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Dimension Data Holdings Plc - Unaudited Interim Results Six Months Ended 31
Release Date: 12/05/2004 08:00:01 Code(s): DDT
Dimension Data Holdings Plc - Unaudited Interim Results Six Months ended 31
March 2004
Dimension Data Holdings Plc
("Dimension Data")
(Incorporated in the United Kingdom)
(Registration number 3704278)
Issuer code:DIDDT
JSE Share Code:DDT
ISIN Code: GB0008435405
Unaudited Interim Results Six Months ended 31 March 2004
Dimension Data Holdings plc ("Dimension Data" or the "Group"), a leading global
technology group, today announced its interim results for the six months ended
31 March 2004.
Financial Highlights
- Total turnover increased by 8% to $1,176.7 million
(H2 2003: $1,087.7 million)
- Total operating profit of $9.9 million* (H2 2003: Loss $4.5 million**)
- Total profit of $1.6 million* (H2 2003: Loss $28.8 million**)
- Improved gross margin at 21.0% (H2 2003: 20.5%)
- Cash at bank and in hand (including short term investments)
$349.5 million (H2 2003: $385.7 million)
* before goodwill amortisation of $0.2 million
**before goodwill amortisation, impairment and operating exceptional items
Operational Highlights
- Successful execution of turnaround plans in five regions
- Benefits of ongoing investment in Solutions and Services flowing through
- Closer ties with key partners formed
- Role of Chairman and CEO split
- Significant progress towards disposal of 25% of the South African business
to a Black Economic Empowerment consortium
Commenting on the results, Brett Dawson, Dimension Data CEO, said:
"We have made significant progress in a number of areas over the past six
months. We are pleased to report good revenue growth, a return to profitability
and strong turnarounds in the US, Germany, France and South Africa. We have
improved our external focus, and the benefits of investments made in
management, processes, skills and solutions capabilities have started to bear
fruit."
Looking forward, he said:
"Whilst the competitive environment remains tough, the combination of an
improved demand for IT Services, greater external focus and ongoing execution
of our Solutions strategy should continue to drive the performance of the Group
in the second half of the year. We will continue to focus on profitable growth,
margin stabilisation, cost controls and making further progress in improving
returns in under performing regions."
Sequential profit and loss analysis
(Before goodwill amortisation and operating exceptional items)
Restated
Unaudited Unaudited
Six months ended Six months ended
31 March 2004 30 September 2003
$"000 $"000
Turnover
Group turnover 1,123,471 1,036,977
Associates 53,218 50,771
Total turnover 1,176,689 1,087,748
Operating profit/(loss) 7,528 (7,847)**
Share of operating profit in
associates 2,346* 3,338**
Total operating profit/(loss) 9,874* (4,509)**
Profit on sale of fixed assets and
investments 3,901 1,265
Investment income 600 1,357
Net interest payable (244) (145)
Profit/(loss) before taxation 14,131* (2,032)**
Taxation (9,164) (21,293)
Profit/(loss) after taxation 4,967* (23,325)**
Equity minority interests (3,414) (5,435)
Profit/(loss) for the period 1,553* (28,760)**
US cents US cents
Basic profit/(loss) per ordinary
share 0.1 (2.2)**
* before goodwill amortisation of $0.2 million
** before goodwill amortisation, impairment and operating exceptional items
Restated
Unaudited Unaudited
Six months ended Six months ended
31 March 2004 30 September 2003
$"000 $"000
Reconciliation to consolidated
profit and loss account
Profit/(loss) for the period before
goodwill amortisation and operating
exceptional items 1,553 (28,760)
Goodwill amortisation - subsidiaries - (177,830)
Goodwill amortisation - associates (184) (111)
Net operating exceptional items - (18,828)
Profit/(loss) for the period as
presented in the consolidated profit
and loss account 1,369 (225,529)
Geographical analysis
Unaudited Unaudited Unaudited Audited
Six months Six months Six months Year ended
ended ended ended 30 September
$"000 31 March 2004 30 September 31 March 2003 2003
2003
Turnover
Africa 207,644 194,440 170,988 365,428
Asia 176,947 161,917 166,808 328,725
Australia 221,698 223,403 157,123 380,526
Continental Europe 220,865 198,723 183,400 382,123
United Kingdom 99,275 91,829 114,089 205,918
United States 195,244 163,154 182,897 346,051
Other* 1,798 3,511 2,513 6,024
Group 1,123,471 1,036,977 977,818 2,014,795
Associates 53,218 50,771 34,693 85,464
Total 1,176,689 1,087,748 1,012,511 2,100,259
Operating profit
/(loss)**
Africa 10,763 (5,487) 10,900 5,413
Asia 2,935 2,161 26 2,187
Australia 5,902 9,001 3,430 12,431
Continental Europe 4,451 3,155 3,065 6,220
United Kingdom 4,895 6,377 4,633 11,010
United States 1,666 (5,544) (11,514) (17,058)
Other* (23,084) (17,510) (17,579) (35,089)
Group 7,528 (7,847) (7,039) (14,886)
Associates 2,346 3,338 2,536 5,874
Total 9,874 (4,509) (4,503) (9,012)
Operating margin**
Africa 5.2% (2.8%) 6.4% 1.5%
Asia 1.7% 1.3% 0.0% 0.7%
Australia 2.7% 4.0% 2.2% 3.3%
Continental Europe 2.0% 1.6% 1.7% 1.6%
United Kingdom 4.9% 6.9% 4.1% 5.3%
United States 0.9% (3.3%) (6.3%) (4.9%)
Group 0.7% (0.8%) (0.7%) (0.7%)
Associates 4.4% 6.6% 7.3% 6.9%
Total 0.8% (0.4%) (0.4%) (0.4%)
