| Thu 16 May 2002, 0:00 | | Dimension Data Holdings Plc Unaudited Interim |
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Dimension Data Holdings plc Unaudited Interim Results
Dimension Data Holdings plc
Code: DIDDT
ISIN: GB0008435405
Unaudited Interim Results
Six Months ended 31 March 2002
Dimension Data Holdings plc ("Dimension Data" or the "Group"), the leading
global technology services Group, announces its results for the six months
ended 31 March 2002.
Financial Results
* Total turnover of $1,102.0 million (H2 2001: $1,235.1 million)
* Total operating profit before goodwill amortisation amounted to $40.3
million (H2 2001: $58.8 million)
* Net profit on ordinary activities before goodwill amortisation and
exceptional items amounted to $26.6 million (H2 2001: $59.6 million)
* Exceptional operating costs include a further provision of $15 million
against Asia debtors
* Basic earnings per share before goodwill amortisation and exceptional
items amounted to 2.0 cents (H2 2001: 4.4 cents)
* Cash on hand (including short term investments) amounted to $630 million
(H2 2001: $920 million)
Sequential profit and loss analysis
(Before goodwill amortisation and exceptional items)
Unaudited Unaudited
Six months ended Six months ended
31 March 2002 30 September 2001
$`000 $`000
Turnover
Group turnover 1,075,415 1,201,412
Associates 26,593 33,648
Total turnover 1,102,008 1,235,060
Operating profit before goodwill
amortisation and exceptional items 38,081 56,186
Share of operating profit in associates 2,192 2,657
Total operating profit 40,273 58,843
Investment income 521 2,403
Net interest receivable 1,958 15,900
Profit before taxation 42,752 77,146
Taxation (10,727) (9,392)
Profit after taxation 32,025 67,754
Equity minority interests (5,454) (8,128)
Profit for the period before goodwill
amortisation and exceptional items 26,571 59,626
US cents US cents
Basic earnings before goodwill
amortisation and exceptional items
per ordinary share 2.0 4.4
Unaudited Unaudited
Six months ended Six months ended
31 March 2002 30 September 2001
$`000 $`000
Reconciliation to
consolidated profit and loss account
Profit for the period before goodwill
amortisation and exceptional items 26,571 59,626
Goodwill amortisation (385,183) (334,454)
Net exceptional items (337,569) (1,353,364)
Loss for the period as presented in the
consolidated profit and loss account (696,181) (1,628,192)
Geographical analysis
Unaudited Unaudited Unaudited Audited
Six months Six months Six months Year
ended ended ended ended
$`000 31 March 30 September 31 March 30 September
2002 2001 2001 2001
Turnover
Africa 155,475 203,624 223,166 426,790
Asia 211,009 254,758 291,437 546,195
Australia 156,421 203,752 203,105 406,857
Continental Europe 188,397 169,247 191,092 360,339
United Kingdom 103,181 103,539 140,036 243,575
United States 260,932 264,379 143,514 407,893
Other* - 2,113 7,741 9,854
Group 1,075,415 1,201,412 1,200,091 2,401,503
Associates 26,593 33,648 25,107 58,755
Total 1,102,008 1,235,060 1,225,198 2,460,258
Operating profit**
Africa 13,937 22,010 43,620 65,630
Asia 11,982 18,508 28,713 47,221
Australia 5,626 4,705 11,891 16,596
Continental Europe 13,602 8,248 16,709 24,957
United Kingdom 4,184 7,377 18,871 26,248
United States 116 2,966 9,221 12,187
Other* (11,366) (7,628) (9,241) (16,869)
Group 38,081 56,186 119,784 175,970
Associates 2,192 2,657 2,232 4,889
Total 40,273 58,843 122,016 180,859
Operating margin
Africa 9.0% 10.8% 19.5% 15.4%
Asia 5.7% 7.3% 9.9% 8.6%
Australia 3.6% 2.3% 5.9% 4.1%
Continental Europe 7.2% 4.9% 8.7% 6.9%
United Kingdom 4.1% 7.1% 13.5% 10.8%
United States 0.0% 1.1% 6.4% 3.0%
* comprises Investment holding and management and Protocol
** before goodwill amortisation and exceptional items
Turnover analysis by lines of business
Unaudited Multiservice Enterprise Generic Specialised Group
Six months ended Networks Systems Applications Applications Turnover
31 March 2002 $`000 $`000 $`000 $`000 $`000
Africa 110,575 28,713 12,950 3,237 155,475
Asia 210,268 245 496 - 211,009
Australia 110,201 41,074 5,146 - 156,421
Continental Europe 184,114 4,283 - - 188,397
United Kingdom 102,420 478 - 283 103,181
United States 183,893 44,869 - 32,170 260,932
Group
(excluding `Other`)901,471 119,662 18,592 35,690 1075,415
Connectivity Services* 1,021,133
Integration Services** 54,282
Group(excluding `Other`) 1,075,415
Unaudited Year ended 30 September 2001
Africa 392,796 20,111 13,883 - 426,790
Asia 534,774 2,376 9,045 - 546,195
Australia 295,544 111,313 - - 406,857
Continental Europe 357,041 1,106 2,028 164 360,339
United Kingdom 243,224 351 - - 243,575
United States 316,374 45,555 2,646 43,318 407,893
Group
(excluding `Other`)2,139,753 180,812 27,602 43,482 2,391,649
Connectivity Services* 2,320,565
Integration Services** 71,084
Group(excluding `Other`) 2,391,649
* comprises Multiservice Networks and Enterprise Systems
** comprises Generic and Specialised Applications
Currency
The following table reflects the average and period end exchange rates
against the US dollar of SA Rand, Australian Dollar, Sterling and Euro:
Six months ended Six months ended Year ended
31 March 2002 31 March 2001 30 September 2001
Currency Average Period end Average Period end Average Period
end
South African Rand 11.107 11.335 7.699 8.005 8.226 8.995
Australian Dollar 1.935 1.874 1.902 2.051 1.949 2.023
Sterling 0.697 0.701 0.687 0.701 0.692 0.681
Euro 1.136 1.149 1.114 1.130 1.122 1.094
Key points
- Revenue performance reflects competitive market conditions globally and
pressure on IT budgets.
