Half-year Report
Incorporated in
Registration number: 03110569
LEI: 549300XSXUZ1I19DB105
ISIN: GB00BV9FP302
Interim results for the six months ended
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Financial Highlights
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H1 2018 |
H1 2017 |
Percentage Change Increase/ (Decrease) |
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Financial Performance |
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Revenue (£ million) |
2,008.9 |
1,700.3 |
18.1 |
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Adjusted1 profit before tax (£ million) |
52.1 |
41.9 |
24.3 |
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Adjusted1 diluted earnings per share (pence) |
32.7 |
25.6 |
27.7 |
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Dividend per share (pence) |
8.7 |
7.4 |
17.6 |
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Statutory profit before tax (£ million) |
52.0 |
47.5 |
9.5 |
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Statutory diluted earnings per share (pence) |
31.6 |
28.3 |
11.7 |
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Cash Position |
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Net funds3 (£ million)
Net cash flow from operating activities (£ million) |
49.7
8.4 |
137.3
11.4 |
(63.8)
(26.3) |
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Revenue Performance by Sector |
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Services revenue (£ million) |
574.8 |
562.1 |
2.3 |
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Technology Sourcing revenue (£ million) |
1,434.1 |
1,138.2 |
26.0 |
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Reconciliation between Adjusted1 and Statutory Performance
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Adjusted1 profit before tax (£ million) |
52.1 |
41.9 |
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Exceptional and other adjusting items:
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Release of provision for onerous German contracts (£ million) |
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1.4 |
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Exceptional gain on disposal of an investment property (£ million) |
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4.3 |
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Amortisation of acquired intangibles (£ million) |
(0.1) |
(0.1) |
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Statutory profit before tax (£ million) |
52.0 |
47.5 |
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Operational highlights
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Group revenues exceed |
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The |
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"The Board's outlook remains in line with its expectation which was upgraded on
The buoyant market conditions are being driven by a number of factors specifically, but not limited to, the need to increase network capacity, the constant need for enhanced cyber security, workplace upgrades and a move to the cloud. While it is impossible to predict how long these buoyant market conditions will continue, most of these drivers have significant momentum.
As always
1 Adjusted operating profit or loss, adjusted profit or loss before tax, adjusted tax, adjusted profit or loss for the period, adjusted earnings per share and adjusted diluted earnings per share are, as appropriate, each stated before: exceptional and other adjusting items including gain or loss on business disposals, gain or loss on disposal of investment properties, amortisation of acquired intangibles, utilisation of deferred tax assets (where initial recognition was as an exceptional item or a fair value adjustment on acquisition), and the related tax effect of these exceptional and other adjusting items, as Management do not consider these items when reviewing the underlying performance of the Segment or the Group as a whole. Additionally, adjusted gross profit or loss and adjusted operating profit or loss includes the interest paid on customer specific financing (CSF) which Management considers to be a cost of sale. A reconciliation between key adjusted and statutory measures is provided within the Group Finance Director's review included within this announcement. Further detail is provided within note 4 to the summary financial information included within this announcement, Adjusted measures.
2 We evaluate the long-term performance and trends within our strategic objectives on a constant currency basis. Further, the performance of the Group and its overseas Segments are shown, where indicated, in constant currency. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information gives valuable supplemental detail regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period average exchange rates and comparing these recalculated amounts to our current period results or by presenting the results in the equivalent local currency amounts. Wherever the performance of the Group, or its overseas Segments, are presented in constant currency, or equivalent local currency amounts, the equivalent prior-period measure is also presented in the reported pound sterling equivalent using the exchange rates prevailing at the time. 2018 interim Financial Highlights, as shown at the beginning of this announcement, and statutory measures, are provided in the reported pound sterling equivalent.
3 Net funds includes cash and cash equivalents, CSF, other short or other long-term borrowings and current asset investments.
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Enquiries: |
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01707 631601 |
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01707 631515 |
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020 7353 4200 |
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DISCLAIMER - FORWARD LOOKING STATEMENTS
This announcement includes statements that are, or may be deemed to be, 'forward-looking statements'. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'anticipates', 'believes', 'estimates', 'expects', 'intends', 'may', 'plans', 'projects', 'should' or 'will', or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this announcement and include, but are not limited to, statements regarding the Groups' intentions, beliefs or current expectations concerning, amongst other things, results of operations, prospects, growth, strategies and expectations of its respective businesses.
By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of the Group's operations and the development of the markets and the industry in which they operate or are likely to operate and their respective operations may differ materially from those described in, or suggested by, the forward-looking statements contained in this announcement. In addition, even if the results of operations and the development of the markets and the industry in which the Group operates are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, those risks in the risk factor section of the 2017 Computacenter Annual Report and Accounts, as well as general economic and business conditions, industry trends, competition, changes in regulation, currency fluctuations or advancements in research and development.
Forward-looking statements speak only as of the date of this announcement and may and often do, differ materially from actual results. Any forward-looking statements in this announcement reflect the Group's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's operations, results of operations and growth strategy.
Neither
Chairman's statement
Managed for the long term
2017 was a record year for our Company in both revenue and profit, and we anticipate that 2018 will be even better. The first half has seen an increase in revenue of 18.1 per cent, to more than
Our customers have shown confidence in our Company, with
As a result, we were able to announce increased expectations for the full year in our unscheduled Q2 Trading Update on
Our employees have delivered in no uncertain terms over many years and their contribution is reflected in
The Company returned a combined circa
We are very pleased with our progress but not satisfied, so we continue to invest for our future and are redoubling our efforts to improve everything we do.
Thank you for being shareholders in our Company. I hope you stay with us for the long term.
Chairman
Our interim performance in 2018
Continuing to invest in our capabilities
Financial performance
The Group's revenues increased by 18.1 per cent to
The Group made a statutory profit before tax of
The difference between statutory profit before tax and adjusted1 profit before tax primarily relates to the Group's reported net loss of
The six months of trading to
As noted in our unscheduled Q2 Trading Update on
We reiterate that, whilst the pleasing performance in the first half has set a good platform for the full year, there remains a significant amount to do in the second half to meet our recently upgraded expectations, and to beat the second half of 2017, which is a more difficult comparison than the first half of the year.
Segmental reporting structure changes
During the first half of the year, Management reviewed the way it reported segmental performance to the Board and the Chief Executive Officer, who is the Group's Chief Operating Decision Maker ('CODM'), to determine whether it could improve the transparency and understandability of the trading performance of its core Group Operating Model geographies. As a result of this analysis, and as endorsed by the Audit Committee, the Board has decided to adopt a new segmental reporting structure from the period ended
In accordance with IFRS 8 Operating Segments, the Group has identified four revised operating segments:
·
·
·
· International.
As the location of the Group's headquarters, the
Under the previous segmental reporting structure, the
The German segment has been revised to remove the independently run Computacenter Switzerland operation, including cITius, which has been transferred to the International segment, leaving the German country trading operations standing alone.
The new International segment replaces the Belgian segment and includes the
The French segment remains unchanged from that reported at
This new segmental reporting structure is the basis on which internal reports are provided to the Chief Executive Officer, as the CODM, for assessing performance and determining the allocation of resources within the Group.
Segmental performance is measured based on external revenues, adjusted1 gross profit, adjusted1 operating profit and adjusted1 profit before tax.
The change in segmental reporting has no impact on reported Group numbers.
Further information on this segmental restatement can be found in note 5 to the summary financial information included within this announcement where, to enable comparisons with prior period performance, historical segment information for the periods ended
Services performance
The Group's Services revenue increased by 2.3 per cent to
The German Services business continued to support the Group's top line growth in this area. Demand for our Professional Services business was weak during the first quarter of the year but recovered strongly in the second quarter and benefited from a weak prior-period comparative. A significant number of Professional Services resources have been deployed to assist with technical challenges on difficult Managed Services contracts. This, along with the shortage of appropriately skilled resource in the marketplace, has constrained Professional Services growth. The Managed Services business saw good growth from prior-period contract wins and continued to attract new customers during the first half of the year. We have previously reported a number of significant and complex Entry into Service projects that are now complete, with these contracts successfully entering the 'run' phase. However a number of contracts, including more recent wins, continue to disappoint, restricting an otherwise successful six months for the business. Margins have improved, in spite of the challenges, but this is against a weak comparative period.
Our French Services business successfully negotiated a first half made difficult by the loss of a significant Services customer and the renewal, at reduced margins, of a significant Managed Services contract. The business has redeployed resources that were engaged on this contract that it lost. The Global Services Desk operation in Montpellier, which only opened in 2015, continues to be one of the Group's leading facilities and is a core part of the French business's value proposition.
Overall Group Services margins declined by 80 basis points during the first half of the year, when compared to the prior period.
Technology Sourcing performance
Technology Sourcing is the new name for the Business Line previously referred to as Supply Chain.
