Interim Results
Synstar PLC
6 June 2000
Synstar, the pan-European IT Services group, today announces it's interim
results for the six months ended 31st March 2000.
Financial Highlights
* Revenue up 15% from £104.0m to £119.3m (20% increase on a constant currency
basis)
* Operating profit before goodwill amortisation up 13% from £5.2m to £5.9m
(18% increase on a constant currency basis)
* Net cash from operations up 16% from £12.2m to £14.2m
* Adjusted EPS up 58% from 1.2p to 1.9p
* Order book up 14% from £228m (30th September 1999) to £260m
* Capital investment in Business Recovery up 94% from £1.8m to £3.5m.
Commenting on the results, Richard Ferre, Chief Executive of Synstar Plc,
said:
'These results show steady progress during the period spanning the millennium.
They confirm the strength of our primarily contractual business and support
our strong belief that the prospects for Synstar remain positive.'
For further information:
Synstar will be doing an analyst presentation at 10.30am in the Garrick Suite
at The Barbican Centre, Silk Street, EC2Y 8DS on June 6th. For further
information please call Nick Lambert on 0771 340-6290 who will direct your
call to:
Richard Ferre, Chief Executive or Stephen Gleadle, Group Finance Director.
For future enquiries
SYNSTAR PLC - (01344) 662-700
Stephen Gleadle, Group Finance Director
sgleadle@synstar.com
GCI FINANCIAL - 020 7398-0800
Rupert Ashe / Roger Leboff / Nick Lambert
rashe@gcifinancial.com / rleboff@gcifinancial.com / nlambert@gcifinancial.com
Chairman's Statement
I am pleased to report Synstar's results for the six months to 31st March
2000.
Group turnover grew by 15% to £119.3m (1999: £104.0m) and the order book by
14% to £260m (£228m as at September 1999). Operating profit before goodwill
amortisation was up 13% at £5.9 million (1999: £5.2 million). Both our
divisions, Computer Services and Business Continuity, grew despite the
continued strengthening of the pound against the Euro, which significantly
depressed the contribution from mainland Europe. On a constant currency basis
turnover and operating profit increased by 20% and 18% respectively. Adjusted
earnings per share, excluding exceptional costs in 1999 and goodwill
amortisation were up 58% from 1.2p to 1.9p. The nature of Synstar's business
makes it strongly cash generative; net cash from operations was up by 16% to
£14.2m (1999: £12.2m).
Our strategy remains focussed on winning longer-term contracts and cross
selling to accelerate the development of our Business Continuity division,
which continues to grow in line with plan. As previously reported, we will
incur further investment costs associated with the expansion of our Business
Continuity division in the second half.
Although our long-term contracts business was largely unaffected by the Year
2000 slowdown in IT spending, the flow of short-term projects has slowed. Many
clients have reviewed these projects afresh, particularly in data management
and networking, and have elected in recent months to recommence the tendering
process from the beginning, delaying the start of such contracts by up to 9
months. The Board expects that this, coupled with a slower than expected
improvement in trading at our Italian subsidiary and the margin affect of our
Business Continuity investment programme will result in lower than anticipated
profits during the second half. As such, we anticipate full year operating
profit (before goodwill amortisation) to be broadly in line with 1999. The
Chief Executive's report gives further information on the Group's business
performance and outlook.
Looking forward to 2001, we anticipate continued revenue growth and a return
to profits growth. This is supported by the steady increase in our order book
mentioned above. The services provided by Synstar are becoming more essential
as IT becomes ever more important to all organisations. This process is being
accelerated by the development of e-business and holds true across all the
countries in which Synstar operates. I believe that the prospects for Synstar
remain good in the medium term.
CHIEF EXECUTIVE'S REVIEW
These results show steady progress during the period spanning the millennium.
They confirm the strength of our primarily contractual business and support
our strong belief that the prospects for Synstar remain positive.
Our market position improved again. We are now the 12th largest European IT
Services group in our sector by revenue, up from 14th last year, confirming
progress against our Mission Statement. (Source: IDC).