* Comprises Central management, Solutions and Services
** Before goodwill amortisation and exceptional items.
Group turnover analysis by service offerings
Six months ended
31 March 2004 Africa Asia Australia Europe
$"000 $"000 $"000 $"000
Product 65,021 108,902 171,577 148,433
Managed services 110,261 36,952 27,269 52,333
Professional
services 32,362 31,093 22,852 20,099
Group 207,644 176,947 221,698 220,865
Six months ended
30 September
2003
Product 74,725 101,865 171,909 129,100
Managed services 96,857 32,883 25,999 51,205
Professional
services 22,858 27,169 25,495 18,418
Group 194,440 161,917 223,403 198,723
Six months ended
31 March 2003
Product 63,608 100,403 119,707 123,547
Managed services 78,958 34,152 18,174 42,245
Professional
services 28,422 32,253 19,242 17,608
Group 170,988 166,808 157,123 183,400
Six months ended United United
31 March 2004 Kingdom States Other Total
$"000 $"000 $"000 $"000
Product 40,433 148,100 1,622 684,088
Managed services 35,747 18,712 - 281,274
Professional
services 23,095 28,432 176 158,109
Group 99,275 195,244 1,798 1,123,471
Six months ended
30 September
2003
Product 28,546 118,937 3,023 628,105
Managed services 40,369 13,598 - 260,911
Professional
services 22,914 30,619 488 147,961
Group 91,829 163,154 3,511 1,036,977
Six months ended
31 March 2003
Product 40,853 135,386 321 583,825
Managed services 52,883 12,183 - 238,595
Professional
services 20,353 35,328 2,192 155,398
Group 114,089 182,897 2,513 977,818
Note: Prior periods turnover analysis by service offerings has been adjusted in
line with the Group"s current revenue categorisation as defined in the attached
glossary of technical terms.
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 2004 31 March 2003 30 September 2003
Currency Average Period Average Period Average Period
end end end
South African Rand 6.595 6.321 8.734 8.015 7.484 7.102
Australian Dollar 1.345 1.327 1.739 1.666 1.526 1.476
Sterling 0.561 0.548 0.633 0.635 0.613 0.600
Euro 0.818 0.821 0.961 0.926 0.879 0.862
Key points
- Return to profitability.
- Revenues increased by 8% in constant currency on H2 2003, driven by:
o up turn in demand environment
o greater external focus
o improved market share
o strong performance from Solutions.
- Ongoing investment in Solutions is starting to deliver returns as
reflected in a 17% growth in Solutions revenues.
- Successful execution of turnaround plans in five regions.
- Improved gross margin to 21.0% from 20.5% in H2 2003.
- Closer ties with key partners
o Gained Cisco market share in key territories and achieved
strong growth in Cisco"s Advanced Technologies
o EMC global agreement opening up growth opportunities
o Microsoft business showing good growth off a low base.
- Role of Chairman and Chief Executive Officer (CEO) split, with Jeremy
Ord remaining Group Chairman and Brett Dawson appointed as CEO. David
Sherriffs appointed as Chief Financial Officer following resignation of
Malcolm Rutherford.
- Significant progress towards disposal of 25% of the South African
business to a Black Economic Empowerment consortium.
- The sale of Proxicom, the US based web design and internet
consultancy business.
Chairman"s Commentary
The Dimension Data Group has made significant progress in a number of areas
over the past six months.
At an operating level performance across the Group has improved and the Group
has returned to profitability after two loss making reporting periods. As
outlined at year end, opportunities in our sector of the market have improved
and more activity on a regional and global level is evident. Good revenue
growth was achieved, despite the closing, selling and realignment of certain
businesses.
Prior period under-performing regions, the US, Germany, France and South
Africa, have returned to profitability.
Non-performing assets have been sold or realigned and margins have improved.
The cost base is closely monitored and productivity per employee has increased.
Operations in China remain a concern and a concerted restructuring of our
business model in this important region is underway.
Proxicom, the US based web design and internet consulting business acquired in
2001 has been sold. Whilst the business was trading profitably, ongoing
non-operational cash requirements were placing a burden on the balance of US
operations. All these issues have been addressed without affecting the
viability of the Group"s operating model.
We had been assessing potential internal and external candidates to assume the
role of CEO for a period of time. In March Brett Dawson was appointed to this
position. Brett has been the Group"s Chief Operating Officer since October
2002. In addition Malcolm Rutherford resigned as Chief Financial Officer and he
was succeeded by David Sherriffs, who has been with the Group since 1997 in
various financial positions in Europe and South Africa. Following successful
completion of the handover to David Sherriffs, Malcolm Rutherford, having
previously resigned as an executive, has now also resigned as a non-executive
director with immediate effect.
Transformation in South Africa is critical to us and in March we announced the
appointment of Andile Ngcaba as chairman designate of our African operations.
He will lead a Black Empowerment consortium to acquire a 25% equity stake in
the South African business. Further details of this transaction will be
provided in the near future.
The deal will remove barriers to business in South Africa and unlock
opportunities in the rest of Africa.
In conclusion, much has been achieved in an improving business climate and we
will continue to make progress in establishing ourselves as a leading global IT
services provider.
CEO"S COMMENTARY
We are pleased to report good sequential revenue growth and a return to
profitability for the Group in the period under review. The benefits of our
growth strategies, solutions investment, rationalisations and management
changes implemented in the Group over the past 18 months have co-incided with
an up turn in market conditions. We outline below the strategies that we have
been focusing on over the past six months.
Recovery in under performing regions
A key objective has been to improve profitability in under performing regions
and we are pleased with the progress that has been made in the turnaround plans
that were implemented in 2003. In the US where we have improved our sales
proposition and our solutions offerings, and focused on gaining market share,
we traded profitably throughout the period under review compared to operating
losses of $17.1 million reported in the previous financial year.
In Asia the recovery that started in the second half of 2003 has continued. The
improved performance was driven by significant cost savings and exiting
non-core businesses, together with a better demand environment.
Overall profitability continued to improve, although China and Korea still
require management attention.
Recoveries in both Germany and France were achieved following management and
structural changes.
Lastly, in South Africa where we adapted our go-to-market model and made
changes in key leadership positions, a strong turnaround to profitability of
$10.8 million was achieved after losses $5.5 million in H2 2003.
Growth through market penetration
Our ability to grow revenues is key to improving profitability and achieving
more acceptable returns. Following the rationalisations of the past 18 months,
our businesses are now more externally focused and intent on growing market
share. In the six months under review we were successful in improving our
market share in a number of key regions including the US, Europe and Australia.
