| Wed 17 Nov 2004, 9:32 | | RESULTS YEAR ENDED 30 SEPTEMBER 2004 |
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DIMENSION DATA HOLDINGS PLC - PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 2004
DIMENSION DATA HOLDINGS PLC
SHARE CODE: DDT
ISIN: GB0008435405
PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 2004
Dimension Data Holdings plc (`Dimension Data` or the `Group`), a leading global
technology group, today announced its results for the year ended 30 September
2004.
Financial Highlights
Restated
2004 2003
Statutory turnover ($`000) 2,368,044 2,014,795
Total turnover ($`000) 2,484,034 2,100,259
Statutory operating loss ($`000) (14,606) (393,614)
Statutory loss for the year ($`000) (37,803) (420,382)
Basic loss per ordinary share (US cents) (2.8) (31.3)
Adjusted operating profit/(loss) ($`000)* 33,009 (9,012)
Adjusted profit/(loss) for the year ($`000)** 11,434 (36,356)
Adjusted earnings/(loss) per share (US cents) 0.9 (2.7)
Gross margin 20.7% 20.1%
Group operating margin* 1.1% (0.7%)
* Before goodwill amortisation, impairment and operating exceptional items
(see reconciliation below)
** Before goodwill amortisation, impairment and exceptional items
(see reconciliation below)
Highlights
* Return to adjusted operating profits of $33 million compared to losses
of $9 million in FY2003
* US dollar revenue growth of 18%
* Increased focus and disposal of non core businesses
* Execution of turnaround plans in five geographies
* Strong performance from solutions business, with revenue growth of 28%
* Overheads as a percentage of revenues reduced to 19.6% from 20.8% in FY2003
* Adjusted operating margin recovered to 1.1% from - 0.7% in FY2003
* Cash and short term investments of $425 million, +10%
* Exceptional charge of $48 million with no incremental cash impact
* Role of Chairman and CEO split.
Commenting on the results, Brett Dawson, Dimension Data CEO, said:
`Dimension Data has made substantial progress over the past financial year. The
implementation of our growth strategies, including improved focus and
investment in solutions and services, coincided with an upturn in market
conditions. This resulted in pleasing progress in a number of areas. We have
achieved strong growth in revenues at improved gross margins, a return to
operating profitability for the Group, good progress in turning around
underperforming geographies and an excellent performance from our solutions
lines of business where revenues increased by 28%. Effective cost controls and
benefits of scale drove a return to operating profitability and a steady
improvement in the operating margin.`
Looking forward, he said:
`Going into the new financial year, the demand outlook is tempered by global
macro- economic uncertainties.
We are nevertheless well positioned for growth due to ongoing investment in our
value propositions and solutions offerings and are focused on driving further
improvements in returns. `
Adjusted profit and loss analysis
(Before goodwill amortisation and impairment, investment impairment and
exceptional items)
Restated
2004 2003
$`000 $`000
Turnover
Group turnover 2,368,044 2,014,795
Associates 115,990 85,464
Total turnover 2,484,034 2,100,259
Operating profit/(loss) 25,666 (14,886)
Share of operating profit in associates 7,343 5,874
Total operating profit/(loss) 33,009 (9,012)
Income from other fixed asset investments 4,614 3,543
Net interest receivable/(payable) 705 (1,369)
Profit/(loss) before taxation 38, 328 (6,838)
Taxation (19, 555) (27,737)
Profit/(loss) after taxation 18,773 (34,575)
Equity minority interests (7,339) (1,781)
Profit/(loss) for the year 11,434 (36,356)
US cents US cents
Adjusted earnings/(loss) per ordinary share 0.9 (2.7)
Restated
2004 2003
$`000 $`000
Reconciliation of statutory amounts to
adjusted amounts
Adjusted total operating profit/(loss)
Total operating loss (14,606) (393,614)
Add back:
Exceptional operating costs 27,632 23,166
Goodwill amortisation and impairment and
investment impairment (including associates) 19,983 361,436
Adjusted total operating profit/(loss) 33,009 (9,012)
Adjusted profit/(loss)
Loss for the year (37,803) (420,382)
Add back:
Exceptional operating costs 27,632 23,166
Goodwill amortisation and
Impairment and investment
impairment (including associates) 19,983 361,436
Other non-operating exceptional items (4,900) 7,297
Minorities and exceptional tax charge 6,522 (7,873)
Adjusted profit/(loss) for the year 11,434 (36,356)
Geographical analysis
2004 2003
$`000 $`000
Turnover
Africa 445,172 365,428
Asia 362,280 328,725
Australia 481,078 380,526
Continental Europe 438,841 382,123
United Kingdom 218,260 205,918
United States 416,811 346,051
Other* 5,602 6,024
Group 2,368,044 2,014,795
Associates 115,990 85,464
Total 2,484,034 2,100,259
Adjusted operating profit/(loss)
Africa 27,560 5,413
Asia 6,897 2,187
Australia 14,014 12,431
Continental Europe 7,353 6,220
United Kingdom 12,744 11,010
United States 4,573 (17,058)
Other* (47,475) (35,089)
Group 25,666 (14,886)
Associates 7,343 5,874
Total 33,009 (9,012)
* Comprises Holding company costs and central solutions and services
