Final Results
Synstar PLC
4 December 2000
SYNSTAR Plc
Robust performance and strong order book
Synstar Plc, the pan-European IT services group, today announced its
preliminary results for the year ended 30 September 2000.
Highlights
* Order book 8% higher at £246m (1999: £228m)
* Contract wins/renewals during the year include CSC, BA, Galileo, Reuters,
Vodafone, L'Oreal
* Business recovery seats up by a third to 2,320 (1999: 1,754)
* Turnover increased by 10% to £236m (1999: £214m)
* Operating profit before goodwill and exceptional items £9.9m (1999: £12.9m)
* Basic EPS adjusted for goodwill and exceptional items 3.1p (1999: 4.6p)
Commenting on the results, Richard Ferre, Chief Executive of Synstar Plc,
said:
'Synstar emerged in good shape from a year which saw some slowdown in spending
on traditional IT services by major corporates. We have a strong portfolio of
customers, a healthy balance sheet, a robust service product and a
pan-European presence. The company is well placed to come through this
turbulent period for the industry in a position of strength.'
Ends.
There will be a presentation for analysts at 1000hrs this morning at GCI
Financial, 80 Cannon Street, EC4N 6ER. Please call Geoff Callow on 020 7398
0829 if you would like to attend.
For Further Information:
Synstar Plc: 01344 662700
Richard Ferre / Stephen Gleadle
GCI Financial: 020 7398 0800
Roger Leboff / Nick Lambert / Geoff Callow
CHAIRMAN'S STATEMENT
An evolving company in an evolving market
Market trends
Trading conditions last year were very difficult for many companies across
large parts of the IT services sector. The underwhelming technical impact of
the Millennium Bug was not achieved without enormous focused effort by the
industry. Such a demanding, if exceptional, event was bound to create
dislocation, and has indeed helped produce unpredictable and volatile post-Y2K
market conditions.
Against this thorny background, Synstar maintained its position and, in
certain areas, improved it. Our eminence as a provider of high quality,
'primary care' services - the kind of basic support that is vital to a
business's operations - has again served us as well as it serves our
customers.
Corporate IT spending continues its switch from older, legacy applications to
those based on the newer, web-enabled technologies. Amid all the changes, the
considerable extent to which these new applications, just as much as their
predecessors, rely fundamentally on precisely the type of core services which
are Synstar's great strength.
As our first taste of the new millennium has demonstrated, Synstar's
quintessential role in corporate IT places us very well to retain and develop
our blue chip customer base.
Placing Synstar in its market
The Synstar service begins with analysis of the customer's real IT service
needs and proceeds to the tailoring of a specific service offering to meet
them. As customers grow and develop their businesses and the IT applications
that support them, this approach provides Synstar with regular opportunities
to extend the services we provide in support of that expansion.
During the two months following our year-end we have seen indications that
Y2K-induced spending caution is ending and that opportunities to grow even our
biggest customer relationships are re-emerging. For instance, Synstar has
recently expanded significantly the services it provides to both Galileo and
Vodafone. Throughout the UK and Western Europe we continue to win and retain
the trust of blue chip organisations in every corner of the commercial world -
in defence, telecommunications, utilities, banking, retail, aerospace, the
public sector, IT and automotive.
Products & Services
Synstar operates in two principal areas, both of which secure the availability
of a customer's critical IT services: Computer Services and Business
Continuity Services. The Computer Services business offers
manufacturer-independent hardware and software support for a wide variety of
computer products, as well as desktop management, storage management,
networking and computer repair services. Business Continuity provides
comprehensive business continuity consultancy, planning and disaster recovery
services, providing both fixed and mobile stand-by facilities to organisations
in crisis.
The Business Continuity market is developing rapidly and we are adding more
focus to the management of this area seeking to ensure that the best return is
achieved from our considerable investment in this fast-changing field.
Although Computer Services is often seen as a less glamorous segment of IT
services, and one that is by no means the fastest growing, our company's
unique attractions do, nonetheless, offer the real opportunity for Synstar to
grow significantly by expanding what is, at the moment, a small share of a
European market which IDC's research estimates to be worth some £12 billion.
