RNS Number:1744S
Dimension Data Holdings PLC
18 November 2003
Tuesday 18 November 2003 - Embargoed for 7.00am
Dimension Data Holdings plc
Preliminary Results
Year ended 30 September 2003
Dimension Data Holdings plc ("Dimension Data" or the "Group"), a leading global
technology Group, announces its results for the year ended 30 September 2003.
Financial Results
* Total turnover of $2,100.3 million (2002: $2,187.3 million)
* Total operating loss before goodwill amortisation and exceptional items
$9.0 million (2002: Profit $45.4 million)
* Net loss on ordinary activities before goodwill amortisation and
exceptional items $36.3 million (2002: Profit $30.1 million). Total loss
$420.3 million (2002: $2,583.9 million)
* Basic loss per share before goodwill amortisation and exceptional items
2.7 cents (2002: Earnings 2.3 cents). Basic loss per share 31.3 cents (2002:
198.9 cents)
* All operating regions other than the US were profitable at the operating
level
* Positive cash flow from operating activities of $51.2 million (2002:
$29.0 million)
* Cash at bank and in hand and short term investments $385.7 million
(2002: $415.4 million)
Abridged profit and loss analysis
(Before goodwill amortisation, impairment and exceptional items)
Year ended Year ended
30 September 30 September
2003 2002
$'000 $'000
Turnover
Group turnover 2,014,795 2,120,562
Associates 85,464 66,769
------------ ------------
Total turnover 2,100,259 2,187,331
============ ============
Operating (loss)/profit
before goodwill amortisation
and exceptional items (14,886) 40,962
Share of operating profit in
associates 5,874 4,464
------------ ------------
Total operating (loss)/profit
before goodwill amortisation
and exceptional items (9,012) 45,426
Investment income 3,634 1,340
Net interest
(payable)/receivable (1,369) 2,604
------------ ------------
(Loss)/profit before taxation (6,747) 49,370
Taxation (27,737) (13,461)
------------ ------------
(Loss)/profit after taxation (34,484) 35,909
Equity minority interests (1,781) (5,809)
------------ ------------
(Loss)/profit for the year
before goodwill amortisation
and exceptional items (36,265) 30,100
============ ============
US cents US cents
Basic (loss)/earnings before
goodwill amortisation and
exceptional items per
ordinary share (2.7) 2.3
============ ============
Year ended Year ended
30 September 30 September
2003 2002
$'000 $'000
Reconciliation to consolidated profit and loss
account
(Loss)/profit for the year before
goodwill amortisation and exceptional
items (36,265) 30,100
Goodwill amortisation - subsidiaries (344,415) (719,949)
Goodwill amortisation - associates (1,724) (4,331)
Net exceptional items (37,887) (1,889,710)
------------ ------------
Loss for the period as presented in
the consolidated profit and loss
account (420,291) (2,583,890)
============ ============
Geographical analysis
Year ended Year ended
30 September 30 September
2003 2002
$'000 $'000
Turnover
Africa 365,428 292,866
Asia 328,725 404,908
Australia 380,526 364,609
Continental Europe 382,123 360,774
United Kingdom 205,918 193,652
United States 346,051 503,753
Other* 6,024 -
Group 2,014,795 2,120,562
Associates 85,464 66,769
Total 2,100,259 2,187,331
Operating (loss)/profit**
Africa 5,413 20,027
Asia 2,187 16,961
Australia 12,431 10,188
Continental Europe 6,220 18,691
United Kingdom 11,010 8,644
United States (17,058) (9,021)
Other* (35,089) (24,528)
Group (14,886) 40,962
Associates 5,874 4,464
(9,012) 45,426
Goodwill amortisation (346,139) (724,280)
Operating exceptional items (38,463) (1,904,767)
Total operating loss (393,614) (2,583,621)
Operating margin**
Africa 1.5% 6.8%
Asia 0.7% 4.2%
Australia 3.3% 2.8%
Continental Europe 1.6% 5.2%
United Kingdom 5.3% 4.5%
United States (4.9%) (1.8%)
Group (0.7%) 1.9%
Associates 6.9% 6.7%
Total (0.4%) 2.1%
* Comprises Investment holding and management and Protocol
** Before goodwill amortisation, impairment and exceptional items
Group turnover analysis by service offerings
Year ended Africa Asia Australia Europe United Kingdom United States Total
30 September $'000 $'000 $'000 $'000 $'000 $'000 $'000
2003
Product 123,062 202,268 282,109 234,001 65,558 252,546 1,159,544
Managed
services* 175,815 67,035 44,173 93,450 93,252 25,781 499,506
Professional
services 72,575 59,422 54,244 54,672 47,108 67,724 355,745
Group 371,452 328,725 380,526 382,123 205,918 346,051 2,014,795
Year ended
30 September
2002
Product 101,654 250,148 284,166 236,229 80,060 367,049 1,319,306
Managed
services* 95,107 54,739 48,603 71,902 70,134 12,749 353,234
Professional
services 96,105 100,021 31,840 52,643 43,458 123,955 448,022
Group 292,866 404,908 364,609 360,774 193,652 503,753 2,120,562
* Being process driven revenues of a recurring nature.
Currency
The following table reflects the average and period end exchange rates against
the US dollar of SA rand, Australian dollar, Sterling and Euro:
Year ended Year ended
30 September 2003 30 September
2002
Currency Average Period Average Period
end end
South African rand 7.484 7.102 10.606 10.560
Australian dollar 1.526 1.476 1.850 1.841
Sterling 0.613 0.600 0.664 0.641
Euro 0.879 0.862 1.059 1.019
Key Points
* Good cash generation from operations, notwithstanding the trading loss,
utilised to further the evolution of Dimension Data's business model.
* Strong cash balance, a competitive advantage.
* Improved strategic focus and competitive position:
o Re-emphasis of strategic importance of core Network Integration
business and focus on enhancing efficiencies
o Narrower focus on key business areas:
- Network Integration
- Application Integration
- Platform Solutions
- Customer Interactive Solutions
- Security Solutions.