During the first half we renewed and extended our largest Computer Services
contract with CSC, and opened a new Business Recovery centre in Brussels.
Customers and Contracts
At the end of March, the total contractual order book stood at £260m, up 14%
from 30th September 1999. This growth reflects both new contracts won and
renewals and extensions to our existing base.
New customer wins included:
Customer Country Service
Daewoo UK Help Desk Services
Siemens Germany Desktop Services
Amadeus France Data Management
Universita Cattolica Italy Desktop Management
The existing customer contract base strengthened considerably with the renewal
of major contracts with CSC, BA, ITNET, plus significant expansions at:
Customer Country Service
NAG UK Branch & ATM Service
Woolwich UK BC cross-sell
L'Oreal France/Belgium BC consulting
BAT Pan-European Desktop Services
TIM Italy LAN support
ESSO Germany Desktop/network management/MVS
KBC Belgium Desktop Services
The high percentage of revenues that Synstar generates from its blue chip
client base underpins the business and is one of our core financial strengths.
Business Continuity
Business Continuity is an exciting area for Synstar, generating high growth
and margins, and very attractive returns on capital employed.
During the first half revenues continued to grow strongly, reflecting the
benefits of investment, focus and cross selling. While the benefits of cross
selling have already been significant, we believe less than 5% of this
opportunity has been tapped.
A new Business Recovery centre opened in Brussels in April. It is a
state-of-the-art facility with 250 Business Recovery seats and provides full
Call Centre recovery in a modern, high quality environment.
We have nearly doubled our business recovery seats in the last 18 months.
March '00 Sept '99 Sept '98
Number of seats 2,120 1,754 1,069
Despite the increased level of investment, margins have been maintained to
date.
Computer Services
The healthy growth in the contractual service business during the first half
was primarily the result of existing customer expansion, but new business wins
also came on stream at the end of the period.
As predicted, there was some slow down in Network and Data Management projects
and Product Sales revenues as a result of Y2K. This had some impact on top
line growth in the period. However the pipeline of Network and Data
Management prospects had recovered towards the end of the period, albeit more
slowly than anticipated.
Extended desktop services, which have been so successful in Belgium, were
expanded into Germany, France and Italy. The influence of Desktop Management
services in contracts won, will continue to benefit the Group in line with our
strategy.
Regional Performance
The UK business continued to build on last year's exceptional performance in
all areas. The Lancare acquisition was completed in September 1999 and has
now been fully integrated with all restructuring costs incurred absorbed in
the period. Particular focus on selling Lancare services into the existing
Synstar base resulted in a major networking contract at Westland Helicopters.
In Mainland Europe, the strongest contributions came from Germany (now our 2nd
largest subsidiary) and Belgium. Although Switzerland also met its target for
the first half, Italy is taking longer than anticipated to recover. We are
taking action to remedy this, in conjunction with our new management team in
Italy.
The performances in both France and Germany reflected the impact of the
millennium on Data Management and Network projects. Pipelines for both were
rebuilding satisfactorily towards the end of the period, but later than
anticipated.
The strong value of Sterling relative to the Euro had a negative effect on the
consolidated Group results. On a constant currency basis operating profits
would have risen 18% rather than the 13% reported
Employees
Headcount increased 5% during the six month period to 3,024 from 2,873 to
support the organic growth in the contractual business. The business has
continued to invest in sales while overheads have been firmly controlled.
A 'Sharesave' scheme was introduced in mainland Europe in line with
commitments made at the time of Flotation and we are pleased to report that it
was oversubscribed. The entire business has now had the opportunity to
benefit from Sharesave or Share Option schemes.
Prospects
Industry reports show strong growth rates for the markets in which we operate.
Desktop Management services are growing at 16% - 20% p.a., Network Integration
Services by 15% - 21% p.a. and Business Continuity by 16% - 19% p.a. (Source:
IDC).
However, business results confirm that the expected Y2K slowdown in Data
Management, Network and large Desktop roll-outs has lasted longer than our
industry had anticipated. Nevertheless we believe that this will only delay
growth by up to nine months and underlying new business growth remains
encouraging.
