11th Sep 2007 07:01
Computacenter PLC11 September 2007 COMPUTACENTER PLC Interim Results Announcement Computacenter plc, the European IT infrastructure services provider, today announces interim results for the six months ended 30 June 2007. Financial Highlights: - Group revenues up 4.1% to £1.16 billion (2006: £1.11 billion)- Operating profit* up 12.1% to £12.8 million (2006: £11.4 million)- £3.0 million net interest income reduction, primarily due to capital return in 2006- Profit before tax* 11.8% lower at £12.8 million (2006: £14.5 million)- Diluted earnings per share up 9.3% to 4.7p (2006: 4.3p)- Interim dividend of 2.5p per share (2005: 2.5p) * Reported post amortisation of acquired intangibles Operating Highlights: - Awarded multinational BT Group contract to provide desktop services and supply product to BT's entire global estate- UK operating profit impacted by price erosion and services contract renewals- Improved pipeline of UK services activity- Acquisitions of Digica and Allnet strengthening services capability- Improved performance in Germany with growth across all areas of the business and significant contract wins- Continued progress in France with further restructuring cost efficiencies Ron Sandler, Chairman of Computacenter plc, commented: "Overall, the Group performance in the first half has been encouraging. We werepleased to see a stronger performance from France and Germany and expect thistrend to continue. In the UK, despite a weaker performance, we have made goodprogress in transforming our business in response to some fundamental changes inour markets. We remain committed to translating these adjustments intoconsistent performance improvements. Looking ahead, we expect our market positioning and performance to continue toimprove. The second half of the year has started positively for the Group and weare increasingly confident about our outlook for the full year, which remainsunchanged." For further information, please contact: Computacenter plc.Mike Norris, Chief Executive 01707 631 601Tessa Freeman, Investor Relations 01707 631 514www.computacenter.com Tulchan Communications 020 7353 4200Stephen Malthousewww.tulchangroup.com Chairman's statement The Group had an encouraging first half, with stronger performance in France andGermany partially offset by a weaker result in the UK. Overall, Group revenues,including acquisitions, were up 4.1% at £1.16 billion and up 2.1% on alike-for-like basis (H1 2006: £1.11 billion). Operating profit was up 12.1% to £12.8 million (H1 2006: £11.4 million).Following the £74.4 million capital return in July 2006 and expenditure of £32.6million on acquisitions in 2007, net interest income reduced from £3.0 millionto nil. Consequently, profit before tax decreased 11.8% to £12.8 million (H12006: £14.5 million). Despite the pre tax profit reduction, diluted earnings pershare increased by 9.3% to 4.7p (H1 2006: 4.3p), as a result of the reducednumber of shares in issue. The balance sheet remains strong, with net borrowings prior to customer-specificfinancing of £16.5 million at the period end. There was an outflow of £45.9million in the half-year, driven by the two acquisitions and a working capitaloutflow of £15.1 million. I am pleased to announce the payment of an interim dividend of 2.5p per share(2006: 2.5p) to be paid on 19 October 2007 to shareholders on the register as at21 September 2007. This is consistent with our policy of seeking to keep theinterim dividend at a level equal to one-third of the preceding year's totaldividend. A central pillar of our strategy for ensuring long-term earnings growth is theexpansion of our contracted services business. An important milestone wasachieved in March 2007 with the signing of a five-year contract with BT Group toprovide desktop services and supply product to BT's entire global estate,covering 54 countries. This replaces our previous UK contract with BT andrepresents a considerable enhancement in both scope and breadth of service. Excluding the results of the acquired businesses, UK revenues declined 1.8% to£649.2 million (H1 2006: £661.1 million) and operating profit declined 27.9% to£11.9 million (H1 2006: £16.4 million), with both product and servicesactivities delivering a lacklustre performance. The operating profit decline waslargely due to price erosion on renewals and the loss of some key servicescontracts in 2006, which adversely affected revenues and operating profit in H12007. However we have seen an improving pipeline of services activity, with anumber of contract wins secured in late 2006 and 2007 yet to be translated fullyinto revenue. Product sales, in particular to public sector organisations, were belowexpectations in the first quarter, although some recovery was evident towardsthe end of the period and we continued to see strong growth in softwarerevenues. We continue to invest in our products business for the long term,through tools and processes that lower our cost of sale, by adding salescapacity, and by leveraging our successful mid-market sales model for smallerorganisations and for