Interim Results

Computacenter PLC 15 August 2001 Wednesday 15th August 2001 COMPUTACENTER PLC PRESS RELEASE Interim Results Announcement Computacenter plc, the specialist provider of IT infrastructure services to large organisations, today announces its interim results for the six months ended 30 June 2001. Financial Highlights: - Overall performance in line with expectations - Sales of £1,173.7 million, up 26.6% (2000: £926.7 million) - Operating profit from continuing operations of £38.8 million, up 78.0% (2000: £21.8 million) - Profit before tax of £34.0 million*, up 60.9% (2000: £21.2 million) - Share of loss in Biomni of £1.4 million - Exceptional charges of £3.4 million associated with the closure of the iGroup - Diluted EPS of 10.6 pence (2000: 7.1 pence) - Cash generated from operations £56.0 million (2000: £36.4 million) Operational Highlights: - Exceptionally strong first quarter, evidence of downturn in second quarter - Improved profitability of European operations - Higher proportion of UK revenues from Government Sector - Growth in Managed Services revenues of 22.1% - Hatfield logistics facility now fully operational - Closure of the iGroup Ron Sandler, Chairman of Computacenter plc, commented: 'The Group's overall performance in the first half of 2001 was in line with expectations. Although these results are encouraging in aggregate, they conceal a deterioration as the period progressed, as indicated at the time of our trading update in June. Market conditions since the half year remain similar to those experienced in May and June. Trading conditions and therefore the outlook for profits in the second half are difficult to predict with confidence. We have a strong and cash generative business, which is being tightly managed to reflect market conditions. If trading continues at current levels, we anticipate that Computacenter's profits* will be broadly similar to those of last year' *pre-exceptionals and Biomni For further information, please contact: Computacenter plc. Mike Norris, Chief Executive 01707 631 601 Tulchan Communications 020 7353 4200 Andrew Grant, Julie Foster The interim results statement will be posted on the website: www.computacenter.com Chairman's Statement The Group's overall performance in the first half of 2001 was in line with our expectations. Revenues of £1,173.7 million were 26.6 % ahead of the corresponding period in 2000. Operating profit from continuing operations was £38.8 million, an increase of 78.0% over the first half of last year. Prior to losses of £1.4 million in our Biomni e-commerce joint venture and exceptional charges of £3.4 million associated with the closure of the iGroup, profit before tax increased by 60.9% to £34.0 million. Although in aggregate these results are encouraging, they conceal a deterioration in trading conditions as the first half progressed. Performance in the early part of the year was exceptionally strong as the post-millennium recovery in IT markets, which began in the latter half of 2000, continued to gain momentum. The Group experienced buoyant demand for its products and services, across all parts of the business, in the first quarter. As we indicated at the time of our trading update in June, the first signs of a significant slowdown became evident in April, as the weaker demand pattern prevalent in the US started to appear in Europe. This was reflected in the Group's second quarter performance. Sales of Unix systems were particularly affected, as a result of the downturn in e-business investment. More generally, in a climate of growing economic uncertainty, a slowdown in corporate spending on IT development and deployment was experienced, most noticeably in the telecoms and investment banking sectors. In recognition of market conditions, Computacenter has continued to pay close attention to keeping costs under tight control and, even allowing for the growth in on-site Managed Services personnel, Group headcount during the period has been essentially static. During the first half, the decision was taken to close the iGroup, a specialist e-business operation, which produced an operating loss of £5.0 million in the period. The decline in e-business investment meant that the iGroup was no longer viable as a separate division. Some of its hosting services have been transferred to Computacenter's core UK operations and its knowledge management software activities, which had operating losses of £3.4 million, have been discontinued. The Group's balance sheet remains strong. Cash generated from operations was £ 56.0 million. Capital expenditure and investments amounted to £7.1 million. For some years, Computacenter has pursued a strategy of adding services to its core product logistics business. Our longstanding customer relationships and the scale and depth of our technical resource leave us well placed to service our