* Good progress in building Dimension Data brand evidenced by quality
large multinational and global customer wins.
* Progress in standardising offerings and execution capabilities globally.
* Results impacted by US dollar weakness -average SA rand, Australian
dollar and Euro strengthened by 42%, 21% and 20% respectively against the
average US dollar rate over the year.
* Total revenues declined by 16% year on year in constant currency terms,
and sequentially by 7% in the second half of the year.
* Traction in demand for managed services and increased contribution from
higher value services.
* Further progress in realigning cost base to the lower demand
environment, with overheads down by 14% year on year in constant currency
terms.
* Strong improvement in profitability ratios in UK and Australian
businesses.
* Turnaround plans implemented in Asia and the US are delivering results.
* Poor second half performance from African business, which has been
addressed.
* Evidence of stabilisation in demand and pricing environment in the
second half of the year.
Chairman's Statement
Introduction
The year under review has been characterised by continuing challenging global
trading conditions. Dimension Data has responded by improving our strategic and
operational focus, enhancing the management team and delivery capabilities, and
further cutting costs whilst maintaining investment in the evolution of our
business model.
At the start of fiscal year 2003, Dimension Data embarked on a programme of
standardising the way we operate across the globe. The DD Way, our internal
change programme, forced us to examine and better understand what drives our
organisation internally. It was also the catalyst for a focus on transitioning
the Group into a more customer centric, outward looking organisation. This has
resulted in a marked improvement in the way in which Dimension Data engages with
customers, suppliers and staff.
This external focus on our customers, combined with the standardisation of our
delivery capabilities globally, has reinforced the Dimension Data brand as a
global provider of managed and professional services. The growing recognition of
Dimension Data's brand and the Group's capabilities is reflected in the quality
of our business wins over the past year. These include new contracts with
several well known global customers, such as Allianz, Airbus and a leading
global courier company. Enhanced offerings and strong customer relationships
have also enabled us to penetrate our existing customer base further as
evidenced by clients such as HSBC and a global pharmaceutical company, where we
significantly extended the scope of existing contracts.
Globalisation has seen many of our customers evolve from decentralised regional
operations into centralised global businesses. Customers increasingly prefer
dealing with IT partners who offer global solutions and services that help
maximise return on their investments. This trend has contributed to the
consolidation we have seen in the IT industry in the past year. In this
environment, our global footprint is vital to our customer engagement strategy.
It allows us to service our global customers locally and to understand and
capitalise on their IT strategies. In addition, we are increasingly working with
key alliance partners such as Cisco and EMC to understand the IT requirements of
their global customer base.
Period under review
Convergence of IT environments continues to fuel our Application Network vision.
Further progress has been made in improving the competitive position of the
business by refining our solution sets and tightening our focus on five focused
lines of business - Network Integration, Application Integration, Platform
Solutions, Customer Interactive Solutions and Security Solutions. We forged
closer relationships with key vendors and continued to invest in solution sales
and delivery capabilities.
The challenging economic environment during the year forced us to take a
critical look at both our skills sets and management capabilities. The
significant personnel changes that we have made over the past 18 months, which
have seen key new appointments made in a number of regions, have resulted in a
broader and stronger management team, an improved skills base and a better
ability to sell and deliver services and solutions.
We have also focused on improving efficiencies in our core Network Integration
business in recognition of the fact that products will always form a key part of
our solutions offering. This being said, we remain committed to our target to
grow our services offering to more than 50% of turnover in the medium term.
After a number of years of pressure on product margins, some pricing stability
started to emerge in the second half of the year. However, services margins,
whilst still significantly more attractive than product margins, have come under
pressure, largely due to lower demand and an oversupply of skills.
Given the highly competitive trading and price environment, the process of
aggressively addressing our cost base continued in the period under review. Over
the year we cut costs in constant currency terms across all regions although due
to the fact that we report in US dollars, this is not apparent in our financial
results. The SA rand, Australian dollar, Euro and Sterling foreign exchange
rates strengthened against the average US dollar rate by 42%, 21%, 20% and 8%
respectively over the year. The benefits of the cost cutting measures taken have
yielded very pleasing results in the UK and Australia where profitability ratios
improved significantly year on year.
The South African business reported a disappointing performance in the second
half of the year. Profitability was negatively impacted by lower volumes in the
Application Integration and Service Provider businesses as well as by the
strength of the SA rand which had the effect of reducing margins in dollar based
contracts. Management has addressed key internal issues and is focused on
improving profitability in 2004.
The turnaround plans in both our Asian and US businesses yielded satisfactory
results in the second half. With evidence of a stronger business outlook in both
of these regions, we are confident that profitability will continue to improve
in the new financial year. Although we have a small share of the US market, we
remain committed to our presence there and see it as vital to be able to service
multinational and global customers, many of whom have head offices in the US.
A highlight of the year was the improvement in the Group's balance sheet and
cash position. Strong cash generation in the second half of the year reversed
the cash consumed in the first half and for the year as a whole, the Group
generated operating cash of $51 million. Our cash position of $358 million at
year end is a competitive advantage of the Group.
Corporate governance
We are pleased to be able to report that we have dealt with the majority of the
Corporate Governance recommendations raised by the King II Code on Corporate
Governance in South Africa and the Revised Combined Code in the UK. We remain
committed to addressing any outstanding issues and will keep our stakeholders
informed of progress. Dimension Data South Africa is committed to Black Economic
Empowerment as an economic and business imperative. It is a vital initiative
that will benefit both the South African economy and the Group locally and
substantial progress continues to be made in achieving the targets set out by
the Group's internal black empowerment programme. We believe that by
transforming our South African business and meeting the Black Empowerment Equity
ownership criteria, we will enhance business opportunities and our competitive
positioning going forward.
Outlook
Following the realignments and rationalisations of the past two years, Dimension
Data is now well positioned to compete within the current economic environment.
