Interim Results
Synstar PLC
29 May 2002
29 May 2002
Synstar Plc
('Synstar' or 'the Group' or 'the Company')
Synstar builds on strong foundations
Synstar Plc, the pan-European Business Availability and IT services company,
today announced interim results for the six months ended 31 March 2002.
Highlights
• Revenue from continuing operations up 4.5% to £109.9m
• Operating profit from continuing operations up 187% to £3.2m
• Interest charge eliminated and tax rate reduced from 38% to
33%
• Positive cashflow of £1.0m
• Order book for continuing operations maintained at £230m
• Disposal of loss making operations in Switzerland
Commenting on the results, Steve Vaughan, Chief Executive of Synstar Plc, said:
'These results demonstrate that we have achieved the main objectives of phase 2
of our recovery plan. We have built the foundation and stability that the
company needs for a period of strong growth. Phase 3 of our plan is now underway
to achieve that growth.'
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 Geoff Callow on 020 7072-4200 if you would like to attend. The
presentation slides will be available on our website at www.synstar.com
For Further Information:
Synstar Plc: 01344 662700
Steve Vaughan / Stephen Gleadle
GCI Financial: 020 7072-4200
Roger Leboff / Geoff Callow
Interim Statement
Chairman's Statement
It is very pleasing to be able to report that significant progress has been made
in rolling out the 3-Phase strategy that Steve Vaughan announced in June 2001.
Despite today's very uncertain marketplace, we have made significant advances;
we have extended contracts with major customers; we have improved the cross
selling of multiple services; we have resolved what had been persistent
difficulties - for instance by disposing of the Swiss operation and amicably
resolving litigation with ICL - and have emerged with a healthier, 'cleaner'
operation; perhaps most important of all - despite the uncertainty that any
major change in a company can bring about - we have maintained our remarkable
level of customer satisfaction.
Synstar has never attempted to operate in those parts of the IT industry that
can have what is often a rather ephemeral glamour. Its range of services is
fundamental to its customers whatever the current fashion, whatever aspect of IT
is growing at the moment and, to some extent, whatever the financial climate.
It is against that background that Steve has been bringing about a
transformation of the company.
The benefits of Phases 1 and 2 of the strategy are now becoming clear; I believe
that we have put in place the right foundations on which to build Phase 3 of the
strategy that will allow Synstar to become 'our customers' natural choice for
business availability services'.
It is above all the efforts of our people that have made the progress of the
company possible. On behalf of the Board I would like to thank them all for the
dedicated and professional way they have made their contribution as we continue
to take Synstar through major change.
John Leighfield
Chairman
28 May 2002
Chief Executive's Review
Introduction
The first half of this financial year has put great demands on Synstar, in
common with the whole IT industry. I am pleased to report that at the end of
this period our business has emerged stronger and in better financial shape.
The strategic recovery plan that I put in place last June is on track. Most
importantly, we have been able to provide a period of stability for the
organisation, which has given our restructuring and other changes the breathing
space they needed to start working. This has not been easy to achieve, but we
have resisted the temptation to take any precipitate actions - we have the
correct plan and it is generating the right benefits.
The underlying financial performance improved steadily during the first half.
It marks the return to profitable trading, even taking exceptional items into
account. Cash generation continues to be a feature of the business. We traded
with a positive cash balance during every month in the first half, a robust and
resilient foundation for the business.
Review
During the period under review we continued to focus on the key principles of
our business plan. We focused on profit and cash rather than the search for
revenue. Indeed, we have exited parts of our revenue stream that did not fit
into our future plans - for example much of our high volume product supply
business.
We have concentrated on growing long-term customer relationships and renewed and
expanded contracts with some of our highest profile customers. This includes
renewed five-year agreements with ITNet and British Airways. We have also
agreed a major expansion of our long-term relationship with Daimler Chrysler,
and gained additional business from many of our most valued customers.
The exit from Switzerland was a major decision during the first half. Our
business there had fallen below critical mass and we did not believe we could
resolve this by trading out of the problem. Despite significant efforts from
all our staff, including our Swiss team, we could find no basis for a
sustainable future.
