Final Results
INTERX PLC
11 October 1999
Preliminary Results for the Year ended 30 July 1999
* Group turnover up 38% to £318m (1998: £230m)
* Distribution operating profits, before exceptional items, of
£7.6m (1998: £8.9m)
* Group pre-tax profits, before exceptional items, of £6.6m (1998:
£8.7m)
* Exceptional costs of £4.5m
* Dividend for the year of 14.0p (net) per share (1998: 13.75p
(net) per share)
* Earnings per share, before exceptional items, of 21.31p (1998:
28.09p)
* Earnings per share, after exceptional items, of 6.27p (1998:
28.13p)
Enquiries:
InterX 020 8410 7200
James Wickes, Chief Executive Email: jwickes@interx.co.uk
Simon Barker, Commercial Director Email: sbarker@interx.co.uk
Simon Miesegaes, Finance Director Email: smiesegaes@interx.co.uk
College Hill 020 7457 2020
Nicola Weiner Email: nicola@collegehill.co.uk
Chelsea Allen Email: chelsea@collegehill.co.uk
INTERX PLC
Preliminary Results for the Year ended 30 July 1999
Chairman's Statement
Results
Group turnover for the year to 30 July 1999 rose to £318.1m (1998:
£230.0m). Pre-tax profits of the Group, before exceptional items,
were £6.6m (1998: £8.7m).
Turnover of the distribution business ('Ideal') grew by over 38% and
comprised UK turnover of £274.6m (1998: £193.5m) and Continental
European turnover of £43.0m (1998: £36.5m). Operating profits of the
distribution business, before exceptional items, were £7.6m (1998:
£8.9m).
Exceptional items reflecting the development of the 'IT Network', the
legal restructuring of the InterX plc group and the internal
restructuring within the distribution business, amounted to £4.5m.
Accordingly, pre-tax profits of the Group, after exceptional items,
were £2.1m (1998: £8.7m).
Earnings per share, before exceptional items, were 21.31p (1998:
28.09p). Earnings per share, after exceptional items, were 6.27p
(1998: 28.13p).
The Group has retained strict control over its working capital. The
Group's balance sheet remains strong, notwithstanding the significant
development of the 'IT Network' during the year. Cash and net funds
at the year end were £8.2m (1998: £11.7m) and £0.4m (1998: £7.4m)
respectively.
Dividend
The Directors recommend a final dividend of 8.0p (net) per share
(1998: 8.0p (net)). This will be paid on 20 December 1999 to those
shareholders on the register at 22 October 1999. This gives a total
dividend of 14.0p (net) per share (1998: 13.75p (net)) and reflects
the Board's confidence in the outlook for, and strength of, the
Group.
Key points
In the announcement to shareholders in mid-June of this year, the
Board set out the steps it was taking in response to the fundamental
changes taking place in the supply channel, including:
- within Ideal, the introduction of an executive board, the
implementation of a redundancy and restructuring programme and a
rationalisation of product lines; and
- the launch of the 'IT Network'.
I am now in a position to inform shareholders of the progress that
has been made by the two businesses.
Ideal
Although turnover was up by some 42% in the UK, in part reflecting
the success of our appointment as a Compaq distributor, margins in
the industry have fallen significantly. This necessitated a material
reduction in the cost base and accordingly, as part of a range of
measures, the headcount was reduced in June from 442 to 345. The
reorganisation was carried out without major disruption to the
business.
A review of product lines resulted in the termination by Ideal of
some 30 distribution arrangements, none of which were material to
Ideal in terms of turnover or profitability.
IT Network
The IT Network website was launched in June and has made an
encouraging start with increased site activity and sponsorship
revenue commitments. Revenue costs associated with the launch of the
IT Network site have been written off as an exceptional item.
Staff
This has not been an easy year for InterX staff. I would like to
take this opportunity to thank them for the positive way in which
they have responded to the challenges. We have committed teams
throughout the Group, which we believe will continue to perform well
in the current year.
Prospects
Although it is difficult to predict the impact of the millennium on
the buying patterns within our market over the next few months, the
distribution business is currently showing significant turnover
growth. The Board is confident that despite the material reduction
in margins seen in the entire distribution sector in the year to
date, the management team, through investment in new areas of value
added services, will ensure that the business maximises profitability
and market share is increased. In relation to physical product
sales, we are unlikely to see a return to the levels of gross margin
which we have enjoyed in the past. In response to this, management
is developing new high margin service based revenue streams, at the
same time as focusing on improving conversion margin.