Our key differentiator remains our ability to provide cost effective Application
Network solutions to our customers across a global footprint. We have made good
progress in building the Dimension Data brand and in building quality, long term
customer relationships. This is evidenced by the quality of new business,
particularly in the second half of the year. Going forward we will maintain our
tight focus on financial management, with a specific emphasis on working capital
management.
Whilst customers remain cautious about committing to new IT spend and focused on
extracting returns from current IT investments, there was evidence in all
regions that the demand cycle and technology-pricing pressures have stabilised.
Whilst we are not factoring any strong improvement in demand into our 2004
budgets, Dimension Data is now better placed to win market share due to a
tighter strategic focus, improved sales and delivery capabilities and strong
vendor relationships.
Thank you
We will be notifying shareholders in a separate announcement that Bob Mansfield
has resigned from the Board with effect from 17 November 2003, due to work
commitments. I would like to take this opportunity to thank Bob for his
significant contribution as a Director of Dimension Data and Datacraft Asia over
the last three years.
I would also like to welcome Dillie Malherbe a director of VenFin Ltd, who are
the holders of the convertible bonds, who has agreed to join our Board as a
non-executive director with immediate effect.
Finally, I would like to thank all of our customers, partners and friends for
their continued support. Everybody working at Dimension Data has been through a
tough period and we all look forward to better trading conditions. The Company
has emerged in a far healthier state as a result of the direct input and
performance of all involved.
Jeremy Ord
Executive Chairman
Enquiries:
Dimension Data Holdings plc
Jeremy Ord, Executive Chairman
Malcolm Rutherford, Chief Financial Officer
Karen Cramer, Investor Relations (UK)
Mobile: +(44) 793 202 0296
Office: +(44) 20 7651 7000
karen.cramer@uk.didata.com
Bronwyn Nielsen, Investor Relations (SA)
Mobile: +(27) 83 296 6910
Office: +(27) 11 575 0000
bronwyn.nielsen@za.didata.com
Internet address: www.didata.com
Brunswick Group
Tom Buchanan
+(44) 20 7404 5959
Note:
All references to $ are to US$
All references to gross and operating margins are before goodwill amortisation
and exceptional items
H1 2003 refers to the six months ended 31 March 2003
H2 2003 refers to the six months ended 30 September 2003
Changes between H1 2003 and H2 2003, where appropriate, are referred to as
sequential comparisons.
REGIONAL REVIEW
Operational Review
The year under review was characterised by continuing tough market conditions.
Our customers continued to demonstrate a preference for enhancing existing IT
systems rather than embarking on new investments. Much of our focus has
therefore been directed in the area of improving customer returns on existing
technology. The difficult trading environment was exacerbated by little IT
innovation and the perception that both technology and technical expertise have
been commoditised.
The Group's revenue performance should be seen in the context of US dollar
weakness against the currencies in which we operate. US dollar revenues declined
by 4% year on year and increased sequentially by 7% in the second half of the
year. In constant currency terms, however, revenues declined by 16% year on year
and by 7% sequentially in H2 2003.
Gross margins improved slightly in the second half of the year and a continued
focus on matching the cost base to the current trading environment resulted in
further reductions in overheads of 14% in constant currency terms over the year.
Overall, the Group reported a second half operating loss of $4.5 million, which
is in line with the loss reported in the first half. With the exception of
Africa, all other regions reported improved operating contributions in the
second half of the year.
Africa
Good revenue growth of 25% in US dollars masked difficult market conditions
particularly in the second half of the year. The results should be seen in the
context of the 42% appreciation in the average SA rand foreign exchange rate
over the year. In constant currency terms revenue declined by 12% year on year
and sequentially by 17% in the second half of the year.
After a solid first half, the performance of the African business deteriorated
in the second half of the year due to lower volumes, particularly in the
Application Integration and Service Provider businesses. This was exacerbated by
the strong appreciation of the SA rand, which impacted margins on dollar
denominated contracts. Higher overheads also contributed to the deterioration in
profitability in the second half of the year although overheads in the second
half did include items of a non-recurring nature. Overheads in constant currency
terms were cut by 7% year on year and overcapacity in the services business
drove a 20% reduction in headcount. Internet Solutions achieved a strong
performance and grew market share in the corporate Internet services and virtual
private network space.
Several major services-led deals were won, many outside the core financial
services and telecommunications markets, traditionally the stronghold of
Dimension Data South Africa, reflecting the successful penetration into new
vertical markets. The outsourcing business, which capitalises on Dimension
Data's GSOA services framework, was significantly extended in 2003. Notable wins
included a $1.4 million Managed Services contract with Sappi for the desktop,
server and LAN switching environments and a five year $6.4 million outsourcing
and Insite contract with Macsteel International to provide a locally hosted SAP
solution, international VPN connectivity as well as a hosted calldesk.
Significant deals were signed with Afrox Healthcare to provide a range of
product, managed, hosting and security services, and with AngloGold and Metal
Industries Benefit Funds Administrators where Teamsource contracts were entered
into. A three year network migration and managed services contract was signed
with Toyota South Africa. Major telecommunications infrastructure rollouts were
won in conjunction with associate Plessey from Sentech in South Africa and MTN
in Nigeria.
Notwithstanding the disappointing second half result, the African region remains
Dimension Data's flagship with good solutions offerings, substantial market
presence and long term customer relationships. Management changes have been made
and an aggressive plan to return the business to profitability is in place.
Current forecasts indicate that the trends established in Q3 and in the early
part of Q4 have been reversed and Africa is likely to show good profits in the
current quarter. Market share gains are being driven by focused business units
with dedicated sales forces.
Asia
Trading conditions in most countries in which Datacraft Asia ('Datacraft')
operates remained challenging. Demand from the enterprise and telecom service
provider sectors was subdued in the face of continuing economic uncertainties,
exacerbated by the SARS outbreak that was at its height in the third quarter.
