Interim Results

COMPUTACENTER PLC 19 August 1999 Computacenter plc Interim Results for six months ended 30 June 1999 Computacenter plc, the UK's largest company specialising in the provision of distributed information technology and related services to large corporate and public sector organisations, announces interim results. Financial highlights: * Turnover - up 16.6 per cent to £904.8 million (1998: £775.7m) * Pre-tax profit - up 30 per cent to £40.7 million (1998: £31.3m) * Earnings per share - up 28.1 per cent to 14.6p per share (1998: diluted 11.4p) * Net funds position - up to £33.0 million (Dec'1998: £21.1m) * Dividend - as anticipated at flotation, any dividend payable in the current year will be declared at year end Commenting on the results, Philip Hulme, Chairman, said: 'This is another record set of results for the Group. Turnover, profits and operating profit margins are up significantly on the same period last year and the Group's balance sheet remains strong.' 'In line with our long term strategy, the Group has continued to invest heavily in expanding its service operations resulting in accelerated growth in this area of our business in the first half.' Mike Norris, Chief Executive of the Group, said: 'In the first half we have extended the range of services offered to existing customers and won a number of significant new contracts.' 'We have continued to develop our European operations by expanding our market share in France and Germany and making an acquisition in Belgium.' 'There has been some evidence of a slowdown in the corporate market across Europe as the Millennium approaches. However, we believe there is significant pent up demand in our customer base which will be released next year. The Group will continue to invest to ensure we are well positioned to take advantage of this and future demand.' Enquiries: Computacenter plc Mike Norris, Chief Executive Tel: 0171 620 2222 Tony Conophy, Finance Director Media enquiries: Phil Williams, Corporate Tel: 0171 593 4554 Development Manager Analyst enquiries: Melanie Leibert, Tel: 0171 593 4635 Investor Relations Brunswick Rob Pinker Tel: 0171 404 5959 Sara Musgrave CHAIRMAN'S STATEMENT I am pleased to be able to report another set of record results for the Group in the half year to June 30. Group turnover, at £904.8 million, was up 16.6 per cent over the same period last year and profit before tax, at £40.7 million, was up 30.0 per cent. The Group's net margin as a percentage of sales increased from 4.0 per cent to 4.5 per cent and diluted earnings per share grew by 28.1 per cent to 14.6 pence. The Group's balance sheet remains strong. The net cash position, after debt, was £33.0 million at the half year compared to £21.1 million at the end of 1998. The rate of growth in Computacenter's service businesses accelerated in the first half of 1999. Total Group staff numbers have grown by 39.1 per cent over the past year. The number of personnel providing support services on customer sites has grown by 46.1 per cent and the number of staff engaged in other service activities has grown by 32.3 per cent over the past year. This strong performance contributed to an overall growth of 32.2 per cent in gross profit. The growth in overall sales, although substantial, is lower than last year, reflecting slower growth in product sales. This was due to an accelerated decline in hardware prices, combined with some uncertainty in the corporate marketplace as the Year 2000 approaches. The long-term decline in hardware prices is to be welcomed as it opens up new applications for distributed IT fuelling demand for the Group's services. The Group has continued to invest heavily in expanding its service operations. These investments take the form of recruitment, training and systems development, virtually all of which are expensed through the profit and loss account. The development of our new service, logistics and administration centre in Hatfield is also on track with occupation commencing in September. All of these investments will help to secure our long-term growth. We have also continued to expand our market share in France and Germany at a rapid rate. Turnover for Computacenter France, at FF1,061 million, was ahead 54.3 per cent compared to the same period last year and operating profit grew 8.5 per cent to FF12.4 million. Turnover for Computacenter Germany grew by 146.7 per cent to DM94.4 million. Operating losses in Germany increased slightly to DM2.2 million in line with plan. In June 1999 the Group made a small acquisition in Belgium, providing a foothold to expand our customer base in this region. We remain satisfied with progress in the Group's overseas operations. With respect to the Year 2000 issue, as noted, there has been some evidence that the growth rate in the corporate market has slowed. Market indications are that this will continue for the remainder of this year before recovering in 2000. However, we have seen no evidence of a slowdown in the demand for our services and the outlook is for continued strong growth in this