As anticipated, feedback from both sponsors and customers has
indicated that there are significant opportunities available to the
IT Network should it launch in other geographical markets and
implement an e-commerce, transaction-based revenue model. The Board
is currently reviewing the financial implications of these
opportunities.
Our goal remains to deliver value to our shareholders by responding
appropriately to the rapidly changing markets in which we operate.
Richard Jewson
Chairman
INTERX PLC
Preliminary Results for the Year ended 30 July 1999
Chief Executive's Review
It is clear that without effectively communicating to prospective
customers what the features, benefits and advantages of a given
product are, any purchasing decision can only be based upon price.
Accordingly, Ideal has traditionally invested significant sums in the
education of salesmen and information services for its customers.
This has underpinned gross margins in the distribution business and
has resulted in Ideal becoming and remaining one of the most
profitable distributors in Europe.
Investment in information services has meant investment in technology
and content. Ideal has, throughout the 1990's, consistently invested
in developing its skills in product database design, multi-media
production, satellite television network management and website
design and management.
Historically, product information has been inextricably attached to
the physical movement of the product in question. Within the channel,
organisations able to offer better information services have been
able to leverage greater margins. The Internet breaks this
attachment and we identified at an early stage that the Internet
would have a massive impact on the IT supply chain. Accordingly,
since 1997 the Board has taken the following actions:
Ideal purchased 33% (now 34.5%) of Cromwell Media Limited, a UK
internet software development company with specific skills in
e-commerce, e-publishing and customer relationship management;
Ideal moved all information services from Ideal's private
satellite network onto the web;
Ideal's information services were moved into a separate
subsidiary, IT Network Limited;
Ideal commissioned a detailed study of:
- the IT value chain; and
- Internet revenue models; and
moved the distribution business, Ideal, into a subsidiary of the
listed company and renamed the listed company InterX plc to prepare
for the commercial launch of the IT Network.
IT Network
The 'IT Network' is an innovative digital comparator service aimed at
the IT professional which, since launch on 28 June 1999, has already
generated significant revenues and the active co-operation of most of
the major global IT manufacturers.
As an InfoMediary business, it is able to take advantage of multiple
revenue streams including:
e-commerce;
sponsorship and advertising;
information services; and
call-centres.
The IT Network helps IT professionals to decide what to buy and where
to buy it. It is independent, authoritative and comprehensive.
Since launching the service, the feedback received has indicated that
the immediate ability to purchase the product required, through
integration into vendors' e-commerce systems, is of significant added
value. We are currently preparing business plans to accelerate the
introduction of this e-commerce revenue model.
Continued focus on the needs of the corporate IT professional will
drive the future development of the IT Network.
Ideal
Market conditions in the second half of the year were challenging,
particularly in the area of high end storage solutions, which has
historically been higher margin business.
During May 1999, the InterX Board conducted a review of the business,
which resulted in a restructuring programme being implemented in
June. This programme was completed on time and to budget with a
minimum amount of disruption to the business.
Restructuring and Redundancy Programme
Total staff numbers before and after the restructuring were 442 and
345 respectively. The major area of redundancy occurred within the
sales, product management and supplier services departments,
reflecting the need to rationalise product lines and reduce
associated costs.
Management Team
On 10 June 1999, Ian French was appointed as Chief Executive of
Ideal. He joined Ideal in 1997 and has been responsible for the
success of Ideal's distribution agreement with Compaq. Simon
Miesegaes, Steve Lundy and I are also on the board of Ideal.
The Board of Ideal is currently focusing on broadening the range of
services provided to resellers, which will generate higher margin
revenue.
Compaq
The Compaq distribution agreement, augmented by Certified Integration
Programme accreditation, has been a significant achievement for
Ideal. The company's ability to generate significant amounts of
turnover reflects the quality of the proposition which Ideal is able
to deliver to manufacturers.
Europe
The distribution of material volumes of disk drives and CD-ROMs
throughout Continental Europe continues to be of strategic value to
manufacturers. Over the course of the current financial year, an
assessment will be made as to the viability of establishing the
operations required to service the reseller marketplace in Europe.
James Wickes
Chief Executive
INTERX PLC
Preliminary Results for the Year ended 30 July 1999
Finance Director's Review
Results for the year
Group profit before tax was £6.6m before exceptional items, compared
to £8.7m in 1998. The major factor underlining this decline in
profitability was the significant reduction in gross margin seen in
the distribution business in the second half of the year.
Turnover grew strongly from £230m to £318m, an increase of some 38%,
reflecting in part the award to Ideal of a distribution contract with
Compaq.