customers with less complex service requirements. Computacenter UK made two significant services acquisitions in the period toextend our capability in the growth areas of datacentre services and networkcomputing. In January we concluded the acquisition of Digica Limited, a providerof datacentre managed services. This was followed in April by the acquisition ofCable & Wireless (Allnet) Limited, a leading provider of network integration andstructured cabling services. Computacenter Germany enjoyed strong growth across all areas of its business,with H1 revenues up 14.4% to £340.7 million (H1 2006: £297.7 million) andoperating profit of £3.8 million (H1 2006: £0.5 million). This is the bestfirst-half performance since the German business was acquired in 2003 andreflects both a market recovery and our success in diversifying into newsectors, particularly the mid-market. With market conditions likely to remainstrong and the full impact of the change programme in our German business yet tobe realised, we expect this level of performance improvement to continuethroughout the year. The improvement in our French performance, evident in H2 2006, continued in thefirst half of this year. Operating losses for the half-year decreased from £5.4million to £2.1 million despite a 4.5% fall in revenues to £135.3 million (H12006: £141.7 million). French Managed Services revenue growth of 5.6% was offsetby a 3.8% reduction in Professional Services revenues and a fall in productsales of 5.3%; however, margins increased in both products and services.Additionally, operating performance improved as a result of the cost savingsarising from the restructuring of the French cost base that took place at theend of 2006. We expect the performance of Computacenter France to continue toimprove and, based on progress to date, we are confident of a return to profit. Whilst much remains to be done, particularly in translating the substantialchanges we have made to the UK business into consistent performanceimprovements, we have made good progress in transforming our business inresponse to some fundamental changes in our markets. For our continuing successin this endeavour, I am indebted to our staff for their hard work andcommitment. Looking ahead, we expect our market positioning and performance to continue toimprove. The second half of the year has started positively and we areincreasingly confident about our outlook for the full year, which remainsunchanged. Review of Operations UK UK performance has been below expectation. Despite a strong performance from theTechnology Solutions business unit, Services Division revenues were adverselyaffected by price erosion on renewals and the previously reported loss of somekey contracts in 2006. The Product Division, whilst showing some recovery in Q2compared to Q1, has traded below 2006 levels, largely due to a reduction ingovernment sales. Services Division Overall services revenues, excluding the effect of acquisitions, declined 3.7%to £129.9 million (2006: £134.9 million), with Technology Solutions growthpartially compensating for a decline in contractual revenues. Managed Services Our Managed Services business saw a 14.3% decline in revenues largely due to theloss of several key contracts in H2 2006, which also led to a gross marginreduction. Our strategy has focused on the growing market for datacentre and enterprisecomputing Managed Services and on extending our offering to mid-marketcustomers. In the datacentre market, our presence was enhanced substantiallywith the acquisition of Digica in January. The use of the Shared Services Factory's repeatable processes and embedded bestpractice were fundamental to our securing a number of contracts, including arecent win with EDF Energy, worth £9.6 million, signed in July. Important new mid-market wins in the period included a five-year, £4.1 million,datacentre Managed Services contract with FremantleMedia. Support Services The market for IT infrastructure support continues to be highly costcompetitive, with increased price pressure at renewals of larger contractsmostly responsible for a small decline in our Support Services revenues. Demand for our offerings is polarising into larger, complex deals and smallercommoditised packaged services. For the former, customers look to us toconsolidate their infrastructure support whilst reducing cost and improvingservice levels. An example of this is our four-year, £20 million contract winwith Reuters, where services provided to their customers include product supplylogistics, engineering, service management and contract management. At the more commoditised end of the market, there is increasing demand forsimplified packaged services with transparent pricing. To address this marketsector, Computacenter launched three packaged services in the first half of theyear: lifetime maintenance, resource on demand and a disaster recovery service. 