Interim Results
Computacenter PLC
11 September 2007
COMPUTACENTER PLC
Interim Results Announcement
Computacenter plc, the European IT infrastructure services provider, today
announces interim results for the six months ended 30 June 2007.
Financial Highlights:
- Group revenues up 4.1% to £1.16 billion (2006: £1.11 billion)
- Operating profit* up 12.1% to £12.8 million (2006: £11.4 million)
- £3.0 million net interest income reduction, primarily due to capital return in
2006
- Profit before tax* 11.8% lower at £12.8 million (2006: £14.5 million)
- Diluted earnings per share up 9.3% to 4.7p (2006: 4.3p)
- Interim dividend of 2.5p per share (2005: 2.5p)
* Reported post amortisation of acquired intangibles
Operating Highlights:
- Awarded multinational BT Group contract to provide desktop services and supply
product to BT's entire global estate
- UK operating profit impacted by price erosion and services contract renewals
- Improved pipeline of UK services activity
- Acquisitions of Digica and Allnet strengthening services capability
- Improved performance in Germany with growth across all areas of the business
and significant contract wins
- Continued progress in France with further restructuring cost efficiencies
Ron Sandler, Chairman of Computacenter plc, commented:
'Overall, the Group performance in the first half has been encouraging. We were
pleased to see a stronger performance from France and Germany and expect this
trend to continue. In the UK, despite a weaker performance, we have made good
progress in transforming our business in response to some fundamental changes in
our markets. We remain committed to translating these adjustments into
consistent performance improvements.
Looking ahead, we expect our market positioning and performance to continue to
improve. The second half of the year has started positively for the Group and we
are increasingly confident about our outlook for the full year, which remains
unchanged.'
For further information, please contact:
Computacenter plc.
Mike Norris, Chief Executive 01707 631 601
Tessa Freeman, Investor Relations 01707 631 514
www.computacenter.com
Tulchan Communications 020 7353 4200
Stephen Malthouse
www.tulchangroup.com
Chairman's statement
The Group had an encouraging first half, with stronger performance in France and
Germany partially offset by a weaker result in the UK. Overall, Group revenues,
including acquisitions, were up 4.1% at £1.16 billion and up 2.1% on a
like-for-like basis (H1 2006: £1.11 billion).
Operating profit was up 12.1% to £12.8 million (H1 2006: £11.4 million).
Following the £74.4 million capital return in July 2006 and expenditure of £32.6
million on acquisitions in 2007, net interest income reduced from £3.0 million
to nil. Consequently, profit before tax decreased 11.8% to £12.8 million (H1
2006: £14.5 million). Despite the pre tax profit reduction, diluted earnings per
share increased by 9.3% to 4.7p (H1 2006: 4.3p), as a result of the reduced
number of shares in issue.
The balance sheet remains strong, with net borrowings prior to customer-specific
financing of £16.5 million at the period end. There was an outflow of £45.9
million in the half-year, driven by the two acquisitions and a working capital
outflow of £15.1 million.
I am pleased to announce the payment of an interim dividend of 2.5p per share
(2006: 2.5p) to be paid on 19 October 2007 to shareholders on the register as at
21 September 2007. This is consistent with our policy of seeking to keep the
interim dividend at a level equal to one-third of the preceding year's total
dividend.
A central pillar of our strategy for ensuring long-term earnings growth is the
expansion of our contracted services business. An important milestone was
achieved in March 2007 with the signing of a five-year contract with BT Group to
provide desktop services and supply product to BT's entire global estate,
covering 54 countries. This replaces our previous UK contract with BT and
represents a considerable enhancement in both scope and breadth of service.
Excluding the results of the acquired businesses, UK revenues declined 1.8% to
£649.2 million (H1 2006: £661.1 million) and operating profit declined 27.9% to
£11.9 million (H1 2006: £16.4 million), with both product and services
activities delivering a lacklustre performance. The operating profit decline was
largely due to price erosion on renewals and the loss of some key services
contracts in 2006, which adversely affected revenues and operating profit in H1
2007. However we have seen an improving pipeline of services activity, with a
number of contract wins secured in late 2006 and 2007 yet to be translated fully
into revenue.
Product sales, in particular to public sector organisations, were below
expectations in the first quarter, although some recovery was evident towards
the end of the period and we continued to see strong growth in software
revenues. We continue to invest in our products business for the long term,
through tools and processes that lower our cost of sale, by adding sales
capacity, and by leveraging our successful mid-market sales model for smaller
organisations and for customers with less complex service requirements.
