Interim Results

Computacenter PLC 11 September 2007 COMPUTACENTER PLC Interim Results Announcement Computacenter plc, the European IT infrastructure services provider, today announces interim results for the six months ended 30 June 2007. Financial Highlights: - Group revenues up 4.1% to Â£1.16 billion (2006: Â£1.11 billion) - Operating profit* up 12.1% to Â£12.8 million (2006: Â£11.4 million) - Â£3.0 million net interest income reduction, primarily due to capital return in 2006 - Profit before tax* 11.8% lower at Â£12.8 million (2006: Â£14.5 million) - Diluted earnings per share up 9.3% to 4.7p (2006: 4.3p) - Interim dividend of 2.5p per share (2005: 2.5p) * Reported post amortisation of acquired intangibles Operating Highlights: - Awarded multinational BT Group contract to provide desktop services and supply product to BT's entire global estate - UK operating profit impacted by price erosion and services contract renewals - Improved pipeline of UK services activity - Acquisitions of Digica and Allnet strengthening services capability - Improved performance in Germany with growth across all areas of the business and significant contract wins - Continued progress in France with further restructuring cost efficiencies Ron Sandler, Chairman of Computacenter plc, commented: 'Overall, the Group performance in the first half has been encouraging. We were pleased to see a stronger performance from France and Germany and expect this trend to continue. In the UK, despite a weaker performance, we have made good progress in transforming our business in response to some fundamental changes in our markets. We remain committed to translating these adjustments into consistent performance improvements. Looking ahead, we expect our market positioning and performance to continue to improve. The second half of the year has started positively for the Group and we are increasingly confident about our outlook for the full year, which remains unchanged.' 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 www.tulchangroup.com Chairman's statement The Group had an encouraging first half, with stronger performance in France and Germany partially offset by a weaker result in the UK. Overall, Group revenues, including acquisitions, were up 4.1% at Â£1.16 billion and up 2.1% on a like-for-like basis (H1 2006: Â£1.11 billion). Operating profit was up 12.1% to Â£12.8 million (H1 2006: Â£11.4 million). Following the Â£74.4 million capital return in July 2006 and expenditure of Â£32.6 million on acquisitions in 2007, net interest income reduced from Â£3.0 million to nil. Consequently, profit before tax decreased 11.8% to Â£12.8 million (H1 2006: Â£14.5 million). Despite the pre tax profit reduction, diluted earnings per share increased by 9.3% to 4.7p (H1 2006: 4.3p), as a result of the reduced number of shares in issue. The balance sheet remains strong, with net borrowings prior to customer-specific financing of Â£16.5 million at the period end. There was an outflow of Â£45.9 million in the half-year, driven by the two acquisitions and a working capital outflow of Â£15.1 million. I am pleased to announce the payment of an interim dividend of 2.5p per share (2006: 2.5p) to be paid on 19 October 2007 to shareholders on the register as at 21 September 2007. 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. A central pillar of our strategy for ensuring long-term earnings growth is the expansion of our contracted services business. An important milestone was achieved in March 2007 with the signing of a five-year contract with BT Group to provide desktop services and supply product to BT's entire global estate, covering 54 countries. This replaces our previous UK contract with BT and represents a considerable enhancement in both scope and breadth of service. Excluding the results of the acquired businesses, UK revenues declined 1.8% to Â£649.2 million (H1 2006: Â£661.1 million) and operating profit declined 27.9% to Â£11.9 million (H1 2006: Â£16.4 million), with both product and services activities delivering a lacklustre performance. The operating profit decline was largely due to price erosion on renewals and the loss of some key services contracts in 2006, which adversely affected revenues and operating profit in H1 2007. However we have seen an improving pipeline of services activity, with a number of contract wins secured in late 2006 and 2007 yet to be translated fully into revenue. Product sales, in particular to public sector organisations, were below expectations in the first quarter, although some recovery was evident towards the end of the period and we continued to see strong growth in software revenues. We continue to invest in our products business for the long term, through tools and processes that lower our cost of sale, by adding sales capacity, and by leveraging our successful mid-market sales model for smaller organisations and for customers with less complex service requirements. Computacenter