- Stabilisation in demand and prices.
- Transition to services and solutions led model gaining traction and is
reflected in our revenue mix.
- Good growth in annuity based income.
- Further cost reductions.
- Launch of the `DD Way` aimed at accelerating strategy implementation
across regions, with a focus on positioning, skills, delivery capabilities
and internal measurement criteria.
- $20 million start-up expenditure on the development of business
solutions, global sales capabilities, sales training and the `DD Way`.
- Improved quality of customer base and key global customer wins.
- Continued migration to:
* global and integrated from regional and independent
* Dimension Data branded and packaged solutions from vendor technologies
* annuity based services from short term projects
* an Application Network Integrator from a Network Integrator.
Chairman`s Commentary
The first half of the 2002 financial year has been a period of challenges
and opportunities. Challenges in that our trading performance has continued
to be hampered by tough economic conditions. Opportunities in that we have
taken a long hard look at where we can be more focused, efficient and
competitive. Customers continue to focus on cost reductions and optimising
their existing IT investments. There is little demand for new IT projects
so buying cycles are long and pricing pressure intense.
In an environment of depressed margins we have focused further on our
services and solutions capabilities and have invested significant time and
effort into fine tuning our positioning, skills, delivery capabilities and
internal measurement criteria. The adverse trading environment has
therefore had the positive effect of allowing us to accelerate the
transition of going to market with a services and solutions led approach.
In most regions the contribution from services in our gross margin mix
showed good growth. In addition the annuity component of revenue increased
sequentially by 21% and contributed 24% and 41% of turnover and gross margin
respectively.
In terms of what has been achieved internally, the picture is positive.
We continue to migrate from being regional and independent to global and
integrated, from selling vendor technologies to selling Dimension Data
branded and packaged solutions, from a revenue mix made up of short term
projects to an annuity based services revenue mix and from being a Network
Integrator to being an Application Network Integrator. Whilst this process
of transformation has been in place for some time now, in the past six
months we have made tremendous strides in formalising it under the `DD Way`.
The `DD Way` is a focused medium term initiative with full executive
backing aimed at accelerating the implementation of our strategy across all
regions and bringing additional focus to risk management and sound corporate
governance. The `DD Way` will set the foundations for long term sustained
competitive advantage and superior financial performance.
Whilst we have realigned our overhead base, we have balanced cost
containments with a need to be able to capitalise on an upturn in demand.
In difficult times one must steer away from being too internally focused.
External execution and winning business are still top of mind. During the
period under review we have made pleasing progress in penetrating new high
quality customers in all regions, winning global business and building
recognition of the Dimension Data brand with the result that our customer
base today compared with just 12 months ago is considerably stronger. We
have also made a number of new appointments of key individuals with strong
external experience in the areas of Regional Management, Global Sales and
Global Services.
Enquiries:
Dimension Data Holdings plc
Jeremy Ord, Executive Chairman
Malcolm Rutherford, Group Financial Director
Richard Came, Global Strategic Development Director
Karen Cramer, Investor Relations
On the day: +(44) 793 2020 296
Thereafter: +(44) 20 7651 7000
Internet address: www.didata.com
Financial Dynamics
Giles Sanderson
James Melville-Ross +(44) 20 7831 3113
Note:
All references to $ are to US$
H1 2001 refers to the six months ended 31 March 2001
H2 2001 refers to the six months ended 30 September 2001
H1 2002 refers to the six months ended 31 March 2002
H2 2002 refers to the six months ending on 30 September 2002.
