Preliminary Results
Computacenter PLC
11 March 2008
COMPUTACENTER PLC
Preliminary Results Announcement
Computacenter plc, the European IT infrastructure services provider, today
announces preliminary results for the twelve months ended 31 December 2007.
FINANCIAL HIGHLIGHTS
Financial performance
• Group revenues up 4.8% to £2.38 billion (2006: £2.27 billion)
• Adjusted* profit before tax up 12.3% to £42.7 million (2006: £38.0
million)
• Adjusted* diluted earnings per share up 34.1% to 18.5p (2006: 13.8p)
• Final dividend of 5.5p per share, total dividend 8.0p (2006: 7.5p)
• Net borrowings before customer-specific financing of £16.2 million
(2006: net funds of £29.4 million)
Statutory performance
• Profit before tax up 27.7% to £42.1 million (2006: £32.9 million)
• Diluted earnings per share up 67.0% to 18.2p (2006: 10.9p)
• Net borrowings of £79.8 million (2006: net funds of £10.8 million)
OPERATING HIGHLIGHTS
• First Group revenue growth since 2003
• UK business enters 2008 with a record contract base and a strong pipeline
of new business across market sectors
• Best ever performance from Computacenter Germany since acquisition with
growth across both product and services
• Significant progress achieved in France driven by key management
initiatives
Mike Norris, Chief Executive of Computacenter plc, commented:
'Computacenter made encouraging progress across the Group in 2007. The strong
performance in the UK in the second half of the year and the gains made
throughout the course of 2007 in Germany and France, allow us to look to the
future with confidence.
'We have for some years been pursuing a strategy of strengthening our services
capabilities, restructuring the cost base of our product supply business,
increasing our mid-market penetration, and upgrading our sales capabilities. We
believe that we have made, and are continuing to make, strong progress in all of
these areas.'
* Adjusted for exceptional items and amortisation of acquired intangibles.
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
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BUSINESS REVIEW
Executive summary
There were many encouraging aspects to Computacenter's performance in 2007. Most
significantly, the Group delivered a 34.1% increase in adjusted* diluted
earnings per share (adjusted* EPS) to 18.5p (2006: 13.8p). This was underpinned
by a strong underlying improvement in adjusted* profit before tax, up 12.3% to
£42.7 million (2006: £38.0 million). The main contributors to profit growth were
our European operations and Germany in particular. Overall Group sales increased
4.8% to £2.38 billion (2006: £2.27 billion). Even allowing for the modest impact
of acquisitions, this is the first time in several years that Computacenter has
achieved revenue growth, and reflects the success that we are having in multiple
market sectors.
On a statutory basis, Group profit before tax increased 27.7% to £42.1 million
(2006: £32.9 million) and diluted earnings per share grew 67.0% to 18.2p (2006:
10.9p).
Efficient use of capital is central to our strategy of delivering shareholder
value. It was with this in mind that we returned £74 million of cash to
shareholders in 2006 and, more recently, have begun to use the strength of our
balance sheet to purchase shares in the market for subsequent cancellation. This
programme began in November and by year-end, 1.5 million shares, representing
0.9% of the issued share capital, had been purchased for this purpose. This was
in addition to the purchase of 4.3 million shares by the Computacenter Employee
Share Ownership Plan to satisfy awards made under the Group's share schemes. The
repurchase programme has continued into 2008 and as at 10 March a further 3.5
million shares had been purchased.
The strong balance sheet continues to serve Computacenter well. At year-end, net
borrowings prior to customer-specific financing were £16.2 million, after cash
acquisition expenses during the year of £32.6 million and £11.3 million spent on
share purchases. The Board is pleased to recommend a final dividend of 5.5p per
share, bringing the total dividend for the year to 8.0p (2006: 7.5p). The
increased dividend is consistent with our stated policy of maintaining the level
of dividend cover within the target range of 2 - 2.5x. The dividend will be paid
on 12 June 2008 to shareholders on the register as at 16 May 2008.
Our performance in Germany, after a lacklustre 2006, was the highlight of the
year. Adjusted* operating profit grew substantially, from £2.6 million in 2006
to £10.4 million, partly due to a substantial reduction in losses associated
with two shared datacentre services contracts announced last year and partly due
to underlying improvements in the business. This is a record performance for
Computacenter Germany. Undoubtedly we were assisted by stronger market
conditions, but this should in no way detract from the achievements of the
German management team, who have been particularly successful in extending our
penetration of the datacentre and networking markets. There is still scope to
improve the service margins in our German business and the prospects for further
growth are encouraging.
The French performance also improved strongly in 2007, with operating losses
reducing to £1.8 million (2006: £6.5 million, prior to £5.0 million of
exceptional charges). Computacenter France remains heavily dependent upon
traditional lines of business, and in particular, the reselling of desktop and
laptop systems. Nonetheless, our efforts to increase the services component of
the business mix there are bearing fruit, with services share of revenue growing
from 11.1% in 2006 to 12.8% in 2007. The management team in France has been
strengthened considerably in recent years and the benefits of this are
increasingly evident. We expect the performance of Computacenter France to
continue to improve, although the business remains heavily dependent on a small
number of key contracts and further effort is needed to broaden the customer
base.
There is also encouragement to be derived from the UK performance. Whilst
adjusted* operating profit decreased to £33.1 million (2006: £37.4 million),
this conceals some significant underlying improvements. Second half performance
was considerably better than the first half and also ahead of the comparable
period in 2006. This arises from the fact that we achieved substantial services
contract base growth during the second half of the year, enabling us to recover
from the 2006 contract losses and to enter 2008 with a considerably stronger
pipeline of business.
Our strategy in the UK has led us to focus increasingly on datacentre
opportunities, and we made useful further progress here in 2007. The acquisition
of Digica was intended to accelerate this development and this business is
performing well. In 2007, sales of personal systems accounted for only 31% of
our UK revenues, down from over 40% in 2004, demonstrating just how much
progress Computacenter has made in shifting its business mix towards the
less-commoditised end of the market.
