| Wed 21 Nov 2001, 0:00 | | Dimension Data - Preliminary Results |
|
Dimension Data Holdings plc
Preliminary Results
for the year ended 30 September 2001
Dimension Data Holdings plc ("Dimension Data"), the global systems
integrator, announces preliminary results for the year ended 30 September
2001.
"As a result of the actions which have been taken, Dimension Data is well
placed strategically, financially and structurally to take advantage of the
resumption in economic growth and IT expenditures."
Jeremy Ord, Executive Chairman
Financial Highlights
* Total turnover increased by 24% to $2,460.3 million
* Total operating profit before goodwill amortisation and exceptional items
of $180.9 million
* Total profit before tax, goodwill amortisation and exceptional items of
$236.7 million
* Net profit on ordinary activities before goodwill amortisation and
exceptional items grew by 12% to $160.6 million
* Weighted average number of shares in issue increased by 40% to 1,255
million and basic earnings per share before goodwill amortisation and
exceptional items amounted to 12.8 cents
* Turnover growth in constant currency terms of 35%
* Net cash inflow from operating activities of $186.3 million
* Cash conversion ratio 136%
* Cash on hand (including short term investments) amounted to $920.1 million
Geographical Analysis
2001 2001 2000 2000
$'000 $'000 $'000 $'000
Turnover Operating Turnover Operating
profit/(loss)*
profit/(loss)*
Continuing operations
Africa 426,790 65,630 416,631 85,703
Asia 546,195 47,221 472,209 46,442
Australia 406,857 16,596 408,731 22,489
Continental Europe 360,339 24,957 199,252 16,487
United Kingdom 243,575 26,248 311,126 30,051
United States 407,893 12,187 124,423 9,234
Other** 9,854 (16,869) 10,204 (56)
Group 2,401,503 175,970 1,942,576 210,350
Associates 58,755 4,889 33,922 1,999
Total 2,460,258 180,859 1,976,498 212,349
* before goodwill amortisation and exceptional items.
** comprises Investment holding and management and Protocol.
Highlights
* Further penetration of the US Network Services market with the
acquisitions of TimeBridge Technologies, Premier Systems and Matrix
Networking Systems.
* Entry into the US e-business solutions market with the purchase of
Proxicom.
* Integration of six Network Services acquisitions and Proxicom into a
consolidated North American operation with a new management structure and a
streamlined operational structure. Rebranding of all businesses under the
Dimension Data name.
* Continued progress with the integration of the European businesses into a
pan-European Network Services provider.
* Acquisition of Netpartner, giving us a Networking Services presence in the
important Z rich market.
* Increased profile building activities, strengthening Dimension Data's
positioning as a global brand.
* Continued development of the Global Services Operating Architecture (GSOA)
and completed rollout of Operations Centres in all regions.
* Ongoing development and rollout of new services and solutions including:
security, contact centres, voice solutions, interactive media, unified
messaging, network and desktop operating systems and storage area networks.
* Launched integrated Business and Operations Support Systems (i-Boss) as
part of the GSOA offering.
* Strengthened the business operationally to facilitate acceleration in the
growth of its higher margin services and solutions businesses.
* Changed emphasis of sales approach from selling technology offerings to a
'go-to-market' model led by services and a range of business-led solutions
including:
- Multi-Channel Infrastructure Solutions
- Service Provider Solutions
- Customer Interactive Solutions
- Application Integration.
* Separated services delivery from technology focused business units to
allow us to deliver more effectively on complex projects drawing on multiple
skill sets.
* Created the role of a Global Services Director as well as National
Services Directors in each region.
* Focused our technology offerings on two core areas of operation:
- Connectivity Services and
- Integration Services.
* Taken actions to align the business with current market conditions
including reducing headcount in continuing operations by 14%, cutting
operating expenses by approximately 11% and focusing on working capital
management.
Commenting on today's announcement, Jeremy Ord, Executive Chairman of
Dimension Data Holdings plc, said:
"We have taken huge steps in completing the transition to a global IT
solutions company that is rightsized to current market conditions without
jeopardising our ability to leverage off the upturn when it comes"
Dimension Data started the year with good growth and strong revenues.
However, we were not immune to the dramatic deterioration in the global
economic conditions, which negatively impacted trading in all of the markets
in which we operate.
In response to market conditions, we have scrutinized every area of our
business, rationalised overheads and excess capacity, integrated
acquisitions, grouped offerings around solutions, changed management, honed
our strategy and are emerging as a leaner and more focused global
organisation.
Our financial results to September 2001 therefore reflect a number of
exceptional items, including the impact of an unusually challenging
operating environment, the rightsizing of our business to reflect these
market conditions, as well as the costs of accelerating the transition from
a multinational to a global services company.
During this difficult period we have placed great emphasis on those
issues under our control, our working capital management and our balance
sheet. We have made great improvements to our working capital by lowering
debtors days and reducing stock holdings dramatically, resulting in healthy
cash generation and a cash balance (including short term investments) of
$920 million at year end. Our balance sheet depicts a company that is
financially solid and well positioned to continue to fund growth.
The broader IT industry is currently in a cyclical downturn, however, IT
is by no means a mature industry. The long term dynamics of companies
needing to continually innovate and improve efficiencies, is a strong
underpin to spending on infrastructure and solutions. Companies have
invested heavily in their internal back-office systems over the past decade.
Further returns on this investment will only be achieved when they are
connected to the systems of their customers and suppliers. This is a
complex task demanding skills in connectivity and integration and an
understanding of multi-vendor environments.
Historically our lines of business tended to group around specific
technology offerings. Over the past year our offering has been integrated
to focus on two core areas of operation, namely Connectivity Services and
Integration Services. The focus of our 'go-to-market' strategy is to
develop and sell business solutions in the four areas of Customer
Interactive Solutions, Service Provider Solutions, Application Integration
and Multi-Channel Infrastructure Solutions, and in delivering these
solutions, to draw on the services of the Connectivity and Integration
divisions.
