Final Results
Diagonal PLC
20 February 2003
20 FEBRUARY 2003
DIAGONAL PLC
ACQUISITION AND PRELIMINARY RESULTS ANNOUNCEMENT
FOR THE 52 WEEKS ENDED 29 NOVEMBER 2002
Key highlights include:
• Acquisition of Partners for Change, a change management consultancy,
for a maximum cash consideration of £2.7 million
• Strategy of small focused acquisitions to enhance consulting capability
being implemented
2002 2001
Turnover £63.6 million £82.2 million
Profit before Tax* £5.8 million £7.5 million
Adjusted Diluted Earnings per share* 4.45p 5.92p
Final Dividend per share 1.20p 1.20p
Cash £14.4 million £10.2 million
*All figures are before amortisation and impairment of goodwill of £8m
• Gross margins increased by three percentage points
• Increased cash generation and strong financial position
• SAP revenues stable in difficult markets
• Support revenues now 30% of Secure Networks revenue
Enquiries:
Graham Creswick, Chief Executive Tel: +44 (0) 1252 733 711
Steve Fleming, Finance Director
Ian Seaton, Bankside Consultants Limited Tel: +44 (0) 20 7444 4157
Notes to Editors
Diagonal PLC provides a broad range of IT consulting services. The Consulting
Division is one of the UK's leading implementers of SAP systems and has been
awarded SAP Partner of Excellence on each occasion it has been presented. It
also specialises in Enterprise Application Integration and e-commerce skills.
The Secure Networks Division provides network and remote access security and
consultancy.
CHAIRMAN'S STATEMENT
The continuing global economic uncertainty experienced by most businesses in
2002 has led to an increased client caution in relation to IT expenditure. As a
consequence of this, turnover fell to £64m and pre tax profit (prior to the
amortisation and impairment of goodwill of £8m) to £5.8m. This is after the
£800,000 of charges referred to in our trading statement in September 2002.
However, it is pleasing to note that operational changes we have made across the
business have led to an improvement in gross margins in all operating divisions.
In addition the Group remains firmly cash generative.
There continue to be opportunities to develop our SAP business, and to that end
I am particularly pleased to announce the acquisition of Partners for Change.
The total consideration payable under the acquisition agreement is a maximum of
£2.7m in cash. For the year ended 30 June 2001 (being the latest period for
which audited accounts for Partners for Change have been filed) Partners for
Change recorded a profit before taxation of £0.3m and as at 30 June 2001 had net
assets of £0.3m.
Partners for Change is a change management consultancy, established in 1994,
with whom we have partnered on a number of projects, including a recent £6m
project with a major client. Any significant IT investment requires the
resultant business change to be properly managed in order to maximise the return
and ensure that the transition to the new systems occurs smoothly. I believe
that Partners for Change will enhance and broaden the service we are able to
provide to both our existing and potential multi-national clients and I welcome
the management, consultants and other staff to Diagonal.
A final dividend of 1.2p is recommended by the Directors, making a total for the
year of 1.8p per share, in line with 2001. The final dividend will be paid on 25
April 2003 to those shareholders on the register on 7 March 2003.
There are few signs of any improvement in market conditions and as a result the
current year is likely to prove equally challenging. However, we will continue
to focus on maintaining margins and robust cash generation while delivering a
quality service to our clients.
I should like to thank all members of the management and staff for the
outstanding contribution they have made during a demanding year.
Mark Samuels
Chairman
OPERATING AND FINANCIAL REVIEW
OPERATING REVIEW
GROUP
2002 proved to be an extremely tough year against a backdrop of a continued
economic slowdown. In the light of these conditions, faced by all within the IT
sector, we have focused on maintaining margins and cash generation.
Consolidated Group revenue was £63.6 million, compared with £82.2m in 2001,
representing a fall of 23%. Gross profit has fallen to £20.0m (2001: £23.6m).
