Computacenter - Half-year Report
Interim results for the six months ended
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Financial Highlights
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H1 2020 |
H1 2019 |
Percentage Change Increase/ (Decrease) |
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Financial Performance |
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Services revenue (£ million) |
594.4 |
595.7 |
(0.2) |
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Technology Sourcing revenue (£ million) |
1,867.8 |
1,831.3 |
2.0 |
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Revenue (£ million) |
2,462.2 |
2,427.0 |
1.5 |
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Adjusted1 profit before tax (£ million) |
74.6 |
53.5 |
39.4 |
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Adjusted1 diluted earnings per share (pence) |
46.7 |
34.5 |
35.4 |
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Dividend per share (pence) |
12.3 |
10.1 |
21.8 |
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Profit before tax (£ million) |
72.4 |
50.8 |
42.5 |
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Diluted earnings per share (pence) |
45.3 |
33.2 |
36.4 |
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Cash Position |
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Cash and cash equivalents (£ million) |
222.1 |
114.3 |
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Adjusted net funds/(debt)3 (£ million) |
149.1 |
(3.1) |
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Net funds/(debt) (£ million) |
24.3 |
(114.1) |
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Net cash inflow/(outflow) from operating activities (£ million) |
47.0 |
(1.1) |
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Reconciliation to Adjusted1 Measures
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Adjusted1 profit before tax (£ million) |
74.6 |
53.5 |
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Exceptional and other adjusting items: |
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Costs related to acquisition (£ million) |
- |
(0.5) |
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Amortisation of acquired intangibles (£ million) |
(2.2) |
(2.2) |
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Profit before tax (£ million) |
72.4 |
50.8 |
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Operational Highlights:
· The Group's total revenues grew 1.5 per cent during the first half of the year, and by 0.6 per cent in constant currency2. Significant reductions in expenditure from industrial customers have been offset by new business within the government and financial services sector. COVID-19 related cost reductions and improving Services and Technology Sourcing margins has resulted in an increase in adjusted1 profit before tax of 39.4 per cent during the period.
· The
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·
· The
The Group has experienced significant operational and financial impacts from the unprecedented effect of the COVID-19 crisis. All results in these Interim Report and Accounts include these COVID-19 impacts and no attempt has been made to adjust for or exclude these impacts whether they be positive or negative. Further information on the COVID-19 impacts on the Group, and our response, can be found within the CEO's Performance Review contained within this announcement. The continued adoption of the going concern basis by the Directors in the preparation of the Interim Condensed Consolidated Financial Statements is set out on within the notes to the summary financial information contained within this announcement.
A reconciliation to adjusted1 measures is provided within the Group Finance Director's review contained in this announcement. Further details are provided in note 4 to the summary financial information contained within this announcement.
'As previously stated, our business has performed well this year to date and proven to be flexible in these extraordinary times.
While nothing can be taken for granted, it is the Board's view that, based on current business activity levels, our adjusted1 profit before tax for the year is unlikely to be less than
Obviously, our markets have proved resilient as our customers have invested in their infrastructure to support their businesses, they have utilised the skills of our people and we have managed our cost base.
It is impossible to predict exactly how the world will recover in 2021, and beyond, and the implications for our customer base. We do believe that our customers will continue to invest in technology and that we have built a substantial reseller business with the largest service capability of any reseller in the world and the most substantial international footprint which should enable us to deliver a reliable and consistent business for our customers, employees and shareholders.'
1 Adjusted operating profit or loss, adjusted net finance income or expense, adjusted profit or loss before tax, adjusted tax, adjusted profit or loss, adjusted earnings per share and adjusted diluted earnings per share are, as appropriate, each stated before: exceptional and other adjusting items including gain or losses on business acquisitions and disposals, 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. A reconciliation to adjusted measures is provided within the Group Finance Director's review contained in this announcement which details the impact of exceptional and other adjusted items when compared to the non-Generally Accepted Accounting Practice financial measures in addition to those reported in accordance with IFRS. Further detail is provided within note 4 to the summary financial information contained in this announcement.
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. 2020 interim highlights, as shown above are provided in the reported pound sterling equivalent.
3 Adjusted net funds or adjusted net debt includes cash and cash equivalents, other short or other long-term borrowings and current asset investments. Following the adoption of IFRS 16 this measure excludes all finance lease liabilities. A table reconciling this measure, including the impact of finance lease liabilities, is provided within note 12 to the summary financial information contained in this announcement.
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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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020 7353 4200 |
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 2019 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
Our Interim Performance in 2020
Financial performance
The Group's revenues increased by 1.5 per cent to
The Group made a profit before tax of
The difference between profit before tax and adjusted1 profit before tax relates to the Group's net charge of
With the increase in the Group's profit after tax, the diluted earnings per share ('EPS') increased by 36.4 per cent to
The six months of trading to
The flat overall revenues belied the Group's underlying performance. With a large number of very significant industrial customers rapidly reducing their IT spend on both equipment and services, there was significant difficulty in forecasting how the business would perform as the COVID-19 crisis escalated through the end of the first quarter of the year. The surge in revenues from other customers has compensated for this but this could not be predicted at the beginning of the crisis. In markets where we operate at scale, notably the
The
Whilst overall revenues held up in the challenging environment, margins and profits increased as costs naturally reduced across the business.
COVID-19 impact
We are a technology company operating across the globe in support of our customers, at a time when technology has proven itself to be a critical mitigation to the disruption of normal business practices. We have also executed our own business continuity plans to great effect and remained sufficiently agile to deal with issues as they arose.
The safety and wellbeing of our staff is our highest priority. As the COVID-19 crisis intensified, we followed all available government and scientific guidance and implemented remote-working for all employees where possible, ensuring that their health and safety was paramount in our decision-making. We used leading technology solutions that we were implementing for our customers to ensure the continued integrity of our working environment, whilst standing up response teams to ensure the physical and mental wellbeing of our employees. Remote working has been an unqualified success, but we believe that, when the time is right, employees will return to an office environment at least part-time.
At the same time as we were rapidly transitioning nearly our entire workforce to home working, we were supporting and enabling our customers to do the same with their employees. The challenge was immense, and we were pleased to accomplish it with minimal disruption. Additionally, we have redeployed field engineers to support our Integration Centers, which have seen a surge in activity and moved, for a period, to a 24/7 working pattern to meet demand. We have seen other benefits in utilisation, with previously on-site or mobile employees able to use time previously spent travelling to solve issues remotely for our customers, increasing their billable hours. This has had a material impact on our Services margins.
The 'near-shore' location strategy for our offshore internal service providers and Service Centers has proven successful, with regional workforces able to support customers in the correct time zone with the right capacity. Locating these centers in areas with pervasive internet connectivity, both in an office and home working environment, has meant little to no disruption to our services. Further, the single worldwide telecommunications system and unified software toolsets used by our Service Centers has allowed seamless capacity flows between Service Centers, enabling us to rapidly adapt to short-term spikes in utilisation from our customer base.
The Chief Information Officers of our customers have had an incredibly busy six months, leading their organisations through the challenges presented by the COVID-19 crisis to quickly transform their business's IT architecture and ways of working. In partnership with these leaders,
At the beginning of the crisis, the Group decided to participate in various national employee retention schemes. These schemes primarily supported our operations in the
As the extent of the Group's performance and resilience through the second quarter became known, we reassessed our participation in the employee retention schemes. The Group decided to make no further claim on the
There are certain COVID-19 related one-off benefits included in the H1 2020 cashflow and net cash positions including extended free-of-charge supplier credit with a major vendor of approximately
Today, the long-term impact of the COVID-19 crisis remains unknown. This uncertainty means we could see ongoing volatility within our markets and worldwide locations. Continued customer investment in technology has provided short-term growth opportunities and proven the strength of our business model. We continue to monitor the impact on the Group and maintain our focus on controlling costs. Adjusted net funds3 of
Segmental reporting structure changes
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'), during the first half of the year. As a result of this analysis, from
Operational responsibility for a significant European customer was transferred from the German to the French business from
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 in accordance with IFRS 8.25. Segmental performance is measured based on external revenues, adjusted1 gross profit, adjusted1 operating profit and adjusted1 profit before tax.
The operating Segments remain unchanged in all other regards from those reported at
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 year performance, historical segment information for the year ended
All discussion within this announcement on Segmental results reflects this revised structure and the resultant prior-year and prior-period restatements.
Technology Sourcing performance
The Group's Technology Sourcing revenue increased by 2.0 per cent to
The
In
The French Technology Sourcing revenue was stable, against an exceptional prior-period performance, with activity from the largest customers being higher than expected. The business also benefited from its ability to expand existing public sector frameworks. Although revenues from large private sector industrial accounts declined, there was growth with smaller customers, which were often less affected by the COVID-19 crisis.
We saw higher than expected activity from our largest Technology Sourcing customers. We are pleased about our ability to expand existing public frameworks. At the same time, we saw a reduction in our large private accounts and a slight growth in some of our smaller customers who were often less impacted by the crisis.
The
Overall Group Technology Sourcing margins increased 65 basis points during the first half of the year, when compared to the prior period, partially due to customer mix changes.
Services performance
The Group's Services revenue decreased by 0.2 per cent to
German Services revenues have followed a similar but more pronounced pattern to the
Our French Services business saw sharp falls in Professional Services, with nearly half of our deployable specialists placed on government job retention schemes as demand fell away due to the COVID-19 crisis, as the French Professional Services business is more reliant on onsite activity than the equivalent business in the
In the
Overall Group Services margins increased by 33 basis points during the first half of the year, when compared to the prior period. The reduction of travel costs, lower subcontractor costs and improved Professional Services utilisation has contributed to this increase.
Outlook
As previously stated, our business has performed well this year to date and proven to be flexible in these extraordinary times.
While nothing can be taken for granted, it is the Board's view that, based on current business activity levels, our adjusted1 profit before tax for the year is unlikely to be less than
Obviously, our markets have proved resilient as our customers have invested in their infrastructure to support their businesses, they have utilised the skills of our people and we have managed our cost base.
It is impossible to predict exactly how the world will recover in 2021, and beyond, and the implications for our customer base. We do believe that our customers will continue to invest in technology and that we have built a substantial reseller business with the largest service capability of any reseller in the world and the most substantial international footprint which should enable us to deliver a reliable and consistent business for our customers, employees and shareholders.
Financial performance
Revenues in the
Technology Sourcing grew strongly in the second quarter, as our customers accelerated transformation programmes they had already planned and invested to keep their businesses running during the COVID-19 pandemic. The product mix was weighted towards workplace demand, as many organisations moved their staff to working from home.