As stated previously, it is not possible to draw any meaningful conclusions
about current trading until the first quarter has been completed. Like many
companies we are concerned that the current credit crisis will have a negative
effect on market conditions, however to date there is no obvious sign of this
materialising. The strong performance in the UK in the second half of last year
and the gains made throughout the course of 2007 in Germany and France, allow us
to look to the future with confidence. We have for some years been pursuing a
strategy of strengthening our services capabilities, restructuring the cost base
of our product supply business, increasing our mid-market penetration, and
upgrading our sales capabilities. We believe that we have made, and are
continuing to make, strong progress in all of these areas.
Due to his new commitment at Northern Rock, Ron Sandler resigned as
Non-Executive Chairman and from the Computacenter Board on 18 February 2008. A
search to find a permanent replacement led by our senior independent
Non-Executive Director Cliff Preddy is currently in progress.
We would like to thank Ron Sandler for his contribution to Computacenter and
wish him every success.
As ever, the credit for the company's performance belongs to the staff. Their
commitment and hard work throughout the year has been exemplary, and we offer
them our wholehearted thanks.
* Adjusted for exceptional items and amortisation of acquired intangibles.
Adjusted operating profit is stated after charging costs on customer-specific
financing.
Operating statement
Group strategic performance
In 2007, Computacenter made further progress in each of the five strategic
initiatives aimed at ensuring long-term earnings growth.
Accelerating the growth of our contractual services businesses
Our contract base, comprising contract terms typically of five years, is our
most predictable source of revenue and profit. Excluding acquisitions, the
Group's contract base grew a pleasing 15% year on year at constant exchange
rates, with particularly strong UK growth in the second half of the year
resulting in a full recovery from that operation's contract losses of 2006. A
number of high-value long-term contracts were secured, including a new Group
contract with BT, under which Computacenter takes responsibility for fulfilment,
support and related services for BT's 112,000 global desktops across 54
countries. This is the largest services contract negotiated by Computacenter to
date.
Broadening the range and depth of our services activities
Across the Group, we endeavoured to enhance our capability in those areas which
command higher margins and where specialist expertise is in high demand. In
particular, Computacenter sought to extend its capability and its market
penetration in the enterprise service areas of networking and datacentre hosting
and support. To that end, two significant developments in 2007 were the
acquisition of Digica, a datacentre hosting and support company, and Allnet, a
network integration and cabling company. Together, these acquisitions have added
£23 million to the Group's contract base.
Extending our presence in growth markets, and in particular the medium-sized
business segment.
At the smaller-scale end of our client base, our push into the growing
mid-market continued, particularly in the UK, where we invested an additional £4
million through the 2007 income statement, mainly in recruitment of new sales
staff. We are gradually building a presence in this market, with approximately
1,000 new customers trading with us in 2007, and look forward to the return on
this investment in coming years. In addition, our investment in the growing
market for datacentre services yielded a number of important new managed
services contracts and led to increased utilisation of our professional services
staff, lowering operating costs.
Improving the efficiency of our operations by deploying shared services
facilities across our customer base.
We continued to focus on reducing operational costs and improving customer
service through the more effective use of shared resources and tools for service
delivery. In the UK we have established the Shared Services Factory (SSF), a
standard set of tools, facilities and processes that ensures we deliver services
that consistently meet customer requirements at low cost. One component of the
SSF is our new purpose-built International Service Centre in Barcelona. Progress
is being made with similar shared resource initiatives in Germany.
Improving our competitiveness by reducing the cost of sale in our product supply
business.
We continued to implement improved business controls relating to product
purchasing and supply and to invest in our e-commerce systems in order to
streamline the supply business and reduce operating costs.
UK
UK revenues grew by 5.9% to £1.36 billion (2006: £1.28 billion), driven by
strong sales in the datacentre services arena and an improvement in product
revenues. Adjusted* operating profit declined 11.6% to £33.1 million (2006:
£37.4 million), partly due to the 2006 contract losses previously reported and
the renegotiation of our relationship with BT.
Services revenues, excluding the effect of acquisitions, declined 3.5%, with
professional services growth partially compensating for a decline in contractual
revenues. However, a strong H2 recovery in the UK services contract base
resulted in a small contract base increase for the year as a whole, which
translates to an 8.5% increase in the year when taking account of product supply
embedded within services contracts. We therefore enter 2008 with a business
pipeline that more than compensates for the losses of 2006.
During the year, we began to see the results of our strategic initiative aimed
at greater use of shared service facilities, tools and processes. Customers are
increasingly choosing to broaden their relationship with Computacenter due to
our ability to make cost and service commitments based on the use of repeatable
processes and embedded best practice. Our investment in this area led to us
achieving BSI certified accreditation to the ISO/IEC20000 standard for our
centralised Service Desks, including the integrated operations of our Digica
acquisition.
This shared services approach helped secure a number of managed services
contracts. These include a five-year contract with Marks and Spencer worth
approximately £19 million in service revenues and covering product supply and
software licensing, the management of all infrastructure moves and changes,
desktop and server support, managed security, asset management and technology
disposals.
We enjoyed particular success in datacentre services. The strong performance in
this area reported in the first half continued through the rest of the year and
was a key driver of a 19% year-on-year increase, excluding the effect of
acquisitions, in professional services revenues. Our server virtualisation and
consolidation solutions were in particular demand due to the benefits of reduced
costs and increased manageability, as well as related environmental benefits,
which include a significantly reduced power consumption and carbon footprint.
Indeed we won a Supplier Innovation Award from BT for our work on virtualising
and consolidating a number of their UK datacentres, through which we cut their
power consumption by 5,000KW and their carbon footprint by 85%, as well as
reducing their operational expenditure considerably.
In the managed datacentre segment we saw some recovery following a disappointing
start to the year. Our managed datacentre and hosting business, Digica, acquired
in January, performed well in H2, with revenue growth of 11.1% over H1 and an
improved operating profit ahead of expectations.