area. Computacenter's success has been built on providing a comprehensive and competitive range of high quality distributed IT support services. As always the IT industry is a cauldron of change. Our task is to adapt, and help our customers adapt, to these changes. For example, in the first half of this year over 40 per cent of all customer orders were placed via On- Trac our electronic commerce system. Our business, which is characterised by stable, long-term customer relationships, is underpinned by our strategy of investing to deliver the quality support services that our customers demand. In the rapidly changing and demanding environment in which we compete, it is a tribute to our staff that we have once more achieved record results. I thank them all once again and look forward to reporting on our results, and declaring a full dividend, at the end of this financial year. Philip Hulme, Chairman REVIEW OF OPERATIONS During the first half of the year the Group enjoyed a very satisfactory rate of growth in overall revenues. However, the growth achieved in our service operations was outstanding. This was the result of extending our service provision with existing accounts and also winning a number of significant contracts with new customers. Extensions to existing contracts included Shell Service International and Credit Suisse First Boston (CSFB). New accounts won towards the end of 1998, which came on stream and contributed to revenues in the first half of this year, included Halifax plc. New account wins in the first six months of this year included The Houses of Parliament, Royal & Sun Alliance and SmithKline Beecham Research & Development. Our highest profile win in the first half of 1999 was British Telecom. BT is a long-established Computacenter customer and we are delighted to renew our relationship with a new three-year contract with the option to extend for a further two years. The range of services provided now includes maintenance of all BT's distributed IT systems, equipment supply chain re- engineering and the full implementation of electronic commerce into BT's business units. Growth in UK product sales during the first half was somewhat slower than in previous years. However, more importantly, PC system unit sales grew by 26 per cent in the UK compared with the same period last year. This helped feed customer demand for product-related services, enabling us to continue to develop these offerings at a rapid rate. Computacenter's spread of business across a number of core industry sectors reduced the impact of slower growth in some markets. We saw strong growth in the government and telecommunication sectors. In contrast, revenues from the financial services industry, particularly in the City, weakened; although we believe we are now starting to see signs of recovery. The first half of 1999 saw the first successes of our new e-commerce division, The iGroup. Computacenter has invested heavily in this area throughout the last year, establishing a group of over 50 specialists with Internet and Intranet design, development and consulting skills. We are now starting to establish e-commerce products and services, which we will leverage across our customer base in the future. Customer demand for our On-Trac electronic commerce system has also increased. On-Trac enables our customers to procure services and products from the Group directly from their desktops. The system, which was developed by our partner, Computasoft, exclusively to our specification, has established itself as an invaluable aid to our business and a significant source of competitive advantage. We continue to work with Computasoft to find ways of marketing the product to a wider range of customers, for example by including the ability to procure products and services from companies other than Computacenter. In France our business continues to grow rapidly due to significant gains in market-share. Headcount has grown by 52 per cent to 657 over the last year and we have now successfully moved our headquarters and operations centre to a new facility, establishing a solid platform for future growth. With the implementation of best practices that have already proved successful in the UK, we are starting to see significant growth of our French maintenance, systems engineering and project management capability. Two years after the acquisition of our German subsidiary, growth in Germany remains in line with our expectations. As with France we have invested strongly. Staff numbers grew by 113 per cent to 312 in the past year and we moved into a new operations centre during the first half of 1999. We also opened new sales offices in Hannover, Stuttgart and Nuremberg. As in the UK, achieving such growth in France and Germany involved significant levels of investment, the vast majority of which was expensed through the profit and loss account. In the second quarter of 1999 we made our first two acquisitions as a public company. A small acquisition has established a new subsidiary in Belgium. Again, as in France and Germany, we expect Computacenter