TIDMCCC
RNS Number : 9972J
Computacenter PLC
23 August 2019
Computacenter plc
Incorporated in England
Registration number: 03110569
LEI: 549300XSXUZ1I19DB105
ISIN: GB00BV9FP302
Computacenter plc
Interim results for the six months ended 30 June 2019
Computacenter plc ("Computacenter" or the "Group"), a leading
independent technology partner trusted by large corporate and
public sector organisations, today announces results, based on
unaudited financial information, for the six month period ended 30
June 2019.
Financial Highlights: H1 2019 H1 2018 Percentage
Change
Increase/
(Decrease)
Financial Performance
Services revenue (GBP million) 595.7 574.8 3.6
Technology Sourcing revenue (GBP
million) 1,831.3 1,434.1 27.7
Revenue (GBP million) 2,427.0 2,008.9 20.8
Adjusted(1) profit before tax
(GBP million) 53.5 52.1 2.7
Adjusted(1) diluted earnings
per share (pence) 34.5 32.7 5.5
Dividend per share (pence) 10.1 8.7 16.1
Statutory profit before tax (GBP
million) 50.8 52.0 (2.3)
Statutory diluted earnings per
share (pence) 33.2 31.6 5.1
Cash Position
Cash and cash equivalents (GBP
million) 114.3 72.9
Adjusted net (debt)/funds(3)
(GBP million) (3.1) 53.7
Net (debt)/funds* (GBP million) (114.1) 49.7
Net cash (outflow)/inflow from
operating activities (GBP million) (1.1) 8.4
Reconciliation between Adjusted(1) and Statutory
Performance
Adjusted(1) profit before tax (GBP
million) 53.5 52.1
Exceptional and other adjusting items:
Costs related to acquisition (GBP (0.5) -
million)
Amortisation of acquired intangibles
(GBP million) (2.2) (0.1)
Statutory profit before tax (GBP million) 50.8 52.0
*The Group recognised GBP110.2 million of right-of-use assets
and GBP111.0 million of lease liabilities as at 30 June 2019 under
the new IFRS 16 accounting standard. The Group includes lease
liabilities within its net (debt)/funds measure. Due to the
distortive effect of the capitalised lease liabilities on the
overall liquidity position of the Group, these lease liabilities
recognised under the new IFRS 16 accounting standard, are excluded
from its non-GAAP adjusted net (debt)/funds(3) measure.
Operational Highlights:
-- The Group's total revenues grew 20.8 per cent or GBP418.1
million during the first half of the year, and by 21.6 per cent or
GBP431.5 million during the period in constant currency(2) .
Excluding the impact of acquisitions the Group was ahead of the
same period last year, which presented a challenging comparison
with the prior period, on an adjusted(1) profit before tax
basis.
-- France has had a pleasing start to the year with an increase
in revenues of 18.9 per cent, led by a buoyant Technology Sourcing
marketplace where we are growing our customer breadth, and an
increase in adjusted(1) operating profit of 190.5 per cent, both on
a constant currency(2) basis. An outstanding result that has
underpinned the Group's performance in the period.
-- Germany delivers another strong performance with revenue
growth of 4.1 per cent during the period driven by a resilient
Technology Sourcing performance and a strong Professional Services
result leading to a 2.8 per cent increase in adjusted(1) operating
profit, both on a constant currency(2) basis. This was a very good
performance given the material spend reduction from a key customer,
which declined by 60.1 per cent down to normal volumes rather than
those seen in the prior period, which created such a challenging
comparison.
-- The UK saw a reduction in revenues of 7.8 per cent as both
Services and Technology Sourcing revenues declined. The prior
period comparative result contained two very large margin-dilutive
Technology Sourcing deals that, being one-off in nature,
contributed to this decline. Adjusted(1) operating profit fell by
9.3 per cent during the period, despite improvements in both
Services and Technology Sourcing margins, due to increased
administrative expenses.
-- The US acquisition made halfway through the second half of
last year has seen a more subdued performance in the first half of
2019, as compared to the last quarter of 2018, due to an increase
in operational costs, increased investment in the business, and a
decline in operating margins leading to the combined US business
making only a small adjusted(1) operating profit. We have seen an
improvement in performance more recently.
The result has benefited from GBP416.8 million of revenues, and
GBP1.3 million of adjusted(1) profit before tax, resulting from the
acquisitions made since 30 June 2018. All figures reported
throughout this announcement include the results of the acquired
entities.
The Group has adopted IFRS 16 from 1 January 2019 which has
resulted in changes in accounting policies and adjustments to the
amounts recognised in the Financial Statements. Importantly, and in
accordance with the modified retrospective approach, the
comparative results for the period ended 30 June 2018 have not been
restated under the accounting policies adopted as a result of
transition to IFRS 16. The current period results include an
overall decrease in profitability before tax of GBP0.8 million on
both statutory and adjusted(1) basis due to the impact of IFRS 16
which has seen increased interest costs exceed the net of increased
depreciation and reduced rental costs due to the timing difference
effect of the new accounting standard. An analysis of the impact of
transition is presented in note 3 to the summary financial
information contained within this announcement. Further information
on the implementation of, and transition to, IFRS 16 is included
within the Group Finance Director's review contained in this
announcement.
A reconciliation between key adjusted(1) and statutory measures
is provided within the Group Finance Director's review contained in
this announcement. Further details are provided in note 5 to the
summary financial information contained within this
announcement.
Mike Norris, Chief Executive of Computacenter plc,
commented:
'The Board's outlook remains in line with its expectations,
which were upgraded as per the Trading Update on 31 July 2019.
Whilst the performance of the first half of 2018 presented a
very difficult challenge to beat, the opposite is true of the
second half. The Board expects that the full year 2019 profit
growth, in monetary value, will be the best in the company's
history. This performance will be predominantly achieved without
the aid of acquisitions, however we expect to see a more
significant contribution from our acquired business in the USA
during the second half.
Looking further ahead will always be challenging but the
momentum in the industry remains positive as customers continue to
invest in technology to digitalise their business. This industry's
momentum is backed up by an improving operational capability which
both increases the quality we deliver to customers and reduces
operational cost. While Computacenter will continue to remain
predominantly an organic growth company, which has served us so
well for many years, this has been enhanced by our acquisitions
over the last 12 months which gives us additional growth
drivers.
Whilst we are fully aware of macroeconomic challenges and take
nothing for granted, we remain as positive about the future as we
have ever been.'
(1) Adjusted operating profit or loss, adjusted net finance
income or expense, adjusted profit or loss before tax, adjusted
tax, adjusted profit or loss, adjusted earnings per share and
adjusted diluted earnings per share are, as appropriate, each
stated before: exceptional and other adjusting items including gain
or losses on business acquisitions and disposals, amortisation of
acquired intangibles, utilisation of deferred tax assets (where
initial recognition was as an exceptional item or a fair value
adjustment on acquisition), and the related tax effect of these
exceptional and other adjusting items, as Management do not
consider these items when reviewing the underlying performance of
the Segment or the Group as a whole. Prior to the adoption of IFRS
16, adjusted gross profit or loss and adjusted operating profit or
loss included the interest paid on customer-specific financing
(CSF) which Management considered to be a cost of sale. A
reconciliation between key adjusted and statutory measures is
provided within the Group Finance Director's review contained in
this announcement which details the impact of exceptional and other
adjusted items when compared to the non-Generally Accepted
Accounting Practice financial measures in addition to those
reported in accordance with IFRS. Further detail is provided within
note 5 to the summary financial information contained in this
announcement.
(2) We evaluate the long-term performance and trends within our
strategic objectives on a constant currency basis. Further, the
performance of the Group and its overseas Segments are shown, where
indicated, in constant currency. The constant currency
presentation, which is a non-GAAP measure, excludes the impact of
fluctuations in foreign currency exchange rates. We believe
providing constant currency information gives valuable supplemental
detail regarding our results of operations, consistent with how we
evaluate our performance. We calculate constant currency
percentages by converting our prior-period local currency financial
results using the current period average exchange rates and
comparing these recalculated amounts to our current period results
or by presenting the results in the equivalent local currency
amounts. Wherever the performance of the Group, or its overseas
Segments, are presented in constant currency, or equivalent local
currency amounts, the equivalent prior-period measure is also
presented in the reported pound sterling equivalent using the
exchange rates prevailing at the time. 2019 Interim Financial
Highlights, as shown at the beginning of this announcement, and
statutory measures, are provided in the reported pound sterling
equivalent.
(3) Adjusted net funds or adjusted net debt includes cash and
cash equivalents, other short or other long-term borrowings and
current asset investments. Following the adoption of IFRS 16 this
measure excludes all finance lease liabilities which now includes
CSF balances which were previously included within this measure. A
table reconciling this measure, including the impact of finance
lease liabilities, is provided within note 13 to the summary
financial information contained in this announcement.
Enquiries:
Computacenter plc
Mike Norris, Chief
Executive 01707 631601
Tony Conophy, Finance
Director 01707 631515
Tulchan Communications
020 7353
Matt Low 4200
020 7353
James Macey White 4200
DISCLAIMER - FORWARD LOOKING STATEMENTS
This announcement includes statements that are, or may be deemed
to be, 'forward-looking statements'. These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms 'anticipates', 'believes',
'estimates', 'expects', 'intends', 'may', 'plans', 'projects',
'should' or 'will', or, in each case, their negative or other
variations or comparable terminology, or by discussions of
strategy, plans, objectives, goals, future events or intentions.
These forward-looking statements include all matters that are not
historical facts. They appear in a number of places throughout this
announcement and include, but are not limited to, statements
regarding the Groups' intentions, beliefs or current expectations
concerning, amongst other things, results of operations, prospects,
growth, strategies and expectations of its respective
businesses.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward-looking statements are not guarantees of future performance
and the actual results of the Group's operations and the
development of the markets and the industry in which they operate
or are likely to operate and their respective operations may differ
materially from those described in, or suggested by, the
forward-looking statements contained in this announcement. In
addition, even if the results of operations and the development of
the markets and the industry in which the Group operates are
consistent with the forward-looking statements contained in this
announcement, those results or developments may not be indicative
of results or developments in subsequent periods. A number of
factors could cause results and developments to differ materially
from those expressed or implied by the forward-looking statements,
including, without limitation, those risks in the risk factor
section of the 2018 Computacenter Annual Report and Accounts, as
well as general economic and business conditions, industry trends,
competition, changes in regulation, currency fluctuations or
advancements in research and development.
Forward-looking statements speak only as of the date of this
announcement and may and often do, differ materially from actual
results. Any forward-looking statements in this announcement
reflect the Group's current view with respect to future events and
are subject to risks relating to future events and other risks,
uncertainties and assumptions relating to the Group's operations,
results of operations and growth strategy.
Neither Computacenter plc nor any of its subsidiaries undertakes
any obligation to update the forward-looking statements to reflect
actual results or any change in events, conditions or assumptions
or other factors unless otherwise required by applicable law or
regulation.
Our interim performance in 2019
Financial performance
The Group's revenues increased by 20.8 per cent to GBP2,427.0
million (H1 2018: GBP2,008.9 million) and were 21.6 per cent higher
in constant currency(2) .
The Group made a statutory profit before tax of GBP50.8 million,
a decrease of 2.3 per cent (H1 2018: GBP52.0 million). The Group's
adjusted(1) profit before tax increased by 2.7 per cent to GBP53.5
million (H1 2018: GBP52.1 million) and by 3.5 per cent in constant
currency(2) .
The difference between statutory profit before tax and
adjusted(1) profit before tax primarily relates to the Group's
reported net charge of GBP2.7 million (H1 2018: charge of GBP0.1
million) from exceptional and other adjusting items. These relate
principally to the Group's acquisition of FusionStorm. Further
information on these can be found in the Group Finance Director's
review included in this announcement.
Note that these results include an overall decrease in
profitability before tax of GBP0.8 million on both a statutory and
adjusted(1) basis due to the impact of IFRS 16 which has seen
increased interest costs exceed the net of increased depreciation
and reduced rental costs due to the timing difference effect of the
new accounting standard. Excluding this adjustment, statutory
profit before tax was 0.8 per cent lower than the equivalent period
last year whilst adjusted(1) profit before tax was 4.2 per cent
better. Further information on the impact of IFRS 16 can be found
in the Group Finance Director's review included in this
announcement.
With the increase in the Group's overall statutory profit after
tax, statutory diluted earnings per share increased by 5.1 per cent
to 33.2 pence for the period (H1 2018: 31.6 pence). Adjusted(1)
diluted earnings per share (EPS), the Group's primary EPS measure,
increased by 5.5 per cent to 34.5 pence (H1 2018: 32.7 pence) in
the first half of 2019.
The result has benefited from GBP416.8 million of revenues, and
GBP1.3 million of adjusted(1) profit before tax, resulting from the
acquisitions made since 30 June 2018. All figures reported
throughout this announcement include the results of the acquired
entities. The six months of trading to 30 June 2019 showed
continued progress in Computacenter's adjusted(1) profitability and
further progress in adjusted(1) earnings per share, following the
residual impact of the Return of Value Tender Offer completed in
February 2018.
The improvement on the prior period was principally driven by
the French business, with much stronger than predicted Technology
Sourcing revenues. We were further pleased by a strong German
performance that, whilst seeing a very large reduction in sales
volumes at its largest customer, managed to replace this business
and further grow our business with existing customers.
The USA was the only part of the business that was a little
disappointing in the first half of the year with a lower
performance than we predicted or would like. Revenues were quiet
towards the end of the first quarter but have now recovered. In
addition, we are continuing to learn how to operate this new entity
and we have also invested significantly in a number of areas,
particularly in the upgrading of the Integration Center capability
in Newark.
As noted previously, our first half performance in 2018 was
record setting and we are pleased that the overall Group
performance in the first half of 2019 has exceeded this. The Group
had a difficult second half of the year in 2018 due to a number of
underperforming Managed Services contracts and we are encouraged by
the increase in Managed Services margins across our key geographies
with the underlying margin performance, excluding the now
stabilised difficult contracts, starting to improve. The challenge
for the rest of the year is made easier by this impact as the
second half of the prior year included a slowdown in the growth of
Technology Sourcing revenues from those seen in the prior period
and was also impacted by material provisioning for the 'difficult'
Managed Services contracts which are not expected to repeat.
Overall, with an easier prior period comparison in the second half
of the year, the Group remains on course to meet the Board's
expectations as set out in the H1 2019 Trading Update on 31 July
2019.
Segmental reporting structure changes
Due to the acquisitions made in 2018, Management has further
reviewed the way it reported segmental performance to the Board and
the Chief Executive Officer, who is the Group's Chief Operating
Decision Maker ('CODM'), during the first half of the year. As a
result of this analysis the Board has adopted a new segmental
reporting structure from the period ended 30 June 2019.
In accordance with IFRS 8 Operating Segments, the Group has
identified five revised operating Segments:
-- UK;
-- Germany;
-- France;
-- USA; and
-- International.