Our datacentre services were in particular demand in the financial services and
telecoms sectors. An important technology solutions win was with Norwich Union,
where we worked with the customer to consolidate and virtualise its environment
at two datacentres, as well as deploying a new server operating system and
hardware. The project has helped simplify IT management and reduce server
provisioning time from six weeks to less than one. We also secured a contract
with a major financial organisation for a UNIX server architecture redesign and
infrastructure replacement, enabling the customer to expedite its deployment of
new customer products and so reduce time to market.
The acquisition of Allnet in April, a leading provider of network integration
and structured cabling services, has doubled the size of our business in this
sector and we believe will enable us to win increased market share in the
high-growth areas of converged IP based networks and unified communications
projects.
The success of our continuing investment in our software services business led
to 18.7% software revenue growth. In particular, we captured an increased share
of the high value Microsoft licensing market, with our UK market share reaching
a record 9%. A significant win was with a major bank, for which we will be
providing managed procurement and software licence management services. Looking
forward, we expect to see further growth and increased return from our software
business.
Growth in technology solutions projects was a significant driver of related
product sales, where we saw 4.0% growth in sales of networking, server and
storage technology. Sales of personal systems remained broadly flat.
There were indications of customers turning away from purchasing direct from
vendors in favour of vendor-independent services and solutions providers such as
ourselves. Whilst we welcome this as beneficial to organisations looking for
long-term value and service flexibility from their IT partner, it is still too
early to say whether this indicates a long-term trend.
Our continuing success in implementing improved business controls relating to
product purchasing and supply contributed towards an increase in product gross
margins from end-user sales. We also continued to lower the cost of sale through
use of a lighter-touch sales model for product-only clients, enabled through our
deployment of improved e-commerce systems.
Significant product supply wins include technology benchmarking and desktop
supply for Leeds City Council, which also includes disposals management via RDC.
In addition, we secured a nationwide technology refresh contract with
construction company Morgan Sindall, covering supply, asseting, configuration
and installation services.
Our remarketing and recycling arm, RDC, had a good year with a strong finish.
Increased business interest in environmental services contributed towards a
three-fold growth in profits, driven by a 22% increase in service revenues and
36% growth in remarketing revenues.
Continuing the trend of recent years, our UK trade distribution arm, CCD, which
operates in a particularly competitive market, saw sales decline 6.7%. However
our focus on margin generation continues to bear fruit, leading to an increase
in gross profit.
The UK business enters 2008 with a record services contract base and a strong
pipeline of new business. This provides a firm foundation on which to build
revenue and profit growth in 2008 and beyond.
Germany
Computacenter Germany enjoyed strong growth, with revenues increasing 8.2% to
£708.6 million (2006: £654.7 million). More significantly, adjusted* operating
profit grew markedly to £10.4 million (2006: £2.6 million), albeit aided by a
substantial reduction in the losses from the two shared datacentre services
contracts. This is, by some distance, the best profit performance since
Computacenter acquired the CompuNet business from GE at the beginning of 2003.
Revenue growth was across the German business. Services revenues increased by
13.1% and product revenues by 5.8%. This meant our business mix was broadly
unchanged, with around 35% of our revenues coming from services, and 65% from
products.
Growth came from the return on the significant investment we have made in
services and solutions over the last few years, particularly on developing our
managed services and consulting businesses. Our managed services contract base
grew by 22.8% in local currency, including contracts with embedded product
supply, and our professional services revenues grew 9.5%, resulting in a very
pleasing 39.7% revenue growth over just two years. Networking and datacentre
growth also helped boost product sales through the related supply of servers and
other enterprise products.
In addition, we are seeing the benefits of a significant restructure of our
sales organisation, which has led to a more diversified customer base and
enabled us to grow business in the medium-sized enterprise sector.
An upturn in the German IT market, driven by general economic factors, further
helped financial performance. In addition, we benefited from a customer trend
away from contracting out comprehensive outsourcing deals to large enterprise
service providers and towards the kind of selective managed services contracts
in which we specialise.
Growth was achieved with no significant impact on indirect expenses, enabling
the additional volumes and margins to contribute directly to profit. This was
aided by the implementation of new cost control mechanisms during 2006.
We are increasingly recognised in the German services market, with IDC listing
us as one of the country's top ten IT services providers. Significant wins
included a three-year contract with BMW Group for the supply and maintenance of
all network equipment in Germany and a datacentre outsourcing contract with
Immobilienscout 24, which operates Germany's largest Internet real estate
marketplace. We also secured a four-year managed services contract with leading
chemicals manufacturer Solvay, in which we take responsibility for managing the
company's desktops and Wintel servers, as well as providing helpdesk services
across Germany, Austria and Switzerland.
Service margins continued to be under pressure and we began a number of
initiatives in the first half to improve this area. As a result, we saw
significant margin improvement towards the end of 2007 and expect these
initiatives to bear further fruit in years to come.
Our product business enjoyed growth in all areas in 2007. Performance was
particularly strong in our security products business, which grew 23.7% and
reflected organisations' increased concern over data security. Other major
contributors to sales growth were our unified communications and networking
activities.
Sales of personal systems increased by 14.2%, reversing a longstanding trend of
revenue decline in this segment, which was largely attributable to continuing
unit price deterioration.
A notable success was the award of a three-year contract for the supply of
desktop, laptop and PDA equipment, with management of installations, moves and
changes, to healthcare services provider B.Braun.
Our remarketing and recycling arm, RDC, enjoyed sales growth and another
profitable year in Germany, with two major wins from 2006 making a significant
contribution to remarketing margins. The relocation of RDC's new sales and
service delivery team at the German Operations Centre at Kerpen is expected to
help grow RDC business in existing Computacenter accounts.
We expect the economic situation in Germany to support further growth in 2008
and are confident that the business is well placed to make further contributions
to Group profits in years to come.
France
2007 saw a fundamental improvement in the performance of our French business.