To keep our people safe during the pandemic and comply with government guidelines, we switched most of our employees to remote and home working. We were able to rapidly re-engineer many of our ways of working to meet these changing requirements and ensure our services were unaffected. We also created and launched several new service solutions, which both existing and new customers quickly adopted, and provided vital infrastructure and end user support to over 45 critical national infrastructure organisations.
Professional Services revenue increased during the period, as we continued to deliver project and consultancy engagements for many of our customers, despite the difficulties of gaining access to their premises during lockdown.
Managed Services revenue decreased slightly during the first half. We saw some contracts come to an end as expected and other customers also spent less as they adapted to the impact of the virus. We also reduced service charges for some customers, reflecting our commitment to nurturing long-term relationships.
We have successfully retained our contract base, as we renewed and extended existing agreements. We also grew new business, securing wins across all of our service lines.
We remain committed to attracting, retaining and developing a diverse and talented workforce. We recruited additional people during the first half and will continue to grow our workforce through the remainder of the year.
Adjusted1 gross profit grew by 20.8 per cent to
Administrative expenses decreased by 1.7 per cent to
This resulted in adjusted1 operating profit increasing 95.3 per cent to
The investment in our operating model will make our Professional Services delivery more agile and help us to convert a strong pipeline for Managed Services.
Technology Sourcing performance
Technology Sourcing revenue increased by 11.0 per cent to
Customers increased investment during the period, particularly in workplace technologies to help them adapt to new ways of working during COVID-19. The strength and scale of our Integration Center helped us to meet this demand effectively. We particularly benefited from large increases in local and central government spend, to support both remote working and a large number of nationally important infrastructure initiatives related to COVID-19. We expect growth in enterprise technology sales during the second half of the year.
Margins improved during the first half, due to larger volumes and increased sales of high-value added services such as bespoke configuration in our Integration Center. This facility has the scale to support customers nationally and, combined with recent improvements we have made which make it easier for customers to order directly through our systems, reflects the operating leverage we enjoy in the
Technology Sourcing margins grew by 144 basis points compared to the prior period. This reflected the ongoing improvement in our relationships with a broad range of established and emerging vendor partners and a change in product mix. This means that the
Services performance
Services revenue declined by 2.5 per cent to
Despite the challenging conditions, Professional Services volumes increased, and we see this continuing in the second half of the year, as COVID-19 related restrictions continue to lift. Our customers' investment in Public and Multi-Cloud and in Security services continues to generate both short-term engagements and longer-term strategic projects.
Managed Services revenue reduced in the period, as some existing projects came to an end and as a consequence of COVID-19. We were able to offset much of this impact by quickly switching to services that address the new way of working for our customers. Our Managed Services portfolio continues to perform well and we have a strong pipeline for large, simple services with both existing and new customers. Our continued investment in central operational and service management efficiency has improved customer satisfaction and margin performance.
We have seen additional demand for COVID-related services, to help reduce the impact on our customers and move them to remote working. This ensured high utilisation of our services teams throughout the crisis. Our work to reduce over-capacity within Professional Services, in preparation for the completion of several contracts, enabled us to enter the crisis with the right number of people and an appropriate skillset.
The Services business focused relentlessly on cost throughout the period, in particular by reducing the use of contractors and by not replacing employees who left, as we continue to shape the workforce to meet the near-term challenges. Reduced travel to customer sites has saved money and freed up time which our people have spent supporting our customers. This has helped to offset the cost of under-utilised employees, who remain ready to re-engage as demand picks up again.
Services margins increased by 346 basis points over the period.
Financial performance
Total revenue decreased by 2.8 per cent to
The first half of the year was the most extraordinary and challenging period in the history of Computacenter Germany, as a result of the COVID-19 situation and the necessary crisis management, which overshadowed all other business concerns.
The German business has come through the crisis well, so far, and the financial figures for the first half show a very good result. However, the new realities have led to a rethinking of some aspects of business life, in particular relating to mobile working and travel and meeting culture.
The longer-term effects on customer relationships and customer contacts are not clear. The crisis has helped to strengthen many of our customer relationships, especially among our key larger customers, and we have received praise from our customers for our professional support and pragmatic approach. However, new customer wins have suffered, as these customers have focused on existing partnerships during the crisis. Even so, not all of our competitors have succeeded and we have seen some successes with new customers. We need to observe how customer behaviour continues to change and how addressing more complex issues onsite with customers can evolve to function in a remote-collaboration environment.
The crisis has created winners and losers in the German customer base. The losers are primarily companies in the automotive and automotive supply industry, which were already challenged before COVID-19 and whose situation has now deteriorated dramatically. In addition, some retail companies and the chemical industry have suffered. The clear winners are the technology companies, the health industry, insurance companies and the entire public sector. The demands on our public sector account teams have been particularly challenging due to the crisis and we have significantly improved our reputation in this area due to the capabilities demonstrated in our response to urgent requests for support.
Computacenter Germany's customer base covers a broad spectrum of all these industries. On the one hand, we are directly affected by the automotive crisis, as we serve almost the entire range of customers here. The closure of customer plants and production facilities has also prompted us to resort to short-time working, in order to avoid compulsory redundancies. At peak times we had around 800 employees on short-time working. This has now reduced and will fall further in the second half. On the other hand, we benefited in particular from our strong public sector client base, which also made additional investments in infrastructure during the crisis.
A survey on the effects of the COVID-19 crisis on the business activities of Computacenter Germany's Top 100 customers has shown that only around 23 per cent have been significantly affected by the crisis. This has also been confirmed in our business development to date. What we also see, however, is that the companies affected by the crisis are again using classic outsourcing methods in order to reduce costs. This includes extensive asset transfers, employee takeovers and above all global delivery requirements. For
Looking ahead, we believe we can still achieve the expectations we set ourselves at the beginning of the year despite the circumstances. This is based on a somewhat weaker Technology Sourcing business and a stronger Professional Services business, helped by lower administrative costs.
The first half of the year was characterised by a cautious start, then the emerging COVID-19 crisis and three strong months to finish the first half. In particular, the positive trend of growing Professional Services from 2019 was confirmed despite the crisis. The additional infrastructure requirements that arose at the beginning of the crisis have boosted the Technology Sourcing business, while the last two months have shown that customers are acting more carefully in regard to additional hardware investments. Our Managed Services business performed in line with expectations, although there were positive and negative fluctuations within this business. The cost base benefited from reductions in travel, meetings and events. Adjusted1 gross profit grew by 5.1 per cent to
Total contribution was slightly above the target for the first half of the year and also showed good year-on-year growth. While we had to accept a small absolute decline on the Technology Sourcing side despite higher margins, strong Services growth in particular led to significant overall contribution growth.
Administrative expenses increased by 1.3 per cent to
Indirect costs increased only slightly compared to the previous period and were well below target, as a result of reduced travel, meetings and events. In addition, the indirect headcount was kept almost flat compared to the previous period.
Adjusted1 operating profit for the German business increased by 15.4 per cent to
Taking into account the market conditions described above, we consider the operating result to be very positive, as it is well above target and the previous period.
Technology Sourcing performance
Technology Sourcing revenue reduced by 5.6 per cent to
Technology Sourcing margins remained strong and were up by 56 basis points over the same period last year.
Technology Sourcing saw a decline in sales compared to the previous period, but also a stronger relative margin position. This was due to weaker COVID-19-related demand from large framework agreements, especially from customers in the automotive industry. These frameworks typically do not generate high margins. On the other hand, we benefited from customers' additional ad hoc procurements to overcome the crisis, especially in the public sector. We made every effort to prioritise service to our critical information infrastructure and security customers in particular, which was very well received by them.
Services performance
Services revenue grew by 3.6 per cent to
Two different pictures emerge in relation to Services revenue development. Our Professional Services business showed strong growth, while our Managed Services business saw a significant decline. We succeeded in serving all Professional Services framework agreements and projects, despite a massive switch by customers towards remote working. Additional customer requirements, especially at the beginning of the crisis, further boosted growth. In addition, we won another large framework contract in the public sector, which guarantees approximately
A similar picture emerges on the margins side. While we benefited from growth in Professional Services, the decline in Managed Services affected the margin position. Despite the use of government sanctioned reduced-time working, we were not able to compensate for all revenue shortfalls on the cost side. The use of reduced-time work prevented redundancies that would otherwise have been necessary, which is the right approach as we assume that the needs of these customers will recover. We achieved all our targets in relation to the critical contracts existing from 2019. Nevertheless, a new contract won in 2019 is in a critical transformation phase and requires increased attention. We expect to have this under control by the end of the year.
Services margins increased by 167 basis points over the period.
Financial performance
Total revenue was flat at
The COVID-19 outbreak is causing widespread concern and economic hardship for businesses across the globe. Most companies already have business continuity plans, but those may not fully address the fast-moving and unknown variables of such an outbreak. Typical contingency plans are intended to ensure operational effectiveness following events such as natural disasters, cyber incidents and power outages, among others.
To support our customers' continuity plans during this period, we demonstrated agility, flexibility and innovation in order to adapt our services to circumstances. Whether in the field of healthcare, industry or essential services for the government, our teams were present and ensured a very good transition of services. In this unique context, we have seen several major upheavals in our ecosystem of public and private sector customers. The large private sector customer base has suffered the most, notably in sectors such as transportation, manufacturing, retail and hospitality.
Product distribution in
Despite government action in implementing the chômage partiel, a government assistance scheme to support employees unable to work via a partial unemployment program, the earnings and especially the profitability of these activities were significantly affected. Our teams in the Service Centers all switched to home working in less than 48 hours and adapted to maintain the quality of services for Managed Services customers.
Overall, despite a stable total revenue performance, the French business saw a significant impact to its contribution for the first half.
Overall adjusted1 gross profit reduced by 13.7 per cent to
During the same period, we were able to keep our administrative expenses broadly flat by balancing a reduction in some central costs such as travel and accommodation, while continuing to invest in our sales capabilities to support our growth plan.
To continue our development in the modern workplace management world and in order to allow our customers to build very open devices strategy, we decided to invest to obtain the Apple Authorized Enterprise Reseller certification in the first half of 2020. We were awarded the certification by Apple in the second quarter of the year and have built an Apple practice to expand our footprint in that new landscape. We continue to invest to get accredited for the Apple Education reseller programme.
Based on the Cisco Gold Certification we received last year and our investments to develop our networking business, we have continued to expand our Networking and Security teams, as our business has grown significantly over the past few months in this space. This is also encouraging in anticipation of the BT Services France acquisition, which is planned to complete by the end of this year and will reinforce our services capabilities. We have a dedicated team working on the integration project.