Group turnover analysis by revenue type
Year ended
30 September Africa Asia Australia Europe
2004 $`000 $`000 $`000 $`000
Product 150,417 225,165 375,556 291,043
Managed services 231,117 73,969 52,499 105,920
Professional
services 63,638 63,146 53,023 41,878
Group 445,172 362,280 481,078 438,841
Year ended
30 September
2003
Product 138,333 202,268 291,616 252,647
Managed services 175,815 67,035 44,173 93,450
Professional
services 51,280 59,422 44,737 36,026
Group 365,428 328,725 380,526 382,123
Year ended United United
30 September Kingdom States Other Total
2004 $`000 $`000 $`000 $`000
Product 87,046 327,789 4,932 1,461,948
Managed services 76,338 41,994 - 581,837
Professional
services 54,876 47,028 670 324,259
Group 218,260 416,811 5,602 2,368,044
Year ended
30 September
2003
Product 69,399 254,323 3,344 1, 211,930
Managed services 93,252 25,781 - 499,506
Professional
services 43,267 65,947 2,680 303,359
Group 205,918 346,051 6,024 2,014,795
Currency
The following table reflects the average and year end exchange rates against
the US dollar of SA rand, Australian dollar, Sterling and Euro:
2004 2003
Currency Average Year end Average Year end
South African Rand 6.406 6.406 7.484 7.102
Australian Dollar 1.401 1.395 1.526 1.476
Sterling 0.552 0.556 0.613 0.600
Euro 0.820 0.811 0.879 0.862
Notes:
All references to $ are to US$
All references to profit, profitability and operating profit are to adjusted
profit, profitability and operating profit, which has been adjusted to exclude
goodwill amortisation, impairment and exceptional items, unless otherwise
stated.
Constant currency comparatives remove the impact of currency fluctuations
H1 2004 refers to the six months ended 31 March 2004
H2 2004 refers to the six months ended 30 September 2004
FY 2003 refers to the year ended 30 September 2003
FY 2004 refers to the year ended 30 September 2004
FY 2005 refers to the year ending 30 September 2005
Chairman`s Statement
I am pleased to report that the 2004 financial year has been one of significant
progress for Dimension Data. Turnover increased by 18% in US dollars and we
reported an adjusted operating profit of $33 million compared to an operating
loss of $9 million in the previous financial year. This is a solid turnaround
and credit goes to the entire management and staff of Dimension Data.
During the period under review, demand for IT services started to pick up and a
number of the markets in which we trade showed signs of recovering from the
downturn of recent years. An improvement in the trading environment coincided
with a stronger external focus for Dimension Data, which drove revenue growth
and market share gains in a number of regions.
Over the past twelve months we have refined our strategy, improved our focus,
aligned our global solutions offerings and invested in enhancing the efficiency
of our services delivery platform. Considerable progress was made in turning
around unprofitable regions and our cost base was closely controlled. We
generated strong cash flows and established a stable platform for future growth.
We have continued to invest in developing skills and technologies to maintain
Dimension Data at the forefront of the specialised IT infrastructure solutions
market. The achievement of critical mass in certain strategic markets is key to
our future performance. We are focused on strengthening our presence through
organic growth and market share gains particularly in our solutions lines of
business. The solutions lines of business that we are investing in, target high
growth markets and Dimension Data`s solutions revenues are growing strongly.
From small beginnings, they now contribute 23% to Group turnover.
The progress made by the Group during the year was assisted by the appointment,
in March, of Brett Dawson to the position of Chief Executive Officer. Brett`s
transition from his previous position as Chief Operating Officer has been smooth
due to his established working relationships with the senior executive
management team and his involvement in devising and executing the Group`s
current strategy.
In early March we announced the sale of Proxicom, the US based web design and
internet consulting business. Whilst Proxicom was trading profitably, ongoing
non-operational cash requirements were placing a burden on the balance of our US
operations. The disposal has allowed us to concentrate on growing a more
focused US business.
In September, our South African business achieved an important milestone when it
finalised the Black Economic Empowerment (`BEE`) transaction. This equity
shareholding transaction is designed to result in the BEE Consortium receiving a
25.01% interest in Dimension Data South Africa (Pty) Ltd through a shareholder
facilitated loan. Our empowerment partners are Ngcaba Holdings (Pty) Ltd,
Safika Holdings (Pty) Ltd and a group of broad based BEE participants, including
staff members. We feel confident that this exciting new chapter in our lives
will enhance our growth prospects through removing barriers to participating in
key growth markets in South Africa and unlocking opportunities in the rest of
Africa.