Operating loss reduced 73.0% to £1.8 million (2006: loss of £6.5 million prior
to exceptional charges of £5.0 million). This was despite a revenue decline of
7.0% to £285.7 million (2006: £307.3 million), due largely to a challenging
product market. This dramatic improvement was brought about by a number of key
management initiatives.
In order to address the issues of a highly competitive product marketplace and a
15% average price decline in product prices, we adopted a more commercially
innovative and selective approach to the provisioning of hardware. This was
supported by the introduction of a new reward scheme for our sales force at the
start of the year and by a new focus on the growth of our regional business. The
result was improved gross profit in the product business, despite the
anticipated 8.8% fall in product revenues.
A similarly selective approach in our services business, together with a
sharpened focus on quality of service and customer satisfaction, yielded a 7.1%
improvement in services revenues and a substantial 24.1% increase in gross
profit.
The continuing success of our maintenance services also contributed to the
improved financial performance. Our maintenance business recorded a 19% increase
in revenue and a substantial increase in gross profit, despite an overall French
market for these services that shows zero growth.
The cost of running the business was again managed down, with operating costs
falling by 4.2%.
The second half of 2007 saw Computacenter France record a profit for the first
time since 2001. Significant renewals included a five-year extension of our
global hardware and maintenance service for a leading medical services company,
a four-year renewal of our third largest managed services contract with a major
pharmeceuticals company and a four-year extension of our product supply contract
with the CEA, the French Government's Atomic Research Authority.
New customer wins include a four-year product supply and maintenance contract
with the Paris Mayor's office, Marie de Paris, worth £17 million, and a
three-year contract to provide most of the Northern French hospitals, Groupement
Inter-Hospitalier du Nord, with services including product specification,
installation, helpdesk and support worth up to £24 million.
2007 represents a step change in the performance of our French operation. Whilst
much remains to be done, particularly in broadening the customer base, we have
an opportunity to build on this progress in 2008 and beyond.
Benelux
Our Benelux operation recorded a reduced operating loss of £44,000 (2006: loss
of £191,000). The small loss was principally due to increased investment in the
Luxembourg sales organisation.
Product supply activities recorded an improved performance, both from
traditional volume business as well as new enterprise solutions business. The
profit contribution from managed services also grew significantly on the back of
high IT resource demand, particularly in Belgium.
Major wins included enterprise solutions projects at CMI, Pioneer Europe, and
BDO Atrio in Belgium as well as a unified communications project at Luxpet in
Luxembourg.
*Operating profit is adjusted for exceptional items and amortisation of acquired
intangibles and is stated after charging costs on customer-specific financing
Adjusted operating profit
Management measure the Group's operating performance using adjusted operating
profit, which is stated prior to amortisation of acquired intangibles and
exceptional items, and after charging finance costs on customer-specific
financing for which the Group receives regular rental income. The table below
shows the reconciliation between statutory and adjusted operating profit by
geographical segment for 2007 and 2006:
UK Germany France Benelux Total
£'000 £'000 £'000 £'000 £'000
2007
Operating profit 33,957 10,942 (1,754) (44) 43,101
Add back
Amortisation of acquired
intangibles 481 132 - - 613
After charging
Finance costs on customer-specific
financing (1,339) (686) - - (2,025)
-------- -------- -------- -------- --------
Adjusted Operating Profit 33,099 10,388 (1,754) (44) 41,689
======== ======== ======== ======== ========
2006
Operating profit 37,470 2,788 (11,526) (191) 28,541
Add back
Exceptional items - - 5,031 - 5,031
Amortisation of acquired
intangibles - 46 - - 46
After charging
Finance costs on customer-specific
financing (39) (262) - - (301)
-------- -------- -------- -------- --------
Adjusted Operating Profit 37,431 2,572 (6,495) (191) 33,317
======== ======== ======== ======== ========
Consolidated income statement
For the year ended 31 December 2007
2007 2006
Note £'000 £'000
Revenue 3 2,379,141 2,269,903
Cost of sales (2,053,333) (1,974,437)
---------- ----------
Gross profit 325,808 295,466
Distribution costs (18,344) (19,075)
Administrative expenses (263,750) (242,773)
---------- ----------
Operating profit:
Before amortisation of acquired 43,714 33,618
intangibles and exceptional items
Amortisation of acquired intangibles (613) (46)
---------- ----------
Operating profit before exceptional items 43,101 33,572
Impairment of non-current assets - (2,606)
Redundancy costs - (2,425)
---------- ----------
Operating profit 43,101 28,541
Finance revenue 3,910 6,677
Finance costs (4,952) (2,289)
---------- ----------
Profit before tax:
Before amortisation of acquired 42,672 38,006
intangibles and exceptional items
Amortisation of acquired intangibles (613) (46)
---------- ----------
Profit before tax before exceptional 42,059 37,960
items
Impairment of non-current assets - (2,606)
Redundancy costs - (2,425)
---------- ----------
Profit before tax 42,059 32,929
Income tax expense 4 (13,161) (13,994)
---------- ----------
Profit for the year 28,898 18,935
---------- ----------
Attributable to:
Equity holders of the parent 28,888 18,927
Minority interests 10 8
---------- ----------
28,898 18,935
---------- ----------
Earnings per share 5
- basic for profit for the year 18.5p 11.0p
- diluted for profit for the year 18.2p 10.9p
Consolidated balance sheet
As at 31 December 2007
2007 2006
Note £'000 £'000
Non-current assets
Property, plant and equipment 116,444 84,874
Intangible assets 45,185 9,945
Deferred income tax asset 8,190 6,166
-------- --------
169,819 100,985
-------- --------
Current assets
Inventories 110,535 94,586
Trade and other receivables 454,155 427,319
Prepayments 27,936 28,729
Accrued income 33,445 21,706
Forward currency contracts - 111
Cash and short-term deposits 7 29,211 77,882
-------- --------
655,282 650,333
-------- --------
Total assets 825,101 751,318
-------- --------
Current liabilities
Trade and other payables 336,971 315,846
Deferred income 74,686 77,714
Financial liabilities 74,363 55,736