Our Technology Sourcing and lifecycle management services are fundamental parts of our offering for our customers. Reselling leading manufacturers' hardware and software products enables us to 'Source & Deploy' technology solutions for customers, and underpins our Professional Services and Transformation solutions. Most customers require a comprehensive solution, combining our services with the systems they need to meet their IT and business objectives. Our ability to seamlessly integrate vendor technology into our solutions for customers is therefore critical.
The Group's Technology Sourcing revenue increased by 26.0 per cent to
As noted in our Q1 Trading update on
The Technology Sourcing business in
French Technology Sourcing revenues showed encouraging growth, at better margins, as the widening portfolio of target customers offset reduced activity by one of the business's largest Technology Sourcing customers. This key Public Sector account saw reduced volumes, as it went through an extensive rebid process that saw us retain the account once again. We expect volumes on this key account to return to a normal pattern towards the end of the year.
Overall Group Technology Sourcing margins were flat during the first half of the year, when compared to the prior period.
Outlook
The Board's outlook remains in line with its expectation which was upgraded on
The buoyant market conditions are being driven by a number of factors specifically, but not limited to, the need to increase network capacity, the constant need for enhanced cyber security, workplace upgrades and a move to the cloud. While it is impossible to predict how long these buoyant market conditions will continue, most of these drivers have significant momentum.
As always
Chief Executive Officer
Financial performance
Revenues in the
The
Services revenues declined during H1, with isolated delivery challenges which impacted our Professional Services return, but pleasingly our committed forward order book has increased significantly, as we secured a number of large Transformation programmes. These will be delivered in the second half of the year and beyond.
Adjusted1 gross profit grew by 7.5 per cent to
Administrative expenses increased by 3.5 per cent to
This resulted in adjusted1 operating profit growing by 20.6 per cent to
(H1 2017:
Overall, the performance in the first half has given us a solid foundation for the year. We have a significant amount of work to do but the continued momentum in our Technology Sourcing business and a more favourable comparative in our Services business in H2 should put us on course to deliver in line with our expectations for 2018 as a whole.
Services performance
Services revenue declined by 4.5 per cent to
The overall Services performance was disappointing. Our Professional Services business has encountered two particularly challenging projects that have required additional resources to ensure that they remain on track and that we deliver on our promises. One of the projects has been concluded commercially and the other remains under contractual negotiation. This has resulted in lower margin performance against a strong H1 2017 performance, with two particularly large non-repeatable projects which were completed. The outlook for H2 is more encouraging, as we see an increasing demand for our Transformation services, particularly driven by the need for our customers to migrate their workplace environments to the latest Windows platform and their desire to enhance their employee engagement.
We entered 2018 with several known headwinds in our Managed Services business but have continued to renew and extend key contracts, as well as transition new customers into our Services Contract Base. We previously highlighted a material contract with an international client that had decided to insource its operations but pleasingly we have secured a large element of its business in the customer's new operating model. The retention and expansion of core Managed Services contracts typically helps drive our overall business, as customers ask us to deliver associated Transformation activity and also leverage our Technology Sourcing capability. Whilst renewal activity has been positive, we remain very focused on a small number of strategic opportunities, that will conclude in H2, to stabilise the Contract Base.
We also continue to invest in and develop our operating models and practices for efficiency, with our customers increasingly leveraging centrally delivered shared services where possible, as they strive to minimise operational expenditure.
Technology Sourcing performance
Technology Sourcing revenue increased by 48.2 per cent to
The Technology Sourcing business saw an extremely strong performance in the first half of 2018 across all industry sectors. We benefited from significant investment by our customers, as they continue to digitise their operations and modernise their infrastructure. We saw particular growth in our Software business, with customers seeking to simplify their operations by consolidating to fewer technology partners, resulting in long-term commitments and larger transactions. This resulted in Software revenue growth of 160 per cent in H1 2018, compared to the prior period. It is also pleasing that our growth was achieved across all of our business lines, with expenditure in Workplace, Networking, Data Center and Security continuing to be a key focus for customers.
We also experienced increasing utilisation of our financing solutions, enabling our customers to continue their investment in line with their budget plans. We expect this trend to continue into the second half and it gives us confidence for the full year and beyond.
Technology Sourcing margins declined by 80 basis points compared to the prior period, with the move towards lower margin software as highlighted above. This was accentuated by two very large transactions, one in the first quarter, and another in the second, that were processed at low margins and thus have a disproportionate dilutive impact. Throughout the first half of the year, Management has initiated a number of activities to improve the underlying efficiency and effectiveness of the Technology Sourcing business. The benefit of these should be seen in the remainder of 2018, as we look to improve the underlying margin return whilst further improving the experience we deliver to our customers.
Managing Director,
Financial performance
Total revenue increased by 11.4 per cent to
Ongoing demand for infrastructure replacement and refreshes and the implementation of new technologies drove
Adjusted1 gross profit grew by 14.0 per cent to
Administrative expenses increased by 3.0 per cent to
Adjusted1 operating profit for the German business increased by 53.1 per cent to
Overall, the first half performance was pleasing. Growth was good compared to the comparative period and well above our already demanding expectations. Whilst market conditions look set to remain buoyant for Technology Sourcing, the second half comparative will be difficult to grow from. The Services pipeline remains strong but will require the onboarding of new personnel to satisfy customer demand, which remains challenging. Whilst the economy continues to drive forward, the political environment in
Services performance
Services revenue grew by 6.8 per cent to
Services revenue growth was pleasing in the context of significantly higher market demand but performance was held back by resource shortages, especially in the Professional Services areas of engineering and consultancy. In addition, we had to put more staff into new Managed Services contracts, to stabilise and fix technical challenges during the Entry into Service phase. Overall Professional Services growth for the first half of the year was therefore in line with expectations, with modest growth compared to the same period last year. Managed Services growth was good, benefiting from last year's wins and additional growth within existing contracts.
Our teams successfully finalised a Transformation on the renewal of our biggest networking operating contract. This included successfully shifting to an Indian offshore solution, which gives us confidence to use this offshore capability for future new business. We also made a good start to a workplace Transformation for an international industrial customer, with 15,000 seats. This included fully implementing a Windows 10 and Office365 cloud infrastructure and managing it afterwards. We are on the way to finalising the Transformations of three other major contracts. Two of these are new wins and the third is a renewal with a large and innovative refresh. All three contracts place heavy demand on skills and resources in certain technical areas. As they come to an end, this should give us more resources, capabilities and flexibility for upcoming new deals.
Our Professional Services business had a weak Q1, but a much better Q2, when it saw significant growth. Overall performance in the first half was in line with expectations. We are seeing increasing demand from customers for Windows 10 proof of concepts, migrations and rollouts. We should benefit from this in the second half and in 2019. Cloud enablement, networking infrastructure services and substantial demand in various security areas are also driving the business. New wins and existing framework contracts, especially in the Public Sector, give us the opportunity for further growth, which is only limited by resource capacity. Our infrastructure consultancy practice remained in high demand due to its skillset and this looks set to continue. However, the ongoing high demand for skills and personnel across
Services margins were affected by Entry into Service and Transformation cost overruns for new deals and by a small group of underperforming contracts. We were aware that these underperforming contracts would affect Services margin in the first half and, overall, we ended up with a Services margin 60 basis points higher than in the same period last year. Whilst slightly above expectations, the Services margin is still below the level we should achieve, due to the financial underperformance of these contracts.
Technology Sourcing performance
Technology Sourcing revenue grew by 13.6 per cent to
We saw strong demand in Workplace infrastructure refreshes, initiated by Windows 10 projects and implementations. Cloud, Security and Networking demand provided further growth. In addition, we saw exceptional growth in the Data Center market, with broad customer investments in private and hybrid cloud infrastructures and the benefit of one hyper-scale customer, as we built and expanded the cloud infrastructure for its software platforms. The Public Sector grew during the first half but this was constrained by the delay in approval for the Federal budget, presenting opportunities to catch up in the second half of the year. Networking and Security were slightly behind our growth expectations. The focus in Networking is on refreshing the infrastructure and preparing for the future, with more demand being created by increasing public and hybrid cloud usage. Security remains a growth-generating decision point for customers, across all hardware and software investments. Technology Sourcing margins remained strong and were up by 30 basis points over the same period last year.
We made good progress with the new Integration Center in Kerpen, which we will use for warehousing, configuration and logistics. Our plan to prepare and move into the new facility towards the end of the year is on track. The facility is approximately 30,000m2, giving us more space and flexibility for the future, especially for the huge Workplace rollouts and complex Data Center integration projects that we are increasingly seeing. The associated office being built on the same site for 650 people is also on schedule and will be ready for occupation in early 2019.