As we anticipate some challenges with a couple of very large private sector accounts, we need to continue to develop our customer portfolio targeting large French organisations, to ensure we can create new opportunities. The business will continue to recruit sales specialists and business development managers in the second half of the year, to further support our long-term development plan and enable us to exploit addressable opportunities within the marketplace and start leveraging the BT Services France acquisition in early 2021.
Whilst Management continued to focus on cost control within the French business, these investments resulted in administrative expenses reducing by 1.0 per cent to
Adjusted1 operating profit for the French business decreased by 55.2 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.
Technology Sourcing performance
Technology Sourcing revenue increased by 0.6 per cent to
In the first half of the year, we saw higher than expected activity from our largest Technology Sourcing customers. We are pleased that our ability to expand existing public frameworks is benefiting us. At the same time, we saw a reduction in revenue from our large private sector accounts and some growth from our base of smaller customers, who were often less affected by the crisis.
As noted earlier, the mix between Workplace and Enterprise product lines affected our contribution rate in the period.
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. Despite a very difficult economic climate in
Technology Sourcing margins decreased by 79 basis points, due to the change in product mix towards higher-value product with more value-add Technology Sourcing activities.
Services performance
Services revenue decreased by 1.4 per cent to
As a direct consequence of the national 'lockdown' in response to COVID-19 and the subsequent hesitancy for companies to implement on-site return strategies, our Professional Services activities were significantly affected, particularly where resources were supplied on demand to customers in an on-site situation. Almost 50 per cent of our technical resources were involved in the chômage partiel partial unemployment programme during the second quarter, with a strong impact on the utilisation rate and revenue. Despite the unprecedented global situation, we have won more transformation and deployment projects for the months to come, allowing us to envisage a slightly less difficult second half of the year but without resuming the normal level of activities in this area.
In Managed Services, we anticipated the loss of a large global outsourcing contract at the end of last year, and while the contract ended in the first half of the year, it generated some extensions partly linked to COVID-19. At the same time, we won a new global user support contract, distributed in more than 50 countries, and we have successfully transitioned the service worldwide during the crisis and the containment period. We are very proud of the work of our transition team in collaborating well with the customer and the start is encouraging. We also have several extensions of scope on some large international accounts, which should help to reduce the impact on revenue associated with the end of the contract mentioned above. Finally, after an exemplary move to home working for our teams, we have to deal with a more complicated return plan linked to the various health constraints in each country and the operational conditions for some customers.
In the second half of the year, the new business will not cover the reduction in the contract base, so we continue to expect a decrease in our Services revenue for 2020 along with the negative impact of the COVID-19 crisis on our margins.
Services margins decreased by 436 basis points over the same period last year, due primarily to the very low usage of our internal resources and one loss-making contract.
Financial performance
Total revenue was flat at
The
Overall Services revenues were flat during the first half of the year, with particular challenges in the Professional Services business, as project activity dramatically slowed as customers either delayed expected spend or cancelled projects while they responded to COVID-19. Several globally managed customer engagements went live successfully during the period with support from the
Overall adjusted1 gross profit reduced by 3.7 per cent to
Administrative expenses reduced by 14.9 per cent to
Adjusted1 operating profit for the
Overall, the performance in the first half has been challenging and has been flattered by a relatively easy comparison to H1 2019. We are cautious regarding the second half, as our new order book is a leading indicator and has been weaker than expected. We do expect continued administrative expenses savings that should help offset some of the volume decline, but we are closely monitoring utilisation and capacity within our delivery engines.
Technology Sourcing performance
Technology Sourcing revenue increased by 0.7 per cent to
The Technology Sourcing business saw a solid performance in the first quarter of 2020, as COVID-19 did not significantly impact our business until mid-March. We saw very little customer attrition and the beginning of the year also benefited strongly from the investments made in 2019 to establish a formal Partner Management function in the region. That team has increased rebate performance by nearly 40 per cent versus the prior year. Our mix of partners remained broadly the same with our 'go-to-market' focused heavily on networking and data center technology. It is also worth noting that we have also successfully ramped up the beginnings of a workplace practice, including launching two customer engagements in this space.
Services performance
Services revenue decreased by 26.5 per cent to
The overall Services performance was a mixed result. Our Professional Services business contracted, driven by COVID-19 delaying or cancelling previously budgeted technology projects. In addition, much of the Professional Services business is with our mid-market customers and that segment was the weakest in the period. A bright spot remains our rack fabrication business, which is delivered from our new Integration Center and experienced a strong first half of the year.
The Managed Services business primarily operates as an internal service provider to the Group's European Segments who retain responsibility for the global operation of significant Managed Services contracts. While the Group's largest customer ended its contract during the period, and therefore the associated activity performed in the
We also continue to invest in training and developing our people in order to continue scaling up this business, with a combination of leveraging Group best practices and resources as well as continuing to support a number of expatriate employees to bring critical experience to our local market.
Services margins have decreased materially as a result of the reduction in Professional Services activity and are now 876 basis points below the overall combined Group Services margin.
International
International Segment
The International Segment comprises a number of trading entities and offshore Global Service Desk delivery locations.
The trading entities include Computacenter Switzerland, Computacenter Belgium and Computacenter Netherlands. In addition to their operational delivery capabilities, these entities have in-country sales organisations, which enable us to engage with local customers. During the year, we started to develop a sales and trading entity in
These trading entities are joined in the Segment by the offshore Global Service Desk entities in
Financial performance
Revenues in the International business decreased by 17.2 per cent to £77.2 million (H1 2019: £93.2 million) and by 18.1 per cent in constant currency2.
On a like-for-like basis, revenues declined in each of the trading entities, broadly following the local market trend of reduced IT spending due to the COVID-19 crisis. In absolute numbers, Swiss revenues remained flat but this was due to the inclusion of a full period of Pathworks' revenues. Pathworks was acquired in March 2019 and was therefore only included for four months in H1 2019.
Adjusted1 gross profit decreased by 27.6 per cent to £14.7 million (H1 2019: £20.3 million), and by 27.2 per cent in constant currency2.
Belgian business performance declined mainly because of a reduced contribution in Technology Sourcing. The Belgian business is traditionally strong in the private sector and has limited activities in the public sector. As we believe that the public sector was less affected by the COVID-19 crisis, we faced an extra challenge in
Our Swiss business performance was mainly impacted by a decline in Managed Services profitability and a utilisation decline in Professional Services.
As we knew that the Dutch business would not be able to maintain the same Service revenues as in 2019, we planned to compensate for this with increased Technology Sourcing business. Unfortunately, this did not materialise in the current challenging market conditions.
Administrative expenses decreased by 7.6 per cent to £14.5 million (H1 2019: £15.7 million) and by 7.1 per cent in constant currency2.
Our investment plans drove increases in our administrative expenses that were offset by COVID-19 reductions related to reduced travel expenditure. The Belgian team increased its sales capacity significantly in 2019. Towards the end of 2019, we opened a new regional sales office in
Whilst short-term performance is under pressure, we remain confident that these investments are the right thing to do, as they will help us improve our international footprint and profitability in the long term.
Overall adjusted1 operating profit decreased by 95.7 per cent in both actual and constant currency2 to £0.2 million (H1 2019: £4.6 million).
Technology Sourcing performance
Technology Sourcing revenue decreased by 20.3 per cent to £46.6 million (H1 2019: £58.5 million) and by 20.9 per cent in constant currency2.
Technology Sourcing business in
Our acquired business in
We are encouraged by an improved pipeline for the second half. We are seeing many investment decisions that were put on hold in the first half now being approved. Additionally, we see an important pipeline of public tenders and the implementation of some framework contracts with large organisations, mainly in
Technology Sourcing margins have decreased by 28 basis points.
Services performance
Services revenue decreased by 11.8 per cent to £30.6 million (H1 2019: £34.7 million) and by 13.6 per cent in constant currency2.
Professional Services revenue increased by 88.9 per cent to £3.4 million (H1 2019: £1.8 million) and by 78.9 per cent in constant currency2. Managed Services revenue decreased by 17.3 per cent to £27.2 million (H1 2019: £32.9 million), which was a decrease of 18.8 per cent in constant currency2.
In
Whilst we also benefited from government support in
We have been successful in leveraging Group offerings, mainly around the mobile workplace. For the second half we have an improved Services pipeline in all countries. However, much needs to be done to reach the same level of Services opportunities and contribution as before the COVID-19 crisis.
Services margins have decreased by 847 basis points.
Group Finance Director's Review
Technology Sourcing growth in the
The revenue performance was supported by increases in gross margins across all business lines and was driven by our biggest markets, the
The Group result saw significant double-digit increases in adjusted1 operating profit across the
Professional Services revenue was very strong in
Managed Services saw revenue reductions across all geographies. This business's top line has been affected by a number of contracts which are based on price times quantity, rather than a fixed fee. As call volumes to our Service Centers surged at the beginning of the crisis, the field engineer workforce saw significant reductions in activity due to customer sites being closed. However as revenue has fallen, margins have improved due to the increased utilisation of our now remote-working engineers, who no longer have to spend otherwise billable time travelling to customer sites.
A reconciliation to adjusted¹ measures is provided below. Further details are provided in note 4 to the summary financial information included within this announcement, adjusted measures.
Reconciliation to adjusted1 measures for the period ended 30 June 2020
|
|
Interim results £'000 |
|
Adjusted1 interim |
||
|
Amortisation |
Utilisation of deferred tax £'000 |
Exceptionals and others £'000 |
|||
|
Revenue |
2,462,184 |
- |
- |
- |
2,462,184 |
|
Cost of sales |
(2,144,385) |
- |
- |
- |
(2,144,385) |
|
Gross profit |
317,799 |
- |
- |
- |
317,799 |
|
|
|
|
|
|
|
|
Administrative expenses |
(242,685) |
2,184 |
- |
- |
(240,501) |
|
Operating profit |
75,114 |
2,184 |
- |
- |
77,298 |
|
|
|
|
|
|
|
|
Finance income |
324 |
- |
- |
- |
324 |
|
Finance costs |
(3,030) |
- |
- |
- |
(3,030) |
|
Profit before tax |
72,408 |
2,184 |
- |
- |
74,592 |
|
|
|
|
|
|
|
|
Income tax expense |
(20,394) |
(592) |
- |
- |
(20,986) |
|
Profit for the period |
52,014 |
1,592 |
- |
- |
53,606 |
Reconciliation to adjusted1 measures for the period ended 30 June 2019
|
|
Interim results £'000 |
|
Adjusted1 interim |
||
|
Amortisation |
Utilisation of deferred tax £'000 |
Exceptionals and others £'000 |
|||
|
Revenue |
2,427,014 |
- |
- |
- |
2,427,014 |
|
Cost of sales |
(2,126,523) |
- |
- |
- |
(2,126,523) |
|
Gross profit |
300,491 |
- |
- |
- |
300,491 |
|
|
|
|
|
|
|
|
Administrative expenses |
(246,663) |
2,175 |
- |
79 |
(244,409) |
|
Operating profit |
53,828 |
2,175 |
- |
79 |
56,082 |
|
|
|
|
|
|
|
|
Finance income |
992 |
- |
- |
- |
992 |
|
Finance costs |
(3,971) |
- |
- |
400 |
(3,571) |
|
Profit before tax |
50,849 |
2,175 |
- |
479 |
53,503 |
|
|
|
|
|
|
|
|
Income tax expense |
(13,002) |
(570) |
275 |
(918) |
(14,215) |
|
Profit for the period |
37,847 |
1,605 |
275 |
(439) |
39,288 |
Profit before tax
The Group's profit before tax increased by 42.5 per cent to £72.4 million (H1 2019: £50.8 million). Adjusted1 profit before tax increased by 39.4 per cent to £74.6 million (H1 2019: £53.5 million) and by 37.9 per cent in constant currency2.