Corporate Governance
On the Corporate Governance front, I am pleased to be able to report that we
have made further progress towards compliance with the recommendations raised by
the Revised Combined Code in the UK and the King II Code on Corporate Governance
in South Africa. The appointment of Brett Dawson, as Chief Executive Officer
and executive board member of Dimension Data Holdings plc in March 2004 and the
resultant splitting of the roles of Chairman and CEO was a key development in
this regard.
During the period, Malcolm Rutherford, who played a central role in Dimension
Data`s global expansion, resigned as Chief Financial Officer and as an executive
board member of Dimension Data Holdings plc. I would like to thank him for the
contribution he made to the Group. David Sherriffs, who has been with the Group
since 1997 in various financial positions in Europe and South Africa, was
appointed as Chief Financial Officer and as an executive board member of
Dimension Data Holdings plc.
As part of our ongoing commitment to increasing the number of independent non-
executive directors on our Board, Rupert Barclay joined the Board in June 2004.
Rupert brings with him a wealth of knowledge and expertise from the UK market
and will contribute to the increased independence of the Board. He is a non-
executive director of Lowland Investment Company plc and a partner of Cairneagle
Associates LLP. In an executive capacity, he has previously served as CFO of
Lombard Risk Management plc, Director of Group Strategy Development at Reuters
plc and Director of Group Strategy at Allied Domecq plc.
David Frankel resigned as a Board member on 16 November 2004. I thank him for
his services to the Group. Following these changes, the Board will consist of
the chairman, four executive directors, four independent non-executive directors
and two further non-executive directors.
The encouraging results of FY2004 are attributable to the skills, enthusiasm and
dedication of our management and staff around the globe, to whom I offer my
wholehearted thanks. Finally, I would like to thank our customers, partners and
friends for their continued support.
Dividend policy
Dimension Data`s dividend policy has been to utilise cash generated by the Group
to fund working capital requirements and to continue the rollout of Group
strategy. The Board will continue to review this policy on an annual basis or
as necessary.
In conclusion, Dimension Data has made considerable progress in an improving
business climate. While much in terms of future performance depends on the pace
and sustainability of the broader global economic recovery, we are confident
that we will continue to make progress in establishing Dimension Data as a
leading specialist IT infrastructure solutions provider and in delivering
further improvements in returns to shareholders.
Chief Executive Officer`s Report
The past financial year has been one of substantial progress for Dimension Data,
the highlights of which are strong growth in revenues, a return to operating
profitability and an excellent performance from our solutions lines of business.
The implementation of our growth strategies, including our investment in
solutions and services, as well as rationalisations and management changes,
coincided with an upturn in market conditions, resulting in pleasing progress in
a number of areas. We grew revenues strongly, our gross margin improved, and
effective cost controls and benefits of scale drove a return to operating
profitability and a steady improvement in the operating margin to 1.1%.
At the end of 2003, we implemented a clearly defined strategic plan to drive the
Group through a turnaround phase and to establish a platform for profitable
growth. The key areas of the plan are:
* Improving our focus
* Driving growth:
o Winning market share
o Growing solutions revenue
o Maximising the potential of our core network integration business
o Increasing the contribution from global sales
* Turning around underperforming geographies
* Improving delivery efficiencies and controlling costs
Focus
Our aim is to be a leader in the provision of specialist IT infrastructure
solutions that help our customers to achieve their business goals. Network
integration remains the core of our business model and during the year we
achieved good growth and market share gains in network integration in a number
of geographies including the US, Australia, Germany and South Africa.
We have continued to evolve and refine our complementary solutions offerings and
are now clearly focused on the following high growth lines of business:
* Convergence solutions
* Security solutions
* Data centre and storage solutions
* Operating environment and messaging solutions
* Customer interactive solutions.
We executed well against our solutions strategy, growing solutions revenues in
constant currency by 27.6%, and increasing their contribution to Group revenues
to 22.5% compared to 19.3% in FY2003.
As part of our strategy of improving our focus on specialised IT infrastructure
solutions, we exited certain non-core activities including the Software AG and
Oracle Applications business in Africa, Proxicom and iBridge in the US and Fixed
Mobile Telephony (`FMT`) in the UK.
Growth
Revenues increased by 18% in reported US dollars and by 13% in ongoing
operations after stripping out the impact of currency fluctuations (constant
currency). Enterprise and service provider customers are again investing in
upgrading their IT infrastructures and buying IT services, and demand picked up
in the year under review following the declines in recent years. Sales
performance has also benefited from a greater external focus and our strategy of
differentiation around excellence in customer service.
