Final Results
Synstar PLC
27 November 2002
27 November 2002
Synstar plc
Preliminary Results for the year ended 30 September 2002
Highlights:
• Preliminary results better than expectations:
• Operating profit before goodwill and exceptional items £8.0m (2001:
£4.6m)
• Turnover £221.9m (2001: £238.2m), reflecting withdrawal from
unprofitable geographies. Growth from continuing operations 1%.
• Cash generation £8.4m (2001: £1.8m) producing net cash of £16.4m
(2001: £8.0m)
• Adjusted EPS trebled to 3.4p (2001: 1.1p)
• ROCE trebled from 5% to 15%; Group now value generating
• Order book increased by 46% to £319m (2001: £219m)
• Substantial benefits from the successful implementation of the staged
recovery plan:
• Largest ever single contract, with CSC (£120m over 5 years)
• First 'total customer' contract, with Westland Helicopters
• Increase in the number of customers taking multiple services
• Significant renewals of major contracts on a long term basis
(eg BA, ITNet, Renault, HSBC, Shell)
• Outstanding customer satisfaction ratings
• Company positioning itself as a trusted partner for infrastructure
managed services
• Additions to executive management team
• New Business Continuity facility in Frankfurt
• Expect to meet market forecasts for the current year
Results:
Commenting on the results, Steve Vaughan, Chief Executive of Synstar Plc, said:
'These results show excellent progress for the Group. Synstar is now positioned
for planned growth and improvement in operating margins. We have benefited more
than I had hoped from our strategic plan.'
There will be a presentation for analysts at 09:30 hrs this morning at Old
Mutual Securities, Old Mutual Place, 2 Lambeth Hill, London, EC4V 4GG.
Please call Alex Murphy at GCI Financial on 020 7072-4200 if you would like to
attend. The presentation slides will be available on our website at
www.synstar.com/investor
For Further Information:
GCI Financial: 020 7072 4251/4296
Roger Leboff / Geoff Callow
Synstar Plc: 01344 662744
Christine Jones
Chairman's Statement
I am pleased to report that the financial results for the group have fully
reflected the hopes and plans of last year. Despite one of the most difficult
marketplaces in recent times, Synstar has delivered increased profit and
generated cash. Turnover for the period was £221.9m (2001: £238.2m) and total
operating profit before goodwill and exceptional items was £8.0m (2001: £4.6m).
Adjusted earnings per share were 3.4p (2001 1.1p). The group generated cash
before financing during the year of £8.4m (2001: £1.8m), and has traded with a
positive net cash balance in every month of the year. These results reflect the
rewards of the difficult decisions and strong action taken by Steve Vaughan
since he became CEO, and bode well for the future.
The year has been characterised by strong and steady improvement in the health
of the company. Whereas 2001 was a year of major management action,
restructuring and the rollout of a new strategy, 2002 has seen the rigorous
implementation of that strategy. Focus on our customers, investment in our
services, development of the strong management team and the elimination of
remaining problem areas have been the four points of focus that have produced a
successful overall outcome.
Our customers and our professional and long-term relationships with them have
always been the company's principle asset. Synstar remains at the top of the
league for customer satisfaction once again. We now have the right organisation
and strategy to capitalise upon that positive state of affairs. Retention of
customers is vital and Synstar has always been good at that. We are now becoming
much more adept at developing those relationships to sell further services and
expand our role in the provision of services. This is a real change in the way
the company deals with the marketplace.
Our service lines have also developed in a most encouraging way. Synstar's stock
in trade is to deliver the sort of IT service that customers will always need.
Our staff excel in keeping critical systems going. As Information Technology
becomes more and more crucial to business life, so the demand for our services
expands. This has remained true even in the current economic climate. Because of
the nature of our services, we are less exposed to short-term slowdowns in the
buying of either products or new projects. This is reflected in our results.
Above all else, this year has seen considerable development of a management team
with strength in depth. A combination of new managers and extensive training and
development of existing managers has produced a reliable, resourceful and
realistic team who understand the business and how to take it forward. This is
now a major strength of the organisation, and a crucial factor for the future. A
strong board complements this team, and I would like to take this opportunity to
thank my colleagues on the board, who have continued to provide good, timely
advice and a robust framework for corporate governance.
Above all, I am particularly proud of our staff, and their continuing commitment
to the quality of service to our customers. A service organisation is only as
good as the people it can deploy on the ground. Excellence takes time to
develop, and once achieved is a valuable asset. Our staff displays that
excellence in what they do, day after day, and it is the bedrock of our success.