Revenues declined by 19% year on year. Some stability started to emerge in Q4
resulting in a slowing in the rate of revenue decline to 3% sequentially in the
second half of the year. Gross margins came down to 15.7% from 18.3% in 2002 due
largely to a reduction in business volumes. However, actions taken to improve
utilisation levels combined with an easing of pricing pressure on product
margins saw margins improve in the second half of the year.
The rationalisations and restructurings that were a feature of the period are
now largely complete. Overheads were reduced by 14% and headcount came down by
24%. Higher gross margins and a 10% sequential decline in overheads resulted in
an improved operating contribution of $2.2 million in the second half of the
year compared to break even in the first half. The year also saw the sale of
Datacraft's Cabling business and the rationalisation of the iCommerce
operations, which are now fully integrated into the core Network Integration
business. An improved balance sheet, a successful focus on working capital
management and strong cash generation are further highlights of the period under
review.
Operating performances across the region were mixed. India continued to move
from strength to strength benefiting from good demand in the financial services
sector and for call centre integration services. Japan returned to profitability
in H2 2003 and China is showing signs of recovery with narrowing losses over
three straight quarters. In Korea, the restructuring exercise enabled the
business to substantially reduce losses year on year.
Customers responded well to Surveyor Secure, a vendor-independent security
assessment and risk management service that adds a consulting layer to
Datacraft's security integration and outsourcing offerings. During the year,
over 30 Surveyor Secure deals were signed, thanks to Datacraft's precise
methodology and partnerships that enable customers to manage diverse network
security and liability exposure. There were pockets of good demand for VoIP and
OSS/BSS solutions from the Service Provider customers. A highlight of the year
was winning a 40 month, $8 million managed services annuity contract for
Citigroup, to provide Uptime maintenance support services in 15 territories
across Asia Pacific on a 24 x 7 basis. A further highlight was securing phase 2
of the contract with State Bank of India ('SBI'), valued at $29 million, to
implement SBI's nation-wide corporate backbone and connect its associate banks,
networking branches, ATMs and other electronic delivery channels.
Following the announcement of a strategic relationship with EMC, Datacraft
launched a range of networked storage solutions and related services. The
company also launched a set of Customer Interactive Solutions (CIS) to
capitalise on the customer contact centre boom in India and elsewhere in the
region. A new partnership with Microsoft was entered into, as part of the Group
initiative, to be one of Microsoft's global system integration partners offering
solutions built around its .NET strategy.
The mood going into 2004 is more optimistic than it was six months ago. The
rationalisations are now largely complete and encouraging signs of improving
demand emerged in the fourth quarter based on monthly order rates and a growing
backlog. In 2004, Datacraft will remain focused on growing contributions from
Solutions and Services and on building and leveraging off the Cisco partnership
and the newly established relations with EMC and Microsoft.
Australia
The Australian business achieved a pleasing improvement in profitability in an
environment characterised by lower corporate and government spending. Reported
US dollar revenues grew by 4% supported by a strong Australian dollar. In
constant currency terms, revenues declined by 14% reflecting the overall market
decline as Dimension Data Australia maintained its leading market position.
In the second half of the year, which is seasonally a better period than the
first half, constant currency revenues increased sequentially by 13% on H1 2003.
Good growth was achieved in the Network Integration business where a number of
large new contracts were closed and the Platform business benefited from good
demand for upgrades to Microsoft 2003.
Continued focus on 'leading with value-add services' saw the gross margin
improve slightly on the prior year. A sharp focus on cost containment, mainly
through headcount reductions resulted in fixed overheads coming down by 15% in
constant currency terms over the year. The result was a pleasing improvement in
net operating margins to 3.3% from 2.8% in FY2002. Cash generation improved over
the year due to improved profitability and lower capital spending.
In a tough year a number of important foundations for future success were
established. In response to changing market demand and in support of our
Application Network Solutions vision, focused investments were made in
Professional Services and in developing services designed to ensure early
engagement in the customer planning and deployment lifecycle. Increasingly
strong 'consultative customer relationships' were established through
engagements with WebCentral and Education Queensland.
The Security business, a new initiative, was well received by the market and
benefited from a focus on risk and policy advisory services that led to strong
downstream technology engagements, including a major deployment with Australia's
premier media group, Publishing & Broadcasting Limited. New strategic IT
consulting initiatives created good pull through business across the board.
Managed Services performed well in a period of significant customer price
sensitivity and competitive pressure. Managed Services contracts were signed
with Transaction Solutions and Coca-Cola Amatil.
Strengthening local vendor relationships with Microsoft and Cisco resulted in
improved market share. The impact of global initiatives and more effective local
engagement with Microsoft and EMC drove an improved performance from our
Application Integration business. The distribution business, Express Data was
appointed one of two strategic partners to Cisco where previously there were
three, which is expected to translate into market share gains in the new
financial year.
Other customer highlights of the year include a three year $1.3 million IP
convergence contract with Lend Lease Corporation, a three year $1.6 million
Uptime and professional services contract with Department of Employment and
Workplace Relations, a $2.5 million professional services and CIS contract with
Telstra and a $2.5 million IPT solution with Westpac which includes advanced
voice mail, unified messaging, computerised phone directory and web based
configuration.
Despite market expectations for slowing GDP growth in Australia in 2004,
Dimension Data expects to grow revenues in the new financial year through
increased solutions penetration of our existing client base. The focus remains
on improving the contribution from Professional and Managed Services through
more effective alignment of our capability against changing customer lifecycle
requirements, and on trimming the cost base.
Europe
The performance of the European business was impacted by ongoing difficult
market conditions and pressure on IT spending. Reported revenues increased by 6%
over the year, benefiting from the weakness of the US dollar. In constant
currency terms revenues declined by 12% year on year and sequentially by 9% in
the second half of the year.
Pressure on margins in the network integration business was in part compensated
for by penetration into the new growth sectors of security, customer interactive
solutions and managed services as well as good traction in demand for
professional services.
Further progress was made in streamlining the European business, particularly in
the second half of the year when overheads came down sequentially by 12%.