Computacenter UK made two significant services acquisitions in the period to
extend our capability in the growth areas of datacentre services and network
computing. In January we concluded the acquisition of Digica Limited, a provider
of datacentre managed services. This was followed in April by the acquisition of
Cable & Wireless (Allnet) Limited, a leading provider of network integration and
structured cabling services.
Computacenter Germany enjoyed strong growth across all areas of its business,
with H1 revenues up 14.4% to £340.7 million (H1 2006: £297.7 million) and
operating profit of £3.8 million (H1 2006: £0.5 million). This is the best
first-half performance since the German business was acquired in 2003 and
reflects both a market recovery and our success in diversifying into new
sectors, particularly the mid-market. With market conditions likely to remain
strong and the full impact of the change programme in our German business yet to
be realised, we expect this level of performance improvement to continue
throughout the year.
The improvement in our French performance, evident in H2 2006, continued in the
first half of this year. Operating losses for the half-year decreased from £5.4
million to £2.1 million despite a 4.5% fall in revenues to £135.3 million (H1
2006: £141.7 million). French Managed Services revenue growth of 5.6% was offset
by a 3.8% reduction in Professional Services revenues and a fall in product
sales of 5.3%; however, margins increased in both products and services.
Additionally, operating performance improved as a result of the cost savings
arising from the restructuring of the French cost base that took place at the
end of 2006. We expect the performance of Computacenter France to continue to
improve and, based on progress to date, we are confident of a return to profit.
Whilst much remains to be done, particularly in translating the substantial
changes we have made to the UK business into consistent performance
improvements, we have made good progress in transforming our business in
response to some fundamental changes in our markets. For our continuing success
in this endeavour, I am indebted to our staff for their hard work and
commitment.
Looking ahead, we expect our market positioning and performance to continue to
improve. The second half of the year has started positively and we are
increasingly confident about our outlook for the full year, which remains
unchanged.
Review of Operations
UK
UK performance has been below expectation. Despite a strong performance from the
Technology Solutions business unit, Services Division revenues were adversely
affected by price erosion on renewals and the previously reported loss of some
key contracts in 2006. The Product Division, whilst showing some recovery in Q2
compared to Q1, has traded below 2006 levels, largely due to a reduction in
government sales.
Services Division
Overall services revenues, excluding the effect of acquisitions, declined 3.7%
to £129.9 million (2006: £134.9 million), with Technology Solutions growth
partially compensating for a decline in contractual revenues.
Managed Services
Our Managed Services business saw a 14.3% decline in revenues largely due to the
loss of several key contracts in H2 2006, which also led to a gross margin
reduction.
Our strategy has focused on the growing market for datacentre and enterprise
computing Managed Services and on extending our offering to mid-market
customers. In the datacentre market, our presence was enhanced substantially
with the acquisition of Digica in January.
The use of the Shared Services Factory's repeatable processes and embedded best
practice were fundamental to our securing a number of contracts, including a
recent win with EDF Energy, worth £9.6 million, signed in July.
Important new mid-market wins in the period included a five-year, £4.1 million,
datacentre Managed Services contract with FremantleMedia.
Support Services
The market for IT infrastructure support continues to be highly cost
competitive, with increased price pressure at renewals of larger contracts
mostly responsible for a small decline in our Support Services revenues.
Demand for our offerings is polarising into larger, complex deals and smaller
commoditised packaged services. For the former, customers look to us to
consolidate their infrastructure support whilst reducing cost and improving
service levels. An example of this is our four-year, £20 million contract win
with Reuters, where services provided to their customers include product supply
logistics, engineering, service management and contract management.
At the more commoditised end of the market, there is increasing demand for
simplified packaged services with transparent pricing. To address this market
sector, Computacenter launched three packaged services in the first half of the
year: lifetime maintenance, resource on demand and a disaster recovery service.
29 new contracts were signed with Support Services in the period, including with
Merrill Lynch for server support and with TGI Fridays UK for server, desktops
and EPoS maintenance.
Technology Solutions
This business unit continued to perform well, with Professional Services revenue
growth of approximately 20% compared to H1 2006, prior to the effect of
acquisitions. Increased project activity also benefited our product supply
business, with a 21% increase in associated hardware and software sales.
Particularly pleasing was the continued strong performance of our datacentre
business, particularly our virtualisation and consolidation activities, and our
datacentre utility and relocations services, which have been a major focus of
our business development efforts.
The acquisition and integration in April of Allnet, a leading UK provider of
network integration and structured cabling services, has significantly increased
our penetration of the connectivity market, doubling the size of Computacenter's
business in this segment. Recent wins utilising Allnet's capabilities include
Varian Medical Systems, a new trading customer for whom we worked on the design
and implementation of a new datacentre facility, and a major telecoms operator,
where we are providing the system design, installation, migration and testing
for a new subscriber pre-payment service.