Dimension Data has an extensive footprint to offer solutions across the
globe. This is being recognised by global and multinational companies who
require a common service level in all their markets. We have a strong
balance sheet, our profits are generated in cash, and we have a proven
ability to identify emerging technologies and trends and incorporate these
in world-class offerings.
The new year has brought with it ongoing difficult trading conditions in
most of our markets and an expectation that IT spending is unlikely to
improve significantly in the current financial year. Visibility remains
poor and the trading environment continues to be characterised by
considerable uncertainty. Our positioning has however been strengthened by
accelerating the transition to a global IT solutions company. In addition,
the rightsizing that has taken place in the context of current trading
conditions has not jeopardised our ability to leverage off the upturn when
it comes.
Jeremy Ord
Chairman
Enquiries:
Dimension Data Holdings plc:
Jeremy Ord, Executive Chairman
Malcolm Rutherford, Group Financial Director
Richard Came, Executive Director, Global Strategic Development
Karen Cramer, Investor Relations
+(44) 20 7659 1600
Internet address: www.didata.com
Financial Dynamics:
Giles Sanderson
James Melville-Ross
+(44) 20 7831 3113
Note:
All references to $ are to US$.
Financial Review
Dimension Data is listed on the London Stock Exchange and the JSE
Securities Exchange and is required to comply with UK reporting and
corporate governance requirements.
The accounting policies used in the preparation of the September 2001
financial statements are consistent with those applied in the previous year.
Group Operating Performance
Turnover
Total turnover grew by 24% from $1,976 million to $2,460 million in an
environment of difficult economic conditions and during a period when the US
dollar appreciated against most currencies. The increase in turnover of $484
million reflects both the contribution made from acquisitions and a growth
of 9% ($181 million) in turnover from continuing operations. On a constant
currency basis, turnover growth was 35%. The acquisitions in the US of
Proxicom, TimeBridge, Premier and Matrix and several other smaller
businesses added $278 million to turnover in the 2001 financial year.
Turnover from associates increased by 73% from $34 million to $59
million. This was a result of an improvement in Plessey reflecting
increased spending of mobile operators in South Africa, and the first-time
inclusion of Paracon, which contributed $16 million of turnover.
An analysis of the turnover shows a much larger contribution from annuity-
based sources, in particular the higher end online network management
service revenues - Insite, Uptime and Surveyor. Similarly, the analysis of
revenues identifying contributions from areas beyond the traditional concept
of Networking manifests the success garnered from the implementation of the
Group's business model. Multi-service networking continues to be the
mainstay of the Group, contributing 70% of Group revenue.
The geographic spread of revenues reflects the diverse global nature of
Group operations. The Asian subsidiary, Datacraft Asia Ltd, accounted for
23% of turnover and represented the single largest geographical
contribution. Africa accounted for 18% of revenue, Australia 17%,
Continental Europe 15% and UK 10%. The Group has expanded its presence in
the US and the US contribution to Group revenues increased from 6% in the
September 2000 period to 17% in the period under review.
Total operating profit before goodwill amortisation and exceptional items
Total operating profit before goodwill amortisation and exceptional
items, declined by 15% from $212 million to $181 million reflecting the
harsh trading conditions of the period. The total operating margin in the
2001 financial year was 7.4% compared to 10.7% in the 2000 financial year.
At the beginning of the year under review, the Group had budgeted for a
turnover growth in excess of 60% reflecting the buoyant trading conditions
within the sector. In anticipation of this growth, fixed overheads were
scaled accordingly. At the interim reporting period, 31 March 2001, total
turnover growth was 50%, and all indications were that the Group was on
track to achieve turnover of approximately $3 billion for the full financial
year. However, a rapid and severe deterioration in global economic
conditions resulted in the technology industry suffering the 'equivalent of
a once in 100 years flood'. In this environment, revenue growth rates
declined significantly in the second half. Management reacted quickly by
reducing overheads and accelerating initiatives aimed at introducing new
offerings to the market.
The financial effects of this exercise were dramatic. Staff numbers were
reduced significantly over an extended period and a total of 1,568
employees, representing approximately 14% of the workforce were made
redundant. Staff turnover levels throughout the year were generally higher
than in any previous annual periods as underperforming staff from all
disciplines were counselled out of the organisation where possible as part
of the cost rationalisation initiative. The Group incurred a once-off
severance cost of $17 million and fixed overheads were reduced by some 11%.
The decline in gross margin, first half on second half, was nominal but
did reflect the tougher trading environment and the impact of the lower
margin USA acquisitions made in the latter half of the financial year. More
significantly, a larger proportion of the Group's total revenues was from
higher margin value added networking solutions. This offset the effects of
declining gross margins in basic integration offerings.
An increase in operating expenses in the second half of the year of $45
million is due in part to acquisitions ($20 million), the inclusion of
incentive payments on revised targets ($13 million) and normal increases
from inflationary salary increases and structures implemented in the first
six month period. Approximately $11 million of additional stock and debtor
provisions have been created and were expensed in this period.
The combination of the lower growth of turnover and the increase in
overheads saw net operating margins decline significantly in the second half
of the year. Considerable attention has been given to rightsizing the
overhead structures. Management anticipate modest growth in revenue. The
Directors believe that the current structures are appropriate to allow the
Group to properly leverage its skills and expertise when market conditions
become more favourable. Accordingly, the net operating margin in the 2002
financial year is unlikely to show an improvement on that evidenced in the
full period under review.
Goodwill amortisation
Goodwill amortisation amounted to $602 million in 2001 compared to $292
million in 2000. This was due to the full year effect of the acquisition of
Dimension Data Europe (formerly Comparex Networks), the purchase of the
minorities in Dimension Data International ('DDIL') and other current year
acquisitions including Proxicom. Goodwill amortisation in respect of
associates amounted to $10 million.