Our increased focus and improved value proposition following the launch of new
solutions, the standardisation of our global offerings and enhancements to our
skills base, all contributed to the 27.6% growth in constant currency revenues
achieved in our solutions lines of business. Revenues in the core network
integration business grew by 7.9%.
Increased demand, combined with the impetus of the growth in our solutions lines
of business, led to a 13.6% increase in constant currency product revenues in
ongoing operations. Constant currency managed and professional services
revenues in ongoing operations together grew by 12.2%. The driver of growth in
managed services revenues was increasing customer focus on improving returns on
IT investments. Demand for professional services was pulled through by the
increase in demand for solutions and more complex technologies. Increasing the
contribution from services revenues remains an important part of our strategy
and to this end we have continued to invest in new services that compliment our
solutions offerings and in improving our services delivery capabilities.
The quality of much of the business signed during the year has improved and the
average size of our contract values has increased significantly as has the
contribution from our global sales. Dimension Data Commerce Centre, our
global procurement and logistics offering, is proving to be a key differentiator
in the market. Good progress is also being made in building brand awareness.
Continuing to grow revenue is a key element of our strategy of achieving a
more acceptable operating margin.
Details of our key customer wins are included in each regional review.
Turnaround geographies
The growth strategies, improved value propositions, management changes and
stringent cost controls that were implemented in five turnaround geographies,
have resulted in improvements in the performance of each of the identified
geographies.
The turnaround in the US exceeded our internal expectations. Strong growth in
revenues was achieved through an improved value proposition, expanded solutions
offerings and greater diversification in our exposure to customer verticals. We
reported an operating profit of $4.6 million compared to a loss of $17.1 million
in FY2003.
In Asia, cost savings, rationalisations and a better demand environment saw
operating profit more than double in FY2004. In China our turnaround strategy
is on track, and whilst some progress has been made in reducing losses in Korea,
a comprehensive business plan to accelerate the turnaround should yield further
results in FY 2005.
Our two turnaround countries in Europe, Germany and France, achieved good
recoveries following management and structural changes despite a lacklustre
demand environment.
In Africa we adapted our go-to-market model, made structural changes and exited
non-core businesses. These measures resulted in a strong turnaround to reported
operating profit of $27.6 million for the year compared to $5.4 million in
FY2003. We finalised the Black Economic Empowerment equity shareholding
transaction late in the year and expect to reap the benefits of new market
opportunities in both South Africa and the rest of Africa in the new financial
year.
Efficiencies and costs
During the turnaround phase, rationalisations, cost cutting and delivering
improved performance metrics have remained a priority. The increase in constant
currency overheads in ongoing operations was contained at 3.7%, well below
comparable revenue growth of 13.1%. Key performance indicators such as revenue
and gross profit per head improved and overheads as a percentage of revenue came
down to 19.6% from 20.8% in FY2003.
The initiatives to enhance managed services efficiencies are yielding results.
We invested $4.6 million in consolidating our services operating architectures,
databases and global service centres, which is enabling us to standardise our
global service offerings and execution capabilities.
Several programmes are in place to improve productivity and operational
efficiencies. The consolidation of our global service centres will continue in
FY2005 and Dimension Data Direct, an e-commerce ordering and delivery platform,
which aims to extract efficiency gains through improving synergies and
logistics, is being rolled out globally. We are also improving our sharing of
intellectual property throughout the organisation and the development of re-
usable solutions.
Outlook
Going into the new financial year, the demand outlook is tempered by global
macro-economic uncertainties. We are nevertheless well positioned for growth
due to ongoing investment in our value propositions and solutions offerings and
are focused on driving further improvements in returns.
Appreciation
To our customers, suppliers and partners I would like to express my appreciation
for your continued support and commitment during this period of pleasing
progress in returning the Group to profitability.
I would like to express my thanks and appreciation to our staff and management
for their diligent and focused efforts in implementing our strategies around the
globe. It has been both a challenging and rewarding period and your hard work
and dedication has resulted in the Group returning to a profitable growth path,
a fact that I am proud to report back to our shareholders. Our staff remain our
most valuable asset and as such we will continue to focus on growing and
investing in our people, attracting and retaining the right skills and providing
the best career growth and development opportunities.
In conclusion, the strides made during 2004 have left us healthier and stronger
as an organisation. I believe we have created a platform from which the Group
will be able to grow profitably in 2005 and beyond.
Brett Dawson
CEO Dimension Data Holdings plc
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 (UK)
+(44) 20 7404 5959
Gareth Sharp (SA)
+(27) 11 268 5750
OPERATIONAL REVIEW
Regional Reviews
All numbers and percentage changes in the following regional review are in
constant currency and relate to ongoing operations. The performance of ongoing
operations is calculated after adjusting for the sale of Proxicom and iBridge in
the US, FMT in the UK and Software AG and Oracle in Africa.