Managing Director,
Financial performance
Total revenue decreased by 1.2 per cent to
With the French business having exceeded our expectations in 2017, we were pleased that the first half of 2018 matched the comparative period from the prior year. The business had a challenging set of expectations for the first half, with slowdowns in several key contracts during their renewals, including the largest Technology Sourcing framework contract in
Overall adjusted1 gross profit grew by 14.2 per cent to
Whilst French headcount has remained flat, we have transformed the structural makeup of the workforce. Over the last four years, engineering roles have decreased by one third and Managed Services operations roles have nearly quadrupled. We have invested in resources to support our development of Solutions and Services for our target customers. Our Private Sector organisation was also realigned to our core target customers, giving us better focus on their needs. This will help us to retain and maximise our relationship with them over the long term, with the objective of increasing the number of customer accounts with contributions of over
Adjusted1 operating profit for the French business increased by 41.2 per cent to
The strong comparative period means the second half of the year remains challenging but we are pleased with the business's resilience, as it continues to develop its breadth of customers, to increase stability and the potential for growth.
Services performance
Services revenue declined by 11.8 per cent to
As previously reported, the expiry of a large Managed Services contract at the end of 2017 materially impacted the top line of the Services business. The contract itself was relatively low margin compared to the rest of the Contract Base, so the impact on overall Services gross profit was not as pronounced. Another key Managed Services contract was also renewed during the period, which suppressed revenue and margins whilst the contract was reconfigured as part of the renewal process.
We were pleased with our recent wins, with contracts in both Professional Services and Managed Services with customers who are new to the Group and within our target market of large Private and Public Sector organisations. This has given the business real resilience and reduced the over-reliance on several key customers. These wins, and the current pipeline, make us confident of further Managed Services growth in the near term.
We signed several large Windows 10 implementation and Transformation projects, which will have a positive impact on our Project and Consultancy practices in the second half of 2018 and into 2019. We see rising demand for these Windows 10 and Workplace Transformation projects from new pipeline prospects within our target operating segment, as well as additional Professional Services opportunities generated by pull-through from our expanding Managed Services customer base.
Services margins increased by 30 basis points over the same period last year, due primarily to the expiry of the previously mentioned low margin large Managed Services contract.
Technology Sourcing performance
Technology Sourcing revenue grew by 2.0 per cent to
We saw lower than expected activity from our largest Technology Sourcing customer, impacting mainly in software. We are, however, pleased that one of our oldest and largest framework contracts has now renewed after a lengthy process. Over performance from new customer wins within our target market of large Private and Public Sector organisations helped to stabilise overall Technology Sourcing revenues and, more importantly, produced a more favourable product mix, with an increase in Data Center and Networking solutions revenues.
As usual at this time of year, there is still much work to do to secure Technology Sourcing business in the second half and traditionally there is considerable focus on the last quarter of the year. With a positive economic climate in
Technology Sourcing margins increased by 190 basis points, due to the marked change in product mix towards higher-value product with more value-added Technology Sourcing activities, and less Software. We expect margins to reduce slightly from this level during the remainder of the year, as the new framework contract with our largest Technology Sourcing customer starts to come into operation.
Arnaud Lepinois
Managing Director,
International
International segment
The new International segment comprises a number of trading entities and offshore Global Service Desk delivery locations.
The trading entities include TeamUltra, based in
These trading entities are complemented by the offshore Global Service Desk entities in
On top of their operational delivery capabilities, the Belgian and Swiss entities have in-country sales organisations, which enable us to engage with local customers. Our ambition is to grow other entities in the International segment with similar in-country sales structures and to develop new geographies over time, either organically or through selective acquisitions.
Financial performance
Revenues in the International business increased by 11.3 per cent to
Adjusted1 gross profit increased by 0.6 per cent to
Administrative expenses increased by 16.3 per cent to
Overall adjusted1 operating profit reduced by 32.0 per cent to
Services performance
Services revenue increased by 20.1 per cent to
The Swiss operations saw a strong increase in Professional Services revenues and profitability. Local customers in the Managed Services business increased the scope of existing engagements and provided additional assignments, leading to further growth. In a highly competitive market, the acquisition of cITius in
The Belgian organisation is now entirely integrated into the Computacenter Group Operating Model. The business remains focused on leveraging this to strengthen its Managed Services pipeline, utilising the compelling competitive advantage of the Group's scale, especially around End User Computing. To achieve its growth ambitions, Management continues to develop skills both internally and through the acquisition of new talent, in a competitive market.
The American business continued on its development path with several important milestones during the first half of 2018. We expanded the Managed Services contracts of two significant Group customers into a global scope, with the US being the single largest delivery location for these customers outside their European headquarters. In addition, we continued to invest in our near-shore Global Service Desk location in
Technology Sourcing performance
Technology Sourcing revenue, driven primarily out of
Managing Director,
Group Finance Director's review
Maximising shareholder value
The Group result was underpinned by the continuing strength of the German business, particularly in Technology Sourcing, and an increased customer breadth in
The Technology Sourcing performance in
The Group's Services margins were constrained by a number of Professional Services engagements and Managed Services contracts in the
Overall, we remain pleased with the performance of the business. Concerns remain about the concentration of Technology Sourcing growth across several key accounts in
At a Group level, we remain concerned about the overall lack of growth in the Managed Services business, which is attributable to a lack of competitiveness in both pricing and technological innovation within the offerings. Whilst the Technology Sourcing business continues to provide significant growth opportunities, we are conscious that the market buoyancy is unlikely to last for a very long period. We are using this opportunity to make significant investment to improve the competitive positioning of our Managed Services business.
A reconciliation between key adjusted1 and statutory measures is provided below. Further details are provided in note 4 to the summary financial information included within this announcement, Adjusted measures. For the avoidance of duplication, further information on the Group's financial performance can be found within this announcement.
Reconciliation from statutory to adjusted1 measures for the period ended
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Statutory results £'000 |
Adjustments |
Adjusted1 results £'000 |
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CSF interest £'000 |
Utilisation of deferred tax £'000 |
Exceptionals and others £'000 |
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Revenue |
2,008,904 |
- |
- |
- |
2,008,904 |
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Cost of sales |
(1,760,094) |
(123) |
- |
- |
(1,760,217) |
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Gross profit |
248,810 |
(123) |
- |
- |
248,687 |
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|
- |
- |
- |
- |
- |
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Administrative expenses |
(196,586) |
- |
- |
- |
(196,586) |
|
Amortisation of acquired intangibles |
(119) |
- |
- |
119 |
- |
|
Exceptional items |
- |
- |
- |
- |
- |
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Operating profit |
52,105 |
(123) |
- |
119 |
52,101 |
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|
|
|
|
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Finance revenue |
626 |
- |
- |
- |
626 |
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Finance costs |
(738) |
123 |
- |
- |
(615) |
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Profit before tax |
51,993 |
- |
- |
119 |
52,112 |
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|
|
|
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Income tax expense: |
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Before exceptional items |
(15,190) |
- |
1,109 |
(16) |
(14,097) |
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Exceptional items |
- |
- |
- |
- |
- |
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Profit for the period |
36,803 |
- |
1,109 |
103 |
38,015 |
Reconciliation from statutory to adjusted1 measures for the period ended
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Statutory results £'000 |
Adjustments |
Adjusted1 results £'000 |
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CSF interest £'000 |
Utilisation of deferred tax £'000 |
Exceptionals and others £'000 |
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Revenue |
1,700,329 |
- |
- |
- |
1,700,329 |
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Cost of sales |
(1,477,393) |
(137) |
- |
- |
(1,477,530) |
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Gross profit |
222,936 |
(137) |
- |
- |
222,799 |
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|
|
|
|
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Administrative expenses |
(181,395) |
- |
- |
- |
(181,395) |
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Amortisation of acquired intangibles |
(111) |
- |
- |
111 |
- |
|
Exceptional items |
1,460 |
- |
- |
(1,460) |
- |
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Operating profit |
42,890 |
(137) |
- |
(1,349) |
41,404 |
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|
|
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Exceptional gain on disposal of an investment property |
4,320 |
- |
- |
(4,320) |
- |
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Finance revenue |
676 |
- |
- |
- |
676 |
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Finance costs |
(359) |
137 |
- |
- |
(222) |
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Profit before tax |
47,527 |
- |
- |
(5,669) |
41,858 |
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|
|
|
|
|
|
|
Income tax expense: |
|
|
|
|
|
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Before exceptional items |
(12,701) |
- |
2,048 |
(16) |
(10,669) |
|
Exceptional items |
(351) |
- |
- |
351 |
- |
|
Profit for the period |
34,475 |
- |
2,048 |
(5,334) |
31,189 |
Profit before tax
The Group's statutory profit before tax increased by 9.5 per cent to £52.0 million (H1 2017: £47.5 million). Adjusted1 profit before tax increased by 24.3 per cent to £52.1 million (H1 2017: £41.9 million) and by 23.8 per cent in constant currency2. The difference between statutory profit before tax and adjusted1 profit before tax relates to the Group's reported net loss of £0.1 million (H1 2017: gain of £5.6 million) from exceptional and other adjusting items. Further information on these can be found below.
