TIDMCCC
RNS Number : 8462F
Computacenter PLC
12 March 2020
Computacenter plc
Final results for the year ended 31 December 2019
Computacenter plc ("Computacenter" or the "Group"), a leading
independent technology partner trusted by large corporate and
public sector organisations, today announces audited results for
the year ended 31 December 2019.
Financial Highlights 2019 2018 Percentage
Change
Increase/
(Decrease)
Financial Performance
Services revenue (GBP million) 1,230.6 1,175.0 4.7
Technology Sourcing revenue (GBP
million) 3,822.2 3,177.6 20.3
Revenue (GBP million) 5,052.8 4,352.6 16.1
Adjusted(1) profit before tax
(GBP million) 146.3 118.2 23.8
Adjusted(1) diluted earnings
per share (pence) 92.5 75.7 22.2
Dividend per share (pence) 37.0 30.3 22.1
Statutory profit before tax (GBP
million) 141.0 108.1 30.4
Statutory diluted earnings per
share (pence) 89.0 70.1 27.0
Cash Position
Cash and cash equivalents (GBP
million) 217.9 200.4 8.7
Adjusted net funds(3) (GBP million)* 137.1 66.2 107.1
Net funds(3) (GBP million) 20.3 57.3 (64.6)
Net cash flow from operating
activities (GBP million) 202.0 115.2 75.3
Reconciliation between Adjusted(1) and Statutory
Performance
Adjusted(1) profit before tax (GBP
million) 146.3 118.2
Exceptional and other adjusting items:
Costs related to acquisition (GBP
million) (0.9) (5.7)
Amortisation of acquired intangibles
(GBP million) (4.4) (4.4)
Statutory profit before tax (GBP million) 141.0 108.1
*The Group recognised GBP110.9 million of right-of-use assets
and GBP116.8 million of lease liabilities as at 31 December 2019
under the new IFRS 16 accounting standard. The Group includes lease
liabilities within its net 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 funds(3) measure.
Operational Highlights:
-- The Group's total revenues grew 16.1 per cent or GBP700.2
million during the year, and by 16.9 per cent or GBP732.2 million
during the year in constant currency(2) including growth of
GBP586.6 million from acquisitions. A 23.8 per cent increase in
adjusted(1) profit before tax to GBP146.3 million has resulted in
record adjusted(1) diluted EPS of 92.5 pence (2018: 75.7 pence), an
increase of 22.2 per cent.
-- France had an excellent year with an organic increase in
revenues of 15.7 per cent, led by a buoyant Technology Sourcing
marketplace, and an increase in adjusted(1) operating profit of
76.3 per cent, both on a constant currency(2) basis.
-- Germany delivered another strong performance with revenue
growth of 5.2 per cent during the year driven by a resilient
Technology Sourcing business and a strong Professional Services
result leading to a 27.9 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,
that declined down to normal volumes rather than those seen in the
prior year, which created a challenging comparison.
-- The UK saw a reduction in revenues of 1.8 per cent as both
Services and Technology Sourcing revenues declined. The prior year
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 increased
by 10.6 per cent during the year, with improvements in both
Services and Technology Sourcing margins.
-- The US acquisition made on 30 September 2018 has seen a much
better performance in the second half of 2019 as sales orders
returned to a more expected baseline level after the slowdown in
volumes in the first half of the year.
The result has benefited from GBP857.6 million of revenues
(2018: GBP270.9 million), and GBP6.5 million of adjusted(1) profit
before tax (2018: GBP2.2 million), 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 year ended 31 December 2018 have not
been restated under the accounting policies adopted as a result of
transition to IFRS 16. The current year results include an overall
decrease in profitability before tax of GBP1.7 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 2 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 2 to the
summary financial information contained within this
announcement.
Mike Norris, Chief Executive of Computacenter plc,
commented:
'As we stated back in January, the results for 2019 set a high
bar for the business in 2020. It is too early to predict the
outcome for the year as a whole and there is still much work to be
done, particularly as we have not yet completed our first quarter.
Our Services pipeline is the strongest we have seen for some time
in both Professional and Managed Services. While we still believe
customers will continue to invest in product, particularly in the
areas of Security, Networking and Cloud, it may well be difficult
to achieve the same growth rates we have seen in recent years.
The current COVID-19 outbreak makes forecasting the future even
more challenging. In the short term, we are urgently supporting our
customers focused on their business continuity plans which involves
the need for a greater degree of remote working. We have seen a
surge in demand for laptop computers for this purpose. To-date,
supply constraints from our Technology Providers have been minimal,
although there are some concerns going forward. We do however have
some concerns that in the medium-term, customers may postpone
significant IT infrastructure projects while the current
uncertainty remains. In the longer term, we feel more certain,
either because when this crisis is behind us, life will return to
normal and the fundamental business drivers for IT growth remain
or, if there is a long-term reduction in business travel and
commuting with a consequent upsurge in remote working, it can only
drive the need for technology even further.
Our current focus is on maintaining continuity for our customers
for the services and products we supply as well as doing whatever
we can to protect the health of our employees, customers and the
wider community.'
(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 6 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 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 lease liabilities. CSF balances which were
previously included within this measure are now also excluded as
they form part of lease liabilities. A table reconciling this
measure, including the impact of finance lease liabilities, is
provided within note 9 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
James Macey White 4200
Matt Low
Results Presentation Conference Call:
There will be a conference call available this morning at 0930
for analysts and investors unable to join the Results Presentation
in person. For dial-in details, please contact Yasemin Balman at
Tulchan Communications at computacenter@tulchangroup.com . The
Results Presentation will be available on
investors.computacenter.com from 0830 this morning.
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.
Chairman's Statement
This is my first statement since succeeding Greg Lock as
Chairman in May 2019. Firstly, I would like to thank Greg, on
behalf of both the Board and the Company, for his service and
impact over the 11 years of his tenure as Chairman of the
Board.
I have spent this year learning more about our business by
engaging with key members of senior management and our
stakeholders. Computacenter's success has always been driven by the
effort, talent and dedication of its people. As I get to know the
culture and values that our employees live by, I am continuously
impressed by their passion for Our Purpose. I, along with all of
the Board, would like to thank the team for their contribution to
our record-breaking year.
The CEO, Mike Norris, and I visited a number of our USA
Technology Providers. I came away pleased by the Company's
reputation with these key stakeholders.
Enabling Success
This has been a year of strong progress for Computacenter.
Revenues surpassed GBP5 billion for the first time, with the 2018
acquisitions contributing GBP586.6 million of the GBP700.2 million
of revenue growth. Our USA acquisition, FusionStorm, performed
significantly better in the second half of the year, after we made
some adjustments and learned how to drive the business. The overall
progress across the Company in the year was very pleasing, with an
increase in statutory profit before tax of 30.4 per cent to
GBP141.0 million (2018: GBP108.1 million), following revenue growth
of 16.1 per cent to GBP5,052.8 million. The Group's adjusted(1)
profit before tax increased by 23.8 per cent to GBP146.3 million
(2018: GBP118.2 million) and by 24.9 per cent in constant
currency(2) .
Statutory diluted earnings per share (EPS) increased by 27.0 per
cent to 89.0 pence for the year (2018: 70.1 pence). Adjusted(1)
diluted earnings per share grew 22.2 per cent to 92.5 pence (2018:
75.7 pence). In line with our policy of paying a dividend that is
covered between 2.0 and 2.5 times by adjusted(1) diluted earnings
per share, we propose to pay a final dividend of 26.9 pence per
share, bringing our full-year dividend to 37.0 pence per share, an
increase of 22.1 per cent.
We continue to monitor our growing adjusted net funds(3) , which
reached GBP137.1 million at the end of the year. The Board reviews
investment opportunities to ensure these remain aligned
strategically with our purpose of enabling success and, if none are
suitable, will look to return excess capital to shareholders at the
appropriate time.
The Board in 2019
There have been several changes to the Board's composition this
year, in addition to the Chairmanship transition.
Regine Stachelhaus retired from the Board at the AGM on 16 May
2019. On the same day, Ljiljana Mitic was appointed to the Board.
Ljiljana brings expertise in large technology enterprises operating
in our Western European geographies, particularly France and
Germany. This ensures that we continue to have a European voice on
the Board with experience in our Services sector.
We were pleased to announce the appointment of Rene Haas, a US
citizen, on 20 August 2019. He has global experience with a US
focus and can bring his insights into the leading-edge of long-term
technological thinking. He is currently President, IP Products
Group, at Arm Limited.
Rene's appointment returned the Board to its full complement of
independent Non-Executive Directors.
The independent external evaluator who facilitated our recent
Board evaluation noted that whilst the Board was collegiate in its
approach, Members provided real challenge to Management in an open
environment.
Our Continued Commitment to Sustainability
During the year, the Board has addressed a variety of areas of
the Company's approach to sustainability.
