Riding the recession, Dimension Data has reported flat revenues for the year of $4-billion in constant currency, an increase of 0,4%, but its operating profit grew 25,4% and it is sitting on cash reserves of $600-million.
“The results are testament to further success in the execution of our ‘Profitable Growth’ strategy which we embarked on in 2005," says group CEO Brett Dawson. "Since then we have grown revenues ahead of the market, achieving a four year compound annual growth rate of 12.3%. Improved gross margins and careful management of our cost base has driven operating leverage with the group operating margin widening to 4.9% from 2.1% in FY2005. Our operating profit has more than tripled to $194.4-million and over the past five years we have generated over $1-billion in cash from operations.
“At the first signs of the global slowdown affecting our business in late 2008, we moved quickly to counteract the impact of a slower demand environment by managing and cutting costs in specific areas, most notably in the US and Asia,” explains Dawson. “These measures protected profitability and helped drive the operating leverage that the Group achieved during the year. Notwithstanding the significant focus on short term cost management, we have continued to invest in areas important to the Group’s longer term positioning and growth prospects.”
A key feature of this year’s results is the excellent growth in services revenues. This was driven primarily by 19.3% growth in managed services in the group’s Systems Integration (SI) business, which accounts for 80.6% of total revenues, and by revenue growth of 27.9% in Internet Solutions. Professional services revenues within SI, which tend to be more closely correlated with product revenues, increased 2.3%. Growth in services revenues offset a decline of 7.5% in product revenues, a commendable achievement in a tough market where demand was impacted by sharp cuts in capital expenditure in several of the company's traditional client segments.
“The SI business successfully harnessed market trends from both a technology and client sourcing perspective," says Dawson. "In addition, the business benefited from strong growth in managed services which drove higher gross and operating margins.
“Within the SI business, the converged communications, security and Microsoft solutions lines of business all delivered good growth as our clients embraced unified communications and focused on technologies which could optimise existing infrastructure and reduce costs."
He adds that growth in these areas compensated for a slowdown in networking, data centres and storage and customer interactive solutions, following cuts and delays to more capital intensive projects.
"Looking at Dimension Data’s SI business from a regional perspective and in the context of an environment where product revenues came under enormous pressure, especially in the US and Asia (product declined 34.5% and 23.7% respectively), all five regions delivered growth in services revenues. In addition, four out of five regions achieved significant operating profit expansion and improved operating margins,” says Dawson, adding that the America’s region started to show a recovery in the fourth quarter of the year.
The company states that Internet Solutions performed well over the period, with revenue growth of 27.9%. This excellent performance, it says, was driven by a clear focus on protecting and growing Internet Solutions’ core connectivity and cloud based services whilst successfully building its competitive position in newer communications and carrier services. Some pressure at the gross margin level was offset by cost efficiencies and operating leverage.
In terms of the various regions the group operates in, the company says the Australia Systems Integration business had a good year, with revenues up by 9.8% supported by good growth in all lines of business. The business benefited from the Federal Government stimulus package, and from market share gains on the back of ongoing consolidation in the Australian IT services industry. Together with Express Data, the region grew operating profit for the year by 23.6% to $39.7-million.
Revenues in the Americas declined by 22.4% and gross profit reduced by 17.6%. Very strong revenue performances from Brazil, Mexico and Canada could not compensate for a 27.4% revenue decline in the US, where product revenues were down by 34.5% as multinational and financial services clients scaled back on non-discretionary infrastructure spend. Asian revenues declined by 10.5% for the year, with Services growth of 18.5% unable to offset Product declines of 23.7%, following challenging economic conditions in the region and lower product demand from multinational and financial services clients. Across the region, projects were deferred and decision makers delayed capital expenditure commitments.
The group’s European business recorded an excellent performance for the year, it says. Revenue growth was up 3.5% under very challenging economic conditions, with operating profit expanding from $21.9-million to $31.7-million, and operating margin increasing to 3.2%.
The Middle East & Africa Systems Integration business had a good year, with revenues up by 8.8%. Together with Plessey and Internet Solutions, the region grew operating profit by 12.9% to $84.5-million.
Dawson believes Dimension Data is positioned in the sweet spot of IT and communications spend, and that the trends which have been driving superior growth in the group in the past few years have the momentum to continue to drive growth in the medium and longer term.
“Dimension Data’s healthy balance sheet, strong net cash balance and excellent cash generating abilities mean that the group is well placed to be able to continue to invest to position the business for long term growth," he says. "The continued execution of our services strategy will be a priority for our SI business to ensure we drive the SI margin higher.
“In addition, our network centric offerings are vital for our clients to be able to operate effectively in today’s IP and convergence powered environment where the network is increasingly the core platform for all forms of IT and telecommunications.
“We have a strong position in the areas of unified communications, collaboration, virtualisation and managed services position us well for medium term growth," Dawson says. "In the longer term, market developments including cloud computing and services based models such as Infrastructure as a Service provide the Group with additional opportunities for growth.
“The ongoing deregulation of the telecommunications market in South Africa and the growth opportunities on the African continent will provide significant opportunities for IS. In addition, Express Data also has solid prospects while Plessey is well-placed to benefit from the opening up of the African continent to growth in telecommunication services.
“We are encouraged by the recent stabilisation in our end markets, however, much uncertainty remains over the resilience of the global recovery," Dawson says. "We anticipate that the market segments in which Dimension Data operates will perform better in FY2010 and that the Group will be able to deliver modest constant currency revenue growth. Dimension Data is well placed to capitalise on long term market trends. Growth in excess of prevailing market rates and medium term operating leverage remain our key financial objectives.”