| Wed 14 May 2003, 9:57 | | Dimension Data Holdings Plc - Unaudited Interim Re |
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Dimension Data Holdings plc - Unaudited Interim Results Six Months ended 31
March 2003
ISIN: GB0008435405
JSE Share code: DDT
Dimension Data Holdings plc ("Dimension Data" or the "Group"), a leading global
technology Group, announces its results for the six months ended 31 March 2003.
Financial Results
* Total turnover of $1,012.5 million (H2 2002: $1,085.3 million)
* Total operating loss before goodwill amortisation and exceptional items $4.5
million (H2 2002: Profit $5.2 million)
* Net loss on ordinary activities before goodwill amortisation and exceptional
items $6.3 million (H2 2002: Profit $3.5 million). Total loss $194.9
million (H2 2002: $1,887.7 million)
* Basic loss per share before goodwill amortisation and exceptional items 0.5
cents (H2 2002: Earnings 0.3 cents). Basic loss per share 14.5 cents (H2
2002: 145.3 cents)
* All regions other than the US were profitable at the operating level
* Cash at bank and in hand amounted to $292.0 million
Sequential profit and loss analysis
(Before goodwill amortisation and exceptional items)
Unaudited Unaudited
Six months ended Six months ended
31 March 2003 30 September 2002
$"000 $"000
Turnover
Group turnover 977,818 1,045,147
Associates 34,693 40,176
Total turnover 1,012,511 1,085,323
Operating (loss)/profit before goodwill
amortisation and exceptional items (7,039) 2,881
Share of operating profit in associates 2,536 2,272
Total operating (loss)/profit (4,503) 5,153
Investment income 2,186 819
Net interest (payable)/receivable (1,224) 646
(Loss)/profit before taxation (3,541) 6,618
Taxation (6,444) (2,734)
(Loss)/profit after taxation (9,985) 3,884
Equity minority interests 3,654 (355)
(Loss)/profit for the period before
goodwill amortisation and exceptional items (6,331) 3,529
US cents US cents
Basic (loss)/earnings before goodwill
amortisation and exceptional items
per ordinary share (0.5) 0.3
Unaudited Unaudited
Six months ended Six months ended
31 March 2003 30 September 2002
$"000 $"000
Reconciliation to consolidated profit and
loss account
(Loss)/profit for the period before
goodwill amortisation and exceptional items (6,331) 3,529
Goodwill amortisation - subsidiaries (166,585) (336,813)
Goodwill amortisation - associates (1,613) (2,284)
Net exceptional items (20,324) (1,552,141)
Loss for the period as presented in the
consolidated profit and loss account (194,853) (1,887,709)
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
2003 2002 2002 2002
Turnover
Africa 170,988 137,391 155,475 292,866
Asia 166,808 193,899 211,009 404,908
Australia 157,123 208,188 156,421 364,609
Continental Europe 183,400 172,377 188,397 360,774
United Kingdom 114,089 90,471 103,181 193,652
United States 182,897 242,821 260,932 503,753
Other* 2,513 - - -
Group 977,818 1,045,147 1,075,415 2,120,562
Associates 34,693 40,176 26,593 66,769
Total 1,012,511 1,085,323 1,102,008 2,187,331
Operating (loss)/profit
Africa 10,900 6,090 13,937 20,027
Asia 26 4,979 11,982 16,961
Australia 3,430 4,562 5,626 10,188
Continental Europe 3,065 5,089 13,602 18,691
United Kingdom 4,633 4,460 4,184 8,644
United States (11,514) (9,137) 116 (9,021)
Other* (17,579)** (13,162)** (11,366) (24,528)
Group (7,039) 2,881 38,081 40,962
Associates 2,536 2,272 2,192 4,464
(4,503) 5,153 40,273 45,426
Goodwill amortisation (168,198) (339,097) (385,183) (724,280)
Operating exceptional items (14,311) (1,553,475) (351,292) (1,904,767)
Total operating loss (187,012) (1,887,419) (696,202) (2,583,621)
Operating margin
Africa 6.4% 4.4% 9.0% 6.8%
Asia 0.0% 2.6% 5.7% 4.2%
Australia 2.2% 2.2% 3.6% 2.8%
Continental Europe 1.7% 3.0% 7.2% 5.2%
United Kingdom 4.1% 4.9% 4.1% 4.5%
United States (6.3%) (3.8%) 0.0% (1.8%)
Group (0.7%) 0.3% 3.5% 1.9%
Associates 7.3% 5.7% 8.2% 6.7%
Total (0.4%) 0.5% 3.7% 2.1%
* Comprises Investment holding and management and Protocol
** Group $6.6 million (H2 2002: $5.8 million) and Solutions and Services $10.9
million (H2 2002: $7.4 million). Group costs include Investment holding and
management and Protocol. Solutions and Services comprise costs associated with
the development and implementation of Solutions which are not allocated to
regions.
