| Wed 16 Nov 2005, 9:00 | | Dimension Data Holdings Plc - Preliminary Results |
|
DDT
DIDDT
Dimension Data Holdings Plc - Preliminary Results Year Ended 30 September 2005
Dimension Data Holdings plc
Incorporated in Great Britain under the Companies Act 1985
Registration Number: 3704278
Share Code: DDT ISIN number: GB0008435405
PRELIMINARY RESULTS YEAR ENDED 30 SEPTEMBER 2005
Dimension Data Holdings plc ("Dimension Data" or the "Group") today announced
its results for the year ended 30 September 2005.
HIGHLIGHTS
* Group revenues up by 15.2 %
* Network Integration revenues up by 7.7%
* Strong Solutions revenue growth, up by 41.9%, exceeding revenue of $750
million for the first time
* Gross margin at 20.4% (2004: 20.7%)
* Overheads well controlled, as a percentage of Group revenues improving to
18.1% (2004: 19.6%)
* Group operating profit (1) more than doubles to $61.7 million (2004: $25.7
million), reflecting the Group"s operational leverage
* Group operating margin (1) more than doubles to 2.3% (2004: 1.1%)
* Cash inflow from operations up by 43.1% to $110.9 million compared to $77.5
million in 2004
* Basic earnings per share 1.3 US cents (2004: loss 2.8 US cents)
Financial Summary
2005 2004
$"000 $"000
Group turnover 2,727,857 2,368,044
Associates turnover 99,052 115,990
Total turnover 2,826,909 2,484,034
Group operating profit (1) 61,692 25,666
Net profit/(loss) for the year 17,764 (37,803)
Adjusted profit for the year (2) 18,643 11,434
US cents US cents
Basic earnings/(loss) per ordinary share 1.3 (2.8)
Adjusted earnings per ordinary share (2) 1.4 0.9
Notes:
(1) Before associates, goodwill amortisation,
impairment and exceptional items
(2) Before goodwill amortisation, impairment and
exceptional items.
Chairman"s Statement
I am pleased to report on a year of significant progress for Dimension Data.
During the year, Dimension Data gained market share in many of the key markets
in which it operates and strengthened its global Solutions offerings. This was
reflected in much improved operating returns.
Demand for our IT infrastructure Solutions and Services remained healthy,
driven by positive market momentum in most sectors within which the Group is
positioned, and strong reception for our Solutions offerings.Impressive growth
in revenues led to Group operating profit (1) of $62 million, more than double
the prior year. Credit goes to the management and staff of Dimension Data who
have delivered this strongly improved operating performance and continue to
put in place the building blocks for future growth.
A critical ingredient in our success remains our ability to attract and retain
high quality people. To this end, we engaged this year in our first Group-wide
employee survey to canvass the opinions of our employees. Feedback from
employees was very positive, and employee morale in the Group continues to
improve. The survey identified several important areas for improvement - for
example, career development and training remain key priorities. In December we
also revised our employee share incentive programme, by way of implementing a
Share Appreciation Rights Scheme and a Long Term Incentive Plan.
The Group"s focus for the current year was on ensuring excellent service to our
clients, and on improving the depth and breadth of our market offerings. While
over the past few years we have engaged in exiting some non core assets, this
year we have undertaken some measured acquisition activity to extend our
capabilities across our lines of business and consolidate our position as a
leading global IT infrastructure solution provider. In December 2004 we
acquired Euricom, a Microsoft focused consultancy business in Belgium. In
August 2005 we acquired an additional 20% shareholding in Internet Solutions,
which increased our holding in this South African Internet Service Provider to
80% (effective 77.91%), and in September 2005 we acquired Bellerephon, an
Australian based provider of Microsoft management and infrastructure solutions.
At 30 September 2005, the Group reflected cash and short term investments of
US$417 million. W e consider it important to retain a strong positive cash
position to provide a sense of stability to our customers, and to allow us to
take advantage of opportunities that continue to present themselves across our
Group. The Board is mindful of the ultimate objective of providing an
acceptable cash return to shareholders and our dividend policy is under review.
We are pleased to have appointed Wendy Lucas-Bull to our Board of Directors, as
an independent non- executive director. Wendy is a respected member of the
South African business community with a wealth of experience in the financial
and consulting industries. The Board currently comprises the Chairman, four
executive directors and seven non-executive directors, of whom six are
independent.
I would like to thank all of our employees around the world for their
dedication and hard work during the year. They are the key ingredient to our
continued success. As we move into the new financial year, I believe that our
business is in an improved competitive position to benefit from what we expect
to be stable demand conditions in most of our key markets and territories. We
will continue to apply our resources, energy and capital to differentiate us
from our competitors, win market share, provide excellent service to our
clients and deliver improved returns to our shareholders.
Chief Executive Officer"s Review
2005 was a very good year for Dimension Data. A year of solid operating
performance with strong revenue growth (15.2%), during which Group operating
profit (1) more than doubled to $61.7 million. The robust improvement in our
results over the past few periods continued, and our earnings per share were
1.3 US cents for the year - a positive result at the bottom line for the first
time in several reporting periods.
Our revenue growth has been driven by the successful execution of our strategy
of expanding aggressively into our chosen market segments, reflected by our six
lines of business. Our Networking Integration line of business achieved
significant growth - outside of Europe, 14% growth reflected market share gains
in several territories. Our five Solutions lines of business grew on average by
41.9%, evidencing strong traction from our continued focus in these high growth
market segments. Effective execution within most of our regions, in particular
the US, Asia, and South Africa, was another highlight.
The marked improvement in the Group operating profit(1) reflects a good flow
through of the operating leverage in the period. Revenue growth drove a 13.4%
improvement in gross profit. This, together with ongoing containment of our
fixed costs - continues to drive the Group"s improved profitability. The
proportion of overheads to revenues declined significantly to 18.1% from 19.6%
in 2004, which is ahead of our internal target.
During the course of the year, market trends continued to play to the strengths
we have developed through our lines of business. The network continues to play
a critical role as the integration point in the convergence of disparate
technologies, and in particular voice and data. This trend, together with our
networking heritage, positions us well to help clients optimise their IT
architectures; reducing operating expenses and improving return on investment.