In the new USA Segment, the Group has now added a fifth
operating Segment which comprises the business acquired in 2018 and
the existing USA operations which transfer in from the
International Segment.
The UK Segment now includes the TeamUltra trading operations
from the International Segment reflecting the fact that the
majority of the work performed by TeamUltra is either on UK
customers or for UK bids. Over the course of the rest of the year
we expect to see the TeamUltra operations absorbed into the UK
trading entity, reflecting the importance of the capability to the
UK business.
The International Segment now comprises a core 'Rest of Europe'
presence with key trading operations in Belgium, the Netherlands
and Switzerland along with the international Global Service Desk
locations in South Africa, Spain, Hungary, Mexico, Poland,
Malaysia, India and China. During the period, Computacenter
Switzerland acquired PathWorks GmbH. ('PathWorks'), a value-added
reseller, based in Neudorf (Luzern), Switzerland. This acquisition
allows us to add Technology Sourcing to our existing Swiss
portfolio completing the Group's Source, Transform and Manage
offering. The Global Service Desk locations have limited external
revenues, and a cost recovery model that suggests better than
breakeven margins to ensure compliance with transfer pricing
regulations.
The French and German Segments remain unchanged from that
reported at 31 December 2018.
Certain expenses, such as those for the Board and related public
company costs; Group Executive members not aligned to a specific
geographic trading entity; and the cost of centrally funded
strategic corporate initiatives that benefit the whole Group, are
not allocated to individual Segments because they are not directly
attributable to any single Segment. Accordingly, these expenses
continue to be disclosed as a separate column, 'Central Corporate
Costs', within the segmental note.
This new segmental reporting structure is the basis on which
internal reports are provided to the Chief Executive Officer, as
the CODM, for assessing performance and determining the allocation
of resources within the Group.
Segmental performance is measured based on external revenues,
adjusted(1) gross profit, adjusted(1) operating profit and
adjusted(1) profit before tax.
The change in segmental reporting has no impact on reported
Group numbers.
Further information on this segmental restatement can be found
in note 5 to the summary financial information included within this
announcement where, to enable comparisons with prior period
performance, historical segment information for the periods ended
30 June 2018 and 31 December 2018 are restated in accordance with
the revised segmental reporting structure. All discussion within
this announcement on segmental results reflects this revised
structure and the resultant prior period restatements.
Services performance
The Group's Services revenue increased by 3.6 per cent to
GBP595.7 million (H1 2018: GBP574.8 million) and was up 4.1 per
cent on a constant currency(2) basis. Within this, Group
Professional Services revenue increased by 7.5 per cent to GBP168.4
million (H1 2018: GBP156.6 million), and by 8.2 per cent on a
constant currency(2) basis, whilst Group Managed Services revenue
increased by 2.2 per cent to GBP427.3 million (H1 2018: GBP418.2
million), and by 2.6 per cent on a constant currency(2) basis.
The overall Services result has benefited from GBP20.2 million
of revenue resulting from the acquisitions made in the second half
of the previous year.
UK Services revenue reduced during the first half of 2019, with
both Professional Services and Managed Services activity declining.
Professional Services was challenged by lower than forecast
volumes, however saw a favourable mix improvement as customers
focused on planning future transformations which is expected to
drive volumes later in the year. Whilst revenues were down, as we
focused on our core customers, the Managed Services business saw a
stabilisation of the 'difficult' contracts and improved margins
elsewhere in the portfolio. Key renewals have continued to defend
the contract base with a strong bidding opportunity pipeline that
could contribute from 2020 onwards. The improvement in the core
Managed Services contracts along with an improved Professional
Services margin mix towards higher-end consulting projects both
assisted an overall lift in Services margins.
The German Services business was buoyed by strong Professional
Services volumes, particularly within the public sector which is
turning into a source of strength for the business. Windows 10
transformations, alongside our traditional key specialisms in
Security, Networking and Cloud have driven growth in this area.
Ongoing demand for IT personnel with quality technical skills
continues to make the market a challenging environment to address.
In Managed Services, the 'difficult' contracts continue to see
stabilisation and maturity with longer-term outcomes becoming
assured. Some limited additional expenditure has been incurred to
achieve this, but overall the contracts are now performing in a
predictable manner and we retain sufficient provision in the
balance sheet to meet future contract losses in line with
accounting standards. Overall Services margins have improved,
supported by the strong Professional Services business, albeit they
are still significantly behind the Group average demonstrating the
underperformance of the 'difficult' Managed Services contracts and
the improvement opportunity that remains.
Our French Managed Services business has had significant success
in winning new contracts, particularly in the financial services
sector, alongside further contract extensions and renewals. Whilst
revenue was flat in Managed Services, primarily due to the
reconfiguration of a key renewal, the business is set for near-term
growth due to the wins and the opportunity pipeline. Professional
Services has seen strong growth, from a modest base, as customers
use the Windows 10 upgrade requirement to proceed with workplace
transformations. Services margins improved, as increasing
Professional Services demand drives utilisation that has more than
offset the reduced margin on the key Managed Services contract
renewed in the period.
Overall growth in the USA business was driven by the acquisition
of FusionStorm in the second half of 2018, however the level of
performance across the segment has been below our internal targets.
The acquired Professional Services business, whilst small, has
underperformed against expectations due to two challenging projects
that resulted in lower margins than expected and lower growth than
forecast which has impacted utilisation rates in a business that
was investing in resource as demand fell. Key contract renewals and
expansions of scope have supported the Managed Services business
which has also taken on new opportunities into the contract base.
Margins improved slightly on the prior year.
Overall Group Services margins increased by 131 basis points
during the first half of the year, when compared to the prior
period.
Technology Sourcing performance
The Group's Technology Sourcing revenue increased by 27.7 per
cent to GBP1,831.3 million (H1 2018: GBP1,434.1 million) and by
28.7 per cent on a constant currency(2) basis.
As noted in our 2018 Interim Report and Accounts, the prior year
revenue performance was flattered by two one-off software licence
sales in the UK totalling GBP70.8 million, at very low margins.
Once these deals are adjusted out from the comparative, and the
GBP396.6 million of revenues resulting from the acquisitions made
since 30 June 2018 are adjusted out from the current year result,
the Group has seen a 5.2 per cent increase in Technology Sourcing
revenue over the prior year comparative.
The UK Technology Sourcing business has seen modest growth,
excluding the one-off deals noted above. Following the strong
growth in the first half of the comparative period this was a
pleasing performance.
An improvement in the product mix with a subtle shift to
higher-margin data center, networking and security products
combined with general margin improvements off of a low base has
improved overall UK Technology Sourcing margins.
The Technology Sourcing business in Germany saw a material fall
in business with one key software hyperscale customer which began
scaling back previously record volumes. Pleasingly this loss in
volumes was recovered and exceeded in other areas of the business,
particularly in the public sector, leading to modest growth over
what has been a sustained period of success for the business.
German Technology Sourcing margins improved slightly from the prior
period, driven by the maintenance of the product mix that continues
to emphasise Data Center volumes.
French Technology Sourcing revenues showed encouraging, and
unforeseen growth, at better margins, as the widening portfolio of
target customers, particularly in the public sector. The key Public
Sector account that was renewed in the prior year saw increased
volumes. French Technology Sourcing margins increased to once again
lead the Group.
Overall Group Technology Sourcing margins increased 16 basis
points during the first half of the year, when compared to the
prior period.
Outlook
The Board's outlook remains in line with its expectations, which
were upgraded as per the Trading Update on 31 July 2019.
Whilst the performance of the first half of 2018 presented a
very difficult challenge to beat, the opposite is true of the
second half. The Board expects that the full year 2019 profit
growth, in monetary value, will be the best in the company's
history. This performance will be predominantly achieved without
the aid of acquisitions, however we expect to see a more
significant contribution from our acquired business in the USA
during the second half.
Looking further ahead will always be challenging but the
momentum in the industry remains positive as customers continue to
invest in technology to digitalise their business. This industry's
momentum is backed up by an improving operational capability which
both increases the quality we deliver to customers and reduces
operational cost. While Computacenter will continue to remain
predominantly an organic growth company, which has served us so
well for many years, this has been enhanced by our acquisitions
over the last 12 months which gives us additional growth
drivers.
Whilst we are fully aware of macroeconomic challenges and take
nothing for granted, we remain as positive about the future as we
have ever been.
United Kingdom
Financial performance
Revenues in the UK business decreased by 7.8 per cent to
GBP793.9 million (H1 2018: GBP861.1 million).
When the two one-off very low-margin deals in H1 2018 are
excluded from the results, we have seen moderate growth in
Technology Sourcing, with some movement in product mix and our
strong vendor partnerships leading to increased margins in this
area.
Professional Services revenue decreased during the period. The
nature and scale of our engagements with our customers led to
longer-term consulting programmes of work and fewer large-scale
device deployment projects during the period. We have increased the
number of customers using our Professional Services skills and
expect more project activity to follow with the oncoming demand for
new workplace deployments.
Managed Services revenue decreased during the period. We saw
some expected customer contract attrition, as we focus on our
target market. The decline in the period is expected to be
rebalanced during the second half, as we move into the transition
and delivery of both new and extended customer contracts.
With increased focus on our target market, and in line with one
of the Group's strategic objectives, we have added two more
customers to our list of those who contribute over GBP1 million of
adjusted(1) gross profit per year, with more likely to be added in
the second half of the year.
Adjusted(1) gross profit grew by 1.1 per cent to GBP101.5
million (H1 2018: GBP100.4 million). This performance has met our
expectations, but there remains much to do in the second half of
the year to improve.
Administrative expenses increased by 4.7 per cent to GBP78.0
million (H1 2018: GBP74.5 million), due to increased variable
remuneration, functional changes and improvements to broaden our
capabilities and skills portfolio.
This resulted in adjusted(1) operating profit decreasing 9.3 per
cent to GBP23.5 million (H1 2018: GBP25.9 million).
The investment in our operating model will improve agility in
our Professional Services delivery and help us convert a strong
forward order book for Managed Services.
Technology Sourcing performance
Technology Sourcing revenue decreased by 8.5 per cent to
GBP579.7 million (H1 2018: GBP633.8 million). As noted above, this
performance contained two very low-margin one-off large software
deals worth GBP70.8 million that occurred in the comparative prior
period. Excluding these deals, Technology Sourcing revenues grew
3.0 per cent during the period.
Customers continue to invest in technologies to enable their
businesses and are continuing to consolidate their buying models
both locally and globally, with fewer technology partners.
We are seeing a change in product mix. Whilst workplace remains
strong and growing, the multi-cloud is driving greater investment
in data center, networking and security products.
Technology Sourcing margins grew by 71 basis points compared to
the prior period, reflecting a change in product mix as well as
improvements in the way we work with our current and emerging
vendor partners.
Services performance
Services revenue declined by 5.8 per cent to GBP214.2 million
(H1 2018: GBP227.3 million).This resulted from a decline in
Professional Services of 12.9 per cent to GBP54.6 million (H1 2018:
GBP62.7 million) and a decline in Managed Services of 3.0 per cent
to GBP159.6 million (H1 2018: GBP164.6 million).
The overall Services revenue performance was disappointing. We
have not seen the delivery challenges that impacted our margin
performance during previous periods, but volumes have remained low.
The Professional Services mix contained a higher volume of
consulting engagements, as customers work through their plans to
transform the workplace environment to accommodate the new Windows
10 platform, as well as a greater volume of public cloud and
multi-cloud adoption planning. The second half of the year will see
these planning exercises move to deployment projects that should
increase the volume of project and engineering activity.
We have reduced the number of Managed Services contracts that
sit outside our core portfolio and target market, which has
contributed to a revenue reduction but a margin increase. Our
Managed Services portfolio continues to perform well, although
customer buying cycles for integrated end-to-end solutions have
increased as they seek to explore new transacting models. The
addition of TeamUltra to the portfolio has had a positive impact on
Managed Services customer engagements, improving configuration and
integration of services and improving the end user experience.
Services margins increased by 197 basis points over the period.
The Managed Services outlook for the rest of the year is
positive, with a strong pipeline of opportunity that can close
in-year to add to the contract base. We expect this to have a
positive impact on Services revenues in 2020.
Germany
Financial performance
Total revenue increased by 4.1 per cent to EUR1,024.4 million
(H1 2018: EUR984.1 million) and by 2.7 per cent in reported pound
sterling equivalents(2) .
The first half of the year was characterised by general market
changes and upcoming new opportunities for Computacenter on the one
hand, and by ongoing efforts to stabilise and improve our critical
customer contracts on the other.
Many of our customers, especially in the automotive, mechanical
engineering, chemical and pharmaceutical industries, are suffering
from the economic downturn. Production in the first half of the
year fell by 12 per cent in the automotive sector and by 6.5 per
cent in the chemicals sector. In addition, automobile manufacturers
in particular are facing major challenges in realigning their
strategies and business models. As a result, many investments,
especially in IT, are suffering from various savings programmes,
which are also affecting Computacenter. However, we are benefiting
from the ongoing investments in the public sector. Consolidation
and digitisation projects also offer us sufficient potential in the
coming years. As always, an economic downturn offers good
opportunities for Computacenter to reposition itself with customers
and gain market share.
Internally, we worked hard in the first half of the year to
stabilise and improve our critical contracts. This has generated
additional expenditure which, in total, was slightly higher than
planned. Nevertheless, progress was positive and will open up
additional potential for the coming months and the next financial
year.
The outlook for the second half of the year is positive, even if
we will have to work hard to reach our full-year expectations. We
must also pay particular attention to the possible weakening of the
economy, which could then have a negative impact on our
earnings.
Revenues grew in the first half of the year despite a
significant decline in Technology Sourcing business with our
largest customer, a German software hyperscaler, we were able to
achieve good growth in this area driven by Public Sector business.
Our Professional and Consulting Services business grew
disproportionately strongly, driven by our customers' many
digitisation and infrastructure projects, for which we are ideally
positioned. In Managed Services, revenues declined slightly as a
result of two contracts expiring at the end of 2018 but were still
slightly above expectations.
Adjusted(1) gross profit grew by 6.3 per cent to EUR132.6
million (H1 2018: EUR124.7 million) and by 4.9 per cent in reported
pound sterling equivalents(2) .
Adjusted(1) gross profit was slightly above the previous year
but still below expectations and the target for the first half.
This was mainly driven by additional expenses in the area of
Managed Services and by the low sales with one of our largest
customers, as described above. In addition, there were higher
personnel costs in the Services area, driven by the ongoing
challenge in the German IT labour market.
Administrative expenses increased by 7.8 per cent to EUR95.0
million (H1 2018: EUR88.1 million), and by 6.5 per cent in reported
pound sterling equivalents(2) .
Indirect costs were higher than planned and significantly higher
than in the previous year. Significant contributors to the cost
increase included one-off expenses, of approximately EUR1.0
million, in connection with the move to our new Kerpen Integration
Center and office building, and increases in social security costs
and higher sales commissions. The headcount increase was also a
driver for the higher costs. This increase must be kept within
reasonable bounds in the second half of the year and especially
with a view to 2020. A corresponding programme to manage this more
closely has been set up.