customers' complex and diverse IT infrastructure requirements, which encompass desktops, datacentres and networks. It is pleasing to note the further progress made in the first half of the year in the development of the Group's service activities. In the UK, revenues from Managed Services contracts, where we manage elements of our customers' IT support on their behalf, increased by 22.1% over the same period last year. Investment in the development of skills, management tools and best practices continued to be a high priority, and this is reflected in the ever-increasing scope and complexity of the contracts we secure. Our recent success in winning, together with CMG, the infrastructure management contract for the Health and Safety Executive is particularly noteworthy, in that it is the first ten-year contract awarded to the Group. In our Professional Services activities, we have placed considerable emphasis on delivering repeatable infrastructure solutions in such areas as server consolidation, datacentre integration and business availability. We continued to gain market share in France, where turnover, at £117.1 million was 30.7% ahead of the same period last year, and operating profit was £2.1 million, compared with an operating loss of £1.2 million for the first half of 2000. A similar improvement in performance was seen in Germany, where first-half losses were reduced from £1.8 million in 2000 to £0.6 million in 2001. A restructuring of Computacenter Germany, involving the closure of two branches and a stronger focus on Unix and networking products, contributed to this improvement. In all of our continental operations, the strategic emphasis continues to be upon the development of the services offering to complement the product supply business, following the path that the Group is pursuing successfully in the UK. The market downturn experienced in the second quarter was significant. Market conditions since the half year remain similar to those experienced in May and June. Trading conditions and therefore the outlook for profits in the second half are difficult to predict with confidence. We have a strong and cash generative business, which is being tightly managed to reflect market conditions. If trading continues at current levels, we anticipate that Computacenter's profits for 2001, before exceptional costs and the share of losses in Biomni, will be broadly similar to those of last year. The success of Computacenter is crucially dependent upon the skills, resourcefulness and commitment of our staff, to whom I offer my thanks and appreciation. The volatility of market conditions in the IT industry in the past two years has placed considerable demands on our people, and their response has been thoroughly praiseworthy in every respect. Finally, this is an appropriate place to record, on behalf of everyone involved with Computacenter, our thanks and best wishes to Philip Hulme, who stepped down from his role as Executive Chairman after the AGM earlier this year. Philip's contribution to Computacenter, from its foundation twenty years ago through its public flotation and beyond, has been immense. I am delighted that Philip has agreed to remain on the board as a non-executive director, and I look forward to continuing to work with him in this capacity. Ron Sandler Chairman UK operations In the UK, the market recovery that began in the second half of 2000 continued into the first half of 2001, particularly in the first quarter. Much of this was driven by our customers' needs for an integrated array of infrastructure services. For example, Boots awarded Computacenter a major desktop infrastructure implementation project covering 10,000 users worldwide. As well as product supply, the contract covers technical consultancy and application migration services around Microsoft Windows 2000. Many of our business-critical infrastructure projects rely on the integration of complex enterprise-class technologies. We achieved significant growth in our enterprise business, involving procurement, integration and consultancy projects for customers including Bristol & West and the Bank of Scotland. The provision of selective outsourcing services is an important component of our focus on reducing the cost and increasing the value of IT for our customers. For Shell Services International, for example, we were awarded the UK roll-out of a major standardisation programme and a managed services contract to support the new infrastructure. Interest in our outsourcing services was not confined to the corporate sector. The Traffic Area Network (TAN) unit of the Department of Transport, Local Government and the Regions (DTLR) awarded us a five-year contract for the support of the unit's entire desktop and server infrastructure, including the maintenance and management of all applications and network connectivity. We also won significant