In the second half, we expect Business Continuity to continue growing,
although the cost impact of new Business Recovery centres will reduce
operating profits as expected. Our accelerated investment strategy will
continue into 2001, and return to normal levels thereafter, from which point
margins will improve.
Within Computer Services, three factors will have a negative effect on
revenues and operating profit in the second half:
* Data Management and Network project revenues, slowed by customers'
millennium clamp-downs will pick up later than anticipated, impacting revenues
and margins, particularly in France and to a lesser extent, Germany and the UK
Lancare acquisition;
* The delay in the improvement in the Italian business with a consequent
impact on Group tax rate
* The impact of the strong pound versus the Euro.
Consequently, the Board believes that Synstar's trading results for the full
year will be less than current market expectations. We anticipate full year
operating profit (before goodwill amortisation) to be broadly in line with
1999. However, the slowdown caused by the above factors is not expected to
continue into 2001.
We remain positive about the underlying market and continue to invest to
enable Synstar to take advantage of opportunities both within Computer
Services and Business Continuity. The underlying contractual business
continues to provide a strong and secure profit platform for Synstar and the
increase in the order book level reflects a very positive trend.
Synstar's market position remains strong and our Pan-European capability
spanning 12 countries leaves us well placed to benefit from market growth as
it occurs.
Consolidated Profit and Loss Account
Notes 6 months to 6 months to 12 months to
31 March 31 March 30 September
2000 1999 1999
£'000 £'000 £'000
Turnover 2 119,253 104,034 214,289
Continuing operations 118,826 104,034 213,048
Acquisitions 427 - 1,241
Cost of Sales (84,315) (73,768) (151,595)
Gross Profit 34,938 30,266 62,694
Selling and marketing costs (7,713) (7,960) (15,514)
Administration expenses (21,322) (17,083) (34,378)
Operating profit before
goodwill amortisation 5,903 5,223 12,802
Goodwill amortisation (301) - (36)
Operating Profit 2 5,602 5,223 12,766
Continuing operations 5,671 5,223 12,792
Acquisitions (69) - (26)
Interest receivable and similar income 119 - 413
Interest payable and similar charges (530) (3,342) (3,624)
Exceptional interest
charges 3 - (1,461) (1,461)
Profit before tax 5,191 420 8,094
Taxation 4 (2,416) (126) (3,043)
Profit for the financial period 2,775 294 5,051
Earnings per share 5
Adjusted basic 1.9p 1.2p 4.5p
Basic 1.7p 0.3p 3.7p
Diluted 1.7p 0.3p 3.7p
Adjusted basic earnings per share has been calculated before exceptional
interest charges, net of taxation, and goodwill amortisation.
Consolidated Statement of Total Recognised Gains and Losses
6 months to 6 months to 12 months to
31 March 31 March 30 September
2000 1999 1999
£'000 £'000 £'000
Profit for the financial period 2,775 294 5,051
Currency translation differences
on foreign currency net investments (1,653) (21) (1,467)
Total recognised gains relating
to the period 1,122 273 3,584
Consolidated Balance Sheet
31 March 31 March 30 September
2000 1999 1999
£'000 £'000 £'000
Fixed assets
Intangible assets 13,313 - 12,657
Tangible assets 40,781 37,641 39,186
54,094 37,641 51,843
Current assets
Stocks 7,310 7,616 8,155
Debtors 61,232 52,019 62,200
Cash at bank and in hand 15,544 20,755 16,502
84,086 80,390 86,857
Creditors: Amounts falling
due within one year (77,945) (61,121) (78,724)
Net current assets 6,141 19,269 8,133
Total assets less
current liabilities 60,235 56,910 59,976
Creditors: Amounts falling
due after more than one year - (849) (863)
Net assets 60,235 56,061 59,113
Capital and reserves
Called-up share capital 1,625 1,625 1,625
Share premium account 94,578 94,836 94,578
Profit and loss account (35,968) (40,400) (37,090)
Total shareholders' funds 60,235 56,061 59,113
Reconciliation of Movement in Shareholders' Funds
6 months to 6 months to 12 months to
31 March 31 March 30 September
2000 1999 1999
£'000 £'000 £'000
Profit for the period 2,775 294 5,051
Shares issued - 96,366 96,107
Currency translation differences (1,653) (21) (1,467)
Opening shareholders' funds 59,113 (40,578) (40,578)
Closing shareholders' funds 60,235 56,061 59,113
Consolidated Cashflow Statement
6 months to 6 months to 12 months to
31 March 31 March 30 September
Notes 2000 1999 1999
£'000 £'000 £'000
Net cash inflow from
operating activities 6 14,241 12,150 25,002
Returns on investments
and servicing of finance 7 (411) (3,081) (2,873)
Taxation 7 (822) (144) (1,709)
Capital expenditure 7 (9,814) (7,072) (15,765)
Acquisitions and disposals 7 (3,049) - (10,234)
Net cashflow inflow (outflow)
before financing 145 1,853 (5,579)
Financing 7 (767) 12,762 16,653
(Decrease) increase in
cash in the period 8 (622) 14,615 11,074
Notes to the Interim Financial Statements
1. Preparation of the interim financial statements
The interim financial statements have been prepared on the basis of the
accounting policies set out in the Group's 1999 statutory accounts.