Belgium to benefit from our best practices and strong international customer base. The second of our two acquisitions is a UK-based IT disposal services company, RDC, which will continue to operate under its own name. The acquisition was made to meet the demand from our customers for a cost- effective and environmentally friendly disposal service for redundant distributed technology. We can now provide a superior level of service at every stage of the product life-cycle. Trading in the second half has started satisfactorily, although the Group has budgeted for some slowdown in the final few weeks of the year. We believe there is significant pent-up demand within our customer base, which will be released next year. The Group will continue to invest to ensure we are well positioned to take advantage of this and future demand. Mike Norris, Chief Executive AUDITORS' INDEPENDENT REVIEW REPORT TO COMPUTACENTER PLC Introduction We have been instructed by the Company to review the financial information set out and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The Listing Rules of the London Stock Exchange require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquires of management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 1999. Ernst & Young 18 August 1999 Computacenter plc Summarised Profit And Loss Account For the six months ended 30 June 1999 Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 Jun 1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 Turnover 904,816 775,746 1,586,238 Operating costs (864,104) (742,451) (1,519,942) --------- --------- --------- Operating profit 40,712 33,295 66,296 Loss from interests in associated undertakings - - (12) Other income 3,481 1,495 4,945 Interest payable and (3,461) (3,458) (6,626) similar charges --------- --------- --------- Profit on ordinary activities before taxation 40,732 31,332 64,603 Taxation (13,210) (10,402) (21,232) --------- --------- --------- Profit on ordinary activities after taxation 27,522 20,930 43,371 Minority interests - equity (5) (15) (77) --------- --------- --------- Profit attributable to members of the parent company 27,517 20,915 43,294 Dividends - ordinary dividends on equity shares (90) - (4,302) Retained profit for the period 27,427 20,915 38,992 ====== ====== ====== Earnings per share - Basic 16.2p 13.1p 27.0p - Diluted 14.6p 11.4p 23.5p Dividends per ordinary share - - 2.5p Computacenter plc Statement of Total Recognised Gains and Losses For the six months ended 30 June 1999 Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 Jun 1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 Profit attributable to members of parent Company for the period 27,517 20,915 43,294 Exchange differences on retranslation of net assets of associated and subsidiary undertakings (1,300) (44) 287 --------- --------- --------- Total recognised gains for the period 26,217 20,871 43,581 ====== ====== ====== Computacenter plc Summarised Balance Sheet At 30 June 1999 Unaudited Unaudited Audited 30 Jun 1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 Fixed assets Goodwill 1,612 - - Tangible assets 79,325 37,522 59,768 Investments 4,170 2,805 1,467 --------- --------- --------- 85,107 40,327 61,235 Current assets Stocks 116,045 122,868 109,853 Debtors: gross 258,081 257,126 237,855 Less non-returnable proceeds (64) (36,032) (1,293) --------- --------- --------- 258,017 221,094 236,562 Cash at bank and in hand 75,984 64,136 63,601 --------- --------- --------- 450,046 408,098 410,016 CREDITORS: amounts falling due within one year (343,387) (293,783) (307,382) --------- --------- --------- Net current assets 106,659 114,315 102,634 --------- --------- --------- Total assets less current liabilities 191,766 154,642 163,869 CREDITORS: amounts falling due after more than one year (42,830) (52,816) (42,013) Provisions for liabilities and charges (1,035) - (1,035) --------- --------- --------- Total assets less liabilities 147,901 101,826 120,821 ====== ====== ====== Capital and reserves Called up share capital 8,876 8,601 8,678 Share premium account 51,106 49,410 49,850 Profit and loss account 87,777 43,736 62,144 --------- --------- --------- Shareholders' funds - equity 147,759 101,747 120,672 Minority interests - equity 142 79 149 --------- --------- --------- 147,901 101,826 120,821 ====== ====== ====== Approved by the board on 18 August 1999 Computacenter plc Summarised Statement Of Cash Flows For the six months ended 30 June 1999 Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 Jun 1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 Cash inflow from operating activities 42,041 16,172 63,734 Returns on investments and servicing of finance 127 (1,963) (2,084) Taxation Corporation tax refunded/(paid) 1,536 - (17,486) Capital expenditure and financial investment (26,295) (12,416) (40,179) Acquisitions and disposals (1,974) - (71) Equity dividends paid (4,392) - - --------- --------- --------- Cash inflow before financing 11,043 1,793 3,914 Financing Issue of shares 1,454 49,598 50,115 Decrease in debt (114) (1,104) (4,257) --------- --------- --------- Increase in cash in the period 12,383 50,287 49,772 ====== ====== ====== Reconciliation of net cash flow to movement in net debt Increase in cash 12,383 50,287 49,772 Cash decrease from repayment of loans - 1,098 4,033 Repayment of capital elements of finance lease rentals 114 114 224 --------- --------- --------- Changes in net debt arising from cash flows 12,497 51,499 54,029 Loans acquired on acquisition of subsidiary undertaking (542) - - Other non cash movements (107) (108) (214) --------- --------- --------- Movement in net funds/(debt) 11,848 51,391 53,815 Net funds/(debt) at 1 Jan 21,126 (32,689) (32,689) --------- --------- --------- Net funds at 30 Jun/31 Dec 32,974 18,702 21,126 ====== ====== ====== Computacenter plc Notes to the Unaudited Interim Report At 30 June 1999 1 Basis of Preparation of Interim Financial Information The interim financial information has been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 31 December 1998. The taxation charge is calculated by applying the Directors' best estimate of the annual tax rate to the profit for the period. Other expenses are accrued in accordance with the same principles used in the preparation of the annual accounts. 2 Turnover and Segmental Analysis Turnover represents the amounts derived from the provision of goods and services which fall within the Group's ordinary activities, stated net of VAT. The Group operates in one principal activity, that of the design, supply, project management and long-term support of information technology systems. An analysis of turnover by destination and origin and operating profit is given below: Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 Jun 1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 Turnover by destination UK 757,451 688,237 1,365,906 France & Belgium 110,117 70,614 168,130 Germany 33,536 13,917 39,020 Rest of the World 3,712 2,978 13,182 --------- --------- --------- Total 904,816 775,746 1,586,238 ====== ====== ====== Turnover by origin UK 762,981 693,863 1,383,357 France & Belgium 109,399 68,998 165,773 Germany 32,436 12,885 37,108 --------- --------- --------- Total 904,816 775,746 1,586,238 ====== ====== ====== Operating profit UK 40,197 32,723 64,929 France & Belgium 1,262 1,146 2,747 Germany (747) (574) (1,380) --------- --------- --------- Total Group excluding associated undertakings 40,712 33,295 66,296 ====== ====== ====== All turnover and operating profit relates to continuing operations. Computacenter plc Notes to the Unaudited Interim Report At 30 June 1999 3 Operating Costs Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 Jun 1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 Increase in stocks of finished goods (6,192) (14,623) (1,608) Goods for resale and consumables 706,312 635,561 1,254,418 Staff costs 97,554 69,906 153,619 Other operating charges 66,430 51,607 113,513 --------- --------- --------- 864,104 742,451 1,519,942 ====== ====== ====== 4 Other Income Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 Jun 1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 Bank Interest received 3,481 1,495 4,328 Exchange gain - - 617 --------- --------- --------- 3,481 1,495 4,945 ====== ====== ====== 5 Interest Payable and Similar Charges Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 Jun1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 Bank loans and overdraft 18 114 236 Other loans 3,431 3,332 6,368 Finance charges payable under finance leases and hire purchase contracts 12 12 22 --------- --------- --------- 3,461 3,458 6,626 ====== ====== ====== Computacenter plc Notes to the Unaudited Interim Report At 30 June 1999 6 Tax on Profit on Ordinary Activities The charge for the period is based on the estimated effective tax rate for the year ending 31 December 1999 and comprises the following: Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 Jun1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 UK corporation tax at 31 per cent Current 13,210 10,402 20,197 Deferred tax - - 1,035 --------- --------- --------- Total 13,210 10,402 21,232 ====== ====== ====== 7 Reconciliation of Operating Profit to Operating Cash Flows Unaudited Unaudited Audited Six months Six months Year ended ended ended 30 Jun 1999 30 Jun 1998 31 Dec 1998 £'000 £'000 £'000 Operating profit 40,712 33,295 66,296 Depreciation 6,001 4,846 10,691 Loss on disposal of fixed assets - 637 407 Increase in debtors (21,052) (55,374) (70,842) Increase in stocks (6,160) (14,623) (1,608) Increase in creditors 23,852 47,420 57,976 Currency and other adjustments (1,312) (29) 814 ---------- ---------- ---------- Net cash inflow from operating activities 42,041 16,172 63,734 ====== ====== ====== 8 PUBLICATION OF NON-STATUTORY ACCOUNTS The financial information contained in this interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the full preceding year is based on the statutory accounts for the financial year ended 31 December 1998. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies.

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