Preliminary Results
Computacenter PLC
14 March 2006
COMPUTACENTER PLC
Preliminary Results Announcement
Computacenter plc, the European IT infrastructure services provider, today
announces preliminary results for the twelve months ended 31 December 2005.
Financial Highlights*:
• Group revenues of £2.29 billion (2004: £2.41 billion)
• Profit before tax of £34.0 million (2004: £67.9 million)
• £27.0 million of the profit decline attributable to lower vendor rebates
in the UK
• Second half profit of £25.8 million (H1 2005 £8.2 million)
• Earnings per share of 10.9p (2004: 25.9p)
• Proposed final dividend of 5.0p per share, total dividend of 7.5p (2004:
7.5p)
• Strong operating cash flow and balance sheet with net funds of £100.4
million at year-end (2004: £41.0 million after the adoption of IAS 32
and 39)
• Proposed return of £75 million to shareholders in Q2 2006
* continuing operations
Operational Highlights:
• Major strategic repositioning programme underway in the UK business
• UK annual services contract base growth of 4.6%
• Encouraging growth in German services activities
• Improved French performance in the second half, although significant
challenges remain
Ron Sandler, Chairman of Computacenter plc, commented:
'There is no denying that 2005 was a difficult year for Computacenter, and that
the financial performance of the Group was disappointing. But the year was not
without its positive features. Significant steps were taken in the UK to create
an organisation that is considerably better equipped to respond to the
challenges posed by the continuing commoditisation of IT. The long-running
dispute in Germany with GE was brought to a satisfactory resolution. And across
the Group, trading improved as the year progressed, and was particularly strong
at the year-end.
'Trading activity in the first two months of 2006 has been below the comparable
period in 2005. However, in recent years, our sales have become increasingly
weighted towards the end of each quarter, such that trading in the early weeks
of the quarter now provides a less reliable indicator of performance for the
period as a whole.
'Whilst much remains to be done to improve Computacenter's profitability, there
is a sense of optimism within the company that we are getting back on the right
track.'
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
Tim Lynch
www.tulchangroup.com
High resolution images are available for the media to view and download free of
charge from www.vismedia.co.uk
Chairman's Statement
In 2005, Computacenter's revenues declined to £2.29 billion (2004: £2.41
billion) and profit before tax fell 49.9% to £34.0 million (2004: £67.9
million). Most of the profit decline is attributable to reduced vendor rebates.
Some encouragement can be taken from the fact that following a particularly
difficult first half, the Group's performance improved considerably as the year
progressed. Profit before tax increased in the second half to £25.8 million from
£8.2 million in the first half, on revenues that were broadly unchanged.
The balance sheet remained strong. Even with an increased requirement for
working capital due to an upsurge in trading at the year-end, the Group ended
the year with net funds of £100.4 million (2004: £41.0 million after the
adoption of IAS 32 and 39). The Group's cash resources exceed its requirements
and the Board has decided to return £75 million to shareholders in the second
quarter of 2006, on the assumption that various tax matters can be
satisfactorily resolved within this timeframe. The Board intends to return
further cash to shareholders in the years ahead, subject to retaining sufficient
resources in the company to take advantage of opportunities to advance the
strategic repositioning of Computacenter through acquisition.
The Board is pleased to recommend a final dividend of 5p per share, bringing the
total dividend for 2005 to 7.5p (2004: 7.5p). It is the Board's intention to
maintain this dividend until earnings have risen sufficiently to bring the level
of cover to within the new target range of 2-2.5x, which is now considered
appropriate by the Board. The final dividend will be paid on 30 May 2006 to
shareholders on the register as at 5 May 2006.
Most of the profit decline is attributable to the Group's UK business, where
operating profit fell to £32.1 million, from £63.8 million in the previous year.
Reduced vendor rebates accounted for £27.0 million of this fall, and product
margins were under pressure throughout the year. Gross profit from the Product
Division fell by £35.2 million compared to 2004. The performance of the Services
Division was more encouraging; although gross profit was broadly unchanged,
revenues grew modestly and the contract base increased 4.6% to £177.1 million.
Computacenter's product business faces considerable challenges, including
falling prices, reducing margins and the impact of vendors selling commodity
products direct to end users, particularly in the large corporate market. In
response, some major steps have been taken to address Computacenter's UK
strategic positioning. In my statement accompanying the Interim Results, I drew
attention to these:
• Re-engineering our product business to deliver lower cost account
management and sales;
• Building a sizeable presence in the medium-sized business segment;
• Creating a specialist software business unit to increase our share of
this market;
• Broadening the depth and range of our technical services activities;
• Capturing greater value from the superior scale of our engineering and
maintenance activities, by sharing more resource across our customer base;
• Seeking to accelerate the growth of our Managed Services business.
Collectively, these strategic initiatives are intended to reposition
Computacenter in its core markets and restore long-term earnings growth. Their
implementation has required significant changes to our UK business model and
organisational structure, and management deserves considerable credit for its
handling of a complex and far-reaching reorganisation during the course of the
year.
Much remains to be done to realise the benefits of the new strategy; in
particular, some key IT systems necessary to support the new organisation will
only be introduced through the course of 2006. Whilst it is too soon to comment
on the impact of these initiatives, management is optimistic that the changes
will deliver the anticipated benefits, and the stronger second-half trading in
2005 may be an early indicator of this. The challenges, however, should not be
underestimated.
Difficult market conditions persisted in Germany, putting both product and
service margins under pressure throughout the year. Against a 5.7% decline in
revenues to £618.2 million (2004: £655.5 million), the operating profit in
Computacenter Germany fell to £5.0 million (2004: £9.0 million). But, as in the
UK, trading improved considerably as the year progressed; the operating profit
of £6.5 million in the second half was a substantial improvement on the
first-half loss of £1.5 million, and similar to the comparable period in the
previous year (2004: £6.5 million). This second-half improvement is attributable
to both the usual seasonal factors in the market and the German management
becoming more familiar with the new organisation structure introduced at the
start of the year. It also reflects some operational improvements to a
particularly problematical services contract.
The long-standing problems at Computacenter France continued during 2005, with
losses deepening to £9.3 million (2004: £6.7 million) on revenues of £295.8
million (2004: £300.4 million). Performance was particularly poor in the first
half of the year, when purchases from a major customer were temporarily
curtailed. A new management team has been in place for over a year and
Computacenter France is now being run on a much more disciplined basis; in
particular, the quality of financial control in the business has been
considerably enhanced. Efforts to align better the cost base of the business
with its revenue potential will continue in the future.
In November 2005, it was announced that an independent committee of the Board
had been formed to consider a potential offer for the Company from a group led
by Peter Ogden, a major shareholder and Non Executive Director. No formal offer
was made to the committee and, following the stronger trading performance in
December, the approach was withdrawn. The members of this group intend to
participate equally with other shareholders in the return of cash planned for
later this year.