Operating exceptional items
As a result of the rightsizing exercise embarked upon by the Group, we
have incurred significant once off costs. $17 million was incurred in
severance costs as well as a charge of $3 million, which has been provided
for unutilised leasehold space.
In its announcement to the market of 1 November 2001, Datacraft alluded
to a potential once off charge that could be levied against profits in its
interim reporting period to December 2001, but indicated that the quantum of
this charge was still being considered. In the current environment, we
believe it is appropriate to establish a provision to bring effect to the
intentions of the Datacraft Board and have accordingly raised a provision of
$8 million against working capital assets.
Other operating exceptionals include the write off of certain investment
projects, acquisition rebranding costs, a levy to a Business Trust and an
impairment of Dimension Data shares held by the Dimension Data Employee
Share Ownership Trust.
Operating exceptional items have been strictly governed by FRS 3 -
'Reporting financial performance' and amounts recorded as provisions which
are not used, will be similarly reversed as operating exceptional items.
Exceptional Items
Profits on the part disposal of The Internet Solution and Configure8
amounting to $82 million have been recognised as exceptional items in the
profit and loss account.
Goodwill impairment
Goodwill impairment tests were performed on all investments in terms of
the criteria established by FRS 11 - 'Impairment of fixed assets and
goodwill'. This resulted in the requirement for an impairment charge against
the value of the investment in Dimension Data Europe. The Dimension Data
Europe impairment amounted to $1,117 million. The value of the business,
after adjusting for this impairment, is now in line with the original
valuation the Group placed on the deal at the time of the acquisition which
was based on the Dimension Data share price on the offer date. In terms of
UK GAAP the accounting value was calculated using our share price on the
date that we took effective control of the business. The share price
movement between the offer date and the effective date generated additional
goodwill of $1,200 million.
In light of the market conditions now prevalent in the US, the Directors
have also deemed it prudent to impair goodwill of $148 million recorded
within all of the US acquisitions.
The goodwill recorded for the Plessey associate and The Merchants Group
in the UK has also been impaired by $44 million and $15 million
respectively.
Management are confident that there has been no permanent diminution in
the value of any other investments.
Investment income and net interest receivable
Investment income consists largely of preference dividends received on
short-term investments. Some preference shares were redeemed during the
year. Net interest receivable has increased from $28 million in 2000 to $52
million in 2001, which resulted from the accumulation of cash resources
generated by the Group's day-to-day operations and the balance of cash
received from the Global Offer in July 2000.
Taxation
The Group's effective tax rate (after adding back amortisation of
goodwill, for which there is, in most jurisdictions, no deduction from
taxable profits and exceptional items) was 27.4% in 2000 and 23.7% in 2001.
The Group's effective tax rate has decreased as a greater proportion of its
income this year is interest earned in lower tax jurisdictions. The weighted
average of statutory tax rates of Group companies is 28.4%. Tax losses and
certain tax planning opportunities have reduced this rate and have been
offset by a prudent approach not to recognise deferred tax assets.
Equity minority interests
The profit attributable to equity minority interests, before exceptional
items, decreased from $34 million in 2000 to $24 million in 2001, largely as
a result of the purchase of the minorities in DDIL, effective 31 January
2001.
Loss for the financial year
An attributable loss of $1,727 million was incurred in the 2001 year
after goodwill amortisation amounting to $612 million and net exceptional
items of $1,276 million. Attributable profit before goodwill amortisation
and exceptional items amounted to $161 million in 2001 compared to $144
million in 2000, an increase of 12%.
Earnings per share
Earnings per share before goodwill and exceptional items is 12.8 cents in
2001 compared to 16.1 cents in 2000, reflecting a decline of 20%. This is a
result of the decline in profitability and the dilutive effect of the shares
issued to Nedcor for the minority interests in DDIL. There was always an
expectation that the Nedcor deal would be marginally dilutive, due to DDIL's
holding in Datacraft Asia, which traded at a higher rating than Dimension
Data at the time.
Liquidity and capital resources
Net goodwill amounts to $2,806 million in 2001 compared to $3,131 million
in 2000. Excluding goodwill net assets decreased from $1,024 million to
$431 million as the cash was utilised to fund acquisitions. Tangible fixed
assets have increased as a result of the current acquisitions. Investments
in associates reflect a net decrease due to the impairment of Plessey which
was partly offset by the acquisition of Paracon.
Stock has been well controlled this year and has reduced from $136
million to $101 million representing a decrease, net of stock acquired with
acquisitions, of $50 million. Resale inventory essentially represents work
in progress and the risk of stock obsolescence is confined to the inventory
that is not allocated to customer projects. Unallocated stock decreased from
$50 million to $26 million at 30 September 2001.
Debtors have increased by 9% compared to the increase in turnover of 24%,
which reflects the improvement in days sales outstanding from 71 to 69 days.
Cash and short term investment holdings amounted to $920 million at year
end. Of this amount, $232 million is held as security for the convertible
loan notes offered in consideration for the Dimension Data Network Services
(formerly Chernikeeff) acquisition. The Group has certain long term
liabilities namely deferred consideration payments of $231 million, a put
option in respect of the 51% of Plessey amounting to $51 million that is
likely to be paid in October 2002 and $103 million of convertible bonds, due
December 2002. Unencumbered cash at year end was therefore $303 million.
In the current year, cash conversion was 136% (2000: 96%). Cash
conversion has been an area of high focus for management and is a reflection
of good working capital management. The Group's working capital has been
financed through internally generated cash and its acquisitions have been
financed by cash or by the issue of new shares.
Equity minority interests have decreased significantly as a result of the
acquisition of the minorities in DDIL.
The Group's net cash inflow from operating activities amounted to $186
million in 2001. This resulted from the generation of cash by the Group's
existing and acquired operations.