The difference between profit before tax and adjusted1 profit before tax relates to the Group's net costs of £2.2 million (H1 2019: net costs of £2.7 million) from exceptional and other adjusting items, which is principally the amortisation of acquired intangibles as a result of the acquisition of
Profit for the period
The profit for the period increased by 37.6 per cent to £52.0 million (H1 2019: £37.8 million). The adjusted1 profit for the period increased by 36.4 per cent to £53.6 million (H1 2019: £39.3 million) and by 34.3 per cent in constant currency2.
Net finance charge
Net finance charge in the period amounted to £2.7 million (H1 2019: £3.0 million). The charge includes £2.3 million of interest charged on lease liabilities (H1 2019: £1.9 million). A further £0.5 million of cost relates to interest on the term loan drawn down for the
In addition to the items above, net finance income of £0.2 million was recorded (H1 2019: £0.4 million). On an adjusted1 basis, the net finance cost was £2.7 million during the period (H1 2019: £2.6 million).
Taxation
The tax charge was £20.4 million (H1 2019: £13.0 million) on profit before tax of £72.4 million (H1 2019: £50.8 million). This represents a tax rate of 28.2 per cent (H1 2019: 25.6 per cent).
In the first half of 2019, a tax credit of £0.9 million (H1 2020: nil) was recorded due to post-acquisition activity in
The tax credit related to the £2.2 million amortisation of acquired intangibles primarily recognised as a result of the
The adjusted1 tax charge during the period was £21.0 million (H1 2019: £14.2 million), on an adjusted1 profit before tax of £74.6 million (H1 2019: £53.5 million). The effective tax rate (ETR) was therefore 28.1 per cent (H1 2019: 26.6 per cent) on an adjusted1 basis. The increase in the ETR was primarily due to the significant decrease in profitability in
The table below reconciles the tax charge to the adjusted1 tax charge for the period ended 30 June 2020.
|
|
H1 2020 £'000 |
H1 2019 £'000 |
Year 2019 £'000 |
|
Tax charge |
20,394 |
13,002 |
39,397 |
|
Adjustments to exclude: |
|
|
|
|
Utilisation of German deferred tax assets |
- |
(275) |
(733) |
|
Exceptional tax items |
- |
879 |
839 |
|
Tax on amortisation of acquired intangibles |
592 |
570 |
1,149 |
|
Tax on exceptional items |
- |
39 |
39 |
|
Adjusted1 tax charge |
20,986 |
14,215 |
40,691 |
|
ETR |
28.2% |
25.6% |
27.9% |
|
Adjusted1 ETR |
28.1% |
26.6% |
27.8% |
Exceptional and other adjusting items
The net loss from exceptional and other adjusting items in the period was £1.6 million (H1 2019: loss of £1.5 million). Excluding the tax items noted above, which resulted in a gain of £0.6 million (H1 2019: gain of £1.2 million), the profit before tax impact was a net loss from exceptional and other adjusting items of £2.2 million (H1 2019: loss of £2.7 million).
There were no exceptional items in the period to 30 June 2020. An exceptional loss during the prior period of £0.1 million resulted from costs directly relating to the acquisition of
We have continued to exclude the effect of amortisation of acquired intangible assets in calculating our adjusted1 results. Amortisation of intangible assets is non-cash and is significantly affected by the timing and size of our acquisitions, which distorts the understanding of our Group and Segmental operating results. The amortisation of acquired intangible assets was £2.2 million (H1 2019: £2.2 million), nearly all related to the amortisation of the intangibles acquired as part of
Earnings per share
Diluted earnings per share increased by 36.4 per cent to 45.3 pence (H1 2019: 33.2 pence). Adjusted1 diluted earnings per share increased by 35.4 per cent to 46.7 pence (H1 2019: 34.5 pence).
|
|
H1 2020 |
H1 2019 |
Year 2019 |
|
Basic weighted average number of shares (excluding own shares held) (no.'000) |
112,930 |
112,616 |
112,514 |
|
Effect of dilution: |
|
|
|
|
Share options (£'000) |
1,707 |
1,215 |
1,655 |
|
Diluted weighted average number of shares (£'000) |
114,637 |
113,831 |
114,169 |
|
|
|
|
|
|
Profit for the period attributable to equity holders of the Parent (£'000) |
51,987 |
37,847 |
101,655 |
|
Basic earnings per share (pence) |
46.0 |
33.6 |
90.3 |
|
Diluted earnings per share (pence) |
45.3 |
33.2 |
89.0 |
|
|
|
|
|
|
Adjusted1 profit for the period attributable to equity holders of the Parent (£'000) |
53,579 |
39,288 |
105,654 |
|
Adjusted1 basic earnings per share (pence) |
47.4 |
34.9 |
93.9 |
|
Adjusted1 diluted earnings per share (pence) |
46.7 |
34.5 |
92.5 |
Dividend
The Group announced on 23 April 2020 that as a result of the COVID-19 crisis, the previously proposed 2019 final dividend would not be paid.
Whilst the Group's cash position at the time was strong and trading was in-line with our expectations, we continued to explore all opportunities to maintain cashflow and preserve cash balances, in light of the heightening uncertainty about the scale and duration of the macroeconomic impact of COVID-19. The Group has received and approved a number of requests from customers for extended payment terms and continues to look for ways to support the short-term cashflow of smaller customers or those that have been materially affected by the impact of COVID-19.
Accordingly, the Board believed at the time of the announcement that it was prudent not to pay a final dividend in respect of the financial year ended 31 December 2019. Resolution 4 set out in the Notice of Annual General Meeting 2020 was therefore not put to a vote at the AGM and the 2019 final dividend was not paid.
The Board recognises the importance of dividends to shareholders and the Group prides itself on a long track record of paying dividends and other special one-off in nature cash returns. The Group continues to monitor the COVID-19 crisis and the resultant cash flow implications. However, with the results for the period to 30 June 2020 and the corresponding cash flow performance, the Board now considers it appropriate to resume distributing cash to shareholders by returning to the Group's normal interim and full-year dividend cycle.
We are therefore pleased to announce an interim dividend of 12.3 pence per share (H1 2019: 10.1 pence per share). Whilst the 2019 full-year dividend was not paid, we have continued with our normal 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 23 October 2020. The dividend record date is Friday 25 September 2020, and the shares will be marked ex-dividend on Thursday 24 September 2020.
Central corporate costs
Certain expenses are not specifically allocated to individual Segments because they are not directly attributable to any single Segment. These include the costs of the Board itself, related public company costs, Group Executive members not aligned to a specific geographic trading entity and the cost of centrally funded strategic initiatives that benefit the whole Group.
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 £12.9 million, an increase of 8.4 per cent (H1 2019: £11.9 million). Within this:
· Board expenses, related public company costs and costs associated with Group Executive members not aligned to a specific geographic trading entity were slightly reduced at £3.3 million (H1 2019: £3.4 million);
· share-based payment charges associated with the Group Executive members identified above, including the Group Executive Directors, increased from £1.1 million in H1 2019 to £1.3 million in H1 2020, due to the increased cost of
· strategic corporate initiatives increased from £7.4 million in H1 2019 to £8.3 million in H1 2020, primarily due to greater spend on projects designed to increase capability and therefore competitive position, enhance productivity or strengthen systems which underpin the Group.
Cashflow
The Group delivered an operating cash inflow of £47.0 million for the period to 30 June 2020 (H1 2019: £1.1 million outflow).
There are certain COVID-19 related one-off benefits included in the H1 2020 cashflow and net cash positions including extended free-of-charge supplier credit with a major vendor of approximately £29.2 million and temporary payment timing benefits from various governments of £22.2 million as well as improvements arising from customer mix.
Capital expenditure in the period was £13.2 million (H1 2019: £18.9 million), with the decrease primarily relating to the investment in our German headquarters in the prior period. The current period expenditure represents other investments in IT equipment and software tools, to enable us to deliver improved service to our customers.
The Group continued to manage its cash and working capital positions appropriately using standard mechanisms, to ensure that cash levels remained within expectations throughout the year. The Group had no debt factoring at the end of the year outside the normal course of business. From time to time, some customers request credit terms longer than our standard of 30-60 days. In certain instances we will arrange for the sale of the receivables on a true sale basis to a finance institution on the customers' behalf. We would typically receive funds on 45-day terms from the finance institution, who will then recover payment from the customer on terms agreed with them. The cost of such an arrangement is borne by the customer, either directly or indirectly, enabling us to receive the full amount of payment in line with our standard terms. The benefit to the cash and cash equivalents position of such arrangements as at 30 June 2020 is £43.5 million (31 December 2019: £33.8 million).
Cash and cash equivalents and net funds/(debt)
Cash and cash equivalents as at 30 June 2020 were £222.1 million, compared to £119.3 million at 30 June 2019. Cash and cash equivalents increased by £4.2 million from £217.9 million as at 31 December 2019.
Net funds as at 30 June 2020 was £24.3 million, compared to net debt of £114.1 million as at 30 June 2019 and net funds of £20.3 million as at 31 December 2019.
Adjusted net funds3 as at 30 June 2020 was £149.1 million, compared to adjusted net debt3 of £3.1 million as at 30 June 2019 and adjusted net funds3 of £137.1 million as at 31 December 2019.