29 new contracts were signed with Support Services in the period, including withMerrill Lynch for server support and with TGI Fridays UK for server, desktopsand EPoS maintenance. Technology Solutions This business unit continued to perform well, with Professional Services revenuegrowth of approximately 20% compared to H1 2006, prior to the effect ofacquisitions. Increased project activity also benefited our product supplybusiness, with a 21% increase in associated hardware and software sales.Particularly pleasing was the continued strong performance of our datacentrebusiness, particularly our virtualisation and consolidation activities, and ourdatacentre utility and relocations services, which have been a major focus ofour business development efforts. The acquisition and integration in April of Allnet, a leading UK provider ofnetwork integration and structured cabling services, has significantly increasedour penetration of the connectivity market, doubling the size of Computacenter'sbusiness in this segment. Recent wins utilising Allnet's capabilities includeVarian Medical Systems, a new trading customer for whom we worked on the designand implementation of a new datacentre facility, and a major telecoms operator,where we are providing the system design, installation, migration and testingfor a new subscriber pre-payment service. Other significant wins in the period include a contract for the design,implementation and hosting of a software testing environment for Amdocs, aleading provider of customer experience systems. Digica The H1 profit performance of this newly acquired business was below expectation,due to some disruption resulting from the transaction, plus the start-up ofseveral large new datacentre contracts. However we are confident of asignificant improvement in the second half of the year. Demand for Digica's services remained buoyant, with the business achievingrecord new business contract values in the 12 months to June 2007. Significantwins include Crest Nicholson, where we added a major transformation project toour existing five-year outsourcing contract. The strength of the combinedComputacenter/Digica proposition was an important consideration in awarding thisproject. Product Division Total UK products revenue, excluding the effect of acquisitions, declined 1.3%to £519.2 million (H1 2006: £526.2 million), although improved product marginsfrom increased enterprise technology spend partially compensated for thisrevenue deterioration. There is an increasing demand from customers for Computacenter to own assets,particularly in the datacentre, and charge for the cost of equipment bundledwith the service. We welcome this and see it as an opportunity to improvemargins and increase services revenue over time. This customer specific financeamounted to £36.9 million at the end of the period (H1 2006: £1.8 million). To lower our cost of sale and increase productivity in this business we launchednew versions of our online procurement system, Connect, and our salesadministration system, One Touch. We also continue to focus on improvingautomated processes for the direct delivery of technology to clients. Hardware Desktop sales continue to decline, largely offset by the increase in sales ofserver, networking and storage systems from Sun, EMC and Cisco and a significantincrease in HP Intel server business. We continued to see growing demand for electronic trading, with sales via ourwebshop and other EDI links increasing to over 30% of all orders. This arearemains a key focus. Supply associated services such as portfolio management, technology benchmarkingand commercial advisory services proved important market differentiators. Theseinclude our new 'green advisory service', which shows how organisations canreduce costs and increase competitive advantage whilst reducing the IT elementof their carbon footprint. Significant hardware wins in the period include technology benchmarking anddesktop supply for Leeds City Council, which also includes disposals managementvia our RDC subsidiary. Software Our Software business unit had a strong start to the year, with revenuesrecording a 14.5% increase on the first half of 2006. The needs of our customers to reduce their software costs and increase theirreturn on investment helped us win important new business. Our ability to tracklicence renewals and entitlements and so monitor compliance, consolidatelicences and improve discount bands is leading to significant opportunities. Computacenter continues to invest in this business and we are increasing thenumbers of licensing executives and managers in response to growing customerdemand. Significant wins include a three-year Microsoft Enterprise Agreementwith the NHS, worth £37 million. Computacenter Direct We continued to target the growing market for IT product and services in themedium-sized business sector. The success of our 'light touch' accountmanagement approach led to over 1,000 smaller trading accounts being transferredto this sales model and we continued to recruit significant numbers of new salesstaff. Over 650 new trading customers were added in H1, and we are confident ofcontinuing growth in the mid-market sector. CCD The first half of 2007 saw a continuation of the improving trend in thefinancial