REGIONAL REVIEW
Africa
(14% of revenues, 28% of operating profit, EBIT margin 9.0%)
Market conditions in the African IT environment remained tough with large
IT budgets still constrained and buyers exerting pressure on pricing. This
was exacerbated by the 35% appreciation of the US dollar against the Rand in
the current period on FY2001, which hampered our customers` ability to
commit to new technology investments.
On a constant currency basis, revenue in the African Region of $155
million was flat on H1 2001 and declined by 3% on H2 2001.
The overall operating margin in the African business decreased to 9.0%
from 10.8% in H2 2001. Profitability was impacted by losses in the
Integration Services business caused by a lack of demand, poor utilisation
levels and pricing pressure. Stripping out the losses in the Integration
Services business operation the operating margin was 13.6%. The Integration
Services business has been rationalised with the retrenchment of 125 out of
a total of 250 people and the integration of the remainder into our Business
Solution operation.
Short term return on investment is key to justifying technology spend and
is driving demand in the areas of Customer Interactive and Infrastructure
solutions. The Service Provider Solutions also gained good momentum, with
Dimension Data emerging with a strongly competitive offering in this arena.
Customer focus on cutting operational IT costs drove increased demand for
outsourced operational IT services such as networking and enterprise
systems. The best practices embodied in the GSOA were crucial to winning
outsourcing deals.
Inroads were made into the Government sector, which has been identified
as an area of opportunity for the second half of the year. Dimension Data
also won large deals in conjunction with Plessey in Africa, including new
cellular network rollouts in Nigeria, Tanzania, and Uganda.
There are signs that the market for IT services is slowly picking up as
buyers look to extract benefit from existing investment. Internal measures
such as the creation of a high level business solution sales team should
allow us to better leverage market opportunities and gain market share. As
a result we expect to achieve sequential growth on the first half of the
year. Traditionally the second half is a stronger trading period than the
first half due to seasonal influences. The rationalisation of the
Integration Services business, management changes and cost reductions should
result in improved profitability in H2 2002.
The top customer wins during the period included:
- MTN, a three year, $9 million core network rollout to enable the
convergence of voice, data and 3G services. The project includes Primer and
UpTime services. MTN is an existing customer.
- University of Pretoria, a two year, $2 million network infrastructure,
Primer, Surveyor and Uptime contract. University of Pretoria is a new
customer.
- Clover, a five year, $3 million desktop server and help desk outsource
contract. Clover is an existing customer.
- Channel Life, a three year, $1 million technology supply and services
contract. Channel Life is an existing customer.
- Caltex, an $800,000 technology supply and services contract. Caltex is
an existing customer.
Asia
(20% of revenues, 24% of operating profit, EBIT margin 5.7%)
For Datacraft Asia (Datacraft), the first half of the year was a period
of extremely challenging market conditions. There was much uncertainty
around demand and customer buying patterns and an overall decline in IT
budgets. The combination of a depressed global economy and the events of
September 11 caused a sharp fall-off in business volumes as projects were
deferred or cancelled. As a result organic revenues in Datacraft declined
by 19% on H2 2001 (33% on H1 2001) to $211 million.
Annualised cost reductions of $16 million, including a 12% reduction in
headcount, were taken during the latter half of the period in order to match
the cost base to the lower revenue run rates. The full benefit of the
reduced cost base will, however, only be felt in the second half of the
year. Operating income was sequentially down by 35% and the operating
margin declined to 5.7% from 7.3% in H2 2001.
Services revenue was most resilient with the result that the proportion
of services in the revenue mix increased. Good traction was seen in demand
for GSOA services.
Whilst visibility remains cloudy and the timing of a recovery uncertain,
we do see tentative signs of stabilising market conditions. There are
pockets of opportunity throughout the region, especially in the countries
where we have a smaller presence such as Thailand, Vietnam, Indonesia and
India. The outlook for Japan has improved following the appointment of a
new, highly focused management team. Our major markets of China and Korea
remain challenging.
Our order backlog currently has a greater proportion of services in the
mix. As services have a long book to bill cycle, the growing proportion of
services business could depress top and bottom line growth in the short
term. The outlook for spending in the areas of telco IP infrastructure and
iBoss Solutions is good, and the outlook for the Corporate Sector is
stabilising.
During 2002 collection of accounts receivable from debtors in China
deteriorated with the result that Datacraft has started investigating the
situation and commissioned its internal auditors to assess the
collectability of certain debtors balances. The investigations are still
ongoing, however, in the interests of maximum timeliness and transparency
Datacraft today announced that current indications are that it will take an
additional debtors provision of between $19 million and $23 million for the
period ending 30 September 2002.
