London- and Johannesburg-listed IT services group Dimension Data has continued to expand its operating margin in spite of the tough economic conditions.
In the year ended 30 September 2009, operating margin expanded to 4,9% from 4% in 2008 on gross margins that few to 22,5% from 21,6% previously. Revenue remained flat at US$4bn in constant currency terms, reflecting the weak global economy, though higher-margin services business grew by 13%. With the effects of currency swings factored in, revenue declined by 12%.
The group lifted operating profit by 25,4% to $194,4m. Strong cash generation and a focus on working capital management resulted in a closing cash balance of healthy $600m.
Though the group’s operating margins are still a long way off the double digits figures it enjoyed in the 1990s, analysts say the improvement in the margins is still a solid achievements given the economic conditions and the structural changes that have taken place in the IT sector this decade.
Didata has reduced its reliance on cyclical and lower-margin product sales, increasing the services component of its revenue mix substantially in the past five years.
The expansion in services revenues was “driven primarily by a 19,3% growth in managed services in our systems integration business and by revenue growth of 27,9% in Internet Solutions”, says group CEO Brett Dawson, pictured above. “Professional services revenues (within systems integration), which tend to be more closely correlated with product revenues, increased by a pleasing but more modest 2,3%.”
Growth in services offset a decline of 7,5% in product sales.
Dawson says Didata moved quickly, especially in the US and Asia, to offset the impact of the worldwide economic slowdown. “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 where action was warranted.”
This is in sharp contrast to the group’s much slower reaction to the previous slowdown, earlier this decade, when it found itself in dire financial straits.
In SA, Internet Solutions (IS) performed well, though there was “some pressure at the gross margin level”. This pressure was, however, offset by “cost efficiencies and operating leverage”.
During the year, IS acquired 2,5Gbit/s (16 STM1s) of capacity on the new Seacom undersea cable that extends along Africa’s east coast from SA to Europe. This capacity cost IS $24,7m, of which $14,3m was paid in the past financial year and the balance due over the next two years.
Plessey’s revenues, meanwhile, declined marginally, impacted by a slowdown in capital expenditure and infrastructure roll-out by telecommunications service providers in Africa. — Duncan McLeod, TechCentral