The operational changes reported in September 2002 have already begun to produce
benefits in terms of enhanced gross margins across all our operating divisions.
The overall gross profit margin percentage has increased by nearly three
percentage points to 31.5%. Operating profit of £5.5m (stated before
amortisation and impairment of goodwill of £8m) was 23% lower than last year
(£7.1m), although overall operating margins have fallen only slightly from 8.7%
to 8.6% in 2002.
DIAGONAL CONSULTING
Diagonal Consulting is engaged in two principal areas: SAP Consulting and
Enterprise Application Integration (EAI) Consulting. The legacy Resourcing
business produces only a small contribution to Group profits but accounts for
almost £9m of the fall in revenue noted below.
Diagonal Consulting revenue was £48.2m (2001: £60.7m), a decrease of 20.6%, and
represents 76% (2001: 74%) of total Group revenue. Gross profit fell from £16.0m
to £13.7m (a decrease of 14.4%) but the operating margin before amortisation of
goodwill increased from 8.2% to 8.7%.
DIAGONAL SAP CONSULTING
FINANCIAL OVERVIEW
Diagonal SAP Consulting delivers business systems using one of the world's
leading software products. SAP AG described 2002 as the toughest year in their
history and experienced its first ever year on year decline in new software
licence sales. Importantly, however, SAP continued to gain market share over its
competitors. Against this background and a worldwide decline in IT spend,
Diagonal SAP Consulting performed well, with revenue of £34.9m (2001: £36.5m); a
fall of 4.4%. The forward order book continues to be strong and is ahead of the
comparable period last year.
Gross profit for the year was £10.4m (2001: £10.5m), and represents an overall
gross margin of 29.7% (2001: 28.8%). Operating margin before amortisation of
goodwill was stable at 11.1%. The improvement in margins and relative stability
of revenues is especially pleasing given the uncertain economic environment and
continued competitive pressures.
OPERATIONAL OVERVIEW
Diagonal SAP Consulting has unrivalled experience and in-depth knowledge to
ensure that clients' IT investments are business focused and aligned with
corporate strategy.
We worked with over 100 clients in 2002, most of whom are longstanding. We are
trusted by our clients not just because of our experience and proven ability,
but also because we are committed to delivering real value. We aim to exceed
all our clients' expectations. In recognition of our standing with clients, we
have been awarded the SAP 'Partner of Excellence' award every year since its
inception.
In 2002, new initiatives included the first SAP Business Warehouse
implementation in China, new supply chain functionality across the USA, Asia and
Europe, and a Customer Relationship Management Solution from telesales through
to field service. Our expertise in both Supply Chain Management and Customer
Relationship Management were recognised when SAP asked us to participate in
their global 'Ramp Up' Programme involving the provision of technical resource
to SAP's own development team.
During the year we developed further the global business established in 2001. As
well as completing international projects, our offices in Philadelphia, USA and
Singapore helped deliver 24-hour worldwide support to major clients such as
Huntsman and Boots. The challenge for 2003 is to win and deliver projects
originating in those regions.
The majority of projects undertaken in 2002 focused on extending divisional and
factory-level ERP into supply chain management, human resources, customer
relationship management and new regions in support of our global clients. Our
larger clients are building global systems and continuing to extract benefits
from a software platform which is the result of the world's largest applications
development R&D spend. Our global reach, portfolio of services, constant
innovation and client track record clearly demonstrate our commitment to our
clients.
Finally, we are delighted to welcome Colin Burnside back, after a four year
secondment to SAP (UK) Limited. Colin was the founder of our SAP Consulting
business and has spent the past few years in a variety of executive posts within
SAP (UK). His knowledge of the SAP community will help strengthen our
relationship with SAP, and enable us to further develop further our services in
2003 and beyond.
