Final Results

Synstar PLC 02 December 2003 Synstar plc Preliminary Results 2003 Total Operating Profit up 6% Advanced negotiations to sell French operations Order book up 56% Synstar plc, the pan-European IT services provider, announces results for the year ended 30 September 2003. Key Highlights • Total operating profit up 6% to £8.5m (2002: £8.0m) • Net cash inflow before financing up 17% to £9.8m (2002: £8.4m) • Mixed performance in Continental Europe counterbalanced by strong performance in core UK business where operating profits were up 44% to £13.7 million (2002: £9.5 million) • Dividend payments initiated at 0.5p per share • New Managed Services customers including Cognotec, Atomic Weapons Establishment, Dutch Ministry of Defence (DTO) and the Spanish Department of Health (CAM) • Largest ever contract signed with Fujitsu in September 2003 worth approximately £200 million • Phase 4 initiated to accelerate strategic programme to address expected Maintenance margin decline • Expected to result in an operating exceptional charge in 2004 Commenting on the preliminary results, John Leighfield, Chairman, said: 'This has been another good year of progress for the business with our existing business excluding France performing well in terms of gross margins, operating profits and cash generation. There has been a recent acceleration of the pressure on margins in our traditional maintenance business but the strategy of offering integrated Managed Services to large companies is producing significant contracts with long-term revenue streams at good margins. The progress made this year and the next phases of our strategy that we are planning will position Synstar well for the future and hence the Board's decision to begin paying dividends to shareholders.' Steve Vaughan, Chief Executive of Synstar, added: 'We have generated good momentum for the business during the course of the past three years. Our strategy has been to focus on those areas which are core to sustaining our longer term aim of higher margin, profitable business. It is clear to us that we are taking the business in the right direction, but our markets are changing rapidly. Demand for Managed Services continues to rise just as margins in our Maintenance business are coming under real pressure. The combination of these factors will be felt in our margins in 2004, particularly in the first half, and makes it all the more important for us to accelerate our Managed Service capability. This next step involves additional spending on people and skills across the UK and Europe that will amount to about £5 million. Furthermore, over the past three years we have not been shy of exiting markets where product mix, poor financial performance and a fundamentally difficult business environment have distracted the Group both in terms of financial commitment and management time. For this reason, we have reached advanced negotiations to sell our French business to its management team. If completed successfully, this action will improve the operating profitability of the Group.' Financial performance FY 2003 FY 2002 Change - Turnover £223.0m £221.9m +1% - Gross Margin 26.8% 26.3% +1% - Operating Profit £8.5m £8.0m +6% - Operating Profit (existing business exc France) £11.8m £9.1m +30% Profit Before Tax £8.7m £6.5m +34% Adjusted Earnings per Share (before exceptional) 3.6p 3.4p +6% Net cash inflow before financing £9.8m £8.4m +17% For more information, please contact: Steve Vaughan / Stephen Gleadle / Christine Jones Tel: 020 7831 3113 (on 2.12.03) Synstar plc Tel: 01344 662744 (thereafter) Ed Bridges / James Melville-Ross / Juliet Clarke Financial Dynamics Tel: 020 7831 3113 Chairman's Statement Overall Synstar performed strongly in 2003. We have consistently said that our over-riding principle is to manage the business for profit and cash. This remained true in 2003. Year on year operating profit has risen by 6% from £8.0 million to £8.5 million; net cash inflow before financing has increased by 17% from £8.4 million to £9.8 million. The most intractable problem we have faced recently has been with our operations in France, where a combination of lack of critical mass and the inherent inflexibility of the French business environment has defied all attempts to bring the operation into profit. We are therefore pleased to be at an advanced stage of negotiations for the disposal of this business. As we come to the conclusion of the third phase of the strategy, we need to gear up for the next phase of the group's development. The Board believes strongly that action is needed in the face of the inexorable pressure of reducing margins in our maintenance business. Building on the foundations of what we have already put in place, we need to invest to accelerate our