Trading activity in the first two months of 2006 has been below the comparable
period in 2005. However, in recent years, our sales have become increasingly
weighted towards the end of each quarter, such that trading in the early weeks
of the quarter now provides a less reliable indicator of performance for the
period as a whole.
There is no denying that 2005 was a difficult year for Computacenter, and that
the financial performance of the Group was disappointing. But the year was not
without its positive features. Significant steps were taken in the UK to create
an organisation that is considerably better equipped to respond to the
challenges posed by the continuing commoditisation of IT. The long-running
dispute in Germany with GE was brought to a satisfactory resolution, and
management is now free of this particular distraction. And across the Group,
trading improved as the year progressed, and was particularly strong at the
year-end.
Whilst much remains to be done to improve Computacenter's profitability, there
is a sense of optimism within the company that we are getting back on the right
track. My appreciation and thanks go to the employees of Computacenter for their
outstanding commitment, energy and hard work.
Review of Operations
UK
In the face of continuing challenges, particularly in our product business, we
completed a fundamental review and realignment of our UK strategy in the first
half of 2005. This, in turn, led to a major reorganisation involving the
creation of separate Product and Services Divisions.
This strategic programme required considerable management time and attention
during 2005. However, by the year-end, the benefits arising from these changes
were already beginning to become apparent. In particular, the separation of our
product and services activities has given both areas sharper focus and added new
impetus to our efforts to restore top-line growth, whilst delivering operational
improvements and cost reduction.
At the heart of the organisational change has been the transformation of our UK
operations into seven discrete and highly empowered business units, which
operate largely with a shared sales force. This new structure provides two
principal benefits: a more focused and bottom-line driven management of
Computacenter's core activities, and a sales force that is now freed of its
previous responsibilities for the operational management of services delivery
and therefore better able to concentrate on expanding the new business pipeline.
Cost control remains a priority, with overall headcount in the UK falling 3.5%
from 4,754 to 4,589 over the course of the year. Of these reductions, 146 were
in indirect SG&A (sales, general and administration) expense categories.
Services Division
A key focus of our services business during 2005 has been standardisation in
order to reduce operational costs and improve customer service. This has allowed
us to reduce the provision of dedicated on-site resources in favour of a
centrally provided, shared-resource approach for the delivery of our
engineering, help desk and systems management offerings.
In particular, we created a single engineering resource from over 2,000 staff
previously dedicated to different functions and contracts. This makes it easier
to assign the most appropriate specialist resource where it is needed, as well
as helping to achieve higher levels of utilisation. Our success in lowering
operating costs and building a more streamlined service delivery model has
helped improve the competitiveness of our offerings.
The total services revenue in 2005 was £267.2 million and our annual contracted
base increased 4.6% to £177.1 million.
The Services Division comprises three business units: Managed Services, Support
Services and Technology Solutions.
Managed Services
Our Managed Services business unit is contractually responsible for the
management of our customers' IT infrastructures, with the goals of reducing
their costs and improving their user service levels.
To accelerate the growth in our Managed Services business a number of
initiatives were begun in 2005 aimed at targeting our offerings more
effectively, reducing operational costs and delivering a more efficient service.
Central to these initiatives is the leverage of common processes and central
resources, shared across the whole Services Division.
Considerable work has been done to define more clearly our core Managed Services
propositions and match our offerings more closely to customers' requirements. In
particular, we now have offerings specifically designed to meet a growing demand
for cost-effective managed support of datacentres, and for ensuring 24x7 IT
systems availability.
Significant new Managed Services business in 2005 included the award of a
five-year global contract with a major investment bank, a major contract with
British American Tobacco, and the renewal of our contract with AEGON UK for a
further five years. A major focus in 2006 will be the negotiation of the renewal
of our flagship Managed Services contract with BT which, unless the renewal is
accelerated, comes to the end of its term in March 2007.
Support Services
Our Support Services business unit includes services such as installations and
maintenance of desktops, datacentres and networks, user help-desk support, and
disaster recovery. Support Services activities differ from Managed Services in
that they involve more day-to-day customer instruction, as opposed to a
contractually defined service level agreement.
We saw 5.1% growth in engineering and maintenance revenues compared to 2004.
Support Services operating costs fell as a result of a 10% reduction in
logistics costs, record levels of engineer utilisation, better supply chain
management of spare engineering parts, and leverage of our European scale in
purchasing.
Technology Solutions
The Technology Solutions business unit is responsible for professional services,
including integration and project management services, and the provision of
expert advice across a range of platforms and technologies.
Overall Technology Solutions revenues were broadly unchanged. However revenues
from cabling projects grew strongly and we saw a 14% increase by volume in
enterprise hardware related projects. We are now seeing a healthy pipeline of
Technology Solutions projects for 2006.
In 2005 we sought to broaden and deepen our Technology Solutions portfolio,
redeploying our consulting skills in new growth areas and particularly targeting
the more business-critical areas of IT infrastructure. This has led to the
establishment of six solutions units, providing consulting services in the areas
of datacentre, storage, communications, Microsoft technologies, security and
cabling. Considerable work has been done in each of these areas to define more
clearly a portfolio of propositions aimed at delivering demonstrably attractive
returns on investment.
A number of significant Technology Solutions projects were undertaken in 2005,
including the design, testing and deployment of an upgraded IT infrastructure
for the Prescription Pricing Authority (PPA), which is required to help reduce
the cost of prescription processing in England. Computacenter has also been
contracted to provide ongoing support of the PPA infrastructure under a
five-year Managed Services agreement.
Product Division
In 2005, Computacenter experienced a 7.3% decline in UK product revenues,
reflecting continuing intense price competition and the efforts of certain major
vendors to sell direct. The adverse financial impact of this revenue decline was
compounded by substantially inferior vendor terms. The gross profit from our
product sales over the full year fell by £35.2 million, of which £27.0 million
was attributable to lower vendor rebates.
The new Product Division comprises four business units: Corporate Hardware,
Software, Computacenter Direct and CCD.
Corporate Hardware
In Corporate Hardware, we saw a significant shift in demand away from commodity
PC and notebook products towards enterprise-class technologies, including
high-end servers and networking products. In particular, we saw high growth in
sales of enterprise products from IBM, Sun, Veritas, Cisco, EMC, Oracle and BMC.
The substantial increase in product revenue in the last weeks of 2005 was
primarily related to sales of these kinds of products, which generally attract
higher levels of margin.
To help us streamline our sales processes and make them more cost-effective, we
have undertaken a number of initiatives intended to introduce a 'lighter-touch'
sales model in the UK. A significant development in this area has been the
retraining and realignment of our Sales Support function. This is designed to
provide a more proactive product advice service and grow revenues with existing
customers, as well as allowing us to monitor the commercial terms of
relationships more closely.
We have also deployed a new internal sales administration system, which
simplifies the order process and improves our ability to identify opportunities
for alternative or supplementary sales. More of our business was conducted
online in 2005, with 11% of orders now placed via our webshop, Computacenter
Connect, a major revision of which is due in April 2006.