Evidence of IT convergence was most marked in our Converged Communications line
of business, where revenues grew by 97%. Here we continue to upgrade our
clients" IT architectures and transform their voice calls into IP-based data
traffic, thereby streamlining their communication network and reducing
telecommunications costs.
We also notice an increase in the sophistication of our clients" IT services
requirements. Increasingly, clients are selecting a combination of in-sourced,
outsourced, or multi-sourced services. This past year we completed our Global
Service Operating Architecture ("GSOA") "baseline" project which brings us
closer to having a globally consistent managed services infrastructure. The new
GSOA platform helps Dimension Data better address the needs of large
enterprises, provide greater and more flexible service levels, and extract
benefits of scale from our overall services offerings. We expect these IT
services trends to continue and we will invest further in developing IT
services that give our clients flexible services across our lines of business.
We are proud of the high quality client base that we have built up and of the
IT improvements we have helped our clients to achieve. During 2005 we looked
for ways to improve our client engagement model and conducted our first global
client survey to gain feedback on their perceptions, preferences, and concerns.
We created a client special interest group to obtain feedback on our Solutions
and Services development plans and implemented programmes to gain more
knowledge about our sales effectiveness. We will continue to work with our
clients to ensure we are injecting the "voice of the client" into all we do.
Revenues from our top 15 global clients grew by some 36% year on year. While
some of this growth is attributable to improved sales effectiveness, it also
reflects the competitive advantage of our global IT procurement, logistics,
deployment, integration and management services.
Dimension Data helps clients make the best decisions about technology solutions
and vendor alternatives according to their unique needs. Our long term
relationships with a number of market leading technology and communication
vendors allow us to offer the most appropriate solutions. During 2005 we
received multiple industry and partner awards which recognised our technology
expertise, quality of delivery and client focus. These included the prestigious
Cisco Global Partner of the Year award, Microsoft"s Global Security Sales and
Marketing Partner of the Year award, as well as awards from Avaya, Checkpoint,
Genesys, Hewlett Packard, Nortel, RSA, Sun Microsystems, Trend Micro and
others. Industry leading and emerging technology vendors continue to approach
us to develop partnerships, and these relationships remain a key component of
our success as a specialist IT infrastructure solutions provider.
We continue to invest to expand our expertise in our Network Integration and
Solutions lines of business. This investment is fueling our growth creating a
unique competitive advantage for Dimension Data and a firm foundation for
further growth. We have also invested in closer alignment of the development
and execution of our Services and Solutions strategies, to accelerate the
delivery of a full lifecycle of services within each of our lines of business.
Dimension Data has an exceptional complement of skilled and committed people,
which remains its most important competitive advantage. During the period we
have continued to invest in growing this complement from 8,600 to some 9,100.
This investment in new skills is focused on improving our domain expertise and
execution capabilities within our lines of business in all our regions.
Going into the new financial year we anticipate a continuation of the favorable
demand environment that prevailed during FY2005, particularly in our chosen
Solutions lines of business. Dimension Data is recognised as a world leader in
Network Integration, and has a growing reputation in its Solutions lines of
business. We believe our value propositions are resonating with our clients,
driven by our domain expertise and our ability to integrate our offerings
across our lines of business. This, together with our life cycle of Services
approach, gives us confidence that as we move into 2006 we will be able to
compete effectively and we will once again strive to achieve double digit
growth in revenues. We will be vigilant in ensuring that our cost increases
are contained below the growth in our revenues in order to be able to
continue to deliver improved profitability and returns to shareholders.
Overview of Results
Group revenues grew by 15.2% to $2,727.9 million, with a 7.7% increase in the
Network Integration line of business and an excellent performance from our
Solutions lines of business where revenues increased by 41.9% on 2004. As a
result, Solutions now account for 28% of revenue, up from 23% in the prior
year.
Gross profit grew by 13.4%, reflecting a 0.3% reduction in gross margin. The
margin was impacted by strong growth in product revenues (15.8% on a like for
like basis), at lower margin than service revenues, as well as an increase in
revenues from our high volume multinational customers. Services margins
improved during the year.
Overheads grew by 6.4% and as a proportion of revenue improved to 18.1% from
19.6% in the prior period, evidencing significant operating leverage. Our
results therefore reflect a 140% growth in operating profit (1) to $61.7
million, and a doubling of the Group operating margin(1) to 2.3%.
The Group recorded a net interest expense and investment income of $16.9
million for the year, compared to a net interest and investment income in 2004
of $5.3 million. The large swing to a net interest expense of $19.5 million is
as a result of the capitalisation of a property lease in November 2004. The
Group"s effective tax rate at 43.1% of profit before tax (2) was an improvement
on the prior year.
Adjusted earnings (before goodwill and exceptional items) were $18.6 million,
63.0% up on 2004, and basic earnings per share of 1.3 US cents reflects a
return to positive bottom line profitability.
Review of revenue and trading
Group Turnover 2005 Change on Change on
$"000 Contribution 2004 2004
to revenue Like for Like(4)
Lines of business
Network
Integration 1,470,611 54% 7.7% 7.0%
Solutions 757,973 28% 41.9% 39.7%
Other 499,273 18% 6.7% 9.8%
Total 2,727,857 100% 15.2% 15.0%
Revenue Stream
Product 1,732,399 64% 18.5% 15.8%
Managed
Services 663,125 24% 14.0% 15.1%
Professional
Services 332,333 12% 2.5% 11.1%
Total 2,727,857 100% 15.2% 15.0 %
In the analysis below, all references to percentage change in turnover, gross
profit and operating profit (1) as well as gross profit margins are after
adjusting for the impact of currency movements, and excluding acquisitions and
disposals not included in either the full current period or the full prior
period. All changes are relative to 2004.
Notes:
(1) Before associates, goodwill amortisation, impairment and exceptional items
(2) Before goodwill amortisation, impairment and exceptional items
(3) Unless otherwise indicated, comparisons are to the equivalent prior period
being the 12 months ended 30 September 2004. All references to $ are to
US$.
(4) After adjusting for the impact of currency movements, and excluding
acquisitions and disposals not included in either the full current period
or the full prior period.