Forward currency contracts 369 -
Income tax payable 7,899 8,394
Provisions 2,180 2,132
-------- --------
496,468 459,822
-------- --------
Non-current liabilities
Financial liabilities 34,652 11,362
Provisions 12,225 12,839
Other non-current liabilities 1,685 917
Deferred income tax liabilities 1,875 1,249
-------- --------
50,437 26,367
-------- --------
Total liabilities 546,905 486,189
-------- --------
Net assets 278,196 265,129
======== ========
Capital and reserves
Issued capital 9,504 9,571
Share premium 2,890 2,247
Capital redemption reserve 74,627 74,542
Own shares held (11,380) (2,503)
Foreign currency translation reserve 1,507 (2,455)
Retained earnings 201,035 183,700
-------- --------
Shareholders' equity 278,183 265,102
Minority interest 13 27
-------- --------
Total equity 278,196 265,129
======== ========
Approved by the Board on 10 March 2008
MJ Norris Chief Executive FA Conophy Finance Director
Consolidated statement of changes in equity
For the year ended 31 December 2007
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 - - - - (698) - (698) - (698)
------- ------- -------- ------ ------- ------- ------ ------ --------
Net expenses
recognised
directly in
equity - - - - (698) - (698) - (698)
Profit for
the year - - - - - 18,927 18,927 8 18,935
------- ------- -------- ------ ------- ------- ------ ------ --------
Total
recognised
income and
expenses for
the year - - - - (698) 18,927 18,229 8 18,237
Cost of
share-based
payment - - - - - 1,411 1,411 - 1,411
Exercise of 66 2,317 - - - - 2,383 - 2,383
options
Bonus issue 74,442 (74,442) - - - - - - -
Expenses on - (308) - - - - (308) - (308)
bonus issue
Share
redemption (74,442) - 74,442 - - (73,886) (73,886) - (73,886)
Expenses on
share
redemption - - - - - (56) (56) - (56)
Equity
dividends - - - - - (13,326) (13,326) - (13,326)
------- ------- -------- ------ ------- ------- ------ ------ --------
66 (72,433) 74,442 - (698) (66,930) (65,553) 8 (65,545)
------- ------- -------- ------ ------- ------- ------ ------ --------
At 31 9,571 2,247 74,542 (2,503) (2,455) 183,700 265,102 27 265,129
December 2006 ======= ======= ======== ====== ======= ======= ====== ====== ========
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 - - - - 3,962 - 3,962 - 3,962
------- ------- -------- ------ ------- ------- ------ ------ --------
Net income
recognised
directly in
equity - - - - 3,962 - 3,962 - 3,962
Profit for
the year - - - - - 28,888 28,888 10 28,898
------- ------- -------- ------ ------- ------- ------ ------ --------
Total
recognised
income and
expenses for
the year - - - - 3,962 28,888 32,850 10 32,860
Cost of
share-based
payment - - - - - 2,659 2,659 - 2,659
Exercise of
options 18 643 - 49 - - 710 - 710
Purchase of
own shares - - - (11,332) - - (11,332) - (11,332)
Cancellation
of own shares (85) - 85 2,406 - (2,406) - - -
Equity
dividends - - - - - (11,806) (11,806) - (11,806)
Acquisition
of minority
interests - - - - - - - (24) (24)
------- ------- -------- ------ ------- ------- ------ ------ --------
(67) 643 85 (8,877) 3,962 17,335 13,081 (14) 13,067
------- ------- -------- ------ ------- ------- ------ ------ --------
At 31
December
2007 9,504 2,890 74,627 (11,380) 1,507 201,035 278,183 13 278,196
======= ======= ======== ====== ======= ======= ====== ====== ========
Consolidated cash flow statement
For the year ended 31 December 2007
2007 2006
Notes £'000 £'000
Operating activities
Operating profit 43,101 28,541
Adjustments to reconcile Group operating
profit to net cash inflows from operating
activities
Depreciation 27,130 14,585
Amortisation 3,547 1,907
Share-based payment 2,659 1,411
Impairment of property, plant and equipment - 2,492
Loss on disposal of property, plant and 190 353
equipment
Impairment of intangible assets 86 114
Loss on disposal of intangible assets - 9
Dividend received from associate - 202
(Increase)/decrease in inventories (8,724) 4,560
Increase in trade and other receivables (1,470) (35,498)
(Decrease)/increase in trade and other (19,976) 6,895
payables
Currency and other adjustments (218) 5
-------- --------
Cash generated from operations 46,325 25,576
Income taxes paid (13,853) (11,994)
-------- --------
Net cash flow from operating activities 32,472 13,582
-------- --------
Investing activities
Interest received 3,885 6,600
Acquisition of subsidiaries, net of cash (32,600) -
acquired
Sale of property, plant and equipment 336 24
Purchases of property, plant and equipment (8,620) (7,504)
Purchases of intangible assets (5,619) (2,499)
Acquisition of minority interests (30) -
Sale of interest in associate - 364
-------- --------
Net cash flow from investing activities (42,648) (3,015)
-------- --------
Financing activities
Interest paid (5,333) (2,152)
Dividends paid to equity shareholders of the (11,806) (13,326)
parent
Proceeds from share issues 661 2,383
Purchase of own shares (11,332) -
Repayment of capital element of finance (12,195) (2,629)
leases
Repayment of loans (11,103) (5,527)
New borrowings 19,832 12,447
Return of capital - (74,442)
Expenses on return of capital - (365)
Decrease in factor financing (8,743) (1,377)
-------- --------
Net cash flow from financing activities (40,019) (84,988)
-------- --------
Decrease in cash and cash equivalents (50,195) (74,421)
Effect of exchange rates on cash and cash (1,521) 492
equivalents
Cash and cash equivalents at the beginning of 7 58,982 132,911
the year -------- --------
Cash and cash equivalents at the year end 7 7,266 58,982
======== ========
Analysis of changes in net funds
At 1 Cash flows Non-cash Exchange At 31
January in year flow differences December
2007 2007
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 58,982 (50,195) - (1,521) 7,266
Factor financing (29,549) 8,743 - (2,647) (23,453)
-------- --------- -------- -------- --------
Net funds/(debt) prior to 29,433 (41,452) - (4,168) (16,187)
customer-specific financing
Finance leases (11,403) 12,195 (47,768) (666) (47,642)
Other loans (7,246) (8,729) - - (15,975)
-------- --------- -------- -------- --------
Net funds/(debt) 10,784 (37,986) (47,768) (4,834) (79,804)
======== ========= ======== ======== ========
Notes to the consolidated financial statements
For the year ended 31 December 2007
1 Authorisation of financial statements and statement of compliance with IFRS
The consolidated financial statements of Computacenter plc for the year ended 31
December 2007 were authorised for issue in accordance with a resolution of the
Directors on 10 March 2008. The balance sheet was signed on behalf of the Board
by MJ Norris and FA Conophy. Computacenter plc is a limited company incorporated
and domiciled in England whose shares are publicly traded.
