Interim Results - Part 1
Interim Results - Part 1
August 28, 2008 at 12:00 AM EDT
RNS Number : 1627C
Computacenter PLC
28 August 2008
COMPUTACENTER PLC
Interim Results Announcement
Computacenter plc, the European IT infrastructure services provider, today
announces interim results for the six months ended 30 June 2008.
FINANCIAL HIGHLIGHTS
* Group revenues increased 7.8% to £1.25 billion (2007: £1.16 billion)
* Profit before tax declined 14.2% to £11.0 million (2007: £12.8 million)
* Diluted earnings per share increased 10.6% to 5.2p (2007: 4.7p), due to the
impact of share repurchases and a reduced tax rate
* Interim dividend increased 8.0% to2.7p per share (2007: 2.5p)
* Net debt before customer-specific financing ('CSF') of £29.7 million (2007:
net debtof£16.5 million)
* Net debt after CSF of £95.9 million (2007: net debt of £53.4 million)
OPERATING HIGHLIGHTS
* Positive Q2 followed a weak first six weeks of the year in UK and France
* Strongest UK organic revenue growth for a number of years led by Software,
Technology Solutions and sales to the medium-sized business sector
* Further operating loss reduction in France, driven by good services growth
and increased product margins
* Continued improvement in German performance, driven partly by progress in our
shift towards higher-margin services
Mike Norris, Chief Executive of Computacenter plc, commented:
"After a challenging start to the year we are encouraged by the sales
performance we recorded in the first half which is a continuation of the upward
trend re-established in 2007.
"Although uncertainty remains in the marketplace there is a continuing need for
customers to invest in information technology to improve their competitiveness.
The investments we have been making to improve our services capabilities and the
cost effectiveness of our sales operations position us well in a more difficult
economic climate.
"While much remains to be done, management is confident of achieving its current
expectations assuming no material deterioration in market conditions."
For further information, please contact:
Computacenter plc.
Mike Norris, Chief Executive 01707 631 601
Tessa Freeman, Investor Relations 01707 631 514
www.computacenter.com
Tulchan Communications 020 7353 4200
Stephen Malthouse
Lizzie Morgan
www.tulchangroup.com
Computacenter's half-yearly financial report is available to view and download
at www.computacenter.com/investor. High resolution images are available for the
media to view and download free of charge from www.computacenter.com/press.
Interim Management Report
Executive summary
Computacenter's sales performance in the first half of 2008 was encouraging,
despite the more difficult economic climate. Helped somewhat by the strength of
the Euro, overall Group revenues grew 7.8% to £1.25 billion (2007: £1.16
billion), which represents an increase of 1.4% at constant currency. This
continues the upward trend in revenues re-established in 2007 and reflects the
strongest organic growth rate in the UK for a number of years.
As we anticipated, we saw a decline in Group profit before tax. The actual
reduction was 14.2% to £11.0 million (2007: £12.8 million), due partly to a
particularly difficult start to the year in the UK and also to an increase of
£0.4 million in the interest charge resulting from £20.8 million expenditure on
share repurchases since 1 July 2007. The decline was also attributable to the
significant investments we continue to make, in line with our strategic
priorities, to enhance our services capability and build our position in the
mid-market. However, both UK and France profit performance improved in the
second quarter, recording figures ahead of Q2 2007. German earnings were
consistently above last year throughout the first half.
Despite the decline in first half profits, the Group is pleased to announce an
increase in diluted earnings per share (EPS) of 10.6% to 5.2p (H1 2007: 4.7p),
as a result of a reduced number of shares in issue and a lower tax charge.
The balance sheet remains strong, with net borrowings prior to customer-specific
financing ('CSF') of £29.7 million (2007 H1: £16.5 million) at the period end.
This was after the expenditure of £20.8 million since 1 July 2007 on the
purchase of our own shares in the market. Good cash generation in the period
meant that, excluding the buybacks and CSF, our net debt position would have
improved by £7.6 million.
We are pleased to announce the payment of an increased interim dividend of 2.7p
per share (2007: 2.5p) to be paid on 16 October 2008 to shareholders on the
register as at 19 September 2008. This is consistent with our policy of seeking
to keep the interim dividend at a level equal to one-third of the preceding
year's total dividend.