Turnover analysis by service offerings
Six months ended United United
31 March 2003 Africa Asia Australia Europe Kingdom States Total
$"000 $"000 $"000 $"000 $"000 $"000 $"000
Product 53,733 100,403 116,238 115,210 37,485 134,186 557,255
Managed
services* 78,958 34,152 18,174 42,245 52,883 12,183 238,595
Professional
services 38,297 32,253 22,711 25,945 23,721 36,528 179,455
Group** 170,988 166,808 157,123 183,400 114,089 182,897 975,305
Six months ended
30 September 2002
Product 48,990 121,027 167,698 118,059 36,705 183,278 675,757
Managed
services* 42,677 31,692 25,587 34,415 41,855 6,076 182,302
Professional
services 45,724 41,180 14,903 19,903 11,911 53,467 187,088
Group 137,391 193,899 208,188 172,377 90,471 242,821 1,045,147
* Being process driven revenues of a recurring nature.
** Excludes Investment holding and management and Protocol.
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 Six months Six months Year
ended ended ended ended
31 March 2003 30 Sept 2002 31 March 2002 30 Sept 2002
Currency Average Period Average Average Period Average Period
end end end
South African Rand 8.734 8.015 10.039 11.107 11.335 10.606 10.560
Australian Dollar 1.739 1.666 1.786 1.935 1.874 1.850 1.841
Sterling 0.633 0.635 0.628 0.697 0.701 0.664 0.641
Euro 0.961 0.926 0.975 1.136 1.149 1.059 1.019
Key points
* Focus on cash management and significant achievements in this regard in
regions of poor profit performance.
* Raised $100 million by way of a 5.375% 2009 unsecured convertible bond.
* Settled 2002 convertible debentures of $100 million and settled
substantially all acquisition vendor liabilities.
* Continued investment in strategy execution.
* Dollar weakness against major trading currencies.
Chairman"s Commentary
The past year has required a high degree of internal focus. We have carefully
evaluated how the Group operates and how it delivers to all stakeholders.
Dimension Data"s key differentiator in these difficult markets is its ability to
provide cost effective Application Network solutions to a global client base
across its global footprint. The development of solutions which transcend
geographic boundaries is paramount in achieving this end. In addition to
continued progress in our global disciplines, we have integrated businesses
across different regions, improved our business models and realigned reporting
structures.
It is now time to sharpen the external focus. Our clients are demanding ever-
higher returns on their investments and are therefore looking for effective
integrated solutions that can achieve those returns. Our mandate is to deliver
those solutions and to ensure we become invaluable to our clients in the
process.
To achieve this, we have become more pro-active in our engagement with clients.
We have enhanced our sales approach and we continue to develop long-standing
relationships with suppliers and value-enhancing partnerships at all levels.
Simply put, we are focusing on the fundamentals of doing good business.
However, in tough markets it is imperative to do things better than our
competitors. We have an extensive global footprint that enables us to offer an
integrated service. We have experienced teams across the business, which allow
for the cross-utilisation of skills from different regions, ensuring that we can
deliver the most efficient and cost-effective solutions to our clients. We also
have dedicated resources to accelerate the roll out of solutions and services to
our global client base.
We have managed to secure several high-level contracts such as those detailed in
the regional reviews. Although the recent wins are evidence of the continued
success of our global offering, we have stated in the past that our renewed
focus on tangible change and transforming to a fully-fledged Application Network
services and solutions group will not flow through to improved results
immediately.
In the period under review, we reported an operating loss before goodwill
amortisation and exceptional items. This was disappointing for all of us, and
was due in the main to pressures in the US and Asian operations, as outlined in
our trading statement in March 2003. However, we are confident that measures
which are being taken in both of these businesses will ensure that they return
to an acceptable level of profitability. All other regions performed
satisfactorily.
Our cash position remains favourable and provides the Group with the opportunity
to introduce new solutions offerings to the market place.
Going forward, our challenge is to continue to work harder and smarter to return
loss making operations to profitability, increase client penetration, grow sales
and margins and enhance the value of our proprietary technology and brands.
Markets look set to remain tough and we will continue to align our cost base to
match economic conditions, if necessary. Despite these external pressures, we
must continue the momentum of change throughout the Group to effect tangible and
sustainable results.