Customer base
Synstar has demonstrated the strength of its customer relationships during the
year by renewing and extending its contracts with CSC, ITNet and BA, among
many others.
Such expansion of business with our existing customer base formed the bulk for
the year's growth in contracted revenues. New customers were added, but
activity levels in this regard were down on previous years. However, the
pipeline has grown towards year-end and the new financial year has started on
a much more positive note.
Employees
With over 3,000 employees across Europe, the majority of them directly
involved in delivering our services, Synstar has recognised and embraced the
challenge of building an integrated, enabling culture and working environment
in which every individual is recognised, valued, equipped and motivated to
contribute positively to the achievement of our collective goals. The skills
and experience employees take with them to the customer are critical to our
success, and our development programmes, both professional and
manufacturer-based, reflect this. Some - for example Cisco, Microsoft, Novell
and Compaq accreditations - are driven by the market place and our
determination to bring leading edge skills to bear on our customers' problems.
Others are driven by an individual's aspirations, and such personal
development work has ranged from technical and non-technical NVQs to MBAs.
I would like to take this opportunity to thank all our staff for their hard
work. In what was an exceptionally difficult year, they performed with skill
and dedication.
Structure
We have made some changes to the Executive Team to give better focus to key
areas of the business.
In line with our declared intention to run Business Continuity with greater
particular focus, Steve Hill has been appointed to the newly-created position
of Managing Director of Synstar Business Continuity. He now carries direct
responsibility for the further development of this exciting business.
To ensure we achieve our detailed plans for continued organic growth across
the business, Frank Bulthe, previously General Manager for Belgium - our
fastest growing subsidiary - has been appointed Group Sales Director. In this
new role he will oversee completion of a number of initiatives aimed at
ensuring that, wherever we operate, we deliver and sell a full range of
services.
As a result, the role of Chief Operations Officer held by Steve Bolton has
ceased to exist. Steve has assumed the role of Strategic Alliances and
Partnerships Director until May 2001, when he will leave the Group. He has
resigned from the board of Synstar Plc.
Following these changes, on 21 November the Board of Synstar announced the
appointment of Steve Vaughan to the role of Chief Executive - Steve will take
over from Richard Ferre on 1st January 2001.
Steve Vaughan has had a very successful career in EDS; his background equips
him ideally for the challenge of ensuring that Synstar achieves its full
potential. I am extremely pleased to welcome him to Synstar and look forward
to helping him as he develops the company over the coming years.
Over the past five years, Richard Ferre has established Synstar as a leader in
its field. He oversaw the buy-out of the company from Granada and its
flotation on the London Stock Exchange. He has made an outstanding
contribution to the Group's growth and I would like to thank him for all he
has done.
Strategy & Outlook
Synstar's excellent technical capabilities, pan-European presence and strong
customer base together provide a solid platform on which to develop the
company. Our strategy is clear and simple: to remain a focused provider of the
IT services that are critical to our customers' businesses success while
maintaining a high proportion of predictable, contract-based revenues. In this
way Synstar will, to some extent, insulate itself from short-term market
conditions, and so remain financially secure with good profit and cash
performance, though not a business that operates at the glamorous end of the
IT sector.
Our experience through last year showed the wisdom of this approach, and we
will continue to build on our enviable position, adding new services and
capabilities as we respond to the changing requirements of our customers.
Within Business Continuity, for example, we have already invested
significantly in increasing the number and quality of our Business Continuity
centres. Going forward, we will leverage this investment by increasing the
utilisation rates of these substantial and high quality assets.
Having taken a conservative view of short-term market conditions, and tackled
the restructuring of our cost base accordingly, we now look forward to steady
progress over the coming year.
CHIEF EXECUTIVE'S REVIEW
The year under review was one generally dominated by rapidly changing
conditions in the IT market. Across the board, traditional areas of IT
spending saw a significant slowdown, with most new customer projects being
focused on e-commerce.
Nonetheless Synstar emerged in good shape, with a good portfolio of customers,
strong balance sheet and cash flows, robust service product and culture and a
pan-European presence.
