Datatec Ltd Sa Unsp/Adr

Good morning and welcome to our first half FY27 interim results. In our normal format, I will start with a summary followed by Ivan the CFO going through the financial results and then cover the operational review and some closing remarks. The summary. A very strong set of results underpinned by accelerating demand. Our first half adjusted EBITDA was similar to our full year EBITDA just over four years ago. We are experiencing elevated activity with sustained demand for significantly more AI infrastructure. A new era of technology investment. The AI world is moving rapidly to the edge where enterprises and commercial users operate. Agentech resources are proliferating. Computers and networks require big upgrades and the cybersecurity threat landscape is multiplying in complexity. This has pushed up demand for both hardware and software products, resulting in a big jump in our total sales or grossed invoice income of over 18%. Adjusted EBITDA rose almost 17% to $150 million, while underlying earnings per share jumped over 50% to over 30 US cents. In addition to the recent special dividend of over 7 billion rand, we are paying an interim ordinary dividend of 15 US cents, up 50% from last year. Enterprise and business users are having to equip themselves with more compute power to be capable of running AI applications. Sales of servers and storage devices have accelerated, driving demand for more network capacity. Many PCs, laptops and smart devices now contain NVIDIA, AMD or Broadcom AI processors, for example. The IT infrastructure required and investment needed going forward is driving a step change in the size of our addressable market. The exception has been Latin America, which continues to experience a very disappointing performance due to the poor environment and narrow market positioning. The other businesses are doing exceptionally well. The Wescon refinancing, minority investment and $438 million special dividend to Datatech was well-timed in relation to where interest rates are currently headed. We welcome the partnership with General Atlantic. This helps to broaden our options in future for both growth and other corporate actions. Computer processing power is being enhanced at all levels to handle AI. We do not think this is a one-off moment. Once AI infrastructure upgrades happen, there will be permanent greater demand for more compute and network resources and a much expanded cyber security surface. Our industry is set to become much larger with the potential to underpin more rapid growth for many years to come. Across the group, we have the business infrastructure and processes to convert growth to profit to cash. Latin America's performance was held back by the ongoing weakness. Fortunately, this was boosted by an unexpected positive historical tax ruling in Brazil. Our strong financial position and the refinancing of Wescon allowed us to pay the recent special dividend of R29 per share. This was over 35% of our market capitalisation at the time. I'll hand over now to Ivan to go through the financial results in detail.

Thank you Jens and good morning everyone. We had very strong top line growth. Gross profit growth was impacted by $15.5 million of indirect tax credits included in the prior year gross profit number. Excluding the prior year $15.5 million, gross profit would have increased by 9.3%. We exercised tight operating cost control and generated meaningful operating leverage, with adjusted EBITDA growing by 17%. Net finance costs were favorably impacted by $17 million of non-taxable interest income on recoverable tax credits in Brazil. In addition, net finance costs included approximately one month of interest on the new General Atlantic loan in Wescon. The second half will include this additional interest burden for the full period. The effective tax rate for the first half was 23.7%. This is the estimate of the full year tax rate applied to the H1 pre-tax profits. The tax rate was impacted by $21 million of recoverable tax credits in Brazil and a portion of the General Atlantic loan interest being non-deductible in the UK. All our earnings metrics were higher than the prior year, with underlying earnings per share increasing by 56.5% year over year. Segmental Financial Performance Both Wescon and Logicalis International had record adjusted EBITDA for a first half period. Latin America had a weak first half as the business continues to reduce its telecommunications customer concentration. Both Wescon and Logicalis International had a very healthy gross profit to adjusted EBITDA conversion ratio with Logicalis International recording a record 33.9%. The geographic sales mix has remained stable with Europe remaining approximately 50% of the business and LATAM reducing on the back of its weaker performance. There was an increase in hardware sales on the back of networking and cyber infrastructure investment. The portion of net revenue accounted transactions continues to increase. Balance Sheet Summary The net asset value at 31 August was impacted by the special dividend of $438 million that had been declared by the half-year date but not yet paid at the time. This was accounted for as a reduction in distributable reserves with a corresponding liability for the dividend payment being raised for the same amount. The balance sheet date net debt increased as a result of the General Atlantic refinancing transaction. For the reported net debt figure of $553 million, we excluded the $438 million cash in hand on balance sheet earmarked for the special dividend. The special dividend was paid during October 2026, with two-thirds of shareholders electing the script alternative. This meant that $296.5 million of special dividend cash was retained by the company. We are therefore showing a pro forma net debt number as of August, adjusting for this additional cash. This will also increase the NAV of the business post special dividend settlement. We had another period of strong working capital and cash management across the group, with more colour provided in the divisional reviews. Segmental Balance Sheet, Wescon Net Debt increased due to its new capital structure following the General Atlantic transaction and the additional leverage placed on the business. Both Logicalis businesses had a very healthy net cash balance at the end of H1. Cash flow statement. The group generated positive operating cash despite the very strong top line growth and increasing working capital requirements. The cash inflow from financing activities reflects the proceeds from the General Atlantic loan. Cash balances at the end of August were high as this included $438 million declared as a special dividend. The Wescon International Refinancing Transaction During August, Wescon completed its transaction with General Atlantic. This transaction replaced an internal shareholder loan with external funding and establishes a stand-alone Wescon capital structure, while Datatec retains control of the business. The $375 million General Atlantic loan bears interest at 9% and is repayable in 6 years. In addition, General Atlantic made an equity co-investment in Wescon and subscribed for warrant shares. The financial effects of the transaction include higher external interest charges, higher structural debt, and higher minority interests. The partnership with General Atlantic provides Wescon with access to General Atlantic's global network, sector expertise and institutional capital capabilities. The transaction enabled Datatec to return $438 million to its shareholders as a special dividend. The new structure aligns Wescon's management incentives with the long-term interests of all its shareholders. I will now hand over to Jens to cover the remainder of the presentation.