Profit for the period
The statutory profit for the period increased by 6.7 per cent to £36.8 million (H1 2017: £34.5 million). The adjusted1 profit for the period increased by 21.8 per cent to £38.0 million (H1 2017: £31.2 million) and by 20.6 per cent in constant currency2.
Net finance income
Net finance income in the period amounted to a charge of £0.1 million on a statutory basis (H1 2017: income of £0.3 million).
The decrease in net finance income during the first half was due to lower net funds and the closure of the current asset investments held in the first half of 2017, associated with the Return of Value of £100 million that occurred in February 2018. Additionally, the Group saw modest charges relating to the renewed committed facility of £60 million that remains available, and undrawn, as at 30 June 2018. Finally, finance charges were impacted by the interest charges relating to the unwind of the discount on the deferred consideration for the purchase of TeamUltra and cITius AG, for a total of £0.4 million during the period.
On an adjusted1 basis, prior to interest on customer-specific financing, net finance income was nil during the period (H1 2017: income of £0.5 million).
Taxation
The adjusted1 tax charge on ordinary activities was £14.1 million (H1 2017: £10.7 million), on an adjusted1 profit before tax of £52.1 million (H1 2017: £41.9 million). The adjusted1 effective tax rate ('ETR') was 27.1 per cent (H1 2017: 25.5 per cent). The ETR was higher than in the prior period, due to a change in the geographic split of profit before tax. Profits were higher in
The statutory tax charge was £15.2 million (H1 2017: £13.1 million), on profit before tax of £52.0 million (H1 2017: £47.5 million). This represented a statutory ETR of 29.2 per cent (H1 2017: 27.5 per cent). The £4.3 million gain on the disposal of the investment property in 2017 was not taxable and is the most significant reason for the movement in the ETR.
We continued to utilise the German tax losses, which reduced the statutory ETR. However, the deferred tax asset, which we previously recognised as an exceptional tax item, is no longer replenishing and readily available losses will be exhausted by the end of 2018, leading to the increase in the expected adjusted1 ETR for 2018.
Over the longer term, increasing profits in
The table below reconciles the statutory tax charge to the adjusted1 tax charge for the period ended 30 June 2018.
|
|
H1 2018 £'000 |
H1 2017 £'000 |
Year 2017 £'000 |
|
Statutory tax charge |
15,190 |
13,052 |
30,381 |
|
Adjustments to exclude: |
|
|
|
|
Utilisation of German deferred tax assets |
(1,109) |
(2,048) |
(3,457) |
|
Tax on amortisation of acquired intangibles |
16 |
16 |
31 |
|
Tax on exceptional items |
- |
(351) |
(351) |
|
Adjusted1 tax charge |
14,097 |
10,669 |
26,604 |
|
Statutory ETR |
29.2% |
27.5% |
27.2% |
|
Adjusted1 ETR |
27.1% |
25.5% |
25.0% |
Exceptional and other adjusting items
A net loss of £0.1 million was recorded, resulting from exceptional and other adjusting items (H1 2017: net gain of £5.6 million).
There were no items classified as exceptional during the first half of 2018, with the amortisation of intangible assets of £0.1 million (H1 2017: £0.1 million) the only other adjusting item between adjusted1 profit before tax and statutory profit before tax.
The remaining provisions for the last two onerous contracts in
Central corporate costs
As noted above within Segmental Reporting Structure Changes, certain expenses such as those for the Board itself, and related public company costs, Group Executive members not aligned to a specific geographic trading entity, and the cost of centrally funded strategic corporate initiatives that benefit the whole Group, are not specifically allocated to individual segments because they are not directly attributable to any single segment. Accordingly, these expenses are disclosed as a separate column, 'Central Corporate Costs', within the segmental note. These costs are borne within the
During the period, total Central Corporate Costs were £11.4 million, an increase of 58.3 per cent (H1 2017: £7.2 million). Within this:
|
• |
Board expenses and related public company costs were flat at £1.5 million (H1 2017: £1.5 million); |
|
• |
costs associated with Group Executive members not aligned to a specific geographic trading entity were £2.1 million (H1 2017: £1.9 million); |
|
• |
share-based payment charges associated with the Group Executive members identified above, including the Group Executive Directors, increased from £0.6 million in H1 2017 to £1.6 million in H1 2018, due primarily to the increasing cost of |
|
• |
strategic corporate initiatives increased from £3.2 million in H1 2017 to £6.2 million in H1 2018, primarily due to increased spend on projects designed to increase capability, enhance productivity or strengthen systems which underpin the Group. |
Earnings per share
Statutory diluted earnings per share increased by 11.7 per cent to 31.6 pence per share (H1 2017: 28.3 pence per share). Adjusted1 diluted earnings per share increased by 27.7 per cent to 32.7 pence per share (H1 2017: 25.6 pence per share).
|
|
H1 2018 |
H1 2017 |
Year 2017 |
|
Basic weighted average number of shares (excluding own shares held) (no. '000) |
114,620 |
120,842 |
120,766 |
|
Effect of dilution: |
|
|
|
|
Share options |
1,662 |
888 |
1,471 |
|
Diluted weighted average number of shares |
116,282 |
121,730 |
122,237 |
|
|
|
|
|
|
Statutory profit for the period/year attributable to equity holders of the parent (£'000) |
36,803 |
34,475 |
81,314 |
|
Basic earnings per share (pence) |
32.1 |
28.5 |
67.3 |
|
Diluted earnings per share (pence) |
31.6 |
28.3 |
66.5 |
|
|
|
|
|
|
Adjusted1 profit for the period/year attributable to equity holders of the parent (£'000) |
38,015 |
31,189 |
79,625 |
|
Adjusted1 basic earnings per share (pence) |
33.2 |
25.8 |
65.9 |
|
Adjusted1 diluted earnings per share (pence) |
32.7 |
25.6 |
65.1 |
Dividend
We are pleased to announce an interim dividend of 8.7 pence per share. This is in line with our policy that the interim dividend will be approximately one third of the previous year's full dividend. The interim dividend will be paid on Friday 12 October 2018. The dividend record date is Friday 14 September 2018, and the shares will be marked ex-dividend on Thursday 13 September 2018.
Net funds
Net funds3 at 30 June 2018 were £49.7 million, compared to £137.3 million at 30 June 2017. The cash position continues to rebuild, after what is historically the weaker half of the year in terms of our working capital cycle, and after the return of £100 million to shareholders in the first quarter of the year. Net funds3 decreased by £141.5 million from £191.2 million as at 31 December 2017.
The Group's operating cash flow performance was an inflow of £8.4 million for the period to 30 June 2018 (H1 2017: £11.4 million inflow).
The Group continues to have no material structural borrowings, except for customer-specific finance leases and loans to finance specific capital projects, namely the £19.3 million borrowed as at 30 June 2018 to finance the offices and logistics facilities in Kerpen.
We remain conscious of our responsibility to shareholders to maximise the return on the Group's cash assets and improve the efficiency of our balance sheet. We were pleased to return £100 million of excess cash to shareholders in the first quarter of the year and we look forward to rebuilding the net funds of the Group over the short term.
As reported in the Company's 2017 Annual Report and Accounts, the Group's net funds3 continued to benefit from extended credit terms with a major supplier and had done so for approximately nine years. The amount of benefit at any one time fluctuates as a direct result of the volume of business with that vendor. In line with the disclosure in the Company's 2017 Annual Report and Accounts, these extended terms have now changed to closer to standard terms during the first half of 2018, in line with all material partners of that significant vendor resulting in a reduction in the Group's net funds3. The estimated benefit of these extended terms to the Group's net funds3 was £24.1 million at 30 June 2018 (H1 2017: £65.2 million), down from £54.9 million as at 31 December 2017. The Group continues to appropriately manage its cash and working capital positions using standard mechanisms to ensure that cash levels remain within expectations throughout 2018 and beyond, which resulted in a true sale of receivables, on a non-recourse basis, as at the end of the period of £38.8 million.
Currency
The Group reports its results in pounds sterling. The weakness of sterling, particularly against the euro, is expected to continue to result in a foreign exchange translation benefit to the Group.
The impact of restating the first half of 2017 at 2018 exchange rates would be an increase of approximately £20.3 million in H1 2017 revenue and an increase of approximately £0.3 million in H1 2017 adjusted1 profit before tax.
If the 30 June 2018 spot rates were to continue through the remainder of 2018, the impact of restating 2017 at 2018 exchange rates would be an increase of approximately £3.7 million in 2017 revenue and a decrease of approximately £0.5 million in 2017 adjusted1 profit before tax.
Planning for the
This allows us to manage EU requirements from our EU locations and we have a long history of trading with the subsidiaries of large global Western European headquartered organisations, in many diverse locations across the world. The concept of exporting to and importing from multiple countries is therefore already established across the business, along with the related systems requirements.