UK made two significant services acquisitions in the period to extend our capability in the growth areas of datacentre services and network computing. In January we concluded the acquisition of Digica Limited, a provider of datacentre managed services. This was followed in April by the acquisition of Cable & Wireless (Allnet) Limited, a leading provider of network integration and structured cabling services. Computacenter Germany enjoyed strong growth across all areas of its business, with H1 revenues up 14.4% to Â£340.7 million (H1 2006: Â£297.7 million) and operating profit of Â£3.8 million (H1 2006: Â£0.5 million). This is the best first-half performance since the German business was acquired in 2003 and reflects both a market recovery and our success in diversifying into new sectors, particularly the mid-market. With market conditions likely to remain strong and the full impact of the change programme in our German business yet to be realised, we expect this level of performance improvement to continue throughout the year. The improvement in our French performance, evident in H2 2006, continued in the first half of this year. Operating losses for the half-year decreased from Â£5.4 million to Â£2.1 million despite a 4.5% fall in revenues to Â£135.3 million (H1 2006: Â£141.7 million). French Managed Services revenue growth of 5.6% was offset by a 3.8% reduction in Professional Services revenues and a fall in product sales of 5.3%; however, margins increased in both products and services. Additionally, operating performance improved as a result of the cost savings arising from the restructuring of the French cost base that took place at the end of 2006. We expect the performance of Computacenter France to continue to improve and, based on progress to date, we are confident of a return to profit. Whilst much remains to be done, particularly in translating the substantial changes we have made to the UK business into consistent performance improvements, we have made good progress in transforming our business in response to some fundamental changes in our markets. For our continuing success in this endeavour, I am indebted to our staff for their hard work and commitment. Looking ahead, we expect our market positioning and performance to continue to improve. The second half of the year has started positively and we are increasingly confident about our outlook for the full year, which remains unchanged. Review of Operations UK UK performance has been below expectation. Despite a strong performance from the Technology Solutions business unit, Services Division revenues were adversely affected by price erosion on renewals and the previously reported loss of some key contracts in 2006. The Product Division, whilst showing some recovery in Q2 compared to Q1, has traded below 2006 levels, largely due to a reduction in government sales. Services Division Overall services revenues, excluding the effect of acquisitions, declined 3.7% to Â£129.9 million (2006: Â£134.9 million), with Technology Solutions growth partially compensating for a decline in contractual revenues. Managed Services Our Managed Services business saw a 14.3% decline in revenues largely due to the loss of several key contracts in H2 2006, which also led to a gross margin reduction. Our strategy has focused on the growing market for datacentre and enterprise computing Managed Services and on extending our offering to mid-market customers. In the datacentre market, our presence was enhanced substantially with the acquisition of Digica in January. The use of the Shared Services Factory's repeatable processes and embedded best practice were fundamental to our securing a number of contracts, including a recent win with EDF Energy, worth Â£9.6 million, signed in July. Important new mid-market wins in the period included a five-year, Â£4.1 million, datacentre Managed Services contract with FremantleMedia. Support Services The market for IT infrastructure support continues to be highly cost competitive, with increased price pressure at renewals of larger contracts mostly responsible for a small decline in our Support Services revenues. Demand for our offerings is polarising into larger, complex deals and smaller commoditised packaged services. For the former, customers look to us to consolidate their infrastructure support whilst reducing cost and improving service levels. An example of this is our four-year, Â£20 million contract win with Reuters, where services provided to their customers include product supply logistics, engineering, service management and contract management. At the more commoditised end of the market, there is increasing demand for simplified packaged services with transparent pricing. To address this market sector, Computacenter launched three packaged services in the first half of the year: lifetime maintenance, resource on demand and a disaster recovery service. 