The net cash outflow for acquisitions and disposals amounted to $944
million in 2001 and $298 million in 2000 which reflects that a significant
number of acquisitions were financed by cash in the current year. The DDIL
acquisition was financed partly by cash and partly through the issue of 103
million shares. Shares issued for acquisitions and in respect of options
increased the share premium account by $924 million net of issue expenses.
Interest rate risk
As the Group is in a net cash positive position, it is exposed to the
effects of fluctuating deposit interest rates. Whilst it is corporate policy
to remain as liquid as possible to take advantage of acquisition
opportunities, certain funds have been invested in short term deposits to
minimise the effects of fluctuating interest rates and achieve a
satisfactory return for shareholders.
Regional Review
Introduction
The past financial year was characterised by a slowdown in the global
economy and most particularly the IT industry. The drop-off in activity was
first noted in the first half of the financial year in the USA and
Australia, where economic uncertainty, exacerbated by the dot.com and
service provider fall-out, adversely affected business. Traditional
businesses curtailed or deferred IT investment and telecommunication
companies began to suffer. Europe's slowdown followed thereafter and in the
second half of the financial year our African operations also started to
feel the impact of the slowing global economies. Although Asia experienced a
sharp decline in orders in the last quarter, trading activity, particularly
in the telco sector, where deregulation continues to drive activity,
remained buoyant for most of the year under review.
The events in the USA in September, however, precipitated the onset of a
more dramatic deterioration in trading conditions in all regions and most
noticeably in Asia, where business suffered due to deferrals and
cancellation of projects. Short term visibility remains unclear and in
response, all businesses have prudently taken the decision to structure
themselves according to the current run rates.
Despite the difficult trading conditions, the past year has been a most
fruitful one for Dimension Data, in terms of its strategic and operational
development. Success has been achieved in growing our footprint,
particularly on the East Coast of the USA, as well as in consolidating our
model of offering customers a total network solution. We took the
opportunity to expand our USA coverage by purchasing a number of regional
network integrators and then completed the jigsaw by acquiring Proxicom.
Proxicom is a leading e-business consulting and integration company that
delivers innovative Internet solutions for Fortune 500 companies and other
global businesses.
Historically our lines of business tended to group around specific
technology offerings. Over the past year and with particular vigour in the
second half, our 'go-to-market' model has been refined and is led by
business solutions comprising connectivity and integration technologies and
services. We have established a business solutions development team to
prepackage and pre-integrate solutions, which draws on the individual
technology components and GSOA and i-Boss services offered by the Group.
Whilst we are currently in a downturn phase of IT spending activity,
which is likely to remain with us for most of the current financial year,
all industry analysis points to continued strong growth in spending on IT
and e-business solutions over the medium to longer term. The past financial
year's positioning of the Group, both geographically and strategically, has
brought us to the point where Dimension Data has global coverage, is first-
to-market in its ability to deliver proactive real-time, online connectivity
and integration services and is uniquely positioned to offer a total e-
business solution to multinational customers.
Africa
Dimension Data Africa had a tough year but did well to generate turnover
growth of 24% in constant currency terms. A number of new initiatives were
launched during the year, including Enterprise Systems, Data Centre
Solutions, Messaging, Network Security and Teamsource.
i-Boss, a successful initiative introduced in South Africa during the
year, highlights the Group's strategy of developing pre-integrated plug-n-
play Operational and Business Support Systems solutions mainly for the
Service Provider market. Long term annuity contracts won include Coca Cola,
ABSA, Tiger Brands and FNB Corporate. Other major contracts won during the
year include solutions for MTN, Vodacom, Nedcor and Standard Bank.
The Network Services business was not able to sustain the strong growth
recorded at the interim stage. Operating margins came under pressure due to
lower volumes and pricing pressures on both technology solutions and charge-
out rates. Demand in the enterprise market held up well, particularly in the
financial sector and opportunities in the mobile commerce space were good
but activity in the fixed line telco market declined. The take up of GSOA
across all services types continued to be good. However, we were protected
by our ability to differentiate ourselves with our business-led approach and
GSOA service offerings, enabling us to win deals for reasons other than
price.
The i-Commerce division had a poor year with the combination of tough
trading conditions, delayed projects and low utilisation contributing to a
disappointing performance. An aggressive rationalisation programme early in
the second half regained the focus of the business. Where staff utilisation
rates dropped to around 60% in April, they have recovered to around 70%
currently. Although utilisation rates are up, hourly rates are still under
pressure.
Approximately 10% of the region's workforce was made redundant during the
year to bring the business in line with market conditions.
Asia
During the year under review Datacraft Asia, Dimension Data's 52% owned
subsidiary, delivered modest earnings growth. For most of the year the
business benefited from continued buoyant demand from the telecommunications
sector for IP infrastructure and services. Deregulation remained the primary
driver behind investment by both new telco licensees and ex-monopolies
upgrading their networks to maintain a competitive position.
A highlight for the year was the strong demand for services as customers
increasingly looked to outsource their network requirements. During the
year, new and enhanced service initiatives were launched in the areas of
telco operational and business support, network security, e-business,
outsourced operational support and technical training.
Datacraft attributes its performance to a broad geographic spread, blue-
chip customer base, its service capability and ability to offer more
comprehensive solutions than its competitors. Overall margins were partly
protected by the rapidly increasing contribution from high value-added
service offerings such as i-Boss, Managed Network Services, and those of the
i-Commerce division, which had a strong second half. Services now generate
more than half the company's profits and continue to be the fastest growing
area of the business.
High growth regions included India, Singapore, Thailand, Taiwan and Hong
Kong, while the market was impacted by the slowdown in Japan and Korea,
where growth had been strong in the prior year. In Japan, despite a sluggish
local economy, Datacraft was successful in penetrating the multinational
corporation market. China showed an improvement over the prior year but fell
short of expectations.
Datacraft has undoubtedly become Asia's primary supplier to tier one
service providers, winning numerous contracts valued in excess of $10
million. Contracts have been awarded in China (IP broadband project for
Anhui province), Indonesia, Korea (ADSL for Hanaro Telecom) and Thailand
(multiservice IP network for a Thai carrier).