There remains considerable uncertainty around the exact nature and timing of the
The senior Management committee established during 2017 continues to oversee the key risks and changes that may be required to the way that the Group operates. It is clear that there will be additional investment required in IT systems to manage the transition, and changes to business processes. Whilst these changes will be a cost to
Principal risks and uncertainties
The Group's activities expose it to a variety of economic, financial, operational and regulatory risks.
Our principal risks continue to be concentrated in the availability and resilience of systems, our people, our cost base, technology change, and in the design, Entry into Service and running of large Services contracts.
The principal risks and uncertainties facing the Group are set out on pages 30 to 35 of the 2017 Annual Report and Accounts, a copy of which is available on the Group's website.
The Group's risk management approach and the principal risks, potential impacts and primary mitigating activities are unchanged from those set out in the 2017 Annual Report and Accounts.
Chief Executive Officer
Group Finance Director
24 August 2018
Directors' responsibility statement
Responsibility statement of the Directors in respect of the half-yearly financial report.
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the EU;
· the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
|
|
|
|
Chief Executive Officer |
Group Finance Director |
|
24 August 2018 |
|
Consolidated Income Statement
For the six months ended 30 June 2018
|
|
Note |
Unaudited H1 2018 £'000 |
Unaudited H1 2017 £'000 |
Audited Year 2017 £'000 |
|
Revenue |
5 |
2,008,904 |
1,700,329 |
3,793,371 |
|
Cost of sales |
|
(1,760,094) |
(1,477,393) |
(3,297,142) |
|
Gross profit |
|
248,810 |
222,936 |
496,229 |
|
|
|
|
|
|
|
Administrative expenses |
|
(196,586) |
(181,395) |
(390,583) |
|
Amortisation of acquired intangibles |
|
(119) |
(111) |
(225) |
|
Exceptional items |
8 |
- |
1,460 |
1,371 |
|
Operating profit |
|
52,105 |
42,890 |
106,792 |
|
|
|
|
|
|
|
Exceptional gain on disposal of an investment property |
8 |
- |
4,320 |
4,320 |
|
Finance revenue |
|
626 |
676 |
1,521 |
|
Finance costs |
|
(738) |
(359) |
(938) |
|
Profit before tax |
|
51,993 |
47,527 |
111,695 |
|
|
|
|
|
|
|
Income tax expense: |
|
|
|
|
|
Before exceptional items |
|
(15,190) |
(12,701) |
(30,030) |
|
Exceptional items |
8 |
- |
(351) |
(351) |
|
Income tax expense |
|
(15,190) |
(13,052) |
(30,381) |
|
Profit for the period/year |
|
36,803 |
34,475 |
81,314 |
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
Equity holders of the parent |
|
36,803 |
34,475 |
81,314 |
|
|
|
|
|
|
|
Earnings per share (pence) |
|
|
|
|
|
- basic for profit for the period/year |
10 |
32.1 |
28.5 |
67.3p |
|
- diluted for profit for the period/year |
10 |
31.6 |
28.3 |
66.5p |
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2018
|
|
Unaudited H1 2018 £'000 |
Unaudited H1 2017 £'000 |
Audited Year 2017 £'000 |
|
Profit for the period/year |
36,803 |
34,475 |
81,314 |
|
|
|
|
|
|
Items that may be reclassified to consolidated income statement: |
|
|
|
|
(Loss)/gain arising on cash flow hedge, net of amount transferred to consolidated income statement |
(2,824) |
(287) |
217 |
|
Income tax effect |
510 |
(71) |
(37) |
|
|
(2,314) |
(358) |
180 |
|
Exchange differences on translation of foreign operations |
(1,267) |
3,532 |
4,994 |
|
|
(3,581) |
3,174 |
5,174 |
|
Items not to be reclassified to consolidated income statement: |
|
|
|
|
Remeasurement of defined benefit plan |
- |
- |
(668) |
|
Other comprehensive income for the period/year, net of tax |
(3,581) |
3,174 |
4,506 |
|
|
|
|
|
|
Total comprehensive income for the period/year |
33,222 |
37,649 |
85,820 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of the parent |
33,222 |
37,649 |
85,820 |
|
Non-controlling interests |
- |
- |
- |
|
|
33,222 |
37,649 |
85,820 |
Consolidated Balance Sheet
For the six months ended 30 June 2018
|
|
Unaudited H1 2018 £'000 |
Unaudited H1 2017 £'000 |
Audited Year 2017 £'000 |
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
88,598 |
62,066 |
77,904 |
|
Intangible assets |
76,737 |
80,005 |
80,335 |
|
Investment in associate |
57 |
56 |
56 |
|
Deferred income tax asset |
8,796 |
8,447 |
9,063 |
|
Prepayments |
3,806 |
- |
- |
|
|
177,994 |
150,574 |
167,358 |
|
Current assets |
|
|
|
|
Inventories |
61,996 |
50,116 |
69,289 |
|
Trade and other receivables |
695,900 |
666,512 |
835,446 |
|
Prepayments |
72,849 |
68,670 |
59,679 |
|
Accrued income |
118,167 |
119,336 |
102,922 |
|
Derivative financial instruments |
4,790 |
6,237 |
8,209 |
|
Cash and short-term deposits |
72,931 |
140,136 |
206,605 |
|
|
1,026,633 |
1,051,007 |
1,282,150 |
|
Total assets |
1,204,627 |
1,201,581 |
1,449,508 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
613,635 |
606,590 |
791,980 |
|
Deferred income |
114,154 |
114,077 |
113,875 |
|
Financial liabilities |
4,364 |
1,393 |
3,755 |
|
Derivative financial instruments |
481 |
1,488 |
1,196 |
|
Income tax payable |
33,397 |
19,816 |
28,422 |
|
Provisions |
1,706 |
1,664 |
1,681 |
|
|
767,737 |
745,028 |
940,909 |
|
Non-current liabilities |
|
|
|
|
Financial liabilities |
18,820 |
1,442 |
11,663 |
|
Provisions |
8,089 |
6,266 |
7,599 |
|
Deferred income tax liabilities |
416 |
436 |
477 |
|
|
27,325 |
8,144 |
19,739 |
|
Total liabilities |
795,062 |
753,172 |
960,648 |
|
Net assets |
409,565 |
448,409 |
488,860 |
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
Issued capital |
9,299 |
9,299 |
9,299 |
|
Share premium |
3,913 |
3,913 |
3,913 |
|
Capital redemption reserve |
74,957 |
74,957 |
74,957 |
|
Own shares held |
(109,800) |
(9,700) |
(11,360) |
|
Translation and hedging reserves |
24,278 |
25,859 |
27,859 |
|
Retained earnings |
406,904 |
344,067 |
384,178 |
|
Shareholders' equity |
409,551 |
448,395 |
488,846 |
|
Non-controlling interests |
14 |
14 |
14 |
|
Total equity |
409,565 |
448,409 |
488,860 |
Approved by the Board on 24 August 2018
|
MJ Norris |
FA Conophy |
|
Chief Executive Officer |
Group Finance Director |
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2018
|
|
Attributable to equity holders of the parent |
Total £'000 |
Non- controlling interests £'000 |
Total equity £'000 |
|||||
|
Issued capital £'000 |
Share premium £'000 |
Capital redemption reserve £'000 |
Own shares held £'000 |
Translation and hedging reserves £'000 |
Retained earnings £'000 |
||||
|
At 1 January 2017 |
9,299 |
3,913 |
74,957 |
(12,115) |
22,685 |
329,214 |
427,953 |
14 |
427,967 |
|
Profit for the period |
- |
- |
- |
- |
- |
34,475 |
34,475 |
- |
34,475 |
|
Other comprehensive income |
- |
- |
- |
- |
3,174 |
- |
3,174 |
- |
3,174 |
|
Total comprehensive income |
- |
- |
- |
- |
3,174 |
34,475 |
37,649 |
- |
37,649 |
|
Cost of share-based payments |
- |
- |
- |
- |
- |
1,865 |
1,865 |
- |
1,865 |
|
Tax on share-based payments |
- |
- |
- |
- |
- |
112 |
112 |
- |
112 |
|
Exercise of options |
- |
- |
- |
4,302 |
- |
(3,448) |
854 |
- |
854 |
|
Purchase of own shares |
- |
- |
- |
(1,887) |
- |
- |
(1,887) |
- |
(1,887) |
|
Equity dividends |
- |
- |
- |
- |
- |
(18,151) |
(18,151) |
- |
(18,151) |
|
At 30 June 2017 |
9,299 |
3,913 |
74,957 |
(9,700) |
25,859 |
344,067 |
448,395 |
14 |
448,409 |
|
Profit for the period |
- |
- |
- |
- |
- |
46,839 |
46,839 |
- |
46,839 |
|
Other comprehensive income |
- |
- |
- |
- |
2,000 |
(668) |
1,332 |
- |
1,332 |
|
Total comprehensive income |
- |
- |
- |
- |
2,000 |
46,171 |
48,171 |
- |
48,171 |
|
Cost of share-based payments |
- |
- |
- |
- |
- |
4,335 |
4,335 |
- |
4,335 |
|
Tax on share-based payments |
- |
- |
- |
- |
- |
1,507 |
1,507 |
- |
1,507 |
|
Exercise of options |
- |
- |
- |
5,311 |
- |
(2,941) |
2,370 |