business in our traditional product supply activity, where we are increasingly finding opportunities to take on a managed procurement role. In another important public sector win, Consignia appointed us as sole supplier for the procurement of all its hardware and software. First half revenues from government business in the UK increased markedly over the same period last year, with the proportion of Computacenter's UK revenues derived from government clients increasing from 14.3% to 23.0%. Although government business is generally lower margin by virtue of its lesser service content, the relative buoyancy of this sector offers the Group some degree of protection against the current downturn in corporate spending. We expect to obtain significant benefits from our new Hatfield Operations Centre, which represents a substantial investment in state-of-the-art logistics and configuration technology. The facility, which is now fully operational, enables the provision of faster, lower cost product delivery, and an enhanced range of customised services, from managed configuration to build-to-order. To facilitate services growth and enhance our operational and marketing effectiveness, the first six months of 2001 saw Computacenter successfully implement a major re-organisation in the UK. Following the restructure, in which our operating divisions were brought together into a single customer-facing organisation, we have been engaged in a thorough review of market requirements. This has included an audit of our services to ensure they are underpinned by appropriate skills and tool sets, and that they represent industry best practice. A further development in the UK was the closure of the iGroup, and the transfer of some of its hosting services to our enterprise division. Computacenter remains committed to helping its customers manage their e-commerce operations on stable, reliable, and scaleable IT infrastructures. International operations Our European businesses experienced broadly similar market conditions to those in the UK and both France and Germany outperformed significantly the same period last year. While our services business is less mature in Europe than the UK, we were pleased to see some important integration and support wins in the first half of 2001. In France, Computacenter continued to win market share. There was good support services growth across our French client base, as well as some noteworthy supply wins, including contracts with the French army and with Alcatel, covering over 100,000 and 40,000 users respectively. We expect the French business to perform according to plan in the second half. In Germany, following the rationalisation of branches in January, half-year results are ahead of expectations. The strategy of placing greater emphasis on services and enterprise activities is showing promise, and we were pleased to implement our first enterprise-class Sun systems in Germany. The performance of our Belgium and Luxembourg business was disappointing, largely due to the complexities of integrating the acquired service activities with Computacenter's traditional product supply business. Other businesses The addition of a technology asset recycling and remarketing service, via the acquisition of RDC in 1999, enables Computacenter to offer cradle-to-grave IT management. RDC volumes increased significantly in the first half of the year, with the organisation processing over 320 tonnes of IT waste in the period, 60% being recycled for re-use. RDC became the first company in its field to receive BSI ISO 9002 certification for its entire UK operation earlier this year. Our distribution business, CCD, which offers products and logistics services to resellers, enjoyed a strong first half with revenues exceeding £150m. The performance of Metrologie, the value-added enterprise distributor acquired in 1999, was particularly pleasing. Biomni, our joint venture with Computasoft e-Commerce Ltd, continued to make encouraging progress, including full-scale implementations of its e-procurement solutions at Wincanton plc and the Foreign and Commonwealth Office. In the first half, the company grew its revenues by over 100% on the same period last year and continued to build a client base independent of Computacenter, adding over 20 new customers to its B2B e-commerce community. Appointments There have been some significant new senior appointments this year. In June, Tim Way joined Computacenter as Director of HR and Customer Satisfaction and in August, Mark Slaven joins us as Director of Information Systems. I am pleased to welcome Ron Sandler as our new Chairman. Since joining the board last year, Ron has made a significant contribution to Computacenter and his wide business experience will continue to prove invaluable. Mike Norris Chief Executive GROUP PROFIT AND LOSS ACCOUNT For the six months ended 31 