The balance sheet at 30 September 1999 and the results for the year ended 30
September 1999 have been abridged from the Group's 1999 statutory accounts
which have been filed with the Registrar of Companies; the auditor's opinion
on those accounts was unqualified and did not include a statement under s237
(2) or (3) of the Companies Act 1985.
The interim statement does not constitute statutory accounts within the
meaning of section 240 of Companies Act 1985.
2. Segmental analysis
6 months to 6 months to 12 months to
31 March 31 March 30 September
2000 1999 1999
£'000 £'000 £'000
a. Turnover by destination
United Kingdom and
Republic of Ireland 69,900 53,857 115,715
France 8,031 8,876 17,181
Germany 13,162 13,224 26,972
Italy 9,512 11,610 21,187
Other European Countries 18,648 16,467 33,234
119,253 104,034 214,289
b. Class of Business
Turnover:
Computer Services 109,473 95,640 196,438
Business Continuity 9,780 8,394 17,851
119,253 104,034 214,289
Operating Profit:
Computer Services 4,765 4,472 10,646
Business Continuity 2,281 1,931 4,771
Central expenditure (1,444) (1,180) (2,651)
5,602 5,223 12,766
Net Assets:
Computer Services 47,832 36,427 50,312
Business Continuity 6,862 4,617 4,441
Unallocated net assets 5,541 15,017 4,360
60,235 56,061 59,113
c. Geographical segment
Turnover:
UK and Republic of Ireland 69,754 53,857 115,715
Rest of Europe 49,499 50,177 98,574
119,253 104,034 214,289
Operating Profit:
UK and Republic of Ireland 5,803 4,407 12,031
Rest of Europe 1,243 1,996 3,386
Central expenditure (1,444) (1,180) (2,651)
5,602 5,223 12,766
Net Assets:
UK and Republic of Ireland 36,205 25,505 38,298
Rest of Europe 18,489 15,539 16,455
Unallocated net assets 5,541 15,017 4,360
60,235 56,061 59,113
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 Group cash, taxation payable, and other
centrally held or managed assets and liabilities.
3. Exceptional Interest Charges
Exceptional interest charges recorded in the statutory accounts for the year
ended 30 September 1999 comprised the write off of capitalised debt issue
costs and penalties 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.
4. Taxation
The Group tax charge represents the estimated annual effective tax rate
applied on adjusted profit on ordinary activities. The interim period is
regarded as an integral part of the annual period and all tax liabilities are
disclosed as such.
5. Earnings per share
Basic earnings per share are calculated in accordance with FRS14 Earnings per
Share, based on profit after charging tax of £2,775,000 (6 months to 31 March
1999 - £294,000; year ended 30 September 1999 - £5,051,000) and 162,500,000 (6
months to 31 March 1999 - 108,409,340; year ended 30 September 1999 -
135,710,959) ordinary shares, being the weighted average in issue during the
period.