strategy. This will allow us to exploit more fully our competence in winning larger and more highly differentiated contracts. The winning of the AWE and Fujitsu contracts are examples of what we can now achieve. Synstar's track record of delivering once the course of action has been set gives us the confidence to build the value of the group in this way through a fourth phase. It is our intention to pay our maiden dividend of 0.5p per share following shareholder approval at the Annual General Meeting in March 2004. We believe that this makes a statement about the quality of the business. It is set at a level that makes us confident that the dividend will be sustainable, and improve over time. At the Interims I also said that the Board was in the process of recruiting an additional independent non-executive director. We were delighted when Jo Connell agreed to join the Board. Jo was previously managing director of Xansa plc and she brings a wealth of experience of the type of higher value added service that will be crucial as we develop Phase 4 of the strategy. John Leighfield Chairman 2 December 2003 Chief Executive's Review Introduction In January 2001 Synstar embarked upon a programme of immense change. My three year strategy was designed to make the most of customer relationships and build an integrated IT services business. We have invested much time, effort and money during those three years. The results - financial, commercial and technical - are encouraging. 2003 has been another year of profit growth for Synstar, with adjusted earnings per share up 6% to 3.6 pence. Sales of larger contracts and more long term relationships have increased the order book by 56% in the past year. We have also exceeded expectations for cash generation, ending the year with £26.9m of net cash. The balance sheet has never been stronger and supports our maiden dividend. During the year we were troubled by the performance of our businesses in France. This makes our negotiations for the disposal of this business all the more important. Excluding France, operating profit from our business was up 30% at £11.8m (2002: £9.1m). If completed, our disposal of this business will represent a firm resolution of a difficult problem and leave in place a partner with whom we can continue to develop our international customer relationships. The successful outcome of our strategy has opened the door to an opportunity. We have developed a capability to win and deliver Managed Services. The market for this type of business is expanding, and our track record has developed well. We can develop this into a major new profit stream. At the same time, we have become concerned at the rate of margin erosion and price pressure in other parts of our business. We have to take this opportunity quickly to keep our profits secure in the long term. The actions we need to take will necessarily have a detrimental effect on the coming financial year, particularly in the first half, but the expected long term benefits are considerable. Our strategy has to continue into the future, and this review explains how. 2003 review The key feature of the year has been the growth of our ability to win larger and more complex contracts. We have improved the key capabilities required for these transactions. We are better able to understand the needs of our customers, and to explain more complex propositions to our customers. We have become better at combining several parts of our offering to produce a better, lower cost solution. New Managed Service customers wins during the year have included Cognotec (in Ireland), the UK Atomic Weapons Establishment (AWE), the Dutch Ministry of Defence (DTO), a large UK private healthcare provider and the Spanish Department of Health (CAM). A Managed Services business must deliver excellent service as well. We must deliver change programmes to make improvements to the way the customer infrastructures operate. At AWE we have implemented a fundamentally new way of managing the network so that service levels can be proactively managed. We need to be able to take on staff from the customer and integrate them with our own resources so that the new combination can be more effective. Our recent survey from Investors in People has specially praised our skills in staff transfer. We need to work effectively with partners, and Synstar has always been well known for this - our business with CSC has expanded by 23% during the year. For all these reasons, we are becoming an important force in the provision of Managed Services. At the same time, our existing services have prospered. Our many customers who depend on us for Maintenance and Business Continuity remain the major part of our revenue. Growth of these relationships has continued through the year. It