Overall, on a constant currency basis, revenues in every one of Synstar's
businesses (except France) increased, but with the mix different from that
anticipated at the start of the year. The core contractual services, which
make up the bulk of Synstar's revenues and underpin the business, have
continued to grow, albeit at a slower rate than previous years. However it is
very encouraging that the majority of the increase came from our existing
customer base, as we place enormous value on maintaining strong customer
relationships. I report on the findings from our customer audit later in my
report.
The Group's project-based activities, which complement the core service
business, saw more marked short-term reductions. The net effect for the year
was a slower rate of growth of the overall business, which has an attendant
impact on the profit line. Synstar is one of many in the IT sector
experiencing this effect, but the very high percentage of the Group's contract
revenues has meant it has been, and will continue to be, limited.
Customer and Contracts
The majority of our revenue is derived from long-term contracts invoiced on a
regular basis. At the year-end the total value of the contractual order book
stood at £246m, of which approximately half is due within the next financial
year.
The year saw a particularly strong flow of business from our existing customer
base. As well as renewing and extending our relationship with our largest
customer CSC, notable examples of this are:
Customer Country Service
Daimler Chrysler Germany Desktop Services
BAT Switzerland Desktop Services
SKF Belgium Desktop Management
Alliance & Leicester UK Critical Systems Support
During the year we also added significant new customers to our contract base
through the efforts of our New Business Sales teams, including:
Customer Country Service
Reuters UK Datacentre Services
Vodafone UK Business Recovery
Amena Spain Desktop Services
Distrigaz Belgium Desktop Management
A service business is virtually reliant on the quality of its product and to
verify this, we ran comprehensive Customer Satisfaction audits across our
customer base. I am pleased to report that 98% of our customers stated that
they were satisfied or very satisfied with the service they receive. We are
certainly not complacent about these positive results which underline the
strength of our relationship with our customers. We have, therefore, clearly
communicated to our customers these results and the areas where we have set
ourselves goals for raising standards even higher.
Computer Services
This was a busy year during which the division generated revenues of £217m and
employed over 3,000 people, mostly technicians.
The core contractual business performed respectably, albeit at a slower rate
of growth than in previous years. This activity was helped by the addition of
new technical capability for products such as Storagetek, Silicon Graphics and
EMC, along with the general trend towards outsourcing desktop services.
Lancare, the UK based networking business acquired in September 1999, has now
been fully integrated into the UK operations. During 2000 we also
successfully completed some small acquisitions in Switzerland and Italy,
designed to add service capability.
We are already seeing valuable returns from a proactive programme designed to
increase the number of services that each of our individual businesses can
offer. This has been very effective, producing a 56% increase across the
Group. This programme has also been dovetailed with the roll out of our IT
Information Library (ITIL) programme. This is a service methodology with a
defined standard training and certification programme, which has proved
particularly successful in the desktop services area. Our objective is to
have all our business accredited in the ITIL concept before the end of next
year.
Areas that were most impacted by the IT sector slowdown were Networking and
Storage Management. Many large projects were put on hold or significantly
delayed and this particularly affected our French, German and UK businesses.
The limited revenues we gained from low margin, desktop product sales were
also significantly less than the previous year.
On a more positive note, all of the areas experiencing slowdown have seen a
healthy increase in the pipeline of prospects in recent months.
Business Continuity
As a result of the investment programme we outlined at this stage last year we
have new Business Recovery (BR) centres opening in Dublin and Brussels. These
are state of the art buildings that provide top class facilities and absolute
security of Business Continuity for critical customer departments. This has
increased the Group's capacity by a further 32% during the year under review.
Sept. 00 Sept. 99 Sept. 98
Number of seats 2,320 1,754 1,069
We have started work on a further UK Business Recovery facility in Newbury,
due for completion in the first quarter of the current financial year. This
centre helps to support an increasingly important relationship with Vodafone
and will have a direct 'dark fibre' link into their network.
Based on an exclusive agreement with BELFOR, Synstar launched a new 'Facility
Restoration' service to complement and expand our existing offering. This
entitles customers to a disaster management service to restore their own
premises in the event of a disaster.
The cross-selling campaign to the Computer Services customer base has been of
particular benefit in the UK, and during the year under review has produced
successes at Woolwich, Celoxica and AIB.