Exceptional items
Ideal restructuring costs
As part of the fundamental review of the distribution business
undertaken in June, the number of staff in the distribution business
was reduced. Voluntary and compulsory redundancy programmes were put
into place and the costs associated with these programmes amounted to
some £700,000.
InterX restructuring costs
As referred to in the Chief Executive's Review, the assets and
liabilities of the distribution business were hived down from the
original listed company into a subsidiary company. Legal and
professional fees associated with this hive down amounted to
£160,000.
IT Network development costs
During the year £3.7m was expensed in respect of IT Network's
development costs, which included:
initial market research on the IT value chain and Internet
revenue models;
pre-launch marketing and advertising;
the recruitment and training of staff; and
office and infrastructure costs.
Taxation
An effective rate of tax of 36.4% reflects primarily disallowable
revenue expenditure incurred in respect of legal and professional
fees as part of the restructuring of InterX.
Earnings per share
Earnings per share were 6.27p (1998: 28.13p). Excluding exceptional
items, earnings per share amounted to 21.31p (1998: 28.09p).
Balance Sheet and Cash Flow
Fixed asset additions during the year included some £1.7m relating to
website development for IT Network and some £1.8m relating to Ideal's
premises at Cox Lane.
IT Network has applied an aggressive depreciation policy of writing
off the full cost of its website over a period of 24 months.
During the course of the year, InterX received the proceeds from the
sale of 265 Burlington Road, which amounted to some £4.8m. The
transaction was accounted for in the previous year.
The total stock figure for the Group at 30 July 1999 of £9.3m on
turnover of some £318m reflects again our ability to manage our stock
effectively and efficiently.
Cash at 30 July 1999 was £8.2m (1998: £11.7m) and net funds were
£0.4m (1998: £7.4m), despite significant revenue and capital
expenditure in IT Network, continued capital investment in Ideal
property and systems and the continuation of the Group's progressive
dividend policy.
Strong control was maintained over working capital during the year in
both Ideal and IT Network. The overall Group net cash operating
inflow can be analysed as follows:
the distribution business, excluding Compaq and the taking of
early settlement discounts, generated a net cash inflow in excess of
operating profit;
IT Network development costs of £3.7m generated a net cash
outflow of £1.7m; and
IT Network trading generated a net cash inflow in excess of
operating profit.
The net interest charge of £264,000 is after accounting for interest
payable on property loans of some £339,000; the balance of net
interest receivable reflects the fact that our strong working capital
business model has contained the impact of the growth of our Compaq
business and the taking of early settlement discounts during the
year.
Banking Facility
We have put in place a medium term revolving loan facility with
National Westminster Bank plc. This facility has been introduced to
provide further funds for IT Network and to allow the Group to take
advantage of the significant opportunities offered by both the Compaq
distribution appointment and the taking of early settlement
discounts. Further details relating to this facility are included in
the notes to the accounts.
Treasury Policy
Some 13.5% of the Group's turnover takes place outside of the UK in
Europe and a significant proportion of the Group's product purchases
are made in US dollars. Consequently, the Group is potentially
subject to material translation exposures.
The Group's policy is to protect against adverse currency changes by
hedging translation exposures through the use of forward foreign
exchange contracts. The Group operates a daily exposure model to
ensure risks are minimised. Further details relating to these
translations are included in the notes to the accounts.
Euro
There were no material transactions in euros during the year. The
business information systems have been upgraded to deal with euro
denominated transactions including dual currency transactions. The
costs associated with this upgrade were not material.
Year 2000
As noted in last year's financial statements, a formal policy to
ensure Year 2000 compliance was adopted in 1998. This focused on the
Group's main operating and financial systems. The systems are Year
2000 compliant.
Outside of these systems, the main risks to the business are as
follows:
failure of other business and financial systems within the
Group; and
year 2000 related failure by significant suppliers and
customers.
In relation to the non mission-critical business and financial
systems within the Group, an action plan has been implemented to
address the key risks in advance of critical dates. The final costs
of this activity and any follow-on work are not expected to be
material.
We have during the year carried out a review of our products to
ensure that the risk that we supply non-Year 2000 compliant products
is reduced. We have not however sought to carry out any independent
evaluation of products and therefore rely upon the guarantees and
warranties provided by suppliers.