performance of our trade distribution arm, CCD. This was attributableto a focus on tight operational control, combined with the new sales structureimplemented during 2006. Germany Computacenter Germany recorded the best H1 operating performance since theacquisition of the German business in 2003. Revenue growth was fairly evenlyspread, with services revenue growing by some 12%, and product revenues by 16%.As a result, our business mix remained fairly constant, with approximately 35%of our revenues coming from services and 65% from product. In part this performance can be attributed to an upturn in the German IT marketdriven by general economic factors. However, it is also the result of aconcerted campaign over the last two years to expand our customer base,especially in the medium-sized enterprise sector, and to leverage opportunitiesfor cross-selling to existing customers. The profitability in 2006 was affected by start-up losses from the shareddatacentre contracts, which totalled £6.3 million, £5.4 million of which were inthe second half. As a consequence, we will see a further additional materialimprovement in our overall German profitability in H2 2007. We secured a number of new and extended Managed Services contracts and sawstrong growth in our solutions business, particularly in Voice Over IP Telephonyand Voice on Demand. This in turn helped boost enterprise technology sales,driving growth of over 17% in our server and storage products business. Reversing a long-standing trend, we also saw 15% growth in our desktop productsbusiness, with software sales in particular performing very well. Despitecontinuing price declines, this revenue growth has been achieved with nodegradation to margins. Significant wins in the period include a server support contract with SAPHosting, and a network supply and maintenance contract with BMW Group.Additionally, we secured a datacentre outsourcing contract with Immobilienscout24, which operates Germany's largest Internet real estate marketplace. France Significant progress was made in France, where operating losses reduced 60.6%despite a small decline in revenues. Services revenue growth of 0.8% was offsetby a fall in product revenues of 5.3%; however the margin improvements of late2006 continued into the first half of 2007, with increased margins from bothproducts and services. The performance improvement is largely attributable to our ongoing focus onreducing the cost base and streamlining our operations, with particular progressmade in the latter half of 2006. As well as further progress in reducingexpenses in 2007, we are already seeing the benefits of a new sales pay plan,which focuses more sharply on achieving services growth and maximising margins.We are also benefiting from a sales management programme, launched last year,which is designed to better identify, qualify and capture maintenance andenterprise product opportunities. Significant wins include four new Managed Services contracts, worth in theregion of £2 million a year, including a large European staffing and recruitmentcompany and one of France's biggest power and energy companies. Benelux Overall, our Benelux operation recorded a small loss of £111,000 (2006:£82,000). Product supply again performed strongly, as did Managed Services,whilst project and consulting services remained weak. Key wins include a large international hardware supply contract with KBC, anextension of current infrastructure projects at Recticel, and an applicationservices project for Dexia. RDC RDC has made a good start to the year with H1 profit above expectations. In theUK business, service sales grew 21% on H1 2006 and remarketing margin was up20%. This growth came from the success of our Computacenter Asset RecoveryServices offering and was also boosted by sales of our fledgling 'collect andrecycle' service into the mid-market. RDC's German business was slow in H1, butrevenues from two major wins will start to come through in the second half ofthe year. Consolidated income statementFor the six months ended 30 June 2007 Unaudited Unaudited Year ended six months six months 31 Dec 2006 ended 30 ended 30 June 2007 June 2006 £'000 £'000 £'000 Revenue 1,160,333 1,114,939 2,269,903Cost of sales (1,006,183) (969,619) (1,974,437) -------- -------- -------- Gross profit 154,150 145,320 295,466 Distribution costs (9,267) (9,304) (19,075)Administrative expenses (131,819) (124,581) (242,819)-------------------------- -------- -------- --------Operating profit:Before amortisation of acquired 13,064 11,435 33,572intangibles and exceptional itemsAmortisation of acquired intangibles (240) - --------------------------- -------- -------- --------Operating profit before exceptional 12,824 11,435 33,572itemsImpairment of non-current assets - - (2,606)Redundancy costs - - (2,425)-------------------------- -------- -------- --------Operating profit 12,824 11,435 28,541 Finance revenue 2,157 4,044 6,677Finance costs (2,166) (1,053) (2,289)Share of profit of associate - 98 --------------------------- -------- -------- --------Profit before tax:Before