The financial results for Business Continuity showed continuing revenue growth
in the year with a stronger first half performance, while profits reflecting
revenue growth offset by the increased costs resulting from the major
investments in new Business Recovery Centres.
In the second half of the year the slower growth levels reflected customers
delaying decisions and slightly increased levels of competition amongst a
reducing number of larger players.
Regional Performance
Across Mainland Europe as a whole profits were hit hard by the shortfall in
project revenues, the delay to the Italian recovery and the costs of the new
Belgium recovery centre coming on stream. However, results improved in the
last 3 months of the financial year.
The Group's UK and Ireland business produced overall revenue growth of 19%,
helped partly by the Lancare acquisition. Excluding Lancare, contractual
revenues grew, while non-contracted revenues declined slightly, due mainly to
lower levels of product sales and the slowdown in networking projects.
The existing customer base contributed a higher proportion of the growth in
contract revenues than the previous year. A high level of contract renewals
also resulted in some price erosion. This combination of lower
non-contractual revenues and the increased cost of investment in new recovery
centres had an impact on profits, which were slightly down year on year.
The strength of our ongoing customer relationships was demonstrated by the
renewal and extension of the CSC and Galileo contracts, managed by UK based
staff, and our relationships with ITNet and British Airways.
In Mainland Europe the impact of the market slowdown was more pronounced.
France was hit particularly hard by delays to large network and storage
management projects. Despite this, the French business confirmed its
technical capabilities with a contract to install one of the largest Storage
Area Networks to date in France for Amadeus Software.
Germany continues to be one of our most successful businesses. It is now
Synstar's second largest subsidiary, employing some 430 people with its local
head office based near Frankfurt. Revenue growth during the year reflected
market trends. The project based Storage Management division experienced
major delays to orders, while the contractual Computer Services division
showed respectable levels of growth primarily from increased levels of Desktop
Management services both to existing and new customers.
We contributed a considerable amount of management support to our Italian
operation during the year, to help it recover from some significant contract
'churn' late in the previous year, which had hit their margins. We appointed
a new Country Manager and set out detailed programmes to improve performance
in all areas of the business. The results from Italy improved in the latter
half of the year. However, the competitive market conditions locally mean
more remains to be done.
Belgium, one of our smaller subsidiaries just two years ago, has again been
the Group's star performer. It returned significant levels of growth against
an aggressive target. This growth is coming primarily from a comprehensive
suite of Desktop Services sold to large customers using the ITIL concept.
This concept is being intensively rolled out across the European business by
the recently created Group Sales function and has already achieved success in
France and Spain.
In the Netherlands, investments in Sales, new service capabilities and Compaq
accreditation strengthened the business. Switzerland met its improvement
goals for the year. For the first time, we commenced direct activity in
Denmark for one of CSC's customers.
Across the Business
A number of important initiatives were started and/or completed during the
year.
Early in the year we completely redesigned our web site (www.synstar.com)
giving access to a high quality of staff, customer and investor information,
plus direct access to other services. This has proved to be very popular and
a high number of contacts have been established.
During the year we launched 'Synstar Easy Buy' a net based ordering system
available to anyone via our website. Using the product acquired with the
Lancare business, this has increased the sales of network products and will
help reduce future costs of sale in the low margin, product sales area.
We have commenced a new marketing initiative, whereby we will collaborate with
the Institute of Directors to produce a complete set of Business Continuity
guidelines for IT directors. The key outputs of this will be seen in a
comprehensive marketing campaign scheduled for the first quarter of the
current year.
We made good progress in our drive to achieve Compaq ASP status across Europe.
When France and Germany complete their programme; we will have created the
first pan European network within one Group.
Accounting Changes
Responding to changes in UK accounting standards the Group has made an
adjustment to prior years reserves of £1.1m. In addition following the
appointment of Stephen Gleadle as Group Finance Director in January 2000, the
Group completed a detailed review of our consumable stock procurement
processes, levels and valuation. As a result an exceptional charge of £3.5m
has been made, reflecting a more prudent approach to stock valuation.
Neither of these changes would have had a material affect on the Group's
underlying reported earnings for either of the last two financial years.