The Group's financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS), as adopted by the European
Union as they apply to the financial statements of the Group for the year ended
31 December 2007 and applied in accordance with the Companies Act 1985.
2 Summary of significant accounting policies
Basis of preparation
The consolidated financial statements are presented in sterling and all values
are rounded to the nearest thousand (£'000) except when otherwise indicated.
Basis of consolidation
The consolidated financial statements comprise the financial statements of
Computacenter plc and its subsidiaries as at 31 December each year. The
financial statements of subsidiaries are prepared for the same reporting year as
the parent company, using existing GAAP in each country of operation.
Adjustments are made to translate any differences that may exist between the
respective local GAAPs and IFRS.
All intra-group balances, transactions, income and expenses and profit and
losses resulting from intra-group transactions that are recognised in assets,
have been eliminated in full.
Subsidiaries are consolidated from the date on which the Group obtains control
and cease to be consolidated from the date on which the Group no longer retains
control.
Minority interests represent the portion of profit or loss and net assets in
subsidiaries that is not held by the Group and is presented separately within
equity in the consolidated balance sheet, separately from parent shareholders'
equity.
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous
financial year except as described below:
The Group has adopted the following new and amended IFRS and IFRIC
interpretations during the year. Adoption of these standards did not have any
effect on the financial performance or position of the Group. They did however
give rise to additional disclosures:
IFRS 7 Financial Instruments: Disclosures
This standard requires disclosures that enable users of the financial statements
to evaluate the significance of the Group's financial instruments and the nature
and extent of risks arising from those financial instruments. The new
disclosures are included throughout the financial statements. Whilst there has
been no effect on the financial position or results, comparative information has
been revised where needed.
IAS 1 Presentation of Financial Statements
The amendment requires the Group to make new disclosures to enable users of the
financial statements to evaluate the Group's objectives, policies and processes
for managing capital. These new disclosures are shown in note 24.
IFRIC 11 IFRS 2 Group and Treasury Share Transactions
The Group has elected to early adopt IFRIC Interpretation 11 as of January 2007,
insofar as it applies to consolidated financial statements. This interpretation
requires arrangements whereby an employee is granted rights to an entity's
equity instruments to be accounted for as an equity-settled scheme.
3 Segmental analysis
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.
Each geographical business contains the following three business segments: -
• the Product segment supplies computer hardware and software to large and
medium corporate and government customers and to other distributors. It
includes the resale of third party services for which the group retains no
risks or rewards post sale; and
• the Professional Services segment provides technical and project
management skills to enable customers in the corporate and government
sectors to implement and integrate new technologies into their
infrastructures; and
• the Support and Managed Services segment provides an outsourcing service
for specific areas of infrastructure management to customers in the
corporate and government sectors.
The sale of goods is reported in the Product segment. The rendering of services
is reported in the Professional Services and Support and Managed Services
segments.
Transfer prices between geographical segments are set on an arm's length basis
in a manner similar to transactions with third parties. The impact of
inter-segment sales on operating profit by segment is not significant.