We introduced or are developing a number of innovative procurement services
designed to make our offerings more competitive. This includes the
'Computacenter Recommends' portfolio of products, launched in H2 2005, which is
a range benchmarked for its high value and low cost, and offers customers highly
compatible and readily available technology.
Nonetheless, the Corporate Hardware business unit continues to experience
challenging market conditions and reducing margins. The trading terms and
conditions with HP, our major vendor partner, deteriorated still further
following our annual renegotiation in November 2005. However, the decline was
modest and we do not expect this to have a material effect on profitability in
2006.
Software
Our new Software business unit provides software procurement consulting,
sourcing and asset management services.
Our software business grew 4.6% in 2005 to revenues of over £134 million
following the establishment of this specialist business unit and the ensuing
renewed focus on this area.
Considerable work was done in extending our licence management capability to
include a wider range of vendor offerings and adding new personnel and skills to
the business unit. Twelve new customer propositions were defined and matched
against market requirements, with the overall aim of helping customers avoid
unnecessary software spend and gain greater control over their software assets.
To accelerate growth in this area of business we have also invested in new
systems that allow us to track customers' software procurement cycles and so
identify licence renewal or extension opportunities at an early stage.
Computacenter Direct
Through our new venture Computacenter Direct, we are targeting the growing
market for IT product and services in the medium-sized business sector, where
the scale benefits of our logistics infrastructure offer real competitive
advantage.
Revenues from this business unit increased steadily through 2005 to
approximately £4 million per month, and product margins were above those
achieved from our traditional large corporate accounts. We continue to invest
for Computacenter Direct growth; the unit now comprises over 50 employees, with
35 new salespeople recruited during the year.
CCD
CCD, our trade distribution division, had a disappointing year. The operation
saw a significant decline in profitability due to margin pressures in a fairly
stagnant market. This is the area of our business where the adverse changes in
vendor terms have had most impact. In addition, the prospect of channel
consolidation has led to increasingly aggressive price competition between
distributors.
In the face of these challenges, CCD embarked upon a major operating cost
reduction programme in 2005, reducing headcount by 15% and relocating to lower
cost premises.
RDC
Our technology recycling and remarketing operation, RDC, had a difficult 2005,
only managing to break even over the full year. H1 was particularly poor, due to
a low level of new desktop and laptop implementations by some large customers,
reducing the need for RDC's recycling services, coupled with the delayed
introduction of the WEEE waste management legislation in the UK.
To answer customers' changing requirements more effectively in the light of the
legislation, cost reductions achieved over the year were channelled into the
launch during Q4 of a Computacenter Asset Recovery Service (CARS) for the
management of end-of-life computer technology.
We are confident that the launch of CARS, together with successes already
achieved in a number of major accounts this year will take RDC back into profit
in 2006.
Germany
After an operating loss of £1.5 million in the first half of 2005, Germany
returned to profit in H2, recording a full year profit of £5.0 million (2004:
£9.0 million) on full year revenue decline of 5.7% to £618.2 million (2004:
£655.5 million).
2005 was a difficult year for Computacenter Germany with further decline in the
traditional desktop and laptop product resale business, reflecting the weak
economic climate and the impact of vendors selling direct to end-users. However
as our customers began to release more capital for IT projects in H2, we saw a
recovery in networking and datacentre technology revenues, fuelled by server
consolidation and storage projects. We also saw strong growth in software
licensing sales as customers continued to standardise their applications suites.
Overall, our services business performed satisfactorily considering the market
conditions, with revenues growing by 5.8% over 2004. Service margins recovered
strongly after a disappointing H1, in part due to a successful renegotiation of
a particularly problematical contract.
Professional Services resource utilisation was high across projects, consultancy
and customer engineering and we have a strong pipeline for these activities for
2006.
Our Managed Services business enjoyed growth above the market in 2005.
Significant successes included the securing of a contract to provide maintenance
services to the telecommunications company Telefonica, which will transfer its
Field Engineering division to Computacenter in an outsourcing agreement.
In our interim report we said that our reorganisation at the beginning of the
year had four key objectives: to improve our focus on the medium-sized business
market; to sell a broader range of products and services to existing customers;
to sharpen our focus on the growth areas of Government and Financial Services;
and to improve relationships with our key vendor partners.
We began to see progress on all these objectives during 2005. However, the full
impact of our improvement plan is unlikely to be evident until 2006.
France
Following a very poor first half, performance improved substantially towards the
end of the year, resulting in revenues that were broadly unchanged on 2004.
Nevertheless, the Computacenter France operating loss deepened to £9.3 million
(2004: £6.7 million), partly due to the cost of restructuring the business.
The partial recovery in H2 was achieved despite continuing intense price
competition and was partly due to seasonal factors, with the French market for
IT products typically more buoyant in the second half of the year.
In addition, our largest French account, Le Ministere de la Defense, resumed
expenditure in H2, having renewed its contract with Computacenter for a further
four years. Expenditure had been suspended for nine months whilst the contract
renewal was put out to competitive tender. This had a material impact on overall
Computacenter France revenues, negatively in H1 and, as spending recovered to
well above normal levels, positively in H2.
The effects of our major transformation project also began to be realised in the
second half of the year. A substantial effort was made to rectify the
inconsistent revenue stream and consequent low utilisation levels in
Professional Services. We also achieved a material improvement in our indirect
cost base, with a total of 56 staff entering the formal redundancy process,
which will lead to savings in 2006.
In addition, we saw a material improvement in the profit performance of our
maintenance operation following the major re-engineering project begun in 2004.
This has also given us a growing pipeline of new maintenance contracts.
Whilst the costs of the transformation project have adversely affected profit
performance in 2005, we believe we have made significant progress towards
Computacenter's eventual return to profit in France. As we continue to focus on
delivering revenue growth and reducing operating costs, our aim is to reduce
loss in 2006 and break even in 2007.
Significant wins included a major Managed Services contract with Air Liquide,
including international help desk services provided by our multilingual support
facility in Barcelona.
Belgium, Netherlands and Luxembourg
In Q1 2005 we extended our business to the Netherlands, establishing a small
office in Amsterdam. Overall, our Benelux business showed a slight loss of £0.1
million (2004: profit of £0.0 million) with a 5.4% decrease in revenues to £19.9
million (2004: £21.0 million).
The most significant achievement in Benelux was the award in December 2005 of a
three-year renewal, with extended scope, of our global desktop Managed Service
with SWIFT. We also saw the renewal of our desktop services management agreement
with Clearstream in Luxembourg, contracted through our relationship with Group
Deutsche Borse in Germany.