Enquiries:
Dimension Data Holdings plc
Jeremy Ord, Executive Chairman
Malcolm Rutherford, Group Chief Financial Officer
David Sherriffs, Investor Relations (UK)
Mobile: +(44) 777 185 4177
Office: +(44) 20 7651 7000
David.Sherriffs@uk.didata.com
Bronwyn Goeller, Investor Relations (SA)
Mobile: +(27) 83 296 6910
Office: +(27) 11 575 0000
Bronwyn.Goeller@za.didata.com
Internet address: www.didata.com
Brunswick Group
Tom Buchanan
+(44) 20 7404 5959
Note:
All references to $ are to US$
All references to gross and operating margins are before goodwill amortisation
and exceptional items
H1 2002 refers to the six months ended 31 March 2002
H2 2002 refers to the six months ended 30 September 2002
H1 2003 refers to the six months ended 31 March 2003
H2 2003 refers to the six months ending on 30 September 2003.
OPERATIONAL REVIEW
Operating conditions throughout the Group remained challenging during the
period. The market was characterised by constrained budgets, incremental
spending in preference to large projects, and continued preference for
enhancing, rather than replacing, existing IT systems. The uncertain global
economy and geopolitical climate contributed to the general caution with which
our customers are assessing IT spend decisions.
Dimension Data continued to focus on migrating its business mix towards the
provision of services and solutions, and on enhancing the contribution from
recurring revenues. Pleasing progress was made in the provision of Managed
Services, and the resilience of operations where Managed Services is a strong
component of the business mix is witness to the importance of this transition.
Our Business Solutions areas - Security, IP Convergence (IPC), Customer
Interactive Solutions (CIS) and Service Provider Solutions (SPS) - are crucial
to maintaining our position as a leading edge Application Network Integrator,
and the strong investment in these focus areas resulted in a pleasing
performance across the Group. Security solutions grew strongly, particularly in
the area of the Managed Services, reflecting strong customer demand for secure,
trusted and controlled IT environments. Customer demand for the infrastructure
efficiencies and business opportunities generated by the consolidation of multi-
media IP networks underpinned performance in the IPC area. CIS revenues were
robust, particularly in the UK and SA. Prospects in this area, as customers
seek to retain and increase the value of their customer base through multiple
communication channels, remain good, especially in the area of facilities and
operations outsourcing. SPS remains a strong contributor to Group turnover and
sales to telecommunications companies and other service providers accounted for
22% of total turnover.
Africa
Dimension Data"s African region recorded an 8% increase in constant currency
revenues for the period, which was a very solid performance in difficult market
conditions, confirming the Group"s position as a leader in the South African IT
services market.
Gross margins were 0.7% lower sequentially. However taking account of the
reallocation of certain personnel costs from fixed overheads to cost of sales,
like-for-like gross margin improved by 0.5% sequentially.
Cost containment was a feature of the period, with SA rand fixed costs down by
3%. Headcount was down by 10%, reflecting the business"s evolution from
discreet business units to a solutions-based operation.
The Group"s strategy implementation programme, the "DD Way" continued to show
dividends and renewed emphasis is being placed on external focus and effective
client engagement.
Black economic empowerment remains an important initiative for the Group in
South Africa and substantial progress continues to be made in achieving the
targets set out by the Group"s black empowerment charter. These include new
appointments, partnerships, supplier relationships, internal training and
leadership initiatives aimed at creating representation across all staffing
levels.
Customer wins during the period included;
* Sappi (a new customer): a three year, $1.4 million Managed Services
contract for the desktop, server and LAN switching environments.
* Adcorp Flexible Staffing (an existing customer): a five year, $3.2 million
Managed Services contract for the desktop, server and LAN switching
environments.
* Macsteel International (a new customer): a five year, $6.4 million
outsourcing and Insite contract with a locally hosted SAP solution,
international VPN connectivity as well as a hosted calldesk.
* Standard Bank (an existing customer): a $3.0 million CIS contract including
Professional and Managed Services.
* South African Breweries (an existing customer): a three year, $1.4 million
Professional Services and Managed Services contract.
Asia
Trading conditions in most countries in which Datacraft Asia operates remained
challenging, with revenues declining by 14% sequentially. Demand from the
enterprise and telecom service provider sectors was subdued in the face of
continuing economic uncertainties.
The reduction in business volume resulted in a decline in gross margins during
the period. As a result of actions taken to reduce overcapacity, and the easing
of pricing pressure on product margins, gross margin appears now to have
stabilised.
Strict cost containment was a feature of the period, with overheads being
reduced by 13% and headcount down by 20%. The six months also saw the
rationalisation of some of Datacraft"s Cabling and Application businesses.