Growth through solution groups and key partners
Our solution offerings remain a key element of our growth strategy and we have
identified the areas of Security, Platforms, IPC and CIS as offering important
growth opportunities for the Group. We now have clearly defined solutions
strategies in all regions. Our value proposition has been refined and we have
been investing in the right management and skills. The pay-off from the
investment made in these areas was evidenced by 17% growth in Solutions
revenues in the period under review.
Our Solutions initiatives are also enhanced by closer alignment with our key
partners - Cisco, EMC and Microsoft. Sales of Cisco"s Advanced Technologies,
which align closely with our solutions offerings, grew strongly in the period
under review. Our global agreement with EMC is opening up good opportunities
and Microsoft business is showing strong growth off a low base.
Services
Our Services strategy is one of being able to offer our customers a complete
lifecycle approach of Planning, Building and Supporting their IT
infrastructures. We are committed to growing the proportion of Group revenues
derived from services and were pleased with the progress made in growing
Managed Services in the period under review.
Services revenue in constant currency increased by 8% on H2 2003 and
represented 39% of Group turnover, the same percentage as in H2 2003. One of
our initiatives to support growth in Services revenues and profitability has
been a focus on improving efficiencies in our Managed Services business. We
invested $2.6 million in the first half of the year in consolidating our
services operating architecture, databases and global service centres.
Customer Service
In order to differentiate and grow market share, Dimension Data is committed to
excellence in customer service.
Measurement of key metrics has been introduced and expanded and regional
management are incentivised on customer satisfaction criteria. In the period
under review we won a number of awards, which were evidence of the success that
we are achieving in this arena: Dimension Data North America won Cisco"s annual
Global Customer Satisfaction Award; in South Africa, we were recognised in
Computerweek Strategist"s Most Admired By Customer Awards in two categories;
and in Asia, Datacraft has won the Telecom Asia Systems Integrator of the Year
Award for the past five years running.
Ongoing efficiency improvements
Our emphasis over the past 18 months was on rationalisations and cost cutting
while we stabilised the business.
Our current initiatives are focused on further improving productivity and
efficiencies. These include programmes to drive efficiency gains particularly
in our core Network Integration business, through improved Group synergies and
logistics and through the launch of Dimension Data Direct, an e-commerce
platform for efficient sales and delivery. We are also improving the sharing of
intellectual property throughout the organisation and developing re-usable
solutions.
Outlook
Whilst the competitive environment remains tough, the combination of improved
demand for IT services, greater external focus and better execution, should
continue to drive the performance of the Group forward in the second half of
the year.
Enquiries:
Dimension Data Holdings plc
Jeremy Ord, Group Chairman
Brett Dawson, Chief Executive Officer
David Sherriffs, Chief Financial Officer
Karen Cramer, Investor Relations (UK)
Mobile: +(44) 793 202 0296
Office: +(44) 20 7651 7000
karen.cramer@uk.didata.com
Internet address: www.didata.com
Brunswick Group
Tom Buchanan
+(44) 20 7404 5959
Notes:
All references to $ are to US$
All references to gross and operating margins are before goodwill amortisation
and operating exceptional items
H1 2003 refers to the six months ended 31 March 2003
H2 2003 refers to the six months ended 30 September 2003
H1 2004 refers to the six months ended 31 March 2004
H2 2004 refers to the six months ending 30 September 2004.
Changes between H1 2004 and H2 2003, where appropriate, are referred to
as sequential comparisons.
OPERATIONAL REVIEW
Africa
The African business reported a pleasing turnaround to an operating
contribution of $10.8 million in the period under review from a loss making
position in H2 2003.
Revenues grew by 10% in constant currency terms on the second half of 2003.
This was despite subdued IT services demand conditions and delays in
establishing our BEE empowerment credentials, which meant that we had to share
business won in the government sector. Strong double digit growth in services
revenues was offset by a decline in product revenues. Despite an increase in
demand for network infrastructure and cabling solutions, product revenues were
negatively impacted by aggressive price competition from the Service Providers.
Demand for outsourcing services, managed call centre services, hosting and
internet connectivity services drove good growth in Managed Services. Strong
growth was also achieved in Professional Services where large contracts were
replaced by a broader base of medium sized contracts.
Gross margins improved to 29.1% from 27.6% in H2 2003 due to a combination of a
change in the business mix, the elimination of excess capacity and loss making
contracts being addressed. Economies of scale in the Managed Services business
also contributed to the improvement.
Overheads came down by 16% in constant currency terms on the second half of
2003 following the cost cuts and rationalisations of the prior year.
Profitability in Internet Solutions improved on the back of strong control of
overheads and benefits of scale and the balance of the African business
returned to profitability.
In South Africa, spend amongst traditional customers is expected to remain
constrained in the second half of the year. We are pursuing growth
opportunities in markets outside of South Africa. The Black Economic
Empowerment transaction and the appointment of Andile Ngcaba to the board of
Dimension Data South Africa should open up new business opportunities in the
medium term.
Customer wins during the period under review included:
- MTN: a $5.4 million, ATM core upgrade and Network management
services upgrade.
- Cell C: a three year, $2.0 million call centre implementation, including
voice solution support and maintenance.
- Sappi: a three year, $3.7 million network implementation, upgrade and
associated services.
- Mondi: a three year, $2.1 million holistic solution resulting from the
collaboration of Internet Solutions and DD Networking technologies and
services - to provide an outsourced WAN along with complementary services.
- Investec Asset Management: a $0.8 million, relocation project, including
infrastructure, voice, data and security solutions.
Asia
Demand in Asia has improved relative to 12 months ago and the business achieved
sequential revenue growth of 9% on H2 2003 and 6% on the first half of 2003.
Although the pick up in demand was primarily in the Enterprise sector, orders
from the Service Provider sector have shown recent signs of recovery.