29 new contracts were signed with Support Services in the period, including with Merrill Lynch for server support and with TGI Fridays UK for server, desktops and EPoS maintenance. Technology Solutions This business unit continued to perform well, with Professional Services revenue growth of approximately 20% compared to H1 2006, prior to the effect of acquisitions. Increased project activity also benefited our product supply business, with a 21% increase in associated hardware and software sales. Particularly pleasing was the continued strong performance of our datacentre business, particularly our virtualisation and consolidation activities, and our datacentre utility and relocations services, which have been a major focus of our business development efforts. The acquisition and integration in April of Allnet, a leading UK provider of network integration and structured cabling services, has significantly increased our penetration of the connectivity market, doubling the size of Computacenter's business in this segment. Recent wins utilising Allnet's capabilities include Varian Medical Systems, a new trading customer for whom we worked on the design and implementation of a new datacentre facility, and a major telecoms operator, where we are providing the system design, installation, migration and testing for a new subscriber pre-payment service. Other significant wins in the period include a contract for the design, implementation and hosting of a software testing environment for Amdocs, a leading provider of customer experience systems. Digica The H1 profit performance of this newly acquired business was below expectation, due to some disruption resulting from the transaction, plus the start-up of several large new datacentre contracts. However we are confident of a significant improvement in the second half of the year. Demand for Digica's services remained buoyant, with the business achieving record new business contract values in the 12 months to June 2007. Significant wins include Crest Nicholson, where we added a major transformation project to our existing five-year outsourcing contract. The strength of the combined Computacenter/Digica proposition was an important consideration in awarding this project. Product Division Total UK products revenue, excluding the effect of acquisitions, declined 1.3% to Â£519.2 million (H1 2006: Â£526.2 million), although improved product margins from increased enterprise technology spend partially compensated for this revenue deterioration. There is an increasing demand from customers for Computacenter to own assets, particularly in the datacentre, and charge for the cost of equipment bundled with the service. We welcome this and see it as an opportunity to improve margins and increase services revenue over time. This customer specific finance amounted to Â£36.9 million at the end of the period (H1 2006: Â£1.8 million). To lower our cost of sale and increase productivity in this business we launched new versions of our online procurement system, Connect, and our sales administration system, One Touch. We also continue to focus on improving automated processes for the direct delivery of technology to clients. Hardware Desktop sales continue to decline, largely offset by the increase in sales of server, networking and storage systems from Sun, EMC and Cisco and a significant increase in HP Intel server business. We continued to see growing demand for electronic trading, with sales via our webshop and other EDI links increasing to over 30% of all orders. This area remains a key focus. Supply associated services such as portfolio management, technology benchmarking and commercial advisory services proved important market differentiators. These include our new 'green advisory service', which shows how organisations can reduce costs and increase competitive advantage whilst reducing the IT element of their carbon footprint. Significant hardware wins in the period include technology benchmarking and desktop supply for Leeds City Council, which also includes disposals management via our RDC subsidiary. Software Our Software business unit had a strong start to the year, with revenues recording a 14.5% increase on the first half of 2006. The needs of our customers to reduce their software costs and increase their return on investment helped us win important new business. Our ability to track licence renewals and entitlements and so monitor compliance, consolidate licences and improve discount bands is leading to significant opportunities. Computacenter continues to invest in this business and we are increasing the numbers of licensing executives and managers in response to growing customer demand. Significant wins include a three-year Microsoft Enterprise Agreement with the NHS, worth Â£37 million. Computacenter Direct We continued to target the growing market for IT product and services in the medium-sized business sector. The success of our 'light touch' account management approach led to over 1,000 