Whilst our footprint remains small compared to those of our
Technology Providers and customers, we hope to make a difference to
the overall impact of the IT industry by continuing to focus on and
improve our impact on the environment in our part of the supply
chain.
The Board agrees that it is both the right thing to do morally
and a business imperative, to be able to support our customers'
increasing efforts to improve the sustainability of their
businesses.
We have also increased the targets for gender diversity across
all levels of the organisation and set the Executive Directors and
senior management specific measurable objectives in this area.
The Year Ahead
Before addressing the coming year, we need to acknowledge the
unprecedented levels of change in both the external and internal
operating environments for Computacenter in 2019. In nearly all
areas that touch our business, we have seen challenges stemming
from change.
Governance and regulatory requirements have increased. The
geopolitical impacts of Brexit, trade disputes and general
elections in our key markets have all weighed on customer
sentiment.
As we look to 2020, the pace of change, and the challenges that
accompany that change, look set to increase even further. Our
business model, to date, has proved resilient and helped us to
weather these challenges effectively.
We have considered, and will continue to monitor closely, the
potential impact of the COVID-19 virus on our business, global
trade, and the macro-economic outlook. The Company's Principal
Risks and Uncertainties have been updated to reflect the emerging
situation. We consider that the sensitivity analysis conducted to
support the Directors' reasonable expectation of the impact of
risks, and assessment of viability, to be sufficiently robust given
what we know today, although considerable uncertainties remain
surrounding the duration and impact of the COVID-19 virus.
As the pace of change continues to accelerate, we must continue
to adapt just to keep up. Trust from our stakeholders remains
paramount to our success and we can achieve that by always
delivering on our existing commitments and by evolving our offer to
lead the industry through the changes and challenges ahead.
For nearly 40 years, Computacenter has endured and adapted. Mike
continues to lead the management team along with Tony, and they
remain true survivors of the industry. They, the Board, and the
rest of the senior management team, still feel the energy and
excitement of the opportunities ahead.
This has been a landmark year for Computacenter, both in terms
of the results we are announcing and our progress with
strengthening the Company, to enable the success of our
stakeholders.
Peter Ryan
Chairman
11 March 2020
Our Performance in 2019
Financial performance
The Group's revenues increased by 16.1 per cent to GBP5,052.8
million (2018: GBP4,352.6 million) and were 16.9 per cent higher in
constant currency(2) .
The Group made a statutory profit before tax of GBP141.0
million, an increase of 30.4 per cent (2018: GBP108.1 million). The
Group's adjusted(1) profit before tax increased by 23.8 per cent to
GBP146.3 million (2018: GBP118.2 million) and by 24.9 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 GBP5.3 million (2018: charge of GBP10.1
million) from exceptional and other adjusting items. These relate
principally to the Group's acquisition of FusionStorm.
It should be noted that these results include an overall
decrease of GBP1.7 million in both statutory and adjusted(1) profit
before tax, due to the impact of IFRS 16. The timing difference
effect of the new accounting standard has resulted in increased
interest costs exceeding the net of reduced rental costs and
increased depreciation. Excluding the impact of IFRS 16, statutory
profit before tax was 32.0 per cent better than the prior year,
whilst adjusted(1) profit before tax was 25.2 per cent higher.
With the increase in the Group's overall statutory profit after
tax, statutory diluted earnings per share (EPS) increased by 27.0
per cent to 89.0 pence for the year (2018: 70.1 pence). Adjusted(1)
diluted EPS, the Group's primary EPS measure, increased by 22.2 per
cent to 92.5 pence for 2019 (2018: 75.7 pence).
The result has benefited from GBP857.6 million of revenues
(2018: GBP270.9 million) and GBP6.5 million of adjusted(1) profit
before tax (2018: GBP2.2 million), resulting from the acquisitions
made since 30 June 2018. All figures reported throughout this
Annual Report and Accounts include the results of the acquired
entities.
2019 was one of the most successful years in Computacenter's
history. We recorded our best-ever revenue, profit, EPS and cash
generation from ongoing operations, and increased our profit by the
largest absolute amount ever. The acceleration shown in 2019 in the
progress of Computacenter's adjusted(1) profitability and
adjusted(1) earnings per share, two key financial measures for the
Group, shows a business growing both organically and through
leveraging recent acquisitions.
This improvement on the prior year was evident across the board,
although it was stronger in some areas than others. German Services
gross profit showed the greatest increase across the Group, driven
by strong growth in Professional Services and an excellent recovery
in Services margins from the lows of 2018. The German Technology
Sourcing business saw solid growth and an improvement in margins,
even with the slow-down of its largest customer, which
significantly reduced its spend back to normal levels after the
surge in 2018. UK margins showed significant improvement, with
pleasing Technology Sourcing growth once the large one-off deals
from 2018 are excluded. The French business had another year of
exceeding expectations and internal targets, with strong revenue
growth and margin gains across the business. The acquired business
in the USA had a very strong second half of the year, with
adjusted(1) operating profit exceeding that of the disappointing
first half by a factor of 10, as some early issues in operating the
business were mitigated and sales volumes returned. Our
International business, primarily the 'Rest of Europe' trading
group, has contributed pleasing profit growth whilst absorbing the
significant investment of aligning the Netherlands to the Group
Operating Model. The acquisition of PathWorks during the year has
been very successful and has rounded out the full business model in
Switzerland.
Technology Sourcing performance
The Group's Technology Sourcing revenue increased by 20.3 per
cent to GBP3,822.2 million (2018: GBP3,177.6 million) and by 21.3
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
GBP820.0 million of revenues resulting from the acquisitions made
since 30 June 2018 are adjusted out from the current year result
(2018: GBP254.7 million), the Group saw a 5.3 per cent increase in
organic Technology Sourcing revenue over the prior year
comparative.
The UK Technology Sourcing business saw pleasing growth,
excluding the one-off deals noted above. Margins improved, with the
subtle shift in the product mix towards higher-margin Data Center,
Networking and Security products continuing throughout the
year.
The Technology Sourcing business in Germany saw a significant
reduction in revenue with one key software hyperscale customer,
which has reduced investment in Cloud infrastructure build out.
Pleasingly, this loss in volumes was exceeded by growth in other
areas of the business, particularly in the Public Sector, leading
to 4.2 per cent of revenue growth in constant currency(2) over what
has been a sustained period of success for the business. German
Technology Sourcing margins improved significantly from the prior
year, driven by the improving product mix and the replacement of
the lower-margin hyperscale business with higher margin
business.
French Technology Sourcing revenues grew faster than expected,
at improved margins, due to the widening portfolio of target
customers, particularly in the Public Sector. The key Public Sector
account that was renewed in the prior year unexpectedly saw much
increased volumes, in contrast to historic trends following
previous renewals. French Technology Sourcing margins increased and
remain the best and most consistent across the Group.
Overall Group Technology Sourcing margins increased by 26 basis
points during the year, when compared to the prior year.
Services performance
The Group's Services revenue increased by 4.7 per cent to
GBP1,230.6 million (2018: GBP1,175.0 million) and was up 5.2 per
cent on a constant currency(2) basis. Within this, Group
Professional Services revenue increased by 13.7 per cent to
GBP366.1 million (2018: GBP321.9 million), and by 14.5 per cent on
a constant currency(2) basis. Group Managed Services revenue
increased by 1.3 per cent to GBP864.5 million (2018: GBP853.1
million), and by 1.7 per cent on a constant currency(2) basis.
The overall Services result benefited from GBP37.6 million of
revenue resulting from the acquisitions made since the second half
of the previous year (2018: GBP16.3 million).
UK Services revenue reduced during 2019, with both Professional
Services and Managed Services activity declining. Professional
Services was challenged by lower than forecast volumes, as the
customer pipeline elongated, but continued strength in the mix of
work towards higher-end consulting and less transformation projects
reinforced margins. Whilst Managed Services revenues were down due
to renewals, as reduced prices caused decline in the Contract Base,
the business stabilised the 'difficult' contracts from 2018 and
strongly improved margins elsewhere in the portfolio. The
improvement in the core Managed Services contracts, along with an
improved Professional Services margin mix, both contributed to an
overall increase in Services margins.
The German Services business was buoyed by exceptionally high
Professional Services volumes, particularly within the Public
Sector which is becoming a key specialism in Germany. High-end work
on our traditional key strengths in Security, Networking and Cloud
have driven growth in this area, alongside Windows 10
transformations. Ongoing high demand for IT personnel with quality
technical skills continues to make the market challenging to
address. In Managed Services, the 'difficult' contracts have now
stabilised and the margin improvement was a significant driver for
the Group's profitability. This contributed to the overall growth
in Services margins, supported by the strong Professional Services
business.