Good growth was reported in Managed Services revenues and a number of large
annuity based contract wins will benefit revenues in the second half of the
year. Professional Services revenues also grew strongly despite reduced volumes
in the Training business. However, margins and profitability of Professional
Services remained challenging due to continuing intense pricing pressure on
daily rates. Investment in solutions is paying dividends with good performance
in IPC, Security and iBoss solutions and progress was made with the new
Platforms business.
Enhanced cost management and resource utilisation enabled us to keep gross
margin at 15.7% (15.8% in H2 2003) despite pricing pressure on professional
services rates.
Overheads were well controlled following the cost cuts of the prior year and
the operating margin increased to 1.7% from 1.3% in H2 2003. Working capital
was again well managed and cash and short term investments increased to $92.0
million from $84.0 million six months ago.
All countries performed in line with or ahead of expectations with the
exception of China and Korea where both countries reported operating losses
following volume declines and continuing challenging trading conditions.
India, which is now the largest revenue contributor in Asia, grew strongly
fueled by continued good demand from the financial services sector. Good
revenue growth was also reported in New Zealand and Indonesia.
Efforts to improve the performance in China have been focused on putting the
right management, legal and bid structure in place, and upgrading the financial
and reporting systems. A new head of Greater China was recently appointed and
the focus is now on growing revenues and leveraging off Datacraft"s good Asian
franchise. Current indications suggest that business prospects for China are
improving.
In Korea, business volumes were negatively impacted by delayed purchase
decisions by certain key Service Provider customers and turning away low margin
product business.
Key to improving profitability will be continuing to progress with the
recoveries in China, Korea and Japan, and to improve scale, efficiencies and
profitability in the services business. We will remain focused on our cost base
and continually fine tune resources to match demand. In the second half, we
will consolidate the call centres, currently located in five geographic
locations, into one centre in India. This will result in improved efficiencies
and profitability in the long term but will incur short term consolidation
expenses.
The Commercial Affairs Department (CAD) has concluded investigations into the
Company. The board of Datacraft has been convinced from the outset that there
have been no regulatory breaches by the company.
CAD"s conclusion now eliminates the market uncertainty concerning Datacraft and
relieves the company of what has, at times, been a significant management
distraction.
Customer wins during the period under review included:
- Bangkok International Airport (a new customer): a multi year, $12.0 million
network infrastructure project for the new Bangkok International Airport
including installation of gigabit backbone and full IPT solution.
- State Bank of India (SBI): a five year, $11.4 million contract for
provision of support and managed network services for SBI and its seven
associate banks.
- SIFY India: a multi month, $2.2 million backbone infrastructure upgrade
and metro Ethernet infrastructure.
- Telkomsel, Indonesia: a multi month, $2.5 million project to expand its
MPLS (Multi-Protocol Label Switching) network.
- A multinational food and beverage corporation ( a new customer): a seven
year, $4.2 million Uptime contract for its operations in New Zealand
covering network support, deployment and cabling.
Australia
The Australian business continued to perform strongly. Constant currency
revenues increased by 9% on H1 2003 but due to normal seasonality, declined by
3% on the second half of 2003.
The performance benefited from an improved economic and consumer environment
and increased capital spending as customers tried to catch up on IT investments
delayed over the past few years. Rationalisations and consolidations in the IT
market place also benefited the competitive position of the business.
In the Network Integration business, which posted a strong performance, growth
was fuelled by good demand for solutions, particularly in the areas of
Security, CIS and Platforms, and market share gains with our key vendors.
Express Data, our distribution business, also delivered a good performance,
growing revenues seasonally on the first half of 2003. The business leveraged
off the strong demand in the Network Integration business and benefited from
the rationalisation of the number of Cisco distributors in Australia from three
to two.
The overall gross margins improved to 20.2% from 19.7% in H2 2003 despite a
slightly higher contribution from product revenues. Technology gross margins
benefited from the successful drive to sell more of Cisco"s Advanced
Technologies and services margins improved due to higher hourly rates and the
effective employment of contractors in the Professional Services business.
Overheads increased sequentially by 10% in constant currency on H2 2003, driven
by volume related increased variable costs.
Indications are that the favourable trading environment enjoyed in the first
half should continue into the traditionally seasonally better second half of
the year.
Customer wins during the period under review included:
- A large Australian retailer (a new customer): a three year, $3.8 million
contract to provide Microsoft licences for all arms of the business
(over 8,000 users).
- Department of Human Services (Victoria): a two year, $2.8 million contract
to provide network equipment including Professional and Managed Services.
- Large Australasian glass and aluminium supplier: a $0.9 million EMC Storage
Area Network (SAN) installation including a three year Managed
Services contract.
- Australian Television Network: a $2.3 million IP network installation and
telephony solution including Uptime and Insite.
- Gippsland Health Alliance: a five year, $0.8 million network installation
including Insite and Uptime for converged communications (voice, video
and data).
Europe
The European business performed well growing constant currency revenues by 13%
on H2 2003 and by 3% on H1 2003. This was despite some of the key economies in
the region, Germany, France and Italy, remaining under pressure. We have,
however, started to see increased buying interest in IT services, which has
resulted in a significant number of large solutions sales over the period.
After a period of internal focus and rationalisations in 2003, management
changes, structural changes and investment in solutions are now beginning to
yield benefits. A greater external focus enabled us to close a number of high
quality deals and our competitive position benefited from closer collaboration
with our key partners. Double digit growth in product revenues was driven by
significant project wins across the region.
Services revenues also grew following good demand for professional services and
traction in managed services revenues.
The investment in solutions and in knowledge collaboration across the region is
paying dividends. The Security business performed strongly and CIS made good
progress, with a number of good deals in the pipeline. We continued to invest
in IPC and Platforms and are working closely with EMC on joint activities in a
number of countries. Our relationship with Cisco has strengthened, and our
performance in their Advanced Technologies is very encouraging.
Gross margins improved to 22.3% from 21.4% in H2 2003 due to a stable product
pricing environment and better mix of product sales. Costs were well
controlled, particularly in Germany and France but increased relative to H2
2003 due to higher variable overheads and investment in solutions. Operating
profit increased by 41% on the second half of 2003.