Adjusted(1) operating profit for the German business increased
by 2.7 per cent to EUR37.6 million (H1 2018: EUR36.6 million) and
by 1.2 per cent in reported pound sterling equivalents(2) .
Taking into account the weaker economy in Germany and the
ongoing expenses for stabilising our critical service contracts,
the overall result was positive, especially as we currently expect
a stronger second half of the year.
Technology Sourcing performance
Technology Sourcing revenue grew by 3.9 per cent to EUR706.2
million (H1 2018: EUR679.5 million) and by 2.5 per cent in reported
pound sterling equivalents(2) .
In the first half of the year, our Technology Sourcing business
was characterised by a strong Workplace business, driven by Windows
10 and the associated replacement investments, a persistently
strong Network and Security business, and the Data Center business
otherwise very strong other than the slowdown in one key customer
that affected its overall performance as described above.
From a customer perspective, we have also benefited greatly from
orders in the Public Sector. However, we also recorded increases in
other customer segments. The situation in the automotive sector and
in the supply industry is more critical, with massive cost-cutting
measures weighing on our Technology Sourcing business.
Overall, these positive and negative effects are currently
balancing each other out. We are currently assuming that the second
half of the year will develop positively and that the downsides,
driven by the economic downturn, can be kept within limits.
Technology Sourcing margins remained strong and were up by 11
basis points over the same period last year.
Despite the business line shift, with more business in
lower-margin Workplace and less in higher-margin Data Center, and
the already high margins seen in the comparative period, the
overall margin again improved slightly. This shows our expertise in
this area. In addition, we expect significant positive effects in
the future from our newly completed Integration Center in Kerpen
and the opportunities to expand our international business through
last year's acquisitions.
Services performance
Services revenue grew by 4.5 per cent to EUR318.2 million (H1
2018: EUR304.6 million) and by 3.1 per cent in reported pound
sterling equivalents(2) . This included Professional Services
growth of 18.4 per cent to EUR107.5 million (H1 2018: EUR90.8
million), an increase of 16.8 per cent in reported pound sterling
equivalents(2) , and a Managed Services decline of 1.4 per cent to
EUR210.7 million (H1 2018: EUR213.8 million), a decrease of 2.7 per
cent in reported pound sterling equivalents(2) .
Overall, the development of our Services business was positive,
although we are not satisfied with the operating margin in our
Managed Services business in particular, which is significantly
lower than comparable margins in our other core countries.
The top line growth of 4.5 per cent was above the market average
and was driven in particular by our optimally positioned consulting
business and our capabilities in engineering and technical
services. Security, Networking and Hyper Cloud projects are still
at the top of our customers' lists. In addition, we have
accompanied many of our customers in their transition to Windows 10
and the Microsoft 365 environment.
We saw the strongest growth with our customers in the Public
Sector. Our high focus on this customer segment in recent years,
correctly addressing issues relating to the digitisation of public
administration and the winning of necessary framework agreements
were the key success factors here.
However, the ongoing high demand for skills and personnel across
Germany makes the environment challenging for us and rest of the
market.
Services margins increased by 61 basis points over the
period.
In Managed Services, we are systematically pursuing a strategy
of stabilising and financially optimising our critical contracts
first. We made positive progress, despite reporting higher costs
than planned. This will prove to be particularly beneficial in the
coming years, as most of these contracts are due for renewal and
thus offer the potential for significant improvement.
At the same time, we are working on the successful conclusion of
new opportunities in this area. The pipeline is promising and
contains only opportunities that are largely covered by our Group
service portfolio. This should give us the opportunity for good
profitable growth in the future.
France
Financial performance
Total revenue increased by 19.3 per cent to EUR312.7 million (H1
2018: EUR262.2 million). In reported pound sterling equivalents(2)
, total revenue was up by 17.6 per cent.
After a very good year in 2018, we were pleased that the first
half of 2019 demonstrated growth over the same period last year. We
reset our strategy in 2018 for the French business and started to
execute against it. It has been successful and we have focused our
efforts in 2019 on executing the plan at scale. We have
significantly renewed our sales force and onboarded strong sales
specialists to support the growing complexity of our customers'
needs.
As a result, Technology Sourcing margins were higher than in the
first half of last year, due to large enterprise projects and the
data center architectures we delivered to our customers. We have
acquired new targeted customers in the Private Sector and strongly
reinforced our large frameworks in the Public Sector. We have also
seen growth in our Services business, both in the Professional
Services and Managed Services spaces.
Overall adjusted(1) gross profit grew by 35.4 per cent to
EUR37.1 million (H1 2018: EUR27.4 million) and by 33.6 per cent in
reported pound sterling equivalents(2) .
The new Managed Services contracts and large projects signed at
the end of last year supported the expansion of talent in France.
Over the past few years we have reshaped our sales force and
transformed the workforce and this year we have been able to
attract new talent and new skills and continue to grow the Managed
Services operations roles across the Service Desk and the
infrastructure management functions. We launched an internal
Computacenter France University to develop and create talent in our
existing teams and train new joiners to clearly fit our expertise
needs. This has been successful and we were happy with the quality
and engagement we have seen with this programme.
We also structured our consultancy and project management
practices to be able to support the delivery of very large
projects. We engaged and won projects over the past few months with
the support of the new specialists and Chief Technologists we put
in place and the size of these projects is almost double those that
we used to deliver.
Whilst Management continued to focus on cost control within the
French business, these investments resulted in administrative
expenses increasing by 20.0 per cent to EUR30.0 million (H1 2018:
EUR25.0 million), and by
18.6 per cent in reported pound sterling equivalents(2) .
The business will continue to recruit sales specialists in the
second half of the year, to further support our long-term
development plan and enable us to exploit addressable opportunities
within the marketplace.
Adjusted(1) operating profit for the French business increased
by 195.8 per cent to EUR7.1 million (H1 2018: EUR2.4 million), and
by 190.5 per cent in reported pound sterling equivalents(2) .
The strong comparative period means the second half of the year
remains challenging but we are pleased with the business's
resilience, as it continues to develop its breadth of customers, to
increase stability and the potential for growth.
Technology Sourcing performance
Technology Sourcing revenue grew by 22.7 per cent to EUR254.4
million (H1 2018: EUR207.4 million) and by 21.1 per cent in
reported pound sterling equivalents(2) .
We saw higher than expected activity from our largest Technology
Sourcing customers. We are pleased that our ability to expand
existing frameworks is benefiting us. We had refocused the Public
Sector team to work on these large frameworks and attract new
customers to apply to captive contractual vehicles. We are
progressively moving from a high-volume, low-margin business around
these frameworks to a much better value mix.
Over-performance from existing key customers helped to grow
overall Technology Sourcing revenues and, more importantly,
produced a more favourable product mix, with an increase in Data
Center and Networking solutions revenues.
As usual at this time of year, there is still much work to do to
secure Technology Sourcing business in the second half and
traditionally there is considerable focus on the last quarter of
the year. With a positive economic climate in France, a strong
short-term pipeline and the recent wins of some high-volume
framework tenders in the Public Sector, we are optimistic about our
chances of exceeding the overall Technology Sourcing revenue
achieved in 2018.
Technology Sourcing margins increased by 170 basis points, due
to the change in product mix towards higher-value product with more
value-add Technology Sourcing activities.
Services performance
Services revenue increased by 6.4 per cent to EUR58.3 million
(H1 2018: EUR54.8 million) and by 4.8 per cent in reported pound
sterling equivalents(2) . Professional Services increased by 24.8
per cent to EUR12.6 million
(H1 2018: EUR10.1 million), which was an increase of 22.5 per
cent in reported pound sterling equivalents(2) . Managed Services
increased by 2.2 per cent to EUR45.7 million (H1 2018: EUR44.7
million), an increase of 0.8 per cent in reported pound sterling
equivalents(2) .
In line with the objective of increasing the number of customer
accounts with contributions of over GBP1 million, we have been able
to extend our business with these customers and win several
excellent Managed Services contracts in that landscape. These were
mainly in the banking industry, with two good wins in the first
half of the year.
Another key Managed Services contract was renewed during the
period, which reduced revenue and margins whilst the contract was
reconfigured as part of the renewal process. These wins, and the
current pipeline, make us confident of further Managed Services
growth in the near term.
We are also experiencing a challenging situation on a large
account on one specific service line, where we are investing time
and effort to recover the required service quality even as the rest
of the contract is working quite well.
We signed several large Windows 10 implementation and
transformation projects in 2018, which had a positive impact on our
Project and Consultancy practices in the first half of 2019. We
continue to see rising demand for these Windows 10 and modern
workplace transformation projects from new pipeline prospects
within our target operating segment, as well as additional
Professional Services opportunities generated by pull-through from
our expanding Managed Services customer base.
Services margins increased by 59 basis points over the same
period last year, due primarily to a much better usage of our
internal resources.
USA
USA Segment
During the second half of 2018, the Group completed the material
acquisition of FusionStorm which has been combined with our
existing Services-focused USA business to create the USA Segment
from 1 January 2019 onwards. Prior period numbers have been
restated, however are not comparable due to the size of the
acquired Technology Sourcing-focused business against the legacy
USA Services business.
Financial performance
Revenues in the USA business were $491.4 million (H1 2018: $18.4
million).
The USA performance was driven by Technology Sourcing, with
positive revenue growth following a record increase in revenue in
2018. Overall, the revenue growth was below forecast due to a
slowdown in volumes seen from several hyperscale Silicon Valley
customers compared to the last quarter of 2018. This slowdown
reached its low point at the end of the first quarter and has since
recovered through the second quarter of the period.
Overall Services revenues were flat during H1, with particular
challenges in the Professional Services business that was scaled to
accommodate predicted growth that did not materialise. We have
committed to making the necessary adjustments to return the
business to the level of profitability seen in 2018. The overall
business backlog has increased significantly from the first quarter
and we expect that to be realised and delivered in the second half
of the year.
Adjusted(1) gross profit was $40.6 million (H1 2018: $4.0
million). This performance fell short of our expectations, with
particular challenges in Professional Services engagements. It is
notable that the Professional Services revenues grew in the period,
but due to the cost challenges described above, we experienced
declining profitability.
Administrative expenses were $38.9 million (H1 2018: $3.5
million), due to increasing variable remuneration, investments in
our business development programme to hire and train our next
generation of sales professionals, as well as a continuing focus on
tactical investment plans as we look to enhance our
capabilities.
This resulted in adjusted(1) operating profit of $1.7 million
(H1 2018: $0.5 million).
Overall, the performance in the first half has been challenging,
as sustaining last year's record growth proved to be difficult to
repeat in H1 2019. We have a significant amount of work to do but
the overall customer situation remains favourable in terms of
retention and our predicted performance in H2 2019.
Technology Sourcing performance
Technology Sourcing revenue was $464.6 million (H1 2018: $0.3
million).
The Technology Sourcing business saw a solid strong performance
in the first half of 2019 across all industry sectors. We benefited
from significant investment by our customers, as they continue to
digitise their operations and modernise their infrastructure. We
saw particular growth in our Networking and Data Center lines of
business, with customers seeking to simplify their operations by
consolidating to fewer technology partners, resulting in long-term
commitments and larger transactions.
USA Technology Sourcing margins were 208 basis points behind the
Group Technology Sourcing margin for the period ended 30 June 2019,
with the mix of hardware OEM vendors a key driver of our margins.
Throughout the first half of the year, Management has initiated a
number of activities to improve the underlying efficiency and
effectiveness of the Technology Sourcing business. The benefit of
these should be seen in the remainder of 2019, as we look to
improve the underlying margin return whilst further improving the
experience we deliver to our customers.
Services performance
Services revenue was $29.2 million (H1 2018: $18.1 million).
This resulted from Professional Services of $10.1 million (H1
2018: $4.4 million) and Managed Services of $16.7 million (H1 2018:
$13.7 million).
The overall Services performance was disappointing. Our
Professional Services business has encountered two particularly
challenging projects that have required additional resources, to
ensure they remain on track and that we deliver on our promises.
Both of the projects have been concluded commercially. This has
resulted in lower-margin performance against a strong H1 2018
performance, with one particularly large non-repeatable project
completed. The outlook for H2 is more encouraging, as we see an
increasing demand for our Integration Center projects including
complex distributed branch roll outs as well as global data center
build-out projects for our hyperscale customers.
We continued to renew and extend key contracts, which has
created expected headwinds in our Managed Services business through
certain reductions in pricing and volumes, as well as transition
new customers into our Services contract base. One of the major USA
Managed Service customers is in the process of re-tendering its
scope of work and successfully concluding that negotiation remains
a key driver for the underlying Managed Services run rate business.
The retention and expansion of core Managed Services contracts
typically helps drive our overall business, as customers ask us to
deliver associated transformation activity and also leverage our
Technology Sourcing capability.
We also continue to invest in and develop our operating models
and practices for efficiency, with our customers increasingly
leveraging centrally delivered shared services, particularly in our
near-shore Service Center location in Mexico City, as they strive
to minimise operational expenditure.
Services margins increased by 159 basis points and are now 215
basis points ahead of the overall combined Group Services
margin.
International
International Segment
The International Segment comprises a number of trading entities
and offshore Global Service Desk delivery locations.
The trading entities include Computacenter Switzerland,
Computacenter Belgium and Computacenter Netherlands. On top of
their operational delivery capabilities these entities have
in-country sales organisations, which enable us to engage with
local customers. During the year, Computacenter Switzerland
acquired PathWorks GmbH, a value-added reseller based in Neudorf
(Luzern), Switzerland.
These trading entities are joined in the Segment by the offshore
Global Service Desk entities in Spain, Malaysia, India, South
Africa, Hungary, Poland, China and Mexico, which have limited
external revenues.
Financial performance
Revenues in the International business increased by 144.8 per
cent to GBP92.3 million (H1 2018: GBP37.7 million) and by 145.5 per
cent in constant currency(2) .
This significant increase was built upon the growth of our
existing businesses in Belgium and Switzerland, together with the
revenues generated by the acquired Dutch business that joined
Computacenter in September 2018 (H1 2019: GBP42.8 million) and
PathWorks, acquired earlier this year in Switzerland (H1 2019:
GBP6.6 million).
Adjusted(1) gross profit increased by 75.0 per cent to GBP20.3
million (H1 2018: GBP11.6 million), and by 76.5 per cent in
constant currency(2) . Approximately GBP5.9 million of the increase
was from the acquired entities.
The Belgian business delivered gross profit growth ahead of our
expectations. Our Swiss business (excluding the PathWorks
acquisition) saw a small decline in gross profits, mainly because
of the start-up of a new Managed Services contract, but this was
compensated for by the pleasing performance of the acquired
PathWorks business.
The Dutch business was not part of the Computacenter Group in
the first half of 2018. However, compared to that period, the
business achieved a material increase in profitability.
Administrative expenses increased by
82.6 per cent to GBP15.7 million (H1 2018: GBP8.6 million) and
by 84.7 per cent in constant currency(2) with approximately GBP5.0
million of this increase due to the acquired entities.