Lines of Business
The Group is focused on six global lines of business.
Network Integration, the Group"s most significant line of business, grew by
7.0%. Apart from Europe, where revenues declined by 11.2%, the remaining five
regions grew on average by a strong 13.3%, reflecting market share growth in
several territories. This growth was supported by healthy demand in our larger,
multinational accounts.
The balance of our lines of business, referred to as Solutions, grew in
aggregate by 39.7%. These lines of business, which are closely aligned to our
core Network Integration business, focus on high growth markets where the
Group, with its strong base of networking experience and skills, is well
positioned to compete. The growth in Solutions revenue this year is the result
of continuing good demand in these markets, focused execution, and the leverage
afforded by the Group"s established global presence. Within the Solutions
lines of business:
Converged Communications revenues grew by 97%. As a result of our Internet
Protocol ("IP") heritage and a growing reputation in the IP telephony market,
the Group is well positioned to benefit from continuing growth in this market.
During the year, the Group was Cisco"s IP Telephony Partner of the Year in both
EMEA and Asia PAC, and their second largest partner in the USA.
Customer Interactive Solutions revenues grew by 41%. Migration to IP technology
continues apace, and our experience in IP telephony and contact centres
positions us well to benefit in the future. Furthermore, our ongoing investment
in advanced contact centre applications (such as workforce optimisation and
self-service) differentiates the Group amongst clients who are looking to
address contact centre operational and automation requirements. A further
differentiator for Dimension Data is our international presence, due to the
requirement for a consistent and standardised service across international
contact centres.
Operating Environments and Messaging, where we manage and optimise our clients"
Microsoft environments, grew by 48%. Our competitive positioning was enhanced
by the acquisition of two businesses focused on Microsoft based solutions -
Euricom in Belgium and Bellerephon in Australia. The acquisitions substantially
improve our Microsoft skills in general and desktop deployment and presence
management capabilities in particular. During the year Dimension Data was
recognised by Microsoft as a global Systems Integrator partner and achieved
Microsoft Gold Partner status on five continents.
Data Centres and Storage revenues were somewhat disappointing at 7% growth.
Lower sales in the US and Australia offset good growth in the recently
established Asian and European lines of business. During the year we received
awards from some of our key partners - EMC in Asia, Sun Microsystems in
Australia and Hewlett Packard in South Africa. In Australia we supplemented our
data centre security skills with a small acquisition.
Security revenues grew by 40%, reflecting the Group"s expertise in consulting
on the storage, classification and protection of information, and the
implementation of leading security technology Solutions and Managed Services.
Dimension Data was recognised with awards from its security partners during the
year, including Microsoft, Cisco, Checkpoint and RSA.
The Group"s Network Integration, Converged Communications and Security
capabilities were acknowledged this year when we received the Cisco Global
Partner of the Year award in recognition of outstanding performance, commitment
to technical excellence and customer focus. Dimension Data continues to
differentiate itself in the markets within which it operates through its
technical skills and service excellence.
The Group"s "Other" businesses account for the remaining 18% of revenues. These
operations are complementary to our Network Integration and Solutions offerings
in the territories within which they operate, but are unique to those
territories. Most significant are Internet Solutions in South Africa (an
internet service provider with a dominant presence in the South African ISP
market), and Express Data in Australia (an IT product distribution business).
Both continued to perform well.
Revenue Streams
The Group offers a full life cycle of Services to clients - including the
planning, building, support and management of IT solutions. This is reported as
three streams of revenue: Product (the resale of non- proprietary product),
Managed Services (of an annuity or recurring nature), and Professional Services
(project based engagements). Product comprised 64% of Group revenues and
Services 36%; with Managed Services and Professional Services 24% and 12%
respectively.
Product revenues grew by 15.8%. This growth reflects good performance in most
of the territories within which the Group operates. In particular, product
revenues in our Solutions lines of business were well up on last year.
Our top fifteen global clients grew at a robust 36%. This reflects the benefits
of the Group"s global presence, and our ability to deliver consistent
procurement, deployment and integration solutions in multiple territories. In
this regard, we continue to refine our global logistics and tracking systems to
ensure a seamless offering to our clients. For example, we invested further in
DD Direct, an automated quoting, configuration and ordering tool which provides
a self-service option to clients, simplifying the procurement process.
Services grew by 13.7%. Within this, Managed Services revenues grew by 15.1%.
Our initiatives to extend our Managed Services offerings into the Solutions
lines of business continue to produce results. We saw during the course of the
year an acceleration in the number of Requests for Pricing, particularly from
the US, for global, cross-border services fulfilment, validating the
establishment of our global footprint and offering a substantial opportunity
for the Group to cross-sell Services into an established multinational customer
base. Delivering these Services is facilitated by our six global support
centres, the consolidation of which was completed in the first half of the
year.
Also falling under Managed Services, our outsourced call centre business
(Merchants), had a very good year, with revenues up significantly and Internet
Solutions grew by 20.2%.
The scaleable nature of the Managed Services business, together with an ongoing
focus on delivery efficiencies resulted in an improvement in the Managed
Services operating margin.
Professional services grew by 11.1%. Good growth in our deployment revenues
(staging and installation of IT solutions) mirrored overall revenue growth, and
we also saw the benefits of a greater presence of our IT engineers on-site at
customers.
Regions
Africa Asia Australia Europe
$"000 $"000 $"000 $"000
2005
Group turnover 482,871 455,977 598,738 449,585
Group operating
profit (1) 42,501 17,470 18,580 6,927
Group operating 8.8% 3.8% 3.1% 1.5%
margin (1)
2004
Group turnover 445,172 362,280 481,078 438,841
Group operating 27,560 6,897 14,014 7,353
profit (1)
Group operating 6.2% 1.9% 2.9% 1.7%
margin (1)
United United
Kingdom States Centre Total
$"000 $"000 $"000 $"000
2005
Group turnover 247,053 481,046 12,587 2,727,857
Group operating
profit (1) 11,741 7,719 (43,246) 61,692
Group operating 4.8% 1.6% 2.3%
margin (1)
2004
Group turnover 218,260 416,811 5,602 2,368,044
Group operating 12,744 4,573 (47,475) 25,666
profit (1)
Group operating 5.8% 1.1% 1.1%
margin (1)
In the analysis below, all references to percentage change in turnover, gross
profit and operating profit (1) as well as gross profit margins are after
adjusting for the impact of currency movements, and excluding acquisitions and
disposals not included in either the full current period or the full prior
period. All changes are relative to 2004.
