Dimension Data Holdings plc
LSE : DDT

November 16, 2005 02:08 ET

Dimension Data Holdings plc Preliminary Results-Year Ended 30 September 2005

LONDON, UNITED KINGDOM--(CCNMatthews - Nov. 16, 2005) - Dimension Data Holdings plc ("Dimension Data" or the "Group")(LSE:DDT) today announced its results for the year ended 30 September 2005.

Highlights

- Group revenues up by 15.2 %

- Network Integration revenues up by 7.7%

- Strong Solutions revenue growth, up by 41.9%, exceeding revenue of $750 million for the first time

- Gross margin at 20.4% (2004: 20.7%)

- Overheads well controlled, as a percentage of Group revenues improving to 18.1% (2004: 19.6%)

- Group operating profit (1) more than doubles to $61.7 million (2004: $25.7 million), reflecting the Group's operational leverage

- Group operating margin (1) more than doubles to 2.3% (2004: 1.1%)

- Cash inflow from operations up by 43.1% to $110.9 million compared to $77.5 million in 2004

- Basic earnings per share 1.3 US cents (2004: loss 2.8 US cents)



Financial Summary

2005 2004
$'000 $'000

Group turnover 2,727,857 2,368,044
Associates turnover 99,052 115,990
Total turnover 2,826,909 2,484,034

Group operating profit(1) 61,692 25,666

Net profit/(loss) for the year 17,764 (37,803)
Adjusted profit for the year(2) 18,643 11,434

US cents US cents

Basic earnings/(loss) per ordinary share 1.3 (2.8)
Adjusted earnings per ordinary share(2) 1.4 0.9

Notes:

(1) Before associates, goodwill amortisation, impairment and
exceptional items
(2) Before goodwill amortisation, impairment and exceptional items.


Chairman's Statement

I am pleased to report on a year of significant progress for Dimension Data.

During the year, Dimension Data gained market share in many of the key markets in which it operates and strengthened its global Solutions offerings. This was reflected in much improved operating returns.

Demand for our IT infrastructure Solutions and Services remained healthy, driven by positive market momentum in most sectors within which the Group is positioned, and strong reception for our Solutions offerings. Impressive growth in revenues led to Group operating profit(1) of $62 million, more than double the prior year. Credit goes to the management and staff of Dimension Data who have delivered this strongly improved operating performance and continue to put in place the building blocks for future growth.

A critical ingredient in our success remains our ability to attract and retain high quality people. To this end, we engaged this year in our first Group-wide employee survey to canvass the opinions of our employees. Feedback from employees was very positive, and employee morale in the Group continues to improve. The survey identified several important areas for improvement - for example, career development and training remain key priorities. In December we also revised our employee share incentive programme, by way of implementing a Share Appreciation Rights Scheme and a Long Term Incentive Plan.

The Group's focus for the current year was on ensuring excellent service to our clients, and on improving the depth and breadth of our market offerings. While over the past few years we have engaged in exiting some non core assets, this year we have undertaken some measured acquisition activity to extend our capabilities across our lines of business and consolidate our position as a leading global IT infrastructure solution provider. In December 2004 we acquired Euricom, a Microsoft focused consultancy business in Belgium. In August 2005 we acquired an additional 20% shareholding in Internet Solutions, which increased our holding in this South African Internet Service Provider to 80% (effective 77.91%), and in September 2005 we acquired Bellerephon, an Australian based provider of Microsoft management and infrastructure solutions.

At 30 September 2005, the Group reflected cash and short term investments of US$417 million. We consider it important to retain a strong positive cash position to provide a sense of stability to our customers, and to allow us to take advantage of opportunities that continue to present themselves across our Group. The Board is mindful of the ultimate objective of providing an acceptable cash return to shareholders and our dividend policy is under review.

We are pleased to have appointed Wendy Lucas-Bull to our Board of Directors, as an independent non-executive director. Wendy is a respected member of the South African business community with a wealth of experience in the financial and consulting industries. The Board currently comprises the Chairman, four executive directors and seven non-executive directors, of whom six are independent.

I would like to thank all of our employees around the world for their dedication and hard work during the year. They are the key ingredient to our continued success. As we move into the new financial year, I believe that our business is in an improved competitive position to benefit from what we expect to be stable demand conditions in most of our key markets and territories. We will continue to apply our resources, energy and capital to differentiate us from our competitors, win market share, provide excellent service to our clients and deliver improved returns to our shareholders.

Chief Executive Officer's Review

2005 was a very good year for Dimension Data. A year of solid operating performance with strong revenue growth (15.2%), during which Group operating profit(1) more than doubled to $61.7 million. The robust improvement in our results over the past few periods continued, and our earnings per share were 1.3 US cents for the year - a positive result at the bottom line for the first time in several reporting periods.

Our revenue growth has been driven by the successful execution of our strategy of expanding aggressively into our chosen market segments, reflected by our six lines of business. Our Networking Integration line of business achieved significant growth - outside of Europe, 14% growth reflected market share gains in several territories. Our five Solutions lines of business grew on average by 41.9%, evidencing strong traction from our continued focus in these high growth market segments. Effective execution within most of our regions, in particular the US, Asia, and South Africa, was another highlight.

The marked improvement in the Group operating profit(1) reflects a good flow through of the operating leverage in the period. Revenue growth drove a 13.4% improvement in gross profit. This, together with ongoing containment of our fixed costs - continues to drive the Group's improved profitability. The proportion of overheads to revenues declined significantly to 18.1% from 19.6% in 2004, which is ahead of our internal target.

During the course of the year, market trends continued to play to the strengths we have developed through our lines of business. The network continues to play a critical role as the integration point in the convergence of disparate technologies, and in particular voice and data. This trend, together with our networking heritage, positions us well to help clients optimise their IT architectures; reducing operating expenses and improving return on investment. Evidence of IT convergence was most marked in our Converged Communications line of business, where revenues grew by 97%. Here we continue to upgrade our clients' IT architectures and transform their voice calls into IP-based data traffic, thereby streamlining their communication network and reducing telecommunications costs.