Administrative expenses grew according to our investment plans.
During the first half we have materially increased our Belgian
sales force, invested in sales training plans in the Netherlands
and incurred some one-off costs for completing the PathWorks
acquisition in Switzerland.
Overall adjusted(1) operating profit increased by 53.3 per cent
to GBP4.6 million (H1 2018: GBP3.0 million) and by the same per
cent in constant currency(2) with approximately half of the profit
growth due to the acquisitions made since the prior period.
The overall operating profit in the first half met our growth
ambitions.
The Belgian business performed well ahead of expectations, even
with our investments during the period to grow our sales capacity.
With a rapidly changing local competitive environment, we feel
these investments will help us in the long term to gain more local
market share.
Our Swiss business is on track to grow profits for the fifth
consecutive year. With the acquisition of PathWorks, we have now a
complete Technology Sourcing, Managed Services and Professional
Services portfolio. It is encouraging to see the first successes
with historical Technology Sourcing customers, who are now starting
to make use of our Services capabilities, and vice versa.
We used the second half of 2018 to stabilise our business in the
Netherlands and we were pleased to note that the business delivered
its first profit contribution during this period. We are convinced
there is still room for further sustainable growth in a good local
economic environment. To support this ambition, we are currently
implementing our Group ERP systems in the Netherlands and we will
integrate the local team within the Group Operating Model. This
project is on track and planned to complete before the end of
2019.
Technology Sourcing Performance
Technology Sourcing revenue, increased by 197.0 per cent to
GBP58.5 million (H1 2018: GBP19.7 million) and by 200.0 per cent in
constant currency(2) .
With the above-mentioned acquisitions, Technology Sourcing in
the International Segment benefited by GBP37 million of
revenue.
Our Belgian business is focused mainly on Private Sector
customers. The Workplace business continued to perform strongly,
although slightly below last year's exceptional performance. This
was compensated for by significant growth in our Data Center and
Networking businesses and we are convinced that there is still a
lot of potential to grow this segment further.
Our acquired business in Switzerland is primarily focused on
Public Sector customers. We have worked hard to position our
Technology Sourcing capabilities to our existing Services customers
(mainly in the Private Sector) and we were pleased to see the first
orders arriving. Additionally, we have won some public tenders in
the government sector, thanks to the ability we now have to
integrate Technology Sourcing solutions with Professional
Services.
The Dutch business made good progress shifting the traditional
workplace business towards data center projects with increased
margins. The business is traditionally strong in the Public Sector
and we are pleased with the performance in this segment during the
period. Additionally, there is a strong pipeline with opportunities
we are working on that could significantly increase our results for
the rest of 2019 and beyond. The Private Sector in the Netherlands
performed behind plan but with further integration into
Computacenter, we will be able to better exploit our international
capabilities and vendor relationships to gain significant local
market share.
Services performance
Services revenue increased by 87.8 per cent to GBP33.8 million
(H1 2018: GBP18.0 million) and by 86.7 per cent in constant
currency(2) .
Professional Services revenue was flat at GBP1.8 million whilst
Managed Services increased 97.5 per cent to GBP32.0 million (H1
2018: GBP16.2 million), which was an increase of 96.3 per cent in
constant currency(2) . The Segment benefited from an increase of
GBP12.4 million in Services revenue due to the acquisitions since
the prior period.
The Belgian operation grew in both Professional Services and
Managed Services, although we feel that we still have an
opportunity to increase our Professional Services contributions by
increasing our pre-sales capabilities around infrastructure
solutions. Our existing Managed Services contracts deliver good
contributions and we have put considerable effort into establishing
an improved long-term Managed Services pipeline.
The Swiss operations saw a small revenue increase for both
Professional and Managed Services, while profitability decreased
slightly. In Professional Services this was due to the investments
in additional resources, which we expect to be fully utilised in
the second half of the year. Likewise, we have invested
significantly in improving the delivery of our Managed Services
contracts and as a consequence we noticed an improved performance
by the end of the first half, which we expect to continue
throughout the rest of the year.
Compared to its pre-acquisition performance, the Dutch business
saw a decline in Services revenue. This was partly due to our
strategic decision to align our target customer base with that of
the Group.
Group Finance Director's review
The Group result was underpinned by resurgence in the French
business which was unexpectedly strong in Technology Sourcing in
the period and the continuing importance of the public sector to
the German business, particularly in light of the reduction of
spend down to normal levels by the largest customer in Germany.
This offset a somewhat disappointing UK bottom-line result, when
compared to the overall adjusted(1) operating profit growth and a
slower than expected start to the year from the USA Segment.
The Technology Sourcing performance in Germany was the key
driver of 2017 and 2018 and this business continued to lead the
Group's results in the first half of 2019. Whilst the key customer
which generated the growth through 2018 materially reduced their
higher than usual spend seen in the prior period down to normal
levels, it was very encouraging to see how the German business
managed to offset this impact by replacing the volumes lost with
other customers and still achieving some growth. This continued
resilience of the Germany Technology Sourcing customer base,
particularly into the Public Sector, bodes well for the future
growth of the business. Technology Sourcing in France saw continued
benefits from the multi-year plan to rebalance away from a
high-volume low-margin business servicing a broad range of
customers to a high-margin high-volume business centred on a set of
large customers. The exceptional growth in the period has come from
some of the largest customers, particularly in the Public Sector,
with unforecast volumes driving the business forward. Excluding two
large one-off deals in the prior period, UK Technology Sourcing
growth was also pleasing.
Margins have increased across the business, with the rebound of
UK Technology Sourcing margins, helped by the absence of the two
low-margin deals in H1 2018, particularly pleasing. The prior
period for the UK was impacted by two significant and very
low-margin software deals in the Software Security line of
business, however even excluding these, the margin return was
promising for the second half of the year.
The Group's Services margins were significantly up on the prior
period with a number of 'difficult' Managed Services contracts now
stabilised with more predictable outcomes through to the end of
life of the contracts. The provisions taken in the second half of
2018 have proven appropriate with GBP5.1 million of the provision
utilised, leaving a provision of GBP10.6 million for losses
remaining over the lifetime of the contracts. As we move into the
second half of the year, where we took a significant amount of
provisioning in the comparative period last year, we expect margins
to improve even further. The strong Professional Services
performance in Germany and France was impacted by disappointing
utilisation during the period in the UK.
We remain enthusiastic about our acquisition in the USA, however
the first quarter was much slower than anticipated as the volumes
seen in the fourth quarter of 2018 had clearly included customers
building their inventories prior to the end of the year.
Overall, we remain pleased with the performance of the business,
especially given the strong first half of 2018. Concerns remain
about the wider macro-economic picture across the world and the
potential impact on a slowdown in Technology Sourcing that could
impact performance, however the overall performance of the
business, in beating what was always going to be an exceptionally
difficult comparative period, gives us renewed confidence for the
full year as a whole and beyond. We continue to use the opportunity
provided by the strong Technology Sourcing returns to invest in our
Managed Services business through technologies and tooling to make
us more competitive in future bids.
A reconciliation between key adjusted(1) and statutory measures
is provided below. Further details are provided in note 5 to the
summary financial information included within this announcement,
adjusted measures. For the avoidance of duplication, further
information on the Group's financial performance can be found
above.
Reconciliation from statutory to adjusted(1) measures for the
period ended 30 June 2019
Adjustments
=========== =================================================== ===========
Amortisation Utilisation
Statutory CSF of acquired of deferred Exceptionals Adjusted(1)
results interest intangibles tax and others results
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========== ========= ============ ============ ============ ===========
Revenue 2,427,014 - - - - 2,427,014
======================== =========== ========= ============ ============ ============ ===========
Cost of sales (2,126,523) - - - - (2,126,523)
======================== =========== ========= ============ ============ ============ ===========
Gross profit 300,491 - - - - 300,491
======================== =========== ========= ============ ============ ============ ===========
Administrative expenses (246,663) - 2,175 - 79 (244,409)
======================== =========== ========= ============ ============ ============ ===========
Operating profit 53,828 - 2,175 - 79 56,082
======================== =========== ========= ============ ============ ============ ===========
Finance income 992 - - - - 992
======================== =========== ========= ============ ============ ============ ===========
Finance costs (3,971) - - - 400 (3,571)
======================== =========== ========= ============ ============ ============ ===========
Profit before tax 50,849 - 2,175 - 479 53,503
======================== =========== ========= ============ ============ ============ ===========
Income tax expense (13,002) - (570) 275 (918) (14,215)
======================== =========== ========= ============ ============ ============ ===========
Profit for the year 37,847 - 1,605 275 (439) 39,288
======================== =========== ========= ============ ============ ============ ===========
Reconciliation from statutory to adjusted(1) measures for the
period ended 30 June 2018
Adjustments
=========== =================================================== ===========
Amortisation Utilisation
Statutory CSF of acquired of deferred Exceptionals Adjusted(1)
results interest intangibles tax and others results
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========== ========= ============ ============ ============ ===========
Revenue 2,008,904 - - - - 2,008,904
======================== =========== ========= ============ ============ ============ ===========
Cost of sales (1,760,094) (123) - - - (1,760,217)
======================== =========== ========= ============ ============ ============ ===========
Gross profit 248,810 (123) - - - 248,687
======================== =========== ========= ============ ============ ============ ===========
Administrative expenses (196,705) - 119 - - (196,586)
======================== =========== ========= ============ ============ ============ ===========
Operating profit 52,105 (123) 119 - - 52,101
======================== =========== ========= ============ ============ ============ ===========
Finance income 626 - - - - 626
======================== =========== ========= ============ ============ ============ ===========
Finance costs (738) 123 - - - (615)
======================== =========== ========= ============ ============ ============ ===========
Profit before tax 51,993 - 119 - - 52,112
======================== =========== ========= ============ ============ ============ ===========
Income tax expense (15,190) - (16) 1,109 - (14,097)
======================== =========== ========= ============ ============ ============ ===========
Profit for the year 36,803 - 103 1,109 - 38,015
======================== =========== ========= ============ ============ ============ ===========
Profit before tax
The Group's statutory profit before tax decreased by 2.3 per
cent to GBP50.8 million (H1 2018: GBP52.0 million). Adjusted(1)
profit before tax increased by 2.7 per cent to GBP53.5 million (H1
2018: GBP52.1 million) and by 3.5 per cent in constant currency(2)
. The difference between statutory profit before tax and
adjusted(1) profit before tax relates to the Group's reported net
loss of GBP2.7 million (H1 2018: loss of GBP0.1 million) from
exceptional and other adjusting items.
Profit for the period
The statutory profit for the period increased by 2.7 per cent to
GBP37.8 million (H1 2018: GBP36.8 million). The adjusted(1) profit
for the period increased by 3.4 per cent to GBP39.3 million (H1
2018: GBP38.0 million) and by 5.1 per cent in constant currency(2)
.
Net finance charge
Net finance charge in the year amounted to GBP3.0 million on a
statutory basis (H1 2018: charge of GBP0.1 million). The charge
includes GBP1.9 million of interest charged on lease liabilities
recognised following the adoption of IFRS 16 on 1 January 2019.
This now includes the CSF charge previously excluded on an
adjusted(1) basis (H1 2018: GBP0.1 million) but now included within
the wider charge on lease liabilities under IFRS 16. A further
GBP1.0 million of cost relating to interest on the term loan drawn
down for the FusionStorm acquisition (H1 2018: nil), GBP0.1 million
cost for the unwind of the discount on the deferred consideration
for the purchase of TeamUltra and cITius AG (H1 2018: cost of
GBP0.4 million) and GBP0.1 million cost on the term loan for the
Kerpen facility (H1 2018: cost of GBP0.1 million). It also includes
exceptional interest costs relating to the unwind of the discount
on the deferred consideration for the purchase of FusionStorm of
GBP0.4 million (H1 2018: nil) which is excluded on an adjusted(1)
basis.
Outside of the items above, net finance income of GBP0.5 million
was recorded (H1 2018: income of GBP0.4 million). On an adjusted(1)
basis, the net finance cost was GBP2.6 million during the period
(H1 2018: nil).
Taxation
The statutory tax charge was GBP13.0 million (H1 2018: GBP15.2
million) on statutory profit before tax of GBP50.8 million (H1
2018: GBP52.0 million). This represents a statutory tax rate of
25.6 per cent (H1 2018: 29.2 per cent). The Group's adjusted(1) tax
rate has benefited from the historical tax losses in Germany, the
final residual of which has been utilised during the period. The
utilisation of the asset of GBP0.3 million (H1 2018: GBP1.1
million) has impacted the statutory tax rate but is considered to
be outside of our adjusted(1) tax measure. In the period, this
impact increased the statutory tax rate by 0.5 per cent (H1 2018:
2.1 per cent).
In the first half of 2019, a tax credit of GBP0.9 million (H1
2018: nil) was recorded due to post-acquisition activity in
FusionStorm, related to the transaction, which has resulted in an
in-year tax benefit. This benefit derived from payments which were
settled by the vendor, out of the consideration paid, via
post-acquisition capital contributions to FusionStorm. As this
credit was related to the acquisition and not operational activity
within FusionStorm, is of a one-off nature and material to the
overall tax result, we have classified this as an exceptional tax
item. Further, this tax benefit is larger than the adjusted(1)
profit before tax of GBP0.5 million achieved by FusionStorm during
the period.
The tax credit related to the amortisation of acquired
intangibles was GBP0.5 million (H1 2018: GBP0.02 million). The
significant increase relates to the GBP2.1 million of amortisation
of acquired intangible assets charged against the assets recognised
as a result of the FusionStorm acquisition.
As the amortisation is recognised outside of our adjusted(1)
profitability, the tax benefit on the amortisation is also only
recognised in the statutory tax charge.
The adjusted(1) tax charge during the period was GBP14.2 million
(H1 2018: GBP14.1 million), on an adjusted(1) profit before tax for
the period of GBP53.5 million (H1 2018: GBP52.1 million). The
effective tax rate (ETR) was therefore 26.6 per cent (H1 2018: 27.1
per cent) on an adjusted(1) basis. The ETR during the period was
lower than the previous year primarily due to the large increase in
profitability in France which have historical tax losses readily
available for use. This has more than offset the increase in the
German cash tax rate which has risen due to the now fully utilised
German tax losses available.
The table below reconciles the statutory tax charge to the
adjusted(1) tax charge for the period ended 30 June 2019.
H1 2019 H1 2018 Year 2018
GBP'000 GBP'000 GBP'000
======== ======== =========
Statutory tax charge 13,002 15,190 27,199
============================================ ======== ======== =========
Adjustments to exclude:
============================================ ======== ======== =========
Utilisation of German deferred tax assets (275) (1,109) (1,933)
============================================ ======== ======== =========
Exceptional tax items 879 - 3,091
============================================ ======== ======== =========
Tax on amortisation of acquired intangibles 570 16 1,169
============================================ ======== ======== =========
Tax on exceptional items 39 - 1,353
============================================ ======== ======== =========
Adjusted(1) tax charge 14,215 14,097 30,879
============================================ ======== ======== =========
Statutory ETR 25.6% 29.2% 25.2%
============================================ ======== ======== =========
Adjusted(1) ETR 26.6% 27.1% 26.1%
============================================ ======== ======== =========
Exceptional and other adjusting items
The net loss from exceptional and other adjusting items in the
year was GBP1.5 million (H1 2018: loss of GBP1.2 million).