Africa
Africa"s revenue grew by 13.0% - product by 7.0% and services by 16.3%. Managed
Services were up 18.3%, with good growth in Internet Solutions, Merchants and
in the core Managed Services operations. Professional Services grew by 5.7% for
the period. Within the lines of business, Network Integration grew by 11.7%
and Solutions by 23.4%, with CIS, OE&M and Security all performing strongly.
Overall gross margin improved to 29.9% from 29.5% in 2004. The higher than
average gross margin in Africa is a consequence of the historically higher
proportion of services in total revenue (66.4%), at better gross margins. Gross
profit grew by 14.5% for the year.
Overheads increased by 2.1% over the prior year. The capitalisation of the
property lease during the period resulted in a reduction in the operating lease
charge of some $13.7 million, and an increase in the depreciation charge of
$1.9 million.
Reported operating profit improved to $42.5 million from $27.6 million in 2004,
and the operating margin increased to 8.8% from 6.2%.
The involvement of our Black Economic Empowerment ("BEE") partners since the
second half of 2004 continues to create opportunities within the South African
public sector and sub-Saharan Africa. The establishment of the BEE partnership
has been important in protecting our competitive position in South Africa and
we have been awarded a number of government, local government and parastatal
contracts, including a significant public sector services organisation.
In August 2005, we increased our interest in Internet Solutions by a further
20% to 80% (effective 77.91%). The proposed deregulation of the South African
telecoms market is expected to create new opportunities to offer voice services
to our customer base. Uncertainty remains as to the regulatory framework
pending finalisation of the Convergence Bill.
The Group made a further acquisition during the year of an effective 50%
interest in ROE, a leading Nigerian IT solutions and services company. This
acquisition increases the Group"s geographical presence and execution
capabilities in Africa.
Asia
Datacraft Asia reported a robust 25.9% growth in revenue to $456.0 million and
a 153% increase in operating profit to $17.5 million. This performance was
underpinned by healthy demand from both enterprise and service provider
customers, and success in the Solutions lines of business, which more than
doubled during the year and now account for a third of Asia"s revenue. The
Converged Communications, DCS and Security lines of business performed
exceptionally well.
Almost every country in the region improved its performance over the prior
year. The main exception was Japan, which registered a loss for the year as
business, especially in the second half of the year, was impacted by
challenging market conditions and soft margins. However, this was more than
offset by strong performances from India, all the Asean countries and New
Zealand. Elsewhere, Korea also did well, returning to profitability, while
China achieved good progress in reducing operating losses compared to the
previous year.
The gross margin improved to 17.1% compared with 16.2% in the prior year, with
a particularly pleasing increase in the Services gross margin.
Overheads were well contained, increasing by 16.7% and the operating margin
doubled to 3.8% from 1.9% in 2004.
Australia
Australia"s revenues grew by 15.5%. Express Data had a particularly good year,
and while a slight reduction in its product gross margin was experienced,
improved operational efficiencies and leverage led to an increase in its
operating margin. Network Integration revenues grew by a pleasing 11.8% and
Solutions revenues by 14.8%, with good growth in CIS, Converged Communications,
OE&M and Security. Product revenues (outside of Express Data) increased by 7.9%
and Services revenues by 11.0%. Managed Services reflected robust revenue
growth of 13.0% and Professional Services grew by 9.0%, supported by a much
improved performance from the training business.
Australia"s gross margin declined slightly to 18.5% from 19.3%, due almost
entirely to the increased contribution from Express Data. Overheads were well
controlled, increasing by 7.4%.
During the year, the Australian business acquired the assets of the Secure Data
Group, which improved its competitiveness in the areas of storage, back-up, and
server and database management. This acquisition supported what would otherwise
have been slower sales from the DCS line of business. Late in the year we
acquired Bellerephon, a provider of Microsoft desktop deployment and
infrastructure solutions. This acquisition will enable us to accelerate the
execution of our OE&M line of business strategy.
Reported operating profit increased by 32.6% to $18.6 million from $14.0
million in 2004 and the operating margin was higher at 3.1% compared to 2.9%.
Continental Europe
Continental Europe recorded 1.0% revenue growth in difficult market conditions.
Network Integration revenues declined by 11.2%, impacted by underperformances
from Sweden and Spain in the first half of the year, and by weak performances
in Italy and Switzerland in the second half. The Benelux countries continued to
perform very well, and in particular the acquisition in the first half of the
year of a Microsoft based application services company, Euricom, supplemented a
strong performance from the Belgian operation. The German business, whose
performance in the first half of the year was sub-optimal, recorded a much
improved second half. France continued to be profitable, although operating
performance was flat on the prior year.
Solutions revenues improved by 52.0%, driven by excellent performances within
the CIS, Converged Communications and DCS lines of business. CIS was further
assisted by the establishment of a Merchants outsourced call centre in the
Netherlands, which contributed to revenue growth and profitability.
The overall gross margin in Europe declined to 20.6% from 21.4% in the prior
year. While product margins improved slightly, reflecting growth in some of the
higher margin Solutions areas, services margins declined due to weak volumes in
the core Network Integration line of business.
Reported operating profit was $6.9 million, compared to $7.4 million in 2004.
Europe incurred $4.4 million of retrenchment and restructuring expenses during
the year, reflected as operating exceptional items. The main regions affected
were Sweden, Germany, Italy and France. In September 2005, the Group announced
the amalgamation of the UK and Continental Europe into one operating region,
and the consolidation of the central management teams of the two regions. This
will improve our ability to deliver multinational Solutions and Services, and
leverage our execution capabilities across Europe.
UK
Revenues in the UK grew by 13.9% - robust product revenue growth of 25.1% being
achieved mainly out of the UK"s large multinational and service provider client
base. Contracts with these clients for product procurement and installation
tend to be high volume and attract lower than average product margins. As a
result, product gross margins declined by 2.2%. Managed Services grew by 12.5%,
supported by stable demand for our managed network services, and an improved
performance from Merchants, while Professional Services revenues were broadly
flat.