Net funds/(debt) as at 30 June 2020, 30 June 2019 and 31 December 2019 were as follows:
|
|
H1 2020 £'000 |
H1 2019 £'000 |
Year 2019 £'000 |
|
Cash and short-term deposits |
222,058 |
114,314 |
217,881 |
|
Cash and cash equivalents |
222,058 |
114,314 |
217,881 |
|
Current asset investments |
- |
5,000 |
- |
|
Bank loans |
(72,948) |
(122,442) |
(80,772) |
|
Adjusted net funds/(debt)3 (excluding lease liabilities) |
149,110 |
(3,128) |
137,109 |
|
Lease liabilities |
(124,767) |
(111,003) |
(116,766) |
|
Net funds/(debt) |
24,343 |
(114,131) |
20,343 |
For a full reconciliation of net funds and adjusted net funds3, see note 12 to the summary financial information included within this announcement, net funds.
The Group had two specific term loans in place throughout the period and no other material borrowings.
The Group drew down a £100 million term loan on 1 October 2018 to complete the acquisition of
The Group also has a specific term loan for the build and purchase of our German headquarters and Integration Center in Kerpen, which stood at £23.9 million at 30 June 2020 (30 June 2019: £28.6 million).
The Group excludes finance lease liabilities from its non-GAAP adjusted net funds3 measure, due to the distorting effect of the capitalised lease liabilities on the Group's overall liquidity position under the IFRS 16 accounting standard.
There were no interest-bearing trade payables as at 30 June 2020 (30 June 2019: nil).
The Group's adjusted net funds3 position contains no current asset investments (30 June 2019: £5 million).
Currency
The Group reports its results in pounds sterling. The ongoing weakness in the value of sterling against most currencies during the first half of 2020, in particular the euro, continued to benefit our revenues and profitability as a result of the conversion of our foreign earnings. However, the exchange rates seen during the period were not materially dissimilar to those seen in the first half of 2019.
Restating the first half of 2019 at 2020 exchange rates would increase H1 2019 revenue by approximately £19.8 million and H1 2019 adjusted1 profit before tax by approximately £0.6 million.
If the 30 June 2020 spot rates were to continue through the remainder of 2020, the impact of restating 2019 at 2020 exchange rates would be to increase 2019 revenue by approximately £58.5 million and 2019 adjusted1 profit before tax by approximately £1.9 million.
Planning for the
As described in our 2019 Annual Report and Accounts, there remains considerable uncertainty around the structure of the future trading relationship between the
We are not alone in our sector in facing these challenges. A number of our European competitors have strong presences within the EU and sell from this base into the
We have already reviewed the changes, and proposed changes, by our major vendors to manage supply into the
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 63 to 68 of the 2019 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 2019 Annual Report and Accounts. Our risk management approach operated effectively in the six months to 30 June 2020, with systems and controls functioning as designed even though this period included the unprecedented challenges imposed by the COVID-19 pandemic and the utilisation of previously well-tested business continuity processes for remote working arrangements. Whilst we have not identified any new principal risks during the period, we acknowledge the heightened level of overall risk across several risk categories, due to the nature of the pandemic and its impact on our operating environment in general, particularly in relation to our identified Strategic, Infrastructure and Financial Risks. The Group continues to concentrate efforts and resources into its risk management processes in order to monitor adequately the impact of COVID-19 across the business. Whilst the longer-term effects on customer relationships and customer contracts are not clear, to date, the Group has not been adversely impacted by any material market or operational risk events associated with the COVID-19 pandemic.
This Strategic Report was approved by the Board on 8 September 2020 and signed on its behalf by:
|
MJ Norris |
FA Conophy |
|
Chief Executive Officer |
Group Finance Director |
Directors' Responsibilities
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 |
Consolidated Income Statement
For the six months ended 30 June 2020
|
|
Note |
H1 2020 £'000 |
H1 2019 £'000 |
Year 2019 £'000 |
|
Revenue |
5 |
2,462,184 |
2,427,014 |
5,052,779 |
|
Cost of sales |
|
(2,144,385) |
(2,126,523) |
(4,389,665) |
|
Gross profit |
|
317,799 |
300,491 |
663,114 |
|
|
|
|
|
|
|
Administrative expenses |
|
(242,685) |
(246,663) |
(516,090) |
|
Operating profit |
|
75,114 |
53,828 |
147,024 |
|
|
|
|
|
|
|
Finance income |
|
324 |
992 |
980 |
|
Finance costs |
|
(3,030) |
(3,971) |
(7,046) |
|
Profit before tax |
|
72,408 |
50,849 |
140,958 |
|
|
|
|
|
|
|
Income tax expense |
|
(20,394) |
(13,002) |
(39,397) |
|
Profit for the period/year |
|
52,014 |
37,847 |
101,561 |
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
Equity holders of the Parent |
|
51,987 |
37,847 |
101,655 |
|
Non-controlling interests |
|
27 |
- |
(94) |
|
Profit for the period/year |
|
52,014 |
37,847 |
101,561 |
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
- basic for profit for the period/year |
10 |
46.0p |
33.6p |
90.3p |
|
- diluted for profit for the period/year |
10 |
45.3p |
33.2p |
89.0p |
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2020
|
|
H1 2020 £'000 |
H1 2019 £'000 |
Year 2019 £'000 |
|
Profit for the period/year |
52,014 |
37,847 |
101,561 |
|
|
|
|
|
|
Items that may be reclassified to Consolidated Income Statement: |
|
|
|
|
(Loss)/gain arising on cash flow hedge, net of amount transferred to Consolidated Income Statement |
(2,554) |
263 |
(915) |
|
Income tax effect |
510 |
(51) |
176 |
|
|
(2,044) |
212 |
(739) |
|
Exchange differences on translation of foreign operations |
24,079 |
(392) |
(18,175) |
|
|
22,035 |
(180) |
(18,914) |
|
Items not to be reclassified to Consolidated Income Statement: |
|
|
|
|
Remeasurement of defined benefit plan |
- |
- |
(786) |
|
Other comprehensive income for the period/year, net of tax |
22,035 |
(180) |
(19,700) |
|
|
|
|
|
|
Total comprehensive income for the period/year |
74,049 |
37,667 |
81,861 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of the Parent |
74,022 |
37,667 |
81,956 |
|
Non-controlling interests |
27 |
- |
(95) |
|
Total comprehensive income for the period/year |
74,049 |
37,667 |
81,861 |
Consolidated Balance Sheet
As at 30 June 2020
|
|
H1 2020 £'000 |
H1 2019 £'000 |
Year 2019 £'000 |
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
222,261 |
213,296 |
212,325 |
|
Intangible assets |
180,560 |
188,169 |
175,670 |
|
Investment in associate |
58 |
57 |
54 |
|
Deferred income tax assets |
9,508 |
9,364 |
9,204 |
|
Prepayments |
4,231 |
2,787 |
3,520 |
|
|
416,618 |
413,673 |
400,773 |
|
Current assets |
|
|
|
|
Inventories |
153,214 |
126,144 |
122,189 |
|
Trade and other receivables |
826,775 |
841,781 |
996,462 |
|
Prepayments |
92,053 |
86,095 |
82,315 |
|
Accrued income |
112,951 |
105,310 |
94,030 |
|
Derivative financial instruments |
1,298 |
4,027 |
3,218 |
|
Current asset investments |
- |
5,000 |
- |
|
Cash and short-term deposits |
222,058 |
114,314 |
217,881 |
|
|
1,408,349 |
1,282,671 |
1,516,095 |
|
Total assets |
1,824,967 |
1,696,344 |
1,916,868 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
797,303 |
782,685 |
978,220 |
|
Deferred income |
179,969 |
147,972 |
174,258 |
|
Financial liabilities |
58,716 |
54,435 |
56,606 |
|
Derivative financial instruments |
1,924 |
769 |
1,707 |
|
Income tax payable |
45,045 |
34,146 |
39,278 |
|
Provisions |
4,564 |
8,240 |
7,703 |
|
|
1,087,521 |
1,028,247 |
1,257,772 |
|
Non-current liabilities |
|
|
|
|
Financial liabilities |
138,999 |
179,010 |
140,932 |
|
Provisions |
15,280 |
13,470 |
13,982 |
|
Deferred income tax liabilities |
11,385 |
12,391 |
11,698 |
|
|
165,664 |
204,871 |
166,612 |
|
Total liabilities |
1,253,185 |
1,233,118 |
1,424,384 |
|
Net assets |
571,782 |
463,226 |
492,484 |
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
Issued share capital |
9,270 |
9,270 |
9,270 |
|
Share premium |
3,942 |
3,942 |
3,942 |
|
Capital redemption reserve |
74,957 |
74,957 |
74,957 |
|
Own shares held |
(107,876) |
(110,068) |
(113,563) |
|
Translation and hedging reserves |
36,063 |
32,761 |
14,028 |
|
Retained earnings |
555,477 |
452,347 |
503,928 |
|
Shareholders' equity |
571,833 |
463,209 |
492,562 |
|
Non-controlling interests |
(51) |
17 |
(78) |
|
Total equity |
571,782 |
463,226 |
492,484 |
Approved by the Board on 8 September 2020.