Excluding the tax items noted above which resulted in a statutory
gain of GBP1.2 million (H1 2018: loss of GBP1.1 million), the
profit before tax impact was a net loss from exceptional and other
adjusting items of GBP2.7 million (H1 2018: loss of GBP0.1
million).
An exceptional loss during the period of GBP0.1 million resulted
from costs directly relating to the acquisition of FusionStorm.
These costs include social taxes on a severance payment for the
FusionStorm Chief Executive Officer, agreed as part of the
acquisition. This cost is non-operational in nature, unlikely to
recur and related to the prior full-year exceptional items
recognised and have therefore been classified as outside our
adjusted(1) results. A further GBP0.4 million relating to the
unwinding of the discount on the deferred consideration for the
purchase of FusionStorm has been removed from the adjusted(1) net
finance expense and classified as exceptional interest costs. The
amortisation of acquired intangible assets was GBP2.2 million (H1
2018: GBP0.1 million), with the increase due to the amortisation of
the intangibles acquired as part of the FusionStorm acquisition. We
have continued to exclude the effect of amortisation of acquired
intangible assets in calculating our adjusted(1) results.
Amortisation of intangible assets is non-cash, and is
significantly affected by the timing and size of our acquisitions,
which distorts the understanding of our Group and Segmental
operating results.
Central corporate costs
As noted above within Segmental Reporting Structure Changes,
certain expenses such as those for the Board itself, and related
public company costs, Group Executive members not aligned to a
specific geographic trading entity, and the cost of centrally
funded strategic corporate initiatives that benefit the whole
Group, are not specifically allocated to individual segments
because they are not directly attributable to any single
segment.
Accordingly, these expenses are disclosed as a separate column,
'Central Corporate Costs', within the segmental note. These costs
are borne within the Computacenter (UK) Limited legal entity and
have been removed for segmental reporting and performance analysis
but form part of the overall Group administrative expenses.
During the period, total Central Corporate Costs were GBP11.9
million, an increase of 4.4 per cent (H1 2018: GBP11.4 million).
Within this:
-- Board expenses, related public company costs and costs
associated with Group Executive members not aligned to a specific
geographic trading entity were slightly down at GBP3.4 million (H1
2018: GBP3.6 million);
-- share-based payment charges associated with the Group
Executive members identified above, including the Group Executive
Directors, decreased from GBP1.6 million in H1 2018 to GBP1.1
million in H1 2019, due primarily to the decreased cost of
Computacenter plc ordinary shares; and
-- strategic corporate initiatives increased from GBP6.2 million
in H1 2018 to GBP7.4 million in H1 2019, primarily due to increased
spend on projects designed to increase capability, enhance
productivity or strengthen systems which underpin the Group.
Earnings per share
Statutory diluted earnings per share increased by 5.1 per cent
to 33.2 pence per share (H1 2018: 31.6 pence per share).
Adjusted(1) diluted earnings per share increased by 5.5 per cent to
34.5 pence per share (H1 2018: 32.7 pence per share).
H1 2019 H1 2018 Year 2018
GBP'000 GBP'000 GBP'000
======== ======== =========
Basic weighted average number of shares (excluding
own shares held) (no.'000) 112,616 114,620 113,409
===================================================== ======== ======== =========
Effect of dilution:
===================================================== ======== ======== =========
Share options 1,215 1,662 1,984
===================================================== ======== ======== =========
Diluted weighted average number of shares 113,831 116,282 115,393
===================================================== ======== ======== =========
Statutory profit for the year attributable to equity
holders of the Parent (GBP'000) 37,847 36,803 80,931
===================================================== ======== ======== =========
Basic earnings per share (pence) 33.6 32.1 71.4
===================================================== ======== ======== =========
Diluted earnings per share (pence) 33.2 31.6 70.1
===================================================== ======== ======== =========
Adjusted(1) profit for the year attributable to
equity holders of the Parent (GBP'000) 39,288 38,015 87,357
===================================================== ======== ======== =========
Adjusted(1) basic earnings per share (pence) 34.9 33.2 77.0
===================================================== ======== ======== =========
Adjusted(1) diluted earnings per share (pence) 34.5 32.7 75.7
===================================================== ======== ======== =========
Dividend
We are pleased to announce an interim dividend of 10.1 pence per
share (H1 2018: 8.7 pence per share). This is in line with our
policy that the interim dividend will be approximately one third of
the previous year's full dividend. The interim dividend will be
paid on Friday 11 October 2019. The dividend record date is Friday
13 September 2019, and the shares will be marked ex-dividend on
Thursday 12 September 2019.
Cash and cash equivalents and net debt
Cash and cash equivalents as at 30 June 2019 were GBP114.3
million, compared to GBP72.9 million at 30 June 2018. The Group's
operating cash flow performance was an outflow of GBP1.1 million
for the period to 30 June 2019 (H1 2018: GBP8.4 million inflow).
Cash and cash equivalents decreased by GBP86.1 million from
GBP200.4 million as at 31 December 2018 after an unusually strong
cash collection month in December 2018 which included unlocking
significant cash due to a normalisation of debtor payment periods
in FusionStorm as a result of the working capital injections made
by the Group. Since 31 December 2018 the Group has seen material
working capital outflows of GBP46.4 million predominantly relating
to inventory increases, mainly in the acquired USA entity. The cash
position continues to rebuild, after what is historically the
weaker half of the year in terms of our working capital cycle.
Net debt as at 30 June 2019 was GBP114.1 million compared to net
funds of GBP49.7 million as at 30 June 2018 and GBP57.3 million as
at 31 December 2018.
Adjusted net debt(3) as at 30 June 2019 was GBP3.1 million
compared to adjusted net funds(3) of GBP53.7 million as at 30 June
2018 and GBP66.2 million as at 31 December 2018. For a
reconciliation for net debt and adjusted net debt(3) , see note 13
to the summary financial information included within this
announcement
The Group returned GBP100 million to shareholders in the first
quarter of the previous year.
The Group had two specific term loans at the end of the period
and no other material borrowings. The Group drew down a GBP100
million term loan on 1 October 2018 to complete the acquisition of
FusionStorm. This loan is on a seven-year repayment cycle with a
renewal of the loan facility due on 30 September 2021. As at 30
June 2019 GBP93.3 million remained of the loan. The Group also had
the specific term loan for the build and purchase of our new German
headquarters and Integration Center in Kerpen which was GBP28.6
million at 30 June 2019 (30 June 2018: GBP19.3 million). The
Integration Center opened in November 2018 whilst the office
facility was opened in March 2019, which concludes the project.
Capital expenditure in the period was GBP18.9 million (H1 2018:
GBP21.0 million) and was primarily the investment in our German
headquarters and other investments in IT equipment and software
tools, to enable us to deliver improved service to our
customers.
The Group continued to manage appropriately its cash and working
capital positions using standard mechanisms, to ensure that cash
levels remained within expectations throughout the period. The
Group had no debt factoring at the end of the year outside the
normal course of business.
The Group excludes finance lease liabilities from its non-GAAP
adjusted net debt(3) measure due to the distortive effect of the
capitalised lease liabilities on the overall liquidity position of
the Group under the new IFRS 16 accounting standard. More details
on these leases and the transition to IFRS 16 can be found
below.
There were no interest-bearing trade payables as at 30 June 2019
(H1 2018: nil).
The Group's adjusted net debt(3) position contains GBP5 million
of current asset investments (H1 2018: nil).
Net (debt)/funds for the periods to H1 2019, H1 2018 and Full
Year 2018 were as follows:
Unaudited Unaudited Audited
H1 2019 H1 2018 Year 2018
GBP'000 GBP'000 GBP'000
========= ========= ==========
Cash and short-term deposits 114,314 72,931 200,442
==================================================== ========= ========= ==========
Cash and cash equivalents 114,314 72,931 200,442
==================================================== ========= ========= ==========
Current asset investments 5,000 - -
==================================================== ========= ========= ==========
Bank loans (122,442) (19,251) (134,234)
==================================================== ========= ========= ==========
Adjusted net (debt)/funds3 (excluding CSF and lease
liability) (3,128) 53,680 66,208
==================================================== ========= ========= ==========
CSF leases - (3,933) (8,928)
==================================================== ========= ========= ==========
Lease liability (111,003) - -
==================================================== ========= ========= ==========
Net (debt)/funds (114,131) 49,747 57,280
==================================================== ========= ========= ==========
Currency
The Group reports its results in pounds sterling. The weakness
of sterling, particularly against the euro, is expected to continue
to result in a foreign exchange translation benefit to the
Group.
The impact of restating the first half of 2018 at 2019 exchange
rates would be a decrease of approximately GBP13.4 million in H1
2018 revenue and a decrease of approximately GBP0.4 million in H1
2018 adjusted(1) profit before tax.
If the 30 June 2019 spot rates were to continue through the
remainder of 2019, the impact of restating 2018 at 2019 exchange
rates would be a decrease of approximately GBP7.6 million in 2018
revenue and a decrease of approximately GBP0.3 million in 2018
adjusted(1) profit before tax.
Implementation of, and transition to, IFRS 16 Leases
IFRS 16 Leases ('IFRS 16') became effective for the Group from 1
January 2019 and replaces the requirement of IAS 17 Leases. IFRS 16
provides a single lessee accounting model, specifying how leases
are recognised, measured, presented and disclosed. The Group
elected to apply the modified retrospective approach for transition
to IFRS 16, meaning the Group has not restated the comparatives for
2018.
An asset representing the Group's right as a lessee to use a
leased item and a liability for future lease payments, have been
recognised for all properties, equipment and vehicles previously
held under operating leases. The costs of such leases have been
recognised in the Consolidated Income Statement split between
depreciation of the right-of-use-asset and an interest cost on the
lease liability. This is similar to the accounting for finance
leases under IAS 17, but substantively different to the accounting
for operating leases, under which no right-of-use-asset or lease
liability was recognised, and rentals payable were expensed to the
Consolidated Income Statement on a straight-line basis.
IFRS 16 therefore results in an increase to operating profit,
which is reported prior to interest being deducted. Depreciation is
charged on a straight-line basis, however, interest is charged on
outstanding lease liabilities and therefore reduces over the life
of the lease. As a result, the impact on the Consolidated Income
Statement below operating profit is dependent on average lease
maturity in any particular year. For an immature portfolio,
depreciation and interest are higher than the rental charge they
replace in any year and therefore IFRS 16 is dilutive to EPS. For a
mature portfolio, they are lower and therefore IFRS 16 is accretive
to EPS.
Finance leases previously capitalised under IAS 17 Leases have
been reclassified to the right-of-use-asset category under IFRS 16.
The Group took the benefit of the two key practical expedients on
adoption of IFRS 16, which relate to either short-term contracts in
which the lease term is 12 months or less, or low value assets
(less than GBP5,000), which are expensed to other operating
expenses. Refer to Group Finance Director's review for further
detail on the practical expedients applied on adoption of IFRS
16.
The judgements made by the Group on adoption of IFRS 16 included
the selection of an appropriate discount rate to calculate the
lease liability.
The adoption of IFRS 16 has had a significant impact on the
presentation of the Group's assets and liabilities. The
right-of-use-assets are included within property, plant and
equipment and corresponding lease liabilities are included within
financial liabilities on the face of the Consolidated Balance
Sheet. The cash and cash equivalents or the total cash flow at
period end has no impact from adoption of IFRS 16. Cash generated
from operations and free cash flow measures increase as operating
lease rental expenses are no longer recognised as operating cash
outflows. Cash outflows are instead split between interest paid and
repayments of obligations under leases, which both increase.
On initial application, the Group has elected to record
right-of-use assets based on the corresponding lease liability.
Right-of-use assets and lease liabilities of GBP120.6 million were
recorded as of 1 January 2019, with no net impact on retained
earnings. The Group recognised GBP110.2 million of right-of-use
assets and GBP111.0 million of lease liabilities as at 30 June
2019. During the six months ended 30 June 2019, the Group
recognised GBP19.7 million of depreciation charge and GBP1.9
million of interest costs from these leases. During the same period
last year, the rental expense of GBP20.8 million would have been
charged to the Consolidated Income Statement under IAS 17. Had IAS
17 continued in operation during the period, Group profit before
tax, on both an adjusted(1) and statutory basis, would have been
GBP0.8 million higher.
Planning for the United Kingdom exiting the European Union
Computacenter's target clients are large corporate customers and
large government departments. We operate in four principal
geographies, the UK, Germany, France and the USA.
This allows us to manage EU requirements from our EU and non-EU
locations and we have a long history of trading with the
subsidiaries of large global Western European headquartered
organisations, in many diverse locations across the world. The
concept of exporting to and importing from multiple countries is
therefore already established across the business, along with the
related systems requirements.
With recent political developments within the UK, and the recent
changes to the leadership of the EU, there remains considerable
uncertainty around the exact nature and timing of the UK's exit
from the EU, which makes it difficult to develop specific plans for
the various potential outcomes.
The senior Management committee established during 2017
continues to oversee the key risks and changes that may be required
to the way that the Group operates. It is clear that there will be
additional investment required in IT systems to manage the
transition, changes to business processes, data residency
regulations and data management requirements. Whilst these changes
will be a cost to Computacenter, we continue to see opportunities
as our customers, in some cases, may need to increase investment in
a similar manner.
Principal risks and uncertainties
The Group's activities expose it to a variety of economic,
financial, operational and regulatory risks.
Our principal risks continue to be concentrated in the
availability and resilience of systems, our people, our cost base,
technology change, and in the design, Entry into Service and
running of large Services contracts.
The principal risks and uncertainties facing the Group are set
out on pages 40 to 45 of the 2018 Annual Report and Accounts, a
copy of which is available on the Group's website.
The Group's risk management approach and the principal risks,
potential impacts and primary mitigating activities are unchanged
from those set out in the 2018 Annual Report and Accounts.
This Strategic Report was approved by the Board on 22 August
2019 and signed on its behalf by:
MJ Norris
Chief Executive Officer
FA Conophy
Group Finance Director
Directors' responsibility statement
Responsibility statement of the Directors in respect of the
half-yearly financial report.