We also notice an increase in the sophistication of our clients' IT services requirements. Increasingly, clients are selecting a combination of in-sourced, outsourced, or multi-sourced services. This past year we completed our Global Service Operating Architecture ('GSOA') "baseline" project which brings us closer to having a globally consistent managed services infrastructure. The new GSOA platform helps Dimension Data better address the needs of large enterprises, provide greater and more flexible service levels, and extract benefits of scale from our overall services offerings. We expect these IT services trends to continue and we will invest further in developing IT services that give our clients flexible services across our lines of business.

We are proud of the high quality client base that we have built up and of the IT improvements we have helped our clients to achieve. During 2005 we looked for ways to improve our client engagement model and conducted our first global client survey to gain feedback on their perceptions, preferences, and concerns. We created a client special interest group to obtain feedback on our Solutions and Services development plans and implemented programmes to gain more knowledge about our sales effectiveness. We will continue to work with our clients to ensure we are injecting the "voice of the client" into all we do. Revenues from our top 15 global clients grew by some 36% year on year. While some of this growth is attributable to improved sales effectiveness, it also reflects the competitive advantage of our global IT procurement, logistics, deployment, integration and management services.

Dimension Data helps clients make the best decisions about technology solutions and vendor alternatives according to their unique needs. Our long term relationships with a number of market leading technology and communication vendors allow us to offer the most appropriate solutions. During 2005 we received multiple industry and partner awards which recognised our technology expertise, quality of delivery and client focus. These included the prestigious Cisco Global Partner of the Year award, Microsoft's Global Security Sales and Marketing Partner of the Year award, as well as awards from Avaya, Checkpoint, Genesys, Hewlett Packard, Nortel, RSA, Sun Microsystems, Trend Micro and others. Industry leading and emerging technology vendors continue to approach us to develop partnerships, and these relationships remain a key component of our success as a specialist IT infrastructure solutions provider.

We continue to invest to expand our expertise in our Network Integration and Solutions lines of business. This investment is fueling our growth creating a unique competitive advantage for Dimension Data and a firm foundation for further growth. We have also invested in closer alignment of the development and execution of our Services and Solutions strategies, to accelerate the delivery of a full lifecycle of services within each of our lines of business.

Dimension Data has an exceptional complement of skilled and committed people, which remains its most important competitive advantage. During the period we have continued to invest in growing this complement from 8,600 to some 9,100. This investment in new skills is focused on improving our domain expertise and execution capabilities within our lines of business in all our regions.

Going into the new financial year we anticipate a continuation of the favorable demand environment that prevailed during FY2005, particularly in our chosen Solutions lines of business. Dimension Data is recognised as a world leader in Network Integration, and has a growing reputation in its Solutions lines of business. We believe our value propositions are resonating with our clients, driven by our domain expertise and our ability to integrate our offerings across our lines of business. This, together with our life cycle of Services approach, gives us confidence that as we move into 2006 we will be able to compete effectively we will once again strive to achieve double digit growth in revenues. We will be vigilant in ensuring that our costs increases are contained below the growth in our revenues in order to be able to continue to deliver improved profitability and returns to shareholders.

Overview of Results

Group revenues grew by 15.2% to $2,727.9 million, with a 7.7% increase in the Network Integration line of business and an excellent performance from our Solutions lines of business where revenues increased by 41.9% on 2004. As a result, Solutions now account for 28% of revenue, up from 23% in the prior year.

Gross profit grew by 13.4%, reflecting a 0.3% reduction in gross margin. The margin was impacted by strong growth in product revenues (15.8% on a like for like basis), at lower margin than service revenues, as well as an increase in revenues from our high volume multinational customers. Services margins improved during the year.

Overheads grew by 6.4% and as a proportion of revenue improved to 18.1% from 19.6% in the prior period, evidencing significant operating leverage. Our results therefore reflect a 140% growth in operating profit(1) to $61.7 million, and a doubling of the Group operating margin(1) to 2.3%.

The Group recorded a net interest expense and investment income of $16.9 million for the year, compared to a net interest and investment income in 2004 of $5.3 million. The large swing to a net interest expense of $19.5 million is as a result of the capitalisation of a property lease in November 2004. The Group's effective tax rate at 43.1% of profit before tax(2) was an improvement on the prior year.

Adjusted earnings (before goodwill and exceptional items) were $18.6 million, 63.0% up on 2004, and basic earnings per share of 1.3 US cents reflects a return to positive bottom line profitability.



Review of revenue and trading

Group Turnover 2005 Change on Change on
$'000 Contribution 2004 2004
to revenue Like for
Like(4)

Lines of business

Network Integration 1,470,611 54% 7.7% 7.0%
Solutions 757,973 28% 41.9% 39.7%
Other 499,273 18% 6.7% 9.8%

Total 2,727,857 100% 15.2% 15.0%

Revenue Stream

Product 1,732,399 64% 18.5% 15.8%
Managed Services 663,125 24% 14.0% 15.1%
Professional
Services 332,333 12% 2.5% 11.1%

Total 2,727,857 100% 15.2% 15.0%

In the analysis below, all references to percentage change in
turnover, gross profit and operating profit(1) as well as gross
profit margins are after adjusting for the impact of currency
movements, and excluding acquisitions and disposals not included in
either the full current period or the full prior period. All changes
are relative to 2004.

Notes:

(1) Before associates, goodwill amortisation, impairment and
exceptional items

(2) Before goodwill amortisation, impairment and exceptional items

(3) Unless otherwise indicated, comparisons are to the equivalent
prior period being the 12 months ended 30 September 2004. All
references to $ are to US$.

(4) After adjusting for the impact of currency movements, and
excluding acquisitions and disposals not included in either the
full current period or the full prior period.


Lines of Business

The Group is focused on six global lines of business.

Network Integration, the Group's most significant line of business, grew by 7.0%. Apart from Europe, where revenues declined by 11.2%, the remaining five regions grew on average by a strong 13.3%, reflecting market share growth in several territories. This growth was supported by healthy demand in our larger, multinational accounts.