|
MJ Norris |
FA Conophy |
|
Chief Executive Officer |
Group Finance Director |
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2020
|
|
Attributable to equity holders of the Parent |
Shareholder's equity £'000 |
Non- controlling interests £'000 |
Total equity £'000 |
|||||
|
Issued share capital £'000 |
Share premium £'000 |
Capital redemption reserve £'000 |
Own shares held £'000 |
Translation and hedging reserves £'000 |
Retained earnings £'000 |
||||
|
At 1 January 2019 |
9,270 |
3,942 |
74,957 |
(113,474) |
32,941 |
440,119 |
447,755 |
17 |
447,772 |
|
Profit for the period |
- |
- |
- |
- |
- |
37,847 |
37,847 |
- |
37,847 |
|
Other comprehensive income |
- |
- |
- |
- |
(180) |
- |
(180) |
- |
(180) |
|
Total comprehensive income |
- |
- |
- |
- |
(180) |
37,847 |
37,667 |
- |
37,667 |
|
Cost of share-based payments |
- |
- |
- |
- |
- |
3,095 |
3,095 |
- |
3,095 |
|
Tax on share-based payments |
- |
- |
- |
- |
- |
565 |
565 |
- |
565 |
|
Exercise of options |
- |
- |
- |
6,637 |
- |
(4,913) |
1,724 |
- |
1,724 |
|
Purchase of own shares |
- |
- |
- |
(3,231) |
- |
- |
(3,231) |
- |
(3,231) |
|
Equity dividends |
- |
- |
- |
- |
- |
(24,366) |
(24,366) |
- |
(24,366) |
|
At 30 June 2019 |
9,270 |
3,942 |
74,957 |
(110,068) |
32,761 |
452,347 |
463,209 |
17 |
463,226 |
|
Profit for the period |
- |
- |
- |
- |
- |
63,808 |
63,808 |
(94) |
63,714 |
|
Other comprehensive income |
- |
- |
- |
- |
(18,733) |
(786) |
(19,519) |
(1) |
(19,520) |
|
Total comprehensive income |
- |
- |
- |
- |
(18,733) |
63,022 |
44,289 |
(95) |
44,194 |
|
Cost of share-based payments |
- |
- |
- |
- |
- |
3,680 |
3,680 |
- |
3,680 |
|
Tax on share-based payments |
- |
- |
- |
- |
- |
1,225 |
1,225 |
- |
1,225 |
|
Exercise of options |
- |
- |
- |
9,161 |
- |
(5,158) |
4,003 |
- |
4,003 |
|
Purchase of own shares |
- |
- |
- |
(12,656) |
- |
- |
(12,656) |
- |
(12,656) |
|
Asset Reunification |
- |
- |
- |
- |
- |
210 |
210 |
- |
210 |
|
Equity dividends |
- |
- |
- |
- |
- |
(11,398) |
(11,398) |
- |
(11,398) |
|
At 31 December 2019 |
9,270 |
3,942 |
74,957 |
(113,563) |
14,028 |
503,928 |
492,562 |
(78) |
492,484 |
|
Profit for the period |
- |
- |
- |
- |
- |
51,987 |
51,987 |
27 |
52,014 |
|
Other comprehensive income |
- |
- |
- |
- |
22,035 |
- |
22,035 |
- |
22,035 |
|
Total comprehensive income |
- |
- |
- |
- |
22,035 |
51,987 |
74,022 |
27 |
74,049 |
|
Cost of share-based payments |
- |
- |
- |
- |
- |
3,799 |
3,799 |
- |
3,799 |
|
Tax on share-based payments |
- |
- |
- |
- |
- |
417 |
417 |
- |
417 |
|
Exercise of options |
- |
- |
- |
5,687 |
- |
(4,654) |
1,033 |
- |
1,033 |
|
At 30 June 2020 |
9,270 |
3,942 |
74,957 |
(107,876) |
36,063 |
555,477 |
571,833 |
(51) |
571,782 |
Consolidated Cash Flow Statement
For the six months ended 30 June 2020
|
|
H1 2020 £'000 |
H1 2019 £'000 |
Year 2019 £'000 |
|
Operating activities |
|
|
|
|
Profit before tax |
72,408 |
50,849 |
140,958 |
|
Net finance cost |
2,706 |
2,978 |
6,066 |
|
Depreciation of property, plant and equipment (excluding right-of-use assets) |
11,368 |
10,556 |
21,456 |
|
Depreciation of right-of-use assets |
22,182 |
- |
40,266 |
|
Amortisation of intangible assets |
5,712 |
5,586 |
11,543 |
|
Share-based payments |
3,799 |
3,095 |
6,775 |
|
Loss on disposal of intangibles |
7 |
- |
116 |
|
(Profit)/loss on disposal of property, plant and equipment |
(37) |
11 |
347 |
|
Net cash flow from inventories |
(23,251) |
(26,373) |
(27,422) |
|
Net cash flow from trade and other receivables (including contract assets) |
191,026 |
306,584 |
136,682 |
|
Net cash flow from trade and other payables (including contract liabilities) |
(223,278) |
(326,633) |
(108,799) |
|
Net cash flow from provisions |
3,757 |
(5,114) |
10,670 |
|
Other adjustments |
(3,282) |
(4,611) |
(2,414) |
|
Cash generated from operations |
63,117 |
16,928 |
236,244 |
|
Income taxes paid |
(16,135) |
(18,054) |
(34,231) |
|
Net cash flow from operating activities |
46,982 |
(1,126) |
202,013 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
Interest received |
490 |
992 |
980 |
|
Increase in current asset investments |
- |
(5,000) |
- |
|
Acquisition of subsidiaries, net of cash acquired |
- |
(2,865) |
6,116 |
|
Purchases of property, plant and equipment |
(11,210) |
(8,905) |
(30,132) |
|
Purchases of intangible assets |
(1,990) |
(7,108) |
(8,737) |
|
Proceeds from disposal of property, plant and equipment/Intangibles |
219 |
211 |
1,009 |
|
Net cash flow from investing activities |
(12,491) |
(22,675) |
(30,764) |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Interest paid |
(929) |
(3,971) |
(3,318) |
|
Interest expense on lease liabilities |
(2,267) |
- |
(3,728) |
|
Dividends paid to equity shareholders of the parent |
- |
(24,366) |
(35,764) |
|
Asset reunification |
- |
- |
210 |
|
Proceeds from share issues |
1,033 |
1,724 |
5,727 |
|
Purchase of own shares |
- |
(3,231) |
(15,887) |
|
Payment of lease liabilities |
(23,424) |
(19,401) |
(42,346) |
|
Repayment of loans |
(9,725) |
(9,644) |
(51,755) |
|
New borrowings |
287 |
- |
- |
|
Net cash flow from financing activities |
(35,025) |
(58,889) |
(146,861) |
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
(534) |
(82,690) |
24,388 |
|
Effect of exchange rates on cash and cash equivalents |
4,711 |
(3,438) |
(6,949) |
|
Cash and cash equivalents at the beginning of the period/year |
217,881 |
200,442 |
200,442 |
|
Cash and cash equivalents at the end of the period/year |
222,058 |
114,314 |
217,881 |
Notes to the Consolidated Financial Statements
For the six months ended 30 June 2020
1 Corporate information
The Interim Condensed Consolidated Financial Statements (Financial Statements) of the Group for the six months ended 30 June 2020 were authorised for issue in accordance with a resolution of the Directors on 8 September 2020. The Consolidated Balance Sheet was signed on behalf of the Board by MJ Norris and FA Conophy.
Computacenter plc is a limited company incorporated and domiciled in England whose shares are publicly traded.
2 Basis of preparation
The Financial Statements for the six months ended 30 June 2020 have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. They do not include all of the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's 2019 Annual Report and Accounts which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
The Financial Statements are presented in pound sterling (£) and all values are rounded to the nearest thousand (£'000) except when otherwise indicated.
During the six months ended 30 June 2020 and the subsequent period up to the date of approval of the Financial Statements, the COVID-19 pandemic has caused unprecedented changes to the way that business is conducted with considerable disruption to global economic patterns and local business performance. The pandemic situation, as it impacts the Group's trading performance and operational requirements, remains under ongoing review by the Directors and Senior Management. Further discussion in relation to COVID-19 is included in the Chief Executive Officer's Performance Review included within this announcement.
The Group prepares a Three-Year Plan (the 'Plan') annually by aggregating top down expectations of business performance across the Group in the second and third year of the Plan with a detailed 12 month 'bottom-up' budget for the first year. The first year of the Plan is subject to reforecasting during the year, the most recent of which occurred in advance of the Trading Update statement on 22 July 2020. This reforecast of the first year of the Plan has been updated into the Plan alongside a revision of cashflow assumptions for the year. The Plan is subject to rigorous downside sensitivity analysis which involves flexing a number of the main assumptions underlying the forecast. The forecast cash flows from the Plan are aggregated with the current position, to provide a total three-year cash position against which the impact of potential risks and uncertainties can be assessed. In the absence of significant external debt, the analysis also considers access to available committed and uncommitted finance facilities, the ability to raise new finance in most foreseeable market conditions and the ability to restrict dividend payments.
The potential impact of the principal risks and uncertainties, as set out on pages 63 to 68 of the 2019 Annual Report and Accounts, is then applied to the sensitised Plan. This assessment includes only those risks and uncertainties that, individually or in plausible combination, would threaten the Group's business model, future performance, solvency or liquidity over the assessment period and which are considered to be severe but reasonable scenarios. It also takes into account an assessment of how the risks are managed and the effectiveness of any mitigating actions.
The combined effect of the potential occurrence of several of the most impactful risks and uncertainties is then compared to the cash position generated throughout the sensitised three-year plan, to assess whether the business will be able to continue in operation. For the current period, the primary downside sensitivity relates to a modelled, but not predicted, severe downturn in Group revenues, beginning in the second half of 2020, due to a worsening impact on our customers from the COVID-19 crisis. This sensitivity analysis models a general prolonged market downturn scenario that represents the 'worst-case' impact from COVID-19 crisis.
Our cash and borrowing capacity provides sufficient funds to meet the foreseeable needs of the Group. At 30 June 2020, the Group had cash and cash equivalents of £222.1 million. In addition, the Group has in place a three-year committed facility of £60 million that was originally entered into during 2013 for a value of £40 million and has never been drawn upon.
The Group has a resilient balance sheet position, with net assets of £571.8 million as at 30 June 2020. The Group made a profit after tax of £52.0 million, and delivered net cash flows from operating activities of £47.0 million, for the period ended 30 June 2020.
As the analysis continues to show a strong forecast cash position, even under the severe economic conditions modelled in the sensitivity scenario, the Directors continue to consider that the Group is well placed to manage business and financial risks in the current economic environment. Based on this assessment, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of not less than 12 months from the date of this announcement and therefore have prepared the financial statements on a going concern basis.
3 Significant accounting policies
The accounting policies adopted are consistent with those of the previous financial year as disclosed in the 2019 Annual Report and Accounts except for IAS 20 - Accounting for government grants and disclosure of government assistance.
IAS 20 - Accounting for government grants and disclosure of government assistance
IAS 20 defines government grants as assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. If the conditions are met, then a company recognises government grants in profit or loss on a systematic basis and in line with its recognition of the expenses that the grants are intended to compensate.
The Group has recognised unconditional government grants relating to short-term schemes introduced by governments within Europe, including the UK, Germany, France and the Netherlands as a result of COVID-19 crisis for the purpose of protecting employment. These grants compensate the Group for expenses incurred and are recognised in the Consolidated Income Statement on a systematic basis in the periods in which the expenses are recognised.
The total government grants received amounted to £5.4 million for the period ended 30 June 2020.
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, set out below, assist in providing additional useful information on the underlying trends, performance and position of the Group. The non-GAAP measures are also used to enhance the comparability of information between reporting periods by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid the user in understanding the Group's performance.
Consequently, non-GAAP measures are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes and have remained consistent with prior year.
These non-GAAP measures comprise of:
Adjusted operating profit or loss, adjusted profit or loss before tax, adjusted tax, adjusted profit or loss for the year, 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, expenses related to material acquisitions, 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.