The plan that we put in place at the start of 2001 is now delivering impressive
results. It has set the group on an exciting path, and the market place, though
difficult, presents good opportunities for a business like Synstar. I look
forward to the strong performance that can come from this situation in the
future.
John Leighfield CBE
Chairman
26 November 2002
Chief Executive's Review
Introduction
It has been a difficult time to be an IT company recently. Against a backdrop of
disappointing news throughout the sector, I am extremely pleased to be able
report that Synstar remains on track with our plans, and has delivered better
results than the market expected.
Our success comes from the strong foundation built during the past 18 months. We
made difficult decisions and ambitious plans during 2001, and have followed
through on these decisions and plans during 2002. This puts the company in an
enviable position when compared to the majority of its peers - we are
profitable, cash generative, debt free and growing. We have benefited more than
I had hoped from the restructuring activities of last year.
The first half financial performance gave us the foundation for the growth that
was the aim of our restructuring programme. We exploited this in the second
half. Our business delivered second half operating profits of £4.9m, and
generated £7.4m of cash and ends the period with net cash of £16.4m. Our
revenues from long-term business have also grown and our order book has grown by
46% to £319m. The second half also brought some notable contract wins, such as
with CSC, Westland Helicopters and Avecia. Taken together, I believe this
demonstrates a company in good shape, and one that can step up to the challenge
of growth.
It is to this challenge that we must now devote our energy. Phase 1 of our plan
gave us the basis for a new and stronger sales force, with Relationship Managers
focused on existing customers and Salesmen on new names. Our investment in the
training and support of these people has produced a sales force that can take on
the best and win. They are selling our new standard service lines, developed and
packaged during Phase 2 to match our customer requirements. We have many new
services to bring to market over the coming months to add the fuel to grow our
sales. During Phase 3 as the final key to successful sales growth, we must
convert the perception of Synstar from niche maintenance and disaster recovery
provider to trusted partner for delivery of integrated managed services. There
is plenty of evidence that this change in our customers' perception is well
underway. Achieving this is the eventual definition of the success of our
strategy.
Progress with our strategy
I have long held that a company operates best when it is following a clear plan
and has the right focus on its objectives. At the start of 2001, our strategic
review created that plan. It was very clear about the objectives - focus on
profit and cash; cross-sell services into our excellent customer base; build a
stable foundation upon which the company could grow at above the market rate and
aim to become a world class IT services provider.
Our plan is split into three phases, and at the half year I reported that Phase
2 was nearing a successful conclusion. I can now report that we did indeed
achieve the objectives of Phase 2 - 'Stabilise, Improve and Invest'. Stability
is clear from the financial results and the absence of volatility. Improvement
shows in the resolution of several operational and managerial issues such as the
disposal of our Swiss business, improvements in logistics and our networking
business. Investment is clearly yielding benefits in the development of our
service lines, as I will outline below. Above all, we managed a period devoid of
major upheavals, which gave our new organisation and strategy the time to take
root. This is the basis of long-term change and success.
Of course, it is unrealistic to expect any plan to run faultlessly. Our French
business remains problematic, despite the target that we could complete this
year with a breakeven run rate. The percentage of revenue in France depending
upon short-term projects (which have to be continuously bid and won), and mobile
engineering (which is much lower margin) is higher than elsewhere. It takes
longer to change the shape of a business like this. We have more to do, but
remain sure that this part of our business, the only loss-making element of the
group, will be returned to profit.
During the second half we saw a strong start to Phase 3. In particular, we fully
outlined the actions required during the period to the end of 2003 to drive the
growth that we seek. We made a good start on these actions and have begun to see
some results. We split these actions into a number of 'streams', concentrating
our efforts on developing our Service Lines, improving our Internal Processes,
investing in the Skills and Careers of our Staff, and stepping up the Synstar
Sales Performance. I will review the plans and progress of each of these in
turn.
Rollout of our Service Lines
Our service lines are the building blocks of our growth strategy. We have the
customers; selling more services to them is the plan for growth. Today, our
services lines are well matched, revolving as they do around the support and
development of high availability computer infrastructure. However, we are not
yet able to deliver all of our services in each of the territories in which we
operate. The rollout of our existing services is one key element of our Phase 3
plan. In addition, the development of services to meet new technical demands and
higher levels of Business Availability is receiving attention.