The balance of our lines of business, referred to as Solutions, grew in aggregate by 39.7%. These lines of business, which are closely aligned to our core Network Integration business, focus on high growth markets where the Group, with its strong base of networking experience and skills, is well positioned to compete. The growth in Solutions revenue this year is the result of continuing good demand in these markets, focused execution, and the leverage afforded by the Group's established global presence. Within the Solutions lines of business:

Converged Communications revenues grew by 97%. As a result of our Internet Protocol ('IP') heritage and a growing reputation in the IP telephony market, the Group is well positioned to benefit from continuing growth in this market. During the year, the Group was Cisco's IP Telephony Partner of the Year in both EMEA and Asia PAC, and their second largest partner in the USA.

Customer Interactive Solutions revenues grew by 41%. Migration to IP technology continues apace, and our experience in IP telephony and contact centres positions us well to benefit in the future. Furthermore, our ongoing investment in advanced contact centre applications (such as workforce optimisation and self-service) differentiates the Group amongst clients who are looking to address contact centre operational and automation requirements. A further differentiator for Dimension Data is our international presence, due to the requirement for a consistent and standardised service across international contact centres.

Operating Environments and Messaging, where we manage and optimise our clients' Microsoft environments, grew by 48%. Our competitive positioning was enhanced by the acquisition of two businesses focused on Microsoft based solutions - Euricom in Belgium and Bellerephon in Australia. The acquisitions substantially improve our Microsoft skills in general and desktop deployment and presence management capabilities in particular. During the year Dimension Data was recognised by Microsoft as a global Systems Integrator partner and achieved Microsoft Gold Partner status on five continents.

Data Centres and Storage revenues were somewhat disappointing at 7% growth. Lower sales in the US and Australia offset good growth in the recently established Asian and European lines of business. During the year we received awards from some of our key partners - EMC in Asia, Sun Microsystems in Australia and Hewlett Packard in South Africa. In Australia we supplemented our data centre security skills with a small acquisition.

Security revenues grew by 40%, reflecting the Group's expertise in consulting on the storage, classification and protection of information, and the implementation of leading security technology Solutions and Managed Services. Dimension Data was recognised with awards from its security partners during the year, including Microsoft, Cisco, Checkpoint and RSA.

The Group's network integration, converged communications and security capabilities were acknowledged this year when we received the Cisco Global Partner of the Year award in recognition of outstanding performance, commitment to technical excellence and customer focus. Dimension Data continues to differentiate itself in the markets within which it operates through its technical skills and service excellence.

The Group's 'Other' businesses account for the remaining 18% of revenues. These operations are complementary to our Network Integration and Solutions offerings in the territories within which they operate, but are unique to those territories. Most significant are Internet Solutions in South Africa (an internet service provider with a dominant presence in the South African ISP market), and Express Data in Australia (an IT product distribution business). Both continued to perform well.

Revenue Streams

The Group offers a full life cycle of Services to clients - including the planning, building, support and management of IT solutions. This is reported as three streams of revenue: Product (the resale of non-proprietary product), Managed Services (of an annuity or recurring nature), and Professional Services (project based engagements). Product comprised 64% of Group revenues and Services 36%; with Managed Services and Professional Services 24% and 12% respectively.

Product revenues grew by 15.8%. This growth reflects good performance in most of the territories within which the Group operates. In particular, product revenues in our Solutions lines of business were well up on last year.

Our top fifteen global clients grew at a robust 36%. This reflects the benefits of the Group's global presence, and our ability to deliver consistent procurement, deployment and integration solutions in multiple territories. In this regard, we continue to refine our global logistics and tracking systems to ensure a seamless offering to our clients. For example, we invested further in DD Direct, an automated quoting, configuration and ordering tool which provides a self-service option to clients, simplifying the procurement process.

Services grew by 13.7%. Within this, Managed Services revenues grew by 15.1%. Our initiatives to extend our Managed Services offerings into the Solutions lines of business continue to produce results. We saw during the course of the year an acceleration in the number of Requests for Pricing, particularly from the US, for global, cross-border services fulfilment, validating the establishment of our global footprint and offering a substantial opportunity for the Group to cross-sell Services into an established multinational customer base. Delivering these Services is facilitated by our six global support centres, the consolidation of which was completed in the first half of the year.

Also falling under Managed Services, our outsourced call centre business (Merchants), had a very good year, with revenues up significantly and Internet Solutions grew by 20.2%.

The scaleable nature of the Managed Services business, together with an ongoing focus on delivery efficiencies resulted in an improvement in the Managed Services operating margin.

Professional services grew by 11.1%. Good growth in our deployment revenues (staging and installation of IT solutions) mirrored overall revenue growth, and we also saw the benefits of a greater presence of our IT engineers on-site at customers.



Regions

Africa Asia Australia Europe
$'000 $'000 $'000 $'000

2005

Group turnover 482,871 455,977 598,738 449,585

Group operating
profit(1) 42,501 17,470 18,580 6,927

Group operating
margin(1) 8.8% 3.8% 3.1% 1.5%

2004

Group turnover 445,172 362,280 481,078 438,841

Group operating
profit(1) 27,560 6,897 14,014 7,353

Group operating
margin(1) 6.2% 1.9% 2.9% 1.7%


United Kingdom United States Centre Total
$'000 $'000 $'000 $'000

2005

Group turnover 247,053 481,046 12,587 2,727,857

Group
operating profit(1) 11,741 7,719 (43,246) 61,692

Group operating
margin(1) 4.8% 1.6% 2.3%

2004

Group turnover 218,260 416,811 5,602 2,368,044
Group operating

profit(1) 12,744 4,573 (47,475) 25,666
Group operating

margin(1) 5.8% 1.1% 1.1%


In the analysis below, all references to percentage change in turnover, gross profit and operating profit(1) as well as gross profit margins are after adjusting for the impact of currency movements, and excluding acquisitions and disposals not included in either the full current period or the full prior period. All changes are relative to 2004.