Thank you, Ivan. I'll now move on to the divisional operating reviews, starting with Wescon. Record order intake with growing backlog illustrates the increased demand for network infrastructure and cybersecurity solutions. The big jump in total sales or gross invoice income was over 20%. Some of this growth came at the expense of lower margins as large volume deals were very present. During this reporting period, we closed a major refinancing and minority investment with General Atlantic, one of the world's leading private equity and debt capital firms. Wescom provided 75 million of internal funding, together with 375 million of senior debt from General Atlantic, to repay an intercompany loan note of 450 million. 435 million including interest was paid to Datatech after allocation to the minority shareholders. The business remains focused on its core technology positioning. Total sales and recurring sales were very strong reaching new highs. Accelerating hardware demand drove the bias towards more immediate revenue recognition. All regions delivered strong total sales and reported revenue growth. Europe alone added $300 million in gross invoiced income. The biggest percentage increase in revenues came from Asia Pacific which jumped by 49%. Increases were also strong elsewhere. Gross Invoiced Income Analysis ComStor, the dedicated Cisco business unit, has been tracking close to 30% of the total sales mix for the past 12 months. The slight drop in the ComStor weighting was attributed to a build-up in backlog. Many orders required hardware which did not ship on schedule during H1. The pipeline across all segments remains very healthy, supporting a strong start to H2. Across customer types, large telecommunications service providers delivered the most growth. Many of these customers continue to build out data centre infrastructure. Value-added resellers contribute over half the business under the most important customer category. By technology category, cybersecurity continues to drive the majority of the business. Data center and other cloud infrastructure saw impetus from data center investment, mainly from large enterprise and service provider organizations. This tilt has driven a higher hardware mix, which is in line with what much of the IT industry is experiencing. Over 70% of the total sales mix is non-hardware. Gross Profit To gauge the real increase in trading gross profit, one has to exclude last year's $15.5 million of non-operating tax credits. Without this, last year's underlying gross profit would have been $230 million on a comparative basis, or an increase this year of over 11%. After normalising for this one-off tax credit, all regions delivered very solid growth. Adjusted EBITDA growth of 13% was above the normalised gross profit growth rate but below the top line sales growth rate. All regions contributed to growth in EBITDA and operating profit. Reported EBITDA. A much tougher comparison for reported EBITDA. Last year included The boost of indirect tax credits, whereas this year included one-off costs for fundamental restructuring and the corporate actions related to the Wescon refinancing and minority investment transaction. Continued strong working capital management The big growth in total sales and revenues of over 20% did not create a similar increase in net working capital. Inventory has not grown while receivables and payables have continued to match each other. This correlation has allowed the business to grow without balance sheet pressure Net Debt The refinancing of the Datatec loan note resulted in $450 million of intercompany debt being replaced by external debt, $375 million of senior term debt at a 9% interest rate, and $75 million from short-term working capital facilities at much lower rates. This now forms part of the total debt leverage on the business. On a last reported 12 months adjusted EBITDA basis, this average net debt equates to just over 3.5 times leverage. We expect this to fall progressively going forward. There are many characteristics of a new technology super cycle. Volume growth creates margin pressure, while supply inflation is driving prices higher. The catalysts to growth are multiple. Cloud adoption, new AI infrastructure, and the expanding attack surface of cybersecurity threats. Despite global uncertainty at many levels, the industry remains very robust. I'll move on now to the Logicalis Group, starting with Logicalis International. A very strong performance with growing momentum. The growth in revenue was backed up by even greater growth in order intake, with backlog and multi-year contracts increasing. This points to a higher level of AI-driven demand going forward, which is more apparent in the US right now, but will ripple to everywhere else later. As organisations invest more in their employees' productivity needs, computing, storage, networking and cyber security will form a greater part of overall budgets. This is akin to what happened 25 years ago post the commercialisation of the internet. Most technology companies, ourselves included, have much better financial performance and working capital management than 25 years ago. Gross invoice income. The excellent top line growth of 18% was driven largely by the US. New product sales of hardware and software outpaced services as demand accelerated. A familiar pattern in a high growth environment as business invests and capex jumps. The recurring annuity sales grew at a very solid 15%. On the back of big growth in the US, US total sales growth invoice income jumped 34%, up $135 million. All other regions also delivered solid growth. The large proportion of net accounting meant a lower percentage growth rate on IFRS reported revenues, which showed a healthy 14% increase. An extremely strong first half. All categories of business expanded. The percentage of services mix was lower, but that was due entirely to very