Business Continuity
The performance of our Business Continuity service offering during the year has
been excellent. Our focus on Return on Capital Employed (ROCE) - sweating the
assets, rather than the urge to build ever more capacity, has produced very
strong results. ROCE is now above 70%, and operating profits from this business
have increased by 22%. Achieving this level of return, we can now consider
opportunities to expand our infrastructure. Recently, we invested in a new
Business Recovery Centre in Frankfurt, a market that has not been accessible to
us in the past. We have already signed up Fidelity, the global financial
services business, for this new facility. We will continue to look for
relatively small-scale opportunities to expand our capabilities, in both
geography and technology coverage, while always keeping our main attention on
the return on the investment.
Networking
Our networking business is now focused on long-term contracts and high value
consulting, rather than being dominated by low margin product sales. The Network
Operating Centre we established in Newbury in early 2002 is now a flagship for
our service offering in networking. Solutions and projects remains a key part of
what we do, and our efforts to build better relations with key partners in this
area have been rewarded. In addition to our existing capabilities in the UK and
France, we have now developed a networking revenue stream in Holland and Spain.
Belgium and Germany will be added in the first half of the 2002/3 financial
year. Security is an essential part of any network business. We now have a
thriving business in network security consultancy to 22 of our customers, and
delivering the projects and services derived from our advice.
Data Management
Data Management is currently the most geographically restricted business. We are
strong in Germany and France, and it is clear that many of our customers in
other areas would buy storage solutions from us. This offering will become
increasingly important for high availability service solutions. It is a key
requirement, during Phase 3, to expand our ability to sell and deliver Data
Management solutions to all our countries.
Maintenance
Maintenance still forms the backbone of our business. There is a high level of
recurring business, and it represents an excellent door opener to high profile
clients. We will continue to invest to develop maintenance solutions for new
products, particularly for larger machines, such as the Sun E10000 servers,
where customers require high availability. The number of customers engaging us
to maintain their entire data centres has increased significantly.
Managed Services
Managed Services is our fastest growing service area. 17 of our largest 50
customers now buy managed services from us (up from 13 last year). Our successes
during the year have shown that there is a considerable market for the provision
of desktop services, help desks and data centre management. Many of our
Relationship Managers find our offerings in this area are a good next step from
maintenance when developing a customer relationship. We have invested during the
year to bring our VIDA desktop managed service offering to maturity. We now have
over 100,000 desktop users under contract across Europe, and a pipeline many
times that figure. The efficiency improvements produced when our Managed
Services are blended with an on-site maintenance operation makes our proposition
cost-effective. We see a considerable growth in customers looking to us for a
service that is often currently delivered with fragmented in-house resources.
Progress with Phase 3
Our services
Service line development during Phase 2 concentrated on exploiting offerings
that we have been supplying to some customers for a while. We took those that
represented the best potential, and made them generally available. During Phase
3, we have begun to develop entirely new services, particularly ones that join
up our main areas of service. For example, we can sell networking and business
continuity in a single packaged offering. New services of this type will be
launched in the coming months, and help to develop customer relationships based
on several different services at once. At the same time these new services can
yield a higher margin than much of our existing business.
Internal processes
While the efforts to expand our service offering capability is a key element of
our growth strategy, cost control must remain an imperative. There remains some
scope for further efficiency and cost savings. Accordingly, we will be running a
series of projects to streamline processes and systems to achieve these benefits
during the year. This is an important part of delivering our strategy - keeping
the machine working ever more effectively as we grow and develop the business.
Staff development
As we develop more complex services, the picture would not be complete without
developing our staff. Expanding technical skill is one thing, and this has been
part of our investment for many years. However if we are serious about World
Class performance, then a more systematic approach to career development is
essential - developing staff with World Class skills and careers.
To address this important issue, we have begun a programme to create a new
career planning and development framework that draws from best practice in use
all around the world. This framework will be fully in place by March 2003, and
will give our staff much better ownership of their own personal development, and
give the company a sound basis upon which to develop the skills and experience
essential for our expanding business and services.
Breaking the mould of Synstar sales performance
By any standards, the second half of 2001/2 was an eventful period for Synstar
sales. We have increased our forward order book from £230m at 31 March 2002 to
£319m. In September we signed our biggest ever contract, a 5 year, £120m
maintenance and managed service agreement with CSC. We also signed our first '
total customer' - Westland Helicopters now buys every service line that we sell,
under a £21m, six-year agreement. We now provide virtually all its
infrastructure support.