Consolidated income statement
For the year ended 31 December 2005
2005 2004
Note £'000 £'000
Continuing operations
Revenue 2 2,285,209 2,410,590
Cost of sales (1,996,381) (2,080,392)
--------- ---------
Gross profit 288,828 330,198
Distribution costs (19,928) (20,626)
Administrative expenses (241,242) (243,394)
--------- ---------
Operating profit from continuing operations 27,658 66,178
Finance revenue 8,127 5,247
Finance costs (2,002) (3,537)
Share of loss of joint venture - (226)
Share of profit of associate 229 266
--------- ---------
Profit before tax 34,012 67,928
Income tax expense 3 (13,579) (19,639)
--------- ---------
Profit for the year from continuing operations 20,433 48,289
Discontinued operation
Loss for the year from discontinued operation - (3,923)
--------- ---------
Profit for the year 20,433 44,366
========= =========
Attributable to:
Equity holders of the parent 20,406 44,435
Minority interests 27 (69)
--------- ---------
20,433 44,366
========= =========
Earnings per share 4
- basic for profit for the year 10.9p 23.8p
- basic for profit from continuing operations 10.9p 25.9p
- diluted for profit for the year 10.9p 23.5p
- diluted for profit from continuing operations 10.9p 25.6p
Consolidated balance sheet
As at 31 December 2005
2005 2004
Notes £'000 £'000
Non-current assets
Property, plant and equipment 81,601 89,914
Intangible assets 9,493 7,923
Investment accounted for using the equity method 288 373
Deferred income tax asset 5,528 1,486
-------- --------
96,910 99,696
-------- --------
Current assets
Inventories 100,233 118,914
Trade and other receivables: gross 382,970 438,452
Less: non returnable proceeds - (39,043)
-------- --------
Trade and other receivables 382,970 399,409
Prepayments 63,476 55,135
Forward currency contracts 191 -
Cash and short-term deposits 7 164,797 138,218
-------- --------
711,667 711,676
-------- --------
Assets held in disposal groups held for sale - 9,208
-------- --------
Total assets 808,577 820,580
-------- --------
Current liabilities
Trade and other payables 315,997 306,964
Deferred income 73,827 89,083
Financial liabilities 64,131 58,706
Income tax payable 5,712 11,519
Provisions 2,190 2,358
-------- --------
461,857 468,630
-------- --------
Non-current liabilities
Financial liabilities 275 429
Provisions 14,007 15,233
Other non-current liabilities 371 2,691
Deferred income tax liabilities 1,393 1,455
-------- --------
16,046 19,808
-------- --------
Liabilities included in disposal groups held for - 6,888
sale -------- --------
Total liabilities 477,903 495,326
-------- --------
Net assets 330,674 325,254
======== ========
Capital and reserves
Issued capital 9,505 9,489
Share premium 74,680 73,920
Capital redemption reserve 100 100
Own shares held (2,503) (2,503)
Other reserves (1,757) (904)
Retained earnings 250,630 245,113
Amounts recognised directly in equity relating to
disposal groups held for sale - (7)
-------- --------
Shareholders' equity 330,655 325,208
Minority interest 19 46
-------- --------
Total equity 330,674 325,254
======== ========
Approved by the Board on 13 March 2006
MJ Norris Chief Executive FA Conophy Finance Director
Consolidated statement of changes in equity
For the year ended 31 December 2005
Attributable to equity holders of the parent
--------------------------------------------
Foreign
Capital Own currency
Issued Share redemption shares translation Retained Minority Total
capital premium reserve held reserve earnings Total interest equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January
2004 9,441 71,486 100 (2,503) - 213,423 291,947 115 292,062
Exchange
differences on
retranslation
of foreign
operations:
Continuing - - - - (904) - (904) - (904)
Discontinued - - - - (7) - (7) - (7)
------ ------ ------- ------- ------- ------ ------ ------ ------
Net
income/
(expenses)
recognised
directly in
equity - - - - (911) - (911) - (911)
Profit for the
period - - - - - 44,435 44,435 (69) 44,366
------ ------ ------- ------- ------- ------ ------ ------ ------
Total
recognised
income and
expenses for
the year - - - - (911) 44,435 43,524 (69) 43,455
Cost of
share-based
payments - - - - - 807 807 - 807
Exercise of
options 48 2,434 - - - - 2,482 - 2,482
Equity
dividends - - - - - (13,552) (13,552) - (13,552)
------ ------ ------- ------- ------- ------ ------ ------ ------
48 2,434 - - (911) 31,690 33,261 (69) 33,192
At 31 December
2004 9,489 73,920 100 (2,503) (911) 245,113 325,208 46 325,254
Adoption of
IAS 32 & IAS
39 - - - - - (148) (148) - (148)
------ ------ ------- ------- ------- ------ ------ ------ ------
At 1 January
2005 9,489 73,920 100 (2,503) (911) 244,965 325,060 46 325,106
Exchange
differences on
retranslation
of foreign
operations - - - - (846) - (846) - (846)
------ ------ ------- ------- ------- ------ ------ ------ ------
Net
income/
(expenses)
recognised
directly in
equity - - - - (846) - (846) - (846)
Profit for the
period - - - - - 20,406 20,406 (27) 20,379
------ ------ ------- ------- ------- ------ ------ ------ ------
Total
recognised
income and
expenses for
the year - - - - (846) 20,406 19,560 (27) 19,533
Cost of
share-based
payment - - - - - (366) (366) - (366)
Exercise of
options 16 760 - - - - 776 - 776
Equity
dividends - - - - - (14,375) (14,375) - (14,375)
------ ------ ------- ------- ------- ------ ------ ------ ------
16 760 - - (846) 5,665 5,595 (27) 5,568
------ ------ ------- ------- ------- ------ ------ ------ ------
At 31 December
2005 9,505 74,680 100 (2,503) (1,757) 250,630 330,655 19 330,674
====== ====== ======= ======= ======= ====== ====== ====== ======
Consolidated cash flow statement
For the year ended 31 December 2005
2005 2004
Notes £'000 £'000
Operating activities
Operating profit from continuing operations 27,658 66,178
Adjustments to reconcile Group operating profit to
net cash inflows from operating activities
Loss for the year from discontinued operation - (1,547)
Depreciation 15,535 17,017
Amortisation 1,784 1,365
Share based payment (366) 898
(Profit)/loss on disposal of property, plant and
equipment (85) 756
Loss on disposal of intangibles - 48
Profit on disposal of investment - (1,603)
Dividend received from associate 303 509
Decrease in inventories 16,824 14,278
Increase in trade and other receivables (25,904) (23,156)
Increase/(decrease) in trade and other payables 29,925 (14,604)
Currency and other adjustments 287 181
--------- --------
Cash generated from operations 65,961 60,320
Income taxes paid (18,366) (12,296)
--------- --------
Net cash flow from operating activities 47,595 48,023
--------- --------
Investing activities
Interest received 9,086 4,359
Sale of subsidiary net of cash disposed of (252) -
Sale of property, plant and equipment 205 1,756
Purchase of property, plant and equipment (6,950) (11,615)
Sale of intangible assets - 211
Purchases of intangible assets (3,385) (2,593)
Dividend received - 23
Sale of listed investments - 4,650
Funds received from settlement of net asset claim
on previously acquired subsidiary 26,918 -
--------- --------
Net cash flow from investing activities 25,622 (3,209)
--------- --------
Financing activities
Interest paid (2,063) (3,439)
Dividends paid to equity shareholders of the parent (14,418) (13,587)
Proceeds from share issues 776 2,482
Repayment of capital element of finance leases (321) (39)
Decrease in factor financing (6,401) -
--------- --------
Net cash flow from financing activities (22,427) (14,583)
--------- --------
Increase in cash and cash equivalents 50,790 30,232
Effect of exchange rates on cash and cash 1,576 (149)
equivalents
Cash and cash equivalents at the beginning of the 7 80,545 50,462
year --------- --------
Cash and cash equivalents at the year end 7 132,911 80,545
========= ========
Analysis of changes in net funds
At 1 Cash
January flows in Exchange At 31 December
2005 year differences 2005
£'000 £'000 £'000 £'000
Cash and cash
equivalents 80,545 50,790 1,576 132,911
Factor
financing (39,043) 6,401 1,100 (31,542)
Finance leases (172) (480) - (652)
Bank loan (326) - - (326)
------ ------- ------ ----------
Net funds 41,004 56,711 2,676 100,391
====== ======= ====== ==========
The Group's net funds as at 31 December 2004 were £80.0 million. The impact of
the adoption of IAS 32 and IAS 39 was to decrease net funds by £39.0m due to a
reclassification from trade and other receivables to financial liabilities in
respect of non-recourse financing arrangements. This amount was previously shown
under a linked presentation.