Comprehensive turnaround plans were implemented during the year in both Germany
and France to drive revenue growth, improve our value proposition and reduce
costs. A new CEO has been appointed in Germany and a new French management team
drove increased sales in H2 2003, reaping the benefits of a better customer
engagement strategy. The Netherlands, Belgium, Luxembourg and Italy were the
strongest performers.
The business benefited from a strategy of engaging key accounts with specific
solution offerings. Bids with a number of large, multinational customers, were
aided by streamlined processes and international sales efforts. A three year,
multi million dollar, multi country security and Uptime contract was signed with
Airbus. A successful focus on the pharmaceuticals industry resulted in a three
year, $4 million contract with Merck KG for product procurement and related
services, and a multi year framework agreement with the European Agency for the
Evaluation of Medicinal Products, for product procurement, professional and
support services. In the aeronautical sector we won a three year, $1.2 million
contract with EADS Astrium to provide a VPN managed solution across France,
Germany and the UK.
The economic outlook is improving and some pricing stability is apparent as we
enter the new financial year. Whilst visibility remains short and spending in
the German market is still on hold, elsewhere the demand cycle appears to have
bottomed. We expect to capitalise on the focused vertical sales engagement model
and enhanced ties with partners such as Microsoft and EMC in the new financial
year. The business is operationally in better shape and there is good scope to
improve the profitability of our biggest revenue contributor, Germany.
United Kingdom
The UK business made excellent progress in a troubled integrator market in
transitioning to a more focused and profitable business model. Demand for IT
services remained under pressure during the period under review, and whilst US
dollar revenues increased by 6% year on year, in constant currency terms, they
declined by 2%.
The performance of the UK business benefited from changes implemented in the
prior period. A new CEO and management team improved focus and succeeded in
growing Managed and Professional Services revenue by 24% year on year. Dimension
Data's market position and delivery capabilities were enhanced following a
realignment of the skills base towards skills able to sell and deliver
solutions. Good progress was made in building long term relationships with blue
chip customers and experience gained in winning and delivering on global
accounts proved invaluable in tendering for further global contracts.
Significant progress was made in reducing overheads, which came down by 21% in
constant currency terms over the year. This resulted in a sharp improvement in
profitability over the prior year and operating margins reaching 6.9% in second
half of the year.
The UK's market offerings were extended over the year to include Content
management, Voice Activated Solutions, Storage and IPCC. We won new business
from a large UK mobile operator in the content management and voice activated
solutions space and won a $7 million Cisco product, services and IPCC solution
contract with Streamdoor. Improved delivery capabilities resulted in better
profitability in the Advanced Infrastructure business where building service
solution contracts were won from Lime Street Development, Warwick University and
Swiss Re.
The Merchants Group, the UK's managed call centre business was restructured
during the period under review and continues to provide global outsourcing
solutions through call centres in Scotland, Ireland, England and South Africa.
Significant success was achieved in onshore, nearshore and offshore solutions
and several large contracts, including deals with Unilever and Edexcel, that
will benefit 2004 revenues, were awarded late in the year.
Entering the new financial year there is evidence of an increasing propensity
for customers to plan new projects but as yet, this is not translating into
orders. Whilst we are not anticipating a strong pick up in demand, geographic
expansion into Northern England and Scotland is expected to drive revenue growth
in 2004. We also see opportunities in targeting medium sized enterprise
customers and in winning government business. Vendor relationships are strong
and opportunities are emerging to target customers in joint engagements. The
investment made in enhancing offerings in the areas of Storage, Security, IPC/
IPT and Call Centre Integration is also expected to bear fruit.
USA
Continuing difficult trading conditions for most of the year in North America
resulted in a 31% decline in revenue and an operating loss for the period. The
decline in revenues reflected volume contractions in both the Network
Integration and Application Integration businesses.
The performance of the Network Integration business was affected in the North
East by a sharp decline in IT spending from our primary financial services
customer base. A significant contributing factor to the decline in revenues was
the loss of a technology deployment contract, which contributed $80 million in
the previous financial year. Second half performances in our businesses in the
South East and mid Atlantic improved, and both businesses broke even.
Gross margins continued to come under pressure over the year, particularly in
the Application Integration business due to the structural degradation of this
market, the shift to offshore resources, and an oversupply of technical
resources. Utilisation levels in Managed Services improved following good demand
and the business was profitable from June onward.
An aggressive turnaround plan was implemented during the year that focused on
reversing declining revenues, matching costs to market conditions and returning
the business to profitability. Overheads came down by 36% year on year and
headcount declined by 33%. The US business exited the year profitable at the
operating profit level in the month of September.
The US region benefited from the Group's global capabilities and was able to win
several new Fortune 500 customers. A highlight of the year was the signing of a
three year multi million dollar global contract with a leading global courier
company to supply technology and related professional services in 231 countries.
The Network Integration business was awarded a five year, $10 million WAN
Management contract by the Administrative Office of the United States Courts
under Dimension Data's contract with the US General Services Administration. In
the Application Integration business we won contracts with the likes of
Volkswagen to design the next generation of VW.com and with another global
automotive company to design, develop, host, deploy and maintain a vehicle
inspection website.
Our market offerings evolved to include several key initiatives. Our leasing
offering provides clients the opportunity to lease software, services and
maintenance as a single solution. Dimension Data's Health Alert Network Solution
is gaining traction and five states, in addition to the City of New York
Department of Health and Mental Hygiene, have selected the portal solution to
help combat bio-terrorism and the spread of infectious diseases. We achieved
further penetration of the storage market along with closer ties with EMC, and
numerous wins in IPT/IPCC made us one of Cisco's top service providers. Our
digital publishing offering, which was previously marketed to the publishing
industry and sold to such organizations as Harvard Business School Publishing,
will be packaged and offered across verticals in the new financial year.
The focus in the new financial year will be on increasing revenues through
driving improved market penetration in our core Network Integration business,
increased sales focus in growth areas such as Storage, Security and IPCC and
leveraging off enhanced vendor relationships with Cisco, EMC and Microsoft.