June 2001 Unaudited Unaudited Audited Six Six Year months months Ended Ended Ended 31 Dec 30 June 30 June 2000 2001 2000 £'000 £'000 £'000 TURNOVER Turnover: group and share of joint ventures 1,175,570 927,487 1,990,620 turnover Less: share of joint venture turnover (1,917) (762) (2,173) Continuing Operations: 1,172,012 926,622 1,988,052 Discontinued operations 1,641 103 395 GROUP TURNOVER 1,173,653 926,725 1,988,447 OPERATING COSTS (1,138,233) (905,354) (1,927,040) OPERATING PROFIT/ (LOSS) Continuing operations 38,844 21,821 65,925 Discontinued operations (3,424) (450) (4,518) GROUP OPERATING PROFIT 35,420 21,371 61,407 Share of operating loss in joint venture (1,420) (1,970) (3,551) Share of operating profit in associate 40 65 90 TOTAL OPERATING PROFIT: GROUP AND SHARE OF 34,040 19,466 57,946 ASSOCIATE AND JOINT VENTURE Exceptional loss on termination of operation (3,362) - - PROFIT ON ORDINARY ACTIVITIES BEFORE 30,678 19,466 57,946 INVESTMENT INCOME, INTEREST AND TAXATION Interest receivable and similar income 2,851 3,310 6,343 Interest payable and similar charges (4,270) (3,589) (8,718) PROFIT ON ORDINARY 29,259 19,187 55,571 ACTIVITES BEFORE TAXATION Tax on profit on ordinary activities (9,457) (5,897) (16,348) PROFIT ON ORDINARY 19,802 13,290 39,223 ACTIVITIES AFTER TAXATION Minority interests - equity (6) 41 14 PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT 19,796 13,331 39,237 COMPANY Dividends - ordinary dividends on equity (52) (31) (5,269) shares RETAINED PROFIT FOR 19,744 13,300 33,968 THE PERIOD Earnings per share - Basic 11.0p 7.5p 22.0p - Diluted 10.6p 7.1p 20.8p Diluted (Excluding impact of joint venture) 11.1p 7.8p 22.1p Diluted (Excluding impact of joint venture 12.4p 7.8p 22.1p and effect of termination costs) Dividends per ordinary share - - 2.9p GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the six months ended 31 June 2001 Unaudited Unaudited Audited Six Six Year months months Ended Ended Ended 31 Dec '30 June 30 June 2000 2001 2000 £'000 £'000 £'000 Profit for the financial period excluding 20,736 15,236 41,633 share of joint venture and associate Share of joint venture's loss for the period (980) (1,970) (2,486) Share of associates profit for the period 40 65 90 Profit attributable to members of the parent 19,796 13,331 39,237 company for the financial period Exchange differences on retranslation of net (214) 64 (75) assets of associated and subsidiary undertakings Total Recognised gains for the period 19,582 13,395 39,162 GROUP BALANCE SHEET At 30 June 2001 Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended '30 June 30 June 31 Dec 2001 2000 2000 £'000 £'000 £'000 FIXED ASSETS Intangible assets 6,067 6,988 6,227 Tangible assets 106,931 106,564 109,402 Investments 12,888 9,229 11,825 125,886 122,781 127,454 CURRENT ASSETS Stocks 97,425 76,865 119,563 Debtors 281,688 288,335 339,623 Cash at bank and in hand 109,422 79,536 71,647 488,535 444,736 530,833 CREDITORS: amounts falling due (346,196) (341,151) (410,095) within one year NET CURRENT ASSETS 142,339 103,585 120,738 TOTAL ASSETS LESS CURRENT LIABILITIES 268,225 226,366 248,192 CREDITORS: amounts falling due after more (38,335) (39,863) (39,504) than one year PROVISION FOR JOINT VENTURE DEFICIT Share of gross assets 3,927 943 3,455 Share of gross liabilities (7,375) (2,888) (5,923) (3,448) (1,945) (2,468) PROVISION FOR LIABILITIES (1,931) (1,736) (1,983) AND CHARGES TOTAL ASSETS LESS LIABILITIES 224,511 182,822 204,237 CAPITAL AND RESERVES Called up share capital 9,251 9,170 9,201 Share premium account 68,256 66,733 67,568 Profit and loss account 146,836 106,782 127,304 Shareholders' funds - equity 224,343 182,685 204,073 Minority interests - equity 168 137 164 224,511 182,822 204,237 GROUP STATEMENT OF CASH FLOWS For the six months ended 30 June 2001 Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 30 June 31 Dec 2001 2000 2000 £'000 £'000 £'000 CASH INFLOW FROM OPERATING ACTIVITIES 55,989 36,408 54,277 RETURNS ON INVESTMENTS AND SERVICING OF (1,312) 1,894 (2,164) FINANCE TAXATION Corporation tax paid (6,050) (5,281) (19,625) CAPITAL EXPENDITURE AND FINANCIAL (7,120) (20,676) (35,983) INVESTMENT ACQUISITIONS AND DISPOSALS - (2,870) (702) EQUITY DIVIDENDS PAID (5,292) (5,231) (5,229) CASH OUTFLOW BEFORE FINANCING 36,215 4,244 (9,426) FINANCING Issue of shares 737 1,029 1,895 Decrease in debt - - (1,500) INCREASE/ (DECREASE) IN CASH IN THE 36,952 5,273 (9,031) PERIOD GROUP STATEMENT OF CASHFLOWS For the six months ended 30 June 2001 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Unaudited Unaudited Audited Six Six Year months months Ended Ended Ended 31 Dec 30 June 30 June 2000 2001 2000 £'000 £'000 £'000 Net funds at 1 January 2001 13,407 21,152 21,152 Increase/ (decrease) in cash in the period 36,952 5,273 (9,031) Cash outflow from repayment of debt and lease finance - - 1,500 Change in