Across the region, operating performances were mixed. Reasonable profit
contributions were recorded by India, Thailand, Hong Kong and Taiwan. Korea and
Japan returned to profitability towards the end of the period. China, however,
has yet to return to profitability and a further reduction in overheads was
implemented towards the end of the period. Across the region, there were
encouraging signs in the Solutions area, particularly in Security with strong
revenue growth for the period.
In a difficult market environment, Datacraft continued to focus on working
capital management and the operation generated cash during the period.
Visibility across the business remains limited, and it is difficult to predict
the impact of SARS on the operations in certain regions, notably China, Hong
Kong, Taiwan and Singapore. Datacraft will stay focused on growing its
Solutions and Services and on improving margins through productivity improvement
and cost controls.
Customer wins during the period included:
* State Bank of India (an existing customer): a one year, $17.0 million
contract for the second phase of its network expansion. Datacraft India is
the key systems integration partner responsible for all Professional and
Managed Services for SBI and its seven associated banks.
* Major service provider in Korea (a new customer): a five month, $1.2
million iBoss contract to build an integrated AAA (Authentication,
Authorisation and Accounting) system that will secure and manage all user
access to the customer"s ADSL and WLAN networks.
* Federal Bank of India (a new customer): a multi month, $1.0 million project
to set up a high speed network connecting the bank and its 140 branches,
including the provision of Professional Services and a three year Uptime
contract.
* A global financial institution (an existing customer): a one year, $1.6
million Uptime contract covering the customer"s network in Japan and five
countries in Asia Pacific.
* TT&T (an existing customer): a one year, $2.0 million contract for network
expansion including Professional and Managed Services.
Australia
Sequential comparison of Australian revenues is made difficult by the
traditional seasonality of the business, as well as the inclusion in H2 2002 of
approximately $15.0 million of Microsoft software license upgrades at low
margin. Compared to H1 2002, revenues from the Network Integration business
declined by 6%, and revenues from the distribution business, Express Data,
declined by 12%.
Dimension Data maintained its market leadership position in Australia. The
focus continued to be on improving the contribution from Solution areas such as
CIS, Security and SPS, and ensuring the transition towards Managed and
Professional Services.
The overall gross margin improved sequentially, although it was lower than H1
2002. This reflected the stabilisation of product pricing pressure and an
improved mix of higher value-added services relative to the prior period.
A sharp focus on cost containment saw fixed overheads reduce by 18% in constant
currency.
Customer wins during the period included:
* A large finance company (an existing customer): a one year, $2.1 million
Managed Services and Professional Services contract, including connectivity
and Security solutions.
* North West and New England Broadband Telecommunications Network (a new
customer): a multi year, $6.6 million Professional Services and Managed
Services project to develop a high speed broadband service to deliver
voice, data and video for health and education services.
* A major insurance company (an existing customer): a three year, $0.4
million CIS contract to provide Professional and Managed Services.
* A pharmaceutical manufacturer (an existing customer): a $0.4 million
contract to enhance and expand a previously supplied Storage solution.
* Boral Ltd (an existing customer): a three year, multi million dollar
contract. Dimension Data have been appointed as Boral"s Microsoft Large
Account Reseller.
Europe
The Group"s Continental European region recorded a solid performance for the
period, despite subdued market conditions, with constant currency revenues
improving by 5% sequentially.
Although pressures on product margins continued to be evident in some countries,
particularly Germany and France, conditions in the rest of Europe appear to have
stabilised.
Within the region, Belgium, Luxembourg, the Netherlands, Italy, Sweden and Spain
all recorded pleasing performances, particularly in the Solution areas of IPC
and Security. Germany was less robust, reflecting a generally weak macro
economic environment over the period, strong competition and pricing pressures.
The DD Way initiative - and the imperative to increase the contribution from
Managed Services and Professional Services - continues to be a central thrust
across all countries. Furthermore, with the Continental European operation"s
established centres of excellence, the region is well placed to benefit from the
development of tailored solutions for targeted industry verticals across the
region.
Customer wins included:
* Belgacom Mobile (a new client): a one year, $0.5 million, CIS contract to
deliver a complex routing multimedia solution across a virtual contact
centre operating more than 800 agents.
* NMBS, Belgium"s national railway company (a new client): a $5.7 million
contract to provide network infrastructure support.
* Sudwestrundfunk (SWR), a major German TV and radio broadcaster (an
existing client): a three year $1.2 million Managed Services contract to
provide systems and network management.
* Leading global logistics company (an existing customer): one year multi
million dollar CIS contract for the integration and efficient management
of its EMEA contact centres.
* A leading car manufacturer (a new customer): the latest phase in an
ongoing multi million dollar contract to launch an e-business channel
throughout Europe.