EAI CONSULTING
Financial Overview
Revenue for EAI consulting was £5.8m (2001: £8.1m). The slow pace of client and
prospective client decision-making and the relatively small number of
significant projects being instigated during 2002 were key features. These
factors caused us to re-assess delivery capacity in the summer and subsequently,
to reduce consultant numbers and restructure the business at a cost of £200,000.
These changes have had a positive impact and the business demonstrated
improving levels of utilisation and profitability throughout the second half.
Despite gross profit falling to £2.3m (2001: £2.8m), this represented a gross
margin of 39.6%, an improvement of five percentage points over the previous
year. Operating profit before amortisation of goodwill, but after the costs of
restructuring, fell to £0.3m (2001: £0.9m).
Operational Overview
By the end of 2002, we had achieved our stated aim of becoming a Microsoft Gold
Partner. We believe that the increased profile that this gives the business
within Microsoft will have a tangible benefit in terms of the number and quality
of opportunities that will be referred to Diagonal in future years.
Specific focus will be given during the year to building upon this achievement.
Throughout 2003-2005, Microsoft's '.NET' family of server products will become
an increasingly important strategic component of the IT infrastructure deployed
throughout a significant proportion of UK businesses. We believe that our
ability to offer consulting, development and implementation services around this
suite of products will be a source of demand for our skilled staff.
In addition, we will continue to offer integration services which build upon
both Java and Microsoft technologies in the delivery of portal solutions. Our
proven ability to 'XML enable' legacy applications as a means of building
interfaces between systems and organisations will be extended into the delivery
of Web Services. We believe that clients will increasingly adopt this approach
as the de facto standard for the development of Internet-based system
interfaces.
Whilst there are no obvious signs that the business climate in 2003 will be any
easier than that encountered during 2002, the restructuring was undertaken to
preserve core technical skills relevant to the company's future strategy.
Competencies in both Java and Microsoft technologies were maintained, and
management believe the business to be appropriately sized and skilled to achieve
its objectives in the face of that climate.
DIAGONAL SECURE NETWORKS (DSN)
Financial Overview
DSN's performance should be reviewed against an economic environment which saw
many of our competitors struggle to deliver profitability. Whilst DSN revenue
has fallen to £15.4m (2001: £21.4m) the improvement in gross margin to 41.0%
(2001: 35.5%) and a 95% client retention rate are both significant. The decision
taken in the latter part of 2001 to focus on higher margin work has led to this
improvement in margins with support and maintenance revenues increasing by 50%
to represent 30% of divisional revenue. DSN generated an operating profit before
amortisation of goodwill of £1.3m (2001: £2.1m) and an operating margin of 8.2%
(2001: 9.8%).
Operational Overview
The delivery of ongoing support and maintenance services and the continuing
development of information security consultancy under the Claritas brand remain
a key focus for the business. Divisional board appointments of both a
technical director and a consulting director during the year are intended to
ensure that this focus delivers results.
We have a significant portfolio of technology products relevant to our
marketplace and continue our key partnerships with Check Point, Nokia, RSA and
Cisco. Our product review and adoption process ensures that we assess emerging
technologies and move them into the core portfolio as market demand develops.
To ensure that we retain our position as a leading supplier of contemporary
technological solutions, it is our aim to become accredited as a Cisco partner
for the provision of IP Telephony solutions. This is an investment that will
achieve results in the medium-term rather than the short-term since we
anticipate that demand will accelerate during 2004 and 2005.
The continued emphasis on high margin business with associated consultancy and
project services and the investment in activity such as IP Telephony
accreditation will result in the business undertaking larger and more complex
projects for its clients. This will lead to a deepening of the relationships
with our clients building on the retention rate achieved this year.
FINANCIAL REVIEW
EARNINGS PER SHARE
Basic earnings per share have fallen from 2.26p to a loss per share of 4.56p.
The reason for this sharp decrease was the goodwill impairment charge of £5m.
This reflects the reduced level of business now arising from the legacy Eurostar
Network Systems business which formerly represented some 40% of DSN's business.