Following the non-renewal of the Group's largest Managed
Services customer in the year, the French business has signed a
number of new contracts, providing continued optimism about the
longer-term prospects for Managed Services in France as the
customer base diversifies. Our Professional Services business in
France has seen a step-change in the scale and complexity of
projects which we have won. The business continues to set new
records for the size of projects that it has worked on, with a
strong pipeline. Services margins improved, as increasing
Professional Services demand drove higher utilisation and
complemented the margins made on established Managed Services
contracts.
Overall growth in the USA business was driven by the acquisition
of FusionStorm in the second half of 2018. Whilst full-year
performance across the Segment was slightly below our internal
targets, this was weighed down by a poor first-half performance. As
we noted at the half year, the FusionStorm Professional Services
business, whilst small, underperformed against expectations. This
was due to two challenging projects that resulted in lower margins
and growth than forecast and which affected utilisation rates, in a
business that was investing in resource as demand fell. Key
contract renewals and expansions of scope supported the Managed
Services business, which also added new opportunities to the
Contract Base. Margins reduced from the prior year, heavily
impacted by the Professional Services business.
Overall Group Services margins increased by 246 basis points
during the year.
Outlook
As we stated back in January, the results for 2019 set a high
bar for the business in 2020. It is too early to predict the
outcome for the year as a whole and there is still much work to be
done, particularly as we have not yet completed our first quarter.
Our Services pipeline is the strongest we have seen for some time
in both Professional and Managed Services. While we still believe
customers will continue to invest in product, particularly in the
areas of Security, Networking and Cloud, it may well be difficult
to achieve the same growth rates we have seen in recent years.
The current COVID-19 outbreak makes forecasting the future even
more challenging. In the short term, we are urgently supporting our
customers focused on their business continuity plans which involves
the need for a greater degree of remote working. We have seen a
surge in demand for laptop computers for this purpose. To-date,
supply constraints from our Technology Providers have been minimal,
although there are some concerns going forward. We do however have
some concerns that in the medium-term, customers may postpone
significant IT infrastructure projects while the current
uncertainty remains. In the longer term, we feel more certain,
either because when this crisis is behind us, life will return to
normal and the fundamental business drivers for IT growth remain
or, if there is a long-term reduction in business travel and
commuting with a consequent upsurge in remote working, it can only
drive the need for technology even further.
Our current focus is on maintaining continuity for our customers
for the services and products we supply as well as doing whatever
we can to protect the health of our employees, customers and the
wider community.
United Kingdom
Financial performance
Revenues in the UK business decreased by 1.8 per cent to
GBP1,581.6 million (2018: GBP1,611.3 million).
The UK business reported modestly lower revenues across
Technology Sourcing, Professional Services and Managed Services.
However, Technology Sourcing revenues for the prior year were
flattered by the inclusion of two one-off software licence sales
totalling GBP70.8 million, at very low margins. After adjusting the
2018 comparative for these deals, Technology Sourcing showed good
revenue growth and total revenues in the UK increased by 2.2 per
cent.
We increased the number of large customers during 2019, which
are those who contribute over GBP1 million of adjusted(1) gross
profit per year, with six added to the list. Greater investment in
our front-end Sales and Service Management teams should further
increase the number of new customers during 2020.
Overall margins in the UK increased by 122 basis points, with
total adjusted(1) gross profit increasing from 12.8 per cent to
14.0 per cent of revenues. Adjusted(1) gross profit grew by 7.5 per
cent to GBP221.2 million (2018: GBP205.7 million).
Administrative expenses increased by 6.3 per cent to GBP156.7
million (2018: GBP147.4 million), due to increased variable
remuneration, functional changes and improvements to broaden our
capabilities and skills portfolio.
This resulted in adjusted(1) operating profit growing by 10.6
per cent to GBP64.5 million (2018: GBP58.3 million).
We have taken measures to manage our cost base, ensure we have
only the right skills going forward and retain high utilisation
levels for our Consulting and Engineering teams. This involved
reducing the volume of legacy skills and ensuring we have the new
and emerging skills our customers need, such as those related to
adopting Public Cloud and enabling Multi-Cloud environments.
Technology Sourcing performance
Technology Sourcing revenue decreased by 1.3 per cent to
GBP1,142.7 million (2018: GBP1,157.9 million).
As noted above, revenue in 2018 contained two large, one-off and
very low-margin software deals worth GBP70.8 million. Excluding
these deals, Technology Sourcing revenues grew by 4.5 per cent
during the year.
The revenue mix in 2019 moved marginally towards Workplace
business and away from Enterprise business, with customers
typically purchasing new technology in advance of implementing
Digital Workplace transformations.
Technology Sourcing margins grew by 70 basis points compared to
the prior year, benefiting from some improvement in product
mix.
With Brexit negotiations ongoing, we have taken the decision to
create the ability to serve the European arms of some of our
UK-headquartered customers from our new facility in Kerpen,
Germany. This will give us the flexibility to continue to support
our customers' requirements, whatever the outcome of the trade
negotiations.
We are confident that our progress in Technology Sourcing will
continue through 2020, with new participation on two key Public
Sector frameworks along with good demand from our existing
customers to transform their environments. We are seeing more
global consolidation of our customers' requirements for Technology
Sourcing and are well positioned through our acquisition of
FusionStorm to take advantage of these larger Enterprise
volumes.
Services performance
Services revenue declined by 3.2 per cent to GBP438.9 million
(2018: GBP453.4 million). This resulted from a decline in
Professional Services of 0.9 per cent to GBP117.7 million (2018:
GBP118.8 million) and a decline in Managed Services of 4.0 per cent
to GBP321.2 million (2018: GBP334.6 million).
We were disappointed that Professional Services revenues did not
grow during 2019. This was partly due to delays in the uptake of
Windows 10, as a result of Microsoft's decision to extend support
for Windows 7. Professional Services benefited from work with
existing customers, with more complex technology projects along
with some key transformational programmes, typically driven by
Digital Workplace and Public Cloud adoption.
The Managed Services decline was driven by the loss of a large
customer in 2018, coupled with embedded year-on-year price
reductions within our existing Contract Base, as we pass
operational efficiency savings to our customers at renewal.
This was also a strong year for renewing existing contracts,
notably with two large central government clients, where we signed
multi-year renewals.
The outlook for Managed Services is encouraging with a
significant pipeline ahead in our core markets of Finance, Public
Sector, Technology Media & Telecoms (TMT) and core industries
such as Pharmaceuticals, Utilities and Oil & Gas. The type of
opportunities are across all areas from Workplace to Networking
including Public Cloud adoption and are spread across the year
meaning, should we execute effectively, we will have the resource
to take on in line with customer expectations.
In Professional Services, we closed the year with an increased
order book, which gives us confidence of a return to growth through
2020. In Managed Services, the strong renewals performance in 2019
gives us a good platform to grow the Contract Base again in 2020.
Our customers have held back on a straightforward migration to
Windows 10 in favour of greater collaboration and value through a
new Digital Workplace. This creates an opportunity to return to
some of the larger- volume Professional Services work we have seen
previously.
Services margins increased by 276 basis points over the year, as
a result of greater efficiency and through improvements in the
quality of Services we deliver for customers, meaning we could
achieve our year-on-year commitments to reduce the cost of those
Services while also improving profitability.
Germany
Financial performance
Total revenue increased by 5.2 per cent to EUR2,226.6 million
(2018: EUR2,115.7 million) and by 3.8 per cent in reported pound
sterling equivalents(2) .
After a slow start, the financial year ended slightly above
expectations as a result of a good third quarter and a very strong
fourth quarter.
Sales growth of 5.2 per cent was good, particularly given the
significant decline in business with one of our largest customers.
Despite the continuing problems in the automotive and chemical
sectors, we maintained our growth path of previous years in these
sectors. We also saw above-average growth in the Public Sector
business and in some other sectors, such as the construction
industry, trade and auditing firms. The customer base expanded
further and there were particular initial successes in increasing
the number of customers new to Computacenter.
The overall result was driven by a continued strong Technology
Sourcing business and a strong Services business, particularly in
Professional Services. Above all, Computacenter benefited from the
continuing strong demand for skills and technology projects in the
Cloud, Security, Networking and collaboration areas, as well as
strong demand for Windows 10 migration projects. In addition, we
succeeded in winning three new major contracts in Managed Services,
while stabilising the remaining problem contracts or bringing them
into profitability.
Overall margins in Germany increased by 107 basis points, with
adjusted(1) gross profit increasing from 12.3 per cent to 13.4 per
cent of revenues. Adjusted(1) gross profit grew by 14.3 per cent to
EUR298.7 million (2018: EUR261.4 million) and by 12.8 per cent in
reported pound sterling equivalents(2) .
Administrative expenses increased by 8.7 per cent to EUR202.0
million (2018: EUR185.8 million), and by 7.2 per cent in reported
pound sterling equivalents(2) . The cost increase was slightly
above target, due to higher pre-sales costs and in particular the
expansion of the sales support units. Investing in new
opportunities should contribute to future growth and has already
led to some new business.