Trading in the third quarter was poor but there was an improvement in demand in
the fourth quarter. Technology pricing appears to have bottomed in the second
half of the year and improved scale and utilisation should underpin services
margins.
Protocol
Protocol Venture Capital, established in 2001 as Dimension Data's Business
Development Fund, has as its objective the establishment of strategic joint
ventures that enhance relationships with suppliers and clients and foster new
entrepreneurial businesses complementary to the Group's existing business.
Protocol had a quiet year from a portfolio activity perspective with efforts
focused primarily on the growth of existing investments. In this regard there
was pleasing progress, with some strong performances from a number of portfolio
companies. No new investments were made, one investment was exited and two
others were written down to zero, with no additional or contingent funding
commitments, bringing the total investments under active management at year end
to 17. At year end Protocol's investments were valued at $16.9 million, compared
to $17.7 million at 30 September 2002.
FINANCIAL REVIEW
Dimension Data is listed on the London Stock Exchange and the JSE Securities
Exchange and is required to comply with UK reporting and corporate governance
requirements.
The accounting policies used in the preparation of the September 2003 financial
statements are consistent with those applied in the previous year.
Group Operating Performance
The weakness of the US dollar against the basket of other currencies in our
territories was significant. The average SA rand, Australian dollar, Euro and
Sterling strengthened against the average US dollar rate by 42%, 21%, 20% and 8%
respectively over the year.
There have been no material changes to the Group structure compared to prior
periods.
Turnover
Total turnover including associates was $2,100.3 million (2002: $2,187.3
million). There were no major changes in the geographical mix of turnover. The
weakness of the US dollar masks a decline in revenues of 16% in constant
currency terms over the prior year.
Pleasing progress was made in the provision of Managed Services, which increased
by 41% to $499.5 million from $353.2 million in 2002. Notwithstanding a decline
in professional services revenues of $92.2 million (21%), the contribution of
services in the revenue mix increased to 42% from 38% in 2002.
The balance of revenue is made up of the sale of product, which at 58% still
represents the largest portion of Group turnover, particularly in Australia,
Europe and the US. This particular aspect of the business has encountered the
greatest pressure on margins as channels to market have commoditised and
integrators have cut both their infrastructure and services margins in order to
retain and win business. Nevertheless, the Group has seen some stabilisation of
product margins.
Gross margin
The pressure that we have experienced on product margins over the past few years
abated in the period under review when there was an improvement in the Group's
overall product gross margin. Services margins declined due to lower volumes,
particularly in the South African business.
Market pressures on pricing of product and associated services make it
misleading to look at turnover as the only measure of progress towards a
solutions based approach. Consideration has to be given to the gross margin
contribution in each region with the greatest improvement brought about by
improved services volumes in Australia and the UK.
Overheads
Fixed overheads excluding associates were $419.5 million compared to $415.6
million in 2002. The weakness in the US dollar masks the progress that was
achieved in reducing overheads, which, following significant rationalisations
implemented over the past 18 months, came down by 14% in constant currency terms
year on year and sequentially by 9% in the second half of the year.
When compared to H1 2003, the H2 2003 overhead cost savings of $14.3 million and
the reallocation of certain personnel costs of $3.6 million to cost of sales,
were partly offset by currency translation differences of $17.7 million.
Fixed overheads do not, however, reflect the Group's total cost base. Included
in cost of sales is a personnel cost of $227.0 million (headcount of 4,937) and
infrastructure costs of $43.0 million. These have also been subject to
rationalisation programmes, where headcount was reduced by 14% (815).
The Group continues to invest in the execution of its strategy. In the current
year the Group expensed $22.1 million relating to Services and Solutions
development.
Taxation
Whilst the Group reported an overall loss before goodwill amortisation and
exceptional items, certain territories in which the Group operates reported
profits. This partly explains a Group overall tax charge of $27.7 million.
The other large contributor to the tax charge was the reversal of certain
deferred tax assets raised in prior periods. Prior years' deferred tax assets
were considered to be fairly valued except in the US and Germany, where
underperformance in the current year has resulted in future profit expectations
being lower than those projected in previous years. Given the uncertain economic
environment in these territories, it was considered prudent to reverse these
assets in the current year. This contributed $7.3 million to the tax charge.
Furthermore, no new deferred tax assets were raised on the potential tax relief
arising from current year losses.
The Group has significant deferred tax assets, the majority of which are not
recognised within the Group financial statements on the basis that their
recoverability cannot be forecast with sufficient certainty to meet the
recognition criteria under FRS 19. Across the Group, $137.1 million of deferred
tax assets relating to losses have not been recognised. Of this amount $106.7
million relates to the US. However, the Group has recognised deferred tax assets
with respect to tax losses on timing differences where the Group considers that
it is more likely than not that these assets can be recovered.
Goodwill
Goodwill has historically been amortised over a maximum period of seven years.
Goodwill amortisation amounted to $344.4 million in 2003 compared to $719.9
million in 2002. In the light of the changed economic environment the Directors
have concluded that goodwill, henceforth, should be amortised over a period not
exceeding five years and have adopted this change in estimate in 2003. This
resulted in an accelerated amortisation charge of $48.8 million in the current
year. Goodwill has now been fully amortised and has a nil carrying value on the
balance sheet.
Operating exceptional items
Costs incurred in restructuring and downsizing resulting from deteriorating
economic conditions, are treated as operating exceptional items. Costs incurred
to improve efficiencies and to accommodate the Group's go-to-market model, are
borne within normal trading operations.
Operating exceptional costs of $14.0 million relate to severance and other
associated costs across all regions. Capital assets have been written off in
Africa and Management and largely relate to an accelerated write down of IT
infrastructural leasehold improvements. These assets are not currently
generating a return and have been written down to reflect their economic value.
Operating exceptional items also reflect a release of US acquisition provisions
no longer required of $13.5 million as well as the write down of the carrying
value of certain assets brought forward in the Group of $9.8 million.
Liquidity and Capital Resources
Working capital
There have been no material changes in working capital year on year.