Other significant wins in the period include a contract for the design,
implementation and hosting of a software testing environment for Amdocs, a
leading provider of customer experience systems.
Digica
The H1 profit performance of this newly acquired business was below expectation,
due to some disruption resulting from the transaction, plus the start-up of
several large new datacentre contracts. However we are confident of a
significant improvement in the second half of the year.
Demand for Digica's services remained buoyant, with the business achieving
record new business contract values in the 12 months to June 2007. Significant
wins include Crest Nicholson, where we added a major transformation project to
our existing five-year outsourcing contract. The strength of the combined
Computacenter/Digica proposition was an important consideration in awarding this
project.
Product Division
Total UK products revenue, excluding the effect of acquisitions, declined 1.3%
to £519.2 million (H1 2006: £526.2 million), although improved product margins
from increased enterprise technology spend partially compensated for this
revenue deterioration.
There is an increasing demand from customers for Computacenter to own assets,
particularly in the datacentre, and charge for the cost of equipment bundled
with the service. We welcome this and see it as an opportunity to improve
margins and increase services revenue over time. This customer specific finance
amounted to £36.9 million at the end of the period (H1 2006: £1.8 million).
To lower our cost of sale and increase productivity in this business we launched
new versions of our online procurement system, Connect, and our sales
administration system, One Touch. We also continue to focus on improving
automated processes for the direct delivery of technology to clients.
Hardware
Desktop sales continue to decline, largely offset by the increase in sales of
server, networking and storage systems from Sun, EMC and Cisco and a significant
increase in HP Intel server business.
We continued to see growing demand for electronic trading, with sales via our
webshop and other EDI links increasing to over 30% of all orders. This area
remains a key focus.
Supply associated services such as portfolio management, technology benchmarking
and commercial advisory services proved important market differentiators. These
include our new 'green advisory service', which shows how organisations can
reduce costs and increase competitive advantage whilst reducing the IT element
of their carbon footprint.
Significant hardware wins in the period include technology benchmarking and
desktop supply for Leeds City Council, which also includes disposals management
via our RDC subsidiary.
Software
Our Software business unit had a strong start to the year, with revenues
recording a 14.5% increase on the first half of 2006.
The needs of our customers to reduce their software costs and increase their
return on investment helped us win important new business. Our ability to track
licence renewals and entitlements and so monitor compliance, consolidate
licences and improve discount bands is leading to significant opportunities.
Computacenter continues to invest in this business and we are increasing the
numbers of licensing executives and managers in response to growing customer
demand. Significant wins include a three-year Microsoft Enterprise Agreement
with the NHS, worth £37 million.
Computacenter Direct
We continued to target the growing market for IT product and services in the
medium-sized business sector. The success of our 'light touch' account
management approach led to over 1,000 smaller trading accounts being transferred
to this sales model and we continued to recruit significant numbers of new sales
staff.
Over 650 new trading customers were added in H1, and we are confident of
continuing growth in the mid-market sector.
CCD
The first half of 2007 saw a continuation of the improving trend in the
financial performance of our trade distribution arm, CCD. This was attributable
to a focus on tight operational control, combined with the new sales structure
implemented during 2006.
Germany
Computacenter Germany recorded the best H1 operating performance since the
acquisition of the German business in 2003. Revenue growth was fairly evenly
spread, with services revenue growing by some 12%, and product revenues by 16%.
As a result, our business mix remained fairly constant, with approximately 35%
of our revenues coming from services and 65% from product.
In part this performance can be attributed to an upturn in the German IT market
driven by general economic factors. However, it is also the result of a
concerted campaign over the last two years to expand our customer base,
especially in the medium-sized enterprise sector, and to leverage opportunities
for cross-selling to existing customers.
The profitability in 2006 was affected by start-up losses from the shared
datacentre contracts, which totalled £6.3 million, £5.4 million of which were in
the second half. As a consequence, we will see a further additional material
improvement in our overall German profitability in H2 2007.
We secured a number of new and extended Managed Services contracts and saw
strong growth in our solutions business, particularly in Voice Over IP Telephony
and Voice on Demand. This in turn helped boost enterprise technology sales,
driving growth of over 17% in our server and storage products business.
Reversing a long-standing trend, we also saw 15% growth in our desktop products
business, with software sales in particular performing very well. Despite
continuing price declines, this revenue growth has been achieved with no
degradation to margins.