smaller trading accounts being transferred to this sales model and we continued to recruit significant numbers of new sales staff. Over 650 new trading customers were added in H1, and we are confident of continuing growth in the mid-market sector. CCD The first half of 2007 saw a continuation of the improving trend in the financial performance of our trade distribution arm, CCD. This was attributable to a focus on tight operational control, combined with the new sales structure implemented during 2006. Germany Computacenter Germany recorded the best H1 operating performance since the acquisition of the German business in 2003. Revenue growth was fairly evenly spread, with services revenue growing by some 12%, and product revenues by 16%. As a result, our business mix remained fairly constant, with approximately 35% of our revenues coming from services and 65% from product. In part this performance can be attributed to an upturn in the German IT market driven by general economic factors. However, it is also the result of a concerted campaign over the last two years to expand our customer base, especially in the medium-sized enterprise sector, and to leverage opportunities for cross-selling to existing customers. The profitability in 2006 was affected by start-up losses from the shared datacentre contracts, which totalled Â£6.3 million, Â£5.4 million of which were in the second half. As a consequence, we will see a further additional material improvement in our overall German profitability in H2 2007. We secured a number of new and extended Managed Services contracts and saw strong growth in our solutions business, particularly in Voice Over IP Telephony and Voice on Demand. This in turn helped boost enterprise technology sales, driving growth of over 17% in our server and storage products business. Reversing a long-standing trend, we also saw 15% growth in our desktop products business, with software sales in particular performing very well. Despite continuing price declines, this revenue growth has been achieved with no degradation to margins. Significant wins in the period include a server support contract with SAP Hosting, and a network supply and maintenance contract with BMW Group. Additionally, we secured a datacentre outsourcing contract with Immobilienscout 24, which operates Germany's largest Internet real estate marketplace. France Significant progress was made in France, where operating losses reduced 60.6% despite a small decline in revenues. Services revenue growth of 0.8% was offset by a fall in product revenues of 5.3%; however the margin improvements of late 2006 continued into the first half of 2007, with increased margins from both products and services. The performance improvement is largely attributable to our ongoing focus on reducing the cost base and streamlining our operations, with particular progress made in the latter half of 2006. As well as further progress in reducing expenses in 2007, we are already seeing the benefits of a new sales pay plan, which focuses more sharply on achieving services growth and maximising margins. We are also benefiting from a sales management programme, launched last year, which is designed to better identify, qualify and capture maintenance and enterprise product opportunities. Significant wins include four new Managed Services contracts, worth in the region of Â£2 million a year, including a large European staffing and recruitment company and one of France's biggest power and energy companies. Benelux Overall, our Benelux operation recorded a small loss of Â£111,000 (2006: Â£82,000). Product supply again performed strongly, as did Managed Services, whilst project and consulting services remained weak. Key wins include a large international hardware supply contract with KBC, an extension of current infrastructure projects at Recticel, and an application services project for Dexia. RDC RDC has made a good start to the year with H1 profit above expectations. In the UK business, service sales grew 21% on H1 2006 and remarketing margin was up 20%. This growth came from the success of our Computacenter Asset Recovery Services offering and was also boosted by sales of our fledgling 'collect and recycle' service into the mid-market. RDC's German business was slow in H1, but revenues from two major wins will start to come through in the second half of the year. Consolidated income statement For the six months ended 30 June 2007 Unaudited Unaudited Year ended six months six months 31 Dec 2006 ended 30 ended 30 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Revenue 1,160,333 1,114,939 2,269,903 Cost of sales (1,006,183) (969,619) (1,974,437) -------- -------- -------- Gross profit 154,150 145,320 295,466 Distribution costs (9,267) (9,304) (19,075) Administrative expenses (131,819) (124,581) (242,819) -------------------------- -------- -------- -------- Operating profit: Before amortisation of acquired 13,064 11,435 33,572 intangibles