The overall gross margin came down to 21.8% from 23.4% in 2004, better Managed
Services margins reduced the impact of lower product and Professional Services
margins. Gross profit grew by 5.9%.
Network Integration revenues increased by 16.2%, and Solutions by a pleasing
28.3%, with strong growth from Converged Communications, Security and CIS.
Overheads increased by 10.3%, partly as a result of investments during the
year in Solutions capacity and resources.
Consequently, operating profit and operating margin declined to $11.7 million
and 4.8% from $12.7 million and 5.8% in 2004.
USA
The US recorded a highly satisfactory improvement on the prior year, with
revenues up 22.6%. Product revenue grew by 20.0%, with significant traction in
the large enterprise and multinational customer base. Services revenue growth
of 36.4% reflects a growing attach rate of Managed and Professional Services
to product sales, the region"s investment in sales and technical capacity, as
well as the increased presence of our engineers on- site at our clients.
Services growth was further supported by the new Third Party Maintenance
agreement to support Cisco devices in the region.
Network Integration grew by an impressive 20.3% and Solutions by 28.5%, with
strong contributions from Converged Communications and Security.
Gross margin improved to 14.7% from 14.1% in 2004. Product margins were stable,
and Services margins improved strongly, benefiting from an expanded range of
Managed and Professional Services offerings and more effective utilisation of
our technical resource capacity.
Reported operating profit increased to $7.7 million from $4.6 million, with a
widening of the operating margin to 1.6% from 1.1% in 2004.
Centre
The $43.2 million costs at the Centre comprise holding company costs,
investment in global Solutions and Services development (the benefits of which
are reflected in the improved regional performances), and share incentive
costs. Excluding the expensing of the new share incentive schemes for the first
time, the net expense was $39.5 million, a significant reduction on the
$47.5 million reported in 2004.
Financial Review
Introduction
Dimension Data is listed on the London Stock Exchange and the JSE Securities
Exchange and is obliged to comply with UK reporting and corporate governance
requirements.
The accounting policies used in the preparation of the September 2005 financial
statements are consistent with those applied previously.
Group Operating Profit
Group turnover, excluding associates, increased by 15.2% to $2,727.9 million
for the year, from $2,368.0 million in 2004. Including associates, total
revenues grew by 13.8% to $2,826.9 million.
Gross margin declined from 20.7% to 20.4%. Despite improved services margins,
product margins were impacted by a change in the mix of product sales with an
increase in higher volume, lower margin contracts. The higher growth in
product sales (18.5%) compared to services growth (9.9%), also reduced the
average gross margin. Gross profit for the year increased by 13.4%.
Total overheads increased by 6.4% to $494.3 million. After adjusting for the
impact of the new share incentive scheme ($3.8 million increase in overheads),
and for the capitalisation of a property lease ($11.7 million reduction in
overheads), total overheads grew by 8.1%. This containment of overhead growth
below the rate of growth of revenue and gross profit is evidence of the success
of continuing efforts, in the regions and at the centre, to improve overhead
efficiencies. Examples of initiatives include the ongoing consolidation of the
Group"s back office accounting platforms, and DD Direct - an e-procurement
application developed in-house to provide our sales force and clients with an
automated, on-line sales quoting and ordering facility. We also reported a
reduction in the cost at the Centre from $47.5 million to $39.5 million,
adjusting for the share incentive costs.
Group operating profit (1) improved to $61.7 million from $25.7 million in
2004, an increase of 140%, and the Group operating margin (1) doubled from 1.1%
in 2004 to 2.3%, continuing in the recovery of the Group"s profitability to
more acceptable levels.
Associate Companies
The Group"s share in operating profits from associate companies for the period
was $7.9 million ($7.3 million 2004). Key contributors to these profits were
Plessey ($4.5 million), Paracon ($1.6 million) and Automate ($1.3 million).
Plessey (49% holding), is an IT services company providing installation and
support services to telecommunications service providers in several countries
in Africa, including South Africa and Nigeria. Paracon (27% holding) is an IT
services company specialising in IT resourcing and business solutions and is
listed on the JSE Securities Exchange. Automate (45% holding) is a software
development company providing dealer management software to the automotive
industry.
Net interest payable
Investment income decreased to $2.6 million from $4.6 million in 2004, as a
result of a reduced yield on a fixed asset investment in South Africa. The bulk
of this investment was surrendered subsequent to year end (see note 7).
Net interest payable for the year was $19.5 million, compared to net interest
income in 2004 of $0.7 million. Interest receivable on Group cash holdings was
$12.9 million compared to $10.9 million in 2004. Interest payable was
$32.9 million, compared to $10.5 million in 2004. This interest payable
includes:
$20.0 million in terms of the liability established pursuant to the
capitalisation of the Campus property lease in November 2004
$6.2 million in terms of the Group"s $100 million convertible bond
$2.8 million in terms of the Group"s ($28.2 million) loan from Sanlam, a South
African bank. This loan was settled subsequent to year end (see note 7).
Taxation
The Group taxation charge was $22.7 million, compared to $19.6 million (before
exceptional items) in 2004. The effective rate of taxation before exceptional
items and goodwill amortisation was 43.1%, compared to 51.0% in 2004.
This reduction in the effective rate reflects the benefits of the improved
profitability of the Group. As profitability continues to improve, particularly
in those territories where profits are not sufficient to fully absorb Group
overhead allocations, we expect this effective tax rate to continue to reduce.
Exceptional Items
Operating exceptional gains totalled $5.9 million. Included in this amount were:
- The release of the prior year"s provision for an onerous operating lease
and the establishment, upon capitalisation of the Campus property lease in
South Africa, of an asset impairment charge. This resulted in a net gain of
$5.5 million. The variance between the onerous lease provision release, and
the impairment of the property, arose mainly as a result of an improved
occupancy outlook in the Campus building at the end of the current
financial year.
- Retrenchment and restructuring costs of $5.2 million, predominantly in
Continental Europe. These costs were incurred mainly in Germany, France,
Sweden and Italy. In September, the Group announced the amalgamation of
Continental Europe and the UK into one operating region, and the
consolidation of those management structures.