It now accounts for about 10% of the restructured business' revenues. The £5m
charge is in addition to 'normal' amortisation of £3m. Adjusted earnings per
share (after taking account of the amortisation of goodwill) have fallen from
5.93p to 4.45p.
DIVIDENDS
The Board has proposed a final dividend of 1.2p per ordinary share (2001: 1.2p)
bringing the total for the year to 1.8p per ordinary share (2001: 1.8p).
TREASURY AND CASH FLOWS
At 29 November 2002 the Group had net cash of £14.4m (2001: £10.2m). The
improvements in cash collection noted last year have been built upon, and
Diagonal remains strongly cash generative. At the balance sheet date the number
of days of annual sales, represented by trade debtors, were 76 (2001: 86)
reflecting the continued improvement in working capital management. It is the
Group's policy not to trade in financial instruments.
TAX
The Group's effective rate of taxation, based on profits before tax and
amortisation and impairment of goodwill, is 31.3% (2001: 30.5%). This differs
from the standard rate of UK corporation tax due to the disallowance of certain
costs. Short term timing differences are provided in full.
Graham Creswick
Chief Executive
CONSOLIDATED PROFIT AND LOSS ACCOUNT
52 weeks ended 29 November 2002
Unaudited Audited
52 weeks ended 52 weeks ended
29 November 2002 30 November 2001
Note £'000s £'000s
TURNOVER 1
Continuing operations 63,618 79,481
Discontinued operations - 2,701
Total turnover 63,618 82,182
COST OF SALES (43,594) (58,580)
GROSS PROFIT 20,024 23,602
ADMINISTRATIVE EXPENSES
Amounts written off goodwill (8,027) (3,210)
Other administrative expenses (14,572) (16,490)
Total administrative expenses (22,599) (19,700)
OPERATING (LOSS)/PROFIT 1
Continuing operations (2,575) 3,925
Discontinued operations - (23)
Total operating (loss)/profit (2,575) 3,902
Interest receivable 349 365
Interest payable and similar charges (28) (11)
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION (2,254) 4,256
TAX ON (LOSS)/PROFIT ON
ORDINARY ACTIVITIES (1,807) (2,278)
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES AFTER TAXATION (4,061) 1,978
EQUITY DIVIDENDS (1,591) (1,584)
RETAINED (LOSS)/PROFIT
FOR THE FINANCIAL PERIOD (5,652) 394
(Loss)/earnings per ordinary share 2 (4.56p) 2.26p
Adjusted earnings per ordinary share 2 4.45p 5.93p
Diluted (loss)/earnings per ordinary share 2 (4.56p) 2.26p
Adjusted diluted earnings per
ordinary share 2 4.45p 5.92p
Equity dividends per ordinary share 1.80p 1.80p
CONSOLIDATED BALANCE SHEET
29 November 2002
Unaudited Audited
29 November 30 November
2002 2001
£'000s £'000s
Note
FIXED ASSETS
Intangible assets 18,264 26,062
Tangible assets 2,485 2,508
Investments - own shares 1,404 877
22,153 29,447
CURRENT ASSETS
Debtors 17,762 22,234
Cash at bank and in hand 14,417 10,155
32,179 32,389
CREDITORS - AMOUNTS FALLING
DUE WITHIN ONE YEAR (12,291) (15,065)
NET CURRENT ASSETS 19,888 17,324
TOTAL ASSETS
LESS CURRENT LIABILITIES 42,041 46,771
CREDITORS - AMOUNTS FALLING
DUE AFTER MORE THAN ONE YEAR (98) (139)
NET ASSETS 1 41,943 46,632
CAPITAL AND RESERVES
Called up share capital 8,940 8,832
Share premium account 29,496 28,503
Shares to be issued - 138
Other reserves 600 600
Profit and loss account 2,907 8,559
EQUITY SHAREHOLDERS' FUNDS 41,943 46,632
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
52 weeks ended 29 November 2002
Unaudited Audited
52 weeks ended 52 weeks ended
29 November 30 November
2002 2001
£'000s £'000s
(Loss)/profit for the financial period (4,061) 1,978
Equity dividends (1,591) (1,584)
(5,652) 394
Issue of shares 963 1,487
Shares to be issued - 138
Net (reduction in)/addition to shareholders' funds (4,689) 2,019
Opening shareholders' funds 46,632 44,613
Closing shareholders' funds 41,943 46,632