We therefore accepted an offer from a local IT services company, ITRIS
Maintenance AG, to take over the local contracts and many of our staff. We also
agreed a sale of all the locally held stock and transfer of some of the building
leases. This represents a much more certain future for our former employees,
and also provides for a robust local partner for Synstar to deliver in
Switzerland. ITRIS is now delivering our responsibilities to a number of
pan-European customers in Zurich and Geneva, and this arrangement is proceeding
successfully. This represents an excellent business solution for Synstar, a
value-adding relationship for ITRIS, and an effective end to what would
otherwise have been a long-running loss.
I was also very pleased to resolve a difficult situation with ICL (now Fujitsu
Computer Services). A long running legal case between Synstar and ICL had the
potential to become a long-term drain on both cash and management time, with
uncertainty as to the eventual outcome. We took advantage of a change of
management on both sides, and brokered a fundamental change of relationship,
from one based on litigation to one based on co-operation.
Synstar is now a key supplier of subcontract maintenance services to ICL. This
will, in time, provide the group with a considerable long-term revenue stream,
and some significant cost savings to ICL. We expect this partnership to grow
significantly over the next few years, and for ICL to become one of our top ten
customers in the near future. This is a good example of a major success in the
development of a new strategic business partner.
It will come as no surprise that trading conditions have, in general, been
difficult. We have continued to see many opportunities, but these have taken
longer to come to fruition, proved harder to sell at sensible margins and have
therefore required careful qualification. A number of our large customers have
also requested contract renegotiations, which have had to be handled carefully.
As a result, our statement in March reported a slower rate of profit build up
than we had hoped for.
We have been robust in the management of all of these issues and still expect to
achieve market earnings expectations (before exceptional items) for the full
year. Our two key areas of challenge are the closure of opportunities in the
networking pipeline in the UK, and continuing our success in Data Management
sales despite lengthening customer decision cycles. It should come as no
surprise that at this stage of the year our challenges revolve around the
relatively small part of our business that does not relate to long-term
contracts, and is therefore vulnerable to delays in decision cycles. Although
this is not without risk, we have a clear set of actions to carry out to achieve
this result and are on track to complete all those actions on time.
I remain certain that our strategy and structure is correct, is delivering the
benefits expected, and we are therefore well placed to generate the results
anticipated.
Strategic review - Phase 3
In my interim review last June, I set out a three-year strategic plan for the
company. We are now half way through that plan.
To recap, during the first six months we made fundamental changes to the way in
which the group was organised and handled its customers and service lines. A
further twelve months on we are just completing Phase 2, which was designed to
provide the stability to allow those initial changes to take effect, and
simultaneously to focus upon a small number of more specific problem areas that
needed attention.
Phase 3 of our plan, and our current objective, is to create a solid foundation
for growth at above market rates. We still expect that growth to come from
bigger, larger more joined up deals, and in particular to drive growth from
cross selling into our existing customer base.
At the end of the first 17 months of our plan, it is natural to question whether
we have completed Phase 2 on schedule. As with any plan, the elements have
progressed at different rates, and there are some aspects yet outstanding that
we would have preferred to complete during Phase 2. On balance though, the
remaining tasks fall into the realm of continuous improvement rather than
fundamental change.
Overall I believe that we have achieved our aim of a solid foundation for growth
above the market rate. We have financial security and stability. We have
excellent customers and relationships that have grown in strength and depth over
the past year. We have an emerging portfolio of standard services that give us
the product to sell. We still have a great workforce.
Phase 2 has delivered the foundation we wanted. We intend to be equally focused
about the next 18 months. The key is to take the best of what we have built and
aggressively roll that out across the group and to as many of our customers as
possible. We now have the customer base and increasingly, the sales pipeline to
deliver growth above the market rate. Delivering our best service everywhere
will accelerate this process.
During the next few months we will roll out the key parts of Phase 3:
1. A much increased focus on the identification and closure of bigger,
larger more joined up deals with our key customers.
2. The rollout of our standard service lines across the whole of the
company - to enable us to deliver full infrastructure managed services
consistently across the whole of Europe.
3. Take the best of our internal processes and practices, and use these as
the common method of delivery across Europe - to reinforce consistency and drive
growth from within.
4. To increase the focus on our staff development, careers and
communication, as our business becomes increasingly dependent upon quality of
people rather than quantity of assets.