Trading conditions continue to be challenging and the outlook to
September 2002 remains uncertain. Datacraft will be changing its financial
year end to 30 September 2002 so as to align its year end with that of
Dimension Data. In August 2002, its traditional reporting date, Datacraft
will provide an overview of its performance to June 2002 and the outlook to
September 2002.
The top customer wins during the period included:
- PT Telkom Indonesia, a seven month, $12 million Primer project to build
Indonesia`s largest high speed IP backbone. PT Telkom is an existing
customer.
- Telephone Organisation of Thailand (TOT), a four month, $9 million IP
Network rollout including Primer, Insite and UpTime services. TOT is an
existing customer in partnership with Hatari Internet Technology.
- Guangdong Information Centre of China, a six month, $4.2 million project,
including Primer and UpTime services, to set up the broadband network for
China`s 9th National Games. Guangdong Information Centre of China is a new
customer.
- TA Orange Thailand, a twelve month, $5.6 million contract, including
Primer, UpTime and Insite services, to set up and manage a country wide
network. TA Orange is an existing customer.
- Eastern Broadband Telecommunications, Taiwan, a two year, $4.4 million
network upgrade and iBoss solution contract. Eastern Broadband is an
existing customer.
Australia
(15% of revenues, 11% of operating profit, EBIT margin 3.6%)
The Australian business was impacted by depressed market conditions
during the first half of the year. Customer spend on IT dropped to levels
of late 1999 early 2000. Revenues in Dimension Data Australia were $156
million representing a 22% decline on H1 2001 and a 26% decline on H2 2001
in constant currency terms. The Express Data distribution and Learning
Solutions businesses experienced the largest revenue declines, whilst the
revenue of the Connectivity and Integration Services businesses was
marginally down.
The dearth of significant opportunities in the market has meant that the
environment remained fiercely competitive. However, well contained costs
and a changing mix resulted in the operating margin improving to 3.6% from
2.3% in H2 2001. Express Data and Learning Solutions reduced their
headcounts by 38 and 15 respectively.
Customer buying is currently being motivated by the extraction of greater
efficiencies and utilisation from their past IT investments (Y2K, GST,
Dotcom boom) and spend is being approved based on a demonstrable ROI.
Spending by telcos decreased further following the massive investment of the
last three years, with the only areas of investment being in the Customer
Interactive Solutions and iBoss arenas.
Demand for Surveyor services increased as customers looked for ways of
extracting value from their IT. Other areas of the business that performed
well were the Customer Interactive Solutions and Services, with GSOA
Services such as UpTime and Insite showing steady growth over the period.
New initiatives and focus areas during the period under review included
the formation of a solution led sales team, multiple new Insite and Surveyor
services and new voice solutions. The region also saw success with Dimension
Data`s iBoss solution in the Service Provider sector.
The Australian IT technology and services market appears to have
stabilised with the result that we are forecasting sequential growth on H1
2002. An expected increase in the revenue contribution from the Express
Data business in H2 2002 will mean that, despite cost containments, the
operating margin is likely to be flat on the first half of the year.
The top customer wins during the period included:
- South West Alliance of Rural Hospitals (SWARH), a five year, $5.7 million
IP technology contract, including Primer services. SWARH is an existing
customer.
- National Australia Bank, a one year, infrastructure technology supply
contract as well as Primer and Uptime services. National Australia Bank is
an existing customer.
- Department of Natural Resources and Energy (DNRE), a three year,
infrastructure technology supply and Surveyor, UpTime and Insite services
contract. DNRE is a new customer.
- Telstra, an open ended, iBoss solution and professional services
contract. Telstra is an existing client.
- New South Wales Roads and Traffic Authority (RTA) is a three year
contract for services. The initial web site redevelopment is worth
approximately $450,000 with additional projects in the pipeline. Dimension
Data is also the RTA`s desktop technology partner.
- National Roads and Motorists Association (NRMA), a three year, technology
supply, Primer and UpTime services contract. NRMA is an existing customer.
Europe
(17% of revenues, 28% of operating profit, EBIT margin 7.2%)
Business in Continental Europe in the first half of the year was
characterised by difficult markets and uncertain trading conditions.
Project delays, long lead times, pressure on prices and depressed demand in
the Government and Service Provider industries were all features of the
period under review.
In this environment, driven by market share gains, Dimension Data Europe
did well to report revenues of $188 million, a 7% increase on H2 2001 on an
organic constant currency basis (-4% on H1 2001). Strong growth in the
Central region (Benelux, France and the Netherlands) and good growth in the
Southern region (Switzerland, Spain and Italy) offset a decline in revenues
in the Northern region (Germany and Sweden), flowing from the
rationalisation of the German operations in 2001.
There has been good uptake in GSOA Services but sales cycles remain long.
The Customer Interactive Solutions offering that we are rolling out in all
regions is strong and we have good opportunities and a solid pipeline. We
enjoyed a number of successes with IP Telephony where we also have a strong
offering with little competition.