Adjusted(1) operating profit for the German business increased
by 27.9 per cent to EUR96.7 million (2018: EUR75.6 million) and by
26.5 per cent in reported pound sterling equivalents(2) . Profits
grew faster than revenue, despite the increase in indirect costs.
This was mainly due to the continued strong Technology Sourcing
margin but the margin development in Services also contributed. In
particular, Professional Services growth significantly exceeded
expectations.
We expect the German business to continue on its growth path in
2020. Despite the ongoing problems in the German economy,
especially in the automotive industry and its suppliers, mechanical
engineering and the chemical industry, we expect demand to remain
strong, especially in the Public Sector. Digitalisation driven by
the government and the associated investment in solutions and
infrastructure will provide us with additional opportunities.
Customers are signalling continued high demand in the areas of
Security, Multi-Cloud management, Data Centers and Networking
refreshes, followed by the first major investments in setting up
and expanding collaboration environments. Ongoing Windows 10
migrations and implementations of Windows Evergreen Services will
also ensure that demand remains high in 2020. It should be possible
to expand the customer base through a major customer contract
campaign initiated in 2019, which will continue in 2020. We should
also benefit from the positive effects of the improved difficult
contract performance in Managed Services.
Technology Sourcing performance
Technology Sourcing revenue grew by 4.2 per cent to EUR1,566.5
million (2018: EUR1,502.9 million) and by 2.7 per cent in reported
pound sterling equivalents(2) .
Our Technology Sourcing business benefited from ongoing strong
Networking and Security demand, supported by our partnership with
Cisco, as well as strong Workplace business, driven by Windows 10
and the associated replacement investments. Growth in Public Sector
business meant overall performance in the year was reasonable,
despite the significant decline in Data Center sales to our largest
customer, a German software hyperscaler, which reverted to more
normal levels of business. Adjusting for the impact of that
customer, Technology Sourcing grew by 13 per cent, which should be
above market.
We also saw a couple of wins benefiting from our new Kerpen
Integration Center capabilities. Most of our customer base attended
full day workshops in Kerpen, to demonstrate our strengthened
delivery capabilities, resulting in very good feedback. This should
generate positive momentum for future business.
Technology Sourcing margins increased by 15 basis points over
last year and remained at a high level. The improvement was
predominantly driven by the product mix, with more high-value
Networking and Data Center business.
Services performance
Services revenue grew by 7.7 per cent to EUR660.1 million (2018:
EUR612.8 million) and by 6.5 per cent in reported pound sterling
equivalents(2) . This included Professional Services growth of 25.8
per cent to EUR236.8 million (2018: EUR188.2 million), an increase
of 24.3 per cent in reported pound sterling equivalents(2) , and a
small reduction in Managed Services of 0.3 per cent to EUR423.3
million (2018: EUR424.6 million), a decline of 1.4 per cent in
reported pound sterling equivalents(2) .
In 2019, we reported strong Services growth ahead of the market
average, especially in Professional Services. After a rather
subdued first half of the year, we saw a very strong second half,
with growth in almost all industries and especially in the Public
Sector. Thanks to the headcount expansion in the technology areas,
especially Security, Cloud and Networking, which we initiated in
2018, we were able to satisfy the continuing high level of customer
demand to some extent. Nevertheless, the issue of resource scarcity
remains a major challenge for all IT companies in Germany.
In the Managed Services Segment, we closed the year with
revenues slightly above expectations. We focused on service
stability for the problem deals in this area rather than growth,
but were still able to maintain revenue at the previous year's
level. However, three major wins should provide growth impetus in
the coming year. These wins included a worldwide Workplace on-site
and IMAC support for one of the largest German pharmaceutical
companies, as well as a complete Workplace contract for a public
health insurance company. Good results were also achieved in the
extension of existing contracts, with almost all major contracts
extended or renegotiated. This reflects an increase in customer
satisfaction in this area, compared with the problems of previous
years, with Services significantly stabilised and creating the
basis for contract extensions.
Overall, the Services margin was 309 basis points higher than
last year. Increasing Services profitability was one of the key
goals for 2019, with the business achieving good results through
stabilising and improving the profitability of the historical
difficult contracts. This was a particular contributor to increased
Services profits, along with the higher than expected Professional
Services revenue.
France
Financial performance
Total revenue increased by 15.7 per cent to EUR644.7 million
(2018: EUR557.4 million). In reported pound sterling equivalents(2)
, total revenue was up 14.1 per cent.
Our French business significantly increased its revenues in a
positive market, as it refocused its sales activities on winning
the right business with target customers, without reducing the size
of the sales force. We were pleased to increase the number of large
customers, including some high-profile new names, while working
very well with our installed base, which has also showed good
growth.
We were also pleased with good growth in our two business
sectors. The Public Sector delivered good growth with existing
customers, thanks to numerous wins in large framework contracts. In
the private sector, we also grew business with existing customers
by diversifying the activities delivered and won two significant
new Managed Services contracts. We renewed 100 per cent of our
Managed Services contracts in 2018, and achieved many gains in
2019, however we suffered a setback on a very large international
account, which will have a negative impact on 2020 and in
particular 2021.
The restructuring of the teams in the private sector continues
to deliver results and we were pleased with the very good
integration of new starters. The successful strengthening of the
Sales Specialists' teams is also continuing, to ensure the sales
system has the skills necessary to support increasingly complex
businesses.
We saw very good growth in Technology Sourcing and Services
activities, after a very good year in 2018. We achieved this growth
by working on the right customer set, with the right value
proposition, by optimising our delivery capabilities, automating
more and keeping our cost structures under control, leading to net
results improving significantly.
This year was also important in demonstrating our ability to
execute large technological projects, with an exceptional result on
the two largest projects ever delivered by Computacenter in France.
We will continue to focus on large organisations, helping their IT
decision makers to enable users with advanced support and guidance
and supporting their businesses by delivering outstanding
infrastructure Services and solutions. In this context, our
alignment with Group propositions and Services capabilities remains
key. To enforce this alignment and support further growth, we
invested in 2019 to increase significantly our resources in
operations. To support talent development and attraction, we
launched the Computacenter University to recruit, train and certify
new resources, ready to support our growth in the modern Workplace
management and Multi-Cloud spaces. We have recruited and trained
more than 30 new people in our Consultancy team and, for the first
time, this is now bigger than our Project Management team.
We also launched our new Service Center in Perpignan, with the
recruitment of more than 30 people. The Service Center is on track
to grow to more than 150 employees in the coming months, to support
the growth of Managed Services activities.
Overall, margins in France increased by 80 basis points, with
adjusted(1) gross profit increasing from 11.3 per cent to 12.1 per
cent of revenues.
Overall adjusted(1) gross profit grew by 24.3 per cent to
EUR78.2 million (2018: EUR62.9 million) and by 22.4 per cent in
reported pound sterling equivalents(2) .
Administrative expenses increased by 16.8 per cent to EUR64.1
million (2018: EUR54.9 million), and by 15.0 per cent in reported
pound sterling equivalents(2) as we have continued to invest to
support the growth.
Adjusted(1) operating profit for the French business increased
by 76.3 per cent to EUR14.1 million (2018: EUR8.0 million), and by
73.2 per cent in reported pound sterling equivalents(2) .
Technology Sourcing performance
Technology Sourcing revenue increased by 17.8 per cent to
EUR524.0 million (2018: EUR444.9 million) and by 16.2 per cent in
reported pound sterling equivalents(2) .
2019 was a very good year for Technology Sourcing, thanks to the
investment in the Sales Specialists teams, who were able to bring
additional expertise to win major projects. We also worked very
well with our Technology Providers, to maintain our margins in a
market under strong pressure. Finally, our investments in technical
resources allow us to manage this growth internally and we are
working to develop an ecosystem with other partners, to better
respond to important requests from customers and the shortage of
talent on the market.
The rebalancing of our technological activities is continuing as
well, supported by the go-to-market propositions produced by the
Group. We have seen significant improvement in our product mix
alongside growth in all Segments.
Finally, in 2019 we launched a financing activity dedicated to
France, in order to support new consumption patterns among our
customers. We now have dedicated local teams to offer relevant
as-a-service models. Overall, Technology Sourcing margins increased
by 84 basis points.
Services performance
Services revenue increased by 7.3 per cent to EUR120.7 million
(2018: EUR112.5 million) and by 5.9 per cent in reported pound
sterling equivalents(2) . Professional Services revenue increased
by 27.6 per cent to EUR27.3 million (2018: EUR21.4 million), which
was an increase of 25.9 per cent in reported pound sterling
equivalents(2) . Managed Services revenues increased by 2.5 per
cent to EUR93.4 million (2018: EUR91.1 million), an increase of 1.2
per cent in reported pound sterling equivalents(2) .