Throughout Phase 3 we expect to see the benefits of our plan coming through. We
already have plenty of anecdotal evidence of successes that would not have been
possible 18 months ago. In some cases, this has become more than just
anecdotal. For example 50% of new Business Continuity revenues now come from
cross selling to Computer Services customers, compared with less than 10% a year
ago. This systematic improvement in our business should become increasingly
visible during Phase 3.
In my last two reports I have been very clear that our overall vision should be
to achieve the status of a world class company. We already deliver world class
service to many of our customers, and have many profitable and growing
contracts. We now have the foundation to exploit areas of world class
achievement and roll them out throughout the company. In my opinion this is the
key to the next stage. Our vision of world class performance is unchanged.
Perhaps more importantly, I can now see a clear route to achieving it.
Steve Vaughan
Chief Executive
28 May 2002
Finance Director's Review
Introduction
The results for the six months to 31 March 2002 are starting to demonstrate the
positive impact of many of the changes implemented following the recent
strategic review.
To better explain the group's financial performance I have separated out below
the impact of the disposal of Italy and Switzerland from the impact of our other
strategic initiatives on the continuing business.
Operating profit before goodwill and exceptionals can be analysed as follows:
£'m 2001 H1 2001 H1 2001 H1 2002 H1 2002 H1 2002 H1
Published Italy/ Continuing Published Italy/ Continuing
results Switzerland Business results Switzerland Business
Revenue 120.3 15.1 105.2 111.6 1.7 109.9
Cost of Sales (91.2) (12.8) (78.4) (83.1) (1.1) (82.0)
Gross Margin 29.1 2.3 26.8 28.5 0.6 27.9
Sales and Marketing (8.2) (1.0) (7.2) (6.2) (0.1) (6.1)
Administration costs (20.6) (2.7) (17.9) (19.2) (0.6) (18.6)
Operating profit 0.3 (1.4) 1.7 3.1 (0.1) 3.2
Overall operating profit before goodwill and exceptionals has increased by £2.8m
to £3.1m year on year. Of this increase £1.3m is attributable to loss (and cash
usage) avoidance following the disposal of Italy and Switzerland.
In addition to avoiding future cash outflows the two disposals together
generated a net cash inflow of some £1.7m.
The commentary below is now focused on explaining what has happened in the
continuing business.
Revenue
Revenues from continuing operations have increased 4.5% year on year. The driver
of this growth remains Computer Services and the maintenance/life cycle revenue
streams within this. Business Continuity revenues have remained constant with
increases in long term contractual income being offset by reductions in short
term revenues.
Revenue growth overall has been reasonably balanced between the UK and Mainland
Europe, with increases of 4.7% and 4.2% respectively.
It is also pleasing to note that the percentage of revenue represented by
long-term contracts continues to increase and is now over 74% (last year: 69%).
Gross Margin
The way gross margin has been calculated 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 reducing
overhead costs and increasing cost of sales by equal and opposite amounts. 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. 2001 numbers have
been adjusted accordingly.
Gross margin for the continuing business on the revised basis has remained
broadly flat at around 25.5%. 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 being offset by the impact of cost inflation
and pricing pressure on major contract renewals.
Operating Expenses
Overall operating expenses in the continuing business have fallen £0.4m.
This arises from the effect of the restructuring programme, partially offset by
cost inflation and extra investments made into the business notably in training,
marketing, management and the systems infrastructure.
Operating Profit
Arising from the above, operating profit before goodwill and exceptionals on
continuing businesses has increased by £1.5m to £3.2m.
Margin on the same basis has increased from 1.6% to 2.9%.
Loss on disposal of discontinued operations
The loss on disposal of discontinued operations shown in the 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 £0.5m, of which £0.2m is deferred subject to client retention until August
2002. 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 focus on the generation and management of cash the
interest charge has fallen from £0.3m in the first half of 2001 to £nil in 2002.
Our expectations are that a £nil interest position can be achieved for the
remainder of the year, saving £0.6m in the full year.
Taxation
Similarly a focus on tax management alongside the disposals programme has
reduced the tax rate to an expected 33% for 2002 compared to an underlying rate
of 38% in 2001 and 44% in 2000.