Africa

Africa's revenue grew by 13.0% - product by 7.0% and services by 16.3%. Managed Services were up 18.3%, with good growth in Internet Solutions, Merchants and in the core Managed Services operations. Professional Services grew by 5.7% for the period. Within the lines of business, Network Integration grew by 11.7% and Solutions by 23.4%, with CIS, OE&M and Security all performing strongly.

Overall gross margin improved to 29.9% from 29.5% in 2004. The higher than average gross margin in Africa is a consequence of the historically higher proportion of services in total revenue (66.4%), at better gross margins. Gross profit grew by 14.5% for the year.

Overheads increased by 2.1% over the prior year. The capitalisation of the property lease during the period resulted in a reduction in the operating lease charge of some $13.7 million, and an increase in the depreciation charge of $1.9 million.

Reported operating profit improved to $42.5 million from $27.6 million in 2004, and the operating margin increased to 8.8% from 6.2%.

The involvement of our Black Economic Empowerment ('BEE') partners since the second half of 2004 continues to create opportunities within the South African public sector and sub-Saharan Africa. The establishment of the BEE partnership has been important in protecting our competitive position in South Africa and we have been awarded a number of government, local government and parastatal contracts, including a significant public sector services organisation.

In August 2005, we increased our interest in Internet Solutions by a further 20% to 80% (effective 77.91%). The proposed deregulation of the South African telecoms market is expected to create new opportunities to offer voice services to our customer base, uncertainty remains as to the regulatory framework pending finalisation of the Convergence Bill.

The Group made a further acquisition during the year of an effective 50% interest in ROE, a leading Nigerian IT solutions and services company. This acquisition increases the Group's geographical presence and execution capabilities in Africa.

Asia

Datacraft Asia reported a robust 25.9% growth in revenue to $456.0 million and a 153% increase in operating profit to $17.5 million. This performance was underpinned by healthy demand from both enterprise and service provider customers, and success in the Solutions lines of business, which more than doubled during the year and now account for a third of Asia's revenue. The Converged Communications, DCS and Security lines of business performed exceptionally well.

Almost every country in the region improved its performance over the prior year. The main exception was Japan, which registered a loss for the year as business, especially in the second half of the year, which was impacted by challenging market conditions and soft margins. However, this was more than offset by strong performances from India, all the Asean countries and New Zealand. Elsewhere, Korea also did well, returning to profitability, while China achieved good progress in reducing operating losses compared to the previous year.

The gross margin improved to 17.1% compared with 16.2% in the prior year, with a particularly pleasing increase in the Services gross margin.

Overheads were well contained, increasing by 16.7% and the operating margin doubled to 3.8% from 1.9% in 2004.

Australia

Australia's revenues grew by 15.5%. Express Data had a particularly good year, and while a slight reduction in its product gross margin was experienced, improved operational efficiencies and leverage led to an increase in its operating margin. Network Integration revenues grew by a pleasing 11.8% and Solutions revenues by 14.8%, with good growth in CIS, Converged Communications, OE&M and Security. Product revenues (outside of Express Data) increased by 7.9% and Services revenues by 11.0%. Managed Services reflected robust revenue growth of 13.0% and Professional Services grew by 9.0%, supported by a much improved performance from the training business.

Australia's gross margin declined slightly to 18.5% from 19.3%, due almost entirely to the increased contribution from Express Data. Overheads were well controlled, increasing by 7.4%.

During the year, the Australian business acquired the assets of the Secure Data Group, which improved its competitiveness in the areas of storage, back-up, and server and database management. This acquisition supported what would otherwise have been slower sales from the DCS line of business. Late in the year we acquired Bellerephon, a provider of Microsoft desktop deployment and infrastructure solutions. This acquisition will enable us to accelerate the execution of our OE&M line of business strategy.

Reported operating profit increased by 32.6% to $18.6 million from $14.0 million in 2004 and the operating margin was higher at 3.1% compared to 2.9%.

Continental Europe

Continental Europe recorded 1.0% revenue growth in difficult market conditions. Network Integration revenues declined by 11.2%, impacted by underperformances from Sweden and Spain in the first half of the year, and by weak performances in Italy and Switzerland in the second half. The Benelux countries continued to perform very well, and in particular the acquisition in the first half of the year of a Microsoft based application services company, Euricom, supplemented a strong performance from the Belgian operation. The German business, whose performance in the first half of the year was sub-optimal, recorded a much improved second half. France continued to be profitable, although operating performance was flat on the prior year.

Solutions revenues improved by 52.0%, driven by excellent performances within the CIS, Converged Communications and DCS lines of business. CIS was further assisted by the establishment of a Merchants outsourced call centre in the Netherlands, which contributed to revenue growth and profitability.

The overall gross margin in Europe declined to 20.6% from 21.4% in the prior year. While product margins improved slightly, reflecting growth in some of the higher margin Solutions areas, services margins declined due to weak volumes in the core Network Integration line of business.

Reported operating profit was $6.9 million, compared to $7.4 million in 2004.

Europe incurred $4.4 million of retrenchment and restructuring expenses during the year, reflected as operating exceptional items. The main regions affected were Sweden, Germany, Italy and France. In September 2005, the Group announced the amalgamation of the UK and Continental Europe into one operating region, and the consolidation of the central management teams of the two regions. This will improve our ability to deliver multinational Solutions and Services, and leverage our execution capabilities across Europe.

UK

Revenues in the UK grew by 13.9% - robust product revenue growth of 25.1% being achieved mainly out of the UK's large multinational and service provider client base. Contracts with these clients for product procurement and installation tend to be high volume and attract lower than average product margins. As a result, product gross margins declined by 2.2%. Managed Services grew by 12.5%, supported by stable demand for our managed network services, and an improved performance from Merchants, while Professional Services revenues were broadly flat.

The overall gross margin came down to 21.8% from 23.4% in 2004, better Managed Services margins reduced the impact of lower product and Professional Services margins. Gross profit grew by 5.9%.