- |
2,370 |
|
Purchase of own shares |
- |
- |
- |
(6,971) |
- |
- |
(6,971) |
- |
(6,971) |
|
Equity dividends |
- |
- |
- |
- |
- |
(8,961) |
(8,961) |
- |
(8,961) |
|
At 31 December 2017 |
9,299 |
3,913 |
74,957 |
(11,360) |
27,859 |
384,178 |
488,846 |
14 |
488,860 |
|
Restatement - Implementation of IFRS 15 |
- |
- |
- |
- |
- |
6,547 |
6,547 |
- |
6,547 |
|
At 31 December 2017 - restated |
9,299 |
3,913 |
74,957 |
(11,360) |
27,859 |
390,725 |
495,393 |
14 |
495,407 |
|
Profit for the period |
- |
- |
- |
- |
- |
36,803 |
36,803 |
- |
36,803 |
|
Other comprehensive income |
- |
- |
- |
- |
(3,581) |
- |
(3,581) |
- |
(3,581) |
|
Total comprehensive income |
- |
- |
- |
- |
(3,581) |
36,803 |
33,222 |
- |
33,222 |
|
Cost of share-based payments |
- |
- |
- |
- |
- |
3,148 |
3,148 |
- |
3,148 |
|
Tax on share-based payments |
- |
- |
- |
- |
- |
2,739 |
2,739 |
- |
2,739 |
|
Exercise of options |
- |
- |
- |
5,145 |
- |
(4,247) |
898 |
- |
898 |
|
Purchase of own shares |
- |
- |
- |
(3,587) |
- |
- |
(3,587) |
- |
(3,587) |
|
Return of Value (RoV) |
- |
- |
- |
(99,998) |
- |
- |
(99,998) |
- |
(99,998) |
|
Expenses relating to RoV |
- |
- |
- |
- |
- |
(1,189) |
(1,189) |
- |
(1,189) |
|
Equity dividends |
- |
- |
- |
- |
- |
(21,075) |
(21,075) |
- |
(21,075) |
|
At 30 June 2018 |
9,299 |
3,913 |
74,957 |
(109,800) |
24,278 |
406,904 |
409,551 |
14 |
409,565 |
Consolidated Cash Flow Statement
For the six months ended 30 June 2018
|
|
Unaudited H1 2018 £'000 |
Unaudited H1 2017 £'000 |
Audited Year 2017 £'000 |
|
Operating activities |
|
|
|
|
Profit before tax |
51,993 |
47,527 |
111,695 |
|
Net finance cost/(income) |
112 |
(317) |
(583) |
|
Depreciation of property, plant and equipment |
8,184 |
8,505 |
16,384 |
|
Depreciation of investment property |
- |
91 |
91 |
|
Amortisation of intangible assets |
5,345 |
6,316 |
12,237 |
|
Share-based payments |
3,148 |
1,865 |
6,200 |
|
Exceptional gain on disposal of an investment property |
- |
(4,320) |
(4,320) |
|
Loss on disposal of property, plant and equipment |
30 |
(528) |
(535) |
|
Loss on disposal of intangibles |
- |
(688) |
(688) |
|
Net cash flow from provisions |
(513) |
(1,011) |
281 |
|
Net cash flow from inventories |
6,981 |
(5,142) |
(23,583) |
|
Net cash flow from trade and other receivables |
57,735 |
44,437 |
(94,718) |
|
Net cash flow from trade and other payables |
(118,004) |
(77,020) |
99,004 |
|
Other adjustments |
(894) |
(506) |
(477) |
|
Cash generated from operations |
14,117 |
19,209 |
120,988 |
|
Income taxes paid |
(5,746) |
(7,785) |
(14,881) |
|
Net cash flow from operating activities |
8,371 |
11,424 |
106,107 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
Interest received |
626 |
676 |
1,521 |
|
Decrease in current asset investments |
- |
30,000 |
30,000 |
|
Acquisition of subsidiaries, net of cash acquired |
- |
(7,662) |
(7,376) |
|
Proceeds from disposal of property, plant and equipment |
68 |
797 |
915 |
|
Proceeds from disposal of an investment property |
- |
14,450 |
14,450 |
|
Proceeds from disposal of intangible assets |
- |
1,381 |
1,381 |
|
Purchases of property, plant and equipment |
(19,174) |
(6,916) |
(30,439) |
|
Purchases of intangible assets |
(1,868) |
(2,931) |
(9,618) |
|
Net cash flow from investing activities |
(20,348) |
29,795 |
834 |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Interest paid |
(738) |
(359) |
(938) |
|
Dividends paid to equity shareholders of the parent |
(21,075) |
(18,151) |
(27,112) |
|
Return of Value |
(99,998) |
- |
- |
|
Expenses on Return of Value |
(1,189) |
- |
- |
|
Proceeds from share issues |
898 |
854 |
3,224 |
|
Purchase of own shares |
(3,587) |
(1,887) |
(8,858) |
|
Repayment of capital element of finance leases |
(787) |
(1,024) |
(1,676) |
|
Repayment of loans |
(1,095) |
(337) |
(632) |
|
New borrowings - finance leases |
- |
- |
3,162 |
|
New borrowings - bank loan |
6,948 |
- |
10,591 |
|
Net cash flow from financing activities |
(120,623) |
(20,904) |
(22,239) |
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
(132,600) |
20,315 |
84,702 |
|
Effect of exchange rates on cash and cash equivalents |
(1,068) |
1,145 |
3,221 |
|
Cash and cash equivalents at the beginning of the period/year |
206,599 |
118,676 |
118,676 |
|
Cash and cash equivalents at the end of the period/year |
72,931 |
140,136 |
206,599 |
Notes to the Interim Condensed Consolidated Financial Statements
For the six months ended 30 June 2018
1 Corporate information
The interim condensed consolidated financial statements (Financial Statements) of the Group for the six months ended 30 June 2018 were authorised for issue in accordance with a resolution of the Directors on 24 August 2018.
2 Basis of preparation
The Financial Statements for the six months ended 30 June 2018 have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the
The Group has maintained its positive cash position in the period. In order to ensure that the Group can maintain its strong liquidity position it has a £60 million committed facility, which remained unutilised at the reporting date. The Group's forecast and projections, which allow for reasonably possible variations, show that the Group will continue to maintain its strong liquidity position, and therefore supports the Directors' view that the Group has sufficient funds available to meet its foreseeable requirements. The Directors have concluded therefore that the going concern basis remains appropriate.
3 Significant Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year as disclosed in the 2017 Annual Report and Accounts except that the Group has had to change its accounting policies and make material retrospective adjustments as a result of adopting IFRS 15 'Revenue from Contracts with Customers' ('IFRS 15').
The impact of the adoption of IFRS 15 are disclosed below.
The Group has adopted IFRS 15 from 1 January 2018 which has resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. In accordance with the transition provisions in IFRS 15, the Group has adopted the new rules using the modified retrospective approach, meaning that the cumulative effect of applying the new accounting policies has been recognised as an adjustment in equity as at 1 January 2018. The overall net impact of all adjustments was a credit to retained earnings of £6.6 million as at 1 January 2018.
Adjustments were required in relation to:
· Certain costs, such as win fees (a form of commission) and fulfilment cost are capitalised and spread over the life of the contract, as opposed to being expensed as incurred as was the case under the previous policy. This resulted in an increase to retained earnings of £7.6 million as at 1 January 2018, with the corresponding entry to Prepayment. The tax impact of this adjustment is a debit to equity of £1.4 million and a corresponding increase in deferred tax liabilities as at 1 January 2018. The net impact on retained earnings as at 1 January 2018 is £6.2 million.
· Certain elements of Managed Services contracts, for example those relating to Entry into Service, are not treated as separate performance obligations under the new policy. Under the new policy, these services are treated as part of the ongoing performance obligations in the contract. This means the revenues and costs associated with Entry into Service are recognised over the life of the contracts with customers rather than being recognised as incurred as was the case historically. This resulted in an increase to retained earnings of £0.5 million as at 1 January 2018, with the corresponding entry to Prepayment. The tax impact of this adjustment is a debit to equity of £0.1 million and a corresponding increase in deferred tax liabilities as at 1 January 2018. The net impact on retained earnings as at 1 January 2018 is £0.4 million.