amortisation of acquired 13,055 14,524 37,961intangibles and exceptional itemsAmortisation of acquired intangibles (240) - --------------------------- -------- -------- --------Profit before tax before exceptional 12,815 14,524 37,961itemsImpairment of non-current assets - - (2,606)Redundancy costs - - (2,425)-------------------------- -------- -------- --------Profit before tax 12,815 14,524 32,930 Income tax expense (5,319) (6,434) (13,994) -------- -------- --------Profit for the period 7,496 8,090 18,936 ======== ======== ======== Attributable to:Equity holders of the parent 7,496 8,090 18,927Minority interests - - 8 -------- -------- -------- 7,496 8,090 18,935 ======== ======== ======== Earnings per share- basic for profit for the year 4.8p 4.3p 11.0p- basic for profit pre exceptional 4.9p 4.3p 13.9pitems and amortisation of acquiredintangibles - diluted for profit for the year 4.7p 4.3p 10.9p- diluted for profit pre exceptional 4.8p 4.3p 13.8pitems and amortisation of acquiredintangibles Consolidated balance sheetAs at 30 June 2007 Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000Non-current assetsGoodwill 32,199 4,755 4,755Intangible assets 12,563 4,993 5,190Property, plant and equipment 102,116 77,456 84,874Investment accounted for using the - 184 -equity methodDeferred income tax asset 8,238 5,582 6,166 -------- -------- -------- 155,116 92,970 100,985 -------- -------- --------Current assetsInventories 92,011 87,733 94,586Trade and other receivables 410,222 365,120 427,319Prepayments 66,133 68,421 50,435Forward currency contracts 167 26 111Cash and short-term deposits 47,352 161,862 77,882 -------- -------- -------- 615,885 683,162 650,333 -------- -------- --------Total assets 771,001 776,132 751,318 ======== ======== ======== Current liabilitiesTrade and other payables 306,919 269,250 315,846Deferred income 71,428 80,313 77,714Financial liabilities 81,189 70,519 55,736Income tax payable 7,278 8,006 8,394Provisions 2,166 1,585 2,132 -------- -------- -------- 468,980 429,673 459,822 -------- -------- --------Non-current liabilitiesFinancial liabilities 20,511 704 11,362Provisions 11,653 13,384 12,839Other non-current liabilities 731 12 917Deferred income tax liabilities 2,486 837 1,249 -------- -------- -------- 35,381 14,937 26,367 -------- -------- --------Total liabilities 504,361 444,610 486,189 -------- -------- --------Net assets 266,640 331,522 265,129 ======== ======== ======== Capital and reservesIssued capital 9,585 9,543 9,571Share premium 2,776 76,004 2,247Capital redemption reserve 74,542 100 74,542Own shares held (2,503) (2,503) (2,503)Foreign currency translation reserve (2,381) (1,524) (2,455)Retained earnings 184,594 249,883 183,700 -------- -------- --------Shareholders' equity 266,613 331,503 265,102Minority interest 27 19 27 -------- -------- --------Total equity 266,640 331,522 265,129 ======== ======== ======== Approved by the Board on 10 September 2007 MJ Norris, Chief Executive FA Conophy, Finance Director Consolidated statement of changes in equity Attributable to equity holders of the parent ---------------------------------- Issued Share Capital Own Foreign Retained Total Minority Total capital premium redemption shares currency earnings interest equity reserve held translation reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2006 9,505 74,680 100 (2,503) (1,757) 250,630 330,655 19 330,674Exchange differences onretranslationof foreignoperations - - - - 233 - 233 - 233 ------ ------ ------- ------ ------- ------- ------- ------ -------Net income recogniseddirectly inequity - - - - 233 - 233 - 233Profit for the period - - - - - 8,090 8,090 - 8,090 ------ ------ ------- ------ ------- ------- ------- ------ ------- Total recognisedincome forthe period - - - - 233 8,090 8,323 - 8,323Exercise of options 38 1,324 - - - - 1,362 - 1,362Cost of share basedpayments - - - - - 568 568 - 568Equity dividends - - - - - (9,405) (9,405) - (9,405) ------ ------ ------- ------ ------- ------- ------- ------ ------- 38 1,324 - - 233 (747) 848 - 848 ------ ------ ------- ------ ------- ------- ------- ------ -------At 30 June 2006 9,543 76,004 100 (2,503) (1,524) 249,883 331,503 19 331,522Exchange differences onretranslationof foreignoperations - - - - (931) - (931) - (931) ------ ------ ------- ------ ------- ------- ------- ------ -------Net expense recogniseddirectly inequity - - - - (931) - (931) - (931)Profit for the period - - - - - 10,837 10,837 8 10,845 ------ ------ ------- ------ ------- ------- ------- ------ -------Total recognisedincome andexpense forthe period - - - - (931) 10,837 9,906 8 9,913Cost of share-basedpayments - - - - - 843 843 - 843Exercise of options 28 993 - - - - 1,021 - 1,021Bonus issue 74,442 (74,442) - - - - - - -Expenses on bonus issue - (308) - - - - (308) - (308)Share redemption (74,442) - 74,442 - - (73,886) (73,886) - (73,886)Expenses on shareredemption - - - - - (56) (56) - (56)Equity dividends - - - - - (3,921) (3,921) - (3,921) ------ ------ ------- ------ ------- ------- ------- ------ ------- 28 (73,757) 74,442 - (931) (66,183) (66,401) 