On 1 July 2008 Greg Lock was appointed as non-executive Chairman, following the
resignation of Ron Sandler in February. Greg has been the Chairman at Kofax plc,
the intelligence capture and exchange solution provider, previously Dicom Group
plc, since March 2007. He is a Non-Executive Director of private technology
companies Liberata plc and Target Group and has more than 38 years experience in
the software and computer services industry.
We are encouraged by the Group's improved performance in the second quarter.
Although there is much uncertainty in the marketplace, there is a continuing
need for customers to invest in information technology to improve their
competitiveness. To answer that need, Computacenter has made significant
investments in the past three years in solutions and processes designed
specifically to improve the cost-effectiveness and efficiency of our customers'
IT infrastructures. We believe these investments, together with our continuing
investment in the medium-sized business sector, position us well in a more
difficult economic climate.
While much remains to be done, management is confident of achieving its current
expectations assuming no material deterioration in market conditions.
Operating review
UK
UK performance recovered after a challenging first six weeks to deliver a
revenue increase of 5.5% to £708.1 million (H1 2007: £671.2 million), largely as
a result of strong sales growth in our software and consulting/integration
activities and in sales to the medium-sized business sector. Adjusted* operating
profit declined 21.2% to £8.9 million (H1 2007: £11.3 million), mainly due to
the poor start to the year, continued significant investment in our services
capability and the resourcing of our sales operation targeting medium-sized
businesses. In addition, the merging of our Managed Services and Digica
operations, together with a number of smaller cost-cutting initiatives, resulted
in an unusually high restructuring cost to the UK business, adversely affecting
operating profit in H1 2008 by some £1.0 million.
The success of the integration and consulting services provided by our
Technology Solutions business was again a strong feature of UK performance.
Growth was particularly strong in the datacentre and storage marketplace,
especially for the delivery of technology efficiency projects that help clients
reduce operating costs (such as power), improve environmental efficiency and
reduce the time to deploy new business applications. As a result, professional
services revenues increased by 19.4%. This also helped drive product volumes, as
we were increasingly successful in attaching technology supply to these
projects.
At the desktop we were successful in winning business with a number of
organisations looking to standardise and unify their messaging and collaboration
systems. The cost certainty and benefits of our standardised approach to large
scale migration programmes, developed through our Shared Services Factory, were
important factors in our recent win at the supermarket chain Morrisons. In
addition, as Microsoft Office 2007 and Vista begin to build momentum among
corporate clients, a major pharmaceutical customer chose us to implement one of
the first significant deployments of Microsoft's Vista in the UK.
UK performance also benefited from the continuing success of our software
business, which helps customers reduce cost and complexity through better
licence management. Software revenues increased 34.8% and Computacenter
continued to grow its share of the Microsoft licensing market, with our UK
market share increasing from 8% to 11% in the twelve month period to June 2008.
Significant software wins include Cadbury plc, for which we are providing
Microsoft licensing services to help the company reduce costs following the
recent demerger of its US drinks arm. For the future, we are making progress in
developing a lighter touch sales model for our software business, which we
believe will enable us to target smaller businesses more effectively.
A key objective of Computacenter is to extend our presence in those sectors that
represent the greatest opportunities for market share growth. To that end, we
continued to build momentum in the mid-market business sector, achieving 12.0%
year on year revenue growth. Whilst the trend is encouraging, this result falls
below our plan for this business, which has yet to fully justify our investment.
We saw growing interest in our outsourcing offerings. This was the result of an
increasing number of organisations looking to gain cost-efficiencies from their
infrastructure through partial, rather than whole IT department, outsourcing. In
order to lower costs, remove internal duplication and streamline our offerings
we integrated the core operational activities of the Managed Services and Digica
business units under a single management structure. This also enables the
combined business to offer a stronger, broader set of managed services, covering
the management of business critical applications and complete IT
infrastructures.
A significant number of new outsourcing contracts were signed in H1, although
these contracts are not expected to be fully revenue-generating until the second
half of the year.
Wins include the provision of a managed service, including desktop and
datacentre support, to 3,000 users at Bentley Motors Limited and the renewal of
our existing managed service agreement with Agility, which now includes global
desktop support across the UK, Ireland and North America from our offshore
facility in Cape Town. Similarly, we have extended our existing managed service
with BAA, signing a five-year deal which provides a complete package of end-user
services to 13,500 staff across 19 UK sites.