It is currently expected that this rate can be held for one to two years while
historic tax losses, particularly in France, are utilised, after which the rate
should trend upwards towards a long term average for a pan European business of
circa 37%.
Earnings per Share
Earnings per share ('EPS') have thus benefited from the combined impact of
increasing operating profit and reduced interest and tax payments.
Before exceptional items and goodwill, EPS has increased from last year's loss
of (0.4)p to 1.3p per share profit this year.
Cash Flow and Net Funds
Cashflow from the business remains strong.
Despite spending £2.4m arising from last year's restructuring programme the
Group still generated £1.0m of cash in the first half. This was driven by the
profit inflow, capital expenditure running at £1.0m less than depreciation and a
refund of previous tax payments offset by the restructuring programme costs and
working capital usage.
This working capital usage primarily arises from trade debtors and reflects
phasing of our sales growth. Debtor days have improved from 67 days in March
2001 to 61 days in 2002.
The business was ungeared at 31 March 2002 with net cash balances of £9.0m (30
September 2001: £8.0m). As previously reported our cash balance at 31 March and
30 September is heavily influenced by the timing of payments from some large
customers. The £nil interest charge indicates that across the first 6 months the
business ran a small net cash balance.
Summary
Shareholders are now starting to see the benefits of the previously announced
initiatives
- Operating profit has increased driven by sales growth, overhead
savings and the disposal of the two non-core loss making subsidiaries.
- The focus on cash generation and its management has removed the long
standing interest charge
- The disposal programme and a more active approach to managing our tax
affairs has reduced the tax rate.
Beyond this, the group will target future earnings and margin growth from the
operational gearing of our business as we benefit from cross selling our service
offerings into our blue-chip customer base. This will be underpinned by Phase 3
of the strategic review, as described in the CEO's review.
Stephen Gleadle
Finance Director
28th May 2002
Independent Review Report to Synstar Plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 March 2002 which comprises the Profit and loss account,
Balance sheet, Cashflow statement, Statement of total recognised gains and
losses and the related notes numbered 1 to 12. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom Auditing Standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 March 2002.
Arthur Andersen
Four Brindley Place
Birmingham
B1 2HZ
28 May 2002
Consolidated Profit and Loss Account
Notes 6 months Before Exceptional Restated Restated
to 31 exceptional items (Note 2) (Note 2)
March items 31 (Note 3) 6 months to 12 months to
2002 March 2001 31 March 2001 31 March 2001 30 September
2001
£'000 £'000 £'000 £'000 £'000
Turnover 2
Continuing operations 109,870 105,113 - 105,113 218,463
Discontinued operations 1,720 15,141 - 15,141 19,735
Total turnover 111,590 120,254 - 120,254 238,198
Cost of sales (83,125) (91,204) (1,009) (92,213) (181,407)
Gross profit 28,465 29,050 (1,009) 28,041 56,791
Selling and marketing costs (6,165) (8,178) - (8,178) (14,595)
Administration expenses (19,242) (20,969) (12,909) (33,878) (58,382)
Operating profit (loss) before
goodwill
Continuing operations 3,058 1,687 (1,937) (250) (1,240)
Discontinued operations (140) (1,424) - (1,424) (2,693)
Total operating profit (loss) 3,058 263 (1,937) (1,674) (3,933)
before goodwill amortisation
Goodwill amortisation - (360) - (360) (360)
Goodwill impairment - - (11,981) (11,981) (11,893)
Operating profit (loss)
Continuing operations 3,198 1,383 (12,880) (11,497) (12,395)
Discontinued operations (140) (1,480) (1,038) (2,518) (3,791)
Total operating profit (loss) 2 3,058 (97) (13,918) (14,015) (16,186)
Loss on disposal of 3 (1,492) - (4,514) (4,514) (4,514)
discontinued operations
Profit (loss) on ordinary 1,566 (97) (18,432) (18,529) (20,700)
activities before interest
Interest receivable and similar 95 134 - 134 225
income
Interest payable and similar (91) (423) - (423) (821)
charges
Profit (loss) before tax 1,570 (386) (18,432) (18,818) (21,296)
Tax on profit (loss) on 4 (1,010) (575) 252 (323) (1,079)
ordinary activities
Profit (loss) for the financial 560 (961) (18,180) (19,141) (22,375)
period
Earnings per share 5
Adjusted basic 1.3p (0.4p) 1.1p
Basic 0.3p (11.8p) (13.8p)
Diluted 0.3p (11.8p) (13.8p)
The operating loss before goodwill amortisation for the year ended 30 September
2001 includes exceptional items of £2,533,000 included in the cost of sales, and
£6,005,000 included in operating expenses as detailed in note 3.