8 (66,393) ------ ------ ------- ------ ------- ------- ------- ------ -------At 1 January 2007 9,571 2,247 74,542 (2,503) (2,455) 183,700 265,102 27 265,129Exchange differences onretranslationof foreignoperations - - - - 74 - 74 - 74 ------ ------ ------- ------ ------- ------- ------- ------ -------Net income recogniseddirectly inequity - - - - 74 - 74 - 74Profit for the period - - - - - 7,496 7,496 - 7,496 ------ ------ ------- ------ ------- ------- ------- ------ -------Total recognisedincome forthe period - - - - 74 7,496 7,570 - 7,570Exercise of options 14 529 - - - - 543 - 543Cost of share basedpayments - - - - - 1,269 1,269 - 1,269Equity dividends - - - - - (7,871) (7,871) - (7,871) ------ ------ ------- ------ ------- ------- ------- ------ ------- 14 529 - - 74 894 1,511 - 1,511 ------ ------ ------- ------ ------- ------- ------- ------ -------At 30 June 2007 9,585 2,776 74,542 (2,503) (2,381) 184,594 266,613 27 266,640 ====== ====== ======= ====== ======= ======= ======= ====== ======= Consolidated cash flow statementFor the six months ended 30 June 2007 Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000Operating activitiesOperating profit 12,824 11,435 28,541Adjustments to reconcile Groupoperating profit to net cash inflowsfrom operating activitiesDepreciation 11,124 6,869 14,585Amortisation 1,648 850 1,907Cost of share-based payment 1,269 568 1,411Impairment of property, plant & - - 2,492equipmentLoss on disposal of property, plant and 60 260 353equipmentImpairment of intangible assets - - 114Loss on disposal of intangible assets 36 9 9Dividend received from associate - 203 202Decrease in inventories 4,897 12,846 4,560Decrease/(increase) in trade and other 16,234 14,240 (35,498)receivables(Decrease)/increase in trade and other (36,234) (41,629) 6,895payablesCurrency and other adjustments (72) (73) 5 -------- -------- --------Cash generated from operations 11,786 5,578 25,576Income taxes paid (6,345) (4,744) (11,994) -------- -------- --------Net cash flow from operating activities 5,441 834 13,582 -------- -------- -------- Investing activitiesInterest received 1,988 4,066 6,600Acquisition of subsidiaries, net of (32,596) - -cash acquiredSale of property, plant and equipment 306 22 24Purchases of property, plant and (6,173) (1,400) (7,504)equipmentPurchases of intangible assets (2,934) (1,115) (2,499)Sale of interest in associate - - 364 -------- -------- --------Net cash flow from investing activities (39,409) 1,573 (3,015) -------- -------- -------- Financing activitiesInterest paid (2,069) (1,293) (2,152)Dividends paid to equity holders of the (7,871) (9,405) (13,326)parentProceeds from issue of shares 543 1,362 2,383Repayment of capital element of finance (2,061) (1,320) (2,629)leasesRepayment of loans - - (326)Repayment of other loans (6,742) - (5,201)New borrowings 6,203 - 12,447Return of capital - - (74,442)Expenses on return of capital - - (365)(Decrease)/increase in factor financing (8,381) 2,066 (1,377) -------- -------- --------Net cash flows from financing (20,378) (8,590) (84,988)activities -------- -------- -------- Decrease in cash and cash equivalents (54,346) (6,183) (74,421)Effect of exchange rates on cash and 1 (156) 492cash equivalentsCash and cash equivalents at beginning 58,982 132,911 132,911of period -------- -------- --------Cash and cash equivalents at end of 4,637 126,572 58,982period ======== ======== ======== Analysis of net funds Cash and cash equivalents 4,637 126,572 58,982Factor financing (21,148) (33,805) (29,549)Bank loan - (326) - -------- -------- --------Net funds prior to customer-specific (16,511) 92,441 29,433loans and finance leasesFinance leases (30,218) (646) (11,403)Other loans (6,707) (1,156) (7,246) -------- -------- --------Net funds (53,436) 90,639 10,784 ======== ======== ======== Notes to the accounts 1 Accounting policies Basis of preparation The unaudited interim financial statements have been prepared on the basis ofthe accounting policies set out in the Group's statutory accounts for the yearended 31 December 2006, with one exception. The revenue on a limited number ofSupport and Managed Services contracts has been recognised in line with thestage of work completed rather than on a straight line basis, where such a basisdoes not represent the stage of work completed. The taxation charge iscalculated by applying the Directors' best estimate of the annual tax rate tothe profit for the period. Other expenses are accrued in accordance with thesame principles used in the preparation of the annual accounts. 