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting, as adopted
by the EU;
-- the interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
MJ Norris
Chief Executive Officer
FA Conophy
Group Finance Director
Consolidated Income Statement
For the six months ended 30 June 2019
Audited
Unaudited Unaudited Year
H1 2019 H1 2018 2018
Note GBP'000 GBP'000 GBP'000
==== =========== =========== ===========
Revenue 5 2,427,014 2,008,904 4,352,570
========================================= ==== =========== =========== ===========
Cost of sales (2,126,523) (1,760,094) (3,804,019)
========================================= ==== =========== =========== ===========
Gross profit 300,491 248,810 548,551
========================================= ==== =========== =========== ===========
Administrative expenses (246,663) (196,705) (439,183)
========================================= ==== =========== =========== ===========
Operating profit 53,828 52,105 109,368
========================================= ==== =========== =========== ===========
Finance revenue 992 626 1,250
========================================= ==== =========== =========== ===========
Finance costs (3,971) (738) (2,490)
========================================= ==== =========== =========== ===========
Profit before tax 50,849 51,993 108,128
========================================= ==== =========== =========== ===========
Income tax expense (13,002) (15,190) (27,199)
========================================= ==== =========== =========== ===========
Profit for the period/year 37,847 36,803 80,929
========================================= ==== =========== =========== ===========
Attributable to:
========================================= ==== =========== =========== ===========
Equity holders of the Parent 37,847 36,803 80,931
========================================= ==== =========== =========== ===========
Non-controlling interests - - (2)
========================================= ==== =========== =========== ===========
Profit for the period/year 37,847 36,803 80,929
========================================= ==== =========== =========== ===========
Earnings per share:
========================================= ==== =========== =========== ===========
- basic for profit for the period/year 10 33.6p 32.1p 71.4p
========================================= ==== =========== =========== ===========
- diluted for profit for the period/year 10 33.2p 31.6p 70.1p
========================================= ==== =========== =========== ===========
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2019
Audited
Unaudited Unaudited Year
H1 2019 H1 2018 2018
GBP'000 GBP'000 GBP'000
========= ========= ========
Profit for the period/year 37,847 36,803 80,929
================================================= ========= ========= ========
Items that may be reclassified to Consolidated
Income Statement:
================================================ ========= ========= ========
Gain/(loss) arising on cash flow hedge,
net of amount transferred to Consolidated
Income Statement 263 (2,824) (3,231)
================================================= ========= ========= ========
Income tax effect (51) 510 490
================================================= ========= ========= ========
212 (2,314) (2,741)
================================================ ========= ========= ========
Exchange differences on translation of foreign
operations (392) (1,267) 7,828
================================================= ========= ========= ========
(180) (3,581) 5,087
================================================ ========= ========= ========
Items not to be reclassified to Consolidated
Income Statement:
================================================ ========= ========= ========
Remeasurement of defined benefit plan - - (1,000)
================================================= ========= ========= ========
Other comprehensive income for the period/year,
net of tax (180) (3,581) 4,087
================================================= ========= ========= ========
Total comprehensive income for the period/year 37,667 33,222 85,016
================================================= ========= ========= ========
Attributable to:
================================================ ========= ========= ========
Equity holders of the Parent 37,667 33,222 85,013
================================================= ========= ========= ========
Non-controlling interests - - 3
================================================= ========= ========= ========
37,667 33,222 85,016
================================================ ========= ========= ========
Consolidated Balance Sheet
As at 30 June 2019
Audited
Unaudited Unaudited Year
H1 2019 H1 2018 2018
GBP'000 GBP'000 GBP'000
========= ========= =========
Non-current assets
================================= ========= ========= =========
Property, plant and equipment 213,296 88,598 106,267
================================= ========= ========= =========
Intangible assets 188,169 76,737 184,613
================================= ========= ========= =========
Investment in associate 57 57 57
================================= ========= ========= =========
Deferred income tax asset 9,364 8,796 9,587
================================= ========= ========= =========
Prepayments 2,787 3,806 3,524
================================= ========= ========= =========
413,673 177,994 304,048
================================= ========= ========= =========
Current assets
================================= ========= ========= =========
Inventories 126,144 61,996 99,524
================================= ========= ========= =========
Trade and other receivables 841,781 695,900 1,180,394
================================= ========= ========= =========
Prepayments 86,095 72,849 69,320
================================= ========= ========= =========
Accrued income 105,310 118,167 101,899
================================= ========= ========= =========
Derivative financial instruments 4,027 4,790 3,851
================================= ========= ========= =========
Current asset investments 5,000 - -
================================= ========= ========= =========
Cash and short-term deposits 114,314 72,931 200,442
================================= ========= ========= =========
1,282,671 1,026,633 1,655,430
================================= ========= ========= =========
Total assets 1,696,344 1,204,627 1,959,478
================================= ========= ========= =========
Current liabilities
================================= ========= ========= =========
Trade and other payables 782,685 613,635 1,142,628
================================= ========= ========= =========
Deferred income 147,972 114,154 143,080
================================= ========= ========= =========
Financial liabilities 54,435 4,364 10,640
================================= ========= ========= =========
Derivative financial instruments 769 481 612
================================= ========= ========= =========
Income tax payable 34,146 33,397 42,184
================================= ========= ========= =========
Provisions 8,240 1,706 11,990
================================= ========= ========= =========
1,028,247 767,737 1,351,134
================================= ========= ========= =========
Non-current liabilities
================================= ========= ========= =========
Financial liabilities 179,010 18,820 132,522
================================= ========= ========= =========
Provisions 13,470 8,089 15,041
================================= ========= ========= =========
Deferred income tax liabilities 12,391 416 13,009
================================= ========= ========= =========
204,871 27,325 160,572
================================= ========= ========= =========
Total liabilities 1,233,118 795,062 1,511,706
================================= ========= ========= =========
Net assets 463,226 409,565 447,772
================================= ========= ========= =========
Capital and reserves
================================= ========= ========= =========
Issued share capital 9,270 9,299 9,270
================================= ========= ========= =========
Share premium 3,942 3,913 3,942
================================= ========= ========= =========
Capital redemption reserve 74,957 74,957 74,957
================================= ========= ========= =========
Own shares held (110,068) (109,800) (113,474)
================================= ========= ========= =========
Translation and hedging reserves 32,761 24,278 32,941
================================= ========= ========= =========
Retained earnings 452,347 406,904 440,119
================================= ========= ========= =========
Shareholders' equity 463,209 409,551 447,755
================================= ========= ========= =========
Non-controlling interests 17 14 17
================================= ========= ========= =========
Total equity 463,226 409,565 447,772
================================= ========= ========= =========
Approved by the Board on 22 August 2019.
MJ Norris FA Conophy
Chief Executive Group Finance
Officer Director
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2019
Attributable to equity holders of the Parent
=================================================================== ======== ============= ========
Issued Capital Own Translation Non-
share Share redemption shares and hedging Retained controlling Total
capital premium reserve held reserves earnings Total interests equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======== ======== =========== ========= ============ ========= ======== ============= ========
At 1 January
2018 9,299 3,913 74,957 (11,360) 27,859 390,725 495,393 14 495,407
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Profit for
the period - - - - - 36,803 36,803 - 36,803
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Other
comprehensive
income - - - - (3,581) - (3,581) - (3,581)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Total
comprehensive
income - - - - (3,581) 36,803 33,222 - 33,222
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Cost of
share-based
payments - - - - - 3,148 3,148 - 3,148
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Tax on
share-based
payments - - - - - 2,739 2,739 - 2,739
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Exercise of
options - - - 5,145 - (4,247) 898 - 898
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Purchase of
own shares - - - (3,587) - - (3,587) - (3,587)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Return of
Value (RoV) - - - (99,998) - - (99,998) - (99,998)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Expenses
relating
to RoV - - - - - (1,189) (1,189) - (1,189)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Equity
dividends - - - - - (21,075) (21,075) - (21,075)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
At 30 June
2018 9,299 3,913 74,957 (109,800) 24,278 406,904 409,551 14 409,565
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Profit for
the period - - - - - 44,128 44,128 (2) 44,126
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Other
comprehensive
income - - - - 8,663 (1,000) 7,663 5 7,668
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Total
comprehensive
income - - - - 8,663 43,128 51,791 3 51,794
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Cost of
share-based
payments - - - - - 3,277 3,277 - 3,277
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Tax on
share-based
payments - - - - - (33) (33) - (33)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Exercise of
options - - - 6,013 - (3,345) 2,668 - 2,668
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Purchase of
own shares - - - (9,687) - - (9,687) - (9,687)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Expenses
relating
to RoV - - - - - (7) (7) - (7)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Cancellation
of deferred
shares (29) 29 - - - - - - -
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Equity
dividends - - - - - (9,805) (9,805) - (9,805)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
At 31 December
2018 9,270 3,942 74,957 (113,474) 32,941 440,119 447,755 17 447,772
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Profit for
the period - - - - - 37,847 37,847 - 37,847
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Other
comprehensive
income - - - - (180) - (180) - (180)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Total
comprehensive
income - - - - (180) 37,847 37,667 - 37,667
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Cost of
share-based
payments - - - - - 3,095 3,095 - 3,095
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Tax on
share-based
payments - - - - - 565 565 - 565
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Exercise of
options - - - 6,637 - (4,913) 1,724 - 1,724
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Purchase of
own shares - - - (3,231) - - (3,231) - (3,231)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Equity
dividends - - - - - (24,366) (24,366) - (24,366)
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
At 30 June
2019 9,270 3,942 74,957 (110,068) 32,761 452,347 463,209 17 463,226
============== ======== ======== =========== ========= ============ ========= ======== ============= ========
Consolidated Cash Flow Statement
For the six months ended 30 June 2019
Audited
Unaudited Unaudited Year
H1 2019 H1 2018 2018
GBP'000 GBP'000 GBP'000
========= ========= =========
Operating activities
======================================================== ========= ========= =========
Profit before tax 50,849 51,993 108,128
======================================================== ========= ========= =========
Net finance cost 2,978 112 1,240
======================================================== ========= ========= =========
Depreciation of property, plant and equipment 10,556 8,184 19,380
======================================================== ========= ========= =========
Amortisation of intangible assets 5,586 5,345 15,428
======================================================== ========= ========= =========
Share-based payments 3,095 3,148 6,425
======================================================== ========= ========= =========
Loss/(gain) on disposal of intangibles - - 164
======================================================== ========= ========= =========
Loss/(gain) on disposal of property, plant and
equipment 11 30 177
======================================================== ========= ========= =========
Net cash flow from inventories (26,373) 6,981 (28,887)
======================================================== ========= ========= =========
Net cash flow from trade and other receivables
(including contract assets) 306,584 57,735 (274,968)
======================================================== ========= ========= =========
Net cash flow from trade and other payables (including
contract liabilities) (326,633) (118,004) 285,361
======================================================== ========= ========= =========
Net cash flow from provisions (5,114) (513) 5,865
======================================================== ========= ========= =========
Other adjustments (4,611) (894) 726
======================================================== ========= ========= =========
Cash generated from operations 16,928 14,117 139,039
======================================================== ========= ========= =========
Income taxes paid (18,054) (5,746) (23,821)
======================================================== ========= ========= =========
Net cash flow from operating activities (1,126) 8,371 115,218
======================================================== ========= ========= =========
Investing activities
======================================================== ========= ========= =========
Interest received 992 626 1,250
======================================================== ========= ========= =========
Increase in current asset investments (5,000) - -
======================================================== ========= ========= =========
Acquisition of subsidiaries, net of cash acquired (2,865) - (55,970)
======================================================== ========= ========= =========
Purchases of property, plant and equipment (8,905) (19,174) (45,442)
======================================================== ========= ========= =========
Purchases of intangible assets (7,108) (1,868) (5,935)
======================================================== ========= ========= =========
Proceeds from disposal of property, plant and equipment 211 68 146
======================================================== ========= ========= =========
Net cash flow from investing activities (22,675) (20,348) (105,951)
======================================================== ========= ========= =========
Financing activities
======================================================== ========= ========= =========
Interest paid (3,971) (738) (2,490)
======================================================== ========= ========= =========
Dividends paid to equity shareholders of the parent (24,366) (21,075) (30,880)
======================================================== ========= ========= =========
Return of Value (RoV) - (99,998) (99,998)
======================================================== ========= ========= =========
Expenses on RoV - (1,189) (1,196)
======================================================== ========= ========= =========
Proceeds from share issues 1,724 898 3,566
======================================================== ========= ========= =========
Purchase of own shares (3,231) (3,587) (13,274)
======================================================== ========= ========= =========
Payment of lease liabilities (FY 2018: capital
element of finance leases) (19,401) (787) (803)
======================================================== ========= ========= =========
Repayment of loans (9,644) (1,095) (1,119)
======================================================== ========= ========= =========
New borrowings - finance leases - - 5,125
======================================================== ========= ========= =========
New borrowings - bank loan - 6,948 124,065
======================================================== ========= ========= =========
Net cash flow from financing activities (58,889) (120,623) (17,004)
======================================================== ========= ========= =========
Decrease in cash and cash equivalents (82,690) (132,600) (7,737)
======================================================== ========= ========= =========
Effect of exchange rates on cash and cash equivalents (3,438) (1,068) 1,580
======================================================== ========= ========= =========
Cash and cash equivalents at the beginning of the
period/year 200,442 206,599 206,599
======================================================== ========= ========= =========
Cash and cash equivalents at the end of the period/year 114,314 72,931 200,442
======================================================== ========= ========= =========
Notes to the Interim Condensed Consolidated Financial
Statements
For the six months ended 30 June 2019
1. Corporate information
The Interim Condensed Consolidated Financial Statements
(Financial Statements) of the Group for the six months ended 30
June 2019 were authorised for issue in accordance with a resolution
of the Directors on 22 August 2019.
Computacenter plc is a limited company incorporated and
domiciled in England whose shares are publicly traded.
2. Basis of preparation
The Financial Statements for the six months ended 30 June 2019
have been prepared in accordance with International Accounting
Standard 34 'Interim Financial Reporting', as adopted by the
European Union. They do not include all of the information and
disclosures required in the annual financial statements, and should
be read in conjunction with the Group's 2018 Annual Report and
Accounts which have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European
Union.
The Group has maintained its positive cash position in the
period. In order to ensure that the Group can maintain its strong
liquidity position it has a GBP60 million committed facility, which
remained unutilised at the reporting date. The Group's forecast and
projections, which allow for reasonably possible variations, show
that the Group will continue to maintain its strong liquidity
position, and therefore supports the Directors' view that the Group
has sufficient funds available to meet its foreseeable
requirements. The Directors have concluded therefore that the going
concern basis remains appropriate.
3. Significant Accounting Policies
The accounting policies adopted are consistent with those of the
previous financial year as disclosed in the 2018 Annual Report and
Accounts except for lease accounting where the Group has adopted
the new accounting standard, IFRS 16 'Lease' ('IFRS 16'), as it
became effective for the Group from 1 January 2019.
IFRS 16 Leases (IFRS 16)
IFRS 16 introduced a single, on-balance sheet accounting model
for lessees. As a result, the Group, as a lessee, has recognised
right-of-use assets representing its rights to use the underlying
assets and lease liabilities representing its obligation to make
lease payments. Lessor accounting remains similar to previous
accounting policies.
Effective 1 January 2019, the Group adopted IFRS 16 using the
modified retrospective approach and accordingly the information
presented for H1 2018 and FY 2018 has not been restated. It remains
as previously reported under IAS 17 and related
interpretations.