CONSOLIDATED CASH FLOW STATEMENT
52 weeks ended 29 November 2002
Unaudited Audited
52 weeks ended 52 weeks ended
29 November 30 November
Note 2002 2001
£'000s £'000s
Net cash inflow from operating activities a 8,233 8,394
Returns on investments and servicing of finance b 321 354
Taxation paid (1,877) (3,745)
Capital expenditure and financial investment c (948) (657)
Acquisitions and disposals d (228) 881
Equity dividends paid (1,587) (1,401)
Cash inflow before financing 3,914 3,826
Financing
Issues of ordinary share capital 436 146
Net (repayment)/increase in borrowings e (88) 62
348 208
Increase in net cash in the period f 4,262 4,034
NOTES TO CONSOLIDATED CASH FLOW STATEMENT
52 weeks ended 29 November 2002
Unaudited Audited
52 weeks ended 52 weeks ended
29 November 30 November
2002 2001
£'000s £'000s
a. Reconciliation of operating profit to net cash inflow from
operating activities
Operating (loss)/profit (2,575) 3,902
Amortisation and impairment of goodwill 8,027 3,210
Depreciation 1,010 968
Loss/(profit) on sales of tangible fixed assets 9 (73)
Decrease in stock - 333
Decrease in debtors 4,567 426
Decrease in creditors (2,805) (372)
Net cash inflow from operating activities 8,233 8,394
b. Returns on investments and servicing of finance
Interest received 349 369
Interest element of finance lease payments (28) (15)
Net cash inflow from returns on investments and servicing
of finance 321 354
c. Capital expenditure and financial investment
Purchases of tangible fixed assets (1,023) (1,029)
Proceeds of disposals of fixed assets 75 372
Net cash outflow from capital expenditure and
financial investment (948) (657)
d. Acquisitions and disposals
Purchase of subsidiary undertaking (1) (228) (662)
Net cash acquired with subsidiary - 143
Sale of subsidiary undertaking - 1,400
Net cash (outflow)/inflow from acquisitions and disposals (228) 881
(1) £228,000 of additional consideration was paid during the year
in respect of acquisitions in prior years.
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
52 weeks ended 29 November 2002
Unaudited Audited
52 weeks ended 52 weeks ended
29 November 30 November
2002 2001
£'000s £'000s
e. Reconciliation of net cash flow to movement in net funds
Increase in cash in the period 4,262 4,034
Net repayment/(increase) of lease financing 88 (62)
Changes in net funds resulting from cash flows 4,350 3,972
New finance leases (48) (36)
Movement in net funds 4,302 3,936
Net funds at 30 November 2001 9,941 6,005
Net funds at 29 November 2002 14,243 9,941
f. Movement in period
At 30 Non At 29
November Cash cash November
2001 Flows changes 2002
£'000s £'000s £'000s £'000s
Increase in cash 10,155 4,262 - 14,417
Lease financing (214) 88 (48) (174)
Movement in net funds 9,941 4,350 (48) 14,243
NOTES TO THE UNAUDITED ACCOUNTS
29 November 2002
1. ANALYSIS OF TURNOVER, OPERATING (LOSS)/PROFIT AND NET ASSETS
Analysis by class of business by turnover, operating (loss)/profit and net assets is stated below:
Turnover Operating (loss)/profit(1) Net assets (2)
52 weeks 52 weeks 52 weeks 52 weeks
ended 29 ended 30 ended 29 ended 30 29 November 30 November
November November November November 2002 2001
2002 2001 2002 2001 £'000s £'000s
£'000s £'000s £'000s £'000s
Class of business
Continuing operations
Consulting 48,201 58,036 3,846 4,382 23,804 21,155
Secure Networks 15,417 21,445 (6,421) (457) 18,139 25,477
63,618 79,481 (2,575) 3,925 41,943 46,632
Discontinued operations
Consulting - 2,701 - (23) - -
63,618 82,182 (2,575) 3,902 41,943 46,632
(1) Operating (loss)/profit is stated after charging amortisation of goodwill
(2) All commonly held assets and liabilities of the Group have been allocated to segments
(3) The results of the former Resourcing division have been included within the Consulting division from