* Telef nica Deutschland, Germany"s largest independent IP Carrier (an
existing customer): an IPC contract in excess of $1.2 million to enhance
Telef nica"s converged voice services.
United Kingdom
In the UK, overall constant currency revenues increased by 27%, reflecting a
very good performance from the Network Integration business in tight market
conditions.
These results reflect the benefits of the changes implemented in the prior
period, with a new management team focused on enhancing the sale of services and
solutions, on maintaining and expanding the customer base, and on improving the
contribution from recurring revenues and Managed Services. The business has
seen growth in its Solutions offerings, and its focus on Professional and
Managed Services has been rewarded with good revenue growth in these areas.
The gross margin over the period was lower than that for H2 2002. This resulted
from a re-allocation in the current year of certain personnel costs from fixed
overheads to cost of sales, as well as the higher proportion of revenues derived
from FMT - the UK"s mobile switching technology offering.
The Group"s call centre business, The Merchants Group, recorded slightly lower
revenues for the period, although the outlook for this business is encouraging
due to a number of recent wins.
The emphasis in the second half will remain on managing and growing the customer
base - both in its traditional sectors (financial services, telecommunications
and media) and in areas such as the public sector where there are expected to be
significant opportunities - as well as on improving the contribution from
Managed and Professional Services.
Customer wins during the period included:
* A leading international financial services company (a new customer): three
year, multi million dollar contract to procure and support networking
technology to all the company"s offices outside the US.
* A global leader in oilfield services (a new customer): a multi million
dollar Professional Services contract establishing a converged IP
infrastructure for the roll out of an IPC solution at its new European
headquarters in Scotland.
* Manchester United (an existing customer): secured approval for second phase
of a three year, multi million dollar contract to implement a CRM programme.
* A global reinsurance company (a new customer): a one year, $3.9 million
network infrastructure contract for new landmark headquarters building in
the City of London.
* David McLean Group (a long term customer): a six month, $3.9 million
project to undertake the design and installation of all the IT, voice, fire
alarm and security infrastructure for Liverpool Grand Station student
accommodation.
United States
Continued difficult trading conditions for the Group"s US region resulted in a
25% decline in revenues and an operating loss for the period. This decline in
revenues reflected revenue contractions in both our Network Integration and
Application divisions, as well as the impact of the sale of the training
business on 1 October 2002.
The Network Integration business was particularly affected, with overall
revenues declining sequentially by 24%. This decline was due mainly to New York
where reliance on the financial services sector saw significant reductions in
volume. Other territories - the South-East, Washington and Boston - saw
stabilisation in revenues. The challenging market conditions forced further
consolidation and rationalisation in the competitive landscape in the US during
the period.
At the revenue line, despite some encouraging customer wins, the Application
business was also impacted, particularly in the second quarter of the year.
Nonetheless, this business made a small profit for the period following a
successful turnaround plan that was implemented in the second half of last year.
This is pleasing given the substantial losses last year.
Product gross margins were still under pressure, but showed signs of stabilising
relative to the prior period. Gross margin on services in the Network
Integration business was severely impacted by pricing pressures flowing from the
rapid commoditisation of project based services in the US, as well as under-
utilisation of capacity. Conversely, Managed Services offerings showed good
growth during the period.
The Group took further steps to rationalise the Network Integration business and
has been restructuring its services delivery model to bring costs more in line
with market conditions. Overall headcount declined by 23% and fixed costs by
20%. Working capital improvements resulted in the operation being cash
generative for the period.
In the second half of the financial year, the focus of the US region will be on
managing the cost base to match sustainable revenue levels, as well as on
continuing to transition towards more resilient, value-added services and
solutions. Access to lower cost offshore delivery capabilities elsewhere in the
Group is a key opportunity, and underlines the strength of the Group"s global
model.
Customer wins during the period included:
* A large retail drug chain (an existing client): a multi million dollar
back-up and recovery (business continuity) Professional Services and
Managed Services contract, including high availability storage.
* A global finance company (an existing client): a three year, multi million
dollar contract to design, develop, host, deploy, and maintain the company
Website.
* A food industry conglomerate (an existing customer): a five year, $7.0
million Managed Services contract.
* Travel Planners Inc (an existing customer): a one year, $0.5 million
Professional Services and Managed Services contract around Travel Planners"
online presence.
* A large financial institution (an existing customer): a $4.0 million
connectivity solution including mainly Professional Services and
procurement.
FINANCIAL REVIEW
Introduction
Dimension Data is listed on the London Stock Exchange and the JSE Securities
Exchange and is required to comply with UK reporting requirements.
The accounting policies used in the preparation of the March 2003 financial
statements are consistent with those applied previously. All comparisons of
profit and loss items discussed in this review are sequential changes between H2
2002 and H1 2003, unless otherwise indicated.
