continues to improve, so do the possibilities for unlocking shareholder value, which remains a strategic priority. I will hand over now to the participants for any questions, and thank you for attending.

Thank you, Jens. We will now start with our questions. We have our first question from Katherine Thompson from Edison. This is to Jens. You've recently made several small acquisitions. Could you talk about the rationale for them? And if your strategy is still more focused on bolt-on acquisitions rather than transformational M&A?

Thanks, Sharne. I think we've said over the recent years that we tend to do acquisitions in a few domains. They're either tactical in terms of territory or adjacent geographies, or they are strategic where we're acquiring skills or in terms of time to market. In the case of the most recent one we did a few months ago in Westcon in the Balkans, that's an example of an area or a region where we've, I think, consistently said in the past, we're underweight, which is basically part of Eastern Europe. And that was a decent little opportunity for us to extend with one transaction, a multi-country footprint where we can bring our superior relationships and scale and so on to enable the business to grow rapidly. And then Logicalis, we've had a few -- we look at a few things. And then normally, as I mentioned, they're normally to acquire skills in terms of time to market.

Perfect. Thanks, Jens. Another question from Katherine. Could you please explain the restructuring charge in Westcon?

Yes. Thanks, Sharne. I'll take that. So Katherine, the restructuring charge in Westcon was a continuation of the European restructuring that we started in our FY '25 year. So this was the finalization of restructuring the European business.

Thanks, Ivan. Next question from Asanda Notshe from Mazi Asset Management. Thank you for the presentation. How long would you estimate this AI spending support to last? Jens?

I mean, that's a pretty open-ended question. I don't think anyone knows the trajectory or the duration of the shift to AI. And I think we're in a phase now a little bit like the early Internet adoption years of 25 years ago plus that this will be a multiyear theme as organizations and enterprises figure out how to make use of AI automation in terms of their business structure, their business models, and so on. I think it's probably fair to say that AI is most probably -- if you look at cloud, cloud was very disruptive to IT organizations. AI is going to be more impactful for everything that's non-IT. I'm talking about in terms of how businesses are managed, because AI is going to be something that affects the organization outside of the perimeter of where traditional CIOs and Chief Security Officers and so on, the domain that they've been used to manage. So I think it's going to be a significant challenge in terms of adoption and implementation.

Thank you. Question from Keith McLachlan, Element Investment Managers. Are high memory costs and apparent shortages as referenced by Cisco affecting your supply chain at all? Jens?

Not really. There's a bit of a technical answer to this in memory. There's 2 types of memory in the world. There's dynamic RAM and static RAM. And if you don't read up on some of this stuff, some of the manufacturers are, especially in the AI hyperscaler world, the large processing CPUs and the like, there is all this consumption of memory in that world, and it's taken it away from, let's call it, the regular world that we operate in or the traditional IT infrastructure world. But we haven't seen -- we've seen obviously rising costs in the supply chain. We've seen a little bit of a delay in getting products in terms of backlog to customers, but it's not significant. We thought it might be -- we were fearful at the beginning of the year that it might be worse, but it hasn't really played out. And while costs have gone up in our business, we tend to pass those costs on, and they're generally a small fraction of the of the value of the items we sell. We're not really selling low-value commodity products. We're selling high-value industrial products. So the incremental cost of shipping is not really material even if the shipping costs double or triple.

Thank you, Jens. Just give it a moment. Currently, we have no further questions, but we can wait.

No further questions?

Yes.

Well, thank you very much for all those who have attended, and we will look forward to talking to you at interims in October. Thank you very much.