Dimension Data Reports Prelims

JOHANNESBURG, South Africa -- Dimension Data Holdings plc ("Dimension Data" or the "Group") today announced its results for the year ended 30 September 2005.

Highlights

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.

Dimension Data Holdings plc