Adjusted basic earnings per share has been calculated before exceptional charges
net of taxation, and goodwill.
Consolidated Statement of Total Recognised Gains and Losses
6 months to 31 6 months to 31 12 months to 30
March 2002 March 2001 September 2001
£'000 £'000 £'000
Profit (loss) for the financial period 560 (19,141) (22,375)
Currency translation differences on foreign currency 348 629 (221)
net investments
Total recognised gains and losses relating to the 908 (18,512) (22,596)
period
Consolidated Balance Sheet
31 March 2002 31 March 2001 30 September 2001
£'000 £'000 £'000
Fixed Assets
Tangible assets 35,266 38,877 36,910
Current assets
Stocks 2,743 3,659 2,988
Debtors 52,114 49,207 48,158
Cash at bank and in hand 13,439 12,317 12,993
68,296 65,183 64,139
Creditors: Amounts failing due within one year (67,855) (65,177) (66,250)
Net current assets (liabilities) 441 6 (2,111)
Total assets less current liabilities 35,707 38,883 34,799
Net assets 35,707 38,883 34,799
Capital and reserves
Called-up share capital 1,625 1,625 1,625
Share premium account 94,578 94,578 94,578
Profit and loss account (60,496) (57,320) (61,404)
Total shareholders' funds - all equity 35,707 38,883 34,799
Reconciliation of Movement in Group Shareholders' Funds
6 months to 6 months to 12 months to
31 March 2002 31 March 2001 30 September 2001
£'000 £'000 £'000
Profit (loss) for the period 560 (19,141) (22,375)
Currency translation differences 348 629 (221)
Net addition (reduction) to shareholders' funds 908 (18,512) (22,596)
Opening shareholders' funds 34,799 57,395 57,395
Closing shareholders' funds 35,707 38,883 34,799
Consolidated Cash Flow Statement
Notes 6 months to 6 months to 12 months to
31 March 2002 31 March 2001 30 September 2001
£'000 £'000 £'000
Net cash inflow from operating activities 6 6,532 10,200 14,711
Returns on investments and servicing of 7 4 (289) (596)
finance
Taxation 7 652 (1,055) (3,233)
Capital expenditure 7 (6,180) (6,550) (11,459)
Disposals 7 (8) - 2,338
Net cash inflow before financing 1,000 2,306 1,761
Financing 7 2,055 (1,758) (1,368)
Increase in cash in the period 8 3,055 548 393
Notes to 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 2001 statutory accounts.
The balance sheet at 30 September 2001 and the results for the year ended 30
September 2001 have been abridged from the group's 2001 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 the Companies Act 1985.