Geographical segments
The following tables present revenue, expenditure and certain asset information
regarding the Group's geographical segments for the years ended 31 December 2007
and 2006:
UK Germany France Benelux Total
£'000 £'000 £'000 £'000 £'000
Year ended 31 December
2007
Revenue
Sales to external
customers 1,357,305 708,581 285,698 27,557 2,379,141
Inter-segment sales 13,094 19,529 1,373 4,014 38,010
------- ------- ------- ------- --------
Segment revenue 1,370,399 728,110 287,071 31,571 2,417,151
======= ======= ======= ======= ========
Result
Gross profit 197,185 94,202 31,501 2,920 325,808
Distribution costs (10,572) (3,700) (3,855) (217) (18,344)
Administrative expenses (152,175) (79,428) (29,400) (2,747) (263,750)
------- ------- ------- ------- --------
Operating result before
amortisation of acquired
intangibles 34,438 11,074 (1,754) (44) 43,714
Amortisation of acquired
intangibles (481) (132) - - (613)
------- ------- ------- ------- --------
Segment operating result 33,957 10,942 (1,754) (44) 43,101
------- ------- ------- ------- --------
Net finance income/
(expense) 2,536 (1,842) (1,613) (123) (1,042)
------- ------- ------- ------- --------
Profit before tax 36,493 9,100 (3,367) (167) 42,059
Income tax expense (13,161)
--------
Profit for the year 28,898
========
Assets and liabilities
Total segment assets 578,522 186,480 56,379 3,720 825,101
======= ======= ======= ======= ========
Total segment liabilities 293,033 152,534 95,763 5,575 546,905
======= ======= ======= ======= ========
Other segment information
Capital expenditure:
Property, plant and
equipment 42,914 12,759 648 67 56,388
Intangible fixed assets 3,195 2,239 185 - 5,619
======= ======= ======= ======= ========
Depreciation 22,319 4,705 - 106 27,130
Amortisation 2,985 451 111 - 3,547
======= ======= ======= ======= ========
Share-based payment 2,197 326 136 - 2,659
------- ------- ------- ------- --------
UK Germany France Benelux Total
£'000 £'000 £'000 £'000 £'000
Year ended 31 December
2006
Revenue
Sales to external
customers 1,281,498 654,671 307,264 26,470 2,269,903
Inter-segment sales 8,601 11,734 764 3,336 24,435
------- ------- ------- ------- --------
Segment revenue 1,290,099 666,405 308,028 29,806 2,294,338
======= ======= ======= ======= ========
Result
Gross profit 181,900 83,405 27,711 2,450 295,466
Distribution costs (11,765) (3,646) (3,521) (143) (19,075)
Administrative expenses (132,665) (76,925) (30,685) (2,498) (242,773)
------- ------- ------- ------- --------
Operating result before
amortisation of acquired
intangibles and
exceptional items 37,470 2,834 (6,495) (191) 33,618
Amortisation of acquired - (46) - - (46)
intangibles ------- ------- ------- ------- --------
Operating result before
exceptional items 37,470 2,788 (6,495) (191) 33,572
Exceptional items - - (5,031) - (5,031)
------- ------- ------- ------- --------
Segment operating result 37,470 2,788 (11,526) (191) 28,541
======= ======= ======= ======= ========
Net finance income/
(expense) 6,834 (882) (1,475) (89) 4,388
------- ------- ------- ------- --------
Profit before tax 44,304 1,906 (13,001) (280) 32,929
Income tax expense (13,994)
--------
Profit for the year 18,935
========
Assets and liabilities
Total segment assets 506,177 166,611 76,342 2,188 751,318
------- ------- ------- ------- --------
Total segment liabilities 223,296 145,382 112,679 4,832 486,189
------- ------- ------- ------- --------
Other segment information
Capital expenditure:
Property, plant and
equipment 10,387 9,557 852 89 20,885
Intangible fixed assets 1,922 495 82 - 2,499
------- ------- ------- ------- --------
Depreciation 11,262 2,283 936 104 14,585
Amortisation 1,551 293 63 - 1,907
------- ------- ------- ------- --------
Share-based payment 1,173 202 28 8 1,411
------- ------- ------- ------- --------
Business segments
The following tables present revenue information regarding the Group's business
segments for the years ended 31 December 2007 and 2006.
Product Professional Support Total
Services and
Managed
Services
Year ended 31 £'000 £'000 £'000 £'000
December 2007
Revenue
Sales to external
customers 1,774,164 158,488 446,489 2,379,141
Inter-segment sales 7,563 9,559 20,888 38,010
------- --------- --------- -------
Segment revenue 1,781,727 168,047 467,377 2,417,151
======= ========= ========= =======
Product Professional Support Total
Services and
Managed
Services
Year ended 31 £'000 £'000 £'000 £'000
December 2006
Revenue
Sales to external
customers 1,735,210 128,895 405,798 2,269,903
Inter-segment sales 3,865 2,723 17,847 24,435
------- --------- --------- -------
Segment revenue 1,739,075 131,618 423,645 2,294,338
======= ========= ========= =======
Business segments provide the Group with common business performance reporting
across geographic segments that are structured and organised differently. Due to
invoice bundling and shared service and business support structures, revenue and
gross profit involves allocation judgements. Each geographic segment principally
consists of a single entity with shared assets, liabilities and capital
expenditure. Investment decisions are made either at the level of or within a
geographic segment, but are not made at a business segment level. It is,
therefore, not possible to split out assets, liabilities and capital expenditure
information by business segments.
4 Income tax
a) Tax on profit on ordinary activities
2007 2006
£'000 £'000
Tax charged in the income statement
Current income tax
UK corporation tax 13,420 14,421
Foreign tax 113 212
Adjustments in respect of prior periods (385) 76
Consortium relief - 59
-------- --------
Total current income tax 13,148 14,768
======== ========
Deferred tax
Origination and reversal of temporary
differences (1,372) (499)
Losses utilised 3,417 -
Effect of changes in tax rate on deferred
tax (49) -
Effect of changes in tax rate on German
deferred tax asset 635 -
Changes in recoverable amounts of deferred
tax assets (2,747) (275)
Adjustments in respect of prior periods 129
-------- --------
Total deferred tax 13 (774)
-------- --------
Tax charge in the income statement 13,161 13,994
======== ========
b) Reconciliation of the total tax charge
2007 2006
£'000 £'000
Accounting profit before tax 42,059 32,929
-------- --------
At the UK standard rate of corporation tax
of 30% (2006: 30%) 12,618 9,879
Expenses not deductible for tax purposes 643 724
Relief on share option gains (78) (218)
Non-deductible element of share-based
payment charge 506 423
Adjustments in respect of current income tax
of previous periods (256) (214)
Higher tax on overseas earnings 859 49
Effect of changes in tax rate on deferred
tax (49) -
Accounting depreciation in excess of tax
depreciation - 21
Other differences (149) (616)
Changes in recoverable amounts of deferred
tax assets (2,747)
Effect of change in rate of overseas
deferred tax asset 635
Consortium relief - 59
Profit of overseas undertakings not taxable
due to brought forward loss offset - (154)
Losses of overseas undertakings not
available for relief 1,179 4,041
-------- --------
At effective income tax rate of 31.3% (2006:
42.6%) 13,161 13,994
======== ========
Corporation tax is calculated at 30% of the estimated assessable profit for the
year. Based on future legislation of the Government in the United Kingdom the
corporation tax will be calculated at 28% of assessable profit from 1 April
2008. This has resulted in an increase to the closing deferred tax balances in
the UK of £49,000.
From 1 January 2008 the Corporate Tax rate in Germany reduced to 30% from 40%.