Fully diluted earnings per share is the basic earnings per share after
allowing for the dilutive effect of options, and in previous periods warrants,
in issue. The number of shares used for the fully diluted calculation is
163,412,435 (6 months to 31 March 1999 - 111,332,417; year ended 30 September
1999 - 137,159,660).
The adjusted earnings per share information has been calculated before
exceptional costs, net of taxation, and goodwill amortisation. The Directors
believe this additional measure provides a better indication of the underlying
trends in the business.
The calculations of earnings per share are based on the following profits and
numbers of shares:
6 months to 6 months to 12 months to
31 March 31 March 30 September
2000 1999 1999
£'000 £'000 £'000
Profit for the period
for basic earnings
per share 2,775 294 5,051
Exceptional items - 1,461 1,461
Tax credit on exceptional items - (453) (453)
Amortisation of goodwill 301 - 36
Profit for the period for
adjusted earnings per share 3,076 1,302 6,095
Weighted average number
of shares in issue:
6 months to 6 months to 12 months to
31 March 31 March 30 September
2000 1999 1999
'000 '000 '000
For basic earnings per share 162,500 108,409 135,711
Exercise of options and warrants 912 2,923 1,449
For fully diluted earnings per share 163,412 111,332 137,160
6. Reconciliation of operating profit to net cash inflow
6 months to 6 months to 12 months to
31 March 31 March 30 September
2000 1999 1999
£'000 £'000 £'000
Operating profit 5,602 5,223 12,766
Depreciation charge 7,825 7,856 15,505
Goodwill amortisation 301 - 36
Loss (profit) on
disposal of fixed assets - 49 (41)
Decrease (increase) in stocks 896 (1,091) (1,276)
(Increase) decrease in debtors (281) 1,523 (3,338)
(Decrease) increase in creditors (102) (1,410) 1,350
Net cash inflow from operations 14,241 12,150 25,002
7. Cashflow
6 months to 6 months to 12 months to
31 March 31 March 30 September
2000 1999 1999
£'000 £'000 £'000
Returns on investments and
servicing of finance:
Interest paid (530) (3,213) (2,812)
Exceptional interest paid - - (474)
Interest received 119 132 413
(411) (3,081) (2,873)
Taxation:
Net tax paid (822) (144) (1,709)
Capital expenditure:
Purchase of fixed assets (9,996) (7,294) (16,737)
Proceeds on sale of fixed assets 182 222 972
(9,814) (7,072) (15,765)
Acquisitions:
Consideration paid (2,561) - (9,977)
Acquisition costs paid (199) - (257)
Net debt balances acquired (289) - -
(3,049) - (10,234)
Financing:
Issues of share capital - 103,124 103,124
Flotation costs - (6,758) (7,017)
Loans taken out in period - - 4,150
Repayment of loans (767) (83,604) (83,604)
(767) 12,762 16,653
8. Reconciliation of net cashflow to movement in net cash
6 months to 6 months to 12 months to
31 March 31 March 30 September
2000 1999 1999
£'000 £'000 £'000
Net (decrease) increase in
cash during period (622) 14,615 11,074
Cash outflow from decrease in debt 767 83,604 79,454
Other changes - (1,799) (1,799)
Foreign exchange (500) (121) (256)
Movement in net cash in period (355) 96,299 88,473
Net cash (debt) at beginning of year 11,378 (77,095) (77,095)
Net cash at end of period 11,023 19,204 11,378
9. Analysis of net funds
Cash at
Bank Overdraft Loans Total
£'000 £'000 £'000 £'000
At 30 September 1999 16,502 (974) (4,150) 11,378
Cashflows (123) (499) 767 145
Foreign exchange (835) 66 269 (500)
At 31 March 2000 15,544 (1,407) (3,114) 11,023
10. Approval of financial statements
These financial statements were approved by the Board of Directors on 6 June
2000.
11. Shareholder information
The interim statement is being sent to all shareholders and copies are
available to the public from the registered office of the company; Synstar
House, 1 Bracknell Beeches, Old Bracknell Lane West, Bracknell, Berkshire,
RG12 7BW. The company's registered number is 3416147.