Debtors have been well controlled during the year and reduced from $565.2
million to $503.9 million. Measured in days sales outstanding ('DSO'), debtors
have decreased from 59 days at 30 September 2002 to 57 days at 30 September
2003.
Stock has also been well controlled and has decreased to $88.6 million (2002:
$99.1 million).
Trade creditors days outstanding decreased to 53 from 54 in 2002, reflecting
current market conditions and the continued pressures that technology vendors
are placing on their partners.
Cash at bank and in hand was $357.8 million at 30 September 2003 (2002: $372.6
million). There was also $27.9 million of near cash and short term investments
on the balance sheet at 30 September 2003 (2002: $42.8 million). During the year
$43.7 million was expended to settle outstanding deferred consideration
liabilities. Vendor liabilities of $7.9 million, most of which will be expended
in the coming year, remain on the balance sheet.
There was a net cash inflow from operating activities of $51.2 million for the
year compared to $29.0 million in the previous year. This was driven by the
Group's continued focus on working capital management and the resulting
improvement in debtors and stock balances.
In December 2002 $100.0 million 2002 convertible debentures were redeemed
together with the outstanding conversion premium of $1.4 million and in the same
month a $100.0 million convertible bonds bearing a coupon of 5.375% and
repayable in 2009 were issued.
Capital reduction
The capital reduction referred to in the 2002 Annual Report and Notice of Annual
General Meeting became effective on 20 March 2003. The share premium account was
reduced by an amount of $4,334.1 million, which was applied to eliminate the
deficit on the Company's profit and loss account at 30 September 2002. The share
premium account was further reduced by an amount of $342.4 million to create a
special reserve. This amount is available to be applied against any goodwill
amortisation and impairment charges charged in the Group consolidated profit and
loss account. The full amount of $342.4 million has been applied against the
goodwill amortisation charge for the year ended 30 September 2003. The Company
must also credit to the special reserve any distribution from a company which
was a subsidiary at the effective date of profits earned prior to 1 October
2002. The special reserve is not available for distribution unless all creditors
whose debts or claims were outstanding at the effective date, unless such
creditors have consented otherwise, are adequately protected.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 September 2003
Note 2003 2003 2003 2002
Pre-exceptional Exceptional Total Total
items (Note 1)
$'000 $'000 $'000 $'000
Turnover
Group turnover 2,014,795 - 2,014,795 2,120,562
Associates 85,464 - 85,464 66,769
---------- ----------- ---------- ----------
Total turnover 2,100,259 - 2,100,259 2,187,331
========== =========== ========== ==========
Operating
(loss)/profit
before
goodwill
amortisation,
impairment and
exceptional
items (14,886) - (14,886) 40,962
Exceptional
operating
costs - (23,166) (23,166) (60,251)
---------- ----------- ---------- ----------
(14,886) (23,166) (38,052) (19,289)
Goodwill
amortisation (344,415) - (344,415) (719,949)
Goodwill and
investment
impairment - (15,297) (15,297) (1,805,705)
---------- ----------- ---------- ----------
Group
operating loss (359,301) (38,463) (397,764) (2,544,943)
Share of
operating
profit in
associates 5,874 - 5,874 4,464
Goodwill
amortisation
and impairment
- associates (1,724) - (1,724) (43,142)
---------- ----------- ---------- ----------
Total
operating loss (355,151) (38,463) (393,614) (2,583,621)
(Loss)/profit
on sale of
fixed assets
and
investments 1 - (7,297) (7,297) 366
---------- ----------- ---------- ----------
Loss on
ordinary
activities
before
interest (355,151) (45,760) (400,911) (2,583,255)
Investment
income 3,634 - 3,634 1,340
Net interest
(payable)/rece
ivable (1,369) - (1,369) 2,604
---------- ----------- ---------- ----------
Loss on
ordinary
activities
before
taxation (352,886) (45,760) (398,646) (2,579,311)
Tax on loss on
ordinary
activities 2 (27,737) 2,317 (25,420) (11,111)
---------- ----------- ---------- ----------
Loss on
ordinary
activities
after taxation (380,623) (43,443) (424,066) (2,590,422)
Equity
minority
interests (1,781) 5,556 3,775 6,532
---------- ----------- ---------- ----------
Loss for the
year (382,404) (37,887) (420,291) (2,583,890)
========== =========== ========== ==========
(Loss)/earnings US cents US cents
per share
Basic
(loss)/earning
s before
goodwill
amortisation
and
exceptional
items 3 (2.7) 2.3
Basic and
diluted 3 (31.3) (198.9)
CONSOLIDATED BALANCE SHEET
as at 30 September 2003
2003 2002
$'000 $'000
Fixed assets
Intangible assets - 342,439
Tangible assets 99,924 105,380
Investments in associates 39,067 26,016
Other investments 33,355 30,343
172,346 504,178
Current assets
Stock 88,581 99,100
Debtors 503,890 565,236
Short term investments 27,906 42,786
Cash at bank and in hand 357,785 372,566
978,162 1,079,688
Creditors: amounts falling due within one year (583,128) (737,026)
Net current assets 395,034 342,662
Total assets less current liabilities 567,380 846,840
Creditors: amounts falling due after more than one
year (129,372) (17,045)
Provisions for liabilities and charges (28,355) (88,223)
Equity minority interests (99,052) (102,259)
Total net assets 310,601 639,313
Capital and reserves
Equity shareholders' funds 310,601 639,313
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 September 2003
2003 2002
$'000 $'000
Group operating loss (397,764) (2,544,943)
Depreciation 48,351 48,277
Goodwill amortisation and impairment and investment
impairment 359,712 2,525,654
Loss on sale of tangible fixed assets 7,702 8,956
Decrease in stock 9,087 3,411
Decrease in debtors 64,499 169,754
Decrease in creditors (48,930) (184,483)
Other non-cash items - asset impairment 8,504 2,326