Non-operating exceptional items include $2.4 million relating to the
revision of certain assumptions pertaining to the yield on an endowment asset
in the South African business. The bulk of this endowment was surrendered
subsequent to the year end.
Capitalisation of leased asset
On 16 November 2004, the Group acquired the rights to the bare dominium
(freehold) over the Campus property in Johannesburg for $4.6 million. From
that date the property lease has been accounted for as a finance lease.
The balance sheet effects of the capitalisation were as follows:
Increase in land and buildings of $133.7 million and raising of an
equivalent long term liability.
Impairment of the asset by $15.8 million.
Release of provision for onerous operating lease of $17.4 million, and of
a provision for unrecovered costs in respect of vacant and third party
space of $3.8 million. The latter release was made possible by an improved
occupancy outlook for the property at the end of the current period.
The net book value of the asset at 30 September 2005 amounted to $118.8
million.
The carrying value of the liability at 30 September 2005 amounted to
$142.8 million.
The profit and loss effects of the capitalisation during the year were as
follows:
At the operating profit level, operating lease payments for the period up
to 16 November 2004 were $1.8 million and a depreciation charge on
buildings of $1.9 million from 16 November 2004. The capitalisation
resulted in a benefit at the operating profit level of $11.7 million,
relative to what would have been the position had the lease continued to
be treated as operating.
An interest expense of $20.0 million from 16 November 2004.
Rentals received from external tenants amounted to $6.0 million.
Balance Sheet
Equity shareholders" interests at 30 September 2005 were $414.4 million
compared to $394.2 million last year. Net funds were $138.2 million
(2004: $295.7 million), comprised of $416.6 million (2004: $425.0 million) of
cash and short term investments and interest bearing debt of $278.4 million
(2004: $129.5 million). The reduction in net funds of $157.5 million arose
largely from the capitalisation of the property lease obligation during the
year.
Subsequent to year end, the Group repaid an interest bearing loan of $28.2
million. The repayment was effected partly by way of the part surrender of an
investment fixed asset of $18.5 million (see note 7).
Cash Flow
Net cash inflow from operations, including the impact of the lease
capitalisation, was $110.9 million compared to $77.5 million in 2004.
Depreciation and capital expenditure were $44.4 million and $59.7 million
compared to $42.5 million and $32.9 million in 2004 respectively, analysed by
region as follows:
Depreciation Capital Expenditure
$ million 2005 2004 2005 2004
Africa 21.7 17.5 33.7 15.7
Asia 7.5 7.4 5.9 6.6
Australia 4.5 4.0 3.5 2.6
Europe 2.8 4.8 2.7 2.7
UK 5.4 6.0 11.7 2.8
USA 2.5 2.8 2.2 2.5
Total 44.4 42.5 59.7 32.9
There was a net investment in working capital for the period of $1.0 million,
compared to a reduction of $7.1 million in 2004. This was achieved despite the
growth in Group turnover of 15.2%.
Stock holdings remained in line with the previous year, while debtors increased
by 16.4% to $637.2 million, and trade debtors by $52.6 million to $474.2
million. Trade debtors days sales outstanding reduced to 54 days from 55 days
at 30 September 2004.
Creditors increased to $785.6 million from $670.2 million at 30 September 2004.
Trade creditors days outstanding reduced to 44 days from 49 days at 30
September 2004. There was no change in our trading terms with our major
suppliers. The reduction in creditors days was offset by an increase in
deferred revenues and accruals.
Liquidity Risk and Funding
Total cash and short term investments at 30 September 2005 was $416.6 million
($425.0 million 2004).
Total interest bearing debt was $278.4 million ($129.4 million 2004),
comprising:
- property lease obligation ($142.8 million). This loan bears interest at
16.79% per annum and is repayable over the next 12 years. The current
annual repayment is $13.0 million, escalating at 11% per annum.
- convertible bonds ($101.4 million). This bond is repayable in December
2009.
- a loan in South Africa ($28.2 million). This loan was settled in October
2005, by way of part surrendering a fixed asset investment ($18.5 million)
and the balance with cash.
- overdraft of $6.0 million.
Net funds, being total cash and short term investments, net of total interest
bearing debt, were $138.2 million at the end of the year.
Interest rate risk
Surplus cash is invested across the group in flexible rate, short to medium
term deposits. As such, the Group is exposed to the effects of fluctuating
deposit rates. The Group incurs a fixed interest cost in SA Rand of 16.79% on
its property lease obligation and a fixed interest rate in US Dollars of 5.375%
on the convertible loans. A further loan in South Africa, which bore interest
at a flexible rate, was settled subsequent to year end.
Currency Risk
The Group has operations in over 30 countries and receives revenues and incurs
costs in numerous foreign currencies, the most material of which are the South
African Rand, the Australian Dollar, British Sterling and the Euro. It is not
the Group"s policy to hedge foreign currency earnings and as a consequence,
movements in exchange rates can affect the Group"s results. When Dimension Data
invoices in local currency and has a foreign currency exposure to suppliers, it
generally uses forward exchange contracts to hedge its foreign exchange risk,
or adjusts the price charged to clients to take account of exchange rate
fluctuations. In particular, many of the products supplied by the Group are
linked to the US Dollar, and the purchase of these products is often paid in US
Dollars.
The following table reflects the average and year end exchange rates against
the US dollar of SA rand, Australian dollar, Sterling and Euro:
2005 2004
Average Year end Average Year end
South African Rand 6.515 6.390 6.406 6.406
Australian Dollar 1.312 1.313 1.401 1.395
Sterling 0.556 0.568 0.552 0.556
Euro 0.815 0.831 0.820 0.811
Counterparty Risk
A number of major international financial institutions are counterparties to
the foreign exchange contracts and deposits transacted by the Group. The Group
continually monitors its position and the credit rating of its counterparties
and manages its credit exposure to any particular entity.
Accounting Standards - IFRS
With effect from the year ending 30 September 2006, Dimension Data Holdings plc
will prepare its consolidated financial statements under International
Financial Reporting Standards (IFRS). In accordance with IFRS, adjustments to
the FY2004 closing retained earnings and restatements of the results for H1
2005 and the year ending 30 September 2005, will be published when the Group
reports its 31 March 2006 results in May 2006.