and exceptional items Amortisation of acquired intangibles (240) - - -------------------------- -------- -------- -------- Operating profit before exceptional 12,824 11,435 33,572 items Impairment of non-current assets - - (2,606) Redundancy costs - - (2,425) -------------------------- -------- -------- -------- Operating profit 12,824 11,435 28,541 Finance revenue 2,157 4,044 6,677 Finance costs (2,166) (1,053) (2,289) Share of profit of associate - 98 - -------------------------- -------- -------- -------- Profit before tax: Before amortisation of acquired 13,055 14,524 37,961 intangibles and exceptional items Amortisation of acquired intangibles (240) - - -------------------------- -------- -------- -------- Profit before tax before exceptional 12,815 14,524 37,961 items Impairment of non-current assets - - (2,606) Redundancy costs - - (2,425) -------------------------- -------- -------- -------- Profit before tax 12,815 14,524 32,930 Income tax expense (5,319) (6,434) (13,994) -------- -------- -------- Profit for the period 7,496 8,090 18,936 ======== ======== ======== Attributable to: Equity holders of the parent 7,496 8,090 18,927 Minority interests - - 8 -------- -------- -------- 7,496 8,090 18,935 ======== ======== ======== Earnings per share - basic for profit for the year 4.8p 4.3p 11.0p - basic for profit pre exceptional 4.9p 4.3p 13.9p items and amortisation of acquired intangibles - diluted for profit for the year 4.7p 4.3p 10.9p - diluted for profit pre exceptional 4.8p 4.3p 13.8p items and amortisation of acquired intangibles Consolidated balance sheet As at 30 June 2007 Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Non-current assets Goodwill 32,199 4,755 4,755 Intangible assets 12,563 4,993 5,190 Property, plant and equipment 102,116 77,456 84,874 Investment accounted for using the - 184 - equity method Deferred income tax asset 8,238 5,582 6,166 -------- -------- -------- 155,116 92,970 100,985 -------- -------- -------- Current assets Inventories 92,011 87,733 94,586 Trade and other receivables 410,222 365,120 427,319 Prepayments 66,133 68,421 50,435 Forward currency contracts 167 26 111 Cash and short-term deposits 47,352 161,862 77,882 -------- -------- -------- 615,885 683,162 650,333 -------- -------- -------- Total assets 771,001 776,132 751,318 ======== ======== ======== Current liabilities Trade and other payables 306,919 269,250 315,846 Deferred income 71,428 80,313 77,714 Financial liabilities 81,189 70,519 55,736 Income tax payable 7,278 8,006 8,394 Provisions 2,166 1,585 2,132 -------- -------- -------- 468,980 429,673 459,822 -------- -------- -------- Non-current liabilities Financial liabilities 20,511 704 11,362 Provisions 11,653 13,384 12,839 Other non-current liabilities 731 12 917 Deferred income tax liabilities 2,486 837 1,249 -------- -------- -------- 35,381 14,937 26,367 -------- -------- -------- Total liabilities 504,361 444,610 486,189 -------- -------- -------- Net assets 266,640 331,522 265,129 ======== ======== ======== Capital and reserves Issued capital 9,585 9,543 9,571 Share premium 2,776 76,004 2,247 Capital redemption reserve 74,542 100 74,542 Own shares held (2,503) (2,503) (2,503) Foreign currency translation reserve (2,381) (1,524) (2,455) Retained earnings 184,594 249,883 183,700 -------- -------- -------- Shareholders' equity 266,613 331,503 265,102 Minority interest 27 19 27 -------- -------- -------- Total equity 266,640 331,522 265,129 ======== ======== ======== Approved by the Board on 10 September 2007 MJ Norris, Chief Executive FA Conophy, Finance Director Consolidated statement of changes in equity Attributable to equity holders of the parent ---------------------------------- Issued Share Capital Own Foreign Retained Total Minority Total capital premium redemption shares currency earnings interest equity reserve held translation reserve Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2006 9,505 74,680 100 (2,503) (1,757) 250,630 330,655 19 330,674 Exchange differences on retranslation of foreign operations - - - - 233 - 233 - 233 ------ ------ ------- ------ ------- ------- ------- ------ ------- Net income recognised directly in equity - - - - 233 - 233 - 233 Profit for the period - - - - - 8,090 8,090 - 8,090 ------ ------ ------- ------ ------- ------- ------- ------ ------- Total recognised income for the period - - - - 233 8,090 8,323 - 8,323 Exercise of options 38 1,324 - - - - 1,362 - 1,362 Cost of share based payments - - - - - 568 568 - 568 Equity dividends - - - - - (9,405) (9,405) - (9,405) ------ ------ ------- ------ ------- ------- ------- ------ ------- 38 1,324 - - 233 (747) 848 - 848 ------ ------ ------- ------ ------- ------- ------- ------ ------- At 30 June 2006 9,543 76,004 100 (2,503) (1,524) 249,883 331,503 19 331,522 Exchange differences on retranslation of foreign operations - - - - (931) - (931) - (931) ------ ------ ------- ------ ------- ------- ------- ------ ------- Net expense