is particularly pleasing when these relationships are renewed or expanded in a major way. We have agreed global contracts to provide Maintenance to Shell and Reuters, both already significant customers. The financial report shows that these plans have borne the most fruit in the UK. But this is not solely a UK-centric success story. As an example, our business in Spain has benefited in the last few months from a greater focus on fewer, larger opportunities. Wins with the Health Service and Traffic Department have brought new business worth about 4m euros per annum to the business and leads us to expect improvement in Spanish profits during 2004. Unfortunately not all our operations have had such a good year. The performance of our French business has been very poor, especially in the second half of the year. The reasons for this are covered in more detail later. In Belgium our margin has declined because our largest customers have reduced their IT budgets and the rate of project work has fallen off. Renewals have been achieved, but at lower margin. In Germany, economic conditions have been very difficult. A lack of new name sales and too much dependence on a weak product solutions market has depressed the revenue. Our German business needs more attention on cost reduction and management strengthening to improve the profits and drive some growth. Some steps have already been taken, and we are investigating opportunities to make more radical improvements. Business Continuity has delivered another good performance. The revenue remains strong, our margins remain high, and customers regard this service with growing interest. We have expanded our capabilities with some careful investment during the year. We have introduced the service to Germany with the opening of our new Business Recovery Centre near Frankfurt. We have improved our capability in other centres. Despite this investment, we have continued to increase our ROCE in this business. For the future, we have new service offerings, expanding Business Continuity into a fully-fledged high availability computing capability - continuous computing whatever goes wrong. This solution has been tried successfully with several customers, and is now being launched to existing customers as a major expansion in service. The year was rounded off with the signing of our largest ever contract (£200m) - to provide Fujitsu Computer Services with maintenance logistics services. From April 2005 we will deliver the right spares at the right time to Fujitsu engineers all over Europe. Our solution uses our own logistics organisation, which will treble in size as a result. This contract is a form of Business Process Outsourcing - a new departure for Synstar. Most importantly, it shows us able to construct this type of complex, leveraged, value based proposition. Review of the marketplace Synstar's services proposition is founded upon the three facts that we can: a) Deliver it better than our customers can do it themselves. b) Provide a range of matched services covering the whole infrastructure - more than a niche provider. c) Leave the customer in control of the part of the IT spend that really adds to his competitive advantage - the applications. In recent years, changes in the marketplace have made these features more attractive to customers. Customers want fewer suppliers; those that remain must be able to deliver a range of services. Life is getting harder for the niche players. Customers want variable pricing - paying more when demand is high, less in slack periods. Contracts are not won just by being cheap. Customers are more wary of long term commitments involving large scale outsourcing. It is harder for the big outsourcers to sell their huge, generic propositions. There is an emerging space in the market for a range of services of good quality in an offering that provides a clear return for the customer. This is where Synstar is positioned. Although there is a space opening for us in the market, we are not immune to market pressures. As we renew our long term contracts, we are seeing a real squeeze of margins. Sometimes we can resist this pressure by offering more services or finding new ways to reduce cost. Sometimes, but not always. Nowhere has this squeeze been more felt than in our maintenance business. Small scale maintenance of PCs and printers is already at such a low price it is hard to make a profit. This state of affairs will spread to other areas of maintenance that have been a major source of our profit. We must expect that other parts of our service offering will go the same way - product-based solutions and network cabling for example. Our strategy's first three phases were designed to develop Managed Services as a replacement. This is developing, but