Notes to the consolidated financial statements
Summary of significant accounting policies
1 Basis of preparation
The results for the year ended 31 December 2005 represent the first annual
report that the Group has prepared in accordance with its accounting policies
under IFRS. A description of how the Group's reported performance and financial
position are affected by this change, including reconciliations from UK GAAP to
IFRS for prior years and the revised summary of significant accounting policies
under IFRS, is given in note 8 with further information available on the
Investors Section of the corporate website at www.computacenter.com.
The Group's audited financial statements have been prepared in accordance with
IFRS and are covered by IFRS 1, First-time adoption of IFRS. The financial
statements have been prepared in accordance with those IFRS standards issued and
effective as at the time of preparing the statements, and have been applied
retrospectively except where certain exceptions apply.
The consolidated financial statements are presented in sterling and all values
are rounded to the nearest thousand (£'000) except when otherwise indicated.
Change in accounting policy
From 1 January 2005 the Group has adopted the financial instruments standards
IAS 32 and IAS 39. The only material changes on adoption of these standards has
been on accounting for foreign currency forward contracts and non-recourse debt
financing.
Foreign currency forward contracts
The changes attributable to the fair values of both the hedging instruments and
the hedged item are recognised at each reporting date.
Non-recourse debt financing
Under UK GAAP, the Group adopted a linked presentation for its non-recourse debt
financing. This presentation method is not permissible under IFRS and
accordingly the non-recourse financing element has been reclassified as
borrowings for 2005.
As permitted under IFRS1, first time adoption of International Financial
Reporting Standards, the Group has elected not to restate comparative
information for the financial instruments standards IAS 32 and IAS 39. A
restatement of the opening balance sheet at 1 January 2005 to present the
Group's opening position under IAS 32 and 39 is included in these financial
statements as note 9.
2 Segmental analysis
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.
Year ended 31 December 2005
UK Germany France Benelux Total
£'000 £'000 £'000 £'000 £'000
Revenue
Sales to external
customers 1,351,307 618,238 295,784 19,880 2,285,209
Inter-segment sales 8,401 24,604 293 3,539 36,837
--------- -------- -------- -------- ---------
Segment revenue 1,359,708 642,842 296,077 23,419 2,322,046
========= ======== ======== ======== =========
Result
Gross profit 169,876 87,709 28,941 2,302 288,828
Distribution costs (11,315) (5,160) (3,360) (93) (19,928)
Administrative
expenses (126,482) (77,548) (34,894) (2,318) (241,242)
--------- -------- -------- -------- ---------
Operating profit 32,079 5,001 (9,313) (109) 27,658
--------- -------- -------- -------- ---------
Net finance income 8,055 (553) (1,347) (30) 6,125
Share of associate's
profit - 229 - - 229
--------- -------- -------- -------- ---------
Profit before tax 40,134 4,677 (10,660) (139) 34,012
Income tax expense (13,579)
---------
Profit for the year
from continuing
operations 20,433
=========
Assets and liabilities
Segment assets 569,043 136,784 100,880 1,582 808,289
Investment in an
associate - 288 - - 288
--------- -------- -------- -------- ---------
Total assets 569,043 137,072 100,880 1,582 808,577
========= ======== ======== ======== =========
Segment liabilities 233,129 116,895 123,952 3,927 477,903
--------- -------- -------- -------- ---------
Total liabilities 233,129 116,895 123,952 3,927 477,903
========= ======== ======== ======== =========
Other segment
information
Capital expenditure:
Property, plant and
equipment 6,138 1,020 555 124 7,837
Intangible fixed
assets 3,083 284 18 - 3,385
========= ======== ======== ======== =========
Depreciation 11,570 2,981 882 102 15,535
Amortisation 1,093 295 358 38 1,784
========= ======== ======== ======== =========
Year ended 31 December 2004
Continuing operations Discontinued
operation
UK Germany France Benelux Total Austria Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Sales to
external
customers 1,433,685 655,501 300,380 21,024 2,410,590 45,162 2,455,752
Inter-segment
sales 6,923 2,116 202 1,012 10,253 116 10,369
--------- ------- ------- ------- --------- -------- ---------
Segment
revenue 1,440,608 657,618 300,582 22,035 2,420,843 45,278 2,466,121
========= ======= ======= ======= ========= ======== =========
Result
Gross profit 205,656 90,479 31,771 2,291 330,198 5,203 335,401
Distribution
Costs (12,134) (5,032) (3,353) (107) (20,626) (133) (20,759)
Administrative
expenses (129,678) (76,448) (35,100) (2,168) (243,394) (6,617) (250,011)
--------- ------- ------- ------- --------- -------- ---------
Operating
profit 63,845 8,999 (6,682) 16 66,178 (1,547) 64,630
--------- ------- ------- ------- --------- -------- ---------
Net finance
income 5,106 (1,239) (2,086) (71) 1,710 (19) 1,691
Share of joint
venture's loss (226) - - - (226) - (226)
Share of
associate's
profit - 266 - - 266 - 266
--------- ------- ------- ------- --------- -------- ---------
Profit before
tax from
continuing
operations 68,725 8,026 (8,768) (55) 67,928 (1,567) 66,362
Provision for
loss on
disposal of
discontinued
operation - - - - - (2,356) (2,356)
--------- ------- ------- ------- --------- -------- ---------
Profit before
tax 68,725 8,026 (8,768) (55) 67,928 (3,922) 64,006
Income tax
expense (19,639) (1) (19,640)
-------- -------- ---------
Net profit for
the year 48,289 (3,924) 44,366
======== ======== =========
Assets and
liabilities
Segment assets 550,388 188,766 70,131 1,714 810,999 9,208 820,207
Investment in
an associate - 373 - - 373 - 373
--------- ------- ------- ------- --------- -------- ---------
Total assets 550,388 189,139 70,131 1,714 811,372 9,208 820,580
========= ======= ======= ======= ========= ======== =========
Segment
liabilities 232,300 168,685 82,535 4,918 488,438 6,888 495,326
--------- ------- ------- ------- --------- -------- ---------
Total
liabilities 232,300 168,685 82,535 4,918 488,438 6,888 495,326
========= ======= ======= ======= ========= ======== =========
Other segment
information
Capital
expenditure:
Property,
plant and
equipment 7,516 3,061 893 80 11,550 65 11,615
Intangible
fixed assets 2,021 386 160 26 2,593 - 2,593
========= ======= ======= ======= ========= ======== =========
Depreciation 12,383 3,512 860 99 16,854 163 17,017
Amortisation 724 274 363 4 1,365 - 1,365