For the first time, Synstar has a sales force with the range of support it needs
to take on leading competitors and win. At Westland, we were on the shortlist
against IBM and EDS. The customer stated that we were selected because 'proven
track record, innovative and flexible approach to resolving business issues and
expertise for delivering high value business availability services'. At Avecia,
which also signed a multi-year, multi-service line contract with us in
September, the customer declared, 'Synstar demonstrated considerable flexibility
in the provision of a comprehensive range of IT services, which is key to our
requirements. We were also impressed by its wide breadth of coverage and
ability to provide the services we require directly rather than engaging third
parties'. This is a major and very welcome change in perception.
I have believed since I arrived that the major obstacle to achieving this change
in sales performance was the company's own belief in itself. After 30 years as a
maintenance company, the mindset necessarily takes a while to change, but I can
now see widespread evidence of that change. It is matched by the start of a
change in our customers' view of us. Through a range of introductory service
offerings, we are expanding our customers' view of our competences;
demonstrating the full range of our capabilities; building our presence. During
the second half of 2002, this began to bear fruit in actual sales. Our current
sales pipeline gives me every confidence that this will continue.
How do we beat the competition? We can do this in many ways, each important for
different reasons to each customer. We have a culture of service - the
long-term delivery of day-to-day quality. We are close to the customer -
understanding their needs, on site when we are needed, flexible and quick to
respond to a new requirement or a crisis. This is in contrast to many of our
competitors who are trying to do things increasingly remotely. And as we deliver
a higher service level, we are well placed to bid for management of critical
systems. These factors, combined with a growing range of well-matched services,
give us a strong competitive position.
A foundation for growth
There are good reasons for the progress made since the start of last year. We
have been building the foundation for a strategy that is now well placed to turn
to growth. Our business has the potential to benefit from operational gearing -
we seek to grow the top line at around 7%, keep the gross margin constant (or
better) by selling higher value services, and keep the overhead costs under
control. Taken together, this yields the benefits from operational gearing to
produce operating margin improvement, and long term, sustainable shareholder
value. Benefits to date have come from better control and focus. Benefits in the
future must depend ultimately on driving the top line.
Synstar's sales performance this year shows that a strategy based upon growth
can be achieved, even in the current climate. We have the customer
relationships, and we are now developing the long-term higher value services to
match. Our existing business retains all the stability. Long-term contracts
account for over 70% of our revenue. Now we can capitalise upon that position
with a strong growth agenda. It is a plan that draws sensibly on both strong
base business and good prospects for a growing top line. That is the best
defence in the current market.
Summary
We have continued to make excellent progress with our recovery plan and new
strategy. Our financial results show this more clearly than anything else. But
in addition to those results, there are many indicators within the behaviour of
the business, which show that we have achieved a major change of direction - the
development of our services, the success of cross selling, the quality of our
management team and our ability to win large contracts in the face of determined
competition. This is success by any definition.
I have said in my previous reviews that our long-term aim should be World Class
performance. At the half year, I said that I could, for the first time, see
clearly the way to achieve it. I can now say that we are demonstrating the
evidence that Synstar is on the way to being a World Class IT service provider.
Steve Vaughan
Chief Executive
26 November 2002
Finance Director's Review
Introduction
The results for the 12 months to 30 September 2002 demonstrate the benefits from
the changes implemented following our 2001 strategic review.
Overall, revenue fell £16.3m to £221.9m (2001: £238.2m) reflecting the
withdrawal from unprofitable geographies (continuing operations grew 1%) and
operating profit before goodwill and exceptionals has increased 74% to £8.0m
(2001: £4.6m). The net interest charge of £0.6m in 2001 has been reduced to
£nil and the tax rate has been reduced by 6% to 32%. Cash generation before
financing has increased by £6.6m to £8.4m.
To better explain these results I have separately identified below the effect of
disposing of the Italian and Swiss businesses from the continuing business.