The Group"s current view is that the major effects of moving from accounting
under UK GAAP to IFRS will be in the following areas:
Effects of changes in foreign exchange rates (IAS 21)
Accounting for financial instruments, including embedded derivatives and
unrealised profits/losses for forward exchange contracts (IAS 32 and IAS
39)
Goodwill acquired in business combinations (IFRS 3)
Share-based payments (IFRS 2)
Leases (IAS 17)
Accounting for Protocol investments (IAS 39)
Employee benefits (IAS 19)
A programme is underway to ensure that the Group is ready to report under IFRS
in 2006, and able to produce IFRS compliant information for comparative
purposes from 30 September 2004. We will communicate the anticipated impact of
the IFRS conversion more fully in January 2006.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 September 2005
Note Pre- Exceptional
exceptional Items (note 1)
2005 2005
$"000 $"000
Turnover
Group turnover 2,727,857 -
Associates 99,052 -
Total turnover 2,826,909 -
Operating profit before goodwill
amortisation, impairment and
exceptional items 61,692 -
Exceptional operating income/(costs) - 5,895
61,692 5,895
Goodwill amortisation (3,248) -
Goodwill impairment and investment
impairment - (42)
Group operating profit/(loss) 58,444 5,853
Share of operating profit in
associates 7,921 -
Goodwill amortisation and impairment
and investment impairment -
associates (1,177) (1,280)
Total operating profit/(loss) 65,188 4,573
(Loss)/profit on sale of fixed
assets and
investments - (1,027)
Profit/(loss) on ordinary
activities before
interest 65,188 3,546
Income from other fixed asset
investments 2,542 -
Net interest (payable)/receivable (19,477) -
Profit/(loss) on ordinary
activities before
taxation 48,253 3,546
Tax on profit/(loss) on ordinary
activities 2 (22,682) -
Profit/(loss) on ordinary
activities after
taxation 25,571 3,546
Equity minority interests (11,353) -
Profit/(loss) for the year 14,218 3,546
Earnings/(loss) per ordinary share
Basic before goodwill amortisation
and
exceptional items 3
Basic 3
Note Total Total
2005 2004
$"000 $"000
Turnover
Group turnover 2,727,857 2,368,044
Associates 99,052 115,990
Total turnover 2,826,909 2,484,034
Operating profit before goodwill
amortisation, impairment and
exceptional items 61,692 25,666
Exceptional operating income/(costs) 5,895 (27,632)
67,587 (1,966)
Goodwill amortisation (3,248) (366)
Goodwill impairment and investment
impairment (42) (8,402)
Group operating profit/(loss) 64,297 (10,734)
Share of operating profit in
associates 7,921 7,343
Goodwill amortisation and impairment
and investment impairment -
associates (2,457) (11,215)
Total operating profit/(loss) 69,761 (14,606)
(Loss)/profit on sale of fixed
assets and
investments (1,027) 4,900
Profit/(loss) on ordinary
activities before
interest 68,734 (9,706)
Income from other fixed asset
investments 2,542 4,614
Net interest (payable)/receivable (19,477) 705
Profit/(loss) on ordinary
activities before
taxation 51,799 (4,387)
Tax on profit/(loss) on
ordinary activities 2 (22,682) (33,238)
Profit/(loss) on ordinary
activities after
taxation 29,117 (37,625)
Equity minority interests (11,353) (178)
Profit/(loss) for the year 17,764 (37,803)
Earnings/(loss) per ordinary share US cents US cents
Basic before goodwill amortisation
and
exceptional items 3 1.4 0.9
Basic 3 1.3 (2.8)
CONSOLIDATED BALANCE SHEET
as at 30 September 2005
2005 2004
Note $"000 $"000
Fixed assets
Intangible assets 43,076 976
Tangible assets 225,167 92,467
Investments in associates 26,897 25,781
Other investments 35,935 39,013
331,075 158,237
Current assets
Stock 104,258 104,871
Debtors 4 637,185 547,205
Short term investments 12,528 10,946
Cash at bank and in hand 404,068 414,093
1,158,039 1,077,115
Creditors: amounts falling due within one
year 5 (785,584) (670,245)
Net current assets 372,455 406,870
Total assets less current liabilities 703,530 565,107
Creditors: amounts falling due after more
than one year (272,358) (129,004)
Provisions for liabilities and charges (16,755) (41,875)
Total net assets 414,417 394,228
Capital and reserves 309,363 289,851
Equity minority interests 105,054 104,377
Equity shareholders" interests 414,417 394,228
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 September 2005
2005 2004
Note $"000 $"000
Group operating profit/(loss) 64,297 (10,734)
Depreciation 44,401 42,519
Goodwill amortisation and impairment
and investment impairment 3,290 8,768
Loss on sale of tangible fixed assets 395 2,388
Increase in stock (2,449) (14,503)
Increase in debtors (85,108) (30,640)
Increase in creditors 86,578 52,198
Other non-cash items
- property leased asset impairment 15,755 -
- property onerous lease provision (21,205) 28,569
- retrenchments 4,749 -
- share incentive costs 3,762 -
- insurance captive cells (2,400) -
- other (1,177) (1,094)
Net cash inflow from operating activities 110,888 77,471
Returns on investments and servicing of
finance (8,487) 3,044
Taxation (13,127) (21,975)
Capital expenditure and financial
investment (58,558) (31,410)
Acquisitions and disposals (39,167) 1,083
Cash (outflow)/inflow before use of liquid
resources and financing (8,451) 28,213
Management of liquid resources (1,613) 8,461
Financing (5,485) 2,922
(Decrease)/increase in cash in the year 6 (15,549) 39,596
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 30 September 2005
2005 2004
$"000 $"000
Profit/(loss) for the year 17,764 (37,803)
Currency translation differences on foreign
currency net investments 332 16,798
Realised gain on sale of ESOP shares 95 -
Total recognised profits/(losses) relating to the
year 18,191 (21,005)
1. EXCEPTIONAL ITEMS
Note 2005 2004
$"000 $"000
Property leased asset impairment a) (15,755) -
Release/(provision) of property onerous lease b) 21,205 (25,064)
Insurance captive cells c) 2,400 -
Retrenchments d) (5,180) -
Other e) 3,225 (2,568)
5,895 (27,632)
Investments written down (42) (8,402)
Goodwill and investment impairment -
associates (1,280) (10,061)
(1,322) (18,463)
Total exceptional operating income/(costs) 4,573 (46,095)
Other exceptional items
(Loss)/profit on sale of fixed assets and
investments f) (1,027) 4,900
Total other exceptional items (1,027) 4,900
Total exceptional items before taxation and
equity minority interests 3,546 (41,195)
a) Impairment of land and buildings in South Africa subsequent to the
capitalisation of the property lease obligation.
