| Wed 15 Nov 2006, 9:00 | | Dimension Data Holdings Plc - Preliminary Results: |
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DDT
DIDDT
Dimension Data Holdings Plc - Preliminary Results: Year ended 30 September 2006
Dimension Data Holdings Plc
("Dimension Data")
(Incorporated in the United Kingdom)
(Registration number 3704278)
Issuer code:DIDDT
JSE Share Code:DDT
ISIN Code: GB0008435405
Preliminary Results
Year ended 30 September 2006
Dimension Data Holdings plc (`Dimension Data" or the `Group") today announced
its results for the year ended 30 September 2006. The results have been prepared
in accordance with International Financial Reporting Standards.
Highlights
Robust revenue growth - up by 15.9% to $3.1 billion
Gross margin 21.1% (2005: 21.0%)
Operating profit (adjusted) (1) up by 50% to $85.0 million
(2005: $56.7 million)
Earnings per share 2.7 cents (2005: 1 cent)
Earnings per share (adjusted) (1) up 150% to 2.0 cents (2005: 0.8 cents)
Maiden dividend of 1 cent per share
Strong growth in network convergence - Network Integration, Converged
Communications and Security lines of business up by 13.6%, 31.3% and 25.4%
respectively
Ratio of overheads (adjusted) (1) to revenue improved to 18.4%
(2005: 18.9%)
Solid regional performances from Africa, Asia, the US and Australia
Operating margin (adjusted) (1) up by 0.7% to 2.8%
Effective tax rate (adjusted) (1) improved to 37.7% (2005: 49.1%)
Cash and cash equivalents $347.9 million at 30 September 2006
(2005: $416.6 million)
Financial Summary
Restated
2006 2005
$"000 $"000
Revenue 3,067,096 2,646,083
Operating profit 80,732 59,634
Margin 2.6% 2.3%
Operating profit (adjusted) (1) 85,006 56,691
Margin (1) 2.8% 2.1%
Effective tax rate (adjusted) (1) 37.7% 49.1%
Profit attributable to equity shareholders 40,554 13,802
Profit attributable to equity shareholders
(adjusted) (1) 30,131 10,859
Basic earnings per ordinary share 2.7c 1.0c
Earnings per ordinary share (adjusted) (1) 2.0c 0.8c
Overview of performance
The 2006 financial year has been another year of considerable progress and
growth for Dimension Data. 2006 revenue reached a record level, increasing 16%
to $3.1 billion. Our revenue growth was largely organic, driven by market share
gains in our lines of business. Operating profit (1) accelerated to $85 million,
a 50% increase, while earnings per share (1) increased to 2.0 cents per share
from 0.8 cents in 2005.
Over the past three years, Dimension Data has pursued a focused strategy to
improve the quality of our revenue by investing in high growth market segments
such as Converged Communications and Security. We have successfully extended our
value proposition to take advantage of anticipated market trends, grown at rates
better than the market and improved our competitive positioning. We also created
new, annuity-based IT services to support increasing client need to outsource IT
maintenance, monitoring and management. We rationalised and consolidated
multiple offerings into six focused lines of business. We developed e-
procurement solutions to reduce our cost of sales. Our investments over the past
three years to ensure growth are paying off. Our successes have helped build
Dimension Data into a healthier business with stronger margins, increased
revenue streams and larger market share.
Our success in 2006 was more than solely financial. The 33 industry awards we
received in 2006 recognise our success at partnering with leading IT
manufacturers. Our clients continue to look to our understanding of emerging
technology trends to help them plan their architecture and assess the best
technology solution. Maintaining and growing strong partnerships with leading IT
manufacturers ensures our clients have the best access to technology and
technical support. To this end, we expanded our relationship with Microsoft in
2006 and signed a global three year alliance agreement. We also expanded our
global service alliance with Cisco Systems to all our geographies.
Several growth drivers supported our success in FY2006. The security market
remained a strong opportunity for Dimension Data. Continued corporate concerns
over security breaches, computer viruses and data theft directed our clients to
improve their security posture by making security-related investments in their
IT infrastructure. The convergence of voice, video, data and other media onto a
single, robust IP-based platform helped drive the strong growth in our Converged
Communications line of business. In addition to supporting our clients" need to
make improvements in the core network to support convergence, we have also
helped them to enable their telephony environment. FY2006 marked a milestone for
Dimension Data in that we have now deployed half a million IP phones around the
world. During FY2006, recognition of our IP capabilities and leadership came in
the form of the Cisco Global Internet Protocol Communications (IPC) partner of
the year award. We expect the trends we have benefited from in Security and
Converged Communications to continue into FY2007.
Dimension Data"s business is broken down into five regions - Africa, Asia,
Australia, Europe and the US. All the regions, other than Europe, had strong
performances in FY2006. In Africa, growth in the public sector and continued
strength in Network Integration, Converged Communications and Security helped
drive a terrific performance. Asia"s operating profit increased by a significant
69% following aggressive expansion of gross and operating margins.
We had an exceptional performance from our US operation. Residing in the largest
and most mature IT market in the world, the US is an important part of the
Dimension Data strategy and global footprint. Dimension Data experienced record
growth in the US of over 30% year on year - far outpacing the market.
Growth drivers included exceptional growth in product revenue, strong demand for
Security and Converged Communications solutions, and solid Professional Services
growth. In addition to revenue growth, US operating profit increased by 34%.
Services strategy evolution
Over the past 12 months, Dimension Data has evolved its services strategy to
meet client needs for a full lifecycle of IT services that help IT management
deliver better business value. We have invested in aligning our services
offerings to the IT Infrastructure Library (ITIL) framework, an industry best
practice for service management and delivery. While a majority of the focus was
on helping clients build and support their IT infrastructure, Dimension Data
also developed new services to help clients improve business processes and
create business innovation through IT. Our services strategy now extends from
our traditional model of helping clients `plan, build and support" their IT
infrastructure to include `manage, improve and innovate" services which help
them improve their return on IT investment and maximise the business impact of
on-going improvements and innovations. The evolution in our services strategy
positions us well to capitalise on the market trends toward multisourcing and
the outsourcing of smaller, more specialised IT services. Evidence of early
success around multisourcing was the $40 million, three year multisourcing
contract we signed in March with the South Australia Government.
Dimension Data invested in the development of several new Managed Service
offerings along our lines of business, including Managed Contact Centres,
Managed IP Telephony, Managed Backup, and Managed Desktop. To gain improved
flexibility in IT sourcing options, clients are demanding more specialised IT
management services. Dimension Data is developing Managed Services which
relieve our clients from IT support tasks including activities such as release
management, change management, problem resolution, and incident and
configuration management. As CIO"s strive to deliver improved business value,
Dimension Data is increasingly called on to provide services that the IT
department previously provided in-house.
Dimension Data believes that the required core network re-architecture to ready
the network for supporting the market trends in security, IP Telephony and
convergence provide strong professional services opportunities. Development of
the professional services business has been an important area of focus as we
pursue an evolutionary path from IT infrastructure supplier, implementing
technology solutions and providing break fix and monitoring services, to
strategic technology and business partner. Our aim is to provide our clients
with a full lifecycle of services and become our clients" trusted IT adviser.
To this end, we are developing more services led offerings such as assessment,
consulting and design services which pull through both product sales and
managed services engagements.
The services alliance that Dimension Data signed with Cisco in the US in FY2005
was expanded to include all regions. This alliance allows us to offer clients a
streamlined and simplified engagement process for maintenance and monitoring
services.
Our mutual clients benefit from Dimension Data"s capabilities such as local
language help desk support, restoration service level agreements, and service
delivery management. Within the US, our services partnership with Cisco has
helped accelerate our Services growth and helped the Group develop new client
relationships with large global corporations.
Acquisitions and other expansion
Whilst our primary growth strategy is organic, we have looked to complement our
footprint through select acquisitions.
Opportunities and market growth rates in the emerging markets of Africa
justified further expansion during FY2006. In the first half, we acquired the
remaining 20% stake in Internet Solutions. Internet Solutions is an important
asset to the Group and having 100% of a leading communications service provider
in Africa is a key competitive advantage. We also purchased the remaining 51%
of Plessey, a leading supplier of telecommunications solutions to the African
continent. We established an East African regional presence by acquiring a 51%
stake in ICL East Africa.
Outside of acquisitions we expanded by opening additional offices. In the US we
expanded west into Chicago, Seattle, Phoenix and northern California. In
Africa, we opened two additional regional offices in Nigeria. Additionally, to
gain a foothold and position ourselves for future growth in Eastern Europe, we
expanded into Prague, Czech Republic. Our expansion strategy is supported by
growth in our client base - particularly large global and multinational clients
- whose business requirements justify an expanded Dimension Data footprint.
Opportunities for improvements
While we are excited about our overall performance as a Group and the continued
validation of our operational strategy, we experienced some challenges in
FY2006 - notably the performances of Europe and the Merchants Group.
Although Europe"s revenue growth of 9% (excluding Merchants) was satisfactory
the region"s operating result was disappointing. Following the appointment of a
new management team in Europe, encouraging progress has been made in certain
areas, notably in Germany, Spain and Italy, but performance was negatively
affected by disappointing results from the UK and from the Merchants Group.
Steps have been taken to address both these underperforming businesses. The UK
and Irish operations of the Merchants Group have been rationalised.
An operational strategy that works
Our FY2006 performance was achieved through focus on three operational
strategies: Profitable Growth, Client Experience, and People and Culture. In
FY2007, we have added one additional strategy - Operational Excellence. These
four strategies give our global organisation a clear road map and set of
performance expectations. We are also incorporating a balanced scorecard
approach to how we manage execution and results. Increasing organisational
discipline is part of the Group"s on- going development of a high performance
culture.
Our goal of driving long term shareholder value can only be attained through
profitable growth. In FY2007, we have four main drivers of profitable growth -
our lines of business (LoBs), services business, growth from targeted clients
and productivity improvements. Firstly, we are poised to gain more share in our
key markets. The investments we have made in our LoBs have been on target. Our
FY2007 growth is not dependent on the development of any new LoBs, but rather
focuses on investment and execution within our existing LoBs. By applying our
strengths in networking, security, IP telephony and other technology areas, we
have the opportunity to gain greater market share within our existing markets.
In FY2007, we will have a particular emphasis on growth from services - both
Managed and Professional services. We will also improve our focus on account
penetration to strengthen client relationships and services adoption within our
client base. Lastly, we will enhance our productivity through increased
efficiency, effectiveness and the adoption of consistent, quality processes
across the business.
Client relationships are what drive our business. The client experience when
engaging with Dimension Data will determine client satisfaction, spend levels
with Dimension Data and, ultimately, whether a given client becomes a life-long
client. Client management has always been a strength of the Group. However, we
have opportunities to improve our account planning, cross-border client
engagement and overall client relationship management. Our clients see our
local expertise and delivery capabilities as a clear differentiator. The
consistency and quality of this delivery experience sets us apart from our
competition. Excellent, high quality delivery is all about excellent, high
quality employees. Ultimately, the quality of our technology specialists, our
passion, and the fact that we just get the job done keeps clients coming back.
In FY2007 we will focus on operational excellence. We need to create or enhance
processes to bring more precision to our execution. Several important areas are
targeted. In our Services business, we need to increase the services we attach
to Product, execute on the Cisco Service Alliance, and improve our Professional
Services operations. We must continuously enhance our value propositions, gain
maturity across our global lines of business and substantially enhance our
go-to-market capability.