Since the creation of Datacraft i-Commerce in 2000, which comprises the
three e-integration firms acquired by Datacraft, this operation has secured
in excess of $35 million of business, with particularly strong uptake in
China.
Market share gains were achieved during the year, mainly through organic
activity and partially through acquisition. The acquisition of Dasan
Electronics strengthened the position in Korea, and the remaining 40% of the
Indonesian operation was acquired.
Australia
Difficult trading conditions in Australia were exacerbated by the post-
Olympic games period, which resulted in a lull in economic activity, the
implementation of GST in July, and a number of high profile corporate
insolvencies. The telco market was characterised by expenditure cutbacks as
well as cancellation or postponement of upgrade projects on the back of the
collapse of new economy telcos.
While the increase in turnover in constant currency terms was good, poor
trading conditions in the second half, a high overhead structure without the
commensurate volumes, and pricing pressures, resulted in a decline in
profitability for the full year.
Express Data produced a pleasing result in a tough market, reporting
modest growth in turnover and achieving budgeted levels of profitability.
The strategy of focusing on a core set of technology partners and building
critical mass paid off, resulting in market share gains in a declining
market.
In the i-Commerce arena, post 'Internet-bubble' market weakness adversely
impacted trading. Projects were postponed or cancelled and only strategic
projects remained in place with customers becoming increasingly selective
about taking on new IT initiatives. Faced with a high fixed cost, and low
utilisation rates, the division took action in the middle of the year to
reduce overheads, and in July made approximately 90 people redundant.
Utilisation rates have subsequently increased and by year end were running
at approximately 75%.
Customer wins in the Contact Centre market include Orange, Nutrimetics,
Foxtel, Land Rover, Telstra, Tol, New South Wales Government and Perpetual
Trustees.
The Network Integration business had a disappointing year with market
demand falling sharply in the second half. The uptake of GSOA amongst
customers was slower than expected due in part to the economic climate, as
well as a cautious approach by customers to managed services, despite
worldwide trends towards outsourcing non-core activities. Operating margins
were adversely impacted by poor utilisation, lower volumes and pricing
pressure. Customer wins in the Network Integration business include InTACT
and Fosters.
In excess of 250 people were made redundant in the region in the second
half of the year. Whilst the trend is toward staff reduction, we will take
on additional skills in new growth areas. The ability to attract and retain
quality staff remains good in the wake of a weak IT industry.
Continental Europe
The 2001 financial year was one of consolidation, integration and
rebranding of our European operations. Europe was not immune to the slowdown
in IT spend, which was felt first and was most prevalent in Germany. Late in
the second half of the year, France also experienced a reduction in spending
and increased competition. All other regions performed well and under
reasonable trading conditions won market share.
Against this background, Dimension Data Europe did well to achieve modest
annualised turnover growth. With the exception of Germany, every other
regional operation exceeded internal targets, but lower than expected
volumes and a slow uptake of services, led to pressure on operating margins.
The slowdown in the second half was largely due to a dramatic deterioration
in trading conditions in Germany, which contributed 50% to revenue of the
European region. Encouragingly market share gains in multiservice networking
were achieved in every country other than Germany. In an effort to rightsize
the business the workforce was reduced by approximately 10%, mainly in
Germany.
Contracts were won from European multinational corporations due to the
improved focus of the business, aggressive shift to services and the co-
ordinated effort as a global player. Significant customer wins include SEAT
(VW Group), Renault, Mediaways, Dexia Group, Banque General de Luxembourg
and the European Parliament where a selection of solutions were offered.
The rollout of the GSOA gained momentum with the opening of the Frankfurt
Operations Centre and Satellite Centres in Paris, Brussels, Stockholm,
Lausanne, Milan and Amsterdam, giving the business a unique platform
relative to its competitors. We expect uptake of GSOA to improve as the
sales force converts to a services-led sales approach. Aggressive training
and appropriate marketing should see this service offering gain momentum in
the year ahead.
Relationships with existing vendors were strengthened with a number
aiming to partner more closely with Dimension Data in efforts to grow
revenues in a slowing market.
United Kingdom
Despite the difficult operating environment in the past financial year,
Dimension Data UK successfully invested in enhancing its strategic accounts
capabilities. This enabled the business to maintain market share in the face
of fierce competition. The increasing competitiveness of the UK network
integration market forced Dimension Data to differentiate itself and enhance
its competitive position by accelerating the transition to a services-led,
solution driven sales approach.
The Network Services business benefited from good growth in services in
the second half of the year. Despite an increased contribution from this
higher margin business, margins in the second half of the year were
negatively impacted by lower than anticipated volumes.
Additional lines of business such as Intelligent Infrastructure, Customer
Interactive Solutions, Service Provider, Security and Storage Solutions were
introduced. The UK GSOA Operations Centre was opened early in 2001 and
progress was made in educating customers as to the benefits thereof.
Interest in our GSOA managed services was stimulated by the trend of
businesses reducing overheads and improving efficiencies through outsourcing
elements of the delivery and support of their IT infrastructure.
Significant customer wins include Dante, Telewest, Arthur Andersen and the
London Stock Exchange.
The e-business presence, which was created with the acquisition of
Proxicom, has enhanced Dimension Data UK's competitive position. The
integrated business is now able to provide customers with a total e-business
offering spanning a range of business solutions, connectivity and
integration services.
Trading conditions in The Merchants Group's managed call centre market
closely mirrored the downturn in the TMT market. This resulted in an
unexpected and immediate cancellation mid-year of a core contract by one of
our largest customers, a major mobile phone service provider. The
cancellation, combined with generally depressed and highly competitive
trading conditions resulted in underutilised capacity and a sharp
deterioration in profitability. The business has been substantially
rationalised both in terms of headcount and fixed infrastructure exposure.