With many large wins over the last 18 months, Managed Services
activity grew in 2019 despite the year-on-year revenue reduction on
existing contracts. However, a large international contract was not
renewed, which will affect our activity levels in 2020 and
especially in 2021, as the contract comes to an end in the first
half of 2020. This will also impact some of our international
Service Centers which provided significant volumes of the
customer-facing work .
However, 2020 will benefit from a full year of the major new
contracts signed with CAC40 accounts that were in transition in
2019, enabling us to continue to grow Managed Services in France.
Our two Service Centers in France are now running at good capacity,
while we continue to invest.
Although Professional Services activity remains relatively low
compared to our Group colleagues, the business made pleasing
progress and had strong growth in 2019, with ambitious growth plans
in 2020
as well.
In 2019, we demonstrated the excellence of our Professional
Services activities on very successful large projects. This was an
important step in building the credibility of these activities with
our target customer set, in order to support their major
transformation projects. This performance was the result of joint
efforts by the Sales and Delivery teams and we intend to continue
in this direction. To support the resurgence of resource-on-demand
type requests, we have set up a system dedicated to the sale and
sourcing of expert profiles.
We are confident in our ability to continue to develop the
Services business in 2020, while continuing to improve our
margins.
Services margins increased by 82 basis points over last
year.
USA
During the second half of 2018, the Group completed the material
acquisition of FusionStorm. This business was combined with our
existing Services-focused USA business, to create the USA Segment
from 1 January 2019. Prior year segmental numbers have been
restated but are not comparable, due to the size of the acquired
Technology Sourcing-focused business against the existing USA
Services business.
Financial performance
Total revenue increased by 180.6 per cent to $986.6 million
(2018: $351.6 million). In reported pound sterling equivalents(2) ,
total revenue was up 183.1 per cent.
The USA performance was driven by Technology Sourcing, which saw
its first full-year contribution to the Segment flatter headline
results. Overall, revenue was below forecast due to a slowdown in
volumes with several hyperscale Silicon Valley customers,
particularly in the first half, with a recovery in the second half
to more expected baseline performance, driven by stronger orders
combined with strong backlog conversion. Services revenues were
impacted by particular challenges in the Professional Services
business.
Overall, margins in the USA decreased by 84 basis points, with
adjusted(1) gross profit decreasing from 9.9 per cent to 9.0 per
cent of revenues.
The Technology Sourcing business increased margin performance,
due primarily to customer mix during the reporting period. The
Professional Services business recovered somewhat from the first
half due to cost reductions, but reported margins were still
significantly below expectations overall. The Managed Services
business reported flat margins year-on-year.
Overall adjusted(1) gross profit grew by 153.9 per cent to $88.6
million (2018: $34.9 million) and by 157.4 per cent in reported
pound sterling equivalents(2) . These headline numbers reflect the
full-year inclusion of acquired entities.
Administrative expenses increased by 162.8 per cent to $77.0
million (2018: $29.3 million), and by 166.1 per cent in reported
pound sterling equivalents(2) . This was due to increasing variable
remuneration, investments in our business development programme to
hire and train our next generation of sales professionals, a newly
formed Partner Management function that is already driving
significant bottom line results, as well as continuing focus on
scaling our technical capabilities to enhance our value to
customers and deploy our portfolio framework to enable our
customers' success.
Adjusted(1) operating profit for the USA business increased by
107.1 per cent to $11.6 million (2018: $5.6 million), and by 111.6
per cent in reported pound sterling equivalents(2) .
Overall, performance in the first half of 2019 was challenging,
as sustaining last year's record growth in the underlying
annualised comparative performance of FusionStorm proved difficult
to repeat. The necessary action plans were put in place and
tracked, and as a result performance moved back above our baseline
business case projection. Significant expenses continue to affect
profits, as the acquired entity had a significant investment
backlog that we are correcting within our multi-year investment
programme, including systems, facilities and people. We have a
significant amount of work to do but the overall customer situation
remains favourable, in terms of both retention and our predicted
performance going forward.
Margins in the USA decreased by 90 basis points, with
adjusted(1) gross profit decreasing from 9.9 per cent to 9.0 per
cent of revenues. There remains considerable scope, through the
adoption of Group processes and practices, to increase the margin
performance of the USA business.
Technology Sourcing performance
Technology Sourcing revenue increased by 204.0 per cent to
$934.0 million (2018: $307.2 million) and by 206.8 per cent in
reported pound sterling equivalents(2) .
The Technology Sourcing business consolidated after the prior
year's strong performance. We saw a similar technology spending mix
amongst major partners and technologies, particularly in the Data
Center and Networking lines of business. We benefited from
significant continuing investments by our customers, as they
continue to digitise their operations and modernise their
infrastructure. We continue to see customers seeking to simplify
their operations by consolidating to fewer suppliers, resulting in
long-term commitments and larger transactions. Simplifying supply
chains via consolidation and process integration remain powerful
value propositions to our target market customers.
USA Technology Sourcing margins improved 90 basis points over
last year but remain 185 basis points behind the Group Technology
Sourcing margin for the year, with the mix of hardware OEM vendors
a key driver of our margins. Throughout the first half of the year,
Management initiated a number of activities to improve the
underlying efficiency and effectiveness of the Technology Sourcing
business. As a result of implementing a Partner Management
organisation, modelled on similar functional teams in our European
operations, we have been able to enhance our focus on driving
mutual value with partners and increase
our margins. There is still additional work in progress to drive
our results as far as possible towards those achieved in Group
Technology Sourcing.
Services performance
Services revenue increased by 18.5 per cent to $52.6 million
(2018: $44.4 million) and by 19.4 per cent in reported pound
sterling equivalents(2) . Professional Services declined by 1.7 per
cent to $17.4 million (2018: $17.7 million), which was a decrease
of 1.4 per cent in reported pound sterling equivalents(2) . Managed
Services increased by 31.8 per cent to $35.2 million (2018: $26.7
million), an increase of 33.3 per cent in reported pound sterling
equivalents(2) .
There were particular challenges in the Professional Services
business, which was scaled up to accommodate predicted growth that
did not materialise. Necessary adjustments were made in the second
quarter to return the business to the level of profitability seen
in 2018. This resulted in over $3 million in annual costs being
removed from Professional Services at the end of the first half,
with those reductions proving sustainable at similar business
volumes to those experienced during the period.
The overall Services performance was subdued but showed an
improving trend from the first half to the second half of 2019. It
is notable that we have continued to see double digit growth for
our Integration Center projects, including complex distributed
branch rollouts, as well as global Data Center build-out projects
for our hyperscale customers.
We continued to renew and extend key contracts, which created
expected headwinds in our Managed Services business through certain
reductions in pricing and volumes, as well as transitioning new
customers into our Services Contract Base. One of the major
French-headquartered USA Managed Service customers did not renew
its contract and managing that contract down properly is a
priority. However, we have a major customer going live in the
region with a similar Managed Services scope that will partially
offset this loss. 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. Accordingly, a
renewed focus on expanding our Contract Base with US-originated
contracts remains a strategic objective for the business.
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 in Mexico City, as they strive to
minimise operational expenditure.
Services margins decreased by 471 basis points but were 45 basis
points ahead of the overall combined Group Services margin. Service
margins were largely driven by under-utilisation of resources
within the Professional Services segment, and flat margins within
Managed Services.
International
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. In addition to
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 (PathWorks), 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 87.3 per
cent to GBP191.4 million (2018: GBP102.2 million) and by 88.0 per
cent in constant currency(2) .
This significant increase was the result of modest growth in our
existing businesses in Belgium and Switzerland, together with the
revenues generated by the Dutch business acquired in September 2018
(2019: GBP86.2 million, 2018: GBP24.9 million) and PathWorks, which
was acquired earlier this year in Switzerland (2019: GBP18.4
million).
Adjusted(1) gross profit increased by 51.6 per cent to GBP43.5
million (2018: GBP28.7 million), and by 52.1 per cent in constant
currency(2) . Approximately GBP11.2 million of the increase was
from the acquired entities.
Administrative expenses increased by 66.5 per cent to GBP35.3
million (2018: GBP21.2 million) and by 67.3 per cent in constant
currency(2) with approximately GBP10.1 million of this increase due
to the acquired entities.
Administrative expenses outside the acquired entities grew
according to our investment plans. We have increased our Belgian
sales force and further reshaped our sales organisation in the
Netherlands.
Overall adjusted(1) operating profit increased by 9.3 per cent
to GBP8.2 million (2018: GBP7.5 million) and by the same percentage
in constant currency(2) , with the acquired entities contributing
GBP1.2 million of growth,
in line with our ambitions.
The Belgian business delivered a small profit growth, in line
with our plans. In 2019, our focus was to establish significant
growth in our sales capacity, with the aim of gaining further
market share in the coming years.