Group Operating Performance
Turnover
Total turnover including associates was $1,012.5 million (H2 2002: $1,085.3
million). There were no major changes in the geographical mix of turnover. The
weakness of the US dollar against the basket of other currencies in our
territories was significant. For example, the average rate sequential
depreciation of the dollar against the SA rand was 13%.
The Group"s migration towards the provision of solutions and services in the
Application Networks space has continued. The success of this strategy and the
manner in which we go-to-market is evidenced by the improvement in Managed
Services in most regions.
Gross margin
Market pressures on pricing of product and associated services make it
misleading to look at turnover as the only measure of progress towards a
solutions based approach. Consideration has to be given to the gross margin
contribution in each region. Like-for-like gross margin improved by 0.4%
sequentially.
Overheads
Fixed overheads excluding associates were $202.9 million. Overhead cost savings
of $17.2 million and the reallocation of certain personnel costs of $10.5
million to cost of sales, were partly offset by currency translation differences
of $10.9 million.
Fixed overheads do not, however, reflect the Group"s total cost base. Included
in cost of sales is a personnel cost of $112.0 million (headcount of 5,351) and
infrastructure costs of $20.9 million. These have also been subject to
rationalisation programmes, where headcount was reduced by 7.5%.
The Group continues to invest in the execution of its strategy. In the current
period the Group expensed $10.9 million relating to Services and Solutions
development, which is an increase of $3.5 million sequentially.
Taxation
Whilst the Group reported an overall loss before goodwill amortisation and
exceptional items, certain territories in which the Group operates reported
profits. As a consequence the Group recorded an overall tax charge of $6.4
million (excluding exceptional items).
The Group has significant deferred tax assets, the majority of which are not
recognised within the Group financial statements on the basis that their
recoverability cannot be forecast with sufficient certainty to meet the
recognition criteria under FRS 19. However, the Group has recognised deferred
tax assets with respect to tax losses on timing differences where the Group
considers that it is more likely than not that these assets can be recovered
within the foreseeable future. To the extent that deferred tax assets have not
been provided, available tax losses will have a positive effect on the Group"s
effective tax rate in the future.
Goodwill
Goodwill amortisation amounted to $166.6 million in H1 2003 compared to $336.8
million in H2 2002. The decrease is due to the significant decline in the
goodwill balance resulting from impairments in the 2001 and 2002 financial years
and some earlier goodwill has exhausted itself. Impairment reviews performed
indicated no requirement for further impairment in the current period.
Operating exceptional items
Costs incurred in restructuring and downsizing resulting from deteriorating
economic conditions, are treated as exceptional. Costs incurred to improve
efficiencies and to accommodate the Group"s go-to-market model, are borne within
normal trading operations.
Operating exceptional costs relate to severance and other associated costs of
$3.3 million in Datacraft and $2.6 million in the US. An amount of $0.6 million
has been written off capital assets in Datacraft.
Liquidity and Capital Resources
Cash at bank and in hand was $292.0 million at 31 March 2003.
For the period there was a net cash outflow from operating activities of $42.2
million driven primarily by a decline in creditors of $70.1 million. Creditors
days have reduced as our mix of suppliers changes and creditors are less
flexible on the imposition of terms. Furthermore, creditors at year end contain
certain accruals which are not as significant at half year.
It is not uncommon for the Group to experience higher working capital
requirements in the first half of the year than in the second. For example, in
FY 2002 the Group converted a cash outflow in the first half of the year of
$74.6 million to a cash inflow for the full year of $29.0 million. We expect a
similar dynamic this year.
There remain $9.0 million of vendor liabilities, of which $6 million is to be
paid by year end.
During the period the $100 million 2002 convertible debentures were redeemed. A
$100 million convertible bond bearing a coupon of 5.375% and repayable in 2009
was issued in the period.