All countries in Europe were profitable. The German business was a good
contributor benefiting from management and structural changes implemented in
2003 and growth in Cisco market share. The Netherlands reported an excellent
result, winning several sizable deals and performing on the back of strong IPC
skills and increased activity in CIS. Diversification into platforms in
Luxembourg helped the performance despite soft market conditions, and good
volume growth was reported in Belgium. In France, new management and better
staff morale, as well as greater external focus and good execution are driving
growth and margin improvements.
We expect a similar trading performance in the second half of the year taking
into account traditional seasonality.
Ulrich Max Muller, previously the General Manager for Germany, was recently
appointed CEO of Europe, replacing Don Smyth, who retired for health reasons at
the end of March. He will continue to be active in the management of the German
business until a successor has been appointed.
Customer wins during the period under review included:
- An IT services department of a major EU ministry: a two year,
$10.8 million services and hardware contract for a complete IP
infrastructure for the ministry and other government institutions.
- Sydkraft Bredband (a new customer), a Swedish service provider: a two
year, $7.8 million out-tasking contract to act as service provider for a
complete national transmission backbone and access network in Sweden.
- A major German insurance group: a three year, $4.5 million contract to
provide an advanced backbone infrastructure (80% revenue in first year).
- Banca Popolare di Milano, a major Italian bank: a one year, $2.5 million
deal to install a wave-division multiplexing network between data centres
and to monitor the corporate network.
- Algerie Poste, the Algerian Post Office, (a new customer): a one year,
$1.7 million contract to provide secure e-mail services to its customers.
UK
The UK business continued to perform well, achieving constant currency revenue
growth of 3% on H2 2003. On a like-for-like basis, sequential constant currency
revenues increased by 10%. This follows a change in the accounting treatment of
our Fixed Mobile Telephony (FMT) business, which is now reflected as an
associate.
Demand for IT services picked up and we are contracting with a more select
universe of better profile, larger customers in new solution areas and
services. However, we have seen increased competition from Service Providers
during the period, who are pursuing business in the network service space at
aggressive margins.
The Network Integration business performed well, significantly growing constant
currency sequential revenues.
High double digit growth in product revenues is a spin off from the success of
our investment in solutions and the progress that has been made in improving
the solutions mix of the business. We have upgraded our skills and invested in
Service Providers, Platforms and CIS Managed OSS, where we have seen good
growth in demand.
We are engaging actively with our key partners and have seen continued success
with Cisco, especially with their Advanced Technologies.
Stripping FMT out of the services base, services revenues in constant currency
decreased by 3% on H2 2003.
Seasonally lower revenues from the cabling business, which also experienced
delays on a number of large construction contracts, impacted the performance of
the Professional Services business. Excluding cabling revenues, Professional
Services grew in high double digits. The delayed cabling contracts have
resulted in revenues being deferred into the second half of the year.
Managed Services revenues were impacted by lower revenues in The Merchants
Group, the UK"s managed call centre business. Managed Services, excluding The
Merchants Group and stripping FMT out of the base, increased by 8% on H2 2003.
The decline in the overall UK gross margin to 23.0% from 24.7% in H2 2003 was
driven by a change in the business mix and lower contributions from the
Merchants and cabling businesses. Gross margins in the Network Integration
business were well managed through more selective engagements.
Whilst overheads were well controlled, the slight increase reflects higher
variable overheads and the transition to a more complex solutions environment.
In the second half the business should benefit from engagements across a range
of verticals and a strong Professional and Managed Services order book. We have
been actively pursuing opportunities in the education environment, and expect
further returns from our investment in solutions.
Customer wins during the period under review included:
- A major UK based international clothing manufacturer (a new customer): a
three year, $3.0 million contract to provide and manage an international
network infrastructure including a security and IP Telephony solution.
- Telewest Broadband: a three year, $6.2 million network support contract.
- A global telecommunications group: an 18 month, $4.6 million contract to
plan, build and support the customer"s converged packet network (CPN)
offering an end-to-end quality-of-service solution. The CPN is at the heart
of the system for all consumer, enterprise and data traffic.
- Pierse Homes (a new customer): a $2.7 million contract to deliver
Power/Voice/Data/Security/CCTV, including the design and build of these
solutions, for 109 luxury apartments.
- David McLean Group: a $2.2 million contract to design and build a complete
power and data solution in Newcastle for a 700 bed student
accommodation complex.
USA
The US business achieved revenue growth of 20% on H2 2003 and 7% on H1 2003,
benefiting from an upturn in demand particularly from the Financial Services
and Healthcare sectors.
A concerted external focus is delivering results following the rationalisations
and management changes of 2003.
With the right structure in place we are investing in the US"s selected
solution areas - IPT, Platforms and Security. IPT and Platforms, in particular,
performed well resulting in a change in product mix away from Network
Integration to Platform products including EMC and HP.
Sequentially product revenues grew strongly. Key drivers of market share gains
included our global footprint and our solutions offerings where, we performed
well in Cisco"s Advanced Technology offerings.
Growth in services revenue was driven by the trend of increased demand for
out-tasking and more advanced services, which underpinned strong double digit
growth in Managed Services. Our Security and IPC Managed Services offerings
performed well off a low base. The Professional Services business, which is
closely aligned to Cisco, felt the effects of the commoditisation of services
around routing and switching and declining average billing rates, although
services around Cisco"s Advanced Technologies were robust.
Overall gross margin increased to 15.2% from 13.1% in H2 2003. After a number
of years of intense pricing pressure, product margins appear to have
stabilised, and we are transacting better in a commoditised world by
differentiating our offerings. Increased volumes in the Managed Services
business have benefited margins substantially and better execution has been
achieved. Professional Services margins were, however, negatively impacted by
lower utilisation and billing rates.
Following the rationalisations and cost cuts of 2003, fixed overheads came down
on H2 2003 but the decline was offset by higher variable costs. There was a
strong turnaround in performance at the operating profit level to a positive
contribution of $1.7 million compared to losses of $5.5 million in H2 2003.
The US has led the Group"s online procurement initiative - Dimension Data
Direct. Approximately 20% of US revenues now go through this channel, which
creates an e-commerce platform for efficient sales and delivery.