Thanks to the acquisition of PathWorks, our Swiss business
showed an increase in profit for the fifth consecutive year. While
our first-half performance was excellent in all business lines, our
Services performance was less strong in the second half of the
year, mainly because of delayed starts on some customer projects.
The integration of PathWorks is on track and we are pleased to see
that customers now use our full capabilities in Technology
Sourcing, Professional Services and Managed Services.
Our business in the Netherlands made very good progress in 2019.
We have turned around the business from loss making towards
profitability. The team also successfully implemented our Group ERP
systems within the planned deadlines and integrated the local team
within the Group Operating Model. While much remains to be done, we
feel encouraged by the good progress in 2019 and aim for further
growth in 2020.
Technology Sourcing performance
Technology Sourcing revenue increased by 118.0 per cent to
GBP123.6 million (2018: GBP56.7 million) and by 121.1 per cent in
constant currency(2) .
Technology Sourcing in the International Segment benefited from
GBP65.0 million of revenue from the acquisitions noted above.
In Belgium, the Workplace and Data Center business saw a small
decline in contribution, mainly because our 2018 performance in
both areas was exceptional. This decline was largely compensated
for by the significant growth in our Networking business. We have
further aligned with our Group's Digital Connect offering and
booked some encouraging successes in this business area.
While our acquired PathWorks business in Switzerland was
primarily focused on Public Sector customers, we have been able to
offer our Technology Sourcing capabilities to our existing Services
customers, mainly in the private sector. In comparison to
PathWorks' 2018 full-year performance, year-on-year revenues grew
over 50 per cent.
Technology Sourcing revenues in the Netherlands increased by 7.0
per cent, while the total contribution improved by 5.0 per cent.
Although overall Technology Sourcing margins are healthy, we
believe that the implementation of Group systems and the
integration into the wider Group Operating Model will help us to
further optimise our Technology Sourcing contribution in the coming
years.
Services performance
Services revenue increased by 49.0 per cent to GBP67.8 million
(2018: GBP45.5 million) and by 47.7 per cent in constant
currency(2) . Professional Services revenue was flat at GBP4.0
million (2018: GBP3.9 million) whilst Managed Services increased
53.4 per cent to GBP63.8 million (2018: GBP41.6 million), which was
an increase of 51.5 per cent in constant currency(2) . The Segment
benefited from an increase of GBP14.7 million in Services revenue
due to the acquisitions noted above.
The Belgian operation grew in both Professional Services and
Managed Services, although we still have an opportunity to increase
our Professional Services contributions, hence our investment in
our pre-sales capabilities around infrastructure solutions. Our
existing Managed Services contracts deliver good contributions and
we continue to work on an improved long-term Managed Services
pipeline.
Although the Swiss operation saw a revenue increase in both
Managed and Professional Services we saw a decrease in the total
Services contribution. As mentioned above, this was due to the
investments made in our Services capabilities, which we have not
been able to fully utilise during the year. The Services pipeline
continues to grow and we remain confident that these investments
will show returns in 2020.
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. On top of the aspiration to grow new Services
opportunities within new targeted customers, we also use Group ERP
system information to compare our Services performance with other
Computacenter entities, with the aim of identifying optimisation
opportunities in 2020.
Group Finance Director's Review
The continued success of Technology Sourcing and margin
improvements in the Services business, drove the Group's
performance in 2019.
The Group result saw significant double digit increases in
adjusted(1) operating profit across the UK, France and Germany,
with a solid contribution from the USA in the second half of the
year. Margins improved almost everywhere across both Services and
Technology Sourcing, capitalising on a year where the headline was
once again significant Technology Sourcing growth. Customers
continue to invest in technology to drive business efficiencies,
improve IT Security and implement Multi-Cloud, even in challenging
market and geopolitical conditions. As a result, France and Germany
had another year of very strong growth, with Germany significantly
exceeding expectations. The UK also returned to growth when the
one-off low-margin contracts of 2018 are normalised out. Both the
UK and France benefited from customers investing in Security,
Networking and Workplace in particular.
Professional Services revenue was very strong across the Group,
driven by high demand for increasingly complex skills across France
and Germany. We continue to look for ways of increasing the
capacity of the German business to meet the strong demand for the
diverse blend of offerings within Professional Services.
Managed Services revenue was flat overall, with reductions in
Germany and the UK due to several key losses and renewal-led
Contract Base attrition, offset by gains in France and elsewhere
and flattered by the acquired businesses. However, recent wins
within our core countries lead us to believe that the Contract Base
remains secure in the medium term. Significantly, the problems of
the difficult contracts that we saw in 2018 are behind us, with the
stabilised contracts, and improvements in other contracts, leading
to a strong increase in margins.
A reconciliation between key adjusted(1) and statutory measures
is provided in Group Finance Director's Review included within this
announcement.
Further details are provided in note 4 to the summary financial
information within this announcement, Segment information.
Reconciliation from statutory to adjusted(1) measures for the
year ended 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 5,052,779 - - - - 5,052,779
----------- --------- ------------ ------------ ------------ -----------
Cost of sales (4,389,665) - - - - (4,389,665)
----------- --------- ------------ ------------ ------------ -----------
Gross profit 663,114 - - - - 663,114
----------- --------- ------------ ------------ ------------ -----------
Administrative expenses (516,090) - 4,374 - 94 (511,622)
----------- --------- ------------ ------------ ------------ -----------
Operating profit 147,024 - 4,374 - 94 151,492
----------- --------- ------------ ------------ ------------ -----------
Finance income 980 - - - - 980
----------- --------- ------------ ------------ ------------ -----------
Finance costs (7,046) - - - 825 (6,221)
----------- --------- ------------ ------------ ------------ -----------
Profit before tax 140,958 - 4,374 - 919 146,251
----------- --------- ------------ ------------ ------------ -----------
Income tax expense (39,397) - (1,149) 733 (878) (40,691)
----------- --------- ------------ ------------ ------------ -----------
Profit for the year 101,561 - 3,225 733 41 105,560
----------- --------- ------------ ------------ ------------ -----------
Reconciliation from statutory to adjusted(1) measures for the
year ended 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 4,352,570 - - - - 4,352,570
----------- --------- ------------ ------------ ------------ -----------
Cost of sales (3,804,019) (293) - - - (3,804,312)
----------- --------- ------------ ------------ ------------ -----------
Gross profit 548,551 (293) - - - 548,258
----------- --------- ------------ ------------ ------------ -----------
Administrative expenses (439,183) - 4,451 - 5,240 (429,492)
----------- --------- ------------ ------------ ------------ -----------
Operating profit 109,368 (293) 4,451 - 5,240 118,766
----------- --------- ------------ ------------ ------------ -----------
Finance income 1,250 - - - - 1,250
----------- --------- ------------ ------------ ------------ -----------
Finance costs (2,490) 293 - - 417 (1,780)
----------- --------- ------------ ------------ ------------ -----------
Profit before tax 108,128 - 4,451 - 5,657 118,236
----------- --------- ------------ ------------ ------------ -----------
Income tax expense (27,199) - (1,169) 1,933 (4,444) (30,879)
----------- --------- ------------ ------------ ------------ -----------
Profit for the year 80,929 - 3,282 1,933 1,213 87,357
----------- --------- ------------ ------------ ------------ -----------
Profit before tax
The Group's statutory profit before tax increased by 30.4 per
cent to GBP141.0 million (2018: GBP108.1 million). Adjusted(1)
profit before tax increased by 23.8 per cent to GBP146.3 million
(2018: GBP118.2 million) and by 24.9 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 costs of GBP5.3 million (2018: net costs of GBP10.1
million) from exceptional and other adjusting items which is
principally the amortisation of acquired intangibles as a result of
the acquisition of FusionStorm on 30 September 2018.
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. The comparative
results for the year ended 31 December 2019 have not been restated
under the accounting policies adopted. The current year results
include an overall decrease in profitability before tax of GBP1.7
million on both statutory and adjusted(1) basis due to the impact
of IFRS 16. 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 GBP110.9 million of
right-of-use assets and GBP116.8 million of lease liabilities as at
31 December 2019. An analysis of the impact of transition is
presented in note 2 to the summary financial information within
this announcement, summary of significant accounting policies.
Further information on the implementation of, and transition to,
IFRS 16 is included later within the Group Finance Director's
Review.
Profit for the year
The statutory profit for the year increased by 25.6 per cent to
GBP101.6 million (2018: GBP80.9 million). The adjusted(1) profit
for the year increased by 20.8 per cent to GBP105.6 million (2018:
GBP87.4 million) and by 22.1 per cent in constant currency(2) .