we are concerned that the maintenance margin will decline faster than the Managed Services margin will increase. Action is needed to accelerate. To successfully respond to the evolving market we must address two fundamental issues - our European business, and our ability to win Managed Services. I will cover our plans for each of these in turn. Together, they represent the next stage in strategy for Synstar - 'Phase 4'. The European question The multi-national dimension of Synstar's service offering has been a key feature of our business in recent years. Infrastructure service providers with a European reach appear to have an advantage over more local players. Some of our large, multinational customers buy from us partly because we can deliver a standard service in many different places. But this geographic reach comes with a cost. Our business is quite complex, and the management controls needed are costly. We have sub locations that are sub-critical. There is a trade-off between the benefits of a wide reach and the cost of achieving it, and the balance point of this trade off must be re-evaluated. In addressing those parts of the group that are under-performing, we have tried different solutions, with differing success. One solution is to make an investment in focus and business development. Our Spanish business has benefited from this approach. A new sales force, development of some new services, and focussing of our sales resources on fewer, larger opportunities have produced a major improvement in the business. In 2004, this business will move from break even to a profit on the back of a series of contract wins. Our Dutch and Irish businesses have responded in the same way to a similar approach. Elsewhere, we have used a model of presence in a country for delivery only. Denmark is an example, where we deliver to a small range of customers without the overhead of direct management, sales force or legal entity. In some situations, this can be effective and low cost, while preserving the benefits of service quality that membership of a large group can provide. Despite our best efforts, we have been unable to be successful in some parts of Europe. In past years I have taken the difficult decision to sell our businesses in Italy and Switzerland. In each case, we have retained them as our appointed subcontractors in those countries, and thus have been able to provide a seamless and consistent service to our customers. We are now in advanced negotiations to sell our business in France. We expect to complete these negotiations, and the necessary works council consultations, in the near future. To explain the reasons for this development, it is worth explaining how our French business has performed recently. It is a long-term loss making business. The revenue streams depend on project and product revenue for over 50% of the revenue, areas that market conditions have hit hard. We have a less well focused customer base in France, and the fixed cost of covering the whole country with mobile engineers is onerous. The cost reduction measures to address these issues are very difficult to carry out successfully in France, and experience shows it is even harder to do this when the business is part of an international group. All these reasons suggest that a smaller scale, locally managed solution represents a better future for the business. The disposal would follow a similar pattern to the two preceding transactions. We will achieve the benefits of a clean break exit from a difficult business making losses. At the same time have retained a local delivery partner that uses our processes and is tightly bound into our delivery infrastructure. Synstar France will continue as a close partner, an important component of our service offering, but an independent one. These disposals - in Italy, Switzerland and potentially France - have produced a new sort of delivery capability in Europe. This 'Synstar Business Network' represents a standardised delivery solution with wide geographic reach, while avoiding some of the costs inherent in multinational organisations. I hope to be able to expand this model in the coming years, to provide the same level of integrated solutions to the widening requirements of our customers. Phase 4 and beyond We have made good progress over the last three years, and earned ourselves an opportunity. From a background of business dominated by hardware maintenance, we have built a genuine multi-service-line, Managed Services provider. The opportunity is to continue to do so with a much higher level of commitment and volume. We need to turn a series of exciting, different relationships currently representing a minor part of our profit into the core of the business. We also face a pressing need to accelerate