We also had success with support services such as maintenance, installations and
disaster recovery. Our renewals in these areas remain high and we secured some
important new contract revenue, with particular success in the mid-market. We
saw significant contract extensions with Savvis, Speedy Hire and a substantial
multi-year renewal with a major North American investment bank. We also secured
a two-year contract with Hampshire Police, comprising product supply and
refresh, together with support and maintenance of the entire IT estate and
end-of-life disposals.
Key product wins include a desktop and laptop refresh for a leading food
producer, where we were able to deliver substantial savings to the organisation
through our vendor relationships and approach to commercial management. A desire
to deliver a more cost-effective service to users and, ultimately, local tax
payers, was also a key criterion in Telford and Wrekin Council's decision to
contract us for the management of its entire supply and logistics process,
including asseting, configuration and disposals.
Our remarketing and recycling arm, RDC, continued to perform well, recording
27.8% revenue growth as customers increasingly sought to address their concerns
over environmental disposal, recycling and data security for their end-of-life
equipment.
Our UK trade distribution arm, CCD, continues to suffer from a challenging and
highly price-competitive market and saw revenue reduce 11.7%.
Germany
After achieving 8.2% full-year sales growth in 2007, revenue for the first six
months of 2008 increased by 11.5% to £379.8 million (H1 2007: £340.7 million).
However this represents a 3.0% decline in local currency, attributable in part
to the non-renewal of a large low-margin PC fulfilment contract. An increasingly
competitive market impacted the products business in particular, which declined
7.7% in local currency. However this was partly offset by 6.1% sales growth in
services, accelerating the change of business mix over the past few years
towards higher-margin offerings.
Nevertheless the positive trend in profit performance continued, with adjusted*
operating profits improving 5.0% in local currency, which translates to an
increase of 20.8% to £4.1 million.
As in the UK, the continued services growth came largely from our datacentre and
networking solutions business, which is benefiting from our ongoing investment
in managed services and technology solutions. At the same time, our enhanced
reputation in the outsourcing market is delivering a robust pipeline of managed
service opportunities for this year and next, a number of which have closed
positively since the end of the period.
Service margins again improved significantly as we continued to standardise
service delivery and enhance our outsourcing capability. We expect this trend to
continue for the rest of 2008.
The product volume decline in H1 2008 was largely driven by a fall in
expenditure on 'Wintel' servers by a significant, but small, number of our
larger accounts. However large enterprise server and storage sales remained
strong, as did sales of software.
Despite the slowdown in product volumes, overall product margin percentage
levels were unchanged on the previous year, due to a continuing move towards
higher-end, higher margin technology.
Significant wins in the period include a managed desktop services contract with
SAP, covering 30,000 users across 31 sites and including the transfer of 28
employees to Computacenter. We also secured a network operations contract for
Daimler Financial Services Germany, including technology supply and service
provision, and a further two-year desktop services contract with the State
Capital of Dusseldorf's local government, covering 12,500 IT seats across the
region's administrative offices and schools.
France
We continued to see a steady improvement in the performance of our French
business. Operating loss reduced by 8.6% to £1.9 million (H1 2007: loss of £2.1
million) after a better second quarter helped compensate for a slow start to the
year. A product market that remains highly challenging contributed to a revenue
decline of 5.3% in local currency, although this figure hides an increase in
maintenance and managed services revenues of 26.6%.
However, due to beneficial currency movements, reported revenue increased 8.8%
to £147.2 million (H1 2007: £135.3 million).
As with 2007, the margin improvement was from across the business. Initiatives
such as our more commercially selective approach to the provisioning of
hardware, a new focus on regional business, and more effective sales incentives
helped achieve further growth in product margins, while a similar selective
approach to services and our continuing efforts towards improving customer
satisfaction achieved the same result in services. The continuing success of our
maintenance services also made a significant improvement to our revenue and
profit performance.
The outlook is encouraging due to a number of significant wins. These include
managed services and technology solutions contracts with EDF, involving the
roll-out of a Windows Vista environment to 75,000 users. We also won the supply
of 28,000 PCs and peripherals to the Ministere De L'Economie et des Finances and
a two-year supply chain services contract with one of France's leading banks,
including server supply, integration and installation. For a company in the
retail sector we have been contracted to replace a Windows server infrastructure
across 116 stores, including a virtualisation solution. It is important to note
that future performance will be contingent to some extent on our success in
securing the renewal of our contract with the French Army, our largest French
customer, which expires at the end of Q1 2009.