strong growth in hardware and software product sales. This pulls through services later. Annuity services grew by 7% from 366 million to 392 million, just under one third of the total. Cloud delivered products and services continued to rise, up 17% to $287 million. Gross profit Gross profit rose by $28 million or 15% to $211 million. Margins improved on the back of a better contribution from services and more software net accounting. Product sales, especially in the US, continued to grow rapidly. Strong top line growth with very good operational cost control meant that the bulk of the increase in gross profit turned into cash. Adjusted EBITDA jumped 36% to $71 million, a new first half record and close to the FY24 full year profit of $74 million only two and a half years ago. For the first time, the business also had sequential H2 to H1 growth. Last year's seasonally strong second half delivered 62 million of adjusted EBITDA, making this back-to-back growth of 15%. The main difference between reported and adjusted EBITDA was from the IFRS 2 charge and a small portion relating to acquisition costs. Strong working capital management. Creditor payables days were very similar year over year but the accounts payable amount had a large pick up driven by the much greater revenues. Inventory and accounts receivable didn't move much, reflecting the good working capital management even with the stronger growth. It's very clear that for businesses to become more AI enabled, they have to modernize their IT infrastructure. To do this, organizations need to transition their technology and redeploy resources to build higher performing and more resilient solutions, both in cloud and on premises. Logicalis Latin America Unfortunately, Latin America is dealing with multiple challenges. There had been some recovery in the past 18 months, but the region is still experiencing a structural decline with some of its telecommunications customers and taking longer than expected to diversify the technology and service base. There have been multiple rounds of reorganisation and further actions are planned. Despite the pain of this transition, we have undertaken multi-year transformations before and believe that progress will be made as new foundations are formed. There was one bright area to support the financial results and that was a final positive court outcome on a legacy tax ruling. This boosted after-tax income. Grossed Invoice Income Both total and recurring grossed invoice income fell by similar percentages . This disappointing result was spread across all regions. Recurring business remains well over half of the total mix. Brazil had the biggest absolute and percentage decline in total sales and revenues. NOLA includes Mexico which had internal challenges leading to recent restructuring and the appointment of a new CEO. Argentina had an encouraging performance. As hardware and software product sales reduced, the percentage weighting of recurring services increased. This always happens in a downturn as services support the installed base. Cloud-derived revenues are very small but starting to grow. This poor regional performance is in stark contrast to what we are experiencing elsewhere in the world. In Latin America we have a much narrower portfolio of large customers with resulting greater dependency on fewer sectors. Gross profit fell by $12 million to $39 million. This was almost entirely driven by lower product sales, reduction in large orders and hardware shipping delays. This was especially the case in Brazil which normally drives 60% of the business. Gross margins held up everywhere with the exception of Mexico. Adjusted EBITDA. The unexpected weakness meant that costs couldn't be reduced to offset the lower gross profit contribution. This resulted in EBITDA falling slightly negative for the first time. Reported EBITDA mirrored the poor adjusted EBITDA with the exception of a very small IFRS2 adjustment. A disappointing period, but management are well aware of the dynamics, and actions are being taken to right-size the business appropriately and reduce hiring. Working capital The reduction in product sales reduced net working capital as contractions typically do. Receivables and payables fell in unison, inventory remained low, and creditors' days outstanding held steady. while DSO was very effectively managed. The balance sheet is strong with net cash on hand. It's been another difficult period for Latin America, especially Brazil. The recent elections in Brazil illustrate the potential for volatility in the region. Business confidence may remain uncertain until fiscal policies become clearer. Critical to progress in the region is improving the customer mix and diversifying the technology base. While Brazil and Mexico have been challenging, they are also the largest regional markets and the primary focus remains there. In summary, some closing remarks. We continue to evaluate strategic opportunities unlocking shareholder value and returns, while remaining focused on maximising opportunities within the operations. The AI infrastructure upgrade wave is most pronounced in the US. We expect this will follow a similar trajectory around the world as organisations will need to adapt. It is unfortunate that we continue to have operational challenges amidst weak market conditions in Latin America. A lot of focus is being applied to improve this situation. The acquisitions by Logicalis in Poland and Wescon in the Balkans establish operations in a dynamic part of the world. We have for a long time referenced Eastern Europe as a region to develop. Overall, we believe we are in an excellent position to benefit from many of the rising technology themes. Our networking and cybersecurity heritage is firmly positioned in the center of this next generation of AI infrastructure. Thank you everyone for attending and I'll turn over now to any questions.