Africa
The African business reported revenue growth of 7.8%, stable gross margins and a
sharp recovery in operating profits to $25.9 million compared to $1.3 million in
the previous financial year.
The demand environment was more positive although mixed by sector. The public
and financial services sectors picked up, but service providers have been
cutting back on capital expenditure. We were successful in expanding outside of
South Africa, where we won a number of large contracts. The conclusion of our
Black Economic Empowerment transaction has improved our competitive position.
Growth in product volumes was offset by the impact on prices of Rand strength
against the US Dollars, and translated into a 6.9% decline in product revenues.
Our solutions lines of business performed particularly well, growing revenues by
22%. Security, convergence, and data centres and storage all grew strongly and
the operating environments and messaging business performance also
improved.
A number of large contract wins in the enterprise and service provider space
drove good growth in revenues in Internet Solutions, our internet service
provider business, which accounted for approximately a quarter of Africa`s
revenues. Increased demand for core networking products and convergence
solutions pulled through good business in the Advanced Infrastructure
(cabling) operation.
Good growth in professional services helped to drive a 17.7% increase in
services revenues. Managed services revenues, which increased by 12.5%
benefited from a strong performances from Internet Solutions and Merchants SA.
The growth in revenues in Merchants SA was driven by a significant new off shore
contract with a US Fortune 100 company.
Gross margins increased marginally, with lower product margins being offset by
improved services margins.
Overheads declined by 12.2% following prior year rationalisations and stringent
cost controls. This drove the strong recovery in operating profits to $25.9
million compared to a profit of $2.6 million in FY2003.
The proposed deregulation of the SA telecoms market has created significant
opportunities for Internet Solutions to offer voice services to our customer
base. The BEE transaction has brought increased market knowledge and contacts
in the telecoms sector in Africa and opened up new market opportunities in South
Africa. We are targeting further improvements in returns from the remaining
underperforming operations in the new financial year.
Customer wins during the period under review included:
Ethiopian Telecoms Corporation, a three year, $6.6 million contract, providing
internet connectivity and hosting, file transfer protocol, managed security and
IPT services.
MWeb, a three year, $15.0 million contract using Internet Solutions` MPLS
network and international backbone connectivity.
Sappi, a three year, $5.5 million network integration and security contract,
including outsourced proxy server, firewalls, VRAS, internet connectivity,
international MPLS links and hosting.
Impala Platinum, a $2.1 million contract, including network integration,
security, remote and internet access, storage area network, back-up, storage and
server sizing, desktop standard operating environment, Microsoft Active
Directory and Microsoft Exchange 2003, fax and facilities.
AngloGold, a three year, $2.6 million Microsoft Active Directory, Microsoft
Exchange and ISA services solution.
Sanlam, a three year, $5.1 million VPN Outsource contract.
Asia
Datacraft Asia, our subsidiary with operations in 13 countries across Asia, grew
revenues by 10.2% and sustained a trend of improving operating profitability for
the past four reporting periods. Enterprise demand was strong and demand in the
service provider sector increased slightly.
The strong performance of our solutions lines of business was a key growth
driver. Solutions revenues grew by 70% and now account for 19% of Datacraft`s
revenues. We saw particularly strong demand for our storage, convergence and
CIS solutions as well as good growth in security solutions revenues. Our move
into operating environments and messaging solutions started to pay dividends in
the second half of the year.
Technology revenues increased by 11.3%, driven by growth in demand for the core
network integration products as well as by strong demand for Cisco`s advanced
technologies. We remain Cisco`s number one partner in Asia and increased our
Cisco market share over the year.
Services revenues increased by 8.4% on the back of increased demand for managed
services and more long term annuity business. Professional services revenues
also grew, leveraging off better demand for solutions and advanced technologies.
We are beginning to see the returns of two years of investing in the right
skills and professional services value proposition. The training services
business was stable.
By country, India was the star performer, growing revenues and operating profits
strongly on the back of market leading positions in the financial services and
the call centre industries. Singapore, Thailand, Hong Kong, Indonesia, and New
Zealand, all reported good growth. In the Philippines and Malaysia, a
combination of restructuring benefits and management changes drove growth and
improved operating profitability. Japan had a good H1, experienced some
challenges in the third quarter but recovered well in the fourth quarter.
Pleasing progress was made in China in H2. We have enhanced the skills in our
sales team, have aligned sales to our solutions and services focus and are
confident in our new management team. In Korea we also have a new management
team in place and a recovery plan against which we made some progress in the
second half of the year. In both China and Korea we are focused on building our
enterprise business, particularly in the financial services sector.
The gross margin increased to 16.2% from 15.7% in 2003. A higher proportion of
solutions and advanced technology revenues, combined with being more selective
in the business that we do, drove a slight increase in gross margins.