2. Segmental analysis
Restated (Note 2) Restated (Note 2)
6 months to 6 months to 12 months to
31 March 2002 31 March 2001 30 September 2001
£'000 £'000 £'000
a. Turnover by destination
United Kingdom and Republic of Ireland 68,006 67,035 141,284
France 8,586 7,765 16,377
Germany 13,814 13,622 27,400
Italy 64 11,862 13,747
Other European countries 21,120 19,970 39,390
111,590 120,254 238,198
b. Class of business
Turnover:
Computer Services
- Continuing operations 100,379 95,600 199,199
- Discontinued operations 1,720 15,141 19,735
Business Continuity 9,491 9,513 19,264
111,590 120,254 238,198
Operating profit:
Computer Services
- Continuing operations 3,614 2,189 7,993
- Discontinued operations (140) (1,480) (2,753)
Business Continuity 1,120 535 2,005
Central Expenditure (1,536) (1,341) (3,000)
Exceptional items - (13,918) (20,431)
3,058 (14,015) (16,186)
Net Assets:
Computer Services 28,957 29,599 26,986
Business Continuity 3,085 4,702 3,966
Unallocated net assets 3,665 4,582 3,847
35,707 38,883 34,799
c. Geographical segment
6 months to Restated (Note 2) Restated (Note 2)
31 March 2002 6 months to 12 months to
£'000 31 March 2001 30 September 2001
£'000 £'000
Turnover:
UK and Republic of Ireland 69,858 66,707 141,179
Rest of Europe
- Continuing operations 40,012 38,406 77,284
- Discontinued operations 1,720 15,141 19,735
111,590 120,254 238,198
Operating profit:
UK and Republic of Ireland 3,580 2,203 7,119
Rest of Europe
- Continuing operations 1,154 521 2,879
- Discontinued operations (140) (1,480) (2,753)
Central Expenditure (1,536) (1,341) (3,000)
Exceptional items - (13,918) (20,431)
3,058 (14,015) (16,186)
Net Assets:
UK and Republic of Ireland 21,983 20,475 21,392
Rest of Europe 10,059 13,826 9,560
Unallocated net assets 3,665 4,582 3,847
35,707 38,883 34,799
In relation to the discontinued operations in Switzerland, the profit and loss
includes cost of sales of £1,160,000 (6 months to 31 March 2001 - £2,650,000;
year ended 30 September 2001 - £4,649,000), gross profit of £560,000 (6 months
to 31 March 2001 - £694,000; year ended 30 September 2001 - £1,339,000), sales
and marketing costs of £149,000 (6 months to 31 March 2001 - £142,000; year
ended 30 September 2001 - £632,000) and administration expenses of £551,000 (6
months to 31 March 2001 - £2,075,000 (including goodwill of £1,065,000); year
ended 30 September 2001 - £3,263,000 (including goodwill of £1,065,000)).
In relation to the discontinued operations in Italy, the profit and loss
comparatives include cost of sales in 6 months to 31 March 2001 - £10,166,000
(year ended 30 September 2001 - £11,889,000), gross profit in 6 months to 31
March 2001 - £1,631,000 (year ended 30 September 2001 - £1,858,000), sales and
marketing costs in 6 months to 31 March 2001 - £932,000 (year ended 30 September
2001 - £1,121,000) and administration expenses in 6 months to 31 March 2001 -
£1,691,000 (year ended 30 September 2001 - £1,972,000).
In relation to exceptional items within operating profit, the analysis by class
of business includes in the 6 months to 30 March 2001 £2,549,000 in Computer
Services (year ended 30 September 2001 - £6,610,000), £nil in Business
Continuity (year ended 30 September 2001 - £697,000), and £11,369,000 in Central
Expenditure (year ended 30 September 2001 - £13,124,000)
In relation to exceptional items within operating profit, the analysis by
geographical segment includes in the 6 months to 30 March 2001 £nil in UK and
Republic of Ireland (year ended 30 September 2001 - £1,519,000), £2,549,000 in
the Rest of Europe (year ended 30 September 2001 - £5,788,000), and £11,369,000
in Central Expenditure (year ended 30 September 2001 - £13,124,000).
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 restated to ensure consistent
presentation. The impact of this restatement is to reclassify £1,283,000 of
costs from overheads to cost of sales for the period to 31 March 2001
(£2,625,000 in the year to 30 September 2001).
Unallocated net assets consist of group cash, taxation payable, and other
centrally held or managed assets and liabilities.
3. Exceptional Items
6 months to 31 6 months to 31 12 months to 30
March 2002 March 2001 September 2001
£'000 £'000 £'000
Restructuring - 1,009 2,533
Total operating items charged to cost of sales - 1,009 2,533
Restructuring - 928 6,005
Impairment of goodwill - 11,981 11,893
Total operating items charged to administration - 12,909 17,898
expenses
Total operating exceptional items - 13,918 20,431
Loss on disposal of discontinued operations 1,492 4,514 4,514
Total exceptional items before tax 1,492 18,432 24,945
On 1st 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 £0.5m, of which £0.1m is deferred subject to client retention until August
2002. 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 £10.5m 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 £12m.
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.