b) Release of the prior period onerous lease provisions in respect of the
property lease obligation.
c) Recognition of insurance captive cell assets, previously expensed.
d) Retrenchment and restructuring expenses predominantly in Europe.
e) Other includes a write back of a prior year creditor of $1.8 million in
relation to the Proxicom acquisition, and the release of a fair value
provision of $3.2 million relating to the Comparex acquisition. It also
includes a write down of long outstanding work in progress and debtors
balances of $2.5 million in respect of the cabling business in the UK.
f) Includes an impairment of $2.4 million of an endowment investment in South
Africa. This endowment was part settled in November 2005, subsequent to year
end (Note 7).
2. TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES
Total Total
2005 2004
$"000 $"000
Payable in respect of the current year
- UK corporation tax - 2,833
- Foreign 18,844 18,893
Share of associates" taxation 2,137 2,584
Withholding taxes 594 270
21,575 24,580
Adjustments to prior years" tax provision
- UK corporation tax - (547)
- Foreign (991) (4,177)
Total current tax 20,584 19,856
Deferred taxation
- Current 3,401 (4,852)
- Adjustments to prior years (1,303) 18,234
Total tax charge 22,682 33,238
3. EARNINGS/(LOSS) PER ORDINARY SHARE
2005 2004
$"000 $"000
Profit before goodwill amortisation, impairment and
exceptional items 18,643 11,434
Goodwill amortisation (4,425) (1,520)
14,218 9,914
Exceptional items (net of tax and minorities) 3,546 (47,717)
Profit/(loss) for the year 17,764 (37,803)
`000 `000
Weighted average number of ordinary shares 1,343,895 1,342,286
US cents US cents
Adjusted earnings/(loss) per ordinary share before
goodwill amortisation and exceptional items 1.4 0.9
Basic earnings/(loss) per ordinary share 1.3 (2.8)
4. DEBTORS
2005 2004
$"000 $"000
Trade debtors 474,176 421,593
Other debtors 49,898 27,955
Prepayments 74,218 59,521
Accrued income 12,522 12,556
Taxation authorities 17,057 15,606
Deferred taxation 9,314 9,974
637,185 547,205
5. CREDITORS
2005 2004
$"000 $"000
Amounts falling due within one year:
Bank loans and overdrafts 6,038 372
Trade creditors 244,424 262,596
Taxation and social security 96,057 98,926
Other creditors 108,655 73,917
Accruals 177,465 126,195
Deferred income 139,419 104,093
Deferred consideration 9,506 111
781,564 666,210
Current portion of convertible bonds 4,020 4,035
Total creditors 785,584 670,245
6. ANALYSIS OF NET FUNDS
At 1
October Cash Reclassi-
2004 flow fication
$"000 $"000 $"000
Cash at bank and in hand 414,093 (9,883) -
Bank overdraft (372) (5,666) -
413,721 (15,549) -
Short term investments 10,946 1,613 -
424,667 (13,936) -
Debt due within two to five years (28,098) 5,390 (100,906)
Debt due more than five years (100,906) - 100,906
Total 295,663 (8,546) -
Other At 30
non-cash Exchange September
changes movements 2005
$"000 $"000 $"000
Cash at bank and in hand - (142) 404,068
Bank overdraft - - (6,038)
- (142) 398,030
Short term investments - (31) 12,528
- (173) 410,558
Debt due within two to five years (5,836) (103) (129,553)
Debt due more than five years (140,058) (2,747) (142,805)
Total (145,894) (3,023) 138,200
Other non-cash changes includes an amount of $133.7 million, being the
capitalisation of the finance lease, the capitalised interest amounting to
$20.0 million and the interest paid of $13.7 million.
7. SUBSEQUENT EVENT
On 28 October 2005 the South African loan amounting to $28.2 million was
settled. Simultaneously we part surrendered the endowment policy in the
amount of $18.5 million.
8. BASIS OF PREPARATION
Statutory financial information
The financial information set out above does not constitute the Company"s
statutory accounts for the years ended 30 September 2005 or 2004, but is
derived from those accounts. Statutory accounts for 2004 have been
delivered to the Registrar of Companies and those for 2005 will be
delivered following the Company"s Annual General Meeting. The auditors have
reported on these accounts; their reports were unqualified and did not
contain statements under Section 237(2) or (3) of the Companies Act 1985.
This announcement is prepared on the basis of the accounting policies as
stated in the previous year"s financial statements.
Prior year comparatives
The comparative balance sheet and cash flow statement at 30 September 2004
have been reclassified to reflect the short term portion of a long term
creditor in creditors.
Enquiries:
Dimension Data Holdings plc
Jeremy Ord, Chairman
Brett Dawson, Chief Executive Officer
David Sherriffs, Chief Financial Officer
Karen Cramer, Investor Relations
Mobile: +(44) 793 202 0296
Office: +(44) 20 7651 7000
karen.cramer@uk.didata.com
Kevin Handelsman, Investor Relations SA
Mobile: +(27) 82 453 9945
Office: +(27) 11 575 3632
kevin.handelsman@za.didata.com
Internet address: www.dimensiondata.com
Press enquiries:
Michelle Atkins, Media Relations Manager
Mobile: +(27) 83 310 9829
Office : +(27) 11 575 3958
Louise Taylor, LT Consulting Ltd
Mobile: +(44) 778 844 3220
Office: +(44) 20 7223 8776
Date: 16/11/2005 09:02:07 AM Produced by the JSE SENS Department