this transition. We have seen a big increase in price pressure in our core maintenance market. We must respond by ensuring that we outpace this pressure by accelerating the rate of progress of our Managed Services business. At the same time, we must continue to exit from elements of our core maintenance offering when margins fall below an acceptable level. Synstar has faced this type of challenge successfully in the past. Business Continuity was developed as a new revenue stream during the mid-nineties. This has become a key part of our offering, delivering around half of our profit. It replaced the profit stream derived from business that is now very low margin - product fulfilment, the sale of consumables etc. We have exited these businesses over the past two years. We have now put together a compelling track record in the core elements of the Managed Services offering - delivery to demanding service levels; transfer of staff under TUPE; skills in network management and call handling; delivery of upgrade projects to improve customer IT processes. We must accelerate our capabilities in all of these areas to speed up the development of this profit stream. We shall invest in our technical and project management skills to deliver transition projects and complex service delivery requirements together with the sales and sales support skills needed to create these solutions for customers. We shall invest in the senior management team needed to sponsor these high-level customer relationships and manage the rate of change in the organisation. Clearly, as we exit some parts of our maintenance offering, a part of the investment will be to reduce the cost of delivery in those areas by retraining, redeployment and in some cases the reduction of spend in those areas. As a result we expect an operating exceptional charge of approximately £5m. A three-part view of our business will emerge from the change. Firstly, Managed Services and related large scale customer relationships will become the key engine of growth for the company. We will develop this area with innovation, good customer management and sales effort. Secondly, Business Continuity will remain as a key element of our profit, and needs to be protected. This business will be managed to keep margins high and customers satisfied - stability will be the key requirement. Thirdly, the elements of our business with a more limited future will be separated out and managed carefully to ensure that costs are driven down and business is exited where the margins are too low. There will be three parts of the business with three different business objectives. It is never an easy decision to make an exceptional charge. The window to exploit this opportunity is short. To delay - and delay would be required if this investment were to be funded only from run-rate spending - would be to risk failure to exploit our opportunity while we can. We believe that the return on investment from this charge, represented by a better long term profit stream, is worthwhile. Summary I joined Synstar nearly three years ago, and since then have seen many changes in the company. Some aspects of our strategy have gone well, and others less well. In retrospect, however, I think it would have been very ambitious to predict at the start that by now Synstar would have signed one contract worth £200m (with Fujitsu) and another worth over £100m (with CSC). Our order book during this year has increased by 56%. We have shown our ability to compete for Managed Services business with the most demanding customers against major competitors. We have won this sort of business, delivered it successfully, and made a profit doing so. This is progress of the best sort. As our strategy matures, so we must now grasp the opportunity provided by our successes in Managed Services, and considerably accelerate this part of our business. This means redeploying skills, investment, assets and people to develop this side of our business, and progressively reduce the emphasis on the parts of our business with a limited lifespan. We don't have long to do this, so our exceptional charge in the coming year is warranted to be sure we exploit the opportunity to the full. The heritage of any organisation is always a major factor determining its future. Synstar has shown itself able to build upon a heritage of service based on maintenance to build a strong capability for Business Continuity, and now for Managed Services. The time is right to take the opportunity of that growth in Managed Services to develop Synstar at a faster rate. We will pursue that growth with the same vigour that produced the considerable progress over the past three years. I look forward to the next three years expecting no less progress. Steve Vaughan Chief