With employees who are passionate and aligned to our Group strategy, we are
hard to beat in the marketplace. To help better align employees to our
strategy, our people and culture initiatives will focus on the introduction of
new tools to map our regional and functional executions to the achievement of
Group strategy. Our performance management, and recognition and reward
programmes will be aligned to support the execution of our strategic
objectives. Our Group values will continue to guide how we engage with each
other, clients and partners. We will also be looking to develop more career
development opportunities including on-the-job knowledge and skills expansion
in addition to conventional training programmes.
Review of Trading and Operations
Revenue increased by 15.9% over the prior period, as the Group continued to
gain market share in Network Integration and in most of our lines of business,
including Security and Converged Communications.
Gross profit for the period was $647.9 million, up 16.5%, with gross margin
stable at 21.1% compared to 21.0% in 2005. In particular, Asia"s gross margin
was 1.7% better at 18.8%, reflecting strong Product and Services margins, while
Africa reported better Services margins.
Total overheads (1) increased by 12.7% to $562.9 million, and the ratio of
overheads to turnover improved to 18.4% (from 18.9% in 2005) reflecting
operating leverage in the Group, despite ongoing investment in the development
of Services offerings and our lines of business.
Operating profit (1) was $85.0m, up by $28.3 million (50%) on 2005, and the
Group operating margin (1) improved from 2.1% to 2.8%.
Revenue by Lines of Business and Revenue Stream $"000
Year ended 30 Restated year ended Change on FY Change on FY
September 2006 30 September 2005 2005 2005 (2)
Lines of Business
Network Integration 1,492,868 1,341,537 11.3% 13.6%
Other Global 941,850 825,558 14.1% 15.1%
Regional 632,378 478,988 32.0% 11.0%
Total 3,067,096 2,646,083 15.9% 13.4%
Revenue Streams
Product 1,876,446 1,637,236 14.6% 15.6%
Managed Services 772,377 721,244 7.1% 11.3%
Professional Services 418,273 287,603 45.4% 8.0%
Total 3,067,096 2,646,083 15.9% 13.4%
In order to represent the underlying organic growth of the business, in the
analysis of lines of business and revenue streams below, revenue growth is
adjusted for the impact of currency movements, and assumes businesses acquired
in 2005 and 2006 had been held from the beginning of 2005.
Lines of Business
Revenue growth (adjusted as above) was 13.4%. Network Integration grew by 13.6%
and was again the biggest contributor, comprising 48.7% of revenue. The US"s
Network Integration growth was especially robust, up by 32.0% and benefiting
from increased traction on the West Coast, strong Services growth and increased
demand from large, multinational accounts.
Africa was up by 16.0%, while Asia, Australia and Europe grew by 5.7%, 12.1%
and 5.7%, respectively. In this core line of business, convergence around the
IP network and the requirement for robust, standardised, service-oriented
network architectures are supporting demand for infrastructure upgrades.
Our other global lines of business - Converged Communications, Customer
Interactive Solutions (CIS), Datacentres and Storage, Operating Environments
and Messaging (OEM) and Security - together comprised 30.7% of revenue and grew
by 15.1%.
Converged Communications growth of 31.3% was fuelled by strong demand for IP
Telephony solutions. The Group was Cisco"s Global IPC partner of the year,
confirming our ability to benefit from the convergence of voice and video over
the network. Our consistent IP Telephony deployment methodologies and managed
IP Telephony offerings are important differentiators in this market. Security
was up 25.4%, as IT security continues to feature prominently in IT spending
budgets. Security considerations affect all aspects of IT infrastructure, and
our Security offerings include both network-based foundation security, as well
as other advanced security offerings for other technologies and lines of
business.
Operating Environments and Messaging (OEM) was up 10.9%. This line of business
is still relatively small, but important as the Group positions itself to
benefit from the expected growth in Microsoft infrastructure services and
Unified Communications. Growth was supported by desktop upgrade opportunities
flowing from our acquisition of Microsoft infrastructure specialist,
Bellerephon, in 2005. Performance in Datacentres and Storage was mixed, with
overall growth of 7.1%. Africa and Australia reported very good growth, while
reductions in Asia and Europe reflect a decision to redeploy resource and focus
on other lines of business.
A poor performance from Merchants" outsourced contact centre operations in the
UK and Ireland, resulted in modest growth of 3.2% in our CIS line of business.
Excluding Merchants, (where revenues declined by 14.6%) CIS was up 14.2%
reflecting solid demand for the Group"s contact centre integration and
management solutions. During the year, Merchants" contact centre operations in
Cork ceased trading and centres elsewhere in the UK were downsized.
The Group has certain regional businesses, together comprising 20.6% of
revenue, which - while strategic in the region within which they operate - are
not intended to be expanded globally. These include Internet Solutions in South
Africa, which grew by 15.7% and Express Data (the Australian IT distribution
business), which was up by 10.8%. Plessey, a pan-African provider of
infrastructure solutions to the telecommunications industry, grew by 1.5%
having been included as a wholly- owned subsidiary for the first time.
Revenue Streams
Product revenue grew by 15.6%. Growth in the US and Africa was very strong
(38.1% and 24.8% respectively), Australia grew by 13.2% while Asia and Europe
were up 4.6% and 4.1% respectively. In the US in particular, growth was
supported by demand from our multinational accounts. Our global footprint,
backed by our procurement, logistics, installation and support capabilities
continue to differentiate us.
Services revenue grew by 10.1% to $1.2 billion. US and Africa Services growth
was strong at 13.9% and 12.5% respectively.
While Europe"s Services were up by 7.7%, gross margins were affected by
delivery issues on certain contracts. Asia and Australia grew Services by 7.9%
and 7.1% respectively.
Managed Services were up by 11.3% to $772.4 million. Excluding Merchants, where
revenues declined by 14.6%, growth in Managed Services was solid at 14.6%. All
regions other than Australia (6.1%) reported double digit growth, and Africa
was particularly strong at 17.3%.
Professional Services turnover increased by 8.0% to $418.3 million. The US and
Europe reported good growth (14.4% and 17.7% respectively). Australia grew by
8.1%, while Africa and Asia were broadly flat. Asia"s growth was impacted by
the discontinuation of its training business.
The revenue, gross margin and operating profit in the table below are as
reported, whereas the growth percentages are adjusted as detailed in footnote
(2) below.
Regional Performance
$"000 Africa Asia Australia Europe
Year ended 30 September 2006
Revenue 654,183 482,157 660,585 733,536
Growth % (2) 16.0% 5.7% 12.1% 5.7%
Product 204,717 310,018 526,032 414,304
Growth % (2) 24.8% 4.6% 13.2% 4.1%
Services 449,465 172,139 134,553 319,232
Growth % (2) 12.5% 7.9% 7.1% 7.7%
Gross Margin 29.9% 18.8% 18.7% 19.1%
Operating Profit % (1) 62,374 26,179 19,376 1,470
Restated year ended
30 September 2005
Revenue 486,806 455,977 598,603 695,852
Product 167,118 296,406 470,878 395,609
Services 319,689 159,571 127,725 300,243
Gross Margin 29.4% 17.1% 18.7% 21.1%
Operating Profit % (1) 43,414 15,520 17,561 14,794
$"000 US Central Total
Year ended 30 September 2006
Revenue 532,977 3,658 3,067,096
Growth % (2) 32.0% 13.4%
Product 418,077 3,298 1,876,446
Growth % (2) 38.1% 15.6%
Services 114,899 362 1,190,650
Growth % (2) 13.9% 15.6% 10.1%
Gross Margin 16.3% 21.1%
Operating Profit % (1) 10,086 (34,479) 85,006
Restated year ended
30 September 2005
Revenue 403,865 4,980 2,646,083
Product 302,463 4,762 1,637,236
Services 101,402 217 1,008,847
Gross Margin 17.6% 21.0%
Operating Profit % (1) 7,510 (42,108) 56,691
Operating Profit
Four of the Group"s five operating regions reported excellent operating profit
expansion. Africa, Asia, Australia and the US were up by 43.7%, 68.7%, 10.3%
and 34.3% to $62.4 million, $26.2 million, $19.4 million and $10.1 million
respectively.
In Africa, the acquisition of the remaining stakes in Plessey and Internet
Solutions provided the platform for the Group to benefit from its
comprehensive range of IT services across the African continent. Demand in the
traditional South African enterprise market was strong, with particular
support for our Converged Communications solutions. We experienced very good
growth in the public sector as well as in new markets in East and West Africa.
Firm Product and Services margins resulted in good operating leverage and
operating profit expansion.
Within Asia, Asean, Greater China, India and New Zealand performed strongly.
China"s return to profitability in the second half was especially pleasing.
Gross margin improvements, especially in Professional Services, and overhead
containment supported by the ongoing standardisation of the back office
environment, resulted in excellent operating returns. In Australia, both our
network integration and Express Data distribution business reported solid
performances for the year.
Strong revenue growth in the US, together with the successful leadership of a
new management team, resulted in continued operating leverage benefits for the
operation.
Europe reported a sharp reduction in operating profit to $1.5 million compared
to $14.8 million in FY 2005, although there was some improvement in the second
half of the year. Of this amount, Merchants" contact centre operations in the
UK and Ireland reported losses of $3.4 million compared to an operating profit
of $2.0 million in FY 2005. The remainder of the European business generated
an operating profit of $4.8 million compared to $12.7 million in FY 2005.
While there were some encouraging performances - in particular Germany, Spain
and Italy - losses in France and Switzerland and a much weaker performance
from the UK contributed to the reduction. Management of the UK and Continental
European operations was combined at the start of the year, and new management
was appointed in France, Switzerland, the UK and Italy.
The net Central cost of $34.5 million compared to FY2005"s $42.1 million.
Despite ongoing central investment in the Group"s Solutions and Services
capabilities, the improvement reflects cost containment and a strong
contribution from the Group"s central trading operations.
Acquisitions
The Group concluded two significant acquisitions during the year, acquiring
the remaining stakes in Internet Solutions and Plessey. Full ownership of
Internet Solutions, the leading South African communications services
provider, provides opportunities to benefit from the deregulation of the South
African telecommunications market. Through Plessey, a pan- African supplier of
telecommunications solutions, the Group"s footprint across the African
continent is further established.
Exceptional Items
Five exceptional items were reported during the period.
First, in 2002 and 2003 certain provisions were made relating to the
non-recoverability of trade receivables in China.
Following submission of claims to its insurers, the Group received a $5.2
million payment under its insurance policies for the losses previously
suffered.
Second, in 2005 we recorded a write down of long outstanding work in progress,
claims and receivables in respect of our cabling business in the UK, reported
as a division of the Network Integration line of business. Extensive
investigations into these balances in 2006, including a forensic audit during
the period, have necessitated a further provision of $12.8 million against
these assets.
Third, during the year, the Group"s contact centre business, Merchants,
incurred a $4.2 million cost in discontinuing its operations in Cork,
downsizing its operations in Milton Keynes and elsewhere in the UK, and
rationalising its global management structure.
Fourth, the Group reported a foreign exchange gain previously included in
translation reserves, now included in the income statement, as a result of the
intention to settle the loan in the short term.
Fifth, the Group recognised a deferred tax asset in South Africa as a result
of the improved performance of the South African business, as well as the
acquisition and subsequent divisionalisation of Internet Solutions, and
accordingly the tax charge for the year includes an exceptional tax credit of
$18.0 million.