Net finance income
Net finance charge in the year amounted to GBP6.1 million on a
statutory basis (2018: charge of GBP1.2 million). The charge
includes GBP3.7 million of interest 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
(2018: GBP0.3 million) but now included within the wider charge on
lease liabilities under IFRS 16. A further GBP1.8 million of cost
relates to interest on the term loan drawn down for the FusionStorm
acquisition (2018: GBP0.5 million), along with a GBP0.1 million
cost for the unwind of the discount on the deferred consideration
for acquisitions (2018: cost of GBP0.4 million) and GBP0.4 million
cost on the term loan for the Kerpen facility (2018: cost of GBP0.2
million). The statutory net finance charge also includes
exceptional interest costs of GBP0.8 million relating to the unwind
of the discount on the deferred consideration for the purchase of
FusionStorm (2018: GBP0.4 million) which is excluded on an
adjusted(1) basis.
Outside of the items above, net finance income of GBP0.7 million
was recorded (2018: income of GBP0.5 million). On an adjusted(1)
basis, the net finance cost was GBP5.2 million during the year
(2018: GBP0.5 million).
Taxation
The statutory tax charge was GBP39.4 million (2018: GBP27.2
million) on statutory profit before tax of GBP141.0 million (2018:
GBP108.1 million). This represents a statutory tax rate of 27.9 per
cent (2018: 25.2 per cent). The Group's adjusted(1) tax rate has
benefited from the historical tax losses in Germany, the final
residual of which was utilised during the year. The utilisation of
the asset of GBP0.7 million (2018: GBP1.9 million) increased the
statutory tax rate by 0.5 per cent (2018: 1.8 per cent) but is
considered to be outside of our adjusted(1) tax measure.
During 2019, a tax credit of GBP0.8 million (2018: GBP3.1
million) was recorded due to post-acquisition activity in
FusionStorm. 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, consistent with the
treatment in 2018.
The tax credit related to the amortisation of acquired
intangibles was GBP1.1 million (2018: GBP1.2 million). This relates
primarily to the GBP4.1 million of amortisation of intangible
assets that were recognised as a result of the FusionStorm
acquisition (2018: GBP4.2 million). 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 for the year was GBP40.7 million
(2018: GBP30.9 million), on an adjusted(1) profit before tax for
the year of GBP146.3 million (2018: GBP118.2 million). The
effective tax rate (ETR) was therefore 27.8 per cent (2018: 26.1
per cent) on an adjusted(1) basis. The ETR during the year was
higher than the previous year due to the large increase in
profitability in Germany, which also saw an increase in the German
cash tax rate due to the now fully utilised German tax losses, and
in the significant increase in profitability in the USA, primarily
in the second half of the year, which has a significantly higher
ETR than the Group. The ETR, excluding the impact of FusionStorm,
is within the range that we indicated during the year at 27.2 per
cent (H1 2019: 26.6 per cent).
We expect that the ETR in 2020 will remain under upwards
pressure, due to the increasing reweighting of the geographic split
of adjusted(1) profit before tax from the UK to Germany and the
USA, where tax rates are substantially higher.
The Group Tax Policy was reviewed during the year and approved
by the Audit Committee and the Board, with no material changes from
the prior year. We make every effort to pay all the tax
attributable to profits earned in each jurisdiction that we operate
in. We do not artificially inflate or reduce profits in one
jurisdiction to provide a beneficial tax result in another and
maintain approved transfer pricing policies and programmes, to meet
local compliance requirements. Virtually all of the statutory tax
charge in 2019 was incurred in either the UK, German or USA tax
jurisdictions.
Computacenter will recognise provisions and accruals in respect
of tax where there is a degree of estimation and uncertainty,
including where it relates to transfer pricing, such that a balance
cannot fully be determined until accepted by the relevant tax
authorities. There are no material tax risks across the Group. For
2019, the revised Group Transfer Pricing policy, implemented in
2013, resulted in a licence fee for the use of intellectual
property equivalent to one per cent of revenue charged by
Computacenter UK to Computacenter Germany, Computacenter France and
Computacenter Belgium of GBP25.6 million (2018: GBP19.5
million).The licence fee reflects the value of the best practice
and know-how that is owned by Computacenter UK and used by the
Group. It is consistent with the requirements of the Organisation
for Economic Co-operation and Development (OECD) base erosion and
profit shifting. The licence fee is recorded outside the Segmental
results found in note 4 to the Consolidated Financial Statements,
Segment information, which analyses Segmental results down to
adjusted(1) operating profit.
Revenue
Half 1 Half 2 Total
GBPm GBPm GBPm
2017 1,700.3 2,093.1 3,793.4
------- ------- -------
2018 2,008.9 2,343.7 4,352.6
------- ------- -------
2019 2,427.0 2,625.8 5,052.8
------- ------- -------
2019/18 20.8% 12.0% 16.1%
------- ------- -------
Adjusted(1) profit before tax
Half 1 Half 2 Total
GBPm % Revenue GBPm % Revenue GBPm % Revenue
---- --------- ----- --------- ----- ---------
2017 41.9 2.5% 64.3 3.1% 106.2 2.8%
---- --------- ----- --------- ----- ---------
2018 52.1 2.6% 66.1 2.8% 118.2 2.7%
---- --------- ----- --------- ----- ---------
2019 53.5 2.2% 92.8 3.5% 146.3 2.9%
---- --------- ----- --------- ----- ---------
2019/18 2.7% 40.4% 23.8%
---- --------- ----- --------- ----- ---------
Revenue by Segment
2019 2018
Half 1 Half 2 Total Half 1 Half 2 Total
GBPm GBPm GBPm GBPm GBPm GBPm
------- ------- ------- ------- ------- -------
UK 793.9 787.7 1,581.6 861.1 750.2 1,611.3
------- ------- ------- ------- ------- -------
Germany 889.0 1,054.7 1,943.7 866.0 1,006.7 1,872.7
------- ------- ------- ------- ------- -------
France 271.4 291.5 562.9 230.7 262.6 493.3
------- ------- ------- ------- ------- -------
USA 380.4 392.8 773.2 13.4 259.7 273.1
------- ------- ------- ------- ------- -------
International 92.3 99.1 191.4 37.7 64.5 102.2
------- ------- ------- ------- ------- -------
Total 2,427.0 2,625.8 5,052.8 2,008.9 2,343.7 4,352.6
------- ------- ------- ------- ------- -------
Adjusted(1) operating profit by Segment
2019
Half 1 Half 2 Total
----------------- ----------------- -----------------
GBPm % Revenue GBPm % Revenue GBPm % Revenue
------ --------- ------ --------- ------ ---------
UK 23.5 3.0% 41.0 5.2% 64.5 4.1%
------ --------- ------ --------- ------ ---------
Germany 32.6 3.7% 51.9 4.9% 84.5 4.3%
------ --------- ------ --------- ------ ---------
France 6.1 2.2% 6.2 2.1% 12.3 2.2%
------ --------- ------ --------- ------ ---------
USA 1.2 0.3% 7.9 2.0% 9.1 1.2%
------ --------- ------ --------- ------ ---------
International 4.6 5.0% 3.6 3.6% 8.2 4.3%
------ --------- ------ --------- ------ ---------
Central Corporate Costs (11.9) (0.5%) (15.2) (0.6%) (27.1)
------ --------- ------ --------- ------ ---------
Total 56.1 2.3% 95.4 3.6% 151.5 3.0%
------ --------- ------ --------- ------ ---------
2018
Half 1 Half 2 Total
----------------- ----------------- -----------------
GBPm % Revenue GBPm % Revenue GBPm % Revenue
------ --------- ------ --------- ------ ---------
UK 25.9 3.0% 32.4 4.3% 58.3 3.6%
------ --------- ------ --------- ------ ---------
Germany 32.2 3.7% 34.6 3.4% 66.8 3.6%
------ --------- ------ --------- ------ ---------
France 2.1 0.9% 5.0 1.9% 7.1 1.4%
------ --------- ------ --------- ------ ---------
USA 0.4 3.0% 3.9 1.5% 4.3 1.6%
------ --------- ------ --------- ------ ---------
International 2.9 7.7% 4.6 7.1% 7.5 7.3%
------ --------- ------ --------- ------ ---------
Central Corporate Costs (11.4) (0.6%) (13.8) (0.6%) (25.2)
------ --------- ------ --------- ------ ---------
Total 52.1 2.6% 66.7 2.8% 118.8 2.7%
------ --------- ------ --------- ------ ---------
The table below reconciles the statutory tax charge to the
adjusted(1) tax charge for the year ended 31 December 2019.
2019 2018
GBP'000 GBP'000
Statutory tax charge 39,397 27,199
-------- --------
Adjustments to exclude:
-------- --------
Utilisation of German deferred tax assets (733) (1,933)
-------- --------
Exceptional tax items 839 3,091
-------- --------
Tax on amortisation of acquired intangibles 1,149 1,169
-------- --------
Tax on exceptional items 39 1,353
-------- --------
Adjusted(1) tax charge 40,691 30,879
-------- --------
Statutory ETR 27.9% 25.2%
-------- --------
Adjusted(1) ETR 27.8% 26.1%
-------- --------
Exceptional and other adjusting items
The net loss from exceptional and other adjusting items in the
year was GBP4.0 million (2018: loss of GBP6.4 million). Excluding
the tax items noted above which resulted in a statutory gain of
GBP1.3 million (2018: gain of GBP3.7 million), the profit before
tax impact was a net loss from exceptional and other adjusting
items of GBP5.3 million (2018: loss of GBP10.1 million).