Overheads increased by 4.4%, which is well below the growth in revenues due to
the cost cuts implemented in FY2003, but overheads increased sequentially in H2
following targets being exceeded, continued investment in our solutions lines of
business and the hiring of new sales skills. Operating margins increased
steadily throughout the year, ending at 1.9%, close to three times up on the
prior year. Operating profit was up by 215% to $6.9 million.
Datacraft Asia enters FY2005 in a stronger position, with both customer and
employee satisfaction surveys showing significant improvements over 2003. We
will continue to focus on generating profitable growth and cash flows. A
continuation of the strong performance in India and our drive to turn around the
businesses in Korea and China are expected to help overall group returns.
We finished 2004 with the highest backlog for eight quarters and a strong order
book which makes us optimistic about the outlook for the new financial year.
Customer wins during the period under review included:
Quang Trung Software City, Vietnam, a multi month, $3.6 million turnkey IT
infrastructure contract including a metropolitan area network, a data centre,
VoIP, billing and security systems.
A global investment bank, Japan, a three year, $2.5 million network maintenance
contract.
Hanaro Telecom, Korea, a multi month, $10.0 million contract to upgrade a
nationwide backbone network.
Assumption University, Thailand, a multi month, $1.0 million contract to build a
high speed network for an e-learning centre.
Globe Telecom, Philippines, a multi-month, $3.3 million mobile call signaling
over IP network system (SS7 over IP network).
Australia
The Australian business had a good year, growing revenues by 16.0%. Against the
backdrop of a stable macro economic environment we gained market share, growing
well ahead of the overall market.
We enjoyed good growth from all customer sectors but particularly in the
Government sector, which is investing in new technology and deploying solutions
across legacy infrastructure. Our business mix continued to diversify away from
service providers and financial services into the government, health and
education sectors. Despite industry consolidation, Dimension Data maintained
its leading share of the Australian market.
After little investment since Y2K, FY2004 was a year of technology upgrades,
which drove an 18.2% growth in technology revenues. Solutions revenues grew by
37.7%. All solutions areas performed well with particularly strong performances
from CIS, convergence and security as we increased the penetration of solutions
into our customer base.
The move to IP based technology has been a key growth driver and has pulled
through demand for security, storage and CIS solutions as well as operating
environment upgrades.
The strong growth in product revenues pulled through professional services
engagements, particularly in the second half of the year. Increased use of
contractors gave us good flexibility and increased sustainability in this
business. Managed services revenues, which increased by 9.1%, benefited from
strong volume growth, offset by pricing pressures in a competitive environment.
The distribution business, Express Data also performed well, leveraging off the
good demand in the network integration business and following better penetration
of existing clients. Consolidation of the number of Cisco distributors from
three to two was also an impetus to growth.
Customer satisfaction remains high with little churn in our quality customer
base and a healthier mix of revenue from different sectors has reduced our risk
profile.
The overall gross profit margin was stable. The services gross margin also
increased slightly due to higher average hourly rates and improved realisations
following better professional services efficiencies. Gross margins in Express
Data were in line with the prior year.
An 18.9% increase in overheads was driven by higher business volumes and
performance linked payments. In the second half of the year we also invested in
developing our solutions offerings further and expanding our managed services
offerings, the benefits of which are expected to materialize in FY2005.
Operating profits increased by 3.5%.
The Australian business is in good shape going into the new financial year and
we expect to deliver another year of growth driven by continued strength in our
solutions offerings.
Customer wins during the period under review included:
One of Australia`s top four banks, a three year, $7.8 million contract to
provide managed services to over 1,800 sites.
Australian Capital Territory (ACT) Government, a five year, $3.8 million network
integration, professional and managed services contract for a Metropolitan Area
Network for the ACT Government.
United Group Limited, a four year, $1.8 million contract to design and implement
a new core data centre managed services.
AAPT, a one year, $2.7 million contract to build a virtual call centre
incorporating professional and managed services.
A leading Australian telecoms company, a three year, $22.0 million contract to
build a network based Virtual Call Centre incorporating professional and managed
services.
Europe
The European business reported good growth in revenues and improved operating
profitability against a lacklustre economic backdrop. Trading got off to a good
start with strong demand and a positive mood in the first half of the year.
This was offset by a slowdown in the third quarter but the year ended with a
strong performance in the fourth quarter.
Revenues increased by 7.2% with technology revenues increasing by 7.5%. This
pulled through growth in both managed and professional services and overall
service revenues showed growth of 6.5%. Increased demand for specialised
infrastructure solutions and our investment in convergence, data centre and
storage and security offerings drove growth in solutions revenues of 15.5%.
The star performer in Europe was the Netherlands where we signed a number of
attractive contracts and enjoyed good growth in convergence solutions. Markets
in Germany and Benelux were flat. Hardware volumes came under pressure in
Luxembourg during H2 but we performed well in services and solutions.