Network Integration revenues increased by 16.2%, and Solutions by a pleasing 28.3%, with strong growth from Converged Communications, Security and CIS.

Overheads increased by 10.3%, partly as a result of investments during the year in Solutions capacity and resources.

Consequently, operating profit and operating margin declined to $11.7 million and 4.8% from $12.7 million and 5.8% in 2004.

USA

The US recorded a highly satisfactory improvement on the prior year, with revenues up 22.6%. Product revenue grew by 20.0%, with significant traction in the large enterprise and multinational customer base. Services revenue growth of 36.4% reflects a growing attach rate of Managed and Professional Services to product sales, the region's investment in sales and technical capacity, as well as the increased presence of our engineers on-site at our clients. Services growth was further supported by the new Third Party Maintenance agreement to support Cisco devices in the region.

Network Integration grew by an impressive 20.3% and Solutions by 28.5%, with strong contributions from Converged Communications and Security.

Gross margin improved to 14.7% from 14.1% in 2004. Product margins were stable, and Services margins improved strongly, benefiting from an expanded range of Managed and Professional Services offerings and more effective utilisation of our technical resource capacity.

Reported operating profit increased to $7.7 million from $4.6 million, with a widening of the operating margin to 1.6% from 1.1% in 2004.

Centre

The $43.2 million cost at the Centre comprise holding company costs, investment in global Solutions and Services development (the benefits of which are reflected in the improved regional performances), and share incentive costs. Excluding the expensing of the new share incentive schemes for the first time, the net expense was $39.5 million, a significant reduction on the $47.5 million reported in 2004.

Financial Review

Introduction

Dimension Data is listed on the London Stock Exchange and the JSE Securities Exchange and is obliged to comply with UK reporting and corporate governance requirements.

The accounting policies used in the preparation of the September 2005 financial statements are consistent with those applied previously.

Group Operating Profit

Group turnover, excluding associates, increased by 15.2% to $2,727.9 million for the year, from $2,368.0 million in 2004. Including associates, total revenues grew by 13.8% to $2,826.9 million.

Gross margin declined from 20.7% to 20.4%. Despite improved services margins, product margins were impacted by a change in the mix of product sales with an increase in higher volume, lower margin contracts. The higher growth in product sales (18.5%) compared to services growth (9.9%), also reduced the average gross margin. Gross profit for the year increased by 13.4%.

Total overheads increased by 6.4% to $494.3 million. After adjusting for the impact of the new share incentive scheme ($3.8 million increase in overheads), and for the capitalisation of a property lease ($11.7 million reduction in overheads), total overheads grew by 8.1%. This containment of overhead growth below the rate of growth of revenue and gross profit is evidence of the success of continuing efforts, in the regions and at the centre, to improve overhead efficiencies. Examples of initiatives include the ongoing consolidation of the Group's back office accounting platforms, and DD Direct - an e-procurement application developed in-house to provide our sales force and clients with an automated, on-line sales quoting and ordering facility. We also reported a reduction in the cost at the Centre from $47.5 million to $39.5 million, adjusting for the share incentive costs.

Group operating profit(1) improved to $61.7 million from $25.7 million in 2004, an increase of 140%, and the Group operating margin(1) doubled from 1.1% in 2004 to 2.3%, continuing in the recovery of the Group's profitability to more acceptable levels.

Associate Companies

The Group's share in operating profits from associate companies for the period was $7.9 million ($7.3 million 2004). Key contributors to these profits were Plessey ($4.5 million), Paracon ($1.6 million) and Automate ($1.3 million).

Plessey (49% holding), is an IT services company providing installation and support services to telecommunications service providers in several countries in Africa, including South Africa and Nigeria. Paracon (27% holding) is an IT services company specialising in IT resourcing and business solutions and is listed on the JSE Securities Exchange. Automate (45% holding) is a software development company providing dealer management software to the automotive industry.

Net interest payable

Investment income decreased to $2.6 million from $4.6 million in 2004, as a result of a reduced yield on a fixed asset investment in South Africa. The bulk of this investment was surrendered subsequent to year end (see note 7).

Net interest payable for the period was $19.5 million for the period, compared to net interest income in 2004 of $0.7 million. Interest receivable on Group cash holdings was $12.9 million compared to $10.9 million in 2004. Interest payable was $32.9 million, compared to $10.5 million in 2004. This interest payable includes:

$20.0 million in terms of the liability established pursuant to the capitalisation of the Campus property lease in November 2004, $6.2 million in terms of the Group's $100 million convertible bond $2.8 million in terms of the Group's ($28.2 million) loan from Sanlam, a South African bank. This loan was settled subsequent to year end (see note 7).

Taxation

The Group taxation charge was $22.7 million, compared to $19.6 million (before exceptional items) in 2004. The effective rate of taxation before exceptional items and goodwill amortisation was 43.1%, compared to 51.0% in 2004.

This reduction in the effective rate reflects the benefits of the improved profitability of the Group. As profitability continues to improve, particularly in those territories where profits are not sufficient to fully absorb Group overhead allocations, we expect this effective tax rate to continue to reduce.

Exceptional Items

Operating exceptional gains totalled $5.9 million. Included in this amount were:

- The release of the prior year's provision for an onerous operating lease and the establishment, upon capitalisation of the Campus property lease in South Africa, of an asset impairment charge. This resulted in a net gain of $5.5 million. The variance between the onerous lease provision release, and the impairment of the property, arose mainly as a result of an improved occupancy outlook in the Campus building at the end of the current financial year.

- Retrenchment and restructuring costs of $5.2 million, predominantly in Continental Europe. These costs were incurred mainly in Germany, France, Sweden and Italy. In September, the Group announced the amalgamation of Continental Europe and the UK into one operating region, and the consolidation of those management structures.

Investment income exceptional items totaled $2.4 million. This includes to the revision of certain assumptions pertaining to the yield on an endowment asset in the South African business. The bulk of this endowment was surrendered subsequent to the year end.