Significant wins in the period include a server support contract with SAP
Hosting, and a network supply and maintenance contract with BMW Group.
Additionally, we secured a datacentre outsourcing contract with Immobilienscout
24, which operates Germany's largest Internet real estate marketplace.
France
Significant progress was made in France, where operating losses reduced 60.6%
despite a small decline in revenues. Services revenue growth of 0.8% was offset
by a fall in product revenues of 5.3%; however the margin improvements of late
2006 continued into the first half of 2007, with increased margins from both
products and services.
The performance improvement is largely attributable to our ongoing focus on
reducing the cost base and streamlining our operations, with particular progress
made in the latter half of 2006. As well as further progress in reducing
expenses in 2007, we are already seeing the benefits of a new sales pay plan,
which focuses more sharply on achieving services growth and maximising margins.
We are also benefiting from a sales management programme, launched last year,
which is designed to better identify, qualify and capture maintenance and
enterprise product opportunities.
Significant wins include four new Managed Services contracts, worth in the
region of £2 million a year, including a large European staffing and recruitment
company and one of France's biggest power and energy companies.
Benelux
Overall, our Benelux operation recorded a small loss of £111,000 (2006:
£82,000). Product supply again performed strongly, as did Managed Services,
whilst project and consulting services remained weak.
Key wins include a large international hardware supply contract with KBC, an
extension of current infrastructure projects at Recticel, and an application
services project for Dexia.
RDC
RDC has made a good start to the year with H1 profit above expectations. In the
UK business, service sales grew 21% on H1 2006 and remarketing margin was up
20%. This growth came from the success of our Computacenter Asset Recovery
Services offering and was also boosted by sales of our fledgling 'collect and
recycle' service into the mid-market. RDC's German business was slow in H1, but
revenues from two major wins will start to come through in the second half of
the year.
Consolidated income statement
For the six months ended 30 June 2007
Unaudited Unaudited Year ended
six months six months 31 Dec 2006
ended 30 ended 30
June 2007 June 2006
£'000 £'000 £'000
Revenue 1,160,333 1,114,939 2,269,903
Cost of sales (1,006,183) (969,619) (1,974,437)
-------- -------- --------
Gross profit 154,150 145,320 295,466
Distribution costs (9,267) (9,304) (19,075)
Administrative expenses (131,819) (124,581) (242,819)
-------------------------- -------- -------- --------
Operating profit:
Before amortisation of acquired 13,064 11,435 33,572
intangibles and exceptional items
Amortisation of acquired intangibles (240) - -
-------------------------- -------- -------- --------
Operating profit before exceptional 12,824 11,435 33,572
items
Impairment of non-current assets - - (2,606)
Redundancy costs - - (2,425)
-------------------------- -------- -------- --------
Operating profit 12,824 11,435 28,541
Finance revenue 2,157 4,044 6,677
Finance costs (2,166) (1,053) (2,289)
Share of profit of associate - 98 -
-------------------------- -------- -------- --------
Profit before tax:
Before amortisation of acquired 13,055 14,524 37,961
intangibles and exceptional items
Amortisation of acquired intangibles (240) - -
-------------------------- -------- -------- --------
Profit before tax before exceptional 12,815 14,524 37,961
items
Impairment of non-current assets - - (2,606)
Redundancy costs - - (2,425)
-------------------------- -------- -------- --------
Profit before tax 12,815 14,524 32,930
Income tax expense (5,319) (6,434) (13,994)
-------- -------- --------
Profit for the period 7,496 8,090 18,936
======== ======== ========
Attributable to:
Equity holders of the parent 7,496 8,090 18,927
Minority interests - - 8
-------- -------- --------
7,496 8,090 18,935
======== ======== ========
Earnings per share
- basic for profit for the year 4.8p 4.3p 11.0p
- basic for profit pre exceptional 4.9p 4.3p 13.9p
items and amortisation of acquired
intangibles
- diluted for profit for the year 4.7p 4.3p 10.9p
- diluted for profit pre exceptional 4.8p 4.3p 13.8p
items and amortisation of acquired
intangibles
Consolidated balance sheet
As at 30 June 2007
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