Investment in new management and solutions is paying dividends in Germany where
morale has picked up following improved business performance. In France, where
we now have a stable management team, good market conditions helped to drive
growth in revenues and operating profitability. Switzerland benefited from a
number of good security deals.
The gross margin came off slightly driven largely by a decline in technology
margins in a price sensitive market, whilst the services margin increased
marginally following an improvement in the mix.
Overheads were well contained, increasing by 5.0%, which was below revenue
growth. The increase was due to investment in new solutions, skills and
services efficiencies as well as by higher variable costs following the
achievement of internal targets in a number of countries. Operating income
increased by 10.2%.
In the new financial year we will continue to push strongly into solutions and
expect an improvement in profitability to be driven by better performances in
Germany and France.
Customer wins during the period under review included:
Essent Kabelcom, a one year, $8.6 million contract to supply Cisco equipment.
Deutsches Forschungsnetz, a multi year, $2.4 million network integration
contract for the extension of G-WIN, the third generation of the German National
Research and Education Network.
Satcom Modena, an eighteen month, $1.8 million MPLS contract to implement a
network based on Metro Ethernet Technology.
UPC, a multi million dollar contract, to upgrade its network to incorporate
voice.
UK
The UK business performed well growing revenues by 10.6% and operating profits
by 34.8%. We saw an upturn in activity and demand during the year, projects
previously on hold were put out to tender and we benefited from a trend away
from outsourcing towards out tasking. The market remained competitive
particularly in the SME space where service providers continue to be aggressive
on price.
The UK business excluding The Merchants Group, our managed call centre
operation, performed particularly well, gaining market share and growing
revenues by 14.3%. Revenue benefited from our successful geographic expansion
into the Midlands and Scotland and the consolidation of our business in the
South of England. A move from a vertical to a geographic focus supported by
vertical consulting expertise, led to an improvement in our engagement process
and better account management. Our refined value proposition for the SME market
drove growth in a number of key accounts.
Product revenues increased by 13.0% as activity in our core network integration
market picked up and we saw good traction in demand for convergence and storage
solutions. Solutions revenues increased by 9%. Services revenues (excluding
Merchants) increased helped by improved professional services competencies which
led to contract wins around our security, operating environments and CIS
solutions businesses. Advanced Infrastructure revenues performed well,
following strong demand for intelligent building services.
Good growth was also achieved in managed services revenues which leveraged off
the strong performance in our core network integration business.
Revenues in The Merchants Group, which accounts for approximately a quarter of
the UK`s services revenues, declined following a reorganisation of the business
which included the appointment of a new management team and a reassessment of
the strategic focus of the business.
Pressure on product gross margins in a competitive and price sensitive market
led to a 0.5% decline in the UK`s gross margin. Strong sales of complex
technologies and our ability to wrap services with our product offerings helped
to counteract pressure on prices. Services gross margins increased slightly.
Overheads, for the overall UK business, increased by only 2.0% following
diligent control over costs and helped to drive the strong improvement in
profitability.
Going into the new financial year we have a clear strategy in place to deliver
another year of growth. We will continue to invest in the high growth solutions
areas and are taking on new skills to drive growth in professional services
revenues. Where possible, we will continue to streamline our operations to be
more cost effective.
Customer wins during the period under review included:
Isle of Man Government, a five year, $10.0 million network integration contract
to design, implement and support new WAN, LAN and IPT infrastructure.
Ladbrokes, a rolling, $2.0 million contract to design, implement and support new
security infrastructure for online gaming business.
A global engine manufacturer, part of an ongoing, $1.3 million, initial contract
to supply network infrastructure for multiple sites in the UK including network
design, supply, implementation and managed services.
A global financial institution, a two year, $2.7 million operational services
outsource contract, based at its Network Command Centre in London.
USA
The US business recovered strongly in the year, reporting a 28.8% increase in
revenues and operating profits of $3.5 million compared to losses of $13.6
million in the prior year.
The performance benefited from a pick up in the overall demand environment.
After being on hold for a number of years, customers started to initiate new IT
projects and refresh their existing technology. Increased IT investment in the
financial services sector was a key driver of growth and we won a number of
quality new customers.
A key driver behind our growth was the success that we had in our solutions
lines of business where revenues increased by 34%. We grew market share
strongly in the areas of convergence and security and performed well in Cisco`s
advanced technologies. Traction in the convergence market worked to our
advantage as Dimension Data is a leader in this space in North America. Our
push into the data centre and storage market with EMC and into CIS solutions,
started to pay dividends in the second half of the year.
We capitalised on the trend towards shorter and more segmented outsourcing
agreements, working on a number of focused engagements and collaborating with
partners on key accounts. We also benefited from our market positioning, with
global capabilities and regional presence. This helped us to achieve success
both in the SME market as well as with global and multinational customers.