net cash resulting from cash flows 36,952 5,273 (7,531) Amortisation of debt issue costs (108) (107) (214) Net funds at 30 June 2001 50,251 26,318 13,407 NOTES TO THE ACCOUNTS 1. ACCOUNTING POLICIES Basis of preparation 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 2000. The taxation charge is calculated by applying the Director's 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 The Group operates in one principal activity, that of the provision of distributed information technology and related services. Turnover represents the amounts derived from the provision of goods and services which fall within the Group's ordinary activities, stated net of VAT. An analysis of turnover by destination and origin, operating profit and net assets is given below: Turnover by Destination Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 2001 30 June 2000 31 Dec 2000 £'000 £'000 £'000 UK Continuing 1,002,148 790,972 1,668,536 Discontinued 1,641 103 395 Total 1,003,789 791,075 1,668,931 France, Belgium & Luxembourg 122,304 92,088 225,311 Germany 45,536 35,433 77,639 Rest of the World 2,024 8,129 16,566 Total 1,173,653 926,725 1,988,447 Turnover by Origin Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 2001 30 June 2000 31 Dec 2000 £'000 £'000 £'000 UK Continuing 999,366 799,380 1,686,143 Discontinued 1,641 103 395 Total 1,001,007 799,483 1,686,538 France, Belgium & Luxembourg 125,593 92,754 227,210 Germany 47,053 34,488 74,699 Total 1,173,653 926,725 1,988,447 Operating Profit Unaudited Unaudited Audited Six Six Year months months Ended Ended Ended 31 30 June 30 June Dec 2001 2000 2000 £'000 £'000 £'000 UK Continuing 37,833 25,185 68,179 Discontinued (3,424) (450) (4,518) Total 34,409 24,735 63,661 France, Belgium & Luxembourg 1,636 (1,612) 1,215 Germany (625) (1,752) (3,469) Total group excl associate 35,420 21,371 61,407 & Joint Venture undertakings Share of operating result (1,380) (1,905) (3,461) of associates and joint venture Total operating profit 34,040 19,466 57,946 3. OPERATING COSTS Unaudited Unaudited Audited Six Six Year months months Ended Ended Ended 31 Dec 30 June 30 June 2000 2001 2000 £'000 £'000 £'000 Decrease/(Increase) in stocks of finished goods 22,138 16,018 (26,679) Goods for resale and consumables 919,381 714,216 1,586,023 Staff costs 141,736 98,978 222,454 Depreciation and other amounts written off tangible and intangible assets 8,592 6,236 13,465 Other operating charges 46,386 69,906 131,777 1,138,233 905,354 1,927,040 4. INTEREST RECEIVABLE AND SIMILAR INCOME Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 2001 30 June 2000 31 Dec 2000 £'000 £'000 £'000 Bank interest received 2,851 3,310 6,343 5 INTEREST PAYABLE AND SIMILAR CHARGES Unaudited Unaudited Audited Six Six Year months months Ended Ended Ended 31 Dec 30 June 30 June 2000 2001 2000 £'000 £'000 £'000 Bank loans and overdraft 393 301 433 Other loans 3,877 3,288 8,284 Finance charges payable under finance leases - - 1 and hire purchase contracts 4,270 3,589 8,718 6 TAX ON PROFIT ON ORDINARY ACTIVITES The charge based on the profit for the period comprises: Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 2001 30 June 2000 31 Dec 2000 £'000 £'000 £'000 UK Corporation tax Current 9,897 6,488 17,118 Deferred tax - - 247 Foreign tax - - 48 9,897 6,488 17,413 Share of Joint Venture's tax (440) (591) (1,065) 9,457 5,897 16,348 The tax effect in the profit and loss account relating to the exceptional item recognised below operating profit is a credit of £1,042,081 7. EARNINGS PER SHARE Additional earnings per share ratios of 11.1p and 12.9p were calculated to provide a better view of group activities. The ratio of 11.1p is based on earnings of £20,783,436, which excludes the joint venture loss (£1,420,258 and the related tax credit £440,280). The ratio of 12.4p is based on earnings of £ 23,102,907, which excludes the joint venture loss (£1,420,258 and related tax credit £440,280) and the effect of the termination cost (£3,361,552 less the tax credit of £1,042,081). 8 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS Unaudited Unaudited Audited Six months Six months Year Ended Ended Ended 30 June 30 June 31 Dec 2001 2000 2000 £'000 £'000 £'000 Operating profit 35,420 21,371 61,407 Depreciation 8,432 6,143 13,202 Amortisation 160 93 263 Own shares allocated - - 176 Loss/(profit) on disposal of fixed 56 - 87 assets Loss on termination of business (1,166) - - operation Increase/ (decrease) in debtors 57,936 (44,074) (95,130) (Increase)/decrease in stocks 22,138 16,018 (26,679) Increase/(decrease) in creditors (66,886) 36,797 101,053 Currency and other adjustments (101) 60 (102) Net cash inflow from operating activities 55,989 36,408 54,277 9. 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 2000. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies.

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