Non-current assets
Goodwill 32,199 4,755 4,755
Intangible assets 12,563 4,993 5,190
Property, plant and equipment 102,116 77,456 84,874
Investment accounted for using the - 184 -
equity method
Deferred income tax asset 8,238 5,582 6,166
-------- -------- --------
155,116 92,970 100,985
-------- -------- --------
Current assets
Inventories 92,011 87,733 94,586
Trade and other receivables 410,222 365,120 427,319
Prepayments 66,133 68,421 50,435
Forward currency contracts 167 26 111
Cash and short-term deposits 47,352 161,862 77,882
-------- -------- --------
615,885 683,162 650,333
-------- -------- --------
Total assets 771,001 776,132 751,318
======== ======== ========
Current liabilities
Trade and other payables 306,919 269,250 315,846
Deferred income 71,428 80,313 77,714
Financial liabilities 81,189 70,519 55,736
Income tax payable 7,278 8,006 8,394
Provisions 2,166 1,585 2,132
-------- -------- --------
468,980 429,673 459,822
-------- -------- --------
Non-current liabilities
Financial liabilities 20,511 704 11,362
Provisions 11,653 13,384 12,839
Other non-current liabilities 731 12 917
Deferred income tax liabilities 2,486 837 1,249
-------- -------- --------
35,381 14,937 26,367
-------- -------- --------
Total liabilities 504,361 444,610 486,189
-------- -------- --------
Net assets 266,640 331,522 265,129
======== ======== ========
Capital and reserves
Issued capital 9,585 9,543 9,571
Share premium 2,776 76,004 2,247
Capital redemption reserve 74,542 100 74,542
Own shares held (2,503) (2,503) (2,503)
Foreign currency translation reserve (2,381) (1,524) (2,455)
Retained earnings 184,594 249,883 183,700
-------- -------- --------
Shareholders' equity 266,613 331,503 265,102
Minority interest 27 19 27
-------- -------- --------
Total equity 266,640 331,522 265,129
======== ======== ========
Approved by the Board on 10 September 2007
MJ Norris, Chief Executive FA Conophy, Finance Director
Consolidated statement of changes in equity
Attributable to equity holders of the parent
----------------------------------
Issued Share Capital Own Foreign Retained Total Minority Total
capital premium redemption shares currency earnings interest equity
reserve held translation
reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January
2006 9,505 74,680 100 (2,503) (1,757) 250,630 330,655 19 330,674
Exchange
differences
on
retranslation
of foreign
operations - - - - 233 - 233 - 233
------ ------ ------- ------ ------- ------- ------- ------ -------
Net income
recognised
directly in
equity - - - - 233 - 233 - 233
Profit for
the period - - - - - 8,090 8,090 - 8,090
------ ------ ------- ------ ------- ------- ------- ------ -------
Total
recognised
income for
the period - - - - 233 8,090 8,323 - 8,323
Exercise of
options 38 1,324 - - - - 1,362 - 1,362
Cost of share
based
payments - - - - - 568 568 - 568
Equity
dividends - - - - - (9,405) (9,405) - (9,405)
------ ------ ------- ------ ------- ------- ------- ------ -------
38 1,324 - - 233 (747) 848 - 848
------ ------ ------- ------ ------- ------- ------- ------ -------
At 30 June
2006 9,543 76,004 100 (2,503) (1,524) 249,883 331,503 19 331,522
Exchange
differences
on
retranslation
of foreign
operations - - - - (931) - (931) - (931)
------ ------ ------- ------ ------- ------- ------- ------ -------
Net expense
recognised
directly in
equity - - - - (931) - (931) - (931)
Profit for
the period - - - - - 10,837 10,837 8 10,845
------ ------ ------- ------ ------- ------- ------- ------ -------
Total
recognised
income and
expense for
the period - - - - (931) 10,837 9,906 8 9,913
Cost of
share-based
payments - - - - - 843 843 - 843
Exercise of
options 28 993 - - - - 1,021 - 1,021
Bonus issue 74,442 (74,442) - - - - - - -
Expenses on
bonus issue - (308) - - - - (308) - (308)
Share
redemption (74,442) - 74,442 - - (73,886) (73,886) - (73,886)
Expenses on
share
redemption - - - - - (56) (56) - (56)
Equity
dividends - - - - - (3,921) (3,921) - (3,921)
------ ------ ------- ------ ------- ------- ------- ------ -------
28 (73,757) 74,442 - (931) (66,183) (66,401) 8 (66,393)
------ ------ ------- ------ ------- ------- ------- ------ -------
At 1 January
2007 9,571 2,247 74,542 (2,503) (2,455) 183,700 265,102 27 265,129
Exchange
differences
on
retranslation
of foreign
operations - - - - 74 - 74 - 74
------ ------ ------- ------ ------- ------- ------- ------ -------
Net income
recognised
directly in
equity - - - - 74 - 74 - 74
Profit for
the period - - - - - 7,496 7,496 - 7,496