2 Segment information The Group's primary reporting format is geographical segments and its secondaryformat is business segments. The Group's geographical segments are determined bythe location of the Group's assets and operations. The Group's business in eachgeography is managed separately and held in separate statutory entities. Segmental performance for the period to 30 June 2007 was as follows: Unaudited Unaudited Year ended six months six months 31 Dec 2006 ended 30 ended 30 June 2007 June 2006 £'000 £'000 £'000Revenue by geographic marketUK 671,154 661,095 1,281,498Germany 340,680 297,671 654,671France 135,309 141,732 307,264Benelux 13,190 14,441 26,470 --------- --------- ---------Total 1,160,333 1,114,939 2,269,903 ========= ========= ========= Gross profit by geographic marketUK 95,324 91,115 181,900Germany 43,339 40,397 83,405France 14,178 12,606 27,711Benelux 1,309 1,202 2,450 --------- --------- ---------Total 154,150 145,320 295,466 ========= ========= =========Operating profit/(loss) by geographic marketUK 11,267 16,432 37,470Germany 3,779 450 2,788France (2,111) (5,365) (11,526)Benelux (111) (82) (191) --------- --------- ---------Total 12,824 11,435 28,541 ========= ========= ========= Revenue by business segmentProduct 873,628 846,831 1,735,210Professional services 71,088 59,263 128,895Support and managed services 215,617 208,845 405,798 --------- --------- ---------Total 1,160,333 1,114,939 2,269,903 ========= ========= ========= 3 Exceptional items Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000Impairment of property, plant and equipment - - 2,492Impairment of intangibles - - 114Redundancy costs - - 2,425 -------- -------- -------- - - 5,031 ======== ======== ======== 4 Finance costs Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000 Bank overdrafts and factor financing 1,537 1,044 1,886Finance charges payable under customer specific 629 9 403finance leases and other loans -------- -------- -------- 2,166 1,053 2,289 ======== ======== ========5 Income tax The charge, based on the profit for the period, comprises: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000UK Corporation tax- Current 5,388 6,988 14,421- Prior - - 76Deferred tax (107) (569) (774)Foreign tax 38 15 212 -------- -------- -------- 5,319 6,434 13,935Share of joint venture's tax - - 59 -------- -------- -------- 5,319 6,434 13,994 ======== ======== ======== 6 Dividends The proposed final dividend for 2006 of 5.0p per ordinary share was approved atthe AGM in May 2007 and was paid on 31 May 2007. An interim dividend in respectof 2007 of 2.5p per ordinary share, amounting to a total dividend of £3,910,000,was declared by the Directors at their meeting on 10 September 2007. Thisinterim report does not reflect this dividend payable. 7 Earnings per share Basic earnings per share amounts are calculated by dividing the net profit forthe period attributable to ordinary equity holders of the parent by the weightedaverage number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing the net profitattributable to ordinary equity holders of the parent by the weighted averagenumber of ordinary shares outstanding during the period adjusted for the effectof dilutive share options. The following reflects the income and share data used in the total operationsbasic and diluted earnings per share computations: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000 Profit attributable to equity holders of the parent 7,496 8,090 18,927Amortisation of acquired intangibles attributable to 240 - -equity holders of the parentExceptional items attributable to equity holders of the - - 5,031parent -------- -------- --------Profit before exceptional items and amortisation of 7,736 8,090 23,958acquired intangibles attributable to equity holders of the parent -------- -------- -------- No '000 No '000 No '000 Basic weighted average number of shares (excluding own 157,272 187,753 172,312shares held)Effect of dilution:Share options 2,616 725 1,232 -------- -------- --------Diluted weighted average number of shares 159,888 188,478 173,544 ======== ======== ======== 8 Business combinations Acquisition of Digica Group On 4 January 2007, the Group acquired 100% of the voting shares of Digica GroupHoldings Ltd ("Digica") for a consideration of £15,835,000, in addition to whichthe Group settled the assumed debt of £11,426,000. The costs of acquisitionamounted to £627,000. Digica is a private company, based principally in England,who specialises in IT infrastructure and application services. Outside of theUK, Digica operates a purpose built data-centre in Cape Town, South Africa. Theacquisition has been accounted for using the purchase method of accounting. Theinterim condensed consolidated financial statements include the results ofDigica for the six month period from the acquisition date. The book and provisional fair values of the net assets at date of acquisitionwere as follows: Book value Provisional fair value to Group £'000 £'000Intangible assetsComprising:Purchased goodwill 9,784 -Existing customer contracts - 1,282Existing customer relationships - 2,275Trademark - 1,513Tools and technology - 576Software 40 40 -------- --------Total intangible asets 9,824 5,686Property, plant and equipment 1,216 1,083Deferred tax assets - 2,000Inventories 2,561 1,995Trade and other receivables 2,271 2,271Prepayments 1,801 1,801Cash 84 84Trade payables (2,893) (2,893)Other payables (2,252) (2,502)Deferred income (4,562) (4,562)Deferred tax liabilities - (1,240) -------- --------Net assets 8,050 3,723 ========Goodwill arising on acquisition 24,165 -------- 27,888 ========Discharged by:Cash 