Employees
Headcount in the business increased by 9% from 2,873 to 3,125 in the year.
The increase related primarily to technical staff. This reflects the growth
in contractual revenues, mostly in the Desktop Services area and continued
investment in Sales heads.
In the first half of the year, a 'Sharesave' scheme was introduced in Mainland
Europe. This is in line with the commitment we made at the time of the
flotation. The entire business has now benefited from this type of scheme.
Prospects
Our strategy going forward is clear and simple - Stick to the knitting.
We are a leading niche supplier of 'must have' IT services, vital to all
customers to keep their businesses functioning. Our strategy is to become the
preferred choice supplier of these services to large companies across Europe.
Within Computer Services, the sales pipeline and early year signings (such as
the Galileo expansion) support our confidence for an increased level of growth
next year.
We appointed a Group Sales Director, Frank Bulthe, in July 2000. This has put
increased energy and focus into programmes which will build on the increased
service delivery capabilities that we have put into our various subsidiary
businesses. The number of Sales heads is expected to increase in support of
this drive.
We will continue our strategy of working with outsourcers, underpinned by the
renewal and extension of our relationships with CSC and ITNET last year.
There are no signs that the trend towards outsourcing is slowing and the
relationship is a positive one for both sides.
Within Business Continuity, after the new Newbury centre opens, the focus will
be on increasing the utilisation of our significantly expanded business
recovery capability. To support this, we appointed an overall head for the
Business Continuity division within Synstar on 1st October 2000, reporting
directly to the Chief Executive.
We will complete a comprehensive marketing initiative in the first quarter of
this financial year, utilising the aforementioned guide to Business Recovery,
produced jointly with the Institute of Directors. The preparation work for
this has clearly highlighted the way that our traditional skills, Computer
Services and Business Continuity Services, are beginning to overlap as new
technology emerges and customer needs increase.
Over the next 12 months we will move towards a complete 'Business
Availability' service, combining existing capability with new service products
such as remote disc mirroring and data vaulting. Market forecasts continue to
project a steady 15%+ growth in this area of business, one which is crucial to
companies wishing to survive a disaster irrespective of its cause or nature.
Recognising that the current market slowdown for new projects could extend a
full budgetary cycle into next year, Synstar has reduced the impact of lower
levels of project work. We have reduced the cost base within the business,
both by not replacing employees as they leave and via a targeted reduction
programme, aimed at under utilised project resources and overheads. Costs
associated with this will be absorbed this financial year, and the resulting
benefits will be seen thereafter.
Despite the volatility during the year under review, Synstar is a financially
strong and sound pan-European IT service business. I believe that there is
considerable opportunity from an increased willingness of customers to combine
a typical large service contract with the outsourcing of 'in-house' support
functions such as help desks, into one large 'service provider' relationship.
That coupled with the opportunity to increase our still relatively small
market share, gives good prospects for the future.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 30 September 2000
Notes Before Excep- Before Excep-
excep- tional excep- tional Rest-
tional items tional items ated
items(Note 2) Total items(Note 2) Total
2000 2000 2000 1999 1999 1999
£'000 £'000 £'000 £'000 £'000 £'000
Turnover
Continuing operations 233,438 - 233,438 213,048 - 213,048
Acquisitions 2,473 - 2,473 1,241 - 1,241
1 235,911 - 235,911 214,289 - 214,289
Cost of Sales (170,212) (3,500)(173,712) (151,180) - (151,180)
Gross Profit 65,699 (3,500) 62,199 63,109 - 63,109
Selling and
marketing costs (15,583) - (15,583) (15,514) - (15,514)
Administration expenses (40,923) - (40,923) (34,745) - (34,745)
Operating profit before
goodwill amortisation 9,861 (3,500) 6,361 12,886 - 12,886
Goodwill amortisation (668) - (668) (36) - (36)
Operating profit
Continuing operations 9,245 (3,500) 5,745 12,876 - 12,876
Acquisitions (52) - (52) (26) - (26)
1 9,193 (3,500) 5,693 12,850 - 12,850
Interest receivable
and similar income 241 - 241 413 - 413
Interest payable
and similar changes (980) - (980) (3,624)(1,461) (5,085)
Profit on ordinary
activities before taxation 8,454 (3,500) 4,954 9,639 (1,461) 8,178
Tax on profit on ordinary
activities 3 (4,014) - (4,014) (3,496) 453 (3,043)
Profit for the
financial year 4,440 (3,500) 940 6,143 (1,008) 5,135
Earnings per share 4
Adjusted basic 3.1p 4.6p
Basic 0.6p 3.8p
Diluted 0.6p 3.7p
Adjusted basic earnings pre share has been calculated before exceptional
items, exceptional interest charges net of taxation and goodwill amortisation.