------ ------ ------- ------ ------- ------- ------- ------ -------
Total
recognised
income for
the period - - - - 74 7,496 7,570 - 7,570
Exercise of
options 14 529 - - - - 543 - 543
Cost of share
based
payments - - - - - 1,269 1,269 - 1,269
Equity
dividends - - - - - (7,871) (7,871) - (7,871)
------ ------ ------- ------ ------- ------- ------- ------ -------
14 529 - - 74 894 1,511 - 1,511
------ ------ ------- ------ ------- ------- ------- ------ -------
At 30 June
2007 9,585 2,776 74,542 (2,503) (2,381) 184,594 266,613 27 266,640
====== ====== ======= ====== ======= ======= ======= ====== =======
Consolidated cash flow statement
For the six months ended 30 June 2007
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
Operating activities
Operating profit 12,824 11,435 28,541
Adjustments to reconcile Group
operating profit to net cash inflows
from operating activities
Depreciation 11,124 6,869 14,585
Amortisation 1,648 850 1,907
Cost of share-based payment 1,269 568 1,411
Impairment of property, plant & - - 2,492
equipment
Loss on disposal of property, plant and 60 260 353
equipment
Impairment of intangible assets - - 114
Loss on disposal of intangible assets 36 9 9
Dividend received from associate - 203 202
Decrease in inventories 4,897 12,846 4,560
Decrease/(increase) in trade and other 16,234 14,240 (35,498)
receivables
(Decrease)/increase in trade and other (36,234) (41,629) 6,895
payables
Currency and other adjustments (72) (73) 5
-------- -------- --------
Cash generated from operations 11,786 5,578 25,576
Income taxes paid (6,345) (4,744) (11,994)
-------- -------- --------
Net cash flow from operating activities 5,441 834 13,582
-------- -------- --------
Investing activities
Interest received 1,988 4,066 6,600
Acquisition of subsidiaries, net of (32,596) - -
cash acquired
Sale of property, plant and equipment 306 22 24
Purchases of property, plant and (6,173) (1,400) (7,504)
equipment
Purchases of intangible assets (2,934) (1,115) (2,499)
Sale of interest in associate - - 364
-------- -------- --------
Net cash flow from investing activities (39,409) 1,573 (3,015)
-------- -------- --------
Financing activities
Interest paid (2,069) (1,293) (2,152)
Dividends paid to equity holders of the (7,871) (9,405) (13,326)
parent
Proceeds from issue of shares 543 1,362 2,383
Repayment of capital element of finance (2,061) (1,320) (2,629)
leases
Repayment of loans - - (326)
Repayment of other loans (6,742) - (5,201)
New borrowings 6,203 - 12,447
Return of capital - - (74,442)
Expenses on return of capital - - (365)
(Decrease)/increase in factor financing (8,381) 2,066 (1,377)
-------- -------- --------
Net cash flows from financing (20,378) (8,590) (84,988)
activities -------- -------- --------
Decrease in cash and cash equivalents (54,346) (6,183) (74,421)
Effect of exchange rates on cash and 1 (156) 492
cash equivalents
Cash and cash equivalents at beginning 58,982 132,911 132,911
of period
-------- -------- --------
Cash and cash equivalents at end of 4,637 126,572 58,982
period
======== ======== ========
Analysis of net funds
Cash and cash equivalents 4,637 126,572 58,982
Factor financing (21,148) (33,805) (29,549)
Bank loan - (326) -
-------- -------- --------
Net funds prior to customer-specific (16,511) 92,441 29,433
loans and finance leases
Finance leases (30,218) (646) (11,403)
Other loans (6,707) (1,156) (7,246)
-------- -------- --------
Net funds (53,436) 90,639 10,784
======== ======== ========
Notes to the accounts
1 Accounting policies
Basis of preparation
The unaudited interim financial statements have been prepared on the basis of
the accounting policies set out in the Group's statutory accounts for the year
ended 31 December 2006, with one exception. The revenue on a limited number of
Support and Managed Services contracts has been recognised in line with the
stage of work completed rather than on a straight line basis, where such a basis
does not represent the stage of work completed. The taxation charge is
calculated by applying the Directors' best estimate of the annual tax rate to
the profit for the period. Other expenses are accrued in accordance with the
same principles used in the preparation of the annual accounts.
2 Segment information
The Group's primary reporting format is geographical segments and its secondary
format is business segments. The Group's geographical segments are determined by
the location of the Group's assets and operations. The Group's business in each
geography is managed separately and held in separate statutory entities.