Executive 2 December 2003 Finance Director's Review Introduction The results for the 12 months to 30 September 2003 continue to demonstrate improvement. Although revenue has remained broadly flat year on year, operating profit has increased 6% to £8.5m (2002: £8.0m). The Group is now generating interest income of £0.2m (2002: nil) and the tax rate has been held at 32% (2002: 32%). Net cash inflow before financing has increased 17% to £9.8m (2002: £8.4m) and the business completed the year with £26.9m of net cash balances (2002: £16.4m) Thus the Group is now in a robust financial position, one which provides a solid foundation on which to continue developing its strategy. As explained in Steve Vaughan's commentary Synstar is in advanced negotiations to dispose of our French business. This follows the disposal of our Swiss business in 2002. To provide better insight into what this means in terms of our existing business excluding France, I have separated below the results of these operations from the published numbers. Additionally, following a year on year 8% appreciation of the average Euro exchange rate compared with Sterling, I have then translated the 2002 continuing business results at the same rate of exchange between Sterling and the Euro as has been used for the 2003 results. This provides an overall better 'like for like' comparison of the results. Thus the results may be analysed as follows: £'m 2002 2002 2002 2002 2003 2003 2003 Published France/ Existing Existing Published France Existing Results Switzerland Business exc. Business exc. Business exc. France France Results France 2002 2003 2003 2003 Exchange Exchange Exchange Exchange rates rates rates rates Revenue 221.9 18.8 203.1 208.2 223.0 16.4 206.6 Cost of Sales (163.6) (14.5) (149.1) 152.8 (163.4) (14.6) (148.8) Gross Margin 58.3 4.3 54.0 55.4 59.6 1.8 57.8 % 26.3% 26.6% 26.6% 26.8% 28.0% Selling and (12.2) (1.8) (10.4) (10.7) (12.2) (1.8) (10.4) Marketing costs Administration (38.1) (3.6) (34.5) (35.4) (38.9) (3.3) (35.6) expenses Operating profit / 8.0 (1.1) 9.1 9.3 8.5 (3.3) 11.8 (loss) % 3.6% 4.5% 4.5% 3.8% 5.7% The commentary below is now focused on explaining the changes in the existing business excluding France at constant exchange rates. Revenue Revenues have decreased very slightly, by £1.6m to £206.6m. This has been driven by reductions primarily in project related Data Management revenues in Germany which have then been partially offset by increasing Business Continuity revenues. Overall the percentage of total revenues represented by long-term contracts has increased from 76% in 2002 to 78% in 2003. Gross Margin Gross margin has increased by 5% from 26.6% to 28.0% reflecting both the benefit of rising Business Continuity revenues which attract relatively high margins (being offset by lower margin Data Management revenues) and the impact of an increased concentration within the business on cost control, in particular staff and sub-contract costs. Operating Expenses Overall operating expenses (being Selling & Marketing costs and Administration expenses) have remained essentially flat, with inflationary pressures being offset by headcount and other cost controls. Operating Profit Arising from the above, operating profit before exceptional items has increased by £2.5m to £11.8m, an improvement of 26%. Operating margin on the same basis has increased very significantly, up by 27% from 4.5% to 5.7%. In terms of geography our operating profit can also be analysed as follows: £'m 2002 2002 2003 2003 2003 Exchange rates Exchange rates UK 9.5 9.5 13.7 Germany 1.4 1.5 (0.3) Belgium 2.4 2.5 1.5 Holland 0.5 0.5 0.8 Spain 0.2 0.2 0.1 Central support costs (2.0) (2.0) (1.1) Continental Europe 2.5 2.7 1.0 Central costs (2.9) (2.9) (2.9) Existing Business exc. France 9.1 9.3 11.8 France (0.9) (1.0) (3.3) Switzerland (0.1) (0.1) - Total Operating Profit 8.1 8.2 8.5 The overall picture is of a strong UK performance up by 44% to £13.7m (driven by revenue growth of 4% and improved cost control) partly offset by a generally weak performance in the Continental European businesses , mainly driven by revenue declines. Holland's profit increased by 60% to £0.8 m and central support costs reduced by £0.9m to £1.1m. Loss on disposal of discontinued operations The loss on disposal of discontinued operations shown in the 2002 profit and loss 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 £0.4m. The exceptional item of £1.5m relates to the loss on the sale of the business and associated costs. The details of the impact of the expected disposal of our three French trading entities, SCS France SA. Atelsi SA and SBC SARL will be disclosed as and when final agreement has been reached. Interest As the underlying cash position continues to strengthen the