As a result ulitisation levels have improved and a breakeven position is
anticipated by the second quarter of the 2002 financial year.
USA
The past financial year has been an extremely active one for the USA,
with the integration of the Network Services businesses acquired over the
past two years as well as the acquisition and integration of Proxicom, the
Group's i-Commerce offering in the region.
Halfway through the year two Network Services acquisitions, Premier and
Matrix, were completed in Charlotte, North Carolina, giving us a presence in
the South East. The six Network Services businesses have been consolidated
into one company with regional MDs reporting to a US Executive Vice
President for Network Services. The new structure results in greater
synergies in terms of the 'go-to-market' sales approach, as well as a lower
overhead cost structure. The business is now divided into three regions,
North East, Mid-Atlantic and South East.
The Network Services business experienced tough market conditions in most
regions with enterprise activity tailing off in the second half of the year
after holding up reasonably well in the first half.
Competition increased as the IT industry slowed, causing many regional
and national competitors to fall away. Despite increased competition,
Dimension Data was able to win new contracts due to our ability to expand
our sales offering to include a broader range of technology solutions.
Market share gains were achieved in all regions with the exception of
Washington DC and Boston, where the dot.com and Service Provider fall-out
was most prevalent.
Significant rationalisation has taken place in the Boston operation to
address the changed market conditions and a new management team has been put
in place. The business is now aggressively focusing on developing business
in the traditional enterprise and telco space. New York reported good
growth, leveraging the global footprint as well as the newly launched GSOA
capabilities.
Significant customer wins during the year include Radianz, JP Morgan
Chase, Smith & Nephew, Putnam, Renault, Du Pont, EMC, Georgia Pacific,
Lehman Brothers and Pfizer.
Proxicom was acquired with effect from 19 June 2001. The implementation
of a formal integration process ensured that Proxicom was successfully
assimilated into the North American operation and accelerated the
development of an integrated Dimension Data offering for the region. Our
regional presence in the USA has been strengthened to include a presence on
the West Coast.
The leadership and skills within Proxicom have been recognised by the
various appointments of Proxicom staff to regional as well as global
management positions. Proxicom has subsequently been rebranded under the
Dimension Data name. This not only creates a cohesive brand image but also
accelerates our ability to sell solutions at a strategic level and pull
through specific products and services. One of Proxicom's attractions was
its internal methodology and knowledge-sharing platforms, many of which have
now been established as global best practice for the Group.
In the last quarter of the year, spending in Proxicom's e-business market
declined sharply, but market share gains were achieved in a contracting
market. Two rounds of rightsizing were embarked on to streamline the
business in the face of weaker conditions. Utilisation rates bottomed in the
mid 50% range in June, but due to rationalisations, by year end had improved
to above 65%. Pricing rates declined due to the market weakness and
aggressive pricing by competitors. We are pursuing opportunities to improve
our profitability by growing our offshore development and delivery
capabilities.
Prospects
Africa
The signing of a number of long-term annuity contracts late in FY 2001
has offset some of the risk inherent in the market environment in FY 2002.
The Group will continue to focus on developing annuity-based solutions and
services, becoming more customer-centric and delivering higher levels of
service. Our ability to deliver strong value propositions in the areas of
Customer Interactive, Service Provider and e-business solutions, should lead
to increased market share in these areas. The rationalisations and
reorganisations effected in the past few months should also result in
improved efficiencies in the second half of the year.
Asia
Following the events of September 11 and the subsequent market slowdown,
Datacraft experienced a sharp downturn in demand, which resulted in orders
being delayed or cancelled. Multinational and Enterprise customer business
were most affected, with the slowdown having a lesser impact on the Group's
telco business. This necessitated immediate action to reduce headcount and
overheads, the benefit of which should be felt from the beginning of the
2002 calendar year. Following these developments, Datacraft announced that
profits for Datacraft's half year to December 2001 would be 60% to 70% below
profits in the corresponding reporting period.
Australia
The outlook for the 2002 financial year is cautious. Whilst Express Data
will consolidate its product lines, this should however be offset by the
opportunity to capture further market share as the distribution market
rationalises. In i-Commerce, the past year's restructuring and streamlining
actions have resulted in a solid core of specialised capabilities focused on
offering a unique value proposition in user centred solutions covering all
aspects of technology infrastructure and business process. This should
assist us in winning business in a tough market place. Network Integration
should benefit from a lower cost base, a more solutions oriented sales
approach and an aggressive promotion of the Group's GSOA offerings.
Continental Europe
Dimension Data Europe is driving for further market share gains in FY
2002 as it differentiates its offering from competitors and aggressively
markets to multinational corporations. We are expanding our European
offering and accelerating the implementation of the new lines of business in
the areas of Customer Interactive, Service Provider and Application
Integration solutions. The expansion and enhancement of our OSS and BSS
integration capabilities positions us well to compete in the Service
Provider market. The post year end acquisition of In Time Netbuilding gives
our Central European operations the voice integration skills necessary to
compete in the CIS market. The acquisition of Proxicom provides impetus for
the development of e-business and application integration solutions.
Profitability should benefit from lower overheads, particularly in the
German business, a more focused 'go-to-market' strategy as well as higher
contributions from new, value added solutions.
UK
Prospects for the UK operation going into the new year are uncertain due
to continued tough market conditions. We do, however, expect to reap the
benefits of the introduction of new lines of business such as IP telephony
and security. Further benefits should derive from the work done in educating
our customers on our GSOA capabilities as well as our enhanced ability,
through our newly acquired i-Commerce capabilities, to offer total e-
business solutions. Dimension Data UK has a strong skills base in the telco
environment and notwithstanding the current state of the industry, is well
placed to win business in this vertical segment, particularly with offerings
such as i-Boss. The new financial year will see selective recruitment as the
Group skills up in the new lines of business. We expect the trend that
emerged in the second half of FY 2001, of winning deals due to our service
offering, to accelerate in FY 2002.