In addition, H1 2008 saw us renew supply contracts with France Telecom and Brico
Depot and we extended the scope of our managed service with Sanofi Pasteur in
Lyon.
We continue to invest for sales growth while carefully managing costs. We
believe that this approach, together with our focus on new opportunities arising
from a sustained new business generation programme and increased sales
investment, leaves us well placed to continue the positive trend in business
performance through the rest of this year.
Benelux
Our Belgium and Netherlands business showed a small profit of £69,000 (H1 2007:
loss of £16,000) on the back of broadly unchanged revenues. Key wins include a
procurement contract at UCB, an IP Telephony project at Truvo Corporate and an
Enterprise Storage solution implementation at Spadel.
Our small Luxembourg operation showed a slightly increased loss of £137,000 (H1
2007: £95,000), despite improved revenues of £2.1 million (H1 2007: £1.5
million). Key wins include a unified IP Communications project at Luxpet, and a
System Monitoring project at Namsa.
Group risk statement
The principal risks to our business for the next six months remain as set out on
page 20 of our 2007 Report and Accounts. The Group is addressing these principal
strategic risks and, more specifically, mitigating the risks of potential
further economic slowdown and further product price erosion. It does this
through a combination of helping clients remove cost and risk from their IT
expenditure, a continuing focus on those sectors that offer the greatest
opportunities for market share growth, and strengthened internal cost control.
In addition, we are addressing the market trend towards shorter term engagements
and quantified cost savings by enhancing our ability to deliver higher margin,
higher value service offerings to a widening customer base. We continue to
address the risk of deteriorating vendor terms through our ongoing focus on
expanding our vendor independent product portfolio.
* Adjusted operating profit is stated after charging costs on customer-specific
financing.
Consolidated income statement
For the six months ended 30 June 2008
Unaudited six months ended 30 June 2008 Unaudited six months ended 30 June 2007 Year ended 31 Dec 2007
£'000 £'000 £'000
Revenue 1,250,260 1,160,333 2,379,141
Cost of sales (1,080,722) (1,006,183) (2,053,333)
Gross profit 169,538 154,150 325,808
Distribution costs (10,578) (9,267) (18,344)
Administrative expenses (146,258) (131,819) (263,750)
Operating profit:
Before amortisation of acquired intangibles 12,702 13,064 43,714
Amortisation of acquired intangibles (268) (240) (613)
Operating profit 12,434 12,824 43,101
Finance revenue 1,502 2,157 3,910
Finance costs (2,946) (2,166) (4,952)
Profit before tax:
Before amortisation of acquired intangibles 11,258 13,055 42,672
Amortisation of acquired intangibles (268) (240) (613)
Profit before tax 10,990 12,815 42,059
Income tax expense (3,068) (5,319) (13,161)
Profit for the period 7,922 7,496 28,898
Attributable to:
Equity holders of the parent 7,922 7,496 28,888
Minority interests - - 10
7,922 7,496 28,898
Earnings per share
- basic for profit for the period 5.3p 4.8p 18.5p
- diluted for profit for the period 5.2p 4.7p 18.2p
Consolidated balance sheet
As at 30 June 2008
Unaudited six months ended 30 June 2008 Unaudited six months ended 30 June 2007 Year ended 31 Dec 2007
£'000 £'000 £'000
Non-current assets
Property, plant and equipment 114,407 102,116 116,444
Intangible assets 46,156 44,762 45,185
Deferred income tax asset 8,577 8,238 8,190
169,140 155,116 169,819
Current assets
Inventories 94,665 92,011 110,535
Trade and other receivables 477,082 410,222 454,155
Prepayments 51,648 41,369 27,936
Accrued income 44,028 24,764 33,445
Forward currency contracts - 167 -
Cash and short-term deposits 37,113 47,352 29,211
704,536 615,885 655,282
Total assets 873,676 771,001 825,101
Current liabilities
Trade and other payables 350,867 306,919 336,971
Deferred income 92,713 71,428 74,686
Financial liabilities 87,355 81,189 74,363
Forward currency contracts 59 - 369
