Dual-listed Dimension Data has performed better than its peers in the technology space, and a shift to providing more services has bolstered margins, it says.
Allan Cawood, CEO of the group's Middle East and Africa region, says “even with the dark clouds hanging over us, we've been able to make the 5% margin a year early”.
About four years ago, the company - once the darling of the IT world - promised to take margins to 5%. In the year to September, the company achieved an operating margin of 4.9%, an improvement on last year's 4%. In 2005, the margin was 2.1%.
Cawood explains that this is due to an improved mix in revenue, with revenue from its services division growing 13%. Services offer a higher margin than technology offerings.
Despite the technology divisions being 11% behind in revenue compared to last year, Cawood says this is ahead of the company's peers, and an indication that it has gained market share.
Dimension Data also has a cash balance of $600 million, after paying $280 million to buy out the rest of Datacraft India during the year. Despite the healthy war chest, which translates into R4.5 billion, Cawood says the company will not go on an acquisition spree.
At the time, Middle East and Africa (MEA) chairman Andile Ngcaba said the deal “enhances our plans to be represented in the four corners of emerging Africa”.
Challenging time
Although the industry has experienced a tough year, CEO Brett Dawson says the company's results are solid.
Dimension Data grew revenue 0.4% in rand terms, although dollar-revenue was lower at $3.97 billion from $4.5 billion a year ago. This is due to dollar weakness.
The company's operating profit grew 25.4% in rand terms, to $194 million, and earnings per share were up in dollar terms to 7.6c from 7.4c a year ago.
Dawson says the “results are testament to further success in the execution of our 'Profitable Growth' strategy which we embarked on in 2005. Since then, we have grown revenue ahead of the market, achieving a four-year compound annual growth rate of 12.3%.
“Our operating profit has more than tripled to $194.4 million and over the past five years we have generated over a $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.”
But despite a significant focus on short-term cost management, the company has continued to invest in growth prospects, he says.
Impressed
“DiData's foresight has paid off in South Africa,” says Frost & Sullivan ICT industry analyst Spiwe Chireka. “The company decided to focus on the public sector two to three years ago, and now that we are seeing a decline in private sector spend, this move is paying dividends. For example, it is a key player in providing the IT systems and infrastructure for some of the Fifa World Cup stadia.”
Chireka says she was particularly impressed by Internet Solutions' performance and believes it should continue to deliver strong returns for the group. Internet Solutions (IS) reported revenue growth of 27.9% for the period, driven by demand for Internet access, virtual private networks, voice traffic and hosting services.
“IS has also started building its own network in South Africa since the ECNA allowed companies to self-provision,” she says. “This is likely to result in noteworthy cost savings as it will no longer have to depend on Telkom for access.”
As local loop unbundling, which is pencilled in for 2011, draws closer, IS is also set to receive radio spectrum. This will allow it to emerge as a direct competitor to both Telkom and the mobile operators in the broadband space. Dimension Data has stated it will continue to invest in IS to position it as Africa's leading Internet-technology-based service provider, Chireka adds.
Despite these successes, it is clear the economic crisis has had a significant impact on Dimension Data, as products still make up over 60% of the group's revenue base, she says. Across the ICT industry, product sales have been the hardest hit.
However, some of these losses have been offset by the overall performance of the group's services segment, Chireka adds.
“DiData's services division has been growing from strength to strength,” she notes. “Frost & Sullivan has seen an increased uptake of IT services across the world as end-users look to reduce costs through optimising their current systems and outsourcing.”
The group also continues to enjoy a favourable cash position, which will allow it to continue with its acquisitions strategy, Chireka says. In the current economic climate, Dimension Data may well use this to find some bargains as businesses are likely to be undervalued.
“The group's recent acquisition of a controlling stake in Moroccan operator Telcom to increase its footprint in Africa is one example. This is definitely an indication that it is thinking beyond the current tough market conditions and is seeing opportunities for future growth.”
Dimension Data announced a dividend of 1.9 US cents per share.
Its shares were slightly down in mid-morning trade to R9.35, a 0.32% drop from its opening price of R9.38.
Related story:
DiData buys into Moroccan telco
Share