Simon Miesegaes
Finance Director
INTERX PLC
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 JULY 1999
Year ended Year
30 July 1999 ended
(audited) 31 July
1998
(audited)
Notes Pre-
exceptional Exceptional Total
items
£'000 £'000 £'000 £'000
Turnover 2 318,056 - 318,056 230,047
Cost of sales (288,512) - (288,512)(202,463)
Gross profit 2 29,544 - 29,544 27,584
Distribution costs
- Trading (12,088) - (12,088) (10,015)
- Ideal restructuring 3 - (120) (120) -
Administrative expenses
- Trading (10,596) - (10,596) (8,694)
- Ideal restructuring 3 - (580) (580) -
- InterX restructuring 3 - (160) (160) -
- IT Network development 3 - (3,688) (3,688) -
(22,684) (4,548) (27,232) (18,709)
Operating profit 6,860 (4,548) 2,312 8,875
Share of results of 42 42 (18)
associated undertaking
Profit on sale of fixed assets - - - 1,250
Loss on sale of subsidiary undertaking - - - (837)
Loss on termination of - - - (405)
subsidiary undertaking
Profit on ordinary 6,902 (4,548) 2,354 8,865
activities before interest
Interest receivable 337 - 337 379
Interest payable (601) - (601) (534)
Profit on ordinary 6,638 (4,548) 2,090 8,710
activities before taxation
Tax on profit on ordinary activities 4 (761) (2,748)
Profit on ordinary 1,329 5,962
activities after taxation
Dividends (2,967) (2,914)
Retained (deficit) / profit
for the financial year 6 (1,638) 3,048
INTERX PLC
GROUP PROFIT AND LOSS ACCOUNT (CONTINUED)
Year Year
ended ended
30 July 31 July
1999 1998
(audited) (audited)
Notes Total Total
Earnings per share (basic) 5 6.27p 28.13p
Less: exceptional items (net of
taxation)
Ideal restructuring 2.28p
InterX restructuring 0.75p -
IT Network development 12.01p -
Profit on sale of fixed assets - (5.90)p
Loss on sale of subsidiary undertaking - 3.95p
Loss on termination of subsidiary undertaking - 1.91p
Earnings per share (pre exceptionals) 21.31p 28.09p
Earnings per share - fully diluted 6.24p 28.13p
Earnings per share - fully diluted 21.22p 28.17p
(pre-exceptionals)
Interim ordinary dividend 6.00p 5.75p
Final ordinary dividend 8.00p 8.00p
There were no recognised gains or losses in either period other than
those in the Group profit and loss account. Turnover and operating
profit arose from continuing activities.
INTERX PLC
BALANCE SHEET
AT 30 JULY 1999
Notes At 30 July At 31 July
1999 1998
(audited) (audited)
£'000 £'000
Tangible fixed assets 19,431 15,674
Interest in associated company 120 91
19,551 15,765
Current assets
Stocks 9,280 6,247
Debtors 52,324 37,340
Cash at bank and in hand 8,241 11,655
69,845 55,242
Creditors: amounts falling due within (67,581) (51,197)
one year
Net current assets 2,264 4,045
Total assets less current liabilities 21,815 19,810
Creditors: amounts falling due after (6,387) (2,871)
more than one year
Provisions for liabilities and charges (130) (4)
15,298 16,935
Capital and reserves
Called up share capital ( including 6 1,063 1,063
shares to be issued )
Share premium account 6 2,663 2,662
Capital redemption reserve 6 31 31
Profit and loss account 6 11,541 13,179
Equity shareholders' funds 15,298 16,935
INTERX PLC
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JULY 1999
Notes Year ended Year ended
30 July 31 July
1999 1998
(audited) (audited)
£'000 £'000
Cash flow from operating activities 7 1,056 11,079
Returns on investments and servicing
of finance
Interest received 337 376
Interest paid (522) (506)
Net cash inflow from returns on
investments and servicing of finance (185) (130)
Taxation (2,787) (3,221)
Capital expenditure
Purchase of tangible fixed assets (6,853) (3,814)
Sale of tangible fixed assets 4,800 -
Costs incurred in advance of receipt - (190)
sale of fixed assets
Net cash outflow for capital (2,053) (4,004)
expenditure
Disposals / acquisitions
Net cash sold with subsidiary - (150)
undertaking
Disposal of subsidiary undertaking - 204
Net cash inflow from disposals and - 54
acquisitions
Dividends paid (2,967) (1,854)
Net cash (outflow) / inflow before (6,936) 1,924
financing
Financing
New bank loans 4,940 -
Repayment of loans (1,419) (1,367)
Exercise of share options 1 -
Capital element of finance lease - (9)
rental payments
Net cash inflow / (outflow) from 3,522 (1,376)
financing
(Decrease) / increase in cash in the (3,414) 548
year
INTERX PLC
GROUP CASH FLOW STATEMENT (CONTINUED)
Notes Year ended Year ended
30 July 31 July
1999 1998
(audited) (audited)
£'000 £'000
Reconciliation of net cash flow to
movement in net debt
(Decrease) / increase in cash in the (3,414) 548
year
Net cash (inflow) / outflow from (3,521) 1,376
(increase) / decrease in debt
Change in net funds resulting from (6,935) 1,924
cash flows
Finance leases sold with subsidiary - 12
undertaking
Arrangement fee amortisation (19) (14)
Movement in net funds in the year (6,954) 1,922
Net funds at start of year 8 7,401 5,479
Net funds at end of year 8 447 7,401
INTERX PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JULY 1999
NOTES
1. Basis of preparation
The comparative figures for the year ended 31 July 1998 have
been extracted from the Group's statutory accounts to that date;
these received an unqualified audit report, did not contain a
statement under section 237(2) or 237(3) of the Companies Act
1985 and have been filed with the Registrar of Companies. This
preliminary statement, which is unaudited and does not
constitute statutory accounts, has been prepared on the basis of
the accounting policies laid down in those statutory accounts.