All regions were profitable and the operating margin increased to 7.2%
from 4.9% in H2 2001. An upward trend in operating margin was a feature of
most countries. Despite lower revenues in Germany, profitability improved
dramatically following the appointment of a new management team and as a
result of improved business mix and a more efficient cost structure.
Overall costs across the region were well contained.
Services margins were ahead of expectations offsetting pressure on
technology margins experienced from large Corporates and Service Providers.
The rollout of new solutions such as Customer Interactive Solutions,
Advanced Architecture solutions and Infrastructure Solutions such as IP
Telephony, Security and Operating system Services, benefited the business
mix.
Dimension Data Europe`s differentiating features are a Pan European
footprint, a broad range of services and a services / solutions sales
approach as well as strong multi-national logistics and project management
capabilities.
The state of the overall European business is solid. Strong focused
management teams are in place in all countries, market awareness and
recognition of the Dimension Data brand is growing and significant progress
has been made in repositioning the business as an IT services and solutions
provider. As a result Dimension Data Europe is well positioned to continue
to grow market share and improve profitability under more favourable market
conditions.
We expect to show modest growth in H2 2002 on H1 2002 driven by further
market share gains and to maintain current margin levels.
The top customer wins during the period included:
- A major mobile telecommunications company, a one year, $3 million
technology supply, Surveyor, Primer and UpTime services contract. This is
an existing customer.
- SNCF (Societe Nationale des Chemins de Fer), a three year, $5 million
annual technology supply and services contract. SNCF is an existing
customer.
- EDF, an initial two year, $2 million infrastructure technology supply and
services contract. EDF is an existing customer.
- Essent Kabelcom, a multi year, $8 million infrastructure technology
supply and services contract. Essent Kabelcom is an existing customer.
- Landratsamt Rosenheim, an ongoing, voice over IP solution contract.
Landratsamt Rosenheim is a new customer.
United Kingdom
(10% of revenues, 9% of operating profit, EBIT margin 4.1%)
Revenue in Dimension Data UK of $103 million was flat on H2 2001 (-25% on
H1 2001) despite a sharp decline in contribution to revenues from the
rationalised agency call centre business, The Merchants Group. Stripping
out the impact of the downsized Merchants Group, revenue in the rest of the
business showed sequential growth of 7%.
Market conditions for the period under review were characterised by
little investment in new IT infrastructure and a lack of large deals.
Customers focused on enhancing existing facilities, outsourcing support and
maintenance services and reducing costs.
Good traction was achieved in most new lines of business: Interactive
Media, Security, Service Providers, iBoss solutions and Customer Interactive
solutions (voice solutions, fixed mobile telephony). Operating Systems and
desktop services however struggled to enter a mature market and Integration
Services underperformed under tough market conditions.
There has been a closer alignment of Integration Services and
Connectivity Services in order to enable them to take business solutions
such as Portals, IP Telephony, Enterprise Content management and Customer
Interactive solutions to market. GSOA services was an area of high
activity. Good growth was achieved in Primer and Insite and significant
opportunities have been identified in Surveyor.
Margin pressure was offset to some degree by an increased contribution
from services revenue. Overall profitability was impacted by losses in The
Merchants Group and the Integration Services business. Stripping these out,
the Connectivity Services business reported profits of $6 million and an
operating margin of 6.7%.
Increased activity in our customer base and requests for tenders in
recent weeks indicate that the market for IT spend in the UK has bottomed.
We expect slightly better trading conditions and revenue growth in H2 2002
over H1 2002.
Although pricing pressures are expected to remain a feature of the
trading environment in H2 2002, an improving services mix should continue to
act as an offset. The rightsizing of The Merchants Group has resulted in
improved utilisation levels and the expectation of a positive contribution
for the full year. This, combined with the rationalisation of property
exposure (inherited with the Proxicom acquisition) and other cost
reductions, should result in improved profitability in H2 2002.
The top customer wins during the period included:
- HSBC, a three year, multi million dollar contract to provide procurement
of infrastructure technologies and supply of Primer and UpTime services to
HSBC worldwide. HSBC is a new customer.
- Shimizu, an eighteen month, $17 million contract to design and implement
the electric cabling infrastructure to a new mixed commercial and
residential development in London. Shimizu is a new customer.
- A major oil company, a $1 million Network capacity upgrade involving
Surveyor, Primer, product procurement and services. This is an existing
customer.
- Wates Construction, an ongoing, $11 million contract to manage every
aspect of design and installation of power and telecommunications
infrastructure to the entire West End Quay construction project, part of the
Paddington Basin Regeneration Scheme, providing 470 residential and 13
retail spaces. Surveyor, Primer and UpTime services are included. Wates
Construction is an existing customer.