========= ======= ======= ======= ========= ======== =========
3 Income tax
a) Tax on profit on ordinary activities
Tax charged in the income statement
2005 2004
£'000 £'000
Current income tax
UK corporation tax 12,872 21,104
Foreign tax 31 4
Adjustments in respect of current income tax of
previous years (202) (3,249)
Consortium relief (119) 63
--------- ---------
Total current income tax 12,582 17,922
========= =========
Deferred tax
Relating to origination and reversal of temporary
differences 997 1,846
Prior year adjustments - (129)
--------- ---------
Total deferred tax 997 1,717
--------- ---------
Tax charge in the income statement 13,579 19,639
========= =========
The tax charge in the income statement is disclosed as
follows:
Income tax expense reported on continuing operations (13,579) (19,639)
Income tax expense on discontinued operation - (1)
--------- ---------
(13,579) (19,640)
========= =========
Tax relating to items charged or credited to equity
Deferred tax
Relief on share option gains 16 48
--------- ---------
Tax credit in the statement of changes in equity 16 48
========= =========
b) Reconciliation of the total tax charge
2005 2004
£'000 £'000
Profit from continuing operations before taxation 34,012 67,928
Loss before tax from discontinued operation - (3,923)
-------- --------
Accounting profit before income tax 34,012 64,005
======== ========
At the UK standard rate of corporation tax of 30% (2004:
30%) 10,204 19,202
Expenses not deductible for tax purposes 673 234
Relief on share option gains - (5)
Adjustments in respect of current income tax of previous
years (202) (616)
Adjustment following agreement of certain items for
earlier - (2,447)
years
Higher tax on overseas earnings 1 1
Provision for loss on disposal of overseas subsidiary - 686
Disposal of investment - (569)
Accounting depreciation in excess of tax depreciation 518 80
Other timing differences (761) 87
Consortium relief (119) -
Profit of overseas undertakings not taxable due to
brought (4) (5)
forward loss offset
Losses of overseas undertakings not available for relief 3,269 3,121
Adjustment in respect of deferred tax of earlier years - (129)
-------- --------
At effective income tax rate of 39.9% (2004: 30.6%) 13,579 19,640
======== ========
4 Earnings per ordinary share
Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year adjusted for the effect of dilutive options.
The following reflects the income and share data used in the total operations
basic and diluted earnings per share computations:
2005 2004
£'000 £'000
Net profit attributable to equity holders from continuing
operations 20,406 48,358
Loss attributable to equity holders from discontinued
operations - (3,923)
-------- --------
Net profit attributable to equity holders of the parent 20,406 44,435
======== ========
2005 2004
000's 000's
Basic weighted average number of shares (excluding
treasury shares) 187,210 186,441
Effect of dilution:
Share options 658 2,538
-------- --------
Diluted weighted average number of shares 187,868 188,979
======== ========
There have been no other transactions involving ordinary shares or potential
ordinary shares since the reporting date and before the completion of these
financial statements.
Discontinued operations
Loss per share for 2005 of nil (2004: 2.1p) for the discontinued operation is
derived from the net loss attributable to equity holders of the parent from
discontinuing operations of £nil (2004:£3,923,000) divided by the weighted
average number of ordinary shares for both basic and diluted amounts as per the
table above.
5 Dividends paid and proposed
2005 2004
£'000 £'000
Declared and paid during the year:
Equity dividends on ordinary shares:
Final dividend for 2004: 5.2p (2003: 5.0p) 9,735 9,236
Interim dividend for 2005: 2.5p (2004: 2.3p) 4,590 4,316
-------- --------
14,325 13,552
======== ========
Proposed for approval at AGM (not recognised as a liability as at 31 December)
Equity dividends on ordinary shares:
Final dividend for 2005: 5.0p (2004: 5.2p) 9,400 9,735
======== ========
6 Business combinations
Further to the German and Austrian acquisition update contained in note 14 of
the 2004 Annual Report and Accounts and the outcome of the work of the
independent Expert, PricewaterhouseCoopers, the Group has now resolved the tax
assets claim noted as a contingent liability in its 2004 Report and Accounts.
On the 15th October 2003 the vendors claimed that the Group had breached a
provision of the German Purchase Agreement concerning an adjustment relating to
tax assets, and issued a claim for EUR52,165,292 (£36,892,800) plus interest,
for upfront payment of the tax assets as opposed to payment as the assets are
utilised. Following an arbitration hearing, Computacenter reached an agreement
with the vendors under which the vendor's claim was withdrawn and Computacenter
purchased the tax assets outright. Although the arbitral tribunal did not render
a final decision on the merits of the tax claim, it proposed a settlement, which
did not allocate value to this claim.
The Net Asset Value claim of £32,448,000 was included as a receivable in trade
and other receivables at 31st December 2004, the net result of this agreement is
that Computacenter received EUR40,000,000 (£26,918,000) . The upfront purchase
of the tax assets has resulted in a deferred tax asset on the Group balance
sheet. The resolution of this claim has had no impact in the year on the income
statement.
Disposal of subsidiary
On 2 January 2005 the Group disposed of its Austrian subsidiary, Computacenter
GmbH (Computacenter Austria), a company that was a separate geographical segment
of the Group.
At 31 December 2004, Computacenter Austria was classified as an asset held for
sale, and was stated at the lower of carrying value and fair value less costs to
sell, and income and expenses for the year ended 31 December 2004 were included
within the income statement, details of which are given in note 3.
The net assets of Computacenter Austria, which included cash of £963,000, were
disposed for consideration of £711,000.
7 Cash and short-term deposits
2005 2004
£'000 £'000
Cash at bank and in hand 164,797 98,218
Short-term deposits - 40,000
-------- --------
164,797 138,218
======== ========
Cash at bank and in hand earns interest at floating rates based on daily bank
deposit rates. Short-term deposits are made for varying periods of between one
day and three months depending on the immediate cash requirements of the Group,
and earn interest at the respective short-term deposit rates. The fair value of
cash and cash equivalents is £164,797,000 (2004: £138,218,000).