Greater traction and returns were achieved in our key global accounts. We had
good success in penetrating the state, local government and higher education
sectors and we have reduced our exposure to the financial services sector.
Managed services revenues increased by 62.9%, off a low base, driven by success
in the SME space where customers are looking to improve the returns on their IT
investments. Professional services revenues leveraged off the growth in demand
for advanced technologies. The divesture of Proxicom freed up management time,
lifted the burden of the onerous leases and allowed us to focus on the execution
of our core strategy.
The strong growth in revenues was complemented by a strong improvement in the
gross margin. An improvement in product gross margins was led by a change in
the mix. The services gross margin increased driven by benefits of scale and
operational efficiencies in the managed services business.
Overheads were tightly controlled, increasing by only 8.1%, well below the 28.8%
growth in revenues. Following the cost cutting initiatives started in FY2003
and strong growth in revenue, we are starting to see some operational leverage
coming through. We reported an operating profit of $3.5 million, reversing the
prior year`s $13.6 million loss. The operating margin of 0.3% that we reported
at the interim period increased to 1.3% in the second half of the year leading
to a margin for the full year of 0.9%.
We expect another year of good revenue growth and a further improvement in the
operating margin in FY2005. We see further good opportunities in the solutions
lines of business and managed services spaces and are targeting an improvement
in the performance of the professional services business.
Customer wins during the period under review included:
A large healthcare and pharmaceutical company, a two year, $16.0 million managed
services contract, working on a work flow and ticketing program deployed on
6,000 network devices over 4,500 servers.
A large government entity, a $4.4 million contract to upgrade and consolidate
older storage frames.
The International Monetary Fund, a $6.0 million contract, to implement a new
network for the company`s headquarters, including 5,500 IPT phones and Unified
Messaging.
A large membership provider, a $3.4 million contract to upgrade IVR, call centre
voice infrastructure and software, including professional services.
A large financial institution, a three year, $2.9 million managed services and
IPT and IPC Contact Centre contract.
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 September 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 8.
Group operating performance
The only changes to the Group structure were the sale of Proxicom and iBridge in
March 2004, the disposal of the FMT business in the UK and the exiting of the
Software AG and Oracle businesses in Africa in the second half of the year. The
results of these businesses were not considered sufficiently material to require
separate disclosure in the profit and loss account.
Turnover
Group turnover, excluding associates increased by 17.5% to $2,368.0 million from
$2,014.8 million in FY2003. Adjusting for operations acquired or disposed of
during the year, ongoing operations grew by 13.1% in constant currency.
Gross margin
Gross margin increased to 20.7% from 20.1% in FY2003. Improved services margins
were mitigated by continuing pressure on product pricing. Currency movements,
in favour of some territories with higher gross margins, also contributed
towards the overall gross margin improvement for the year.
Overheads
Group overheads, before exceptional items and depreciation of $42.9 million
(2003: $48.4 million), were $422.1 million compared to $371.2 million in FY2003,
an increase of 13.7%. Overheads before exceptional items and depreciation
attributable to ongoing operations grew by 6.7% in constant currency. Variable
overheads increased in line with improved volumes and operating performance,
balanced by good cost containment in other categories
of overhead.
Operating profit
Total operating profit before associates was $25.7 million compared to a loss of
$14.9 million in FY2003. Income from associates grew from $5.9 million to $
7.3 million. Total operating profit after associates for the period was
therefore $33.0 million. The significant turnarounds in the US, Asia and Africa
have been important contributors to this improvement in profitability.
Net investment and interest income
Net investment and interest income of $5.3 million includes interest and
investment income earned on net cash balances and investments, and is expressed
net of $6.0 million accrued in respect of the $100 million convertible bond.
Taxation
The Group incurred a pre-exceptional tax charge of $19.6 million compared to
$27.7 million in FY2003. The FY2003 tax charge included a charge for deferred
taxes and prior year adjustments of $7.1 million whilst the equivalent current
year amount is a credit of $5.0 million. Pre-exceptional tax in respect of the
current year is therefore $24.6 million compared to $20.6 million in FY2003
reflecting the tax effect of the Group`s improved profitability. A further tax
charge is reflected under exceptional items and this is discussed in the
exceptional items section below.
Exceptional items
The Group incurred exceptional operating costs of $27.6 million, of which $25.1
million related to a provision for The Campus premises in Sandton, Johannesburg,
which house the South African operations and the Group head office. Subsequent
to the end of the financial year, in November 2004 the Group exercised its
option to acquire the bare dominium (freehold) of these premises. Accordingly,
in 2005 the lease obligations in respect of the premises will be capitalised at
some $135.0 million, together with the fair value of the land and buildings.
The resultant asset will be subject to an impairment