Accordingly, operating profit before goodwill and exceptionals may be analysed
as follows:
2001 2001 2001 2002 2002 2002
Published Italy/ Continuing Published Switzerland Continuing
results Switzerland Business Results Business
Revenue 238.2 19.7 218.5 221.9 1.7 220.2
Cost of Sales (178.9) (16.5) (162.4) (163.6) (1.1) (162.5)
Gross Margin 59.3 3.2 56.1 58.3 0.6 57.7
Sales and Marketing (14.6) (1.7) (12.9) (12.2) (0.1) (12.1)
Administration costs (40.1) (3.8) (36.3) (38.1) (0.6) (37.5)
Operating profit 4.6 (2.3) 6.9 8.0 (0.1) 8.1
As may be seen from the above, £2.2m of the operating profit increase is
attributable to the disposal of the two loss making businesses (2001: loss
£2.3m, 2002: loss £0.1m). In addition to avoiding future cash outflows, the two
disposals together generated a net cash inflow of some £1.8m.
The commentary below explains the performance of the continuing business.
Revenue
Revenues from the continuing business increased by £1.7m to £220.2m. Within
this our Maintenance and Desktop Services offerings have been growing strongly
offset by reductions in pure product sales and the product elements within our
networking and data management service lines.
The higher margin contractual revenue was £168.5m (up by £17.0m or 11%) and the
percentage of total revenue represented by such long-term contracts improved to
76% (2001: 69%)
Gross Margin
The calculation of gross margin has been adjusted slightly this year to reflect
the way the business is now organised. As such, all relationship manager costs
are now charged against gross margin, which has had the effect of adjusting cost
of sales up in 2001 by £2.6m with an equal reduction to overhead costs. Sales
costs included under the sales and marketing heading now relate either to the
costs of generating new sales with new customers or relate to the general sales
support functions included in our new Centres of Excellence.
Gross margin for the continuing business has increased 0.5% to 26.2%. This
reflects margin improvements arising from a reduced percentage of low margin
product sales in our mix and also cost savings from the restructuring programme
partially offset by the margin impact of cost inflation and pricing pressure on
major contract renewals.
It should also be noted that during the year, the renewal of two substantial
contracts included up-front discounts. On the basis that these discounts secured
long-term contracts they have been capitalised and are being written off over
the life of each contract. At 30 September 2002 the balance of unamortised
discount was £2.1m (30 September 2001: £0.6m), of which £1.5m is shown in
debtors due after more than one year.
Operating Expenses
Operating expenses of £49.6m have benefited from tight cost control which has
limited the increase to £0.4m (0.8%).
Within this increase the business has made extra investments in training,
marketing, management and the systems infrastructure and seen the benefits of
the restructuring programme.
Operating Profit
Operating profit increased £1.2m (15%) to £8.1m, with margins up from 3.2% to
3.7%.
This increase can be attributed to Computer Services £0.7m (9%) and Business
Continuity £0.4m (22%) with the balance, a £0.1m improvement in central costs.
In terms of the geographical split the UK improved by £2.0m (27%), partially
offset by a decline in Continental Europe of £0.9m reflecting pricing pressures
in Belgium and a difficult data management market in Germany. As noted above the
balance was an improvement of £0.1m in central costs.
Loss on disposal of discontinued operations
The loss on disposal of discontinued operations shown in the profit and loss
account relates to the disposal of the contracts in the Swiss business which
took place on 1 March 2002.
Under the terms of the sale, Itris Maintenance AG acquired the contracts held by
Synstar Computer Services AG, the stocks of maintenance equipment, and
re-employed 41 of its staff. The consideration for the sale was a cash payment
of £0.3m. The exceptional item of £1.5m relates to the loss on the sale of the
business and associated costs.
Interest
As a consequence of the stronger focus on the generation and management of cash
the net interest cost has fallen from £0.6m in 2001 to £nil in 2002.
Taxation
Similarly a more active focus on tax management alongside the disposals
programme has reduced the tax rate to 32% for 2002 compared to an underlying
rate of 38% in 2001 and 44% in 2000.
It is currently expected that a rate around 33% can be held for the next 1 to 2
years, after which the rate should trend upwards towards a long term average for
a pan European business of approximately 35 to 36%.
Earnings per Share
Earnings per share has thus benefited from the combined impact of increasing
operating profit and reduced interest and tax payments.
Before exceptional items and the amortisation of goodwill, EPS has trebled from
1.1p in 2001 to 3.4p this year.
Cash Flow and Net Funds
Cash flow from the business remains strong with £8.4m of cash generated (before
financing) during the year.
This inflow has been driven by the dual impact of increased profit and capital
expenditure requirements of £11.5m being £2.8m less than depreciation. This
lower requirement for capital expenditure has arisen from the business making
better use of the current asset base, particularly in the areas of Business
Continuity related equipment and repairable spares to support our maintenance
contracts. Capital expenditure is likely to rise towards depreciation in future
years.