Net cash inflow from operating activities 51,161 28,952
Returns on investments and servicing of finance 8,843 5,156
Taxation (13,401) (34,134)
Capital expenditure and financial investment (45,067) (68,948)
Acquisitions and disposals (76,371) (173,516)
Cash outflow before use of liquid resources and
financing (74,835) (242,490)
Management of liquid resources 15,475 (20,884)
Financing (5,178) (217,358)
Decrease in cash in the year (64,538) (480,732)
Reconciliation of net cash flow to
movement in net cash:
Decrease in cash in the year (64,538) (480,732)
Cash inflow from increase in debt (100,000) (17,045)
Cash outflow from decrease in debt 101,367 234,480
Cash (inflow)/outflow from (decrease)/increase in
liquid resources (15,475) 20,884
Change in net cash resulting from cash flows (78,646) (242,413)
Non-cash movement in debt - interest accrued on
convertible bonds (4,028) (1,498)
Translation difference 43,645 (25,336)
Movement in net cash for the year (39,029) (269,247)
Net cash at beginning of the year 294,772 564,019
Net cash at end of the year 255,743 294,772
Analysis of net cash:
Cash at bank and in hand 357,785 372,566
Bank overdraft (576) (2,168)
Debt due within one year - (101,367)
Debt due within two to five years (25,344) -
Debt due more than five years (104,028) (17,045)
Short term investments 27,906 42,786
Total 255,743 294,772
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 30 September 2003
2003 2002
$'000 $'000
Loss for the year (420,291) (2,583,890)
Currency translation differences on foreign currency
net investments 80,492 (20,700)
Total recognised losses relating to the year (339,799) (2,604,590)
1. EXCEPTIONAL ITEMS
Note 2003 2002
$'000 $'000
Exceptional operating costs
Severance and other associated costs a) (13,961) (30,374)
Write-off of capital assets b) (12,946) (4,976)
Provisions released c) 13,529 -
Asset carrying value adjustments d) (9,788) -
Other e) - (24,901)
(23,166) (60,251)
Investments written down and impairment of
goodwill (including associates) f) (15,297) (1,844,516)
Total exceptional operating costs (38,463) (1,904,767)
Other exceptional items
(Loss)/profit on sale of fixed assets and
investments g) (7,297) 366
Total other exceptional items (7,297) 366
Total exceptional items before taxation and equity
minority interests (45,760) (1,904,401)
a) Costs incurred on restructuring and downsizing the
businesses in all regions.
b) Includes accelerated depreciation of leasehold improvement
assets in Africa and Management to bring these in line with their economic
value.
c) Release of US acquisition provisions no longer required.
d) Adjustments to the carrying value brought forward of
certain assets.
e) In the year ended 30 September 2002 'Other' related to
Datacraft provisions of $17.9 million, onerous lease expenses of $5.9 million
and impairment of own shares of $1.1 million.
f) Includes asset impairment loss arising from the
rationalisation of Datacraft's Cabling and i-commerce businesses of $7.8 million
and Protocol investments $5.3 million.
g) Includes losses on disposal of Colorado Computer Training
Institute $6.6 million and Dimension Data Learning Solutions $2.1 million and a
profit on disposal of x-Plor $1.2 million.
Regional analysis of exceptional operating costs 2003 2002
$'000 $'000
Africa 7,730 10,726
Asia 4,113 25,619
Australia 991 1,348
Continental Europe 4,666 4,952
United Kingdom 292 7,456
United States 2,608 8,490
Investment holding and management 2,766 1,660
Total exceptional operating costs 23,166 60,251
2. TAX ON LOSS ON ORDINARY ACTIVITIES
2003 2003 2003 2002
Pre-exceptional Exceptional Total Total
items
$'000 $'000 $'000 $'000
Payable in respect of the current
year
- UK corporation tax 636 (88) 548 903
- Foreign 17,033 (2,229) 14,804 21,375
Share of associates'
taxation 1,951 - 1,951 1,747
Withholding taxes 995 - 995 1,586
20,615 (2,317) 18,298 25,611
Adjustments to prior years' tax
provision
- UK corporation tax (3,298) - (3,298) -
- Foreign 12,211 - 12,211 (10)
Total current tax 29,528 (2,317) 27,211 25,601
Deferred taxation
- Current 7,272 - 7,272 (14,490)
- Adjustments to prior
years (9,063) - (9,063) -
Total tax charge 27,737 (2,317) 25,420 11,111
3. (LOSS)/EARNINGS PER ORDINARY SHARE
2003 2002
$'000 $'000
(Loss)/earnings before goodwill amortisation and
exceptional items (36,265) 30,100
Exceptional items (net of tax and minorities) (37,887) (1,889,710)
Goodwill amortisation (346,139) (724,280)
Loss for the year (420,291) (2,583,890)
'000 '000
Weighted average number of ordinary shares 1,341,618 1,299,075
US Cents US Cents
Basic (loss)/earnings per ordinary share before
goodwill (2.7) 2.3
amortisation and exceptional items*
Basis loss per ordinary share on exceptional items (2.8) (145.5)
Basic loss per ordinary share on goodwill amortisation (25.8) (55.7)
Basic and diluted loss per ordinary share (31.3) (198.9)
* Basic (loss)/earnings per ordinary share before goodwill amortisation and
exceptional items is shown to reflect continuing trading results.
Basic loss per share represents the net loss attributable to ordinary
shareholders, being the loss on ordinary activities after taxation and minority
interests. Diluted loss per share is the same as basic loss per share as it is
considered that there are no dilutive potential ordinary shares.
4. BASIS OF PREPARATION
The results for the years ended 30 September 2003 and 30 September 2002 do not
comprise statutory accounts for the purpose of Section 240 of the Companies Act
1985, and have been extracted from the Group's 2003 accounts, approved by the
Directors at the Board Meeting on 17 November 2003, which have not yet been
filed with the Registrar of Companies. The Audit Report on these accounts was
unqualified and did not contain a statement under Section 237(2) or (3) of the
Companies Act 1985.
The statutory accounts for 2002 have been delivered to the Registrar of
Companies.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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