- Telewest is an ongoing, multi million dollar, networking and services
contract. Telewest is an existing customer.
United States
(24% of revenues, 0% of operating profit, EBIT margin 0.0%)
The US operation reported revenues of $261 million during a period
characterised by ongoing difficult trading conditions. Excluding the impact
of acquisitions revenues were 3% down on a sequential basis and 1% up on H1
2001. Customers remained focused on reducing costs and increasing
productivity.
In a difficult market the Connectivity Services business held or gained
market share and was successful in the High Availability Storage Solutions,
IP Telephony, Disaster Recovery, Advanced Architectures and Customer
Interactive solutions areas. Technology sales exceeded expectations but
contribution from services fell short of target. Mixed regional
performances were reported with strong growth in the New York region being
offset by revenue declines elsewhere. There is growing customer interest in
our offerings following increased marketing activities and internal sales
and delivery training.
The Integration Services business, which was negatively impacted by
depressed IT budgets and aggressive competition, suffered a sharp decline in
revenue run rates. The business is being repositioned to align it more
closely with the Connectivity Services business and to improve
profitability.
Margins in the Integration Services business were negatively impacted by
pressure on billing rates and pricing pressure was felt in particular in
Fortune 100 clients. Utilisation rates in the Integration Services business
averaged 68% reflecting the recent headcount rationalisations. Overall
profitability was impacted by the overhead cost structure which is high
relative to current revenue levels.
There are indications that the enterprise market outside the Fortune 1000
has bottomed and is starting to show signs of a recovery. However, spend
amongst Fortune 1000 customers remains slow. Opportunities will come from
Operational Services such as Insite and UpTime, where the pipeline is
growing, and from targeting an increased share of customer spend across
lines of business and a greater emphasis on selling solutions that have
market support. Based on the backorders and pipeline going into H2 we
expect revenue growth in H2 2002 on H1 2002.
Some pricing stability in the Integration Services business was noted in
the second quarter and a strong drive to sell a greater mix of services is
being implemented to improve gross margins. There is opportunity for
further rationalisation of the overhead cost structure.
The top customer wins during the period included:
- A large financial services client, an 18 month, technology supply and
services contract that could reach $50 million. The client is an existing
customer.
- A large global pharmaceutical company, a three year, technology supply,
services and consulting contract, including Primer and UpTime services with
revenues to date totaling $9 million. This client is a new customer.
- AOL/Time Warner, a multi million dollar, systems integration, Advanced
Architecture, portal and user interface design contract.
- Mazda, a multi year, multi million dollar, technology supply and services
contract.
- Cubist, a multi year, IP telephony, Customer Interactive and Advanced
Architecture Solutions contract, including integration services and
Surveyor. This project also includes a new generation Web Services
architecture.
PROSPECTS
Leading economic indicators appear to be pointing towards a recovery but
IT spending clearly remains slow. What has changed over the past six
months, however, is the rate of decline in IT budgets. We believe that the
substantial overcapacity in IT has largely been worked through the system
but expect any real increase in IT spend to only follow a sustained
improvement in global corporate profitability. By the end of March 2002
there was a sense in most of the regions in which we operate, that the
markets had bottomed or stabilised.
Whilst we have seen some stability return to our markets over the past
few months, overall trading conditions in all regions remain competitive and
buying cycles are long. Visibility is cloudy and the timing and extent of
an upturn in IT spending remains uncertain. We expect market share gains to
be driven by a mix of enhanced services and solutions offerings, improved
sales capabilities and greater awareness of the Dimension Data brand and we
are anticipating sequential revenue growth on H1 2002.
FINANCIAL REVIEW
Introduction
More than 50% of the Group`s turnover is derived from Dollar, Sterling or
Euro denominated territories. Currency depreciation in the other
territories in which the Group operates, most notably South Africa, has
negatively impacted the reported results for the six months ended 31 March
2002.
The accounting policies used in the preparation of the March 2002
financial statements are consistent with those applied previously, except
for the adoption of FRS 19 - `Deferred Tax` during the period.
Owing to the dramatic downturn in industry trading conditions that
occurred at the beginning of H2 2001 as well as the extent to which the
Group structure changed after H1 2001, comparisons of profit and loss items
discussed in this review are sequential changes between H2 2001 and H1 2002,
unless otherwise indicated.
Turnover
Total turnover including associates declined sequentially by 11% from
$1,235.1 million to $1,102.0 million. This is mainly due to Asia where
turnover declined sequentially by 17%, Australia, which experienced a 26%
sequential decline measured in constant currency and a severe devaluation of
the Rand which impacted Africa`s turnover by $54 million. Revenue from
associate companies declined to $26.6 million, largely due to the decline in
the Rand. The sequential decline in turnover on a constant currency basis
was 7%.