Share of Results of Associates
As a result of the acquisition of the remaining 51% of Plessey in November
2005, the contribution from associates decreased to $3.9 million. The
remaining associates are largely South African businesses, of which the most
significant contributors during the period were:
- Paracon, listed on the JSE Limited and specialising in IT resourcing and
business solutions,
- Two companies in the Group"s Protocol venture capital stable, namely
Automate - a provider of software solutions to the automotive industry -
and Healthbridge - involved in transaction switching in the healthcare
industry.
Investment Income and Finance Costs
Investment revenues of $13.0 million were generated on the Group"s total cash
and cash equivalents, which stood at $347.9 million at 30 September 2006.
Finance costs were $32.1 million. These included $23.5 million in respect of
the capitalised property finance lease in South Africa, $5.6 million on bank
loans and overdrafts and an interest cost of $1.7 million on the Group"s $100
million convertible bonds. These bonds were converted to equity on 26 May
2006, but interest ceased to accrue on 31 December 2005.
Taxation
The Group reported a tax charge of $8.3 million for the period (FY
2005: $20.6 million). Excluding an exceptional gain of $18.0 million arising
from the establishment of a deferred tax asset in South Africa, the tax charge
was $26.3 million. This represents an improvement in the effective tax rate
(1) to 37.7% from 49.1% in the prior period.
This effective rate remains relatively high as certain entities within the
Group, particularly in Europe, are not yet sufficiently profitable to fully
absorb allocated Group costs. Equally, the Group does not establish deferred
tax assets in the event of taxable losses being incurred unless there is clear
evidence of sustainable future profitability. As loss making entities within
the Group improve profitability, the Group"s tax rate should continue to
improve.
Balance Sheet
Non-current assets were $352.9 million, of which $191.1 million was property,
plant and equipment. Capital expenditure on property, plant and equipment
increased during the period to $57.5 million from $53.8 million in 2005.
Depreciation Capex
$ million 2006 2005 2006 2005
Africa 22 19 42 29
Asia 8 8 6 6
Australia 4 4 3 4
Europe 8 9 5 14
US 2 2 1 1
Group 44 42 57 54
Current assets, before cash and cash equivalents, were $954.8 million (30
September 2005: $717.7 million), and current liabilities $952.7 million (30
September 2005: $781.1 million). Growth in these assets and liabilities
reflects the increase in volumes in the business, the impact of acquisitions
made, as well as an investment in net working capital of $62.0 million for the
period (see below).
Total cash and cash equivalents were $347.9 million at 30 September 2006 (30
September 2005: $416.6 million) (see below).
Non-current liabilities were $160.5 million at 30 September 2006 (30 September
2005: $296.9 million). This included property finance leases of $125.8 million
and $21.4 million of other bank loans.
Equity attributable to equity holders of the parent was $437.0 million,
compared to $296.5 million at the end of 2005. This increase was supported by
Venfin Limited"s conversion during the period of its $100 million convertible
loans to an effective 12.2% interest in the expanded share capital of the
Company.
Cashflow
Group operating cash flows before working capital movements improved from
$111.9 million to $141.9 million for the period.
The Group invested a net $62.0 million in working capital assets for the year.
Of this, $53.9 million related to increased inventory holdings. Almost all of
this increase was in respect of allocated resale stock - attributed to specific
client orders - and was for the most part funded by a corresponding increase in
trade payables.
Trade and other payables increased by $128.9 million, reflecting the increased
volumes within the business. There were no changes in trading terms with our
major vendors.
Trade and other receivables increased by $138.8 million. Most of this increase
was volume related, although an increase in the ageing of receivables in
Internet Solutions, the US and parts of Europe also contributed. Adoption of
new ERP platforms in Internet Solutions and the US frustrated collections, but
improvements are expected as these platforms bed down, while the increased
ageing of trade receivables in some countries in Europe is receiving management
attention.
Currency
The following table reflects the average and year end exchange rates against
the US dollar of SA rand, Australian dollar, Sterling and Euro:
2006 2005
Average Year End Average Year End
South African Rand 6.691 7.764 6.515 6.390
Australian Dollar 1.337 1.341 1.312 1.313
Sterling 0.559 0.535 0.556 0.568
Euro 0.808 0.789 0.815 0.831
Basis of Accounting
The Group has adopted as its primary accounting basis International Financial
Reporting Standards for the first time for the year ended 30 September 2006. As
anticipated, there were no material changes to the reported results over what
would have been the case under UK GAAP, other than in respect of the accounting
for IFRS 2 Share-based payment (an expense of $13.9 million).
Furthermore, in 2006 the Group changed its revenue recognition accounting
policy to account for its role in certain transactions as that of agent rather
than principal. The 2005 reported revenue has accordingly been restated, with
the result that 2005 comparative revenue decreased by $81.8 million (3.0%) and
cost of sales by the same amount. Gross profit was unaffected, while 2005 gross
margin is 0.6% higher than previously reported.
NOTES:
(1) Excluding exceptional items. Operating profit is reconciled to adjusted
operating profit in Note 6.
(2) Adjusting for the impact of currency movements, and assuming acquired
companies had been held from the beginning of the comparative period.
(3) All references to $ are to US dollars.
Dividend
The Directors are recommending a dividend of one US cent per share. Subject to
shareholder approval at the Annual General Meeting to be held on Wednesday, 31
January 2007, the final dividend will be paid on Friday, 16 March 2007 to
shareholders on the members register at the close of business on Friday, 16
February 2007. The dividend will be paid in sterling to shareholders on the UK
register and in South African rand to shareholders on the South African
register, converted from US dollars as at the close of business on Thursday, 1
February 2007. The Directors will not be offering a share alternative to the
2006 final dividend.
The following are the salient dates for the payment of the proposed dividend:
Announcement of conversion rate Friday, 2 February 2007
Last day to trade on the JSE Friday, 9 February 2007
Date trading commences "ex" the dividend on the JSE Monday, 12 February 2007
Date trading commences "ex" the dividend on the LSE Wednesday 14 February 2007
Record Date on the JSE and LSE Friday, 16 February 2007
Payment of dividend Friday 16 March 2007
No transfers between the UK and South African registers may take place during
the period Friday, 2 February 2007 and Friday, 16 February 2007 (both days
inclusive). Shareholders on the South African register should note that, in
accordance with the requirements of STRATE, that no dematerialisation or
rematerialisation of shares will be possible from Monday, 12 February 2007 to
Friday, 16 February 2007 (both days inclusive).
CONSOLIDATED INCOME STATEMENT
for the year ended 30 September 2006
Restated
2006 2005
Notes $"000 $"000
Revenue 4 3,067,096 2,646,083
Cost of sales (2,419,189) (2,090,098)
Gross profit 647,907 555,985
Other operating income 35,385 33,892
Selling and distribution costs (201,894) (164,443)
Administrative expenses (391,983) (348,848)
Other operating expenses (8,683) (16,952)
Operating profit 80,732 59,634
Share of results of associates 3,863 4,845
Investment income 13,020 15,471
Other gains and losses (138) (1,027)
Finance costs (32,057) (34,084)
Profit before tax 65,420 44,839
Tax 7 (8,310) (20,556)
Profit for the year 57,110 24,283
Attributable to:
- Equity holders of the parent 40,554 13,802
- Minority interest 16,556 10,481
57,110 24,283
Earnings per ordinary share: US cents US cents
- Basic 8 2.7 1.0
- Diluted 8 2.6 1.0
CONSOLIDATED BALANCE SHEET
as at 30 September 2006
Restated
2006 2005
Notes $"000 $"000
ASSETS
Non-current assets
Property, plant and equipment 191,059 209,798
Goodwill 73,118 43,424
Other intangible assets 13,482 11,738
Investments in associates 15,053 29,633
Investments held for trading (1) 3,085 21,811
Available for sale investments (1) 4,133 5,054
Deferred tax assets 30,737 9,590
Trade and other receivables 22,222 14,313
352,889 345,361
Current assets
Inventories 173,120 104,258
Trade and other receivables 9 743,032 596,381
Other financial instruments 4,580
Taxation authorities receivable 22,692 17,057
Cash and cash equivalents 347,909 416,596
Assets classified as held for sale 11,365
1,302,698 1,134,292
TOTAL ASSETS 1,655,587 1,479,653
EQUITY AND LIABILITIES
Equity
Called up share capital 15,475 13,526
Share premium 199,454 101,823
Capital reserves 69,451 57,324
Hedging and translation reserves (5,590) 4,949
Other reserves 136,872 139,546
Retained earnings/(accumulated deficit) 21,305 (20,678)
Equity attributable to equity holders of
parent 436,967 296,490
Minority interest 105,490 105,120
Total equity 542,457 401,610
Non-current liabilities
Convertible loan notes - 105,405
Bank loans 21,412 -
Other long term liabilities 5,001 36,291
Obligations under finance leases 125,803 143,688
Deferred tax liabilities 2,048 6,438
Provisions 6,195 5,116
160,459 296,938
Current liabilities
Trade and other payables 10 830,745 670,379
Other financial instruments 737
Taxation authorities payable 101,004 96,057
Bank overdrafts and loans 11,864 6,038
Provisions 6,099 8,631
Liabilities directly associated with
assets held for sale 2,222
952,671 781,105
Total liabilities 1,113,130 1,078,043
TOTAL EQUITY AND LIABILITIES 1,655,587 1,479,653
(1) 2005: Other investments
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 September 2006
Restated
2006 2005
$"000 $"000
Operating activities
Operating profit 80,732 59,634
Adjustments for:
Depreciation of property, plant and equipment 43,760 42,455
Loss on disposal of property, plant and equipment 982 395
Amortisation of intangible assets 7,620 853
Movement on provisions (3,052) (1,063)
Share-based payment expense 13,893 9,963
Other non-cash items (2,751) (371)
Operating cash flows before working capital movements 141,184 111,866
Increase in inventories (51,865) (2,449)
Increase in trade and other receivables (136,804) (85,108)
Increase in trade and other payables 127,506 86,578
Cash generated from operations 80,021 110,887
Income taxes paid (35,925) (13,127)
Interest paid (29,133) (24,993)
Net cash from operating activities 14,963 72,767
Investing activities
Interest received 10,226 13,909
Dividends received from associates 2,074 2,597
Proceeds on disposal of investments 20,702 839
Proceeds on disposal of subsidiaries 297 2,468
Acquisition of property, plant and equipment (57,147) (56,782)
Proceeds on disposal of property, plant and equipment 669 312
Acquisition of intangible assets (11,004) (2,926)
Movement on investment in associates 2,240 846
Acquisition/increase in holdings of subsidiaries (49,720) (43,636)
Net cash acquired with subsidiary companies 17,470 1,210
Held for sale subsidiary undertaking (920) -
Treasury share buy back undertaken by subsidiary (17,690) -
Deferred consideration paid (8,597) (55)
Net cash used in investing activities (91,400) (81,218)
Cash flows from financing activities
Repayment of borrowings (29,876) -
New bank loans raised 36,483 -
Dividends paid to minorities (222) (6,776)
Proceeds on issue of new shares net of expenses 3,590 1,291
Net cash from/(used in) financing activities 9,975 (5,485)
Net movement in cash and cash equivalents (66,462) (13,936)
Cash and cash equivalents at beginning of year 410,558 424,667
Exchange differences in cash and cash equivalents (2,423) (173)
Cash and cash equivalents at end of year 341,673 410,558
Cash and cash equivalents is made up as follows:
Cash and cash equivalents 347,909 416,596
Bank overdrafts - current (6,236) (6,038)
341,673 410,558
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Translation
Share Share and other ESOP