Income tax payable 5,521 7,278 7,899
Provisions 2,133 2,166 2,180
538,648 468,980 496,468
Non-current liabilities
Financial liabilities 45,699 20,511 34,652
Provisions 12,143 11,653 12,225
Other non-current liabilities 1,355 731 1,685
Deferred income tax liabilities 1,818 2,486 1,875
61,015 35,381 50,437
Total liabilities 599,663 504,361 546,905
Net assets 274,013 266,640 278,196
Capital and reserves
Issued capital 9,181 9,585 9,504
Share premium 2,890 2,776 2,890
Capital redemption reserve 74,950 74,542 74,627
Own shares held (11,273) (2,503) (11,380)
Foreign currency translation reserve 5,393 (2,381) 1,507
Retained earnings 192,859 184,594 201,035
Shareholders' equity 274,000 266,613 278,183
Minority interest 13 27 13
Total equity 274,013 266,640 278,196
Approved by the Board on 27 August 2008
MJ Norris, Chief Executive FA Conophy, Finance Director
Consolidated statement of changes in equity
Attributable to equity holders of the parent
Issued capital Share premium Capital redemption reserve Own shares held Foreign currency translation reserve Retained earnings Total Minority interest Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2007 9,571 2,247 74,542 (2,503) (2,455) 183,700 265,102 27 265,129
Exchange differences on retranslation of foreign operations - - - - 74 - 74 - 74
Net income recognised directly in equity - - - - 74 - 74 - 74
Profit for the period - - - - - 7,496 7,496 - 7,496
Total recognised income for the period - - - - 74 7,496 7,570 - 7,570
Cost of share-based payment - - - - - 1,269 1,269 - 1,269
Exercise of options 14 529 - - - - 543 - 543
Equity dividends - - - - - (7,871) (7,871) - (7,871)
14 529 - - 74 894 1,511 - 1,511
At 30 June 2007 9,585 2,776 74,542 (2,503) (2,381) 184,594 266,613 27 266,640
Exchange differences on retranslation of foreign operations - - - - 3,888 - 3,888 - 3,888
Net income recognised directly in equity - - - - 3,888 - 3,888 - 3,888
Profit for the period - - - - - 21,392 21,392 10 21,402
Total recognised income for the period - - - - 3,888 21,392 25,280 10 25,290
Cost of share-based payment - - - - - 1,390 1,390 - 1,390
Exercise of options 4 114 - 49 - - 167 - 167
Purchase of own shares - - - (11,332) - - (11,332) - (11,332)
Cancellation of own shares (85) - 85 2,406 - (2,406) - - -
Equity dividends - - - - - (3,935) (3,935) - (3,935)
Acquisition of minority interests - - - - - - - (24) (24)
(81) 114 85 (8,877) 3,888 16,441 11,570 (14) 11,556
At 1 January 2008 9,504 2,890 74,627 (11,380) 1,507 201,035 278,183 13 278,196
Exchange differences on retranslation of foreign operations - - - - 3,886 - 3,886 - 3,886
Net income recognised directly in equity - - - - 3,886 - 3,886 - 3,886
Profit for the period - - - - - 7,922 7,922 - 7,922
Total recognised income for the period - - - - 3,886 7,922 11,808 - 11,808
Cost of share-based payment - - - - - 1,573 1,573 - 1,573
Purchase of own shares - - - (9,501) - - (9,501) - (9,501)
Cancellation of own shares (323) - 323 9,608 - (9,608) - - -
Equity dividends - - - - - (8,063) (8,063) - (8,063)
(323) - 323 107 3,886 (8,176) (4,183) - (4,183)
At 30 June 2008 9,181 2,890 74,950 (11,273) 5,393 192,859 274,000 13 274,013
Consolidated cash flow statement
For the six months ended 30 June 2008
Unaudited six months ended 30 June 2008 Unaudited six months ended 30 June 2007 Year ended 31 Dec 2007
£'000 £'000 £'000
Operating activities
Operating profit 12,434 12,824 43,101
Adjustments to reconcile Group operating profit to net
cash inflows from operating activities
Depreciation 17,514 11,124 27,130
Amortisation 2,145 1,648 3,633
Share-based payment 1,573 1,269 2,659
Loss on disposal of property, plant and equipment 273 60 190
(Profit)/loss on disposal of intangible assets (23) 36 -
Decrease/(increase) in inventories 19,954 4,897 (8,724)
(Increase)/decrease in trade and other receivables (42,235) 16,234 (1,470)
Increase/(decrease) in trade and other payables 16,447 (36,233) (19,976)
Currency and other adjustments 2,090 (72) (218)
Cash generated from operations 30,172 11,787 46,325
Income taxes paid (5,527) (6,345) (13,853)
Net cash flow from operating activities 24,645 5,442 32,472