Total operating profit before goodwill amortisation and exceptional items
Total operating profit before goodwill amortisation and exceptional items
declined sequentially by 32% from $58.8 million to $40.3 million. Gross
margins have declined sequentially by 0.2% from 22.6% to 22.4% and the total
operating margin in H1 2002 was 3.7% compared to 4.8% in H2 2001. The
decline in operating margin is largely a result of significant start-up
expenditure incurred by the Group, which has to some extent been off set by
margin improvements generated by solutions sales. Expenditure on the
development of business solutions, global sales capabilities, sales training
and the `DD Way`, all of which are considered to be start-up costs with no
immediate revenue expectations, amounted to $20 million in H1 2002.
Goodwill amortisation
Goodwill amortisation amounted to $383.1 million in H1 2002 compared to
$324.5 million in H2 2001. The increase can largely be attributed to a full
period charge in respect of Proxicom, which was amortised for three months
in H2 2001. Goodwill amortisation in respect of associates has reduced to
$2.0 million as a result of the impairment of the Plessey associate as at
year end.
Operating exceptional items
$21.7 million of the total operating exceptional costs relate to
Datacraft. $6.7 million of this is the amount as disclosed in their January
2002 interim announcement. In April 2002 the Datacraft board further
announced that there was a potential debtors write-off but was unable to
quantify the extent of this at that time. Subsequent investigations into
certain specific debtors in China indicated a requirement for a further
provision of between $19 million and $23 million. The Group has therefore
supplemented its existing provision by $15 million.
Further retrenchments were required in the US in order to rightsize these
businesses to a reduced level of trading. The Merchants Group incurred a
charge of $6.6 million in order to reduce its overhead structure in line
with reduced demand.
Goodwill impairment
The Group performed impairment tests as part of their September 2001 year
end procedures. In terms of FRS 11 - `Impairment of fixed assets and
goodwill` we were required to update these tests with the actual trading
results to 31 March 2002. Owing to the negative trading results in H1 and
the forecasts for H2 2002, this exercise has indicated the requirement for a
further impairment charge to the bundle of US businesses amounting to $320.5
million.
Investment income and net interest receivable
Investment income and net interest receivable have declined from $18.3
million in H2 2001 to $2.5 million in H1 2002 reflecting the outflow of cash
for acquisitions and the general decline in interest rates.
Taxation
The Group`s effective tax rate before amortisation of goodwill and
exceptional items was 25.1% in H1 2002 compared to 24.9% in H1 2001(restated
for FRS 19). This nominal increase is due to the Group being prudent in not
recognising all deferred tax assets arising from trading losses. The tax
shield on operating exceptional items is only 9.2% as a result of certain of
these items not being tax deductible. FRS 19 was adopted during the period,
which is based on full provision for deferred taxation. The comparatives
have been restated to reflect this change. The adoption of FRS 19 has no
effect on Group cashflows.
Equity minority interests
The profit before goodwill amortisation and exceptional items
attributable to equity minority interests decreased sequentially by 33% to
$5.5 million in H1 2002 (H2 2001: $8.1 million), largely reflecting the
decline in contribution by Datacraft.
Loss for the period
An attributable loss of $696.2 million was incurred in the period after
goodwill amortisation amounting to $385.2 million and net exceptional items
of $337.6 million. Attributable profit before goodwill amortisation and
exceptional items amounted to $26.6 million in H1 2002 compared to $59.6
million in H2 2001, a decrease of 55%.
Earnings per share
Earnings per share before goodwill amortisation and exceptional items is
2.0 cents in H1 2002 compared to 4.4 cents in H2 2001.
Dividend
In terms of the Group`s dividend policy no dividend has been declared in
the current period.
Cashflow
The Group`s net cash outflow from operating activities was $74.6 million
in H1 2002 compared to an inflow of $43.0 million in H1 2001. The Group
generated cash from trade debtors but this inflow was significantly offset
by the decline in profitability and the Group being unable to benefit from
trade creditor financing to the same extent as it has in previous periods.
In addition, the Group was required to fund $57.6 million on the settlement
of Proxicom`s lease liabilities. The Group`s working capital has been
financed through internally generated cash and acquisitions have been
financed mainly by cash.