IFRS 15 has been adopted using the modified retrospective approach, therefore comparative amounts have not been restated. For comparability purposes, the following table gives the impact of the adoption of the new standard on the Consolidated Balance Sheet and Consolidated Income Statement for the period ended 30 June 2018 by showing what the results would have been had they been prepared under the previous accounting policies.
|
Line item |
Under existing GAAP (IFRS 15) £'000 |
Under £'000 |
|
|
|
|
|
Revenue |
2,008,904 |
2,012,400 |
|
Cost of sales |
1,760,094 |
1,756,755 |
|
Administrative expenses |
196,586 |
196,277 |
|
Income tax expense |
15,190 |
15,273 |
|
|
|
|
|
Prepayments: non-current |
3,806 |
- |
|
Prepayments: current |
72,849 |
65,548 |
|
Deferred tax liabilities |
3,267 |
1,766 |
IFRS 9 - Financial Instruments
IFRS 9 - Financial Instruments: IFRS 9 is effective for accounting periods beginning on or after 1 January 2018. IFRS 9 replaces the classification and measurement models for financial instruments in IAS 39. The Group has assessed its balance sheet assets in accordance with the new classification requirements. There has been no change in the classification and measurement for any of the Group's financial assets or liabilities.
In addition, IFRS 9 introduces an 'expected loss' model for the assessment of impairment of financial assets. The 'incurred loss' model under IAS 39 required the Group to recognise impairment losses when there was objective evidence that an asset was impaired. Under the expected loss model, impairment losses are recorded if there is an expectation of credit losses, even in the absence of a default event. However, as permitted by IFRS 9, the Group applies the 'simplified approach' to trade receivable balances. Due to general quality and short-term nature of the trade receivables, there is no significant impact on introduction of 'simplified approach'.
The Group applies the hedge accounting requirements under IFRS 9 and its hedging activities are discussed in note 23 of the 2017 Annual Report and Accounts with movements on hedging reserves disclosed on Consolidated Statement of Changes in Equity. The Group's existing hedging arrangements have been assessed as compliant with IFRS 9.
The adoption of IFRS 9 from 1 January 2018 does not have a material impact on the Group's reported results.
IFRS 16 - Leases
IFRS 16 is effective for accounting periods beginning on or after 1 January 2019 and replaces IAS 17 Leases and related interpretations. As mentioned in our 2017 Annual Report and Accounts, the Group has completed an initial assessment of the potential impact on its consolidated financial statements but has not yet completed its detailed assessment. The actual impact of applying IFRS 16 on the financial statements in the period of initial application will depend on the future economic conditions, including the Group's borrowing rate at 1 January 2019 and the composition of the Group's lease portfolio at that date. Thus far, the most significant impact identified is that the Group will recognise new assets and liabilities for its operating leases of properties and cars. As at 30 June 2018, the Group's future minimum lease payments under non-cancellable operating leases amounted to £72.3 million, on an undiscounted basis.
In addition, the nature of expenses related to those leases will now change because IFRS 16 replaced the straight-line operating lease expense with a depreciation charge for right-to-use assets and an interest expense on lease liabilities.
4 Adjusted measures
The Group uses a number of non-Generally Accepted Accounting Practice (non-GAAP) financial measures in addition to those reported in accordance with IFRS. The Directors believe that these non-GAAP measures, detailed below, are important when assessing the underlying financial and operating performance of the Group.
Adjusted operating profit or loss, adjusted profit or loss before tax, adjusted tax, adjusted profit or loss for the period, adjusted earnings per share and adjusted diluted earnings per share are, as appropriate, each stated before: exceptional and other adjusting items including gain or loss on business disposals, gain or loss on disposal of investment properties, amortisation of acquired intangibles, utilisation of deferred tax assets (where initial recognition was as an exceptional item or a fair value adjustment on acquisition), and the related tax effect of these exceptional and other adjusting items, as Management do not consider these items when reviewing the underlying performance of the segment or the Group as a whole.
Additionally, adjusted gross profit or loss and adjusted operating profit or loss includes the interest paid on customer-specific financing (CSF) which Management considers to be a cost of sale.
A reconciliation between key adjusted and statutory measures is provided within the Group Finance Director's review included within this announcement.
5 Segment information
During the first half of the year, Management reviewed the way it reported segmental performance to the Board and the Chief Executive Officer, who is the Group's Chief Operating Decision Maker ('CODM'), to determine whether it could improve the transparency and understandability of the trading performance of its core Group Operating Model geographies. As a result of this analysis, and as endorsed by the Audit Committee, the Board has decided to adopt a new segmental reporting structure from the period ended 30 June 2018.
In accordance with IFRS 8 Operating Segments, the Group has identified four revised operating segments:
·
·
·
· International.
As the location of the Group's headquarters, the
Under the previous segmental reporting structure, the
The German segment has been revised to remove the independently run Computacenter Switzerland operation, including cITius, which has been transferred to the International segment, leaving the German country trading operations standing alone.
The new International segment replaces the Belgian segment and includes the
The French segment remains unchanged from that reported at 31 December 2017.
This new segmental reporting structure is the basis on which internal reports are provided to the Chief Executive Officer, as the CODM, for assessing performance and determining the allocation of resources within the Group.
Segmental performance is measured based on external revenues, adjusted1 gross profit, adjusted1 operating profit and adjusted1 profit before tax.
The change in segment reporting has no impact on reported Group numbers.
To enable comparisons with prior period performance, historical segment information for the periods ended 30 June 2017 and 31 December 2017 are restated in accordance with the revised segmental reporting structure. All discussion within this summary financial information on segmental results reflects this revised structure, the reclassification of Central Corporate Costs and the resultant prior period restatements.
Segmental performance for the periods to H1 2018, H1 2017 and Full Year 2017 were as follows:
Six months ended 30 June 2018 (unaudited)
|
|
£'000 |
£'000 |
£'000 |
International £'000 |
Central Corporate £'000 |
Total £'000 |
|
Revenue |
|
|
|
|
|
|
|
Technology Sourcing revenue |
632,981 |
598,033 |
182,395 |
20,714 |
- |
1,434,123 |
|
Services revenue |
|
|
|
|
|
|
|
Professional Services |
60,703 |
79,887 |
8,894 |
7,156 |
- |
156,640 |
|
Managed Services |
164,377 |
188,128 |
39,364 |
26,272 |
- |
418,141 |
|
Total Services revenue |
225,080 |
268,015 |
48,258 |
33,428 |
- |
574,781 |
|
Total revenue |
858,061 |
866,048 |
230,653 |
54,142 |
- |
2,008,904 |
|
|
|
|
|
|
|
|
|
Results |
|
|
|
|
|
|
|
Adjusted1 gross profit |
99,434 |
109,721 |
24,095 |
15,437 |
- |
248,687 |
|
Administrative expenses |
(73,601) |
(77,523) |
(22,022) |
(12,039) |
(11,401) |
(196,586) |
|
Adjusted1 operating profit |
25,833 |
32,198 |
2,073 |
3,398 |
(11,401) |
52,101 |
|
Adjusted1 net interest |
78 |
43 |
(35) |
(75) |
- |
11 |
|
Adjusted1 profit before tax |
25,911 |
32,241 |
2,038 |
3,323 |
(11,401) |
52,112 |
|
Exceptional items: |
|
|
|
|
|
|
|
- exceptional gains |
|
|
|
|
|
- |
|
Total exceptional items |
|
|
|
|
|
- |
|
Amortisation of acquired intangibles |
|
|
|
|
|
(119) |
|
Statutory profit before tax |
|
|
|
|
|
51,993 |
The reconciliation for adjusted1 operating profit to statutory operating profit, as disclosed in the Condensed Consolidated Income Statement, is as follows:
Six months ended 30 June 2018 (unaudited)
|
|
Total £'000 |
|
Adjusted1 segment operating profit |
52,101 |
|
Add back interest on CSF |
123 |
|
Amortisation of acquired intangibles |
(119) |
|
Exceptional items |
- |
|
Statutory operating profit |
52,105 |
Six months ended 30 June 2017 (unaudited)
|
|
£'000 |
£'000 |
£'000 |