The business was ungeared at 30 September 2002 with net cash balances of £16.4m
(30 September 2001: £8.0m). As previously reported, our cash balance at both 31
March and 30 September is heavily influenced by the timing of receipts from some
large customers. The net £nil interest charge indicates that on average across
the 12 months the business had a small cash surplus.
Return on Capital Employed
The increase in profitability has driven up the post-tax return on capital
employed from about 5% in 2001 to 15% in 2002.
With a weighted average cost of capital (WACC) around 8% the Group is now value
generating.
Share Premium Account
On 26 April 2002 the cancellation of the £94,578,000 share premium account was
registered at Companies House. The effect of this is to increase the
distributable reserves by the same amount.
Summary
Shareholders are now starting to see the benefits of the previously announced
initiatives:
- operating profit has increased, driven by selling higher margin
services and disposing of our two non-core loss making subsidiaries.
- the improved focus on cash generation has caused the Group to be debt
free month by month and removed the interest charge.
- the disposal programme and a more active approach to managing our tax
affairs has reduced the tax rate.
Future earnings and margin growth should now flow from the operational gearing
of our business as we benefit from cross selling our service offerings into our
blue-chip customer base and continue to focus on efficiency savings. This will
be underpinned by Phase 3 of the strategic review.
Stephen Gleadle
Finance Director
26 November 2002
Consolidated Profit and Loss Account
For the year ended 30 September 2002
Notes Before Exceptional Before Exceptional Reclassified
exceptional items exceptional items
items (Note 2) Total items (Note 2) (Note 7)
2002 2002 2002 2001 2001 2001
£'000 £'000 £'000 £'000 £'000 £'000
Turnover
Continuing operations 220,150 - 220,150 218,463 - 218,463
Discontinued operations 1,720 - 1,720 19,735 - 19,735
Total turnover 1 221,870 - 221,870 238,198 - 238,198
Cost of sales (163,558) - (163,558) (178,874) (2,533) (181,407)
Gross profit 58,312 - 58,312 59,324 (2,533) 56,791
Selling and marketing costs (12,188) - (12,188) (14,595) - (14,595)
Administration expenses (38,116) - (38,116) (40,484) (17,898) (58,382)
Operating profit (loss) before goodwill
Continuing operations 8,148 - 8,148 6,877 (8,117) (1,240)
Discontinued operations (140) - (140) (2,272) (421) (2,693)
Operating profit (loss) before goodwill 8,008 - 8,008 4,605 (8,538) (3,933)
amortisation
Goodwill amortisation - - - (360) - (360)
Goodwill impairment - - - - (11,893) (11,893)
Operating profit (loss)
Continuing operations 8,148 - 8,148 6,577 (18,972) (12,395)
Discontinued operations (140) - (140) (2,332) (1,459) (3,791)
Total operating profit (loss) 1 8,008 - 8,008 4,245 (20,431) (16,186)
Loss on disposal of discontinued operations 2 - (1,493) (1,493) - (4,514) (4,514)
Profit (loss) on ordinary activities before 8,008 (1,493) 6,515 4,245 (24,945) (20,700)
interest
Interest receivable and similar Income 235 - 235 225 - 225
Interest payable and similar charges (218) - (218) (821) - (821)
Profit (loss) on ordinary activities before 8,025 (1,493) 6,532 3,649 (24,945) (21,296)
taxation
Tax on profit on ordinary activities 3 (2,563) - (2,563) (2,272) 1,193 (1,079)
Profit (loss) for the financial year 5,462 (1,493) 3,969 1,377 (23,752) (22,375)
Earnings profit (loss) per share 4
Adjusted basic 3.4p 1.1p
Basic 2.4p (13.8p)
Diluted 2.4p (13.8p)
Adjusted basic earnings per share has been calculated before exceptional items,
net of taxation and goodwill amortisation.
The accompanying notes and statement of accounting policies 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 2002
2002 2001
£'000 £'000
Profit (loss) for the financial year 3,969 (22,375)
Currency translation differences on foreign
currency net investments (81) (221)
Total recognised profits (losses) relating to the year
and since the last annual report and accounts 3,888 (22,596)
The accompanying notes and statement of accounting policies are an integral part
of this consolidated statement of total gains and losses.