Group has now moved into an interest generating position receiving £0.2m in the full year (2002: nil). Taxation Following the significant reductions in tax rate in 2001 and 2002 the tax rate has been held at 32% for 2003 with the adverse impact from the French loss position being offset by benefits arising from the successful resolution of past tax issues. In the event our French business is disposed of, a rate of around 33% on continuing operations is expected for 2004. In the event it is not, then the rate will be significantly higher. Earnings per Share (EPS) Earnings per share has benefited from the combined impact of increasing operating profit and the generation of interest income. Adjusted EPS has increased 6% from 3.4p to 3.6p this year. Basic EPS has increased 50% from 2.4p to 3.6p. Proposed Dividend The Board proposes a final dividend for the year of 0.5p per share (£812,500) (2002: Nil p) which, subject to shareholder approval at the Annual General Meeting, will be paid on 20 April 2004 to those shareholders on the register as at 26 March 2004. Cash Flow and Net Funds Cashflow from the business remains strong with £9.8m being generated (2002: £8.4m). With the 8% strengthening of the Euro from 1.6057 Euro/£ at 30 September 2002 to 1.4758 Euro/£ at 30 September 2003 our Euro cash balances have also increased in value when translated into sterling. This has generated a further £0.7m. The higher cash generation is driven by the increasing profits and an improved working capital position. The business remained ungeared at 30 September 2003 with net cash balances of £26.9m (2002: £16.4m). As previously reported, the timing of payments from some large customers heavily influences the cash balance at 31 March and 30 September. However the £0.2m interest income indicates that the Group has maintained a net cash balance across the year. Return on capital employed Pre-tax return on capital employed has fallen slightly to 20% (circa 14% post tax) driven by relatively low returns being earned on the increasing cash in the balance sheet. With a Weighted Average Cost of Capital (WACC) around 10% the Group is comfortably value generating. Summary Despite essentially static revenue Group profit has been increased driven by both an emphasis on cost control and focus on higher margin revenue streams. The Group is now well positioned to continue the development of its strategy. Stephen Gleadle Finance Director 2 December 2003 Consolidated Profit and Loss Account For the year ended 30 September 2003 2003 2002 Notes £'000 £'000 Turnover Continuing operations 222,978 220,150 Discontinued operations - 1,720 Total turnover 1 222,978 221,870 Cost of sales (163,432) (163,558) Gross profit 59,546 58,312 Selling and marketing costs (12,237) (12,188) Administration expenses (38,793) (38,116) Operating profit Continuing operations 8,516 8,148 Discontinued operations - (140) Total operating profit 1 8,516 8,008 Loss on disposal of discontinued operations 2 - (1,493) Profit on ordinary activities before interest and taxation 8,516 6,515 Interest receivable and similar income 343 235 Interest payable and similar charges (143) (218) Profit on ordinary activities before taxation 8,716 6,532 Tax on profit on ordinary activities 3 (2,818) (2,563) Profit on ordinary activities after taxation and for the year 5,898 3,969 Dividends 4 (813) - Retained Profit for the year 5,085 3,969 Earnings per share 5 Basic 3.6p 2.4p Diluted 3.6p 2.4p Adjusted Basic (before exceptional items) 3.6p 3.4p 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 2003 2003 2002 £'000 £'000 Profit for the financial year 5,898 3,969 Currency translation differences on foreign currency net investments 1,416 (81) Total recognised profits relating to the year and since the last annual report and accounts 7,314 3,888 The accompanying notes and statement of accounting policies are an integral part of this consolidated statement of total recognised gains and losses. Consolidated Balance Sheet As at 30 September 2003 2003 2002 £'000 £'000 Fixed assets Tangible assets 33,167 33,646 33,167 33,646 Current assets Stocks 2,440 1,950 Debtors - amounts falling due within one year 49,777 51,432 Debtors - amounts falling due after one year 2,658 1,973 Cash at bank and in hand 26,922 17,431 81,797 72,786 Creditors: Amounts falling due within one year (69,317) (67,745) Net current assets 12,480 5,041 Total assets less current liabilities 45,647 38,687 Creditors: Amounts falling due after more than one year (459) - Net assets 45,188 38,687 Capital and reserves Called-up share capital 1,625 1,625 Profit and loss account 43,563 37,062 Total shareholders' funds - all equity 45,188 38,687 Consolidated Cash Flow Statement For the year ended 30 September 2003 Notes 2003 2002 £'000 £'000 