At 31 December 2005, the Group had available £81,942,000 (2004: £58,894,000) of
undrawn committed borrowing facilities in respect of which all conditions
precedent had been met.
For the purposes of the consolidated cash flow statement, cash and cash
equivalents comprise the following at 31 December:
2005 2004
£'000 £'000
Cash at bank and in hand 164,797 98,218
Short-term deposits - 40,000
Bank overdrafts (note 20) (31,886) (58,637)
-------- --------
132,911 79,582
Cash at bank and in hand attributable to discontinued
operation - 963
-------- --------
132,911 80,545
======== =======
8 Transition to IFRSs
For all periods up to and including the year ended 31 December 2004, the Group
prepared its financial statements in accordance with United Kingdom generally
accepted accounting practice (UK GAAP). These financial statements, for the year
ended 31 December 2005, are the first that the Group is required to prepare in
accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union (EU).
Accordingly the Group has prepared financial statements which comply with IFRSs
applicable for periods beginning on or after 1 January 2005 and the significant
accounting policies meeting those requirements are described in note 2. In
preparing these financial statements, the Group has started from an opening
balance sheet as at 1 January 2004, the Group's date of transition to IFRSs, and
has made those changes in accounting policies and other restatements required by
IFRS 1 for the first-time adoption of IFRSs. This note explains the principal
adjustments made by the Group in restating its UK GAAP balance sheet as at 1
January 2004 and its previously published UK GAAP financial statements for the
year ended 31 December 2004.
Summary of IFRSs impact
The impact on the profit for the year ended 31 December 2004 is detailed in the
table below:
Year ended 31 December 2004
-----------------------------
Profit before tax,
continuing Income tax Discontinued Profit for
operations expense operations the year
--------- -------- --------- --------
£'000 £'000 £'000 £'000
---------------------- --------- -------- --------- --------
UK GAAP 67,287 (19,860) (2,642) 44,785
---------------------- --------- -------- --------- --------
Reclassification
Discontinued
operation 1,568 (1) (1,567) -
Adjustments
1a Positive
goodwill 282 - - 282
1b Negative
goodwill (531) - - (531)
2 Share based
payment (898) 222 - (676)
3 Employee
benefits 35 - - 35
4 Accounting for
joint venture 185 - 286 471
---------------------- --------- -------- --------- --------
Total IFRS
adjustments (927) 222 286 (419)
---------------------- --------- -------- --------- --------
IFRS 67,928 (19,639) (3,923) 44,366
---------------------- --------- -------- --------- --------
The impact on total equity (and net assets) at 31 December 2004 and 31 December
2003 is shown in the table below:
31 December 2004 31 December 2003
---------------- ----------------
Total equity Total equity
£'000 £'000
---------------------- ---------------- ----------------
UK GAAP (315,138) (282,883)
---------------------- ---------------- ----------------
Reclassification
Discontinued operation - -
Adjustments
1a Positive goodwill (282) -
1b Negative goodwill - (531)
2 Share based payment (461) (330)
3 Employee benefits 883 918
4 Accounting for joint venture (471) -
5 Proposed dividend (9,785) (9,236)
---------------------- ---------------- ----------------
Total IFRS adjustments (10,116) (9,179)
---------------------- ---------------- ----------------
---------------------- ---------------- ----------------
IFRS (325,254) (292,062)
---------------------- ---------------- ----------------
The adjustments create no material impact on the cash flows of the Group.
Explanatory notes on the impact of IFRSs
The notes below explain the impact that the adoption of IFRSs has had on the
Group's consolidated results.
Discontinued operation
The discontinued operation relates to the results of Computacenter Austria,
which, under IFRS, is classified as held for sale as at 31 December 2004. For
comparative purposes all figures within the 2004 results, in respect of this
operation, have been removed from continuing operations. Under UK GAAP, the
relevant amounts were disclosed under discontinued operations in the 2004
year-end accounts only.
Other adjustments
1) IFRS 3 - Business combinations; IAS 36 - Impairment of assets; IAS 38 -
Intangible assets
IFRS 3 applies to accounting for business combinations for which the agreement
date is on or after 31 March 2004.
The Group has elected not to apply IFRS 3 retrospectively to business
combinations that took place prior to 1 January 2004. As a result in the opening
balance sheet, positive goodwill arising from previous business combinations
remains (£4.8m) as stated under UK GAAP at 31 December 2003.
The transitional provisions of IFRS 3 have required the Group to carry forward
the UK GAAP net book value of positive goodwill as deemed cost under IFRS, and
to eliminate the net negative goodwill brought forward under UK GAAP of £531,000
with a corresponding entry in reserves at 1 January 2004.
The adoption of IFRS 3 and IAS 36 has resulted in the Group ceasing annual
goodwill amortisation from 1 January 2004. As a result, the UK GAAP amortisation
charge of £282,000 and credit of £531,000, for positive and negative goodwill
respectively have been removed from the Group's 2004 IFRS profit for the year.
2) IFRS 2 - Share-based payment
IFRS 2 'Share-based payment' requires an expense to be recognised where the
Group buys goods or services in exchange for shares or rights over shares
('equity-settled transactions'), or in exchange for other assets equivalent in
value to a given number of shares or rights over shares ('cash-settled
transactions'). The main impact of IFRS 2 on the Group is the expensing of
employees' and directors' share options and other share-based incentives by
using an option-pricing model.
The effect of the revised policy has decreased consolidated 2004 profit before
tax by £898,000, and half year profits by £550,000 due to an increase in the
employee benefits expense with a corresponding increase in equity which is taken
to retained earnings. A corresponding deferred tax movement has also been
accounted for.
3) IAS 19 - Employee benefits
IAS 19 requires the Group to recognise in full liabilities in relation to
employee benefits. As at 1 January 2004, the Group has recognised an additional
£918,000 of liabilities for holiday pay and other long-term employee benefits.
The corresponding provision as at 31 December 2004 is £883,000, and as a result,
there is an increase in the profit for the year of £35,000 for the year ended 31
December 2004.
This introduces seasonality into the Group's result, because the holiday
entitlement of employees is typically higher at 30 June that at 31 December. The
additional provision required at 30 June 2004 results in a charge to the
half-year income statement of £2,519,000.
4) IAS 31 - Interest in joint venture
Under UK GAAP the Group's interest in its joint venture was accounted under the
gross equity method, which is not a recognised approach under IFRS. The Group
has therefore changed its method of accounting for the joint venture to equity
accounting.
During the second half of 2004 the Group's holding in its joint venture was
diluted, and its share of the losses exceeded the Group's net investment. Under
UK GAAP the Group was required to continue recognising its share of the losses
even though this resulted in a net negative amount in the balance
sheet. Under IFRS the Group only recognises its share of the losses up until the
point that its net investment is reduced to zero. This has resulted in £185,000
of losses and an exceptional charge of £286,000 in respect of the dilution in
the Group's holding, both of which were recognised under UK GAAP, not being
recognised under IFRS.