Capital reduction
The capital reduction referred to in the 2002 Annual Report and Notice of Annual
General Meeting became effective on 20 March 2003. The share premium account was
reduced by an amount of $4,334.1 million, which was applied to eliminate the
deficit on the Company"s profit and loss account at 30 September 2002. The
share premium account was further reduced by an amount of $342.4 million to
create a special reserve. This amount is available to be applied against any
goodwill amortisation and impairment charges charged in the Group consolidated
profit and loss account. An amount of $166.6 million has been applied against
the goodwill amortisation charge for the period ended 31 March 2003. The
Company must also credit to the special reserve any distribution from a company
which was a subsidiary at the effective date of profits earned prior to 1
October 2002. The special reserve is not available for distribution unless all
creditors whose debts or claims were outstanding at the effective date, unless
such creditors have consented otherwise, are adequately protected.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 31 March 2003
Note Unaudited Unaudited Unaudited Unaudited Audited
Six months Six months Six months Six months Year
ended ended ended ended ended
31 March 31 March 31 March 31 March 30 Sept
2003 2003 2003 2002 2002
Pre- Exceptional
exceptional items
(Note 1) Total Total Total
$"000 $"000 $"000 $"000 $"000
Turnover
Group turnover 977,818 - 977,818 1,075,415 2,120,562
Associates 34,693 - 34,693 26,593 66,769
Total turnover 1,012,511 - 1,012,511 1,102,008 2,187,331
Operating (loss)/profit
before goodwill
amortisation,
impairment and
exceptional items (7,039) - (7,039) 38,081 40,962
Exceptional
operating costs - (6,543) (6,543) (30,767) (60,251)
(7,039) (6,543) (13,582) 7,314 (19,289)
Goodwill amortisation (166,585) - (166,585) (383,136) (719,949)
Goodwill and
investment impairment - (7,768) (7,768) (320,525) (1,805,705)
Group operating loss (173,624) (14,311) (187,935) (696,347) (2,544,943)
Share of operating
profit in associates 2,536 - 2,536 2,192 4,464
Goodwill amortisation
and impairment -
associates (1,613) - (1,613) (2,047) (43,142)
Total operating loss (172,701) (14,311) (187,012) (696,202) (2,583,621)
(Loss)/profit on sale
of fixed assets
and investments 1 - (8,562) (8,562) 450 366
Loss on ordinary
activities before
interest (172,701) (22,873) (195,574) (695,752) (2,583,255)
Investment income 2,186 - 2,186 521 1,340
Net interest
(payable)/receivable (1,224) - (1,224) 1,958 2,604
Loss on ordinary
activities before
taxation (171,739) (22,873) (194,612) (693,273) (2,579,311)
Tax on loss
on ordinary
activities 2 (6,444) 654 (5,790) (7,889) (11,111)
Loss on ordinary
activities after
taxation (178,183) (22,219) (200,402) (701,162) (2,590,422)
Equity minority
interests 3,654 1,895 5,549 4,981 6,532
Loss for the period (174,529) (20,324) (194,853) (696,181) (2,583,890)
(Loss)/earnings per share US cents US cents US cents
Basic (loss)/earnings
before goodwill
amortisation and
exceptional items
per ordinary share 3 (0.5) 2.0 2.3
Basic loss per
ordinary share 3 (14.5) (53.6) (198.9)
CONSOLIDATED BALANCE SHEET
as at 31 March 2003
Unaudited Unaudited Audited
31 March 31 March 30 Sept
2003 2002 2002
$"000 $"000 $"000
Fixed assets
Intangible assets 167,728 2,122,700 342,439
Tangible assets 108,790 113,966 105,380
Investments in associates 34,809 20,905 26,016
Other investments 34,158 19,486 30,343
345,485 2,277,057 504,178
Current assets
Stock 92,733 101,889 99,100
Debtors 555,739 636,025 565,236
Short term investments 15,105 8,150 42,786
Cash at bank and in hand 292,005 622,063 372,566
955,582 1,368,127 1,079,688
Creditors: amounts falling
due within one year (531,977) (1,024,388) (737,026)
Net current assets 423,605 343,739 342,662
Total assets less current liabilities 769,090 2,620,796 846,840
Creditors: amounts falling
due after more than one year (123,792) - (17,045)
Provisions for liabilities and charges (41,177) (29,708) (88,223)
Equity minority interests (99,750) (94,964) (102,259)
Total net assets 504,371 2,496,124 639,313
Capital and reserves
Equity shareholders" funds 504,371 2,496,124 639,313
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 31 March 2003
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 March 31 March 30 Sept
2003 2002 2002
$"000 $"000 $"000
Group operating loss (187,935) (696,347) (2,544,943)
Depreciation 24,193 24,170 48,277
Goodwill amortisation and
impairment and investment impairment 174,353 703,661 2,525,654
Loss on sale of tangible fixed assets 1,388 - 8,956
Decrease in stock 4,935 622 3,411
Decrease in debtors 12,579 80,024 169,754
Decrease in creditors (70,115) (187,096) (184,483)
Other non-cash items (1,630) 371 2,326