Consolidated Balance Sheet
30 September 2002
2002 2001
£'000 £'000
Fixed assets
Intangible assets - -
Tangible assets 33,646 36,910
33,646 36,910
Current assets
Stocks 1,950 2,988
Debtors - due within one year 51,432 48,158
Debtors - due after one year 1,973 -
Cash at bank and in hand 17,431 12,993
72,786 64,139
Creditors: Amounts falling due within one year (67,745) (66,250)
Net current assets (liabilities) 5,041 (2,111)
Total assets less current liabilities 38,687 34,799
Net assets 38,687 34,799
Capital and reserves
Called-up share capital 1,625 1,625
Share premium account - 94,578
Profit and loss account 37,062 (61,404)
Total shareholders' funds - all equity 38,687 34,799
The accounts were approved by the board of directors on 26 November 2002.
Consolidated Cash Flow Statement
For the year ended 30 September 2002
Notes 2002 2001
£'000 £'000
Net cash inflow from operating activities 5 21,441 14,711
Returns on investments and servicing of 17 (596)
finance
Taxation (977) (3,233)
Capital expenditure (11,511) (11,459)
Acquisitions and disposals (546) 2,338
Net cash inflow before financing 8,424 1,761
Financing (954) (1,368)
Increase in cash in the year 7,470 393
The accompanying notes are an integral part of this consolidated cash flow
statement.
Statement of accounting policies
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 comprise the company's
statutory accounts. Statutory accounts for the previous financial year ended 30
September 2001, 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 this preliminary announcement.
Deloitte & Touche have given an unqualified opinion on the accounts for the year
ended 30 September 2002, which will be delivered to the Registrar of Companies
following the annual general meeting.
1. Segmental analysis
All turnover, operating profit before tax and net assets were attributable to
the Group's principal activities and to Group companies located, and operating,
within Europe.
1a Turnover by Destination
2002 2001
£'000 £'000
Continuing Discontinued Exceptional Total Continuing Discontinued Exceptional Total
UK 142,659 - - 142,659 141,284 - - 141,284
France 16,967 - - 16,967 16,377 - - 16,377
Germany 26,744 - - 26,744 27,400 - - 27,400
Switzerland - 1,720 - 1,720 - 5,988 - 5,988
Italy - - - - 13,747 13,747
Other 33,780 - - 33,780 33,402 - - 33,402
220,150 1,720 - 221,870 218,463 19,735 - 238,198
1b Class of business
Turnover
Computer
services 200,564 1,720 - 202,284 199,199 19,735 - 218,934
Business
continuity 19,586 - - 19,586 19,264 - - 19,264
220,150 1,720 - 221,870 218,463 19,735 - 238,198
Operating profit
Computer
services 8,627 (140) - 8,487 7,572 (2,332) (6,610) (1,370)
Business
continuity 2,441 - - 2,441 2,005 - (697) 1,308
Central
expenditure (2,920) - - (2,920) (3,000) - (13,124) (16,124)
8,148 (140) - 8,008 6,577 (2,332) (20,431) (16,186)
Net Assets
Computer
services 24,973 26,986
Business
continuity 2,919 3,966
Unallocated 10,795 3,847
38,687 34,799
1c Geographical segment
Turnover
UK 142,467 - - 142,467 141,179 - - 141,179
Rest of
Europe 77,683 1,720 - 79,403 77,284 19,735 - 97,019
220,150 1,720 - 221,870 218,463 19,735 - 238,198
Operating profit
UK 9,490 - - 9,490 7,119 - (1,519) 5,600
Rest of
Europe 1,578 (140) - 1,438 2,458 (2,332) (5,788) (5,662)
Central
Expenditure (2,920) - - (2,920) (3,000) - (13,124) (16,124)
8,148 (140) - 8,008 6,577 (2,332) (20,431) (16,186)
Net assets
UK 20,698 21,392
Rest of
Europe 7,194 9,560
Unallocated 10,795 3,847
38,687 34,799
Unallocated net assets consist of cash, tax payable, and other centrally held or
managed assets and liabilities
In relation to the discontinued operations in Switzerland, the profit and loss
includes cost of sales of £1,160,000 (year ended 30 September 2001 -
£4,649,000), gross profit of £560,000 (year ended 30 /September 2001 -
£1,339,000), sales and marketing costs of £149,000 (year ended 30 September 2001
- £632,000) and administration expenses of £551,000 (year ended 30 September
2001 - £3,263,000 (including goodwill of £1,065,000, and exceptional items of
£421,000)).