The Group`s capital expenditure and financial investment cash outflow was
$10.3 million for H1 2002 compared to an inflow of $30.8 million in H1 2001
primarily as a result of the H1 2001 results reflecting the sale of a
business.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 31 March 2002
Unaudited Unaudited Unaudited Unaudited Audited
Restated
Restated
Six months Six months Six months Six months Year
ended ended ended ended ended
31 March 31 March 31 March 31 March 30 Sept
2002 2002 2002 2001 2001
Pre- Exceptional
exceptional items
(Note 1) Total Total Total
Note $`000 $`000 $`000 $`000 $`000
Turnover
Group turnover 1,075,415 - 1,075,415 1,200,091 2,401,503
Associates 26,593 - 26,593 25,107 58,755
Total turnover 1,102,008 - 1,102,008 1,225,198 2,460,258
Operating profit before
goodwill amortisation,
impairment and
exceptional items 38,081 - 38,081 119,784 175,970
Exceptional
operating costs - (30,767) (30,767) - (39,331)
38,081 (30,767) 7,314 119,784 136,639
Goodwill amortisation (383,136) - (383,136) (277,341) (601,796)
Goodwill impairment - (320,525) (320,525) - (1,280,610)
Group operating loss (345,055) (351,292) (696,347)(157,557)(1,745,767)
Share of operating
profit in associates 2,192 - 2,192 2,232 4,889
Goodwill amortisation
and impairment
- associates (2,047) - (2,047) - (53,904)
Total operating loss (344,910) (351,292) (696,202)(155,325)(1,794,782)
Profit on sale of
fixed assets and
investments 1 - 450 450 77,696 78,754
Loss on ordinary
activities before
interest (344,910) (350,842) (695,752) (77,629)(1,716,028)
Investment income 521 - 521 1,200 3,603
Net interest
receivable 1,958 - 1,958 36,366 52,266
Loss on ordinary
activities
before taxation (342,431) (350,842) (693,273) (40,063)(1,660,159)
Tax on loss on
ordinary activities 2 (10,727) 2,838 (7,889) (39,730) (43,552)
Loss on ordinary
activities
after taxation (353,158) (348,004) (701,162) (79,793)(1,703,711)
Equity minority
interests (5,454) 10,435 4,981 (15,674) (19,948)
Loss for the period (358,612) (337,569) (696,181) (95,467)(1,723,659)
Earnings/(loss)
per share US cents US cents US cents
Basic earnings before
goodwill amortisation and
exceptional items
per ordinary share 3 2.0 8.6 13.0
Basic loss
per ordinary share 3 (53.6) (7.9) (137.3)
CONSOLIDATED BALANCE SHEET
as at 31 March 2002
Unaudited Unaudited Audited
Restated Restated
31 March 31 March 30 Sept
2002 2001 2001
$`000 $`000 $`000
Fixed assets
Intangible assets 2,122,700 3,685,394 2,805,554
Tangible assets 113,966 112,663 136,591
Investments in associates 20,905 90,953 27,122
Other investments 19,486 16,980 19,697
2,277,057 3,905,990 2,988,964
Current assets
Stock 101,889 148,166 101,030
Debtors 636,025 649,459 711,022
Short term investments 8,150 36,109 26,114
Cash at bank and in hand 622,063 1,412,162 893,966
1,368,127 2,245,896 1,732,132
Creditors: amounts falling due
within one year
(including convertible debentures) (1,024,388) (1,133,666) (1,289,047)
Net current assets 343,739 1,112,230 443,085
Total assets less current liabilities 2,620,796 5,018,220 3,432,049
Provisions for liabilities and charges (29,708) (20,505) (87,383)
Equity minority interests (94,964) (111,579) (101,907)
Total net assets 2,496,124 4,886,136 3,242,759
Capital and reserves
Equity shareholders` funds 2,496,124 4,886,136 3,242,759
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 31 March 2002
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 March 31 March 30 Sept
2002 2001 2001
Note $`000 $`000 $`000
Net cash (outflow)/inflow
from operating activities 4 (74,595) 43,011 186,342
Returns on investments
and servicing of finance 3,087 37,283 58,125
Taxation (16,327) (29,842) (50,059)
Capital expenditure
and financial investment (10,291) 30,750 15,662
Acquisitions and disposals (136,598) (360,199) (944,095)
Cash outflow before use of
liquid resources and financing (234,724) (278,997) (734,025)
Management of liquid resources 13,283 (18,071) (10,269)
Financing 84 70,309 24,242
Decrease in cash in the period (221,357) (226,759) (720,052)
Reconciliation of net cash flow to
movement in net cash
Decrease in cash in the period (221,357) (226,759) (720,052)
Cash outflow from decrease in debt - - 44,057
Cash (inflow)/outflow from
(decrease)/increase in liquid resources (13,283) 18,071 10,269
Change in net cash resulting
from cash flows (234,640) (208,688) (665,726)
Non-cash movement in debt (749) - (3,122)
Translation difference (50,027) (34,227) (73,127)
Movement in net cash for the period (285,416) (242,915) (741,975)
Net cash at beginning of the period 564,019 1,305,994 1,305,994
Net cash at end of the period 278,603 1,063,079 564,019
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the six months ended 31 March 2002
Unaudited Unaudited Audited
Restated Restated
Six months Six months Year
ended ended ended
31 March 31 March 30 Sept
2002 2001 2001
$`000 $`000 $`000
Loss for the period (696,181) (95,467) (1,723,659)
Currency translation diffe
