Good morning, and welcome to our first half FY 2027 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. Agentic 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 gross invoiced income of over 18%.
Adjusted EBITDA rose almost 17% to $150 million, while underlying earnings per share jumped over 50% to over 30 U.S. cents. In addition to the recent special dividend of over 7 billion rand, we are paying an interim ordinary dividend of 15 U.S. 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 Westcon refinancing minority investment and 438 million special dividend to Datatec 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 cybersecurity 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 Westcon allowed us to pay the recent special dividend of 29 rand per share. This was over 35% of our market capitalization 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 Westcon. 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 U.K. 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 Westcon and Logicalis International had record adjusted EBITDA for a first half period. Logicalis Latin America had a weak first half as the business continues to reduce its telecommunications customer concentration. Both Westcon 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 to transactions continues to increase. Balance sheet summary. The net asset value at the 31st of 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 scrip 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 at 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 color provided in the divisional reviews. Segmental balance sheets. Westcon 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 Westcon International refinancing transaction. During August, Westcon completed its transaction with General Atlantic. This transaction replaced an internal shareholder loan with external funding and establishes a standalone Westcon capital structure while Datatec retains control of the business. The $375 million General Atlantic loan bears interest at 9% and is repayable in six years. In addition, General Atlantic made an equity co-investment in Westcon 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 Westcon 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 Westcon's management incentives with the long-term interests of all of its shareholders.
I will now hand over to Jens to cover the remainder of the presentation.
Thank you, Ivan. I will now move on to the divisional operating reviews, starting with Westcon. Record order intake with growing backlog illustrates the increased demand for network infrastructure and cybersecurity solutions. The big jump in total sales or gross invoiced 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. Westcon 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 Datatec 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 buildup 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 telecommunication service providers delivered the most growth. Many of these customers continue to build out data center 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 normalizing for this one-off tax credit, all regions delivered very solid growth. Adjusted EBITDA growth of 13% was above the normalized 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 Westcon 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 is 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 will 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 U.S. right now, but will ripple to everywhere else later. As organizations invest more in their employees' productivity needs, computing, storage, networking, and cybersecurity will form a greater part of overall budgets. This is akin to what happened 25 years ago post the commercialization of the internet. Most technology companies, ourselves included, have much better financial performance and working capital management than 25 years ago. Gross invoiced income. The excellent top-line growth of 18% was driven largely by the U.S. 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 U.S., U.S. total gross invoiced income jumped 34%, up $135 million. All other regions also delivered solid growth. The large proportion of net revenue accounted 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- $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 revenue accounted.
Product sales, especially in the U.S., 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 FY 2024 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 net working capital management. Creditor payables days were very similar year-over-year, but the accounts payable amount had a large pickup driven by the much greater revenues.
Inventory and accounts receivable didn't move much, reflecting the good net 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 reorganization 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. Gross invoiced income. Both total and recurring gross invoiced income fell by similar percentages, 16% and 18% respectively. 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, Northern Latin America, 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- $39 million. This was almost entirely driven by lower product sales from a 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 IFRS 2 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, DPO, 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 maximizing opportunities within the operations. The AI infrastructure upgrade wave is most pronounced in the U.S. We expect this will follow a similar trajectory around the world as organizations 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 Westcon 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.
Thank you, Jens. Our first question is from Keith McLachlan, from Element Investment Managers.
I am interested in how long and durable you think this AI-driven hardware cycle could last. Also, post-COVID, the ICT security sector has seen a strong hardware refresh cycle too, but do you think this ICT security cycle is peaking, or has AI threats elongated it?
Thanks, Sharne. There is most probably three answers, or to unpack in this question. The first one is the AI cycle and data center binge or build-out will, at some point, peak. I think this is clear. However, the amount of infrastructure required or, let's say, the install base of IT assets has gone up and will stay up. In other words, there is much more out there, and that is a step change in the amount of IT infrastructure required, and it is not going to go back down. So more computing power, more processors, more storage, more networking, and so on. That is a permanent step up, a little bit like we have seen in the move to cloud and 25 years ago or so with the arrival of the internet.
Cybersecurity is a bit different, and it can only continue to grow as threats multiply and threat activities won't peak. They will always change. I think that cybersecurity has a completely different evolutionary cycle than other areas of tech. Next question.
Next question is from Katherine Thompson from Edison.
Are component shortages impacting availability of any product?
Yes. I did cover some of this in the preso. We are seeing component shortages. Obviously, it impacts where 30% of the business obviously still relies on hardware and appliances. In fact, there will always be a reliance on hardware and appliances because that is where the software sits. Obviously, what has happened over the years is the value of the hardware has diminished, not the amount of hardware, but the value, and the value of the software has increased. So this tie to hardware will always remain inextricably linked. We have seen it mainly around Cisco, high-end components, obviously in high-performance routers and switches and other new technologies that are coming out in support of AI infrastructure. It is not the only vendor. Basically, yes, the answer is yes.
It is not acute to the extent we had or saw five years ago or so, but clearly it has been driven by, there has been a lot of component absorption with hyperscalers and data center build-out and so on, and that is also creating supply inflation, which you are seeing everywhere in tech. It is not acute, and it has most probably been like that for nine or 12 months.
Second question from Katherine Thompson.
Could you discuss a bit more about the gross profit dynamics in Westcon, where underlying GP rose more slowly than gross invoiced income? Was it all discounting related, or is some of it due to product mix?
There are two components to this. It is not related to product mix. It is related to large deals, which is basically discounting or providing sweeter pricing rather for large transactions. It is both hardware and software. It is both in cyber and networking. So it is not a particular area or product mix, it is just generally, there has been a lot of large deals in the last six months or so. The other thing that is worth unpacking is that last year's gross profit for the same period in Westcon included a $15 million tax benefit, which did not, of course, reoccur this year. So you have to take that out. I do comment on that in the normalized gross profit I refer to it as.
So you have to remove that, and then, of course, then the increase from last year to this year, I think it was about 14%. That's the answer to that one.
For Logicalis Latin America, could you describe how the business is looking to expand the customer base? For example, which verticals is it targeting? Are there competitive issues?
We've trailed this for a number of years now. It's unfortunate, but the reality in South America is that we had a very big exposure to telcos and service providers for many, many years. That's one of the things we're suffering from as that market opportunity for us in terms of how that market is evolving and what it means for us as a sell-through customer, is reducing in its significance, and we've had to adapt. The main areas that we're focusing on in terms of new areas, which are, of course, competitive, are finance, oil and gas, and we need more mid-market exposure. Thank you.
Thank you. We have no further questions.
All right. If there's nothing else from the audience, we'll bring that to a close, and we'll be reporting our full year results on May 27th.