Dimension Data Holdings has reported a 15% drop in full-year total operating profit before goodwill amortisation and exceptional items, translating to a total operating margin of 7.4%, compared with 10.7% the previous year.
Chairman Jeremy Ord says the decline in operating profit before goodwill amortisation and exceptional items for the year to 30 September 2001 reflect the harsh trading conditions of the period.
The group budgeted at the beginning of the year for turnover growth of 60% (total turnover for the year grew 24%), and fixed overheads were scaled in anticipation of this.
However, the rapid deterioration of global economic conditions resulted in the IT industry suffering "the equivalent of a once in 100 years flood".
Revenue growth rates declined significantly in the second half, and the group cut overheads and accelerated initiatives to introduce new offerings to the market.
Staff numbers were cut by 1 568, or 14% of the total workforce, resulting in a once-off severance cost of $17 million. Fixed overheads were reduced by about 11%.
"The combination of the lower growth of turnover and the increase in overheads saw net operating margins decline significantly in the second half of the year," Ord says.
"Considerable attention has been given to rightsizing the overhead structures." He adds that management expects modest growth in revenue.
"The directors believe that the current structures are appropriate to allow the group to properly leverage its skills and expertise when market conditions become more favourable. Accordingly, the net operating margin in the 2002 financial year is unlikely to show an improvement on that evidenced in the full period under review."
Goodwill amortisation in the period amounted to $602 million, compared with $292 million last year.
Ord says this was due to the full-year effect of the acquisition of Dimension Data Europe, formerly Comparex Networks, the purchase of the minorities in Dimension Data International, and other acquisitions, including Proxicom.
The group has also recorded a goodwill impairment charge of $1.12 billion against the value of the investment in Dimension Data Europe. In light of US conditions, the company has also deemed it prudent to impair goodwill of $148 million recorded within all the US acquisitions, Ord says.
After goodwill amortisation and exceptional items, an attributable loss of $1.73 billion was incurred. Excluding goodwill amortisation and exceptional items, the group increased attributable profit 12% from $144 million to $161 million.
Ord says the 20% decline in earnings per share before goodwill and exceptional items is a result of the decline in profitability and the dilutive effect of the shares issued to Nedcor for the minority interests in Dimension Data International.
The Dimension Data share was trading 55c or 3.91% down at R13.50 on the JSE late this morning.
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