The accompanying notes are an integral part of this consolidated profit and
loss account.
Consolidated Statement of Total
Recognised Gains and Losses
For the year ended 30 September 2000
Restated
2000 1999
£'000 £'000
Profit for the financial year 940 5,135
Currency translation differences on foreign
currency net investments (1,585) (1,467)
Total recognised gains and losses relating to the year (645) 3,668
Prior year adjustment (1,073)
Total losses recognised since last annual report
and accounts (1,718)
Consolidated Balance Sheet
30 September 2000
Restated
2000 1999
£,000 £,000
Fixed Assets
Intangible assets - goodwill 13,252 12,657
Tangible assets 44,768 39,060
58,020 51,717
Current Assets
Stocks 4,274 8,155
Debtors 65,148 61,253
Cash at bank and in hand 12,975 16,502
82,397 85,910
Creditors: Amounts falling due within one year (82,202) (78,724)
Net current assets 195 7,186
Total assets less current liabilities 58,215 58,903
Creditors:Amounts falling due after more than one year (820) (863)
Net assets 57,395 58,040
Capital and reserves
Called-up share capital 1,625 1,625
Share premium account 94,578 94,578
Profit and loss account (38,808) (38,163)
Total shareholders' funds - all equity 57,395 58,040
Consolidated Cash Flow Statement
For the year ended 30 September 2000
Restated
Note 2000 1999
£'000 £'000
Net cash inflow from operating activities 5 23,362 25,002
Returns on investment and servicing of finance (739) (2,873)
Taxation (3,817) (1,709)
Capital expenditure (20,461) (15,765)
Acquisitions and disposals (3,071) (10,234)
Net cash outflow before financing (4,726) (5,579)
Financing (791) 16,653
(Decrease) Increase in cash in the year (5,517) 11,074
The accompanying notes are an integral part of this consolidated cash flow
statement.
Statement of accounting policies
Arising from the publication on 22nd June 2000 of a new accounting abstract
with respect to start-up costs (UITF 24) the Group's policy with regard to
costs incurred when it takes over contracts from customers has been changed.
While previously in respect of the Group's largest customer,CSC, these were
capitalised and written off over the life of the contract, they are now
written off as incurred. Accordingly a prior year adjustment of £1.1m has been
made. This change in accounting policy has had no material affect on the
profits reported for the year ended 30 September 2000 and 30 September 1999.
Except for the accounting policy changes noted above, the accounting policies
adopted are consistent with those in the most recently published set of annual
financial statements.
Financial Statements
The financial information set out above does not compromise the company's
statutory accounts. Statutory accounts for the previous financial year ended
30 September 1999, have been delivered to the Registrar of Companies. The
auditors' report on those accounts was unqualified and did not contain any
statement under section 237(2) or (3) of the Companies Act 1985.
The directors of Synstar Plc are responsible in accordance with the Listing
Rules of the Financial Services Authority and applicable United Kingdom
Accounting standards for preparing and issuing the preliminary announcement.
Arthur Andersen have reviewed the announcement having regard to Bulletin
1998/7 issued in the United Kingdom by the Auditing Practices Board but have
not yet completed their audit and signed their auditors' report on the
company's financial statements for the year ended 30 September 2000.
Notes to the Accounts
30 September 2000
1. Segmental analysis
All turnover, profit before tax and net assets were attributable to the
Group's principal activities and to Group companies located, and operating,
within Europe.