recognised directly in equity - - - - (931) - (931) - (931) Profit for the period - - - - - 10,837 10,837 8 10,845 ------ ------ ------- ------ ------- ------- ------- ------ ------- Total recognised income and expense for the period - - - - (931) 10,837 9,906 8 9,913 Cost of share-based payments - - - - - 843 843 - 843 Exercise of options 28 993 - - - - 1,021 - 1,021 Bonus issue 74,442 (74,442) - - - - - - - Expenses on bonus issue - (308) - - - - (308) - (308) Share redemption (74,442) - 74,442 - - (73,886) (73,886) - (73,886) Expenses on share redemption - - - - - (56) (56) - (56) Equity dividends - - - - - (3,921) (3,921) - (3,921) ------ ------ ------- ------ ------- ------- ------- ------ ------- 28 (73,757) 74,442 - (931) (66,183) (66,401) 8 (66,393) ------ ------ ------- ------ ------- ------- ------- ------ ------- 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 Exercise of options 14 529 - - - - 543 - 543 Cost of share based payments - - - - - 1,269 1,269 - 1,269 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 ====== ====== ======= ====== ======= ======= ======= ====== ======= Consolidated cash flow statement For the six months ended 30 June 2007 Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Operating activities Operating profit 12,824 11,435 28,541 Adjustments to reconcile Group operating profit to net cash inflows from operating activities Depreciation 11,124 6,869 14,585 Amortisation 1,648 850 1,907 Cost of share-based payment 1,269 568 1,411 Impairment of property, plant & - - 2,492 equipment Loss on disposal of property, plant and 60 260 353 equipment Impairment of intangible assets - - 114 Loss on disposal of intangible assets 36 9 9 Dividend received from associate - 203 202 Decrease in inventories 4,897 12,846 4,560 Decrease/(increase) in trade and other 16,234 14,240 (35,498) receivables (Decrease)/increase in trade and other (36,234) (41,629) 6,895 payables Currency and other adjustments (72) (73) 5 -------- -------- -------- Cash generated from operations 11,786 5,578 25,576 Income taxes paid (6,345) (4,744) (11,994) -------- -------- -------- Net cash flow from operating activities 5,441 834 13,582 -------- -------- -------- Investing activities Interest received 1,988 4,066 6,600 Acquisition of subsidiaries, net of (32,596) - - cash acquired Sale of property, plant and equipment 306 22 24 Purchases of property, plant and (6,173) (1,400) (7,504) equipment Purchases of intangible assets (2,934) (1,115) (2,499) Sale of interest in associate - - 364 -------- -------- -------- Net cash flow from investing activities (39,409) 1,573 (3,015) -------- -------- -------- Financing activities Interest paid (2,069) (1,293) (2,152) Dividends paid to equity holders of the (7,871) (9,405) (13,326) parent Proceeds from issue of shares 543 1,362 2,383 Repayment of capital element of finance (2,061) (1,320) (2,629) leases Repayment of loans - - (326) Repayment of other loans (6,742) - (5,201) New borrowings 6,203 - 12,447 Return of capital - - (74,442) Expenses on return of capital - - (365) (Decrease)/increase in factor financing (8,381) 2,066 (1,377) -------- -------- -------- Net cash flows from financing (20,378) (8,590) (84,988) activities -------- -------- -------- Decrease in cash and cash equivalents (54,346) (6,183) (74,421) Effect of exchange rates on cash and 1 (156) 492 cash equivalents Cash and cash equivalents at beginning 58,982 132,911 132,911 of period -------- -------- -------- Cash and cash equivalents at end of 4,637 126,572 58,982 period ======== ======== ======== Analysis of net funds Cash and cash equivalents 4,637 126,572 58,982 Factor financing (21,148) (33,805) (29,549) Bank loan - (326) - -------- -------- -------- Net funds prior to customer-specific (16,511) 92,441 29,433 loans and finance leases Finance leases (30,218) (646) (11,403) Other loans (6,707) (1,156) (7,246) -------- -------- -------- Net funds (53,436) 90,639 10,784 ======== ======== ======== Notes to the accounts 1 Accounting policies Basis of preparation The unaudited interim financial statements have been prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 31 December 2006, with one exception. The revenue on a limited number of Support and Managed Services contracts has been recognised in line with the stage of work completed rather than on a straight line basis, where such a basis does not represent the stage of work completed. 