capital premium reserves reserve
$"000 $"000 $"000 $"000
1 October 2004 per UK
GAAP 13,499 100,748 237,500 (219)
IFRS adjustments - - (91,257) -
1 October 2004 restated 13,499 100,748 146,243 (219)
Profit for the year - - - -
Items recognised
directly into equity 27 1,075 (1,748) 219
Share incentive
schemes - - - -
Sale of ESOP shares - - - 314
Currency adjustments - - 830 -
Deferred tax arising on
revaluation of loans (1,025)
Shares issued 27 1,264 - -
Share issue expenses - (189) - -
Subsidiaries acquired/
changes in holdings - - 511 -
Transfers - - (2,064) (95)
30 September 2005
restated 13,526 101,823 144,495 -
Adoption of IAS 32
and IAS 39 - - 748 -
1 October 2005 13,526 101,823 145,243 -
Profit for the year - - - -
Items recognised
directly into equity 1,949 97,631 (13,961) -
Share incentive
schemes - - - -
Currency adjustments - - (8,692) -
Deferred tax arising on
revaluation of loans - - (4,571) -
Shares issued 69 3,521 - -
Shares issued on
conversion of bonds 1,880 94,999 - -
Share issue expenses - (889) - -
Subsidiaries acquired/
changes in holdings - - - -
Vesting under BEE
scheme - - - -
Net gain on cash flow
hedging - - 2,303 -
Movement in investment
valuations - - 358 -
Other - - (27) -
Transfers - - (3,332) -
30 September 2006 15,475 199,454 131,282 -
Capital Retained Minority Total
reserves earnings interest equity
$"000 $"000 $"000 $"000
1 October 2004 per UK
GAAP - (61,677) 104,377 394,228
IFRS adjustments 48,876 25,038 (151) (17,494)
1 October 2004 restated 48,876 (36,639) 104,226 376,734
Profit for the year - 13,802 10,481 24,283
Items recognised
directly into equity 8,448 2,159 (9,587) 593
Share incentive
schemes 9,394 - - 9,394
Sale of ESOP shares - - - 314
Currency adjustments - - 46 876
Deferred tax arising on
revaluation of loans (1,025)
Shares issued - - - 1,291
Share issue expenses - - - (189)
Subsidiaries acquired/
changes in holdings (946) - (9,633) (10,068)
Transfers - 2,159 - -
30 September 2005
restated 57,324 (20,678) 105,120 401,610
Adoption of IAS 32
and IAS 39 6,811 (1,903) - 5,656
1 October 2005 64,135 (22,581) 105,120 407,266
Profit for the year - 40,554 16,556 57,110
Items recognised
directly into equity 5,316 3,332 (16,186) 78,081
Share incentive
schemes 11,980 - - 11,980
Currency adjustments - - (1,149) (9,841)
Deferred tax arising on
revaluation of loans - - - (4,571)
Shares issued - - - 3,590
Shares issued on
conversion of bonds - - - 96,879
Share issue expenses - - - (889)
Subsidiaries acquired/
changes in holdings - - (15,037) (15,037)
Vesting under BEE
scheme (6,636) - - (6,636)
Net gain on cash flow
hedging - - - 2,303
Movement in investment
valuations - - - 358
Other (28) - - (55)
Transfers - 3,332 - -
30 September 2006 69,451 21,305 105,490 542,457
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONTINUED
Total hedging
Translation Hedging & translation
reserve reserve reserves
$"000 $"000 $"000
1 October 2004 per UK GAAP 91,114 - 91,114
IFRS adjustments (91,257) - (91,257)
1 October 2004 restated (143) - (143)
Items recognised directly into
equity 5,092 - 5,092
Currency adjustments 5,606 - 5,606
Deferred tax arising on
revaluation of loans (1,025) - (1,025)
Subsidiaries acquired/ changes
in holdings 511 - 511
Transfers -
30 September 2005 restated 4,949 4,949
Adoption of IAS 32
and IAS 39 810 (62) 748
1 October 2005 5,759 (62) 5,697
Items recognised directly into
equity (13,590) 2,303 (11,287)
Currency adjustments (9,019) (9,019)
Deferred tax arising on
revaluation of loans (4,571) (4,571)
Net gain on cash flow hedging 2,303 2,303
Movement in investment
valuations -
Other -
Transfers -
30 September 2006 (7,831) 2,241 (5,590)
Other Total other
reserves* reserves
$"000 $"000
1 October 2004 per UK GAAP 146,386 237,500
IFRS adjustments - (91,257)
1 October 2004 restated 146,386 146,243
Items recognised directly into
equity (6,840) (1,748)
Currency adjustments (4,776) 830
Deferred tax arising on
revaluation of loans (1,025)
Subsidiaries acquired/ changes
in holdings - 511
Transfers (2,064) (2,064)
30 September 2005 restated 139,546 144,495
Adoption of IAS 32
and IAS 39 748
1 October 2005 139,546 145,243
Items recognised directly into
equity (2,674) (13,961)
Currency adjustments 327 (8,692)
Deferred tax arising on
revaluation of loans (4,571)
Net gain on cash flow hedging 2,303
Movement in investment
valuations 358 358
Other (27) (27)
Transfers (3,332) (3,332)
30 September 2006 136,872 131,282
* Other reserves principally comprise consolidation reserves arising prior to
the unbundling of the underlying assets into the Company at the time of its LSE
listing in 2000.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2006
1. BASIS OF PREPARATION
From 1 October 2005 Dimension Data Holdings plc ("Dimension Data") is required
to prepare consolidated financial statements in accordance with International
Financial Reporting Standards ("IFRS") as endorsed by the European Commission
(`EC"), following the adoption of Regulation No. 1606/2002 by the European
Parliament on 19 July 2002. Dimension Data previously prepared consolidated
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice ("UK GAAP"). The adjustments required to convert the UK
GAAP reported information into IFRS are set out in Notes 15 to 17.
IFRS 1 "First-time Adoption of International Financial Reporting Standards"
sets out the procedures that the Group must follow when it adopts IFRS for the
first time as the basis for preparing its consolidated financial statements.
The Group was required to set out its IFRS accounting policies as at 30
September 2006 and, in general, apply these policies retrospectively to
determine the IFRS opening balance sheet at its date of transition, 1 October
2004. The significant IFRS accounting policies are set out in Note 2.
IFRS 1 provides a number of optional exceptions to this general principle. The
most significant of these are set out below, together with a description in
each case of the exception adopted by the Group.
a) Business combinations
The Group has elected not to apply IFRS 3 "Business Combinations"
retrospectively to past business combinations that occurred before the date of
transition (1 October 2004).
b) Cumulative translation differences
The Group has elected to reset the cumulative translation differences for all
foreign operations to zero at the date of transition to IFRS. The gain or loss
on a subsequent disposal of any foreign operation shall exclude translation
differences that arose before the date of transition to IFRS and shall include
later translation differences.
c) Share-based payment
The Group has elected not to apply IFRS 2 "Share-based Payment" retrospectively
to equity instruments granted on or before 7 November 2002.
d) Restating comparative information for financial instruments
The Group has taken advantage of the option not to apply IAS 32 "Financial
Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments:
Recognition and Measurement" to its comparative information.
The Group has applied these statements prospectively from 1 October 2005.
e) Leases
The Group has elected not apply IFRIC 4 "Determining Whether an Arrangement
Contains a Lease" retrospectively.
f) Fair value of property, plant and equipment
The Group has elected to continue to recognise all property, plant and
equipment (`PPE") at its historical UK GAAP carrying value on transition and
not to measure any item of PPE at fair value at 1 October 2004 with one
exception, where the Group has elected to use the fair value of the item as its
deemed cost at the transition date.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Directors to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at balance sheet date, and the
reported amounts of revenue and expenses during the reported period. Whilst
these estimates and assumptions are based on the Directors" best knowledge of
the amount, events or actions, actual results may differ from those estimates.
At the date of authorisation of these financial statements, the following
Standards and Interpretations which have not been applied in these financial
statements, were in issue but not yet effective:
Pronouncement Effective year end for
Dimension Data
IFRS 7 `Financial Instruments: Disclosures" (and concurrent
amendment to IAS 1 to add capital disclosures) 30 September 2008
IAS 21 - 2005 amendment for net investment in
a foreign entity 30 September 2007
IAS 39 - 2005 revision for fair value option and guarantees 30 September 2007
IFRIC 4 `Determining whether an Arrangement contains a
Lease" 30 September 2007
IFRIC 9 `Reassessment of Embedded Derivatives" 30 September 2007
IFRIC 10 Interim Financial Reporting and Impairment 30 September 2007
The Directors are in the process of evaluating the measurement and disclosure
requirements that the adoption of these Standards and Interpretations will have
in future periods when the relevant standards come into effect for the Group.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been used in preparation of the
consolidated financial statements. These include accounting policies for
financial instruments applied both before and after the adoption of IAS 32 and
IAS 39.
The consolidated financial information has been prepared on the historical cost
basis, except for the revaluation of certain financial instruments. The
principal accounting policies adopted are set out below.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities (including special purpose entities) controlled by the
Company (its subsidiaries). Control is achieved where the Company has the power
to govern the financial and operating policies of an investee enterprise so as
to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Minority interests in the net assets of consolidated subsidiaries are
identified separately from the Group"s equity therein.
Minority interests consist of the amount of those interests at the date of the
original business combination and the minority"s share of changes in equity
since the combination. Losses applicable to the minority in excess of the
minority"s interest in the subsidiary"s equity are allocated against the
interest of the Group except to the extent that the minority has a binding
legal obligation and is able to make additional investment to cover the losses.
Business Combinations
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination.
On acquisition, the assets and liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition, except
for non-current assets (or disposal groups) that are classified as held for
sale in accordance with IFRS 5 "Non-Current Assets Held for Sale and
Discontinued Operations", which are recognised and measured at fair value less
cost to sell.
Any excess of the cost of acquisition over the fair values of the identifiable
net assets acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired (i.e.
discount on acquisition) is credited to the income statement in the period of
acquisition.
The interest of minority shareholders in the acquiree is initially measured at
the minority"s proportion of the net fair value of the assets, liabilities and
contingent liabilities recognised.
Interests in Associates
An associate is an entity over which the Group is in a position to exercise
significant influence, but not control, through participation in the financial
and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in these
financial statements using the equity method of accounting except when
classified as held for sale (see below). Investments in associates are carried
in the balance sheet at cost as adjusted by post-acquisition changes in the
Group"s share of the net assets of the associate, less any impairment in the
value of individual investments. Losses of the associate in excess of the
Group"s interest in those associates are not recognised.
Any excess of the cost of acquisition over the Group"s share of the fair values
of the identifiable assets, liabilities and contingent liabilities of the
associate at the date of acquisition is recognised as goodwill. Any deficiency
of the cost of acquisition below the Group"s share of the fair values of the
identifiable net assets of the associate at the date of acquisition (i.e.
discount on acquisition) is credited in the income statement in the period of
acquisition. The goodwill is included within the carrying amount of the
investment and is assessed for impairment as part of the investment.