As permitted by IFRS 16, the Group has elected to adopt the
following practical expedients on transition:
-- not to capitalise a right-of-use asset or related lease
liability where the lease expires before 31 December 2019;
-- not to reassess contracts to determine if the contract
contains a lease and not to separate lease and non-lease
elements;
-- to use hindsight in determining the lease term if the
contract contains options to extend or terminate the lease;
-- lease payments for contracts with a duration of 12 months or
less and contracts for which the underlying asset is of a low value
will continue to be expensed to the Consolidated Income Statement
on a straight-line basis over the lease term;
-- to exclude initial direct costs from the measurement of the right of use asset; and
-- to apply the portfolio approach where a group of leases has similar characteristics.
Impact of adoption of IFRS 16
Consolidated Balance Sheet
On initial application, the Group has elected to record
right-of-use assets based on the corresponding lease liability.
Right-of-use assets and lease obligations of GBP120.6 million were
recorded as of 1 January 2019, with no net impact on retained
earnings. When measuring lease liabilities, the Group discounted
lease payments using its incremental borrowing rate at 1 January
2019. The weighted-average rate applied is 7.6 per cent.
The Group has recognised GBP110.2 million of right-of-use assets
and GBP111.0 million of lease liability as at 30 June 2019.
Consolidated Income Statement
Under IFRS 16, the Group has seen a different pattern of expense
within the Consolidated Income Statement, as the IAS 17 operating
lease expense is replaced by depreciation and interest costs.
During the six months ended 30 June 2019, the Group has recognised
GBP19.7 million of depreciation costs and GBP1.9 million of
interest costs from these leases, and has seen a decrease of
GBP20.8 million of operating lease rental expense. Had IAS 17
continued in operation during the period, Group profit before tax,
on both an adjusted(1) and statutory basis, would have been GBP0.8
million higher.
Consolidated Cash Flow Statement
The change in presentation because of the adoption of IFRS 16
will see an improvement in 2019 of cash flow generated from
operating activities, offset by a corresponding decline in cash
flow from financing activities. There is no overall cash flow
impact from the adoption of IFRS 16.
Reconciliation between the Group's operating lease commitments
and lease liability
The following table reconciles the Group's operating lease
commitments as a lessee at 31 December 2018, as previously
disclosed in the Financial Statements, to the lease obligations
recognised on initial application of IFRS 16 at 1 January 2019:
GBP'000
=========
Operating lease commitments at 31 December 2018 as disclosed
in the Financial Statements 137,032
============================================================== =========
Discounted using the incremental borrowing rate at 1 January
2019 (9,913)
============================================================== =========
Finance lease liabilities recognised as at 31 December 2018 9,269
============================================================== =========
Recognition exemption for leases of low-value assets and with
less than 12 months of lease term at transition (18,378)
============================================================== =========
Other adjustment relating to implementation of IFRS 16 2,945
============================================================== =========
Lease liabilities recognised at 1 January 2019 120,955
============================================================== =========
Accounting policies
Group as lessee
Recognition of a lease
The contracts are assessed by the Group, to determine whether a
contract is, or contains a lease. In general, arrangements are
considered to be a lease when all of the following apply:
-- It conveys the right to control the use of an identified
asset for a certain period in exchange for consideration;
-- The Group have substantially all economic benefits from the use of the asset; and
-- The Group can direct the use of the identified asset.
The policy is applied to contracts entered, or changed, on or
after 1 January 2019. The Group has elected to separate the
non-lease components and also elected to apply a number of
practical expedients as noted above. In cases where the Group acts
as an intermediate lessor, it accounts for its interests in the
head-lease and the sub-lease separately.
Measurement of a right-of-use asset and lease liability
Right of use asset
As at 1 January 2019, the Group measured the right-of-use asset
at cost, which included the following:
-- the initial amount of the lease liability adjusted for any
lease payments made at or before 1 January 2019;
-- any lease incentives received; and
-- any initial direct costs incurred by the Group as well as an
estimate of costs to be incurred by the Group in dismantling and
removing the underlying asset, restoring the site on which it is
located or restoring the underlying asset to the condition required
by the lease contract. Cost for dismantling, removing or restoring
the site on which it is located and/or the underlying asset is only
recognised when the Group incurs an obligation to do so.
The right-of-use asset is depreciated over the lease term, using
the straight-line method.
Lease liability
As at 1 January 2019, the lease liability is initially measured
at the present value of the unpaid lease payments, discounted using
the interest rate implicit in the lease, or if the rate cannot be
readily determined, the Group's incremental borrowing rate. Lease
payments included in the measurement comprise of fixed payments,
variable lease payments that depend on an index or a rate, amounts
to be paid under a residual value guarantee and lease payments in
an optional renewal period if the Group is reasonably certain to
exercise an extension option as well as penalties for early
termination of a lease, if the Group is reasonably certain to
terminate early. If there is a purchase option present, this will
be included if the Group is reasonably certain to exercise the
option.
Leases of low-value assets and short-term
Leases of low-value assets (<GBP5,000) and short-term with a
term of 12 months or less are not required to be recognised on the
Consolidated Balance Sheet and payments made in relation to these
leases are recognised on a straight-line basis in the Consolidated
Income Statement.
4. Adjusted measures
The Group uses a number of non-Generally Accepted Accounting
Practice (non-GAAP) financial measures in addition to those
reported in accordance with IFRS. The Directors believe that these
non-GAAP measures, detailed below, are important when assessing the
underlying financial and operating performance of the Group.
Adjusted operating profit or loss, adjusted net finance income
or expense, adjusted profit or loss before tax, adjusted tax,
adjusted profit or loss, adjusted earnings per share and adjusted
diluted earnings per share are, as appropriate, each stated before:
exceptional and other adjusting items including gain or losses on
business acquisitions and disposals, amortisation of acquired
intangibles, utilisation of deferred tax assets (where initial
recognition was as an exceptional item or a fair value adjustment
on acquisition), and the related tax effect of these exceptional
and other adjusting items, as Management do not consider these
items when reviewing the underlying performance of the Segment or
the Group as a whole.
Prior to the adoption of IFRS 16, adjusted gross profit or loss
and adjusted operating profit or loss included the interest paid on
customer-specific financing (CSF) which Management considered to be
a cost of sale.
Adjusted net funds or adjusted net debt includes cash and cash
equivalents, other short or other long-term borrowings and current
asset investments. Following the adoption of IFRS 16 this measure
excludes all finance lease liabilities which now includes CSF
balances which were previously included within this measure. A
table reconciling this measure, including the impact of finance
lease liabilities, is shown within note 13 to the summary financial
information included within this announcement.
A reconciliation between key adjusted and statutory measures is
provided below which details the impact of exceptional and other
adjusted items when compared to the non-Generally Accepted
Accounting Practice financial measures in addition to those
reported in accordance with IFRS. Further detail is provided within
note 5 to the summary financial information included within this
announcement.
5. Segment information
Due to the acquisitions made in 2018, Management has further
reviewed the way it reported segmental performance to the Board and
the Chief Executive Officer, who is the Group's Chief Operating
Decision Maker ('CODM'), during the first half of the year. As a
result of this analysis the Board has adopted a new segmental
reporting structure from the period ended 30 June 2019.
In accordance with IFRS 8 Operating Segments, the Group has
identified five revised operating Segments:
-- UK;
-- Germany;
-- France;
-- USA; and
-- International.
In the new USA Segment, the Group has now added a fifth
operating Segment which comprises the business acquired in 2018 and
the existing USA operations which transfer in from the
International Segment.
The UK Segment now includes the TeamUltra trading operations
from the International Segment reflecting the fact that the
majority of the work performed by TeamUltra is either on UK
customers or for UK bids. Over the course of the rest of the year
we expect to see the TeamUltra operations absorbed into the UK
trading entity, reflecting the importance of the capability to the
UK business.
The International Segment now comprises a core 'Rest of Europe'
presence with key trading operations in Belgium, the Netherlands
and Switzerland along with the international Global Service Desk
locations in South Africa, Spain, Hungary, Mexico, Poland,
Malaysia, India and China. During the period Computacenter
Switzerland acquired PathWorks GmbH. ('PathWorks'), a value-added
reseller, based in Neudorf (Luzern), Switzerland. This acquisition
allows us to add Technology Sourcing to our existing Swiss
portfolio completing the Group's Source, Transform and Manage
offering. The Global Service Desk locations have limited external
revenues, and a cost recovery model that suggests better than
breakeven margins to ensure compliance with transfer pricing
regulations.
The French and German Segments remain unchanged from that
reported at 31 December 2018.
Certain expenses such as those for the Board and related public
company costs, Group Executive members not aligned to a specific
geographic trading entity and the cost of centrally funded
strategic corporate initiatives that benefit the whole Group, are
not allocated to individual Segments because they are not directly
attributable to any single Segment. Accordingly, these expenses
continue to be disclosed as a separate column, 'Central Corporate
Costs', within the Segmental note.
This new segmental reporting structure is the basis on which
internal reports are provided to the Chief Executive Officer, as
the CODM, for assessing performance and determining the allocation
of resources within the Group.
Segmental performance is measured based on external revenues,
adjusted(1) gross profit, adjusted(1) operating profit and
adjusted(1) profit before tax.
The change in segmental reporting has no impact on reported
Group numbers. To enable comparisons with prior period performance,
historical Segment information for the periods ended 30 June 2018
and 31 December 2018 are restated in accordance with the revised
segmental reporting structure.
Segmental performance for the periods to H1 2019, H1 2018 and
Full Year 2018 were as follows:
Six months ended 30 June 2019 (unaudited)
Central
Corporate
UK Germany France USA International Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======== ======== ======== ======== ============= ========== =========
Revenue
================================ ======== ======== ======== ======== ============= ========== =========
Technology Sourcing revenue 579,694 612,780 220,777 359,638 58,415 - 1,831,304
================================ ======== ======== ======== ======== ============= ========== =========
Services revenue
================================ ======== ======== ======== ======== ============= ========== =========
Professional Services 54,608 93,258 10,881 7,823 1,844 - 168,414
================================ ======== ======== ======== ======== ============= ========== =========
Managed Services 159,592 183,012 39,732 12,955 32,005 - 427,296
================================ ======== ======== ======== ======== ============= ========== =========
Total Services revenue 214,200 276,270 50,613 20,778 33,849 - 595,710
================================ ======== ======== ======== ======== ============= ========== =========
Total revenue 793,894 889,050 271,390 380,416 92,264 - 2,427,014
================================ ======== ======== ======== ======== ============= ========== =========
Results
================================ ======== ======== ======== ======== ============= ========== =========
Adjusted(1) gross profit 101,524 115,097 32,176 31,368 20,326 - 300,491
================================ ======== ======== ======== ======== ============= ========== =========
Administrative expenses (78,090) (82,471) (26,093) (30,151) (15,738) (11,866) (244,409)
================================ ======== ======== ======== ======== ============= ========== =========
Adjusted(1) operating
profit 23,434 32,626 6,083 1,217 4,588 (11,866) 56,082
================================ ======== ======== ======== ======== ============= ========== =========
Adjusted(1) net interest (2,311) 114 (126) (179) (77) - (2,579)
================================ ======== ======== ======== ======== ============= ========== =========
Adjusted(1) profit before
tax 21,123 32,740 5,957 1,038 4,511 (11,866) 53,503
================================ ======== ======== ======== ======== ============= ========== =========
Exceptional items:
================================ ======== ======== ======== ======== ============= ========== =========
- on unwinding of discount
relating to acquisition
of a subsidiary (400)
================================ ======== ======== ======== ======== ============= ========== =========
- costs relating to acquisition
of a subsidiary (79)
================================ ======== ======== ======== ======== ============= ========== =========
Total exceptional items (479)
================================ ======== ======== ======== ======== ============= ========== =========
Amortisation of acquired
intangibles (2,175)
================================ ======== ======== ======== ======== ============= ========== =========
Statutory profit before
tax 50,849
================================ ======== ======== ======== ======== ============= ========== =========
The reconciliation for adjusted(1) operating profit to statutory
operating profit, as disclosed in the Interim Condensed
Consolidated Income Statement, is as follows:
Six months ended 30 June 2019 (unaudited)
Total
GBP'000
========
Adjusted(1) operating profit 56,082
===================================== ========
Add back interest on CSF -
===================================== ========
Amortisation of acquired intangibles (2,175)
===================================== ========
Exceptional items (79)
===================================== ========
Statutory operating profit 53,828
===================================== ========
Six months ended 30 June 2018 (unaudited)
Central
Corporate
UK Germany France USA International Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======== ======== ======== ======== ============= ========== =========
Revenue
================================ ======== ======== ======== ======== ============= ========== =========
Technology Sourcing revenue 633,784 598,033 182,395 243 19,668 - 1,434,123
================================ ======== ======== ======== ======== ============= ========== =========
Services revenue
================================ ======== ======== ======== ======== ============= ========== =========
Professional Services 62,841 79,887 8,894 3,262 1,756 - 156,640
================================ ======== ======== ======== ======== ============= ========== =========
Managed Services 164,499 188,128 39,364 9,919 16,231 - 418,141
================================ ======== ======== ======== ======== ============= ========== =========
Total Services revenue 227,340 268,015 48,258 13,181 17,987 - 574,781
================================ ======== ======== ======== ======== ============= ========== =========
Total revenue 861,124 866,048 230,653 13,424 37,655 - 2,008,904
================================ ======== ======== ======== ======== ============= ========== =========
Results
================================ ======== ======== ======== ======== ============= ========== =========
Adjusted(1) gross profit 100,430 109,721 24,095 2,919 11,522 - 248,687
================================ ======== ======== ======== ======== ============= ========== =========
Administrative expenses (74,540) (77,523) (22,022) (2,550) (8,550) (11,401) (196,586)
================================ ======== ======== ======== ======== ============= ========== =========
Adjusted(1) operating
profit 25,890 32,198 2,073 369 2,972 (11,401) 52,101
================================ ======== ======== ======== ======== ============= ========== =========
Adjusted(1) net interest 78 43 (35) (61) (14) - 11
================================ ======== ======== ======== ======== ============= ========== =========
Adjusted(1) profit before
tax 25,968 32,241 2,038 308 2,958 (11,401) 52,112
================================ ======== ======== ======== ======== ============= ========== =========
Exceptional items:
================================ ======== ======== ======== ======== ============= ========== =========
- on unwinding of discount -
relating to acquisition
of a subsidiary
================================ ======== ======== ======== ======== ============= ========== =========
- costs relating to acquisition -
of a subsidiary
================================ ======== ======== ======== ======== ============= ========== =========
Total exceptional items -
================================ ======== ======== ======== ======== ============= ========== =========
Amortisation of acquired
intangibles (119)
================================ ======== ======== ======== ======== ============= ========== =========
Statutory profit before
tax 51,993
================================ ======== ======== ======== ======== ============= ========== =========
The reconciliation for adjusted(1) operating profit to operating
profit, as disclosed in the Consolidated Income Statement, is as
follows:
Six months ended 30 June 2018 (unaudited)
Total
GBP'000
========
Adjusted(1) operating profit 52,101
===================================== ========
Add back interest on CSF 123
===================================== ========
Amortisation of acquired intangibles (119)
===================================== ========
Exceptional items -
===================================== ========
Statutory operating profit 52,105
===================================== ========
Year ended 31 December 2018
Central
Corporate
UK Germany France USA International Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========= ========= ======== ======== ============= ========== =========
Revenue
================================ ========= ========= ======== ======== ============= ========== =========
Technology Sourcing revenue 1,157,916 1,330,616 393,769 238,600 56,680 - 3,177,581
================================ ========= ========= ======== ======== ============= ========== =========
Services revenue
================================ ========= ========= ======== ======== ============= ========== =========
Professional Services
revenue 118,900 166,471 18,914 13,763 3,867 - 321,915
================================ ========= ========= ======== ======== ============= ========== =========
Managed Services revenue 334,578 375,591 80,568 20,718 41,619 - 853,074
================================ ========= ========= ======== ======== ============= ========== =========
Total Services revenue 453,478 542,062 99,482 34,481 45,486 - 1,174,989
================================ ========= ========= ======== ======== ============= ========== =========
Total revenue 1,611,394 1,872,678 493,251 273,081 102,166 - 4,352,570
================================ ========= ========= ======== ======== ============= ========== =========
Results
================================ ========= ========= ======== ======== ============= ========== =========
Adjusted(1) gross profit 205,708 231,191 55,655 27,007 28,697 - 548,258
================================ ========= ========= ======== ======== ============= ========== =========
Adjusted(1) administrative
expenses (147,465) (164,332) (48,601) (22,666) (21,240) (25,188) (429,492)
================================ ========= ========= ======== ======== ============= ========== =========
Adjusted(1) operating
profit 58,243 66,859 7,054 4,341 7,457 (25,188) 118,766
================================ ========= ========= ======== ======== ============= ========== =========
Adjusted(1) net interest (163) 45 (162) (200) (50) - (530)
================================ ========= ========= ======== ======== ============= ========== =========
Adjusted(1) profit before
tax 58,080 66,904 6,892 4,141 7,407 (25,188) 118,236
================================ ========= ========= ======== ======== ============= ========== =========
Exceptional items:
================================ ========= ========= ======== ======== ============= ========== =========
- on unwinding of discount
relating to acquisition
of a subsidiary (417)
================================ ========= ========= ======== ======== ============= ========== =========
- costs relating to acquisition
of a subsidiary (5,240)
================================ ========= ========= ======== ======== ============= ========== =========
Total exceptional items (5,657)
================================ ========= ========= ======== ======== ============= ========== =========
Amortisation of acquired
intangibles (4,451)
================================ ========= ========= ======== ======== ============= ========== =========
Statutory profit before
tax 108,128
================================ ========= ========= ======== ======== ============= ========== =========
The reconciliation for adjusted(1) operating profit to statutory
operating profit, as disclosed in the Consolidated Income
Statement, is as follows:
Year ended 31 December 2018
Total
GBP'000
========
Adjusted(1) operating profit 118,766
===================================== ========
Add back interest on CSF 293
===================================== ========
Amortisation of acquired intangibles (4,451)
===================================== ========
Exceptional items (5,240)
===================================== ========
Statutory operating profit 109,368
===================================== ========
6. Seasonality of operations
Historically, revenues have been higher in the second half of
the year than in the first six months. This is principally driven
by customer buying behaviour in the markets in which we operate.