Capitalisation of leased asset

On 16 November 2004, the Group acquired the rights to the bare dominium (freehold) over the Campus property in Johannesburg for $4.6 million (R29.8 million). From that date the property lease has been accounted for as a finance lease.

The balance sheet effects of the capitalisation were as follows:

- Increase in land and buildings of $133.7 million and raising of an equivalent long term liability.

- Impairment of the asset by $15.8 million.

- Release of a provision for onerous operating lease of $17.4 million, and of a provision for unrecovered costs in respect of vacant and third party space of $3.8 million. The latter release was made possible by an improved occupancy outlook for the property at the end of the current period.

- The net book value of the asset at 30 September 2005 amounted to $118.8 million.

- The carrying value of the liability at 30 September 2005 amounted to $142.8 million.

The profit and loss effects of the capitalisation during the year were as follows:

- At the operating profit level, operating lease payments for the period up to 16 November 2004 were $1.8 million and a depreciation charge on buildings of $1.9 million from 16 November 2004. The capitalisation resulted in a benefit at the operating profit level of $11.7 million, relative to what would have been the position had the lease continued to be treated as operating.

- An interest expense of $20.0 million from 16 November 2004.

- Rentals received from external tenants amounted to $6.0 million.

Balance Sheet

Equity shareholders interests at 30 September 2005 were $414.4 million compared to $394.2 million last year. Net funds were $138.2 million (2004: $295.7 million), comprised of $416.6 million (2004: $425.0 million) of cash and short term investments and interest bearing debt of $278.4 million (2004: $129.5 million). The reduction in net funds of $157.5 million arose largely from the capitalisation of the property lease obligation during the year.

Subsequent to year end, the Group repaid an interest bearing loan of $28.2 million. The repayment was effected partly by way of the part surrender of an investment fixed asset of $18.5 million (see note 7).

Cash Flow

Net cash inflow from operations, including the impact of the lease capitalisation, was $110.9 million compared to $77.5 million in 2004. Depreciation and capital expenditure were $44.4 million and $58.6 million compared to $42.5 million and $31.4 million in 2004 respectively, analysed by region as follows:



---------------------------------------------------------------------
Depreciation Capital Expenditure
---------------------------------------------------------------------
$ million 2005 2004 2005 2004
---------------------------------------------------------------------
Africa 21.7 17.5 33.7 15.7
---------------------------------------------------------------------
Asia 7.5 7.4 5.9 6.6
---------------------------------------------------------------------
Australia 4.5 4.0 3.5 2.6
---------------------------------------------------------------------
Europe 2.8 4.8 2.7 2.7
---------------------------------------------------------------------
UK 5.4 6.0 11.7 2.8
---------------------------------------------------------------------
USA 2.5 2.8 2.2 2.5
---------------------------------------------------------------------
Total 44.4 42.5 59.7 32.9
---------------------------------------------------------------------


There was a net investment in working capital for the period of $1.0 million, compared to a reduction of $7.1 million in 2004. This was achieved despite the growth in Group turnover of 15.2%.

Stock holdings remained in line with the previous year, while debtors increased by 16.4% to $637.2 million, and trade debtors by $52.6 million to $474.2 million. Trade debtors days sales outstanding reduced to 54 days from 55 days at 30 September 2004.

Creditors increased to $785.6 million from $670.2 million at 30 September 2004. Trade creditors days outstanding reduced to 44 days from 49 days at 30 September 2004. There was no change in our trading terms with our major suppliers. The reduction in creditors days was offset by an increase in deferred revenues and accruals.

Liquidity Risk and Funding

Total cash and short term investments at 30 September 2005 was $416.6 million ($425.0 million 2004).

Total interest bearing debt was $278.4 million ($129.4 million 2004), comprising:

- A property lease obligation ($142.8 million). This loan bears interest at 16.79% per annum and is repayable over the next 12 years. The current annual repayment is $13.0 million, escalating at 11% per annum.

- convertible bonds ($101.4 million). This bond is repayable in December 2009.

- a loan in South Africa ($28.2 million). This loan was settled in October 2005, by way of part surrendering a fixed asset investment ($18.5 million) and the balance with cash.

- Overdraft of $6.0 million.

Net funds, being total cash and short term investments, net of total interest bearing debt, were $138.2 million at the end of the year.

Interest rate risk

Surplus cash is invested across the group in flexible rate, short to medium term deposits. As such, the Group is exposed to the effects of fluctuating deposit rates. The Group incurs a fixed interest cost in SAf Rand of 16.79% on its property lease obligation and a fixed interest rate in US Dollars of 5.375% on the convertible loans. A further loan in South Africa, which bore interest at a flexible rate, was settled subsequent to year end.

Currency Risk

The Group has operations in over 30 countries and receives revenues and incurs costs in numerous foreign currencies, the most material of which are the South African Rand, the Australian Dollar, British Sterling and the Euro. It is not the Group's policy to hedge foreign currency earnings and as a consequence, movements in exchange rates can affect the Group's results. When Dimension Data invoices in local currency and has a foreign currency exposure to suppliers, it generally uses forward exchange contracts to hedge its foreign exchange risk, or adjusts the price charged to clients to take account of exchange rate fluctuations. In particular, many of the products supplied by the Group are linked to the US Dollar, and the purchase of these products is often paid in US Dollars.

The following table reflects the average and year end exchange rates against the US dollar of SA rand, Australian dollar, Sterling and Euro:



2005 2004

Average Year end Average Year end
South African Rand 6.515 6.390 6.406 6.406
Australian Dollar 1.312 1.313 1.401 1.395
Sterling 0.556 0.568 0.552 0.556
Euro 0.815 0.831 0.820 0.811


Counterparty Risk

A number of major international financial institutions are counterparties to the foreign exchange contracts and deposits transacted by the Group. The Group continually monitors its position and the credit rating of its counterparties and manages its credit exposure to any particular entity.