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 Segment information The Group's primary reporting format is geographical segments and its secondary format is business segments. The Group's geographical segments are determined by the location of the Group's assets and operations. The Group's business in each geography is managed separately and held in separate statutory entities. Segmental performance for the period to 30 June 2007 was as follows: Unaudited Unaudited Year ended six months six months 31 Dec 2006 ended 30 ended 30 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Revenue by geographic market UK 671,154 661,095 1,281,498 Germany 340,680 297,671 654,671 France 135,309 141,732 307,264 Benelux 13,190 14,441 26,470 --------- --------- --------- Total 1,160,333 1,114,939 2,269,903 ========= ========= ========= Gross profit by geographic market UK 95,324 91,115 181,900 Germany 43,339 40,397 83,405 France 14,178 12,606 27,711 Benelux 1,309 1,202 2,450 --------- --------- --------- Total 154,150 145,320 295,466 ========= ========= ========= Operating profit/(loss) by geographic market UK 11,267 16,432 37,470 Germany 3,779 450 2,788 France (2,111) (5,365) (11,526) Benelux (111) (82) (191) --------- --------- --------- Total 12,824 11,435 28,541 ========= ========= ========= Revenue by business segment Product 873,628 846,831 1,735,210 Professional services 71,088 59,263 128,895 Support and managed services 215,617 208,845 405,798 --------- --------- --------- Total 1,160,333 1,114,939 2,269,903 ========= ========= ========= 3 Exceptional items Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Impairment of property, plant and equipment - - 2,492 Impairment of intangibles - - 114 Redundancy costs - - 2,425 -------- -------- -------- - - 5,031 ======== ======== ======== 4 Finance costs Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Bank overdrafts and factor financing 1,537 1,044 1,886 Finance charges payable under customer specific 629 9 403 finance leases and other loans -------- -------- -------- 2,166 1,053 2,289 ======== ======== ======== 5 Income tax The charge, based on the profit for the period, comprises: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 UK Corporation tax - Current 5,388 6,988 14,421 - Prior - - 76 Deferred tax (107) (569) (774) Foreign tax 38 15 212 -------- -------- -------- 5,319 6,434 13,935 Share of joint venture's tax - - 59 -------- -------- -------- 5,319 6,434 13,994 ======== ======== ======== 6 Dividends The proposed final dividend for 2006 of 5.0p per ordinary share was approved at the AGM in May 2007 and was paid on 31 May 2007. An interim dividend in respect of 2007 of 2.5p per ordinary share, amounting to a total dividend of Â£3,910,000, was declared by the Directors at their meeting on 10 September 2007. This interim report does not reflect this dividend payable. 7 Earnings per share Basic earnings per share amounts are calculated by dividing the net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period adjusted for the effect of dilutive share options. The following reflects the income and share data used in the total operations basic and diluted earnings per share computations: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Profit attributable to equity holders of the parent 7,496 8,090 18,927 Amortisation of acquired intangibles attributable to 240 - - equity holders of the parent Exceptional items attributable to equity holders of the - - 5,031 parent -------- -------- -------- Profit before exceptional items and amortisation of 7,736 8,090 23,958 acquired intangibles attributable to equity holders of the parent -------- -------- -------- No '000 No '000 No '000 Basic weighted average number of shares (excluding own 157,272 187,753 172,312 shares held) Effect of dilution: Share options 2,616 725 1,232 -------- -------- -------- Diluted weighted average number of shares 159,888 188,478 173,544 ======== ======== ======== 8 Business combinations Acquisition of Digica Group On 4 January 2007, the Group acquired 100% of the voting shares of Digica Group Holdings Ltd ('Digica') for a consideration of Â£15,835,000, in addition to which the Group settled the assumed debt of Â£11,426,000. The costs of acquisition amounted to Â£627,000. Digica is a private company, based principally in England, who specialises in IT infrastructure and application services. Outside of the UK, Digica operates a purpose built data-centre in Cape Town, South Africa. The acquisition has been accounted for using the purchase method of accounting. The interim condensed consolidated financial statements include the results of Digica for the six month period from the acquisition date. The book and provisional fair values of the net assets at date of acquisition were as follows: Book value Provisional fair value to Group Â£'000 Â£'000 Intangible assets Comprising: Purchased goodwill 9,784 - Existing customer contracts - 1,282 Existing customer relationships - 2,275 Trademark - 1,513 Tools and technology - 576 Software 40 40 -------- -------- Total intangible asets 9,824 5,686 Property, plant and equipment 1,216 1,083 Deferred tax assets - 2,000 Inventories 2,561 1,995 Trade and other receivables 2,271 2,271 Prepayments 1,801 1,801 Cash 84 84 Trade payables (2,893) (2,893) Other payables (2,252) (2,502) Deferred income (4,562) (4,562) Deferred tax liabilities - (1,240) -------- -------- Net assets 8,050 3,723 ======== Goodwill arising on acquisition 24,165 -------- 27,888 ======== Discharged by: Cash 15,835 Assumed debt 11,426 Costs associated with the acquisition, settled in cash 627 -------- 27,888 ======== From the date of acquisition, Digica has made a loss of Â£476,000 on revenues of Â£12,148,000. Included in the Â£24,165,000 of goodwill recognised above are certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature. These items include the expected value of synergies and an assembled workforce. Acquisition of Cable & Wireless (Allnet) Ltd On 3 April 2007, the Group acquired 100% of the voting shares of Cable & Wireless (Allnet) Ltd ('Allnet') for an initial consideration of Â£9,265,000 plus acquisition costs of Â£201,000. The purchase price shall be subsequently increased in the event that specific earnings targets are met in the period April 2007 to March 2010. Allnet is a private company based in England which provides in-premises cabling services. The acquisition has been accounted for using the purchase method of accounting. The interim condensed consolidated financial statements include the results of Allnet for the three month period from the acquisition date. The book and provisional fair values of the net assets at date of acquisition were as follows: Book value Provisional fair value to Group Â£'000 Â£'000 Intangible assets Comprising: Trademark - 409 Software 29 29 -------- -------- Total intangible assets 29 438 Property, plant and equipment 658 601 Inventories 1,675 364 Trade receivables 9,499 9,499 Prepayments 1,284 1,284 Cash 4,674 4,674 Trade payables (5,829) (5,829) Other payables (764) (764) Deferred income (3,078) (3,078) -------- -------- Net assets 8,148 7,189 ======== Goodwill arising on acquisition 3,277 -------- 10,466 ======== Discharged by: Cash 9,265 Contingent consideration 1,000 Costs associated with the acquisition, settled in cash 201 -------- 10,466 ======== From the date of acquisition, Allnet has contributed Â£9,823,000 to the Group's revenue and Â£162,000 to the net profit of the Group. If the acquisition had taken place at the beginning of the year, Group revenues for the year would have been Â£1,176,573,000 and net profit would have been Â£12,910,000. Included in the Â£3,277,000 of goodwill recognised above are certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature. These items include the expected value of synergies and an assembled workforce. 9 Cash and cash equivalents Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Cash and cash equivalents as at the end of the period comprises: Cash at bank and in hand 47,352 161,862 17,882 Short term deposits - - 60,000 Bank overdrafts (42,715) (35,290) (18,900) -------- -------- -------- 4,637 126,572 58,982 ======== ======== ======== 10 Financial assets and liabilities Customer-specific loans and finance leases Included within financial liabilities are the following amounts in respect of other loans and finance leases which are only secured on the assets that they finance. These assets are used to satisfy specific customer contracts. Other loans The other loans are borrowings to finance assets leased to customers on operating leases. The maturity profile of these loans is given in the table below: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Not later than one year 5,309 743 4,443 After one year but not more than five years 1,398 413 2,803 -------- -------- ------- 6,707 1,156 7,246 ======== ======== ======= Finance lease commitments The Group has finance leases for various items of plant and machinery; these leases have no terms of renewal or purchase options and escalation clauses. Future minimum lease payments under finance leases are as follows: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Within one year 13,918 376 3,501 After one year but not more than five years 19,836 296 10,593 -------- -------- ------- 33,754 672 14,094 Less finance charges allocated to future periods 3,536 26 2,691 -------- -------- ------- Present value of minimum lease payments 30,218 646 11,403 ======== ======== ======= Operating lease receivables where the Group is lessor During the period the Group entered into commercial leases with customers on certain items of machinery. Future amounts receivable by the Group under the non-cancellable operating leases are as follows: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 Â£'000 Â£'000 Â£'000 Not later than one year 19,689 672 8,541 After one year but not more than five years 22,246 - 12,723 -------- -------- ------- 41,935 672 21,264 ======== ======== ======= 11 Publication of non-statutory accounts The financial information contained in the interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The auditors have issued an unqualified opinion on the Group's statutory financial statements under International Accounting Standards for the year ended 31 December 2006. Those accounts have been delivered to the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange

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