Net cash (outflow)/inflow
from operating activities (42,232) (74,595) 28,952
Returns on investments and
servicing of finance 2,288 3,087 5,156
Taxation (15,118) (16,327) (34,134)
Capital expenditure and financial investment (20,529) (10,291) (68,948)
Acquisitions and disposals (65,965) (136,598) (173,516)
Cash outflow before use of
liquid resources and financing (141,556) (234,724) (242,490)
Management of liquid resources 29,033 13,283 (20,884)
Financing (1,367) 84 (217,358)
Decrease in cash in the period (113,890) (221,357) (480,732)
Reconciliation of net cash flow to
movement in net cash:
Decrease in cash in the period (113,890) (221,357) (480,732)
Cash outflow from decrease in debt 1,367 - 217,435
Cash (inflow)/outflow from
(decrease)/increase in liquid resources (29,033) (13,283) 20,884
Change in net cash resulting from cash flows (141,556) (234,640) (242,413)
Non-cash movement in debt (1,377) (749) (1,498)
Translation difference 31,390 (50,027) (25,336)
Movement in net cash for the period (111,543) (285,416) (269,247)
Net cash at beginning of the period 294,772 564,019 564,019
Net cash at end of the period 183,229 278,603 294,772
Analysis of net cash:
Cash at bank and in hand 292,005 622,063 372,566
Bank overdraft (89) (22,500) (2,168)
Debt due within one year - (329,110) (101,367)
Debt due more than five years (123,792) - (17,045)
Short term investments 15,105 8,150 42,786
Total 183,229 278,603 294,772
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the six months ended 31 March 2003
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 March 31 March 30 Sept
2003 2002 2002
$"000 $"000 $"000
Loss for the period (194,853) (696,181) (2,583,890)
Currency translation differences
on foreign currency net investments 46,117 (50,876) (20,700)
Total recognised losses relating
to the period (148,736) (747,057) (2,604,590)
1. EXCEPTIONAL ITEMS
Note Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 March 31 March 30 Sept
2003 2002 2002
$"000 $"000 $"000
Exceptional operating costs
Severance and other associated costs a) (5,894) (12,447) (30,374)
Write-off of capital assets b) (649) (3,320) (4,976)
Other c) - (15,000) (24,901)
(6,543) (30,767) (60,251)
Investments written down and
impairment of goodwill
(including associates) d) (7,768) (320,525) (1,844,516)
Total exceptional operating costs (14,311) (351,292) (1,904,767)
Other exceptional items
(Loss)/profit on sale of fixed
assets and investments e) (8,562) 450 366
Total other exceptional items (8,562) 450 366
Total exceptional items before
taxation and equity minority interests (22,873) (350,842) (1,904,401)
a) Costs incurred on restructuring and downsizing the businesses in Asia and
the US.
b) Datacraft has written off certain fixed assets as a result of the
restructuring exercise undertaken.
c) In the period ended 31 March 2002 "Other" related to Datacraft provisions
of $15.0 million. In the year ended 30 September 2002 "Other" related to
Datacraft provisions of $17.9 million, onerous lease expenses of $5.9
million and impairment of own shares of $1.1 million.
d) Asset impairment loss arising from the rationalization of Datacraft"s
Cabling and i-commerce businesses.
e) Loss on disposal of Colorado Computer Training Institute, effective 1
October 2002.
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 March 31 March 30 Sept
2003 2002 2002
$"000 $"000 $"000
Regional analysis of exceptional
operating costs
Africa - - 10,726
Asia 3,935 21,676 25,619
Australia - 348 1,348
Continental Europe - - 4,952
United Kingdom - 6,612 7,456
United States 2,608 2,131 8,490
Investment holding and management - - 1,660
Total exceptional operating costs 6,543 30,767 60,251
2. TAX ON LOSS ON ORDINARY ACTIVITIES
Unaudited Unaudited Unaudited Unaudited Audited
Six months Six months Six months Six months Year
ended ended ended ended ended
31 March 31 March 31 March 31 March 30 Sept
2003 2003 2003 2002 2002
Pre- Exceptional
exceptional items Total Total Total
$"000 $"000 $"000 $"000 $"000
Payable in respect
of the current period
(including associates) 6,517 (654) 5,863 8,230 11,121
Adjustments to prior
years" tax provision (73) - (73) (341) (10)
6,444 (654) 5,790 7,889 11,111
3. (LOSS)/EARNINGS PER ORDINARY SHARE
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 March 31 March 30 Sept
2003 2002 2002
$"000 $"000 $"000
(Loss)/earnings before goodwill
amortisation and exceptional items (6,331) 26,571 30,100
Exceptional items (net of tax and minorities) (20,324) (337,569) (1,889,710)
Goodwill amortisation (168,198) (385,183) (724,280)
Loss for the period (194,853) (696,181) (2,583,890)
"000 "000 "000
Weighted average number of ordinary shares 1,341,239 1,298,884 1,299,075
US Cents US Cents US Cents
Basic (loss)/earnings per ordinar