Accounting Standards - IFRS

With effect from the year ending 30 September 2006, Dimension Data Holdings plc will prepare its consolidated financial statements under International Financial Reporting Standards (IFRS). In accordance with IFRS, adjustments to the FY2004 closing retained earnings and restatements of the results for H1 2005 and the year ending 30 September 2005, will be published when the Group reports its 31 March 2006 results in May 2006.

The Group's current view is that the major effects of moving from accounting under UK GAAP to IFRS will be in the following areas:

- Effects of changes in foreign exchange rates (IAS 21)

- Accounting for financial instruments, including embedded derivatives and unrealised profits/losses for forward exchange contracts (IAS 32 and IAS 39)

- Goodwill acquired in business combinations (IFRS 3)

- Share-based payments (IFRS 2)

- Leases (IAS 17)

- Accounting for Protocol investments (IAS 39)

- Employee benefits (IAS 19)

A programme is underway to ensure that the Group is ready to report under IFRS in 2006, and able to produce IFRS compliant information for comparative purposes from 30 September 2004. We will communicate the anticipated impact of the IFRS conversion more fully in January 2006.



CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 September 2005

Note Pre- Exceptional
exceptional Items (note 1) Total Total
2005 2005 2005 2004
$'000 $'000 $'000 $'000

Turnover
Group turnover 2,727,857 - 2,727,857 2,368,044
Associates 99,052 - 99,052 115,990
----------------------------------------------
Total turnover 2,826,909 - 2,826,909 2,484,034
----------------------------------------------
----------------------------------------------

Operating
profit before
goodwill
amortisation,
impairment and
exceptional
items 61,692 - 61,692 25,666
Exceptional
operating
income/(costs) - 5,895 5,895 (27,632)
----------------------------------------------
61,692 5,895 67,587 (1,966)
Goodwill
amortisation (3,248) - (3,248) (366)
Goodwill
impairment and
investment
impairment - (42) (42) (8,402)
----------------------------------------------
Group operating
profit/(loss) 58,444 5,853 64,297 (10,734)
Share of
operating
profit in
associates 7,921 - 7,921 7,343
Goodwill
amortisation
and impairment
and investment
impairment
- associates (1,177) (1,280) (2,457) (11,215)
----------------------------------------------
Total operating
profit/(loss) 65,188 4,573 69,761 (14,606)
(Loss)/profit
on sale of
fixed assets
and investments - (1,027) (1,027) 4,900
----------------------------------------------
Profit/(loss)
on ordinary
activities
before interest 65,188 3,546 68,734 (9,706)
Income from
other fixed
asset
investments 2,542 - 2,542 4,614
Net interest
(payable)/
receivable (19,477) - (19,477) 705
----------------------------------------------
Profit/(loss)
on ordinary
activities
before
taxation 48,253 3,546 51,799 (4,387)
Tax on
profit/(loss)
on ordinary
activities 2 (22,682) - (22,682) (33,238)
----------------------------------------------
Profit/(loss)
on ordinary
activities
after taxation 25,571 3,546 29,117 (37,625)
Equity minority
interests (11,353) - (11,353) (178)
----------------------------------------------
Profit/(loss)
for the year 14,218 3,546 17,764 (37,803)
----------------------------------------------
----------------------------------------------

Earnings/(loss)
per ordinary
share US cents US cents

Basic before
goodwill
amortisation
and exceptional
items 3 1.4 0.9
Basic 3 1.3 (2.8)


CONSOLIDATED BALANCE SHEET
as at 30 September 2005

2005 2004
Note $'000 $'000

Fixed assets
Intangible assets 43,076 976
Tangible assets 225,167 92,467
Investments in associates 26,897 25,781
Other investments 35,935 39,013
331,075 158,237
Current assets
Stock 104,258 104,871
Debtors 4 637,185 547,205
Short term investments 12,528 10,946
Cash at bank and in hand 404,068 414,093
1,158,039 1,077,115

Creditors: amounts falling
due within one year 5 (785,584) (670,245)
Net current assets 372,455 406,870
Total assets less
current liabilities 703,530 565,107

Creditors: amounts falling
due after more than one year (272,358) (129,004)
Provisions for liabilities
and charges (16,755) (41,875)
Total net assets 414,417 394,228

Capital and reserves 309,363 289,851
Equity minority interests 105,054 104,377
Equity shareholders' interests 414,417 394,228


CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 September 2005

2005 2004
Note $'000 $'000

Group operating profit/(loss) 64,297 (10,734)
Depreciation 44,401 42,519
Goodwill amortisation and
impairment and investment
impairment 3,290 8,768
Loss on sale of tangible
fixed assets 395 2,388
Increase in stock (2,449) (14,503)
Increase in debtors (85,108) (30,640)
Increase in creditors 86,578 52,198
Other non-cash items
- property leased
asset impairment 15,755 -
- property onerous lease
provision (21,205) 28,569
- retrenchments 4,749 -
- share incentive costs 3,762 -
- insurance captive cells (2,400) -
- other (1,177) (1,094)

Net cash inflow from
operating activities 110,888 77,471

Returns on investments
and servicing of finance (8,487) 3,044
Taxation (13,127) (21,975)
Capital expenditure and
financial investment (58,558) (31,410)
Acquisitions and disposals (39,167) 1,083
Cash (outflow)/inflow before
use of liquid resources
and financing (8,451) 28,213
Management of liquid resources (1,613) 8,461
Financing (5,485) 2,922
(Decrease)/increase in cash
in the year 6 (15,549) 39,596


CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 30 September 2005

2005 2004
$'000 $'000

Profit/(loss) for the year 17,764 (37,803)
Currency translation differences on
foreign currency net investments 332 16,798
Realised gain on sale of ESOP shares 95 -
Total recognised profits/(losses)
relating to the year 18,191 (21,005)


1. EXCEPTIONAL ITEMS

2005 2004
Note $'000 $'000

Property leased asset impairment a) (15,755) -
Release/(provision) of property
onerous lease b) 21,205 (25,064)
Insurance captive cells c) 2,400 -
Retrenchments d) (5,180) -
Other e) 3,225 (2,568)
5,895 (27,632)