Where a Group company transacts with an associate of the Group, profits and
losses are eliminated to the extent of the Group"s interest in the relevant
associate. Losses may provide evidence of an impairment of the asset
transferred, in which case appropriate provision is made for impairment.
Non-current Assets Held for Sale
Non-current assets (and disposal groups) classified as held for sale are
measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their
carrying amounts will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as being met only when the
sale is highly probable and the asset (or disposal group) is available for
immediate sale in its present condition.
Management must be committed to the sale which should be expected to qualify
for recognition as a completed sale within one year from the date of
classification.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group"s interest in the fair value of the identifiable
assets, liabilities and contingent liabilities of a subsidiary or associate at
the date of acquisition.
Goodwill is recognised as an asset at cost and is subsequently measured at cost
less any accumulated impairment losses.
For the purpose of impairment testing, goodwill is allocated to each of the
Group"s cash-generating units expected to benefit from the combination.
Cash-generating units to which goodwill has been allocated are tested for
impairment annually, or more frequently when there is an indication that the
unit may be impaired. If the recoverable amount of the cash-generating unit is
less than the carrying amount of the unit, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata on the basis of the carrying
amount of each asset in the unit. Any impairment is recognised immediately in
the income statement and is not subsequently reversed.
On disposal of a subsidiary or associate, the attributable amount of goodwill
is included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS has been
retained at the previous UK GAAP amounts subject to being tested for impairment
at that date. Goodwill written off to reserves under UK GAAP has not been
reinstated and is not included in determining any subsequent profit or loss on
disposal.
Revenue Recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts, VAT and other sales related
taxes.
Sales of goods are recognised when goods are delivered and title has passed.
Revenue from contracts is recognised in accordance with the Group"s accounting
policy on contracts (see below).
Maintenance revenue and licence fees are brought to account over the relevant
contract periods.
Where the Group acts as agent and is remunerated on a commission basis, the
commission is included in revenue.
Where the Group acts as principal, the total value of business handled is
included in revenue.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset"s net carrying amount.
Dividend income from investments is recognised when the shareholders" rights to
receive payment have been established.
Contracts
Where the outcome of a contract can be estimated reliably, revenue and costs
are recognised by reference to the stage of completion of the contract activity
at the balance sheet date. This is normally measured by the proportion that
contract costs incurred for work performed to date bear to the estimated total
contract costs, except where this would not be representative of the stage of
completion. Variations in contract work, claims and incentive payments are
included to the extent that it is probable that they will result in revenue,
and they are capable of being reliably measured.
Where the outcome of a contract cannot be estimated reliably, contract revenue
is recognised to the extent of contract costs incurred that it is probable will
be recoverable. Contract costs are recognised as expenses in the period in
which they are incurred.
When it is probable that total contract costs will exceed total contract
revenue, the expected loss is recognised as an expense immediately.
Contact centre revenue is recognised according to the stage of completion of
the contract by reference to the value of work performed. The amount by which
revenue differs from payments on account is shown under receivables as accrued
revenue, or under payables as deferred revenue, as appropriate.
Leasing
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
The Group as Lessor
Amounts due from lessees under finance leases are recorded as receivables at
the amount of the Group"s net investment in the leases. Finance lease income is
allocated to accounting periods so as to reflect a constant periodic rate of
return on the Group"s net investment outstanding in respect of the leases.
Rental income from operating leases is recognised on a straight line basis over
the term of the relevant lease. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the carrying amount of the leased
asset and recognised on a straight line basis over the lease term.
The Group as Lessee
Assets held under finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum lease payments,
each determined at the inception of the lease. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly in the income
statement.
Rentals payable under operating leases are charged to income on a straight line
basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight line basis over the lease term.
Foreign Currencies
The individual financial statements of each Group entity are presented in the
currency of primary economic environment in which the entity operates (its
functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each entity are expressed in US dollars,
which is the functional currency of the Company, and the presentation currency
for the consolidated financial statements. The Group has elected to present its
results in US dollars as this is the currency predominantly used when the Group
transacts.
Transactions in currencies other than the functional currency of the entities
are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date. Non-monetary assets and liabilities carried at fair
value that are denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined. Gains and losses
arising on retranslation are included in the income statement for the period,
except for exchange differences arising on non-monetary assets and liabilities
where the changes in fair value are recognised directly in equity.
In order to hedge its exposure to certain foreign exchange risks, the Group
enters into forward contracts and options (see below for details of the Group"s
accounting policies in respect of such derivative financial instruments).
For the purpose of presenting consolidated financial statements, the assets and
liabilities of the Group"s foreign operations are translated at exchange rates
prevailing on the balance sheet date. Income and expense items are translated
at the average exchange rates for the period, unless exchange rates fluctuate
significantly. Exchange differences arising, if any, are classified as equity
and transferred to the Group"s translation reserve. Such translation
differences are recognised as income or as expenses in the period in which the
operation is disposed of.
The financial statements of foreign subsidiaries and associates that report in
the currency of a hyperinflationary economy are restated in terms of the
measuring unit current at the balance sheet date before they are translated
into US dollars.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale. Investment income earned on
the temporary investment in specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in the income statement in the
period in which they are incurred.
Government Grants
Government grants towards staff re-training costs are recognised as income over
the periods necessary to match them with the related costs and are deducted in
reporting the related expense.
Government grants relating to property, plant and equipment are treated as
deferred income and released to the income statement over the expected useful
lives of the assets concerned.
Operating Profit
Profit from operations is stated after charging restructuring costs but before
the share of results of associates, investment income and finance costs.
Exceptional Items
Exceptional items are those items of financial performance that are material
and non-recurring in nature that the Group believes should be disclosed
separately within the financial statements to assist in the understanding of
the financial performance of the Group.
Retirement Benefit Costs
Payments to defined contribution retirement benefit plans are charged as an
expense as they fall due. Payments made to state-managed retirement benefit
schemes are dealt with as payments to defined contribution plans where the
Group"s obligations under the schemes are equivalent to those arising in a
defined contribution retirement benefit plan.
Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group"s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
Deferred tax assets and liabilities are not discounted.
Property, Plant and Equipment
Items of property, plant and equipment are carried at cost less accumulated
depreciation and any accumulated impairment losses.
Depreciation is charged so as to write off the depreciable value of the assets
over their estimated useful lives, using the straight line method, on the
following basis:
Capitalised property finance lease 2% per annum
Leasehold land, buildings and improvements Over the lease term
Computer and workshop equipment 14%-33% per annum
Motor vehicles 25% per annum
Office furniture and equipment 10% per annum
Certain costs of purchase, development and installation of major information
systems (including packaged software) are capitalised and amortised over their
expected useful lives (generally three to five years) on a straight line basis.
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, the term of the
relevant lease.
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying amount
of the asset and is recognised in the income statement.
Intangible assets
Acquired intangible assets
Other purchased intangible assets, which include customer lists and
intellectual property, are capitalised and amortised over their useful economic
lives on a straight line basis.
Computer software
Computer software is stated at cost less accumulated amortisation and, where
appropriate, provision for impairment in value or estimated loss on disposal.
Acquired computer software is capitalised on the basis of costs incurred to
acquire and bring into use the specific software. Amortisation is provided to
write off the cost of assets on a straight line basis over their estimated
useful lives of between three to five years. The SAP software is written off
over seven years. Costs associated with developing or maintaining computer
software are recognised as an expense as incurred unless they increase the
future economic benefits of the asset, in which case they are capitalised.
Internally generated computer software is capitalised at cost if the project is
technically and commercially feasible and the economic benefits that are
expected to be generated exceed one year. The expenditure capitalised includes
the cost of materials, direct labour and an appropriate proportion of
overheads. Subsequent expenditure is capitalised only when it increases the
future economic benefits embodied in the specific assets to which it relates.
Amortisation is provided to write off the cost of assets on a straight line
basis between three and seven years.
Internally-generated intangible assets - research and development
Expenditure on research activities is recognised as an expense in the period in
which it is incurred.
An internally-generated intangible asset arising from the Group"s Solutions
business is recognised only if all of the following conditions are met:
- an asset is created that can be identified (such as software and
new processes);
- it is probable that the asset created will generate future economic
benefits; and
- the development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight line basis
over their useful lives, generally between three and five years. Where no
internally-generated intangible asset can be recognised, development
expenditure is recognised as an expense in the period in which it is incurred.
Patents and Trademarks
Patents and trademarks are measured initially at purchase cost and are
amortised on a straight line basis over their estimated useful lives.
Impairment of Tangible and Intangible Assets Excluding Goodwill
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs. An
intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (cash- generating unit) in prior years. A reversal of
an impairment loss is recognised as income immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to their present
location and condition. Cost is calculated using the weighted average method.
Net realisable value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing, selling and
distribution.
Financial Instruments (UK GAAP accounting policies applicable up to 30
September 2005)
Derivative financial instruments
The Group uses derivative financial instruments to reduce exposure to foreign
exchange risk and interest rate movements. The Group does not hold or issue
derivative financial instruments for speculative purposes.
For a forward foreign exchange contract to be treated as a hedge, the
instrument must be related to actual foreign currency assets or liabilities or
to a probable commitment. It must involve the same currency or similar
currencies as the hedged item and must also reduce the risk of foreign currency
exchange movements on the Group"s operations. Gains and losses arising on these
contracts are deferred and recognised in the income statement, or as
adjustments to the carrying amount of assets, only when the hedged transaction
has itself been reflected in the Group"s financial statements.
For an interest rate swap to be treated as a hedge the instrument must be
related to actual assets or liabilities or a probable commitment and must
change the nature of the interest rate by converting a fixed rate to a variable
rate or vice versa. Interest differentials under these swaps are recognised by
adjusting net interest payable over the periods of the contracts.
If an instrument ceases to be accounted for as a hedge, for example because the
underlying hedged position is eliminated, the instrument is marked to market
and any resulting profit or loss recognised at that time.
Financial instruments (IFRS accounting policies applicable from 1 October 2005)
Financial instruments
Financial assets and financial liabilities are recognised in the Group"s
balance sheet when the Group becomes a party to the contractual provisions of
the instrument.
Trade receivables
Trade receivables are measured at initial recognition at fair value, and are
subsequently measured at amortised cost using the effective interest rate
method. Appropriate allowances for estimated irrecoverable amounts are
recognised in the income statement when there is evidence that the asset is
impaired. The allowance recognised is measured as the difference between the
asset"s carrying amount and the present value of estimated future cash flows
discounted at the effective interest rate computed at initial recognition.
Investments
Investments are recognised and derecognised on a trade date where a purchase or
sale of an investment is under a contract whose terms require delivery of the
investment within the timeframe established by the market concerned, and are
initially measured at cost, including transaction costs.
At subsequent reporting dates, debt securities that the Group has the expressed
intention and ability to hold to maturity (held-to-maturity debt securities)
are measured at amortised cost using the effective interest rate method, less
any impairment loss recognised to reflect irrecoverable amounts. An impairment
loss is recognised in the income statement when there is objective evidence
that the asset is impaired, and is measured as the difference between the
investment"s carrying amount and the present value of estimated future cash
flows discounted at the effective interest rate computed at initial
recognition. Impairment losses are reversed in subsequent periods when an
increase in the investment"s recoverable amount can be related objectively to
an event occurring after the impairment was recognised, subject to the
restriction that the carrying amount of the investment at the date the
impairment is reversed shall not exceed what the amortised cost would have been
had the impairment not been recognised.