The US business"s focus will continue to be on driving volume growth through
market share gains, and improving returns through more efficient delivery.
Continued growth in Managed Services is key to establishing scalable recurring
revenues and we are focused on improving the performance of the Professional
Services business. In the second half of the year we expect a continuation of
the trend of improving profitability established in the first half of the year.
The sale of Proxicom, which contributed approximately 10% of US revenues in
2003, was concluded in March 2004. Cash flow going forward will benefit from
the settlement of the Proxicom onerous lease obligations.
Customer wins during the period under review included:
- A global financial services firm: over $8.0 million in contracts during the
past six months for hardware procurement, staging services, and other
professional services.
- A major medical centre (a new client): a $1.7 million project to upgrade
the existing Cisco LAN infrastructure, implement the Cisco Security Agent
for both servers and desktops, and deploy Dimension Data"s Intrusion
Management Architecture product.
- A large retail chain: a $3.8 million Enterprise Server Storage project to
upgrade processors in the existing Superdome, provide a new Oracle
partition and data warehouse, develop a SAN fabric architecture, and
Performance Monitoring and Analysis tools.
- One of the largest single-campus community colleges in the US: a seven
year, $2.3 million contract to provide a high speed IP-converged backbone,
increased security, managed services and ongoing post-sales support.
- Defense Supply Center Richmond: a five year, $3.8 million contract to
upgrade and support the client"s local and wide area networks as well as
help fulfill the design and security requirements of the Defense
Logistics Agency.
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 and corporate governance
requirements.
The accounting policies used in the preparation of the March 2004 financial
statements are consistent with those applied previously, with the exception
that UITF Abstract 38 - `Accounting for ESOP Trusts" has been adopted.
The effect thereof is reflected in Note 6 to the financial statements. All
comparisons of profit and loss items discussed in this review are sequential
changes between H2 2003 and H1 2004, unless otherwise indicated.
Group Operating Performance
There have been no material changes to the Group structure compared to prior
periods. The sale of Proxicom was concluded in March 2004 and the trading
results have been included for the full six month reporting period.
Turnover
Group turnover, excluding associates, increased by 8% to $1,123.5 million from
$1,037.0 million in H2 2003 and by the same percentage in constant currency
terms.
Gross margin
Gross margin increased to 21.0% from 20.5% in H2 2003, driven by stable product
margins, improvement in the mix of product sales and more efficient service
delivery.
Overheads
Fixed overheads excluding associates were $228.2 million compared to $202.7
million in H2 2003. Currency translation differences increased overheads by
$15.0 million. The increment in the overhead was attributable to an increase in
bonuses and commissions and $2.6 million on the standardisation of our GSOA.
Operating profit
Total operating profit was $9.9 million compared to a loss in H2 2003 of $4.5
million. This is attributable particulary to the significant turnaround in
Africa and the US, as well as the benefits of efficiency initiatives entered
into by the Group in prior periods.
Profit on sale of fixed assets and investments
The profit on sale of fixed assets and investments includes a profit of$5.4
million on the sale of Proxicom, a write down of the investment in Sunset
Learning of $1.6 million and gains on sale of investments in Datacraft of $0.4
million.
Net investment and interest income
Net investment and interest income of $0.4 million includes interest earned of
$4.1 million on net cash balances.
Interest paid includes interest on the convertible bonds of $2.9 million and
marked-to-market exchange losses in South Africa of $0.7 million.
Taxation
Whilst the Group reported an operating profit of $9.9 million, certain entities
within the Group reported taxable losses, on which, in accordance with UK GAAP,
deferred tax relief was not provided. Included in the tax charge is an amount
of $1.2 million relating to associates (H2 2003: $1.3 million). As a
consequence the Group recorded an overall tax charge of $9.2 million.
Liquidity and Capital Resources
Working capital
Stock remains well controlled reflecting a largely turnover volume related
increase of 12% compared to September 2003.
Trade debtors have increased from $372.0 million to $419.5 million. The
increased level of turnover has led to a volume related increase in our trade
debtors balance. Days sales outstanding increased from 57 days in September
2003 to 58 days in March 2004.
Creditors have increased from $583.1 million at September 2003 to $611.7
million at March 2004. Trade creditors" days outstanding decreased from 53 in
September 2003 to 47 in March 2004, a seasonal trend we have experienced in
prior periods. This has been offset by the volume related increase in trade
creditors balances, including accruals, as well as an increase in our deferred
income balance as our managed services revenue base has grown.
Cash at bank and in hand (including short term investments) was $349.5 million
at 31 March 2004 compared to $385.7 million at 30 September 2003.
There was a net seasonal cash outflow from operating activities of $17.5
million in H1 2004 compared to $42.2 million in H1 2003. The reduced outflow is
attributable to the return to profitability of all regions and improved
utilisation of working capital.
Lease commitments
Dimension Data has a 15 year lease commitment in respect of the Campus office
premises located in Sandton, South Africa, with a remaining period of 13 years
and 10 months and an escalation clause of 11% per annum.
The current annual rental amounts to $13.8 million. In terms of a call option
agreement, as set out in note 30 to the annual financial statements for the
year ended 30 September 2003, Dimension Data currently has the right to acquire
the bare dominium of these premises at a cost of approximately $4.0 million
which escalates by 25% per annum.
The Board is currently considering exercising this option. Should the option be
exercised, the lease, which is currently accounted for as an operating lease,
will have to be accounted for as a finance lease. In accordance with SSAP 21 -
`Accounting for Leases and Hire Purchase Contracts", the property will be
capitalised and in terms of FRS 15 - `Tangible Fixed Assets", it will be
depreciated and reviewed for impairment. The original cost of construction to
the lessor amounted to approximately $124.0 million. A liability will be raised
for the related loan and the finance charges will be expensed. Any changes in
the accounting treatment will have no impact on the cash payment profile of the
existing lease.