1 December 2001 and the comparative results have been restated to reflect this.
An analysis of the Group's turnover by geographical market by destination is set out below:
52 weeks ended 52 weeks ended
29 November 30 November
2002 2001
£'000s £'000s
UK 53,569 71,535
Other European countries 3,684 5,792
Rest of the world 6,365 4,855
63,618 82,182
All of the Group's turnover originates in the United Kingdom.
NOTES TO THE UNAUDITED ACCOUNTS
29 November 2002
2. (LOSS)/EARNINGS PER SHARE
Earnings per share have been computed in accordance with Financial Reporting Standard 14 'Earnings per
Share'.
Basic earnings per share is calculated by dividing the loss or profit on ordinary activities after
taxation by the weighted average number of Ordinary shares, to be issued and in issue, during the period.
Diluted earnings per share is calculated by adjusting the weighted average number of shares on the
assumption of conversion of all dilutive potential Ordinary shares. In 2002 there were no dilutive
potential Ordinary shares.
A reconciliation of the earnings and weighted average number of shares used in the calculation is set out
below:
52 weeks ended 52 weeks ended
29 November 30 November
2002 2001
£'000s £'000s
(Loss)/profit on ordinary activities after taxation (4,061) 1,978
Amounts written off goodwill 8,027 3,210
_________ _________
Adjusted profits 3,966 5,188
_________ _________
Number Number
Weighted average number of shares 89,049,702 87,466,859
Effect of options - 122,693
_________ _________
Total shares 89,049,702 87,589,552
_________ _________
Pence Pence
Basic EPS (4.56) 2.26
Amounts written off goodwill 9.01 3.67
_________ _________
Adjusted 4.45 5.93
_________ _________
Diluted EPS (4.56) 2.26
Amounts written off goodwill 9.01 3.66
_________ _________
Adjusted 4.45 5.92
_________ _________
NOTES TO THE UNAUDITED ACCOUNTS
29 November 2002
3. FINANCIAL INFORMATION
The financial information set out in the announcement does not constitute the Group's statutory accounts for
the 52 weeks ended 29 November 2002 or the 52 weeks ended 30 November 2001. The financial information for
the period ended 30 November 2001 is derived from the statutory accounts for that period which have been
delivered to the Registrar of Companies. The auditors reported on those accounts; their report was
unqualified and did not contain a statement under S237(2) or (3) Companies Act 1985. The statutory accounts
for the 52 weeks ended 29 November 2002 will be finalised on the basis of the financial information
presented by the Directors in this preliminary announcement and will be delivered to the Registrar of
Companies following their publication. This financial information has been prepared on the basis of the
accounting policies as stated in the previous year's financial statements, with the exception of Deferred
Tax, which has been implemented during the year in accordance with FRS 19. This preliminary announcement was
approved by the Board of Directors on 19 February 2003.
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 9 hours ago Regional REIT Limited
- 9 hours ago Regional REIT Limited
- 9 hours ago Polar Capital Holdings
- 10 hours ago Norcros
- 10 hours ago London Stock Exchange Group