Investments other than held-to-maturity debt securities are classified as
either investments held for trading or as available for sale, and are measured
at subsequent reporting dates at fair value. Where securities are held for
trading purposes, gains and losses arising from changes in fair value are
included in the income statement for the period. For available for sale
investments, gains and losses arising from changes in fair value are
recognised directly in equity, until the security is disposed of or is
determined to be impaired, at which time the cumulative gain or loss
previously recognised in equity is included in the income statement for the
period. Impairment losses recognised in the income statement for equity
investments classified as available for sale are not subsequently reversed
through the income statement. Impairment losses recognised in the income
statement for debt instruments classified as available for sale are
subsequently reversed if an increase in the fair value of the instrument can
be objectively related to an event occurring after the recognition of the
impairment loss.
Investments in subsidiaries are carried in the parent Company balance sheet at
cost less provisions for impairments.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equities
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are initially measured at fair
value, and are subsequently measured at amortised cost, using the effective
interest rate method. Any difference between the proceeds (net of transaction
costs) and the settlement or redemption of borrowings is recognised over the
term of the borrowings in accordance with the Group"s accounting policy for
borrowing costs (see above).
Convertible loan notes
Convertible loan notes are regarded as compound instruments, consisting of a
liability component and an equity component. At the date of issue, the fair
value of the liability component is estimated using the prevailing market
interest rate for similar non-convertible debt. The difference between the
proceeds of issue of the convertible loan notes and the fair value assigned to
the liability component, representing the embedded option to convert the
liability into equity of the Group, is included in equity.
Issue costs are apportioned between the liability and equity components of the
convertible loan notes based on their relative carrying amounts at the date of
issue. The portion relating to the equity component is charged directly against
equity.
The interest expense on the liability component is calculated by applying the
prevailing market interest rate for similar non-convertible debt to the
liability component of the instrument. The difference between this amount and
the interest paid is added to the carrying amount of the convertible loan note.
On conversion of the instruments the value of the debt is transferred to equity
reserves.
Trade payables
Trade payables are initially measured at fair value, and are subsequently
measured at amortised cost, using the effective interest rate method.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
Derivative financial instruments
The Group uses derivative financial instruments (primarily foreign currency
forward contracts) to hedge its risks associated with foreign currency
fluctuations relating to certain firm commitments and forecasted transactions.
Such derivatives are initially recorded at fair value, if any, and are
remeasured to fair value at subsequent reporting dates.
The Group does not use derivative financial instruments for speculative
purposes. The use of financial derivatives is governed by the Group"s policies
approved by the Board of Directors, which provide written principles on the use
of financial derivatives.
Changes in the fair value of derivative financial instruments that are
designated and effective as hedges of future cash flows are recognised directly
in equity and the ineffective portion is recognised immediately in the income
statement. If the cash flow hedge of a firm commitment or forecasted
transaction results in the recognition of an asset or a liability, then, at the
time the asset or liability is recognised, the associated gains or losses on
the derivative that had previously been recognised in equity are included in
the initial measurement of the asset or liability. For hedges that do not
result in the recognition of an asset or a liability, amounts deferred in
equity are recognised in the income statement in the same period in which the
hedged item affects the income statement.
Changes in the fair value of designated fair value hedges and derivative
financial instruments that do not qualify for hedge accounting are recognised
in the income statement as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is
sold, terminated or exercised, or no longer qualifies for hedge accounting. At
that time, any cumulative gain or loss on the hedging instrument recognised in
equity is retained in equity until the forecasted transaction occurs. If a
hedged transaction is no longer expected to occur, the net cumulative gain or
loss recognised in equity is transferred to the income statement for the
period.
Derivatives embedded in other financial instruments or non-derivative host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of host contracts and the host
contracts are not carried at fair value with unrealised gains or losses
reported in the income statement.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation, as a result of past events, for which it is probable that an
outflow of economic benefits will be required to settle the obligation, and a
reliable estimate can be made for the amount of the obligation. Where the
effect of discounting to present value is material, provisions are adjusted to
reflect the time value of money.
Provisions for warranty costs are recognised at the date of sale of the
relevant products, at the Directors" best estimate of the expenditure required
to settle the Group"s liability.
Provisions for restructuring costs are recognised when the Group has a detailed
formal plan for the restructuring that has been communicated to affected
parties.
Share-based Payment
The Group has applied the requirements of IFRS 2 "Share-based Payment". In
accordance with the transitional provisions, IFRS 2 has been applied to all
grants of equity instruments after 7 November 2002 that were unvested as of 1
January 2005.
The Group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of
grant. The fair value determined at the grant date of the equity-settled share-
based payments is expensed on a straight line basis over the vesting period,
based on the Group"s estimate of the shares that will eventually vest.
Fair value is measured by use of a binomial model. The expected life used in
the model has been adjusted, based on management"s best estimate, for the
effects of non-transferability, exercise restrictions, and behavioural
considerations.
Following the interpretation of IFRIC 8, the Group has extended the scope of
IFRS 2 to include the Group"s black economic empowerment initiative. The fair
value of the shares issued pursuant to the Group"s BEE initiative has been
expensed with a corresponding increase in equity.
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the process of applying the Group"s accounting policies, management is
required to make estimates and assumptions that affect the reported amounts of
income, expenses, assets, liabilities and disclosure of contingent assets and
liabilities.
Management uses all available information and the application of judgement is
inherent in the formation of estimates.
Actual results in the future could differ from these estimates, and any
subsequent changes are accounted for with an effect in income at the time such
information becomes available.
Revenue and profit recognition
Revenue and profit on contracts are generally recognised on a percentage of
completion basis when the outcome of a contract can be estimated reliably.
Management is required to use judgement in determining whether a contract"s
outcome can be estimated reliably. Management also makes estimates of total
contract costs, which are used in determining the value of amounts recoverable
on contracts.
Share-based payment
The expense for the share schemes is determined by estimating the fair value of
the options granted.
Provision for bad debts
Provision is made for bad debts based on management"s estimate of the prospect
of recovering the debt. Where management has determined that a debt is no
longer recoverable, the amount is written off.
Provision for inventory
Inventory is counted at least once a year and any shortages and obsolete stock
identified is written off immediately. An allowance is made for slow moving and
obsolete inventory based on historical trends.
Impairment of goodwill
Management is required to estimate whether or not goodwill has been impaired.
This requires estimation of the value in use of the cash-generating units to
which goodwill has been allocated. The value in use calculation includes
estimates about the future financial performance of the cash-generating units,
including management"s estimates of long term operating margins and long term
growth rates.
Income taxes
Management makes estimates of the likely outcome of decisions by tax
authorities on transactions and events whose treatment for tax purposes is
uncertain. When the final outcome of such matters is different, or expected to
be different, from previous assessments made by management, a change to the tax
provision will be recorded in the period when that decision is made.
4. REVENUE RECOGNITION
Previously the Group presented the amounts invoiced on the sale of certain
software product, the resale of vendor maintenance contracts, and certain
product sales where the Group"s role is restricted to that of a logistics
agent, as gross revenue in the income statement. As these types of arrangements
become an increasingly significant feature of the Group"s operating model, it
is now believed to be more appropriate to reflect the commission earned on such
transactions as revenue and not the gross sales value.
Consequently, in the current period, the Group changed its revenue recognition
accounting policy to account for these transactions as an agent, rather than as
a principal, and to report the net rather than the gross revenue. The
comparative reported revenue figures were restated accordingly. This had the
effect of decreasing revenue and cost of sales by $81.8 million in 2005. This
change in accounting policy has had no impact on operating profit.
5. SEGMENTAL ANALYSIS
Africa Asia Australia Europe*
$"000 $"000 $"000 $"000
2006
Revenue 723,713 482,157 756,470 750,102
Operating
profit*** 62,374 26,179 19,376 1,470
Restated
2005
Revenue 529,184 455,977 688,487 709,571
Operating
profit*** 43,414 15,520 17,561 14,794
Inter-
United company
States Central** sales/ Total
eliminations
$"000 $"000 $"000 $"000
2006
Revenue 536,223 14,561 (196,130) 3,067,096
Operating
profit*** 10,086 (34,479) 85,006
Restated
2005
Revenue 406,637 8,502 (152,275) 2,646,083
Operating
profit*** 7,510 (42,108) 56,691
* From 1 October 2005, the United Kingdom and Continental Europe have been
managed as one region. The comparative information has been restated to
reflect this change.
** Comprises net holding company costs, investment in global Solutions and
Services development, and global procurement and logistics division.
*** Before exceptional items.
6. EXCEPTIONAL ITEMS
Restated
Notes 2006 2005
$"000 $"000
Exceptional operating (costs)/income
Insurance claim proceeds a) 5,150 -
Provision against work in progress and
receivables b) (12,775) (2,537)
Closure costs of certain contact centre
operations in Europe c) (4,168) -
Foreign exchange gain on loan d) 7,519 -
Operating cost impairment reversal - 3,255
Retrenchments - (5,180)
Insurance captive cell - 2,400
Release of acquisition provisions - 5,005
Total operating (costs)/income (4,274) 2,943
Deferred tax credit e) 17,953 -
Exceptional items after tax 13,679 2,943
Minorities" share of exceptional items (3,256) -
Net exceptional income 10,423 2,943
a) During the period, the Group received full and final settlement of $5.2
million from its insurers for losses previously suffered in relation to
China accounts receivable, provided for in full in previous years.
b) Provision against long outstanding work in progress, valuations and accounts
receivable balances in Dimension Data Advanced Infrastructure, the Group"s
cabling business in the UK.
c) The downsizing of the Merchants" operations in the UK and Ireland, including
costs of closing offices, payments to cancel leases and retrenchment costs.
d) Foreign exchange gain previously included in translation reserves, now
included in the income statement as a result of the intention to settle the
loan in the short term.
e) Our South African business recognised an additional $18.0 million deferred
tax asset as a result of the acquisition and subsequent divisionalisation of
Internet Solutions, and its improved operating performance.
Reconciliation of reported amounts to
adjusted amounts 2006 2005
$"000 $"000
Reported operating profit 80,732 59,634
Exceptional operating costs/(income) 4,274 (2,943)
Adjusted operating profit 85,006 56,691
Reported attributable profit after tax 40,554 13,802
- Exceptional costs/(income) 4,274 (2,943)
- Deferred tax credit (17,953) -
- Minorities" share 3,256 -
Adjusted attributable profit after tax 30,131 10,859
7. TAX
2006 2005
$"000 $"000
Current tax 27,989 18,844
W ithholding and other taxes 3,258 594
Adjustment to prior years" tax provision (210) (991)
Total current tax 31,037 18,447
Deferred taxation
- Current (1,651) 3,401
- Recognition of deferred tax asset (refer Note 6) (17,953) -
- Adjustments to prior years (3,123) (1,292)
Total tax charge 8,310 20,556
Included in the adjustments to prior years is an amount of $18.0 million
classified as exceptional in Note 6.