In relation to the discontinued operations in Italy, the profit and loss
comparatives include cost of sales in the year ended 30 September 2001 of
£11,889,000, gross profit of £1,858,000, sales and marketing costs of £1,121,000
and administration expenses of £1,972,000.
2. Exceptional items
2002 2001
£'000 £'000
Restructuring - 2,533
Total operating items charged to cost of sales - 2,533
Restructuring - 6,005
Impairment of goodwill - 11,893
Total operating items charged to
administration expenses - 17,898
Total operating exceptional items - 20,431
Loss on disposal of discontinued operations 1,493 4,514
Total exceptional Items before tax 1,493 24,945
On 1 March 2002, the Group disposed of its Swiss operations to ITRIS Maintenance
AG. Under the terms of the sale, ITRIS acquired the contracts held by Synstar
Computer Services AG, the stocks of maintenance equipment, and re-employed 41 of
its staff. The consideration for the sale was a cash payment of £0.3m. The
exceptional item of £1.5m relates to the loss on the sale of the business and
associated costs. The tax effect is £NIL.
In 2001, the group undertook a strategic review, which led to a restructuring
programme to enable the group to respond faster and more creatively to the needs
of customers. This restructuring programme involved both a redundancy and new
hiring programme, resulting in a charge for the year of £8.5m, which was
considered exceptional to the group's main activities. The tax effect of the
restructuring charge was a credit of £1.2m.
During 2001, an impairment review was conducted of the carrying value of
goodwill within the group. Consequently there was an exceptional write down
in goodwill of £10.4m held in relation to the Lancare subsidiary. In addition,
due to the trading performance in Switzerland and Luxemburg a full write down of
the £1m goodwill on CT Consulting AG and £0.5m on Tecsys was also made.
Therefore the total exceptional write down of goodwill in the period was £11.9m.
The tax effect was £Nil.
On 8th May 2001, the group disposed of the share capital of Synstar Computer
Services SpA (SCS SpA) and its other Italian subsidiaries to Gruppo ATR Srl of
Brescia, Italy. This resulted in an exceptional loss on disposal of £4.5m. The
results of the Italian subsidiaries have been disclosed as discontinued
activities. The tax effect was £Nil.
3. Taxation
The decrease in the ongoing taxation rate before exceptional items reflects the
changing mix of performance between the various European subsidiaries.
4. Earnings profit (loss) per share
Basic earnings profit (loss) per share are calculated in accordance with FRS14
Earnings per Share, based on profit after tax of £3,969,000 (2001 - £22,375,000
loss) and 162,500,000 (2001 - 162,500,000) ordinary shares, being the weighted
average in issue during the year.
Fully diluted earnings profit (loss) 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 162,977,000 (2001 -
162,500,000).
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 calculations of the adjusted earnings per share are based on the following
profits:
2002 2001
£'000 £'000
Profit (loss) for the year for basic earnings per
share 3,969 (22,375)
Exceptional items 1,493 24,945
Tax credit on exceptional items - (1,193)
Amortisation of goodwill - 360
Profit for the year for adjusted basic earnings
per share 5,462 1,737
Weighted average number of shares in issue:
2002 2001
Number Number
'000 '000
For basic earnings per share 162,500 162,500
Exercise of options 477 -
For fully diluted earnings per share 162,977 162,500
5. Reconciliation of operating (loss) profit to net cash inflow from operating
activities
2002 2001
£'000 £'000
Operating (Loss) Profit 8,008 (16,186)
Depreciation charges 14,302 15,104
Goodwill amortisation and impairment - 12,253
Decrease in stocks 919 982
(Increase) decrease in debtors (4,343) 1,629
Increase in creditors 2,555 929
21,441 14,711
6. Analysis of net funds
Cash at
bank Overdraft Loans Total
£'000 £'000 £'000 £'000
Balance at 1 October 2001 12,993 (3,237) (1,738) 8,018
Cash flows during year 4,411 3,059 954 8,424
Foreign exchange 27 - (30) (3)
Balance at 30 September 2002 17,431 (178) (814) 16,439
7. Reclassification of prior year costs
The directors have reviewed the classification of costs between costs of sales
and operating expenses in connection with the restructuring of the Group carried
out in 2001. The comparative figures have been reclassified to ensure consistent
presentation. The impact of this restatement is to reclassify £2,625,000 of
costs from overheads to cost of sales for the period to 30 September 2001.
This information is provided by RNS
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