Segmental performance for the period to 30 June 2007 was as follows:
Unaudited Unaudited Year ended
six months six months 31 Dec 2006
ended 30 ended 30
June 2007 June 2006
£'000 £'000 £'000
Revenue by geographic market
UK 671,154 661,095 1,281,498
Germany 340,680 297,671 654,671
France 135,309 141,732 307,264
Benelux 13,190 14,441 26,470
--------- --------- ---------
Total 1,160,333 1,114,939 2,269,903
========= ========= =========
Gross profit by geographic market
UK 95,324 91,115 181,900
Germany 43,339 40,397 83,405
France 14,178 12,606 27,711
Benelux 1,309 1,202 2,450
--------- --------- ---------
Total 154,150 145,320 295,466
========= ========= =========
Operating profit/(loss) by geographic market
UK 11,267 16,432 37,470
Germany 3,779 450 2,788
France (2,111) (5,365) (11,526)
Benelux (111) (82) (191)
--------- --------- ---------
Total 12,824 11,435 28,541
========= ========= =========
Revenue by business segment
Product 873,628 846,831 1,735,210
Professional services 71,088 59,263 128,895
Support and managed services 215,617 208,845 405,798
--------- --------- ---------
Total 1,160,333 1,114,939 2,269,903
========= ========= =========
3 Exceptional items
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
Impairment of property, plant and equipment - - 2,492
Impairment of intangibles - - 114
Redundancy costs - - 2,425
-------- -------- --------
- - 5,031
======== ======== ========
4 Finance costs
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
Bank overdrafts and factor financing 1,537 1,044 1,886
Finance charges payable under customer specific 629 9 403
finance leases and other loans
-------- -------- --------
2,166 1,053 2,289
======== ======== ========
5 Income tax
The charge, based on the profit for the period, comprises:
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
UK Corporation tax
- Current 5,388 6,988 14,421
- Prior - - 76
Deferred tax (107) (569) (774)
Foreign tax 38 15 212
-------- -------- --------
5,319 6,434 13,935
Share of joint venture's tax - - 59
-------- -------- --------
5,319 6,434 13,994
======== ======== ========
6 Dividends
The proposed final dividend for 2006 of 5.0p per ordinary share was approved at
the AGM in May 2007 and was paid on 31 May 2007. An interim dividend in respect
of 2007 of 2.5p per ordinary share, amounting to a total dividend of £3,910,000,
was declared by the Directors at their meeting on 10 September 2007. This
interim report does not reflect this dividend payable.
7 Earnings per share
Basic earnings per share amounts are calculated by dividing the net profit for
the period attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the period adjusted for the effect
of dilutive share options.
The following reflects the income and share data used in the total operations
basic and diluted earnings per share computations:
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
Profit attributable to equity holders of the parent 7,496 8,090 18,927
Amortisation of acquired intangibles attributable to 240 - -
equity holders of the parent
Exceptional items attributable to equity holders of the - - 5,031
parent
-------- -------- --------
Profit before exceptional items and amortisation of 7,736 8,090 23,958
acquired intangibles attributable to equity holders of
the parent
-------- -------- --------
No '000 No '000 No '000
Basic weighted average number of shares (excluding own 157,272 187,753 172,312
shares held)
Effect of dilution:
Share options 2,616 725 1,232
-------- -------- --------
Diluted weighted average number of shares 159,888 188,478 173,544
======== ======== ========
8 Business combinations
Acquisition of Digica Group
On 4 January 2007, the Group acquired 100% of the voting shares of Digica Group
Holdings Ltd ('Digica') for a consideration of £15,835,000, in addition to which
the Group settled the assumed debt of £11,426,000. The costs of acquisition
amounted to £627,000. Digica is a private company, based principally in England,
who specialises in IT infrastructure and application services. Outside of the
UK, Digica operates a purpose built data-centre in Cape Town, South Africa. The
acquisition has been accounted for using the purchase method of accounting. The
interim condensed consolidated financial statements include the results of
Digica for the six month period from the acquisition date.
The book and provisional fair values of the net assets at date of acquisition
were as follows:
Book value Provisional
fair value
to Group
£'000 £'000
Intangible assets
Comprising:
Purchased goodwill 9,784 -
Existing customer contracts - 1,282
Existing customer relationships - 2,275
Trademark - 1,513
Tools and technology - 576
Software 40 40
-------- --------
Total intangible asets 9,824 5,686
Property, plant and equipment 1,216 1,083
Deferred tax assets - 2,000
Inventories 2,561 1,995
Trade and other receivables 2,271 2,271
Prepayments 1,801 1,801
Cash 84 84
Trade payables (2,893) (2,893)
Other payables (2,252) (2,502)
Deferred income (4,562) (4,562)
Deferred tax liabilities - (1,240)
-------- --------
Net assets 8,050 3,723
========
Goodwill arising on acquisition 24,165
--------
27,888
========
Discharged by:
Cash 15,835
Assumed debt 11,426
Costs associated with the acquisition, settled in cash 627
--------
27,888
========
From the date of acquisition, Digica has made a loss of £476,000 on revenues of
£12,148,000.