4. Tax on profit (loss) on ordinary activities
6 months to 31 6 months to 31 12 months to 30
March 2002 March 2001 September 2001
£'000 £'000 £'000
UK Corporation tax
- Continuing operations 462 - -
Overseas tax
- Continuing operations 548 176 1,187
- Discontinued operations - 147 162
Adjustment in respect of prior year
- Overseas taxation (continuing operations) - - (270)
1,010 323 1,079
The group tax charge represents the estimated annual effective tax rate applied
separately to the adjusted profit on continuing and discontinued ordinary
activities, and the estimated annual effective rate applied to the exceptional
items. 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 Financial Reporting
Standard 14 Earnings per Share, based on profit after charging tax of £560,000
(6 months to 31 March 2001 - loss £19,141,000; year ended 30 September 2001 -
loss £22,375,000) and 162,500,000 (6 months to 31 March 2001 - 162,500,000; year
ended 30 September 2001 - 162,500,000) ordinary shares, being the weighted
average number of shares 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 163,032,906 (6
months to 31 March 2001 - 162,674,340; year ended 30 September 2001 -
162,500,000).
The adjusted 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 earnings per share are based on the following profits
(losses) and numbers of shares:
6 months to 31 6 months to 31 12 months to 30
March 2002 March 2001 September 2001
£'000 £'000 £'000
Profit (loss) for the period for basic earnings per 560 (19,141) (22,375)
share
Exceptional items 1,492 18,432 24,945
Tax credit on exceptional items - (252) (1,193)
Goodwill - 360 360
Profit (loss) for the period of adjusted earnings 2,052 (601) 1,737
per share
Weighted average number of shares in issue:
6 months to 31 6 months to 31 12 months to 30
March 2002 March 2001 September 2001
'000 '000 '000
For basic earnings per share 162,500 162,500 162,500
Exercise of options and warrants 533 174 -
For fully diluted earnings per share 163,033 162,674 162,500
6. Reconciliation of operating profit (loss) to net cash inflow
6 months to 31 6 months to 31 12 months to 30
March 2002 March 2001 September 2001
£'000 £'000 £'000
Operating profit (loss) 3,058 (14,015) (16,186)
Depreciation charge 7,225 8,787 15,104
Goodwill amortisation and impairment - 12,341 12,253
Loss on disposal of fixed assets - (2) -
Decrease in stocks 112 238 982
(Increase) decrease in debtors (3,457) 1,530 1,629
(Decrease) increase in creditors (406) 1,321 929
Net cash inflow from operations 6,532 10,200 14,711
7. Analysis of cash flows
6 months to 31 6 months to 31 12 months to 30
March 2002 March 2001 September 2001
£'000 £'000 £'000
Returns on investment and servicing of finance:
Interest paid (91) (423) (821)
Interest received 95 134 225
4 (289) (596)
Taxation:
Net tax refunded (paid) 652 (1,055) (3,233)
Capital expenditure:
Purchase of fixed assets (6,229) (6,584) (11,459)
Proceeds on sale of fixed assets 49 34 -
(6,180) (6,550) (11,459)
Disposals:
Net debt balances disposed - - 2,192
Disposal consideration 324 - 256
Disposal costs paid (332) - (110)
(8) - 2,338
Financing:
Receipt (Repayment) of loans 2,055 (1,758) (1,368)
8. Reconciliation of net cashflow to movement in net funds
6 months to 31 6 months to 31 12 months to 30
March 2002 March 2001 September 2001
£'000 £'000 £'000
Net increase in cash during period 3,055 548 393
Cash (inflow) outflow from (increase) decrease in (2,055) 1,758 1,368
debt
Foreign exchange 16 114 119
Movement in net funds in period 1,016 2,420 1,880
Net funds at beginning of period 8,018 6,138 6,138
Net funds at end of period 9,034 8,558 8,018
9. Analysis of net funds
Cash at bank £'000 Overdraft Loans Total
£'000 £'000 £'000
12,993 (3,237) (1,738) 8,018
As 30 September 2001
Cashflows during period 426 2,629 (2,055) 1,000
Foreign exchange 20 - (4) 16
At 31 March 2002 13,439 (608) (3,797) 9,034
10. Post Balance Sheet Event
On 26 April 2002, the cancellation of the £94,578,000 share premium account was
registered at Companies House. The effect of this was to credit the P&L
distributable reserves with the full amount of the cancellation.
11. Approval of financial statements
These financial statements were approved by the Board of Directors on 28 May
2002.
12. 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 7QX. The
company's registered number is 3416147.
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