5) IAS 10 - Events after the balance sheet date
In accordance with IAS 10, dividends declared after the balance sheet date are
not recognised as a liability in the financial statements as there is no present
obligation at the balance sheet date, as defined by IAS 37 - Provisions,
contingent liabilities and contingent assets. Accordingly, the final dividends
for 2003 of £9,236,000 and 2004 of £9,785,000 (as recognised under previous
GAAP) are de-recognised in the balance sheets for 31 December 2003 and 31
December 2004. The interim dividend has also been accounted for in this manner.
Other reclassification entries
IAS 38 - Intangible assets
Computer software that is not an integral part of the related hardware is
classified as an intangible asset under IFRS, whereas such assets were
classified under tangible assets under UK GAAP. Reclassifications of £2,251,000
have been made between tangible and intangible assets at 1 January 2004,
£2,077,000 at 30 June 2004 and £3,167,000 at 31 December 2004 accordingly.
IAS 21 - The effects of changes in foreign exchange rates
From 1 January 2004, foreign currency translation differences are pulled into a
separate reserve. As stated on page 4, the Group has elected, under the
provisions of IFRS 1, to set the historic translation differences on foreign
subsidiaries to zero.
Additional changes from 1 January 2005
IAS 32 and 39 - Financial instruments: recognition, measurement and disclosure
The Group has taken advantage of the transitional provisions of IAS 32 and IAS
39 and has not adopted these two standards early. They will be adopted from 1
January 2005. The comparative information for 2004 has not been restated from UK
GAAP to IFRS. The restatement of the balance sheet for the adoption of IAS 32
and IAS 39 is shown in note 9.
The most material changes on adoption of these standards will be due to
non-recourse financing and accounting for foreign currency forward contracts.
Non-recourse financing
For the 2004 comparative numbers, under UK GAAP, the Group has adopted a linked
presentation of its non-recourse financing, in line with FRS 5 'Reporting the
substance of transactions'. Linked presentation is not permitted under IFRS.
Application of IFRS to the non-recourse financing scheme in operation throughout
2004 would have resulted in the financing element being accounted for as
borrowings. There would have been no impact on the 2004 income statement.
Forward currency contracts
The Group uses forward currency contracts to hedge material risks associated
with movements in foreign currency exchange rates. In 2004 the material risk
related to a £32,448,000 receivable (in Euros) relating to the purchase of GE
CompuNet and GECITS Austria in 2003.
Under UK GAAP the fair value of the foreign currency forward contracts has not
been recognised, and the receivable has been recorded at the contract rate.
Under IFRS, foreign currency forward contracts are recognised at their fair
value. The receivable would also be recognised at its fair value, and be
recorded at the spot rate prevailing at the balance sheet date.
If IAS 32 and 39 had been applied from 1 January 2004, there would have been an
asset of £75,000 on the opening balance sheet, and a net movement in the income
statement in 2004, from measuring both instruments at fair value, of a loss of
£286,000 before tax.
9 Restatement of balance sheet and equity at 1 January 2005 for the effects of
IAS 32 and IAS 39
Under IFRS 1, first time adoption of international financial reporting
standards, the Group is not required to present comparative information which
complies with IAS 32 and IAS 39. The Group's hedging strategy is unchanged in
respect of covering the risk of foreign currency purchases. The accounting
differences for which the 2005 opening balance sheet is restated and which will
apply to the 2005 accounts are noted below:
Balance sheet at
1 January 2005
Hedging of forward
IFRS pre restatement currency Non-recourse Restated
for IAS 32 & IAS 39 contracts financing IFRS
£'000 £'000 £'000 £'000
Non-current
assets
Property,
plant and
equipment 89,914 - - 89,914
Intangible
assets 7,923 - - 7,923
Investment in
an associate
accounted for
using the
equity method 373 - - 373
Deferred
income tax
asset 1,486 - - 1,486
-------- ------- ------- -------
99,696 - - 99,696
-------- ------- ------- -------
Current assets
Inventories 118,914 - - 118,914
Trade and
other
receivables:
gross 438,452 1,736 - 440,188
Less:
non-returnable
proceeds (39,043) - 39,043 -
-------- ------- ------- -------
Trade and
other
receivables 399,409 1,736 39,043 440,188
Prepayments 55,135 - - 55,135
Cash and
short-term
deposits 138,218 - - 138,218
-------- ------- ------- -------
711,676 1,736 39,043 752,455
-------- ------- ------- -------
Assets held in
disposal
groups held
for sale 9,208 - - 9,208
-------- ------- ------- -------
Total assets 820,580 1,736 39,043 861,359
======== ======= ======= =======
Current
liabilities
Trade and
other payables 306,964 - - 306,964
Deferred
Income 89,083 - - 89,083
Interest-beari
ng loans and
borrowings 58,706 - 39,043 97,749
Forward
currency
contracts - 1,947 - 1,947
Income tax
payable 11,519 - - 11,519
Provisions 2,358 - - 2,358
-------- ------- ------- -------
468,630 1,947 39,043 509,620
-------- ------- ------- -------
Non-current
liabilities
Interest-beari
ng loans and
borrowings 429 - - 429
Provisions 15,233 - - 15,233
Other
non-current
liabilities 2,691 - - 2,691
Deferred
income tax
liabilities 1,455 (63) - 1,392
-------- ------- ------- -------
19,808 (63) - 19,745
-------- ------- ------- -------
Liabilities
included in
disposal
groups held
for sale 6,888 - - 6,888
-------- ------- ------- -------
Total
liabilities 495,326 1,884 39,043 536,253
-------- ------- ------- -------
Net assets 325,254 (148) - 325,106
======== ======= ======= =======
Capital and
reserves
Issued capital 9,489 - - 9,489
Share premium 73,920 - - 73,920
Capital
redemption
reserve 100 - - 100
Own shares
held (2,503) - - (2,503)
Other reserves (904) - - (904)
Retained
earnings 245,113 (148) - 244,965
Amounts
recognised
directly in
equity
relating to
disposal
groups held
for sale (7) - - (7)
-------- ------- ------- -------
Shareholders'
equity 325,208 (148) - 325,060
Minority
interest 46 - - 46
-------- ------- ------- -------
Total equity 325,254 (148) - 325,106
======== ======= ======= =======
The Group has applied hedge accounting under IAS 39 for certain foreign currency
exposures. The changes attributable to the fair values of both the hedging
instruments and the hedge item are recognised in the income statement at each
measurement date.
Under UK GAAP, the Group adopted a linked presentation for its non-recourse debt
financing. This presentation method is not permissible under IFRS and
accordingly the finance element has been reclassified as borrowings for 2005.
10 Publication of non-statutory accounts
The financial information contained in this preliminary statement does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985. The financial information set out in this announcement is extracted from
the full Group financial statements for the year ended 31 December 2005, the
auditor's report on which has yet to be signed
This information is provided by RNS
The company news service from the London Stock Exchange
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