Included in the £24,165,000 of goodwill recognised above are certain intangible
assets that cannot be individually separated and reliably measured from the
acquiree due to their nature. These items include the expected value of
synergies and an assembled workforce.
Acquisition of Cable & Wireless (Allnet) Ltd
On 3 April 2007, the Group acquired 100% of the voting shares of Cable &
Wireless (Allnet) Ltd ('Allnet') for an initial consideration of £9,265,000 plus
acquisition costs of £201,000. The purchase price shall be subsequently
increased in the event that specific earnings targets are met in the period
April 2007 to March 2010. Allnet is a private company based in England which
provides in-premises cabling services. The acquisition has been accounted for
using the purchase method of accounting. The interim condensed consolidated
financial statements include the results of Allnet for the three month period
from the acquisition date.
The book and provisional fair values of the net assets at date of acquisition
were as follows:
Book value Provisional
fair value
to Group
£'000 £'000
Intangible assets
Comprising:
Trademark - 409
Software 29 29
-------- --------
Total intangible assets 29 438
Property, plant and equipment 658 601
Inventories 1,675 364
Trade receivables 9,499 9,499
Prepayments 1,284 1,284
Cash 4,674 4,674
Trade payables (5,829) (5,829)
Other payables (764) (764)
Deferred income (3,078) (3,078)
-------- --------
Net assets 8,148 7,189
========
Goodwill arising on acquisition 3,277
--------
10,466
========
Discharged by:
Cash 9,265
Contingent consideration 1,000
Costs associated with the acquisition, settled in cash 201
--------
10,466
========
From the date of acquisition, Allnet has contributed £9,823,000 to the Group's
revenue and £162,000 to the net profit of the Group.
If the acquisition had taken place at the beginning of the year, Group revenues
for the year would have been £1,176,573,000 and net profit would have been
£12,910,000.
Included in the £3,277,000 of goodwill recognised above are certain intangible
assets that cannot be individually separated and reliably measured from the
acquiree due to their nature. These items include the expected value of
synergies and an assembled workforce.
9 Cash and cash equivalents
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
Cash and cash equivalents as at the end of the period
comprises:
Cash at bank and in hand 47,352 161,862 17,882
Short term deposits - - 60,000
Bank overdrafts (42,715) (35,290) (18,900)
-------- -------- --------
4,637 126,572 58,982
======== ======== ========
10 Financial assets and liabilities
Customer-specific loans and finance leases
Included within financial liabilities are the following amounts in respect of
other loans and finance leases which are only secured on the assets that they
finance. These assets are used to satisfy specific customer contracts.
Other loans
The other loans are borrowings to finance assets leased to customers on
operating leases.
The maturity profile of these loans is given in the table below:
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
Not later than one year 5,309 743 4,443
After one year but not more than five years 1,398 413 2,803
-------- -------- -------
6,707 1,156 7,246
======== ======== =======
Finance lease commitments
The Group has finance leases for various items of plant and machinery; these
leases have no terms of renewal or purchase options and escalation clauses.
Future minimum lease payments under finance leases are as follows:
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
Within one year 13,918 376 3,501
After one year but not more than five years 19,836 296 10,593
-------- -------- -------
33,754 672 14,094
Less finance charges allocated to future periods 3,536 26 2,691
-------- -------- -------
Present value of minimum lease payments 30,218 646 11,403
======== ======== =======
Operating lease receivables where the Group is lessor
During the period the Group entered into commercial leases with customers on
certain items of machinery.
Future amounts receivable by the Group under the non-cancellable operating
leases are as follows:
Unaudited Unaudited Year
six months six months ended 31
ended 30 ended 30 Dec 2006
June 2007 June 2006
£'000 £'000 £'000
Not later than one year 19,689 672 8,541
After one year but not more than five years 22,246 - 12,723
-------- -------- -------
41,935 672 21,264
======== ======== =======
11 Publication of non-statutory accounts
The financial information contained in the interim statement does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. The
auditors have issued an unqualified opinion on the Group's statutory financial
statements under International Accounting Standards for the year ended 31
December 2006. Those accounts have been delivered to the Registrar of Companies.
This information is provided by RNS
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