Typically this leads to a more pronounced effect on operating
profit. In addition, the effect is compounded further by the
tendency for the holiday entitlements of our employees to accrue
during the first half of the year and to be utilised in the second
half.
7. Dividends paid and proposed
A final dividend for 2018 of 21.6 pence per ordinary share was
paid on 28 June 2019. An interim dividend in respect of 2019 of
10.1 pence per ordinary share, amounting to a total dividend of
GBP11.5 million, was declared by the Directors at their meeting on
20 August 2019. The expected payment date of the dividend declared
is 11 October 2019. This interim report does not reflect this
dividend payable.
8. Income tax
Tax for the six-month period is charged at 25.6 per cent (six
months ended 30 June 2018: 29.2 per cent; year ended 31 December
2018: 25.2 per cent), representing the best estimate of the average
annual effective tax rate expected for the full year, applied to
the pre-tax income of the six-month period.
9. Exceptional items
Unaudited Unaudited Audited
H1 2019 H1 2018 Year 2018
GBP'000 GBP'000 GBP'000
========= ========= ==========
Operating profit
================================================= ========= ========= ==========
Costs relating to acquisition of a subsidiary (79) - (5,240)
================================================= ========= ========= ==========
Exceptional operating loss (79) - (5,240)
================================================= ========= ========= ==========
Unwinding of discount relating to acquisition of
a subsidiary (400) - (417)
================================================= ========= ========= ==========
Loss on exceptional items before taxation (479) - (5,657)
================================================= ========= ========= ==========
Income tax
================================================= ========= ========= ==========
Tax on exceptional items 39 - 1,353
================================================= ========= ========= ==========
Tax relating to acquisition of a subsidiary 879 - 3,091
================================================= ========= ========= ==========
Gain/(loss) on exceptional items after taxation 439 - (1,213)
================================================= ========= ========= ==========
2019:
An exceptional operating loss during the period of GBP0.1
million resulted from residual costs directly relating to the
acquisition of FusionStorm. The majority of these costs were
incurred in the year to 31 December 2018 and included a severance
payment for the FusionStorm Chief Executive Officer, agreed as part
of the acquisition, advisor fees and a finder's fee that was paid
on completion of the transaction. These costs were non-operational
in nature, material in size and unlikely to recur and have
therefore been classified as outside our adjusted(1) results. The
current period loss resulted from social charges relating to the
severance payment for the FusionStorm Chief Executive Officer and
has been treated as an exceptional item for consistency with the
disclosure in the year to 31 December 2018. A further GBP0.4
million relating to the unwinding of the discount on the deferred
consideration for the purchase of FusionStorm has been removed from
the adjusted(1) net finance expense and classified as exceptional
interest costs.
A credit of GBP0.04 million arising from the tax benefit on the
FusionStorm exceptional acquisition costs has been recognised as
tax on the above exceptional item. A further tax credit of GBP0.9
million was recorded due to post-acquisition activity in
FusionStorm, related to the transaction, which has resulted in an
in-year tax benefit. This activity was settled by the vendor, out
of the consideration paid, via post-acquisition capital
contributions to FusionStorm. As this credit was related to the
acquisition and not operational activity within FusionStorm, is of
a one-off nature and material to the overall tax result, it was
classified as an exceptional tax item.
2018:
There were no exceptional items reported within the H1 2018
period.
10. Earnings per share
Earnings per share ('EPS') amounts are calculated by dividing
profit attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the period
(excluding own shares held).
To calculate diluted earnings per share, the weighted average
number of ordinary shares in issue is adjusted to assume conversion
of all dilutive potential shares. Share options granted to
employees where the exercise price is less than the average market
price of the Company's ordinary shares during the period are
considered to be dilutive potential shares.
Unaudited Unaudited Audited
H1 2019 H1 2018 Year 2018
GBP'000 GBP'000 GBP'000
========= ========= ==========
Profit attributable to equity holders of the Parent 37,847 36,803 80,931
==================================================== ========= ========= ==========
Unaudited Unaudited Audited
H1 2019 H1 2018 Year 2018
'000 '000 '000
========= ========= ==========
Basic weighted average number of shares (excluding
own shares held) 112,616 114,620 113,409
=================================================== ========= ========= ==========
Effect of dilution:
=================================================== ========= ========= ==========
Share options 1,215 1,662 1,984
=================================================== ========= ========= ==========
Diluted weighted average number of shares 113,831 116,282 115,393
=================================================== ========= ========= ==========
Unaudited Unaudited Audited
H1 2019 H1 2018 Year 2018
pence pence pence
========= ========= ==========
Basic earnings per share 33.6 32.1 71.4
=========================== ========= ========= ==========
Diluted earnings per share 33.2 31.6 70.1
=========================== ========= ========= ==========
11. Investments
PathWorks
On 1 January 2019, the Group acquired 100 per cent of the voting
shares of PathWorks for an initial consideration of EUR3.9 million
and agreed to an undiscounted contingent consideration of EUR0.5
million, dependent upon the achievement of agreed performance
criteria over the next two and a half years from the date of
acquisition. The acquisition-related costs amounted to EUR0.1
million and are included in the Consolidated Income Statement.
PathWorks is based in Switzerland and is an IT product provider.
The acquisition has been accounted for using the purchase method of
accounting.
The following table summarises the recognised amounts of assets
acquired and liabilities assumed at the date of acquisition:
Provisional
fair value
to the
Group
GBP'000
===========
Inventories 75
=================================== ===========
Trade and other receivables 737
=================================== ===========
Cash and short-term deposits 585
=================================== ===========
Prepayments 367
=================================== ===========
Trade and other payables (1,452)
=================================== ===========
Net assets acquired 312
=================================== ===========
Goodwill arising on acquisition 3,138
=================================== ===========
3,450
=================================== ===========
Discharged by:
=================================== ===========
Cash paid on acquisition 3,107
=================================== ===========
Contingent consideration 343
=================================== ===========
3,450
=================================== ===========
Cash and cash equivalents acquired
=================================== ===========
Cash and short-term deposits (585)
=================================== ===========
Cash outflow on acquisition 2,865
=================================== ===========
The initial accounting for the acquisition of PathWorks has only
been provisionally determined at the date of finalisation of the
summary financial information included within this announcement
based on Management's best estimates. Included in the GBP3.1
million of goodwill that arose on acquisition are certain
intangible assets that cannot be individually separated and
reliably measured under IFRS 3 Business Combination from the
acquiree due to their nature. These items include the expected
value of synergies, a footprint from which to grow Technology
Sourcing business in the Switzerland and skillset of the
workforce.
From the date of acquisition to 30 June 2019, PathWorks
contributed GBP6.6 million to the Group's revenue and a profit of
GBP0.3 million to the Group's profit after tax.
Contingent consideration
Based on the performance of the business in H1 2019 and the
forecasted performance for FY 2019, FY 2020 and FY 2021,
Management's assessment is that it is highly probable that the
contingent consideration of EUR0.5 million will become payable and
accordingly the discounted contingent consideration has been
included in the provisional fair value to the Group.
Management concluded that the contingent consideration was
actually consideration and not remuneration on the basis that
individuals who were selling shareholders due to be paid the
consideration were not required to remain in employment
post-acquisition.
12. Fair value measurements recognised in the consolidated
balance sheet
Financial instruments which are recognised at fair value
subsequent to initial recognition are grouped into Levels 1 to 3
based on the degree to which the fair value is observable. The
three levels are defined as follows:
1. Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
2. Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
3. Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
At 30 June 2019 the Group had forward currency contracts, which
were measured at Level 2 fair value subsequent to initial
recognition, to the value of a net asset of GBP3,258,000 (30 June
2018: GBP4,309,000, 31 December 2018: GBP3,239,000).
The net realised gains from forward currency contracts in the
period to 30 June 2019 of GBP3,541,000 (30 June 2018: GBP3,506,000,
31 December 2018: GBP3,278,000) are offset by broadly equivalent
realised losses/gains on the related underlying transactions.
The foreign currency forward contracts are measured based on
observable spot exchange rates, the yield curves of the respective
currencies as well as the currency basis spreads between the
respective currencies. All contracts are fully cash collateralised,
thereby eliminating both counterparty and the Group's own credit
risk.
The carrying value of the Group's short-term receivables and
payables is a reasonable approximation of their fair values. The
fair value of all other financial instruments carried within the
summary financial information included within this announcement is
not materially different from their carrying amount.
13. Net funds
Unaudited Unaudited Audited
H1 2019 H1 2018 Year 2018
GBP'000 GBP'000 GBP'000
========= ========= ==========
Cash and short-term deposits 114,314 72,931 200,442
================================================ ========= ========= ==========
Cash and cash equivalents 114,314 72,931 200,442
================================================ ========= ========= ==========
Current asset investments 5,000 - -
================================================ ========= ========= ==========
Bank loans (122,442) (19,251) (134,234)
================================================ ========= ========= ==========
Adjusted net (debt)/funds(3) (excluding CSF and
lease liability) (3,128) 53,680 66,208
================================================ ========= ========= ==========
CSF leases - (3,933) (8,928)
================================================ ========= ========= ==========
Lease liability (111,003) - -
================================================ ========= ========= ==========
Net (debt)/funds (114,131) 49,747 57,280
================================================ ========= ========= ==========
14. Provisions
Customer Retirement
contract benefit Property Other Total
provisions obligation provisions provisions provisions
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========== =========== =========== =========== ===========
At 1 January 2019 16,394 7,416 2,751 470 27,031
========================== =========== =========== =========== =========== ===========
Amounts reversed (434) - - - (434)
========================== =========== =========== =========== =========== ===========
Arising during the period - 295 213 - 508
========================== =========== =========== =========== =========== ===========
Utilised (5,114) - - - (5,114)
========================== =========== =========== =========== =========== ===========
Exchange adjustment (230) (47) (1) (3) (281)
========================== =========== =========== =========== =========== ===========
At 30 June 2019 10,616 7,664 2,963 467 21,710
========================== =========== =========== =========== =========== ===========
Current 6,809 - 964 467 8,240
========================== =========== =========== =========== =========== ===========
Non-current 3,807 7,664 1,999 - 13,470
========================== =========== =========== =========== =========== ===========
10,616 7,664 2,963 467 21,710
========================== =========== =========== =========== =========== ===========
Customer contract provision
Following implementation of IFRS 15 and due to materiality of
the provisions on difficult customer contracts, the provisions for
difficult customer contracts were reclassified from other payables
to be disclosed as provisions as at 31 December 2018. These
provisions result from customer contracts where total cost exceeds
total revenue. During the period GBP5.1 million of customer
contract provisions had been utilised in line with individual
contract forecasts. A further GBP0.4 million of provision that was
no longer required was released to the Condensed Consolidated
Income Statement.
15. Publication of non-statutory accounts
The financial information contained in the announcement does not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006.
The comparative figures for the financial year ended 31 December
2018 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's auditor
and delivered to the registrar of companies. The report of the
auditor was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
16. Events after the reporting period
Detailed below is the significant event that happened after the
Group's period end date of 30 June 2019 and before the signing of
this announcement on 22 August 2019.
Acquisition of R.D. Trading Limited
On Monday 12 August 2019, the Group issued a press release
noting that Computacenter (UK) Limited, a wholly-owned subsidiary
of the Group, had acquired the IT Asset Disposal business R.D.
Trading Limited in the UK from Arrow Electronics Inc.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EAXPAASENEFF
(END) Dow Jones Newswires
August 23, 2019 02:00 ET (06:00 GMT)
Computacenter (LSE:CCC)
Historical Stock Chart
From Apr 2024 to May 2024
Computacenter (LSE:CCC)
Historical Stock Chart
From May 2023 to May 2024