8. EARNINGS PER SHARE
2006 2005
`000 `000
Weighted average number of ordinary shares:
- for basic earnings per share* 1,490,167 1,343,895
- for diluted earnings per share 1,558,108 1,362,956
US cents US cents
Basic earnings per share 2.7 1.0
Diluted earnings per share 2.6 1.0
Adjusted basic earnings per share 2.0 0.8
$"000 $"000
Earnings for basic and diluted earnings per share 40,554 13,802
Exceptional items (10,423) (2,943)
Adjusted earnings 30,131 10,859
* In terms of IAS 33 `Earnings per Share", the weighted average number of
shares has been adjusted for the convertible bonds. A proportion of the shares
which has been issued on conversion has been included from 1 January 2006, the
date on which interest ceased to accrue. This had the effect of increasing the
weighted average number of shares by 140.6 million shares.
9. TRADE AND OTHER RECEIVABLES
2006 2005
$"000 $"000
Trade receivables 619,393 474,252
Other receivables 53,840 49,703
Prepayments 77,343 74,227
Accrued income 14,678 12,512
765,254 610,694
Analysed as follows:
Long term portion 22,222 14,313
Short term portion 743,032 596,381
765,254 610,694
10. TRADE AND OTHER PAYABLES
2006 2005
$"000 $"000
Trade payables 371,598 245,791
Other payables 106,175 107,818
Accruals 195,649 175,902
Deferred income 151,376 140,412
Deferred consideration 5,152 391
Current portion of obligations under finance leases 795 65
830,745 670,379
11. ACQUISITIONS
On 3 November 2005, Dimension Data South Africa acquired, for $18.0 million in
cash, the remaining 51% stake in Plessey, a project management and service
provider in the telecommunications market throughout the African continent,
thereby increasing the interest held to 100%.
The carrying amounts of each class of assets, liabilities and contingent
liabilities, were determined provisionally in accordance with IFRS 3 `Business
Combinations". Subsequently, these provisional allocations were reassessed and
adjustments of $0.5 million were made to liabilities acquired relating to
understated tax provisions. The adjusted amounts are as follows:
$ million
Non-current assets 3
Inventories 17
Trade and other receivables 24
Cash and cash equivalents 17
Short term liabilities (35)
Provisions (1)
Total consideration 18
Due to the nature of the underlying business, there were no specific intangible
assets to which value could be assigned. Goodwill of $4.7 million arose on this
acquisition.
Since the acquisition date, the amount of Plessey"s revenue and profit after
tax included in the Group income statement was $95.1 million and $5.9 million,
respectively.
If the acquisition had occurred at the beginning of the period, the amount of
revenue and profit after tax that would have been included in the income
statement would have been $100.2 million and $4.6 million respectively.
In addition, with effect from 28 February 2006 Dimension Data South Africa
acquired the remaining 20% in Internet Solutions for a cash consideration of
$42.6 million. This entity was already accounted for as a subsidiary in the
prior periods. This acquisition gave rise to goodwill amounting to $30.7
million.
The other acquisitions made by the Group during the year were not material.
12. SHARE INCENTIVE COSTS
Following the adoption of IFRS 2, an amount of $13.9 million (2005: $10.0
million) has been charged in the income statement in the current year.
13. CESSION OF ASSETS AND LEASES
In terms of Internet Solution acquisition agreement, until such time as the
purchase price is settled in full, the Group has ceded all shares held in
Dimension Data (Pty) Ltd to the seller.
The South African holding company has further given the seller a guarantee in
respect of the outstanding purchase price. The outstanding purchase price is
$5.2 million.
Trade receivables of $80.0 million and bank balances amounting to $14.6 million
in the South African business have been ceded to a financial institution as
security for a working capital loan of $23.2 million.
As security for the construction of a new building at the Campus, the Group has
ceded the sub-lease agreements of $8.5 million to the banks who are funding the
construction.
In the US business an amount of $127.5 million of trade receivables and $12.5
million of inventory have been ceded as security in respect of a working
capital facility.
14. POST BALANCE SHEET EVENTS
There have been no material events after balance sheet date and up to date of
approval of these results, that require disclosure.
15. RECONCILIATION OF CONSOLIDATED INCOME STATEMENT FROM UK GAAP TO IFRS
Year ended 30 September 2005
$"000 UK GAAP / Venture
(IFRS Format) Share- capital
Restated based invest-
payment ments
Revenue 2,646,083 - -
Cost of Sales (2,090,098) - -
Gross profit 555,985 - -
Administrative, selling
and distribution
expenses (491,689) (6,681) 5
Operating profit 64,296 (6,681) 5
Share of result of
associates 3,740 - 726
Investment income 15,471 - -
Other gains and losses (1,027) - -
Finance costs (32,863) - 583
Profit before tax 49,617 (6,681) 1,314
Tax (20,545) - -
Profit for the year 29,072 (6,681) 1,314
$"000
Capitali- Provision Lease
sation of for holiday adjust-
Campus pay ments
Revenue - - -
Cost of Sales - - -
Gross profit - - -
Administrative, selling
and distribution
expenses 770 (398) (992)
Operating profit 770 (398) (992)
Share of result of
associates - - -
Investment income - - -
Other gains and losses - - -
Finance costs (2,589) - -
Profit before tax (1,819) (398) (992)
Tax - - -
Profit for the year (1,819) (398) (992)
$"000
Goodwill
amort-
isation Other IFRS
Revenue - - 2,646,083
Cost of Sales - - (2,090,098)
Gross profit - - 555,985
Administrative, selling
and distribution
expenses 3,594 (960) (496,351)
Operating profit 3,594 (960) 59,634
Share of result of
associates 379 - 4,845
Investment income - - 15,471
Other gains and losses - - (1,027)
Finance costs - 785 (34,084)
Profit before tax 3,973 (175) 44,839
Tax - (11) (20,556)
Profit for the year 3,973 (186) 24,283
16. RECONCILIATION OF CONSOLIDATED BALANCE SHEET FROM UK GAAP TO IFRS
a) At 1 October 2004
$"000 Venture Provision
UK GAAP/ capital Capitali- for
(IFRS invest- sation of holiday
Format) ments Campus pay
ASSETS
Non-current assets
Property, plant and
equipment 92,467 15 114,295 -
Goodwill 976 361 - -
Other intangible assets - - - -
Investments in associates 25,781 2,958 - -
Available for sale
investments(1) 39,013 (10,984) - -
Deferred tax assets 9,974 - - 161
168,211 (7,650) 114,295 161
Current assets
Inventories 104,871 - - -
Trade and other receivables 537,231 153 - -
Investments held for
trading(2) 10,946 - - -
Cash and cash equivalents 414,093 65 - -
1,067,141 218 - -
Total assets 1,235,352 (7,432) 114,295 161
EQUITY AND LIABILITIES
Capital and reserves 289,851 (8,031) (3,739) (2,253)
Minority interest 104,377 - - -
Total equity 394,228 (8,031) (3,739) (2,253)
Non-current liabilities
Convertible loan notes 100,906 - - -
Other loans 28,098 395 - -
Obligations under finance
lease - - 134,997 -
Deferred tax liabilities 6,387 - - -
Provisions 35,488 - (17,740) 84
170,879 395 117,257 84
Current liabilities
Trade and other payables 566,801 204 (3,745) 2,330
Tax authorities payable 98,926 - - -
Other current liabilities 4,146 - 4,522 -
Bank overdrafts and loans 372 - - -
670,245 204 777 2,330
Total liabilities 841,124 599 118,034 2,414
Total equity
and liabilities 1,235,352 (7,432) 114,295 161
$"000
Lease IAS 16
adjust- Reclassifi- and
ments cations Other IFRS
ASSETS
Non-current assets
Property, plant and equipment 1,265 (6,743) (1,898) 199,401
Goodwill - - (99) 1,238
Other intangible assets - 6,743 - 6,743
Investments in associates - - 199 28,938
Available for sale
investments(1) - - - 28,029
Deferred tax assets - - 170 10,305
1,265 - (1,628) 274,654
Current assets
Inventories - - - 104,871
Trade and other receivables (216) - (712) 536,456
Investments held for trading(2) - (10,946) - -
Cash and cash equivalents - 10,946 - 425,104
(216) - (712) 1,066,431
Total assets 1,049 - (2,340) 1,341,085
EQUITY AND LIABILITIES
Capital and reserves 41 - (3,361) 272,508
Minority interest - - (151) 104,226
Total equity 41 - (3,512) 376,734
Non-current liabilities
Convertible loan notes - - - 100,906
Other loans - - - 28,493
Obligations under finance lease 885 - - 135,882
Deferred tax liabilities - - - 6,387
Provisions - 1,486 208 19,526
885 1,486 208 291,194
Current liabilities
Trade and other payables - (1,486) 964 565,068
Tax authorities payable - - - 98,926
Other current liabilities 123 - - 8,791
Bank overdrafts and loans - - - 372
123 (1,486) 964 673,157
Total liabilities 1,008 - 1,172 964,351
Total equity and liabilities 1,049 - (2,340) 1,341,085
(1) 2005: Other investments.