A reconciliation to adjusted measures is provided in the Group Finance Director's Review which details the impact of exceptional and other adjusting items when comparing to the non-GAAP financial measures in addition to those reported in accordance with IFRS. Further detail is also provided within note 5, Segment information.
5 Segment information
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'), during the first half of the year. As a result of this analysis, from 1 January 2020 the Group has revised where the results of certain Managed Services contracts are reported within its operating Segments. The change in Segmental reporting has no impact on reported Group results.
Operational responsibility for a significant European customer was transferred from the German to the French business from 1 January 2020. The French Senior Management targets now include the results from this customer. This has no impact on Group results but does impact the Segment results, including revenue and profitability. We have therefore restated the results for the French and German Segments for the year ended 31 December 2019 and the period ended 30 June 2019, to assist with understanding the growth in each business and to ensure period-on-period results are comparable.
Computacenter USA performs Managed Services work for other Computacenter entities, on behalf of several key European contracts. From 1 January 2019, with the creation of the USA Segment, these revenues were recorded in the USA Segment, where the associated underlying subsidiary recognises the revenues in its statutory accounts. Following a review, and to be consistent with practices across the Group, Management decided to reallocate these revenues from the USA Segment to the UK, German, French and International Segments which own the responsibility for the customer contracts. This reflects better where the portfolio coordination and operational responsibility lies and where the benefits should accrue. This treatment also means that for Segmental analysis, Computacenter USA has now been aligned to the remainder of our offshore internal service provider entities that are grouped within the International Segment. We have therefore restated the Managed Services revenues for the year ended 31 December 2019 and the period ended 30 June 2019, to assist with understanding the growth in each business and to ensure period-on-period comparisons reflect true underlying growth. This has no impact on Group revenue or on Segmental profitability, as the margins were previously shared on the same basis that the revenue now reflects.
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 in accordance with IFRS 8.25. Segmental performance is measured based on external revenues, adjusted1 gross profit, adjusted1 operating profit and adjusted1 profit before tax.
The operating Segments remain unchanged in all other regards from those reported at 31 December 2019. Central Corporate Costs continue to be disclosed as a separate column within the Segmental note.
To enable comparisons with prior year performance, historical segment information for the year ended 31 December 2019 and the period ended 30 June 2019 has been restated in accordance with the revised Segmental reporting structure. All discussion within this Interim Report and Accounts on Segmental results reflects this revised structure and the resultant prior-year and prior-period restatements.
Segmental performance for the periods to H1 2020, H1 2019 and Full Year 2019 were as follows:
Six months ended 30 June 2020
|
|
UK £'000 |
Germany £'000 |
France £'000 |
USA £'000 |
International £'000 |
Central Corporate £'000 |
Total £'000 |
|
Revenue |
|
|
|
|
|
|
|
|
Technology Sourcing revenue |
643,160 |
572,045 |
235,494 |
370,495 |
46,605 |
- |
1,867,799 |
|
Services revenue |
|
|
|
|
|
|
|
|
Professional Services |
54,893 |
113,186 |
15,325 |
5,203 |
3,390 |
- |
191,997 |
|
Managed Services |
160,689 |
158,481 |
53,521 |
2,462 |
27,235 |
- |
402,388 |
|
Total Services revenue |
215,582 |
271,667 |
68,846 |
7,665 |
30,625 |
- |
594,385 |
|
Total revenue |
858,742 |
843,712 |
304,340 |
378,160 |
77,230 |
- |
2,462,184 |
|
|
|
|
|
|
|
|
|
|
Results |
|
|
|
|
|
|
|
|
Adjusted1 gross profit |
122,626 |
118,456 |
31,060 |
30,921 |
14,736 |
- |
317,799 |
|
Administrative expenses |
(76,689) |
(82,901) |
(27,263) |
(26,216) |
(14,567) |
(12,865) |
(240,501) |
|
Adjusted1 operating profit |
45,937 |
35,555 |
3,797 |
4,705 |
169 |
(12,865) |
77,298 |
|
Adjusted1 net interest |
(597) |
(1,081) |
(187) |
(270) |
(571) |
- |
(2,706) |
|
Adjusted1 profit before tax |
45,340 |
34,474 |
3,610 |
4,435 |
(402) |
(12,865) |
74,592 |
|
Exceptional items: |
|
|
|
|
|
|
|
|
- unwinding of discount relating to acquisition of a subsidiary |
|
|
|
|
|
|
- |
|
- costs relating to acquisition of a subsidiary |
|
|
|
|
|
|
- |
|
Total exceptional items |
|
|
|
|
|
|
- |
|
Amortisation of acquired intangibles |
|
|
|
|
|
|
(2,184) |
|
Profit before tax |
|
|
|
|
|
|
72,408 |
The reconciliation for adjusted1 operating profit to operating profit, as disclosed in the Interim Consolidated Income Statement, is as follows:
Six months ended 30 June 2020
|
|
Total £'000 |
|
Adjusted1 operating profit |
77,298 |
|
Amortisation of acquired intangibles |
(2,184) |
|
Exceptional items |
- |
|
Operating profit |
75,114 |
Six months ended 30 June 2019
|
|
UK (Restated) £'000 |
Germany (Restated) £'000 |
France (Restated) £'000 |
USA (Restated) £'000 |
International (Restated) £'000 |
Central Corporate £'000 |
Total £'000 |
|
Revenue |
|
|
|
|
|
|
|
|
Technology Sourcing revenue |
579,694 |
602,192 |
231,365 |
359,638 |
58,415 |
- |
1,831,304 |
|
Services revenue |
|
|
|
|
|
|
|
|
Professional Services |
54,608 |
86,550 |
17,589 |
7,823 |
1,844 |
- |
168,414 |
|
Managed Services |
166,524 |
174,143 |
51,219 |
2,480 |
32,930 |
- |
427,296 |
|
Total Services revenue |
221,132 |
260,693 |
68,808 |
10,303 |
34,774 |
- |
595,710 |
|
Total revenue |
800,826 |
862,885 |
300,173 |
369,941 |
93,189 |
- |
2,427,014 |
|
|
|
|
|
|
|
|
|
|
Results |
|
|
|
|
|
|
|
|
Adjusted1 gross profit |
101,524 |
111,725 |
35,548 |
31,368 |
20,326 |
- |
300,491 |
|
Administrative expenses |
(78,091) |
(81,288) |
(27,276) |
(30,151) |
(15,737) |
(11,866) |
(244,409) |
|
Adjusted1 operating profit |
23,433 |
30,437 |
8,272 |
1,217 |
4,589 |
(11,866) |
56,082 |
|
Adjusted1 net interest |
(2,311) |
114 |
(126) |
(179) |
(77) |
- |
(2,579) |
|
Adjusted1 profit before tax |
21,122 |
30,551 |
8,146 |
1,038 |
4,512 |
(11,866) |
53,503 |
|
Exceptional items: |
|
|
|
|
|
|
|
|
- unwinding of discount relating to acquisition of a subsidiary |
|
|
|
|
|
|
(400) |
|
- costs relating to acquisition of a subsidiary |
|
|
|
|
|
|
(79) |
|
Total exceptional items |
|
|
|
|
|
|
(479) |
|
Amortisation of acquired intangibles |
|
|
|
|
|
|
(2,175) |
|
Profit before tax |
|
|
|
|
|
|
50,849 |
The reconciliation for adjusted1 operating profit to operating profit, as disclosed in the Consolidated Income Statement, is as follows:
Six months ended 30 June 2019
|
|
Total £'000 |
|
Adjusted1 operating profit |
56,082 |
|
Amortisation of acquired intangibles |
(2,175) |
|
Exceptional items |
(79) |
|
Operating profit |
53,828 |
Year ended 31 December 2019
|
|
UK (Restated) £'000 |
Germany (Restated) £'000 |
France (Restated) £'000 |
USA (Restated) £'000 |
International (Restated) £'000 |
Central Corporate £'000 |
Total £'000 |
|
Revenue |
|
|
|
|
|
|
|
|
Technology Sourcing revenue |
1,142,746 |
1,344,423 |
479,423 |
732,009 |
123,626 |
- |
3,822,227 |
|
Services revenue |
|
|
|
|
|
|
|
|
Professional Services |
117,685 |
191,866 |
39,016 |
13,512 |
4,004 |
- |
366,083 |
|
Managed Services |
336,595 |
350,885 |
106,586 |
5,074 |
65,329 |
- |
864,469 |
|
Total Services revenue |
454,280 |
542,751 |
145,602 |
18,586 |
69,333 |
- |
1,230,552 |
|
Total revenue |
1,597,026 |
1,887,174 |
625,025 |
750,595 |
192,959 |
- |
5,052,779 |
|
|
|
|
|
|
|
|
|
|
Results |
|
|
|
|
|
|
|
|
Adjusted1 gross profit |
221,208 |
253,222 |
75,650 |
69,493 |
43,541 |
- |
663,114 |
|
Administrative expenses |
(156,673) |
(173,721) |
(58,362) |
(60,369) |
(35,358) |
(27,139) |
(511,622) |
|
Adjusted1 operating profit |
64,535 |
79,501 |
17,288 |
9,124 |
8,183 |
(27,139) |
151,492 |
|
Adjusted1 net interest |
(1,286) |
(1,987) |
(524) |
(871) |
(573) |
- |
(5,241) |
|
Adjusted1 profit before tax |
63,249 |
77,514 |
16,764 |
8,253 |
7,610 |
(27,139) |
146,251 |
|
Exceptional items: |
|
|
|
|
|
|
|
|
- unwinding of discount relating to acquisition of a subsidiary |
|
|
|
|
|
|
(825) |
|
- costs relating to acquisition of a subsidiary |
|
|
|
|
|
|
(94) |
|
Total exceptional items |
|
|
|
|
|
|
(919) |
|
Amortisation of acquired intangibles |
|
|
|
|
|
|
(4,374) |
|
Profit before tax |
|
|
|
|
|
|
140,958 |
The reconciliation for adjusted1 operating profit to operating profit, as disclosed in the Consolidated Income Statement, is as follows:
Year ended 31 December 2019
|
|
Total £'000 |
|
Adjusted1 operating profit |
151,492 |
|
Amortisation of acquired intangibles |
(4,374) |
|
Exceptional items |
(94) |
|
Operating profit |
147,024 |
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. The Company tempers the preceding guidance by noting that the impact of COVID-19 remains unpredictable and that the historical seasonality of operations could be materially impacted by changes in customer buying behaviour impacting the timing of sales volumes between the first and second halves of the year.