USA
Prospects in the USA remain extremely uncertain following the events of
11 September. The Group is hopeful that our differentiated position in a
fragmented market, our newly acquired enterprise systems, applications
management and e-business capabilities, combined with a more aggressive
focus on marketing our GSOA capabilities, will result in further market
share gains in the year ahead.
Currency
The following table reflects the average and period end exchange rates
against the US dollar of SA Rand, Australian Dollar, Sterling and Euro:
2001 2000
Currency Average Period end Average Period end
South Africa Rand 8.226 8.995 6.772 7.300
Australian Dollar 1.949 2.023 1.702 1.842
Sterling 0.692 0.681 0.651 0.683
Euro 1.122 1.094 1.072 1.135
Consolidated Profit and Loss Account
for the year ended 30 September 2001
Note 2001 2001 2001 2000
$'000 $'000 $'000 $'000
Pre- Exceptional Total
exceptional items
(Note 4)
Turnover
Continuing operations 2,123,282 - 2,123,282 1,942,576
Acquisitions 278,221 - 278,221 -
Group turnover 3 2,401,503 - 2,401,503 1,942,576
Associates 58,755 - 58,755 33,922
Total turnover 3 2,460,258 - 2,460,258 1,976,498
Operating profit before
goodwill amortisation
and impairment
Continuing operations 170,011 (35,659) 134,352 210,350
Acquisitions 5,959 (3,672) 2,287 -
3 175,970 (39,331) 136,639 210,350
Goodwill amortisation
and impairment 4 (601,796) (1,280,610) (1,882,406) (292,003)
Group operating loss
Continuing operations (383,053) (1,168,301) (1,551,354) (81,653)
Acquisitions (42,773) (151,640) (194,413) -
(425,826) (1,319,941) (1,745,767) (81,653)
Share of operating
profit in associates 4,889 - 4,889 1,999
Goodwill amortisation
and impairment
- associates 4 (9,999) (43,905) (53,904) -
Total operating loss (430,936) (1,363,846) (1,794,782) (79,654)
Exceptional items
- continuing operations - 78,754 78,754 (3,320)
Profit on sale of
fixed assets and
investments 4 - 78,754 78,754 3,875
Losses on termination
of an operation 4 - - - (7,195)
Loss on ordinary
activities before
interest (430,936) (1,285,092) (1,716,028) (82,974)
Investment income 3,603 - 3,603 4,179
Net interest receivable 52,266 - 52,266 28,097
Loss on ordinary
activities before
taxation (375,067) (1,285,092) (1,660,159) (50,698)
Tax on loss on
ordinary activities 5 (52,370) 5,570 (46,800) (67,044)
Loss on ordinary
activities after
taxation (427,437) (1,279,522) (1,706,959) (117,742)
Equity minority interests (23,802) 3,854 (19,948) (33,743)
Loss for the year (451,239) (1,275,668) (1,726,907) (151,485)
Earnings/(loss) per ordinary share US cents US cents
Basic before goodwill
amortisation and
exceptional items 6 12.8 16.1
Basic 6 (137.6) (16.9)
Diluted 6 (139.3) (16.9)
Consolidated Balance Sheet
as at 30 September 2001
2001 2000
$'000 $'000
Fixed assets
Intangible assets 2,805,554 3,130,980
Tangible assets 136,591 97,470
Investments in associates 27,122 53,543
Other investments 19,697 24,945
2,988,964 3,306,938
Current assets
Stock 101,030 136,082
Debtors 704,532 645,120
Short term investments 26,114 18,822
Cash at bank and in hand 893,966 1,692,604
1,725,642 2,492,628
Creditors: amounts falling due
within one year
(including convertible debentures) (1,289,047) (1,223,583)
Net current assets 436,595 1,269,045
Total assets less current liabilities 3,425,559 4,575,983
Provisions for liabilities and charges (87,317) (21,011)
Equity minority interests (101,907) (399,774)
Total net assets 3,236,335 4,155,198
Capital and reserves
Called up share capital 13,063 11,656
Shares to be issued - 80,732
Share premium account 4,765,195 3,841,141
Other reserves 223,516 260,737
Profit and loss account (1,765,439) (39,068)
Equity shareholders' funds 3,236,335 4,155,198
Consolidated Cash Flow Statement
for the year ended 30 September 2001
Restated
2001 2000
Note $'000 $'000
Net cash inflow from operating activities 7 186,342 201,896
Returns on investments and servicing of finance 58,125 32,152
Taxation (50,059) (48,793)
Capital expenditure and financial investment 15,662 (69,510)
Acquisitions and disposals (944,095) (298,133)
Cash outflow before use of liquid resources
and financing (734,025) (182,388)
Management of liquid resources (10,269) 33,678
Financing 24,242 1,590,124
(Decrease)/increase in cash in the year (720,052) 1,441,414
Reconciliation of net cash flow
to movement in net cash
(Decrease)/increase in cash in the year (720,052) 1,441,414
Cash outflow from decrease in debt 44,057 -
Cash outflow/(inflow) from increase/(decrease)
in liquid resources 10,269 (33,678)
Change in net cash resulting from cash flows (665,726) 1,407,736
Non-cash redemption of debentures - 100
Non-cash movement in debt (3,122) (282,496)
Translation difference (73,127) (32,722)
Movement in net cash for the year (741,975) 1,092,618
Net cash at beginning of the year 1,305,994 213,376
Net cash at end of the year 564,019 1,305,994
Consolidated Statement of Total Recognised Gains and Losses
for the year ended 30 September 2001
2001 2000
$'000 $'000
Loss for the year (1,726,907) (151,485)
Currency translation differences on
foreign currency net investments (36,685) (126,875)
Total recognised losses relating to the year (1,763,592) (278,360)
1. Basis of Preparation
The comparative cash flow statements have been restated. Deferred
consideration paid, which was previously reported as a creditors cashflow,
has now been disclosed as an element of 'acquisitions and disposals' cash
flow.