This has resulted in a £635,000 reduction in the deferred tax asset recognised
in respect of losses carried forward.
c) Tax losses
Deferred tax assets of £6.5 million (2006: £5.5 million) have been recognised in
respect of losses carried forward. In addition, at 31 December 2007, there were
unused tax losses across the Group of £169.6 million (2006 : £153.1 million) for
which no deferred tax asset has been recognised. Of these losses, £116.5 million
(2006 : £107.6 million) arise in Germany, albeit a significant proportion have
been generated in statutory entities that no longer have significant levels of
trade. The remaining unrecognised tax losses relate to other loss-making
overseas subsidiaries.
5 Earnings per ordinary share
Earnings per share (EPS) amounts are calculated by dividing profit attributable
to ordinary equity holders by the weighted average number of ordinary shares
outstanding during the year (excluding own shares held).
Diluted earnings per share amounts are calculated by dividing profit
attributable to ordinary equity holders by the weighted average number of
ordinary shares outstanding during the year (excluding own shares held) adjusted
for the effect of dilutive options.
Adjusted basic and adjusted diluted EPS are presented to provide more comparable
and representative information. Accordingly the adjusted basic and adjusted
diluted EPS figures exclude amortisation of acquired intangibles and exceptional
items.
2007 2006
£'000 £'000
Profit attributable to equity holders of the
parent 28,888 18,927
Amortisation of acquired intangibles 613 46
Tax on amortisation of acquired intangibles (184) (14)
Exceptional items attributable to equity holders - 5,031
of the parent
-------- --------
Before amortisation of acquired intangibles and
exceptional items 29,317 23,990
======== ========
2007 2006
000's 000's
Basic weighted average number of shares (excluding 156,117 172,312
own shares held)
Effect of dilution:
Share options 2,202 1,232
-------- --------
Diluted weighted average number of shares 158,319 173,544
======== ========
2007 2006
pence pence
Basic earnings per share 18.5 11.0
Diluted earnings per share 18.2 10.9
Adjusted basic earnings per share 18.8 13.9
Adjusted diluted earnings per share 18.5 13.8
Subsequent to the reporting date the Company has repurchased a further 3,537,600
of its own shares for cancellation.
6 Dividends paid and proposed
2007 2006
£'000 £'000
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2006: 5.0p (2005: 5.2p) 7,872 9,405
Interim for 2007: 2.5p (2006: 2.5p) 3,934 3,921
-------- --------
11,806 13,326
======== ========
Proposed for approval at AGM (not recognised as
a liability as at 31 December)
Equity dividends on ordinary shares:
Final dividend for 2007: 5.5p (2006: 5.0p) 7,997 7,856
======== ========
7 Cash and short-term deposits
2007 2006
£'000 £'000
Cash at bank and in hand 19,211 17,882
Short-term deposits 10,000 60,000
-------- --------
29,211 77,882
======== ========
Cash at bank and in hand earns interest at floating rates based on daily bank
deposit rates. Short-term deposits are made for varying periods of between one
day and three months depending on the immediate cash requirements of the Group,
and earn interest at the respective short-term deposit rates. The fair value of
cash and cash equivalents is £29,211,000 (2006: £77,882,000).
At 31 December 2007, the Group had available £148.1 million (2006:£ 132.9
million) of uncommitted overdraft and factoring facilities.
For the purposes of the consolidated cash flow statement, cash and cash
equivalents comprise the following at 31 December:
2007 2006
£'000 £'000
Cash at bank and in hand 19,211 17,882
Short-term deposits 10,000 60,000
Bank overdrafts (21,945) (18,900)
-------- --------
7,266 58,982
======== ========
8 Customer-specific leases and loans
a) Other loans
The other loans are unsecured borrowings to finance equipment sold to customers
on specific contracts.
The table below summarises the maturity profile of these loans:
2007 2006
£'000 £'000
Not later than one year 11,571 4,443
After one year but not more than five years 4,404 2,803
-------- --------
15,975 7,246
======== ========
b) Finance lease commitments
The finance leases are only secured on the assets that they finance. These
assets are used to satisfy specific customer contracts.
The present value of the net minimum lease payments are as follows:
2007 2006
£'000 £'000
Within one year 17,394 2,844
After one year but not more than 30,248 8,559
five years -------- --------
47,642 11,403
======== ========
c) Operating lease commitments where the Group is lessor
During the year the Group entered into commercial leases with customers on
certain items of machinery. These leases have remaining terms of between one and
five years.
Future amounts receivable by the Group under the non-cancellable operating
leases as at 31 December are as follows:
2007 2006
£'000 £'000
Not later than one year 26,064 8,541
After one year but not more than 27,752 12,723
five years ------- --------
53,816 21,264
======= ========
The amounts receivable are directly related to the finance lease obligations
detailed in note 8b.
9 Post balance sheet event
On 10 January 2008 the Company entered into an agreement with its stockbrokers,
Credit Suisse, to purchase during the Close Period, its own Ordinary Shares to a
maximum of four million shares with a maximum value of £8,000,000. A further
3,537,600 shares had been repurchased for cancellation between the reporting
date and 10 March 2008 for a value of £6,054,000.
10 Publication of non-statutory accounts
The financial information in the preliminary statement of results does not
constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985 (the 'Act'). The financial information for the year ended 31
December 2007 has been extracted from the statutory accounts on which an
unqualified audit opinion has been issued. Statutory accounts for the year
ended 31 December 2007 will be delivered to the Registrar of Companies following
the Company's Annual General Meeting.
The financial statements, and this preliminary statement, of the Group for the
year ended 31 December 2007 were authorised for issue by the Board of Directors
on 10 March 2008 and the balance sheet was signed on behalf of the Board by MJ
Norris and FA Conophy.
The statutory accounts have been delivered to the Registrar of Companies in
respect of the year ended 31 December 2006 and the Auditors of the Company made
a report thereon under Section 235 of the Act. That report was an unqualified
report and did not contain a statement under Section 237(2) or (3) of the Act.
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