7 Dividends paid and proposed
The Company announced on 23 April 2020 that it was withdrawing its 2019 final dividend resolution from the voting at the Annual General Meeting held on 14 May 2020 and that the 2019 final dividend would not be paid.
An interim dividend in respect of 2020 of 12.3 pence per ordinary share, amounting to a total dividend of £14.1 million, was declared by the Directors at their meeting on 7 September 2020. The expected payment date of the dividend declared is 23 October 2020. This interim report does not reflect this dividend payable.
8 Income tax
Tax for the six-month period is charged at 28.1 per cent (six months ended 30 June 2019: 25.6 per cent; year ended 31 December 2019: 27.9 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.
9 Exceptional items
|
|
H1 2020 £'000 |
H1 2019 £'000 |
Year 2019 £'000 |
|
Operating profit |
|
|
|
|
Costs relating to acquisition of a subsidiary |
- |
(79) |
(94) |
|
Exceptional operating loss |
- |
(79) |
(94) |
|
Interest cost relating to acquisition of a subsidiary |
- |
(400) |
(825) |
|
Loss on exceptional items before taxation |
- |
(479) |
(919) |
|
|
|
|
|
|
Income tax |
|
|
|
|
Tax credit on exceptional items |
- |
39 |
39 |
|
Tax credit relating to acquisition of a subsidiary |
- |
879 |
839 |
|
Gain/(loss) on exceptional items after taxation |
- |
439 |
(41) |
H1 2020:
There were no exceptional items reported within the H1 2020 period.
H1 2019:
An exceptional operating loss during the period of £0.1 million resulted from residual costs directly relating to the acquisition of FusionStorm. The majority of these costs were incurred in the year to 31 December 2018 and included a severance payment for the FusionStorm Chief Executive Officer, agreed as part of the acquisition, advisor fees and a finder's fee that was paid on completion of the transaction. These costs were non-operational in nature, material in size and unlikely to recur and have therefore been classified as outside our adjusted1 results. The current period loss resulted from social charges relating to the severance payment for the FusionStorm Chief Executive Officer and has been treated as an exceptional item. A further £0.4 million relating to the unwinding of the discount on the deferred consideration for the purchase of FusionStorm has been removed from the adjusted1 net finance expense and classified as exceptional interest costs.
A credit of £0.04 million arising from the tax benefit on the FusionStorm exceptional acquisition costs has been recognised as tax on the above exceptional item. A further tax credit of £0.9 million was recorded due to post-acquisition activity in FusionStorm, related to the transaction, which has resulted in an in-year tax benefit. This activity was settled by the vendor, out of the consideration paid, via post-acquisition capital contributions to FusionStorm. As this credit was related to the acquisition and not operational activity within FusionStorm, is of a one-off nature and material to the overall tax result, it was classified as an exceptional tax item.
YE 2019:
An exceptional operating loss during the year of £0.1 million resulted from residual costs directly relating to the acquisition of FusionStorm These costs were non-operational in nature, material in size and unlikely to recur and have therefore been classified as outside our adjusted1 results. The current year loss resulted from social charges relating to the severance payment for the FusionStorm Chief Executive Officer and has been treated as an exceptional item for consistency with the disclosure in the year to 31 December 2018. A further £0.8 million relating to the unwinding of the discount on the deferred consideration for the purchase of FusionStorm has been removed from the adjusted1 net finance expense and classified as exceptional interest costs.
A credit of £0.04 million arising from the tax benefit on the FusionStorm exceptional acquisition costs has been recognised as tax on the above exceptional item. A further tax credit of £0.8 million was recorded due to post-acquisition activity in FusionStorm, related to the transaction, which has resulted in an in-year tax benefit. This activity was settled by the vendor, out of the consideration paid, via post-acquisition capital contributions to FusionStorm. As this credit was related to the acquisition and not operational activity within FusionStorm, is of a one-off nature and material to the overall tax result, it was classified as an exceptional tax item.
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.
|
|
H1 2020 £'000 |
H1 2019 £'000 |
Year 2019 £'000 |
|
Profit attributable to equity holders of the Parent |
51,987 |
37,847 |
101,655 |
|
|
H1 2020 '000 |
H1 2019 '000 |
Year 2019 '000 |
|
Basic weighted average number of shares (excluding own shares held) |
112,930 |
112,616 |
112,514 |
|
Effect of dilution: |
|
|
|
|
Share options |
1,707 |
1,215 |
1,655 |
|
Diluted weighted average number of shares |
114,637 |
113,831 |
114,169 |
|
|
H1 2020 pence |
H1 2019 pence |
Year 2019 pence |
|
Basic earnings per share |
46.0 |
33.6 |
90.3 |
|
Diluted earnings per share |
45.3 |
33.2 |
89.0 |
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 2020 the Group had forward currency contracts, which were measured at Level 2 fair value subsequent to initial recognition, to the value of a net liability of £626,000 (30 June 2019: net asset of £3,258,000, 31 December 2019: net asset of £1,511,000).
The net realised gains from forward currency contracts in the period to 30 June 2020 of £2,363,000 (30 June 2019: £3,541,000, 31 December 2019: £3,278,000) are offset by broadly equivalent realised losses/gains on the related underlying transactions.
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 Financial Statements is not materially different from their carrying amount.
12 Net funds
|
|
H1 2020 £'000 |
H1 2019 £'000 |
Year 2019 £'000 |
|
Cash and short-term deposits |
222,058 |
114,314 |
217,881 |
|
Cash and cash equivalents |
222,058 |
114,314 |
217,881 |
|
Current asset investments |
- |
5,000 |
- |
|
Bank loans |
(72,948) |
(122,442) |
(80,772) |
|
Adjusted net funds/(debt)3 (excluding lease liability) |
149,110 |
(3,128) |
137,109 |
|
Lease liability |
(124,767) |
(111,003) |
(116,766) |
|
Net funds/(debt) |
24,343 |
(114,131) |
20,343 |
|
|
|
|
|
|
Bank loans |
(20,066) |
(19,882) |
(20,032) |
|
Lease liability |
(38,650) |
(34,553) |
(36,574) |
|
Financial liabilities - Current |
(58,716) |
(54,435) |
(56,606) |
|
Bank loans |
(52,882) |
(102,560) |
(60,740) |
|
Lease liability |
(86,117) |
(76,450) |
(80,192) |
|
Financial liabilities - Non-current |
(138,999) |
(179,010) |
(140,932) |
13 Provisions
|
|
Customer contract provisions £'000 |
Retirement benefit obligation £'000 |
Property provisions £'000 |
Other provisions £'000 |
Total provisions £'000 |
|
At 1 January 2020 |
7,815 |
8,311 |
5,114 |
445 |
21,685 |
|
Arising during the period |
1,093 |
- |
- |
- |
1,093 |
|
Utilised |
(3,710) |
- |
(47) |
- |
(3,757) |
|
Exchange adjustment |
215 |
577 |
- |
31 |
823 |
|
At 30 June 2020 |
5,413 |
8,888 |
5,067 |
476 |
19,844 |
|
|
|
|
|
|
|
|
Current |
2,645 |
- |
1,443 |
476 |
4,564 |
|
Non-current |
2,768 |
8,888 |
3,624 |
- |
15,280 |
|
|
5,413 |
8,888 |
5,067 |
476 |
19,844 |
Customer contract provision
During the period £3.7 million of customer contract provisions had been utilised in line with individual contract forecasts.
14 Publication of non-statutory accounts
The financial information contained in the Interim Report and Accounts 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 2019 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.
15 Events after the reporting period
On 24 March 2020, the Group announced that they had entered in to exclusive negotiations on the acquisition of BT plc's domestic operations in France. Following completion of the consultations process with works councils, the Group announced on 16 July 2020 that they had agreed the acquisition with BT. The transaction, which is complementary to our existing French business in the areas of networking and datacenter capabilities, could add up to €100 million of revenue whilst being immaterial to the Group's adjusted1 profitability in the short to medium term, is expected to complete before the end of 2020.
The Group announced today that on 8 September it entered into an Arrangement Agreement pursuant to which Computacenter has agreed to directly or indirectly acquire the entire issued share capital of Pivot Technology Solutions, Inc. ("Pivot"), a company listed on the Toronto Stock Exchange (TSX:PTG), by way of a Canadian Plan of Arrangement with an all cash offer of CAD 2.60 per share. The offer has the unanimous recommendation of Pivot's board. The directors and officers of Pivot have provided support undertakings in respect of the shares held or controlled by them, for a potential total of 4.86 million shares, (including options and Restricted Stock Units), representing circa 12 per cent of the fully diluted share capital.
The cash consideration of CAD 2.60 per share (the "Consideration") represents CAD 105.8 million on a fully diluted basis of 40,688,650 shares, options, and Restricted Stock Units, payable upon completion of the acquisition. The arrangement is subject to the approval by 66 2/3 per cent of the votes cast by Pivot's shareholders at a special meeting of Pivot's shareholders held to approve the arrangement, currently anticipated for 23 October 2020, the approval by the Canadian court of the Plan of Arrangement, and certain other conditions precedent to closing. The Consideration will be funded from Computacenter's existing cash resources (Computacenter held cash and cash equivalents of £222.1 million at 30 June 2020). Pivot has a credit facility from a lending group represented by JPMorgan Chase Bank, N.A. ("JPMC"), which provides Pivot with a USD 225.0 million senior secured asset based revolving credit facility ("JPMC Credit Facility"). The JPMC Credit Facility may be used for revolving loans, letters of credit, protective advances, over advances, and swing line loans. Amounts owing by Pivot under the JPMC Credit Facility were USD 103.7 million and USD 106.7 million as at June 30, 2020 and December 31, 2019, respectively; and average undrawn availability was USD 47.8 million and USD 65.3 million for the periods ended June 30, 2020 and December 31, 2019, respectively. Computacenter has agreed with JPMC to retain the JPMC Credit Facility following completion of the acquisition.
For the year ended 31 December 2019, Pivot reported a statutory profit before tax of USD 20.7 million on reported revenue of USD 1,218.1 million. The profit before tax figure for the year ended 31 December 2019 includes USD 6.0 million of finance expense, USD 8.0 million of amortisation of acquired intangibles, restructuring and other non-recurring charges of USD 4.6 million and a gain on disposal of USD 22.3 million. Pivot reported profit before depreciation and amortisation, finance expense, restructuring and other non-recurring costs, change in fair value of liabilities, gains on disposal and other income of USD 26.8 million for the year ended 31 December 2019. As at 30 June 2020, Pivot reported Gross Assets of CAD 541.0 million. Computacenter expects that this acquisition will be accretive to the Group's primary measure, adjusted1 diluted earnings per share, in 2021.
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