2. Segmental information
The directors consider that during the year the Group had a
single class of business. The Group has no material operations
other than those in the UK. Turnover and gross profit by
destination was as follows:
Year ended 30 July Year ended 31 July
1999 1998
(audited) (audited)
UK Europe Total UK Europe Total
£'000 £'000 £'000 £'000 £'000 £'000
Turnover 275,059 42,997 318,056 193,502 36,545 230,047
Gross profit 28,299 1,245 29,544 26,381 1,203 27,584
Gross margin 10.3% 2.9% 9.3% 13.6% 3.3% 12.0%
3. Exceptional items reported before operating profit
The exceptional items are analysed between distribution and
administrative costs as follows:
1999
£'000
Distribution costs
- Ideal restructuring 120
Administrative costs
- Ideal restructuring 580
- InterX restructuring 160
- IT Network development 3,688
4,548
The Ideal restructuring costs arose due to a redundancy
programme which was implemented during the year.
The InterX restructuring costs arose due to the costs associated
with the creation of the InterX parent company and the
subsequent hivedown of assets from InterX plc to its subsidary
undertakings.
The IT Network costs relate to the development and launch of the
IT Network website.
4. Taxation
The taxation charge for the year has been calculated at an
estimated tax rate of 31% (1998: 31%).
5. Earnings per share
Earnings per share for the period is based on the profit
attributable to the weighted average of 21,191,134 (1998:
21,194,134) ordinary shares in issue during the period. The
fully diluted number of shares at 30 July 1999 was 21,285,389
(1998: 21,194,134).
6. Share capital and reserves
Movements in share capital and reserves were as follows:
Share Share Capital Other Profit Total
capital premium redemption reserves and loss
reserve account
£'000 £'000 £'000 £'000 £'000 £'000
At 1 August 1998 1,063 2,662 31 (694) 13,873 16,935
Prior year - - - 694 (694) -
adjustment
At 1 August 1998 1,063 2,662 31 - 13,179 16,935
as restated
Issue of shares 0 1 - - - 1
Loss for he - - - - (1,638)(1,638)
financial year
At 30 July 1999 1,063 2,663 31 - 11,541 15,298
Total Group reserves at 30 July 1999 include losses of £7,000 in
respect of the Group's share of the results of the associated
undertaking.
7. Reconciliation of operating profit to net cash inflow from
operating activities:
Year Year
ended ended
30 July 1999 31 July 1998
(audited) (audited)
£'000 £'000
Operating profit 2,312 8,875
Depreciation charges 1,815 1,715
Loss on disposal of 11 -
fixed assets
Increase in stock (3,033) (1,646)
Increase in debtors (20,207) (3,084)
Increase in creditors 20,158 5,219
Net cash inflow from 1,056 11,079
operating activities
8. Analysis of net funds
At At
1 August 30 July
1998 Cash flow Non cash 1999
(audited) movement (audited)
£'000 £'000 £'000 £'000
Cash at bank and in hand 11,655 (3,414) - 8,241
Debt due within 1 year (1,383) 1,419 (1,443) (1,407)
Debt due after 1 year (2,871) (4,940) 1,424 (6,387)
(4,254) (3,521) (19) (7,794)
Total net funds 7,401 (6,935) (19) 447
9. The Annual Report and Accounts are being sent to all
shareholders. Copies are available to the public on request
from the Company's registered office at Fountain Court, Cox
Lane, Chessington, Surrey, KT9 1SJ.
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