The comparative segmental analyses have been restated to align the
previously reported analyses with current classifications.
2. Accounting policies
The Group accounting policies are consistent with those applied in the
2000 Annual Report.
3. Segmental Analysis - by Class of Business
2001 2001 2000 2000
$'000 $'000 $'000 $'000
Turnover Operating Turnover Operating
profit/(loss) profit/(loss)
Continuing operations
Network Services 2,144,804 189,028 1,639,268 171,064
i-Commerce 246,845 3,811 293,104 39,342
Protocol - (1,019) 2,707 2,449
Investment holding
and management 9,854 (15,850) 7,497 (2,505)
Group 2,401,503 175,970 1,942,576 210,350
Associates 58,755 4,889 33,922 1,999
2,460,258 180,859 1,976,498 212,349
Goodwill amortisation (611,795) (292,003)
Operating exceptional items (1,363,846) -
Total 2,460,258 (1,794,782) 1,976,498 (79,654)
4. Exceptional Items
Note 2001 2000
$'000 $'000
Exceptional operating costs
Severance and other associated costs a) (16,830) -
Onerous lease expenses following restructure b) (3,451) -
Acquisition rebranding c) (9,118) -
Re-imbursement of rebranding costs c) 7,632 -
Business Trust Levy d) (2,672) -
Investment project write offs e) (4,685) -
Datacraft provision f) (8,000) -
Impairment of own shares g) (2,207) -
(39,331)
Impairment of goodwill (including associates) h) (1,324,515) -
Total exceptional operating costs (1,363,846) -
Other exceptional items
Net profit on part disposal of
The Internet Solution and Configure8 81,794 -
(Loss)/profit on sale of fixed assets
and investments (3,040) 3,875
Profit on sale of fixed assets and investments 78,754 3,875
Provision for closure costs in respect of the
communications Division of GK Communications - (7,195)
Total other exceptional items 78,754 (3,320)
Total exceptional items before tax
and equity minority interests (1,285,092) (3,320)
a) The Group has rightsized and restructured its business in all regions.
Staff headcount has reduced by 14%.
b) Provision has been made for lease costs relating to unutilised space or
premises as a result of the restructuring of the Group, as provided for in
terms of UK GAAP.
c) In terms of its acquisition of Comparex's European Networking assets, the
Group was obliged to rebrand these entities. Certain of these costs have
been reimbursed by the vendor.
d) Companies listed on the JSE Securities Exchange were required to pay a
once-off levy to the Business Trust which funds a number of education
trusts. The amount was determined based on Dimension Data's market
capitalisation at the time.
e) The Group undertook certain projects of an investment nature which, given
the conditions of the market, were scrapped and the investment cost written
off.
f) As a result of the uncertainty of the economy in Asia, the Dimension Data
Directors have deemed it prudent to make additional provision against
working capital assets based upon the information available as at the date
of approval of these accounts.
g) Shares acquired by the Dimension Data Employee Share Ownership Trust have
been written down following the decline of the share price.
h) The goodwill impairment charge constitutes a reduction in the goodwill
balance which arose on the acquisition of Dimension Data Europe (formerly
Comparex Networks) of $1,117.3 million. In addition, the Directors have
deemed it prudent to impair a goodwill balance of $148.0 million against the
bundle of USA acquisitions and $15.3 million relating to The Merchants Group
UK Ltd. An amount of $43.9 million has been impaired against the investment
in the associate, Plessey (Pty) Ltd.
5. Tax on Loss on Ordinary Activities
2001 2001 2001 2000
$'000 $'000 $'000 $'000
Pre-
exceptional Exceptional
items items Total
Payable in respect of
the current year
(including associates)
UK 5,702 (520) 5,182 9,894
Foreign 46,462 (5,050) 41,412 57,115
Adjustments to prior
years' tax provision 206 - 206 35
52,370 (5,570) 46,800 67,044
6. Earnings/(Loss) per Ordinary Share
2001 2000
$'000 $'000
Earnings before goodwill amortisation
and exceptional items 160,556 143,838
Exceptional items (net of tax and minorities) (1,275,668) (3,320)
Goodwill amortisation (611,795) (292,003)
Loss for the year (1,726,907) (151,485)
2001 2000
'000 '000
Weighted average number of ordinary shares in issue 1,255,235 895,008
Dilutive share options (15,627) (120)
Diluted weighted average number of ordinary shares 1,239,608 894,888
2001 2000
US Cents US Cents
Basic earnings per ordinary share before
goodwill amortisation and exceptional items 12.8 16.1
Basic loss per ordinary share on
exceptional items (101.7) (0.4)
Basic loss per ordinary share on
goodwill amortisation (48.7) (32.6)
Basic loss per ordinary share (137.6) (16.9)
Diluted loss per ordinary share (139.3) (16.9)
7. Reconciliation of Operating (Loss)/Profit to Net Cash Inflow from
Operating Activities
Restated
2001 2000
$'000 $'000
Group operating loss (1,745,767) (81,653)
Depreciation 45,292 39,252
Goodwill amortisation and impairment 1,882,406 292,003
Loss on sale of tangible fixed assets 2,242 1,480
Decrease/(increase) in stock 49,858 (38,194)
Decrease/(increase) in debtors 51,906 (108,389)
(Decrease)/increase in creditors (96,726) 97,397
Other non cash items (2,869) -
Net cash inflow from operating activities 186,342 201,896
8. The results for the years ended 30 September 2001 and 30 September 2000
do not comprise statutory accounts for the purpose of Section 240 of
the Companies Act 1985, and have been extracted from the Group's 2001
accounts, approved by the Directors at the Board Meeting of 20 November
2001, which have not yet been filed with the Registrar of Companies. The
Audit Report on these accounts was unqualified and did not contain a
statement under Section 237(2) or (3) of the Companies Act 1985.