Net cash inflow from operating activities 6 24,959 21,441 Returns on investments and servicing of finance 200 17 Taxation (1,637) (977) Capital expenditure (13,711) (11,511) Disposals - (546) Net cash inflow before financing 9,811 8,424 Financing (814) (954) Increase in cash in the year 8,997 7,470 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 2002, 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 LLP have given an unqualified opinion on the accounts for the year ended 30 September 2003, which will be delivered to the Registrar of Companies following the Annual General Meeting. Notes To The Financial Information 1. Segmental analysis All turnover, operating profit and net assets were attributable to the Group's principal activities and to Group companies located, and operating, within Europe. 1a Turnover by Destination 2003 2002 £'000 £'000 £'000 £'000 Total Continuing Discontinued Total UK and Republic of Ireland 146,735 141,453 - 141,453 France 16,940 16,967 - 16,967 Germany 23,952 26,744 - 26,744 Rest of Europe 35,351 34,986 1,720 36,706 222,978 220,150 1,720 221,870 1b Class of business Turnover Computer services 202,061 200,564 1,720 202,284 Business continuity 20,917 19,586 - 19,586 222,978 220,150 1,720 221,870 Operating profit Computer services 8,485 8,627 (140) 8,487 Business continuity 2,947 2,441 - 2,441 Central expenditure (2,916) (2,920) - (2,920) 8,516 8,148 (140) 8,008 Net Assets Computer services 23,163 24,973 Business continuity 1,904 2,919 Unallocated 20,121 10,795 45,188 38,687 1c Geographical segment Turnover UK and Republic of Ireland 148,762 142,467 - 142,467 France 16,383 17,051 - 17,051 Rest of Europe 57,833 60,632 1,720 62,352 222,978 220,150 1,720 221,870 Operating profit UK and Republic of Ireland 13,761 9,490 - 9,490 France (3,327) (920) - (920) Rest of Europe 998 2,498 (140) 2,358 Central Expenditure (2,916) (2,920) - (2,920) 8,516 8,148 (140) 8,008 Net assets UK 19,034 20,698 Rest of Europe 6,033 7,194 Unallocated 20,121 10,795 45,188 38,687 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 comparatives for the year ended 30 September 2002 includes cost of sales £1,160,000, gross profit of £560,000, selling and marketing costs of £149,000 and administration expenses £551,000. 2. Exceptional items As reported last year, the Group disposed of its Swiss operations to ITRIS Maintenance AG on 1st March 2002. 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 was £Nil. The results of Switzerland in 2002 are disclosed as discontinued activities. 3. Taxation Following the significant reductions in tax rate in 2001 and 2002, the tax rate has been held at 32% for 2003 with the adverse impact from the French loss position being offset by benefits arising from the successful resolution of past tax issues. 4. Dividends The directors recommend the payment of a dividend of 0.5p per equity share (2002: nil) representing a charge of £812,500. 5. Earnings per share Basic earnings per share are calculated in accordance with FRS14 Earnings per Share, based on profit after tax of £5,898,000 (2002 - £3,969,000) and 162,500,000 (2002 - 162,500,000) ordinary shares, being the weighted average in issue during the year. 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 163,080,000 (2002 - 162,977,000). 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: 2003 2002 £'000 £'000 Profit for the year for basic earnings per share 5,898 3,969 Exceptional items - 1,493 Profit for the year for adjusted basic earnings per share 5,898 5,462 Weighted average number of shares in issue: 2003 2002 Number Number '000 '000 For basic earnings per share 162,500 162,500 Exercise of options 580 477 For diluted earnings per share 163,080 162,977 Reconciliation of basic earnings per share to adjusted earnings per share 2003 2002 Adjusted basic earnings per share (before exceptional items) 3.6p 3.4p Basic earnings (loss) per share on exceptional items - (1.0p) Basic earnings per share 3.6p 2.4p Diluted earnings per share 3.6p 2.4p 6. Reconciliation of operating profit to net cash inflow from operating activities 2003 2002 £'000 £'000 Operating Profit 8,516 8,008 Depreciation charges 14,090 14,302 (Increase) decrease in stocks (66) 919 Decrease (increase) in debtors 2,604 (4,343) (Decrease) increase in creditors (185) 2,555 24,959 21,441 7. Analysis of net funds Cash at Finance Bank Overdraft Loans Leases Total £'000 £'000 £'000 £'000 £'000 Balance at 1 October 2002 17,431 (178) (814) - 16,439 Cash flows during year 8,819 178 814 - 9,811 Foreign exchange 672 - - - 672 Other non-cash changes - - - 146 146 Balance at 30 September 2003 26,922 - - 146 27,068 This information is provided by RNS The company news service from the London Stock Exchange

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