International £'000 |
Central Corporate £'000 |
Total £'000 |
|
Revenue |
|
|
|
|
|
|
|
Technology Sourcing revenue |
427,259 |
515,000 |
175,163 |
20,814 |
- |
1,138,236 |
|
Services revenue |
|
|
|
|
|
|
|
Professional Services |
64,087 |
74,460 |
10,108 |
3,296 |
- |
151,951 |
|
Managed Services |
171,368 |
170,881 |
43,363 |
24,530 |
- |
410,142 |
|
Total Services revenue |
235,455 |
245,341 |
53,471 |
27,826 |
- |
562,093 |
|
Total revenue |
662,714 |
760,341 |
228,634 |
48,640 |
- |
1,700,329 |
|
|
|
|
|
|
|
|
|
Results |
|
|
|
|
|
|
|
Adjusted1 gross profit |
92,472 |
94,201 |
20,672 |
15,454 |
- |
222,799 |
|
Administrative expenses |
(71,052) |
(73,519) |
(19,180) |
(10,413) |
(7,231) |
(181,395) |
|
Adjusted1 operating profit |
21,420 |
20,682 |
1,492 |
5,041 |
(7,231) |
41,404 |
|
Adjusted1 net interest |
400 |
135 |
(77) |
(4) |
- |
454 |
|
Adjusted1 profit before tax |
21,820 |
20,817 |
1,415 |
5,037 |
(7,231) |
41,858 |
|
Exceptional items: |
|
|
|
|
|
|
|
- exceptional losses |
|
|
|
|
|
1,460 |
|
Total exceptional items |
|
|
|
|
|
1,460 |
|
Exceptional gains on disposal of an investment property |
|
|
|
|
|
4,320 |
|
Amortisation of acquired intangibles |
|
|
|
|
|
(111) |
|
Statutory profit before tax |
|
|
|
|
|
47,527 |
The reconciliation for adjusted1 operating profit to operating profit, as disclosed in the Consolidated Income Statement, is as follows:
Six months ended 30 June 2017 (unaudited)
|
|
Total £'000 |
|
Adjusted1 segment operating profit |
41,404 |
|
Add back interest on CSF |
137 |
|
Amortisation of acquired intangibles |
(111) |
|
Exceptional items |
1,460 |
|
Statutory operating profit |
42,890 |
Year ended 31 December 2017
|
|
£'000 |
£'000 |
£'000 |
International £'000 |
Central Corporate £'000 |
Total £'000 |
|
Revenue |
|
|
|
|
|
|
|
Technology Sourcing revenue |
986,677 |
1,200,871 |
405,139 |
43,507 |
- |
2,636,194 |
|
Services revenue |
|
|
|
|
|
|
|
Professional Services revenue |
141,507 |
151,306 |
18,120 |
8,223 |
- |
319,156 |
|
Managed Services revenue |
335,145 |
362,481 |
86,684 |
53,711 |
- |
838,021 |
|
Total Services revenue |
476,652 |
513,787 |
104,804 |
61,934 |
- |
1,157,177 |
|
Total revenue |
1,463,329 |
1,714,658 |
509,943 |
105,441 |
- |
3,793,371 |
|
|
|
|
|
|
|
|
|
Results |
|
|
|
|
|
|
|
Adjusted1 gross profit |
196,170 |
214,743 |
53,539 |
31,618 |
- |
496,070 |
|
Adjusted1 administrative expenses |
(144,632) |
(156,489) |
(47,931) |
(22,530) |
(19,001) |
(390,583) |
|
Adjusted1 operating profit |
51,538 |
58,254 |
5,608 |
9,088 |
(19,001) |
105,487 |
|
Adjusted1 net interest |
607 |
472 |
(193) |
(144) |
- |
742 |
|
Adjusted1 profit before tax |
52,145 |
58,726 |
5,415 |
8,944 |
(19,001) |
106,229 |
|
Exceptional items: |
|
|
|
|
|
|
|
- onerous contracts provision for future losses |
|
|
|
|
|
1,371 |
|
Total exceptional items |
|
|
|
|
|
1,371 |
|
Exceptional gain on disposal of an investment property |
|
|
|
|
|
4,320 |
|
Amortisation of acquired intangibles |
|
|
|
|
|
(225) |
|
Statutory profit before tax |
|
|
|
|
|
111,695 |
The reconciliation for adjusted1 operating profit to statutory operating profit, as disclosed in the Consolidated Income Statement, is as follows:
Year ended 31 December 2017
|
|
Total £'000 |
|
Adjusted1 operating profit |
105,487 |
|
Add back interest on CSF |
159 |
|
Amortisation of acquired intangibles |
(225) |
|
Exceptional items |
1,371 |
|
Statutory operating profit |
106,792 |
6 Seasonality of operations
Historically, revenues have been higher in the second half of the year than in the first six months. This is principally driven by customer buying behaviour in the markets in which we operate. Typically this leads to a more pronounced effect on operating profit. In addition, the effect is compounded further by the tendency for the holiday entitlements of our employees to accrue during the first half of the year and to be utilised in the second half.
7 Dividends paid and proposed
A final dividend for 2017 of 18.7 pence per ordinary share was paid on 29 June 2018. An interim dividend in respect of 2018 of 8.7 pence per ordinary share, amounting to a total dividend of £10.7 million, was declared by the Directors at their meeting on 21 August 2018. The expected payment date of the dividend declared is 12 October 2018. The interim results does not reflect this dividend payable.
8 Exceptional items
|
|
Unaudited H1 2018 £'000 |
Unaudited H1 2017 £'000 |
Audited Year 2017 £'000 |
|
Operating profit |
|
|
|
|
Onerous contracts |
- |
1,460 |
1,371 |
|
|
- |
1,460 |
1,371 |
|
Gain on disposal of an investment property |
- |
4,320 |
4,320 |
|
Exceptional items before taxation |
- |
5,780 |
5,691 |
|
|
|
|
|
|
Income tax |
|
|
|
|
Tax on onerous contracts included in operating profit |
- |
(351) |
(351) |
|
Exceptional items after taxation |
- |
5,429 |
5,340 |
2018:
There are no exceptional items reported within the current period.
2017:
Included within the prior period are the following exceptional items:
· The remaining provisions for the last two onerous contracts in
· The disposal of an investment property in
9 Income tax
Tax for the six-month period is charged at 29.2 per cent (six months ended 30 June 2017: 27.5 per cent; year ended 31 December 2017: 27.2 per cent), representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax income of the six month period.
10 Earnings per share
Earnings per share ('EPS') amounts are calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period (excluding own shares held).
To calculate diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential shares. Share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period are considered to be dilutive potential shares.
|
|
Unaudited H1 2018 £'000 |
Unaudited H1 2017 £'000 |
Audited Year 2017 £'000 |
|
Profit attributable to equity holders of the Parent |
36,803 |
34,475 |
81,314 |
|
|
Unaudited H1 2018 '000 |
Unaudited H1 2017 '000 |
Audited Year 2017 '000 |
|
Basic weighted average number of shares (excluding own shares held) |
114,620 |
120,842 |
120,766 |
|
Effect of dilution: |
|
|
|
|
Share options |
1,662 |
888 |
1,471 |
|
Diluted weighted average number of shares |
116,282 |
121,730 |
122,237 |
|
|
Unaudited H1 2018 pence |
Unaudited H1 2017 pence |
Audited Year 2017 pence |
|
Basic earnings per share |
32.1 |
28.5 |
67.3 |
|
Diluted earnings per share |
31.6 |
28.3 |
66.5 |
11 Fair value measurements recognised in the consolidated balance sheet
Financial instruments which are recognised at fair value subsequent to initial recognition are grouped into Levels 1 to 3 based on the degree to which the fair value is observable. The three levels are defined as follows:
1. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
2. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
3. Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
At 30 June 2018 the Group had forward currency contracts, which were measured at Level 2 fair value subsequent to initial recognition, to the value of a net asset of £4,309,000 (30 June 2017: £4,749,000, 31 December 2017: £7,013,000).
The net realised gains from forward currency contracts in the period to 30 June 2018 of £3,506,000 (30 June 2017: £6,006,000, 31 December 2017: £6,293,000, are offset by broadly equivalent realised losses/gains on the related underlying transactions. There were no transfers between Level 1 and Level 2 during the period (2017: nil).
The foreign currency forward contracts are measured based on observable spot exchange rates, the yield curves of the respective currencies as well as the currency basis spreads between the respective currencies. All contracts are fully cash collateralised, thereby eliminating both counterparty and the Group's own credit risk.
The carrying value of the Group's short-term receivables and payables is a reasonable approximation of their fair values. The fair value of all other financial instruments carried within the Group's financial statements is not materially different from their carrying amount.
12 Net funds
|
|
Unaudited H1 2018 £'000 |
Unaudited H1 2017 £'000 |
Audited Year 2017 £'000 |
|
Cash and short-term deposits |
72,931 |
140,136 |
206,605 |
|
Bank overdraft |
- |
- |
(6) |
|
Cash and cash equivalents |
72,931 |
140,136 |
206,599 |
|
Bank loans |
(19,251) |
(472) |
(10,667) |
|
Net funds excluding CSF |
53,680 |
139,664 |
195,932 |
|
CSF leases |
(3,933) |
(2,362) |
(4,745) |
|
Total CSF |
(3,933) |
(2,362) |
(4,745) |
|
Net funds |
49,747 |
137,302 |
191,187 |
13 Publication of non-statutory accounts
The financial information contained in this announcement and summary financial statements does not constitute statutory accounts as defined in section 435 of the Companies Act 2006.
The comparative figures for the financial year ended 31 December 2017 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the