(2) 2005: Short term investments
b) At 30 September 2005
$"000 Venture
UK GAAP / capital Capitali-
(IFRS invest- sation of
Format) ments Campus
ASSETS
Non-current assets
Property, plant and equipment 225,167 - (5,602)
Goodwill 43,076 - -
Other intangible assets - - -
Investments in associates 26,897 2,150 -
Investments held for trading(1) 21,811 - -
Available for sale
investments(1) 14,124 ( 9,070) -
Deferred tax assets 9,314 - -
Trade and other receivables - - -
340,389 (6,920) (5,602)
Current assets
Inventories 104,258 - -
Trade and other receivables 627,871 - -
Investments held for trading(2) 12,528 - -
Cash and cash equivalents 404,068 - -
1,148,725 - -
Total assets 1,489,114 (6,920) (5,602)
EQUITY AND LIABILITIES
Capital and reserves 309,363 (6,920) (5,602)
Minority interest 105,054 - -
Total equity 414,417 (6,920) (5,602)
Non-current liabilities
Convertible loan notes 105,405 - -
Other loans 37,675 - -
Obligations under finance lease 142,890 - -
Deferred tax liabilities 6,314 - -
Provisions 12,192 - -
304,476 - -
Current liabilities
Trade and other payables 668,126 - -
Tax authorities payable 96,057 - -
Bank overdrafts and loans 6,038 - -
Provisions - - -
770,221 - -
Total liabilities 1,074,697 - -
Total equity and liabilities 1,489,114 (6,920) (5,602)
$"000 Provision Goodwill
for holiday Lease amortis-
pay adjust- ation
ments
ASSETS
Non-current assets
Property, plant and equipment - 1,234 -
Goodwill - - 3,384
Other intangible assets - - -
Investments in associates - - 387
Investments held for trading(1) - - -
Available for sale
investments(1) - - -
Deferred tax assets 150 - -
Trade and other receivables - - -
150 1,234 3,771
Current assets
Inventories - - -
Trade and other receivables - (179) -
Investments held for trading(2) - - -
Cash and cash equivalents - - -
- (179) -
Total assets 150 1,055 3,771
EQUITY AND LIABILITIES
Capital and reserves (2,621) (920) 3,771
Minority interest - - -
Total equity (2,621) (920) 3,771
Non-current liabilities
Convertible loan notes - - -
Other loans - - -
Obligations under finance lease - 800 -
Deferred tax liabilities - 124 -
Provisions - - -
- 924 -
Current liabilities
Trade and other payables 2,338 185 -
Tax authorities payable - - -
Bank overdrafts and loans - - -
Provisions 433 866 -
2,771 1,051 -
Total liabilities 2,771 1,975 -
Total equity and liabilities 150 1,055 3,771
$"000 Reclassi- IAS 16
fications and Other IFRS
ASSETS
Non-current assets
Property, plant and equipment (9,033) (1,968) 209,798
Goodwill (2,238) (798) 43,424
Other intangible assets 11,270 468 11,738
Investments in associates - 199 29,633
Investments held for trading(1) - - 21,811
Available for sale
investments(1) - - 5,054
Deferred tax assets - 126 9,590
Trade and other receivables 14,313 - 14,313
14,312 (1,973) 345,361
Current assets
Inventories - - 104,258
Trade and other receivables (14,313) 59 613,438
Investments held for trading(2) (12,528) - -
Cash and cash equivalents 12,528 - 416,596
(14,313) 59 1,134,292
Total assets (1) (1,914) 1,479,653
EQUITY AND LIABILITIES
Capital and reserves 2,713 (3,294) 296,490
Minority interest - 66 105,120
Total equity 2,713 (3,228) 401,610
Non-current liabilities
Convertible loan notes - - 105,405
Other loans (1,384) - 36,291
Obligations under finance lease (2) - 143,688
Deferred tax liabilities - - 6,438
Provisions (7,076) - 5,116
(8,462) - 296,938
Current liabilities
Trade and other payables (1,328) 1,058 670,379
Tax authorities payable - - 96,057
Bank overdrafts and loans - - 6,038
Provisions 7,076 256 8,631
5,748 1,314 781,105
Total liabilities (2,714) 1,314 1,078,043
Total equity and liabilities (1) (1,914) 1,479,653
(1) 2005: Other investments
(2) 2005: Short term investments
c) At 1 October 2005: EFFECT OF IAS 32 AND IAS 39 ON THE OPENING BALANCE SHEET
IFRS as at
30 IFRS as at
September IAS 32 and 1 October
$"000 2005 IAS 39 2005
ASSETS
Non-current assets
Property, plant and equipment 209,798 - 209,798
Goodwill 43,424 - 43,424
Other intangible assets 11,738 - 11,738
Investments in associates 29,633 - 29,633
Investments held for trading(1) 21,811 763 22,574
Available for sale investments(1) 5,054 - 5,054
Deferred tax assets 9,590 - 9,590
Trade and other receivables 14,313 - 14,313
345,361 763 346,124
Current assets
Inventories 104,258 - 104,258
Trade and other receivables 613,438 404 613,842
Cash and cash equivalents 416,596 - 416,596
1,134,292 404 1,134,696
Total assets 1,479,653 1,167 1,480,820
EQUITY AND LIABILITIES
Capital and reserves 296,490 5,656 302,146
Minority interest 105,120 - 105,120
Total equity 401,610 5,656 407,266
Non-current liabilities
Convertible loan notes 105,405 (4,836) 100,569
Other loans 36,291 - 36,291
Obligations under finance lease 143,688 - 143,688
Deferred tax liabilities 6,438 - 6,438
Provisions 5,116 - 5,116
296,938 (4,836) 292,102
Current liabilities
Trade and other payables 670,379 347 670,726
Tax authorities payable 96,057 - 96,057
Bank overdrafts and loans 6,038 - 6,038
Provisions 8,631 - 8,631
781,105 347 781,452
Total liabilities 1,078,043 (4,489) 1,073,554
Total equity and liabilities 1,479,653 1,167 1,480,820
(1) 2005: Other investments
17. EXPLANATION OF IMPACT OF TRANSITION TO IFRS
An explanation of the impact of the material differences and resulting
adjustments between UK GAAP and IFRS as they apply to Dimension Data"s
consolidated income statement and balance sheet is set out below:
a) Presentation of financial statements
The Group"s primary financial statements are presented in accordance with IAS
1. This impacts the presentation of the Group"s share of the results of
associate undertakings in the Group"s consolidated income statement. Under UK
GAAP, the Group"s share of associates" operating profit, interest and tax were
separately disclosed in the consolidated income statement. In accordance with
IAS 1, associates" results are presented as a single line item.
b) Share-based payment
Employee share incentive schemes
IFRS 2 requires that share-based instruments be expensed based on their fair
value at the date of grant. In the Group"s case this relates to grants since 7
November 2002 under the Share Option Schemes, the Share Appreciation Rights
Scheme and Long Term Incentive Plan, both introduced in 2005, and the Datacraft
Asia share incentive scheme. The expense is recognised over the vesting period
of the schemes.
The Group has adopted a stochastic model, based on the standard "binomial"
options pricing model for the valuation of the grants under the Share Option
Schemes, the grants under the Share Appreciation Rights Scheme and the
Datacraft Asia share incentive scheme. The value of the Long Term Incentive
Plan has been calculated using Monte Carlo simulation methods.
An amount of $11.1 million was reallocated to reserves at the transition date.
An additional $6.7 million (compared to UK GAAP) was charged to the 2005 income
statement as a result of the adoption of IFRS 2. The balance sheet effects of
the IFRS 2 adjustment at the transition date have not been separately
disclosed, as the movements are within reserves.
Black Economic Empowerment ("BEE") transaction
The BEE transaction entered into by the Group in April 2004 is an
equity-settled transaction which is accounted for under IFRS 2. The fair value
of the goods and services received in terms of this transaction was determined
by the Group as being $38.3 million and this value was transferred from opening
retained earnings to other reserves under IFRS 2.
c) Venture capital investments
Under UK GAAP, the Group"s venture capital investments were stated at valuation
in terms of the standards endorsed by the British Venture Capital Association.
Investments were assessed annually for impairment and valuation losses written
off to operating profit, while no account was taken of valuation surpluses.
Where arm"s length transactions provided external validation of valuations,
surpluses and losses were included in operating profit.
Under IFRS, the following accounting policies now apply:
Investments over which the Group has the ability to exert control are
classified as subsidiaries and are consolidated (IAS 27 `Consolidated and
Separate Financial Statements");
Investments, other than subsidiaries, over which the Group has the ability
to exercise significant influence, are classified as associates and are
equity accounted (IAS 28 `Investments in Associates");
Investments which are not classified as subsidiaries or associates are
carried at cost less impairment. When IAS 39 was applied from 1 October
2005, these investments were carried at fair value.
An amount of $8.0 million was charged to reserves at the transition date. Of
this, $7.3 million is a result of equity accounting entities which are now
classified as associates and $0.7 million is a result of consolidating losses
in an entity that is now classified as a subsidiary. An amount of $1.3 million
was credited to the 2005 income statement under IFRS. This is mainly a result
of the deconsolidation in 2005 of losses of $0.1 million in a subsidiary where
the majority of the shareholding was sold and an adjustment to equity accounted
earnings mainly as a result of the reversal of goodwill amortisation in
associates of $1.0 million.
d) Capitalisation of Campus lease
Under IFRS, the Campus property lease in Johannesburg, South Africa is
classified as a finance lease and capitalised from the inception date of the
lease. The adjustments resulting from the capitalisation are (stated in $
million):
Dr/(Cr) Opening 2005 Income
Balance Sheet Statement Total
Reversal of operating lease expense (23.0) (1.8) (24.8)
Financing expense 35.6 2.8 38.4
Depreciation expense 3.4 0.1 3.5
Adjustment to impairment expense 5.0 (16.1) (11.1)
Adjustment to onerous lease
provision (17.7) 17.4 (0.3)
Interest on bare dominium
(freehold) acquired 1.4 0.1 1.5
Adjustment to leasehold
improvement depreciation (1.0) (0.7) (1.7)
3.7 1.8 5.5
The adjustments made to the 2005 income statement were impacted by the purchase
of the bare dominium (freehold) on 16 November 2004, which meant that the
accounting treatment of the Campus lease under UK GAAP changed from that of an
operating lease to a finance lease for the remainder of the 2005 financial
year. Had Dimension Data owned the bare dominium (freehold) for the full year,
there would have been no material adjustments to the 2005 income statement
relative to UK GAAP.
e) Holiday pay
As a result of guidance under IAS 19 `Employee Benefits", and in order to
accrue fully for the holiday pay liability, an amount of $2.3 million was
charged to reserves at transition date and $0.4 million expensed in the 2005
income statement.
f) Lease adjustments
In terms of IAS 17 `Leases", a property lease has been capitalised and a
provision for refurbishment of a leased property has been raised. Both of these
adjustments occurred in Europe. This has resulted in an expense of $0.2 million
being charged against reserves at the transition date and $1.0 million being
expensed in the 2005 income statement.
g) Goodwill and intangible asset amortisation
IFRS 3 `Business Combinations" requires that goodwill is not amortised but is
subject to an annual impairment test. As the Group has elected not to apply
IFRS 3 retrospectively to business combinations prior to the opening balance
sheet date, the UK GAAP net goodwill balance at 1 October 2004 of $1.0 million
is no longer amortised.
As a result of the adoption of IFRS 3, $4.0 million of goodwill amortisation
was credited to the Group"s 2005 income statement. This goodwill amortisation
was mainly in respect of acquisitions completed during the 2005 financial year.
h) Reclassifications
Under UK GAAP, capitalised computer software was reflected as tangible fixed
assets. Under IFRS, only computer software that is integral to a related item
of hardware is reflected as such. All other computer software is classified
within intangible assets. At 1 October 2004 a reclassification amounting to
$6.7 million has been made from property, plant and equipment to intangible
assets and at 30 September 2005 the reclassification amounted to $9.0 million.
An amount of $1.3 million was reclassified from goodwill to intangibles in
accordance with IFRS 3 which requires intangible assets to be separately
recognised in respect of acquisitions made by the Group.
In 2004 an amount of $10.9 million was reclassified from short term investments
to cash and cash equivalents and at 30 September 2005 the reclassification
amounted to $12.5 million. These reclassifications are as a result of the
definition in IAS 7 `Cash Flow Statements" of cash and cash equivalents being
short term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in
value.
In 2005 an amount of $3.1 million has been reclassified from current
liabilities to equity in respect of the share incentive costs charged to the
income statement under UK GAAP. As this relates to equity-settled share
incentive schemes, this credit is recorded in equity under IFRS.
i) Other
This adjustment of $1.8 million has been applied to tangible fixed assets at 1
October 2004 and arises mainly as a result of Dimension Data"s decision to
apply the provision of IFRS 1 allowing an entity to elect to measure an item of
property, plant and equipment at the date of transition to IFRS at its fair
value, and to use the fair value as its deemed cost at that date.
There was no material change to the current and deferred tax as a result of the
implementation of IAS 12 `Income Taxes".
STATUTORY FINANCIAL INFORMATION
The financial information set out above does not constitute the Company"s
statutory accounts for the years ended 30 September 2006 or 2005, but is
derived from those accounts. Statutory accounts for 2005 have been delivered to
the Registrar of Companies and those for 2006 will be delivered following the
Company"s Annual General Meeting. The auditors, Deloitte & Touche LLP, 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. The Annual
Report will be available for inspection at the Company"s registered office.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. The Company expects to
publish full financial statements that comply with IFRS in December 2006.
Enquiries:
Dimension Data Holdings plc
Jeremy Ord, 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
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:
Kim Au (UK)
Mobile: +(44) 778 612 0841
Office: +(44) 20 7651 7000
kim.au@uk.didata.com
Michelle Atkins
Mobile: +(27) 83 310 9829
Office: +(27) 11 575 3958
michelle.atkins@za.didata.com
Date: 15/11/2006 09:02:12 AM Produced by the JSE SENS Department