Restated
2000 1999
£'000 £'000
a) Turnover by destination
UK and Republic of Ireland 137,814 115,715
France 14,968 17,181
Germany 25,027 26,972
Italy 20,901 21,187
Other European countries 37,201 33,234
235,911 214,289
b) Class of business
Turnover:
Computer Services 216,627 196,438
Business Continuity 19,284 17,851
235,911 214,289
Operating Profit:
Computer Services 4,642 10,935
Business Continuity 3,841 4,566
Central expenditure (2,790) (2,651)
5,693 12,850
Net Assets:
Computer Services 50,048 49,444
Business Continuity 4,787 4,236
Unallocated net assets 2,560 4,360
57,395 58,040
c) Geographical segment
Turnover:
UK and Republic of Ireland 137,671 115,715
Rest of Europe 98,240 98,574
235,911 214,289
Operating Profit:
UK and Republic of Ireland 8,933 12,241
Rest of Europe (450) 3,260
Central expenditure (2,790) (2,651)
5,693 12,850
Net Assets:
UK and Republic of Ireland 34,872 37,351
Rest of Europe 19,963 16,329
Unallocated net assets 2,560 4,360
57,395 58,040
The method used to calculate net assets by geographical segments has been
amended to better reflect the requirements of SSAP 25. The comparative
information has been restated.
Unallocated net assets consist of cash, tax payable, and other centrally held
or managed assets and liabilities.
2. Exceptional items
Following a detailed review of the Group's consumable stock procurement
process, levels and valuation the Group has decided to adopt a more prudent
method by which stock provisions are calculated. Previously the Group has
recognised a value for older stock lines relating to customers' legacy systems
which the business supports. Recognising the difficulty of placing a value on
older little used stock lines the Group have concluded that such items should
be written off. As a result of this change an exceptional charge to the profit
and loss for September 2000 of £3,500,000 has been made.
This charge had no material affect on the Group's underlying reported earnings
for either of the last two years.
Exceptional interest charges in 1999 comprise £987,000 relating to the
write-off of capitalised debt issue costs and £474,000 in respect of the
penalty arising on the cancellation of a swap agreement. Both costs arose as a
result of the early repayment of debt from funds raised from the flotation.
3. Taxation
The increase in the taxation rate reflects the changing mix of performance
between the various European subsidiaries.
4. Earnings per share
Basic earnings per share are calculated in accordance with FRS14 Earnings per
Share, based on profit after tax of £940,000 (1999 - £5,135,000) and
162,500,000 (1999 - 135,710,959) ordinary shares, being the weighted average
in issue during the year.
Fully diluted earnings per share is the basic earnings per share after
allowing for the dilutive effect of options in issue. The number of shares
used for the fully diluted calculation is 163,074,658 (1999 - 137,159,660).
The adjusted basic earnings per share information has been calculated before
exceptional costs net of taxation and goodwill. The Directors believe this
additional measure provides a better indication of the underlying trends in
the business.
The calculation of earnings per share are based on the following profits:
Restated
2000 1999
£'000 £'000
Profit for the year for basic earnings per share 940 5,135
Exceptional items 3,500 1,461
Tax credit on exceptional items - (453)
Amortisation of goodwill 668 36
Profit for the year for adjusted basic
earnings per share 5,108 6,179
Weighted average number of shares in issue:
2000 1999
Number Number
'000 '000
For basic earnings per share 162,500 135,711
Exercise of options 575 1,449
For fully diluted earnings per share 163,075 137,160
5. Reconciliation of operating profit to net cash inflow from
operating activities
Restated
2000 1999
£'000 £'000
Operating profit 5,693 12,850
Depreciation charges 14,899 15,466
Goodwill amortisation 668 36
Profit on fixed asset disposals - (41)
Decrease (increase) in stocks 3,932 (1,276)
Increase in debtors (5,400) (3,383)
Increase in creditors 3,570 1,350
23,362 25,002
6. Analysis of net funds
Cash at
bank Overdraft Loans Total
£'000 £'000 £'000 £'000
Balance at 1 October 1999 16,502 (974) (4,150) 11,378
Cash flows during year (2,691) (2,826) 791 (4,726)
Foreign exchange (836) 69 253 (514)
Balance at 30 September 2000 12,975 (3,731) (3,106) 6,138