Capital reduction
Distribution of the special reserve of $342.4 million in the Company"s books
remains restricted, pending consent
from all creditors whose debts or claims were outstanding at 20 March 2003, or
demonstration that such debts or
claims have been adequately protected.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 31 March 2004
Restated
Note Unaudited Unaudited Audited
Six months Six months
ended ended Year ended
31 March 31 March 30 September
2004 2003 2003
$"000 $"000 $"000
Turnover
Group turnover 1,123,471 977,818 2,014,795
Associates 53,218 34,693 85,464
Total turnover 1,176,689 1,012,511 2,100,259
Operating profit/(loss)
before goodwill
amortisation,
impairment and
exceptional items 7,528 (7,039) (14,886)
Exceptional operating costs - (6,543) (23,166)
7,528 (13,582) (38,052)
Goodwill amortisation - (166,585) (344,415)
Goodwill and investment
impairment - (7,768) (15,297)
Group operating
profit/(loss) 7,528 (187,935) (397,764)
Share of operating
profit in associates 2,346 2,536 5,874
Goodwill amortisation
and impairment - associates (184) (1,613) (1,724)
Total operating
profit/(loss) 9,690 (187,012) (393,614)
Profit/(loss) on sale
of fixed assets and
investments 1 3,901 (8,562) (7,297)
Profit/(loss) on
ordinary activities
before interest 13,591 (195,574) (400,911)
Investment income 600 2,186 3,543
Net interest payable (244) (1,224) (1,369)
Profit/(loss) on
ordinary activities
before taxation 13,947 (194,612) (398,737)
Tax on profit/(loss) on
ordinary activities 2 (9,164) (5,790) (25,420)
Profit/(loss) on
ordinary activities
after taxation 4,783 (200,402) (424,157)
Equity minority interests (3,414) 5,549 3,775
Profit/(loss) for the period 1,369 (194,853) (420,382)
Earnings/(loss) per
ordinary share US cents US cents US cents
Basic before goodwill
amortisation and
operating
exceptional items 3 0.1 (1.1) (3.3)
Basic 3 0.1 (14.5) (31.3)
CONSOLIDATED BALANCE SHEET
as at 31 March 2004
Restated Restated
Unaudited Unaudited Audited
31 March 31 March 30 September
2004 2003 2003
Note $"000 $"000 $"000
Fixed assets
Intangible assets - 167,728 -
Tangible assets 98,506 108,790 99,924
Investments in associates 44,624 34,809 39,067
Other investments 37,173 34,030 33,136
180,303 345,357 172,127
Current assets
Stock 99,176 92,733 88,581
Debtors 4 578,719 555,739 503,890
Short term investments 18,894 15,105 27,906
Cash at bank and in hand 330,615 292,005 357,785
1,027,404 955,582 978,162
Creditors: amounts
falling due within one
year 5 (611,665) (531,977) (583,128)
Net current assets 415,739 423,605 395,034
Total assets less current
liabilities 596,042 768,962 567,161
Creditors: amounts
falling due after more
than one year (130,469) (123,792) (129,372)
Provisions for
liabilities and charges (21,211) (41,177) (28,355)
Equity minority interests (105,859) (99,750) (99,052)
Total net assets 338,503 504,243 310,382
Capital and reserves
Equity shareholders" funds 338,503 504,243 310,382
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 31 March 2004
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 2004 31 March 2003 2003
$"000 $"000 $"000
Group operating profit/(loss) 7,528 (187,935) (397,764)
Depreciation 21,590 24,193 48,351
Goodwill amortisation and impairment
and investment impairment - 174,353 359,712
Loss on sale of tangible fixed assets 865 1,388 7,702
(Increase)/decrease in stock (10,595) 4,935 9,087
(Increase)/decrease in debtors (77,475) 12,579 64,499
Increase/(decrease) in creditors 40,178 (70,115) (48,930)
Other non-cash items 448 (1,630) 8,504
Net cash (outflow)/inflow from
operating activities (17,461) (42,232) 51,161
Returns on investments and servicing
of finance (1,685) 2,288 8,843
Taxation (27,165) (15,118) (13,401)
Capital expenditure and financial
investment (13,032) (20,529) (45,067)
Acquisitions and disposals 4,797 (65,965) (76,371)
Cash outflow before use of liquid
resources and financing (54,546) (141,556) (74,835)
Management of liquid resources 8,121 29,033 15,475
Financing 191 (1,367) (5,178)
Decrease in cash in the period (46,234) (113,890) (64,538)
Reconciliation of net cash flow to
movement in net cash:
Decrease in cash in the period (46,234) (113,890) (64,538)
Cash inflow from increase in debt - (100,000) (100,000)
Cash outflow from decrease in debt 5,375 101,367 101,367
Cash inflow from decrease in liquid
resources (8,121) (29,033) (15,475)
Change in net cash resulting from cash
flows (48,980) (141,556) (78,646)
Non-cash movement in debt and liquid
resources (4,824) (1,377) (4,028)
Translation differences 14,417 31,390 43,645
Movement in net cash for the period (39,387) (111,543) (39,029)
Net cash at beginning of the period 255,743 294,772 294,772
Net cash at end of the period 216,356 183,229 255,743
Analysis of net cash:
Cash at bank and in hand 330,615 292,005 357,785
Bank overdraft (2,684) (89) (576)
Debt due within two to five years (28,476) - (25,344)
Debt due more than five years (101,993) (123,792) (104,028)
Short term investments 18,894 15,105 27,906
Total 216,356 183,229 255,743
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the six months ended 31 March 2004
Restated
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 2004 31 March 2003 2003
$"000 $"000 $"000
Profit/(loss) for the period 1,369 (194,853) (420,382)
Currency translation differences
on foreign currency net investments 26,103 46,117 80,492
Total recognised profits/(losses)
relating to the period 27,472 (148,736) (339,890)
1. EXCEPTIONAL ITEMS
Restated
Unaudited Unaudited Audited
Six months Six months Year ended
Note ended ended 30 September
31 March 2004 31 March 2003 2003
$"000 $"000 $"000
Total exceptional
operating costs - (14,311) (38,463)
Other exceptional items
Profit/(loss) on
sale of fixed
assets and a) 3,901 (8,562) (7,297)
investments
Total other
exceptional items 3,901 (8,562) (7,297)
Total exceptional
items before
taxation and
equity minority
interests 3,901 (22,873) (45,760)
a) Includes profit on sale of Proxicom of $5.4 million, write down of the
investment in Sunset Learning of $1.6 million and gains on sale of
investments in Datacraft of $0.4 million.
2. TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 2004 31 March 2003 2003
$"000 $"000 $"000
Payable in respect of the
current period 7,298 5,165 23,619
Share of associates" taxation 1,227 698 1,951
Adjustment to prior years"
tax provision 639 (73) (150)
Total tax charge 9,164 5,790 25,420
3. EARNINGS/(LOSS) PER ORDINARY SHARE
Restated
Unaudited Unaudited Audited
Six months Six months Year ended
ended ended 30 September
31 March 2004 31 March 2003 2003
$"000 $"000 $"000
Profit/(loss) before goodwill
amortisation and operating
exceptional items 1,553 (14,893) (43,653)
Operating exceptional items
(net of tax and minorities) - (11,762) (30,590)
Goodwill amortisation (184) (168,198) (346,139)
Profit/(loss) for the period 1,369 (194,853) (420,382)
`000 `000 `000
Weighted average number of
ordinary shares 1,342,151 1,341,239 1,341,618
US cents US Cents US Cents
Basic profit/(loss) per
ordinary share before goodwill
amortisation and operating
exceptional items 0.1 (1.1) (3.3)
Basic profit/(loss) per
ordinary share 0.1 (14.5) (31.3)
4. DEBTORS
Unaudited Audited
Unaudited
31 March 2004 31 March 2003 30 September
2003
$"000 $"000 $"000
Amounts falling due within
one year:
Trade debtors 419,460 379,672 372,024
Other debtors 45,006 118,823 42,276
Prepayments and accrued income 85,954 29,611 65,480
Deferred taxation 28,299 27,633 24,110
578,719 555,739 503,890
5. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Unaudited Unaudited Audited
31 March 2004 31 March 2003 30 September
2003
$"000 $"000 $"000
Bank loans and overdrafts 2,684 89 576
Trade creditors 243,778 208,928 248,424
Taxation and social
security 59,310 51,308 72,699
Other creditors 73,657 72,868 67,922
Accruals 127,453 110,324 100,306
Deferred income 100,070 76,444 85,295
Deferred consideration 4,713 12,016 7,906
Total creditors 611,665 531,977 583,128
6. BASIS OF PREPARATION
Statutory financial information
The unaudited interim results have been prepared on a basis consistent with the
accounting policies set out in the Dimension Data Holdings plc Annual Report
and Accounts for the year ended 30 September 2003, with the exception that UITF
Abstract 38 - `Accounting for ESOP Trusts" has been adopted, as
discussed below. The interim results should therefore be read in conjunction
with the 2003 Annual Report and Accounts.
The interim results for the six months to 31 March 2004, which were approved by
the Board of Directors on 11 May 2004, do not comprise statutory accounts
within the meaning of section 240 of the Companies Act 1985. Full accounts for
the year ended 30 September 2003, incorporating an unqualified auditors"
report, have been filed with the Registrar of Companies.
Restatement
UITF Abstract 38 has been adopted and comparative financial information has
been restated as necessary.
The impact of adopting Abstract 38 was to increase the total loss for the year
ended 30 September 2003 by $91,000. This had no effect on earnings per share.
There was no impact on the six months ended 31 March 2003. Equity shareholders"
funds have been reduced at 31 March 2003 and 30 September 2003 by $128,000 and
$219,000, respectively.
7. Copies of this report are being sent to shareholders, and are available to
the public at the Company"s registered office, Fleet Place House, 2 Fleet
Place, London EC4M 7RT.
INDEPENDENT REVIEW REPORT TO DIMENSION DATA HOLDINGS plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 31 March 2004 which comprises the consolidated profit and
loss account, the consolidated balance sheet, the consolidated cash flow
statement, the consolidated statement of total recognised gains and losses and
related notes 1 to 6. We have read the other information contained in the
Interim Report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the Company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the Company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our review work, for this report, or for the conclusions
we have formed.
Directors" responsibilities
The Interim Report, including the financial information contained therein, is
the responsibility of, and has been approved by the Directors. The Directors
are responsible for preparing the Interim Report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of Group management and
applying analytical procedures to the financial information and underlying
financial data and, based thereon, assessing whether the accounting policies
and presentation have been consistently applied unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than an
audit performed in accordance with United Kingdom auditing standards and
therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review, we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 March 2004.
Deloitte & Touche LLP
Chartered Accountants
11 May 2004
GLOSSARY OF TECHNICAL TERMS
Customer Interactive Solutions (CIS)
Our Customer Interactive Solutions involve solutions around the planning,
building and support of contact centres.
Insite
Insite is a comprehensive real-time, remote information technology monitoring
service. Insite is part of our Managed Services offering.
iBoss
iBoss solutions provide pre-integrated, service ready business and operational
support systems for billing, support and assurance management to telcom service
providers and other large communications providers that manage their own
networks.
IPC
IP Convergence solutions are customised business applications that integrate
into and take advantage of consolidated voice, fax, video and data IP networks.
They enable organisations to achieve productivity enhancements, support
mobility and realise infrastructure efficiencies and include Web Services,
Portals and XML Applications.
Managed Services
Managed Services are process driven services of a recurring nature. These
include Insite, Uptime and Managed call centre services (provided by The
Merchants Group in South Africa and the UK).
OSS/BOSS
Operational Support Services/Business and Operations Support Systems for
Service Providers.
Platforms
Platforms solutions involve the planning, building and support of operating
systems (particularly Microsoft), servers and storage architectures. The
related business solutions include offerings such as high availability
computing systems, back up and recovery, archiving and storage ready networks.
Professional Services
Professional Services include audit, consulting, systems integration,
application development, project management, training and cabling.
Security
Security involves planning, building and support of solutions to ensure that
customers can operate in a secure, trusted, and controlled environment.
Uptime
Uptime is Dimension Data"s support, maintenance and troubleshooting service.
Clients may select from basic response services through to proactive advanced
services for mission-critical IT infrastructure. Uptime is part of our Managed
Services offering.