15,835Assumed debt 11,426Costs associated with the acquisition, settled in cash 627 -------- 27,888 ======== From the date of acquisition, Digica has made a loss of £476,000 on revenues of£12,148,000. Included in the £24,165,000 of goodwill recognised above are certain intangibleassets that cannot be individually separated and reliably measured from theacquiree due to their nature. These items include the expected value ofsynergies and an assembled workforce. Acquisition of Cable & Wireless (Allnet) Ltd On 3 April 2007, the Group acquired 100% of the voting shares of Cable &Wireless (Allnet) Ltd ("Allnet") for an initial consideration of £9,265,000 plusacquisition costs of £201,000. The purchase price shall be subsequentlyincreased in the event that specific earnings targets are met in the periodApril 2007 to March 2010. Allnet is a private company based in England whichprovides in-premises cabling services. The acquisition has been accounted forusing the purchase method of accounting. The interim condensed consolidatedfinancial statements include the results of Allnet for the three month periodfrom the acquisition date. The book and provisional fair values of the net assets at date of acquisitionwere as follows: Book value Provisional fair value to Group £'000 £'000Intangible assetsComprising:Trademark - 409Software 29 29 -------- --------Total intangible assets 29 438Property, plant and equipment 658 601Inventories 1,675 364Trade receivables 9,499 9,499Prepayments 1,284 1,284Cash 4,674 4,674Trade payables (5,829) (5,829)Other payables (764) (764)Deferred income (3,078) (3,078) -------- --------Net assets 8,148 7,189 ========Goodwill arising on acquisition 3,277 -------- 10,466 ========Discharged by:Cash 9,265Contingent consideration 1,000Costs associated with the acquisition, settled in cash 201 -------- 10,466 ======== From the date of acquisition, Allnet has contributed £9,823,000 to the Group'srevenue and £162,000 to the net profit of the Group. If the acquisition had taken place at the beginning of the year, Group revenuesfor the year would have been £1,176,573,000 and net profit would have been£12,910,000. Included in the £3,277,000 of goodwill recognised above are certain intangibleassets that cannot be individually separated and reliably measured from theacquiree due to their nature. These items include the expected value ofsynergies and an assembled workforce. 9 Cash and cash equivalents Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000Cash and cash equivalents as at the end of the periodcomprises:Cash at bank and in hand 47,352 161,862 17,882Short term deposits - - 60,000Bank overdrafts (42,715) (35,290) (18,900) -------- -------- -------- 4,637 126,572 58,982 ======== ======== ======== 10 Financial assets and liabilities Customer-specific loans and finance leases Included within financial liabilities are the following amounts in respect ofother loans and finance leases which are only secured on the assets that theyfinance. These assets are used to satisfy specific customer contracts. Other loans The other loans are borrowings to finance assets leased to customers onoperating leases. The maturity profile of these loans is given in the table below: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000 Not later than one year 5,309 743 4,443After one year but not more than five years 1,398 413 2,803 -------- -------- ------- 6,707 1,156 7,246 ======== ======== ======= Finance lease commitments The Group has finance leases for various items of plant and machinery; theseleases have no terms of renewal or purchase options and escalation clauses.Future minimum lease payments under finance leases are as follows: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000 Within one year 13,918 376 3,501After one year but not more than five years 19,836 296 10,593 -------- -------- ------- 33,754 672 14,094Less finance charges allocated to future periods 3,536 26 2,691 -------- -------- -------Present value of minimum lease payments 30,218 646 11,403 ======== ======== ======= Operating lease receivables where the Group is lessor During the period the Group entered into commercial leases with customers oncertain items of machinery. Future amounts receivable by the Group under the non-cancellable operatingleases are as follows: Unaudited Unaudited Year six months six months ended 31 ended 30 ended 30 Dec 2006 June 2007 June 2006 £'000 £'000 £'000 Not later than one year 19,689 672 8,541After one year but not more than five years 22,246 - 12,723 -------- -------- ------- 41,935 672 21,264 ======== ======== ======= 11 Publication of non-statutory accounts The financial information contained in the interim statement does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. Theauditors have issued an unqualified opinion on the Group's statutory financialstatements under International Accounting Standards for the year ended 31December 2006. Those accounts have been delivered to the Registrar of Companies. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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