Investments written down (42) (8,402)
Goodwill and investment
impairment - associates (1,280) (10,061)
(1,322) (18,463)

Total exceptional operating
income/(costs) 4,573 (46,095)

Other exceptional items
(Loss)/profit on sale of
fixed assets and investments f) (1,027) 4,900
Total other exceptional items (1,027) 4,900

Total exceptional items before
taxation and equity minority
interests 3,546 (41,195)


a) Impairment of land and buildings in South Africa subsequent to
the capitalisation of the property lease obligation.
b) Release of the prior period onerous lease provisions in respect
of the property lease obligation.
c) Recognition of insurance captive cell assets, previously expensed.
d) Retrenchment and restructuring expenses predominantly in Europe.
e) Other includes a write back of a prior year creditor of
$1.8 million in relation to the Proxicom acquisition, and the
release of a fair value provision of $3.2 million relating the
Comparex acquisition. It also includes a write down of long
outstanding work in progress and debtors balances of $2.5 million
in respect of the cabling business in the UK.
f) Includes an impairment of $2.4 million of an endowment investment
in South Africa. This endowment was part settled in November 2005,
subsequent to year end (Note 7).


2. TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES

Total Total
2005 2004
$'000 $'000

Payable in respect of the current year
- UK corporation tax - 2,833
- Foreign 18,844 18,893
Share of associates' taxation 2,137 2,584
Withholding taxes 594 270
21,575 24,580

Adjustments to prior years' tax provision
- UK corporation tax - (547)
- Foreign (991) (4,177)
Total current tax 20,584 19,856

Deferred taxation
- Current 3,401 (4,852)
- Adjustments to prior years (1,303) 18,234
Total tax charge 22,682 33,238


3. EARNINGS/(LOSS) PER ORDINARY SHARE

2005 2004
$'000 $'000

Profit before goodwill amortisation,
impairment and exceptional items 18,643 11,434
Goodwill amortisation (4,425) (1,520)
14,218 9,914
Exceptional items (net of tax and minorities) 3,546 (47,717)
Profit/(loss) for the year 17,764 (37,803)

'000 '000

Weighted average number of ordinary shares 1,343,895 1,342,286

US cents US cents

Adjusted earnings/(loss) per ordinary
share before goodwill amortisation
and exceptional items 1.4 0.9
Basic earnings/(loss) per ordinary share 1.3 (2.8)


4. DEBTORS

2005 2004
$'000 $'000

Trade debtors 474,176 421,593
Other debtors 49,898 27,955
Prepayments 74,218 59,521
Accrued income 12,522 12,556
Taxation authorities 17,057 15,606
Deferred taxation 9,314 9,974
637,185 547,205

5. CREDITORS

2005 2004
$'000 $'000

Amounts falling due within one year:
Bank loans and overdrafts 6,038 372
Trade creditors 244,424 262,596
Taxation and social security 96,057 98,926
Other creditors 108,655 73,917
Accruals 177,465 126,195
Deferred income 139,419 104,093
Deferred consideration 9,506 111
781,564 666,210
Current portion of convertible bonds 4,020 4,035
Total creditors 785,584 670,245


6. ANALYSIS OF NET FUNDS


At 1 Other At 30
October Cash Reclassi- non-cash Exchange September
2004 flow fication changes movements 2005
$'000 $'000 $'000 $'000 $'000 $'000

Cash at
bank and
in hand 414,093 (9,883) - - (142) 404,068
Bank
overdraft (372) (5,666) - - - (6,038)
413,721 (15,549) - - (142) 398,030
Short term
investments 10,946 1,613 - - (31) 12,528
424,667 (13,936) - - (173) 410,558
Debt due
within two
to five
years (28,098) 5,390 (100,906) (5,836) (103) (129,553)
Debt due
more than
five
years (100,906) - 100,906 (140,058) (2,747) (142,805)
Total 295,663 (8,546) - (145,894) (3,023) 138,200


Other non-cash changes includes an amount of $133.7 million, being the capitalisation of the finance lease, the capitalised interest amounting to $20.0 million and the interest paid of $13.7 million.

7. SUBSEQUENT EVENT

On 28 October 2005 the South African loan amounting to $28.2 million was settled. Simultaneously we part surrendered the endowment policy in the amount of $18.5 million.

8. BASIS OF PREPARATION

Statutory financial information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2005 or 2004, but is derived from those accounts. Statutory accounts for 2004 have been delivered to the Registrar of Companies and those for 2005 will be delivered following the Company's Annual General Meeting. The auditors have reported on these accounts; their reports were unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985.

This announcement is prepared on the basis of the accounting policies as stated in the previous year's financial statements.

Prior year comparatives

The comparative balance sheet and cash flow statement at 30 September 2004 have been reclassified to reflect the short term portion of a long term creditor in creditors.

Contact Information

  • Enquiries: Dimension Data Holdings plc
    Jeremy Ord
    Chairman
    or
    Dimension Data Holdings plc
    Brett Dawson
    Chief Executive Officer
    or
    Dimension Data Holdings plc
    David Sherriffs
    Chief Financial Officer
    or
    Dimension Data Holdings plc
    Karen Cramer
    Investor Relations
    Mobile: +(44) 793 202 0296 or Office: +(44) 20 7651 7000
    karen.cramer@uk.didata.com
    or
    Dimension Data Holdings plc
    Kevin Handelsman
    Investor Relations SA
    Mobile: +(27) 82 453 9945 or Office: +(27) 11 575 3632
    kevin.handelsman@za.didata.com
    Internet address: www.dimensiondata.com
    or
    Press enquiries: Dimension Data Holdings plc
    Michelle Atkins
    Media Relations Manager
    Mobile: +(27) 83 310 9829 or Office : +(27) 11 575 3958
    or
    LT Consulting Ltd
    Louise Taylor
    Mobile: +44 778 844 3220 or Office: +(44) 20 7223 8776