An exceptional loss during the year of GBP0.1 million (2018:
GBP5.2 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 year
exceptional items recognised and has therefore been classified as
outside our adjusted(1) results. A further GBP0.8 million (2018:
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.
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.
The amortisation of acquired intangible assets was GBP4.4
million (2018: GBP4.5 million), primarily relating to the
amortisation of the intangibles acquired as part of the FusionStorm
acquisition. The 2018 value includes the write-off of a number of
short-term acquired intangibles relating to the valuation of order
backlogs. This has not recurred in 2019 due to the expiration of
the valued assets in 2018.
Earnings per share
Statutory diluted earnings per share increased by 27.0 per cent
to 89.0 pence per share (2018: 70.1 pence per share). Adjusted(1)
diluted earnings per share increased by 22.2 per cent to 92.5 pence
per share (2018: 75.7 pence per share).
2019 2018
Basic weighted average number of shares (excluding own
shares held) (no.'000) 112,514 113,409
------- -------
Effect of dilution:
------- -------
Share options 1,655 1,984
------- -------
Diluted weighted average number of shares 114,169 115,393
------- -------
Statutory profit for the year attributable to equity holders
of the Parent (GBP'000) 101,655 80,931
------- -------
Basic earnings per share (pence) 90.3 71.4
------- -------
Diluted earnings per share (pence) 89.0 70.1
------- -------
Adjusted(1) profit for the year attributable to equity
holders of the Parent (GBP'000) 105,654 87,359
------- -------
Adjusted(1) basic earnings per share (pence) 93.9 77.0
------- -------
Adjusted(1) diluted earnings per share (pence) 92.5 75.7
------- -------
Dividend
The Group remains highly cash generative and adjusted net
funds(3) continue to regenerate on the Consolidated Balance Sheet,
following the share buyback and the acquisition of FusionStorm in
2018. Computacenter's approach to capital management is to ensure
that the Group has a robust capital base and maintains a strong
credit rating, whilst aiming to maximise shareholder value.
If further funds are not required for investment within the
business, either for fixed assets, working capital support or
acquisitions, and the distributable reserves are available in the
Parent Company, we will aim to return the additional cash to
investors through one-off returns of value, as we did in February
2018.
Dividends are paid from the standalone Balance Sheet of the
Parent Company and, as at 31 December 2019, the distributable
reserves were approximately GBP165 million (2018: GBP184
million).
The Board is pleased to propose a final dividend of 26.9 pence
per share. The interim dividend paid on 11 October 2019 was 10.1
pence per share. Together with the final dividend, this brings the
total ordinary dividend for 2019 to 37.0 pence per share,
representing a 22.1 per cent increase on the 2018 total dividend
per share of 30.3 pence.
The Board has consistently applied the Company's dividend
policy, which states that the total dividend paid will result in a
dividend cover of 2 to 2.5 times based on adjusted(1) diluted
earnings per share. In 2019, the cover was 2.5 times (2018: 2.5
times).
Subject to the approval of shareholders at our Annual General
Meeting on 14 May 2020, the proposed dividend will be paid on
Friday 26 June 2020. The dividend record date is set as Friday 29
May 2020 and the shares will be marked ex-dividend on Thursday 28
May 2020.
Central Corporate Costs
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 year, total Central Corporate Costs were GBP27.1
million, an increase of 7.5 per cent (2018: GBP25.2 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 GBP7.1 million
(2018: GBP7.5 million);
-- share-based payment charges associated with the Group
Executive members identified above, including the Group Executive
Directors, increased from GBP2.7 million in 2018 to GBP3.0 million
in 2019, due primarily to the increased value of Computacenter plc
ordinary shares; and
-- strategic corporate initiatives increased from GBP15.0
million in 2018 to GBP17.1 million in 2019, primarily due to
increased spend on projects designed to increase capability,
enhance productivity or strengthen systems which underpin the
Group.
Cash and cash equivalents and net funds
Cash and cash equivalents as at 31 December 2019 were GBP217.9
million, compared to GBP200.4 million at 31 December 2018.
The Group delivered an operating cash inflow of GBP200.0 million
for the year to 31 December 2019 (2018: GBP115.2 million
inflow).
Net funds(3) as at 31 December 2019 was GBP20.3 million,
compared to net funds(3) of GBP57.3 million as at 31 December
2018.
Adjusted net funds(3) as at 31 December 2019 was GBP137.1
million, compared to adjusted net funds(3) of GBP66.2 million as at
31 December 2018.
The Group had two specific term loans at the end of the year 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 facility due on 30 September 2021. The Group took
advantage of stronger than anticipated cash generation to make an
unplanned repayment of GBP30 million of this loan in the second
half of the year. As at 31 December 2019, GBP56.0 million remained
of the loan (2018: GBP100.5 million).
The Group also has a specific term loan for the build and
purchase of our new German headquarters and Integration Center in
Kerpen, which stood at GBP24.8 million at 31 December 2019 (2018:
GBP31.4 million). The Integration Center opened in November 2018
and the office facility opened in March 2019, which concluded the
project.
For a full reconciliation of net funds(3) and adjusted net
funds(3) , see note 30 to the Consolidated Financial Statements,
analysis of changes in net funds.
The Group returned GBP100 million to shareholders in the first
quarter of the previous year.
Capital expenditure in 2019 was GBP29.2 million (2018: GBP51.4
million), with the decrease due to the investment in our German
headquarters, which primarily occurred in 2018. Current year spend
included the final elements of the German facility, other
investments in IT equipment and software tools to enable us to
deliver improved service to our customers and the establishment of
a new Integration Center in Livermore, California.
The Group continued to manage its cash and working capital
positions appropriately using standard mechanisms, to ensure that
cash levels remained within expectations throughout the year. The
Group had no debt factoring at the end of the year outside the
normal course of business. From time to time, some customers
request credit terms longer than our standard of 30-60 days. In
certain instances, we will arrange for the sale of the receivables
on a true sale basis to a finance institution on the customers'
behalf. We would receive funds typically on 45-day terms from the
finance institution who will then recover payment from the customer
on terms agreed with them. The cost of such an arrangement is borne
by the customer and enables us to receive the full amount of
payment in line with our standard terms. The benefit to the cash
and cash equivalents position of such arrangements as at 31
December 2019 is GBP33.8 million.
The Group excludes finance lease liabilities from its non-GAAP
adjusted net funds(3) measure, due to the distorting effect of the
capitalised lease liabilities on the Group's overall liquidity
position 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 31 December
2019 (2018: nil).
The Group's adjusted net funds(3) position contains no current
asset investments (2018: nil).
Net funds as at 31 December 2019 and 31 December 2018 were as
follows:
2019 2018
GBP'000 GBP'000
Cash and short-term deposits 217,881 200,442
--------- ---------
Cash and cash equivalents 217,881 200,442
--------- ---------
Bank loans (80,772) (134,234)
--------- ---------
Adjusted net funds(3) (excluding CSF and lease liabilities) 137,109 66,208
--------- ---------
CSF - (8,928)
--------- ---------
Lease liabilities (116,766) -
--------- ---------
Net funds 20,343 57,280
--------- ---------
Implementation of, and transition to, IFRS 16 Leases
A new accounting standard, IFRS 16 Leases, became effective for
the Group from 1 January 2019 and replaces 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.
The Group has recognised an asset representing its right as a
lessee to use a leased item and a liability for future lease
payments, 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 of
the right-of-use asset is charged on a straight-line basis but
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 depends on the
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 note 2 to the summary financial information within this
announcement, 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 the
year end are not affected by the adoption of IFRS 16. However, 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 GBP110.9 million of right-of-use
assets and GBP116.8 million of lease liabilities as at 31 December
2019. During the year, the Group recognised GBP40.3 million of
depreciation charge and GBP3.7 million of interest costs from these
leases.
In the previous year, the rental expense of GBP42.3 million was
charged to the Consolidated Income Statement under IAS 17. Had IAS
17 continued in operation during 2019, Group profit before tax, on
both an adjusted(1) and statutory basis, would have been GBP1.7
million higher.
Asset reunification
Following the changes to our Articles of Association approved at
our AGM on 16 May 2019, the Company, in conjunction with our
Registrar, conducted an asset reunification exercise during the
year. We are aware that shareholders can lose touch with us due to
a number of reasons. The Board wanted to re-unite as many
shareholders as possible with their unclaimed assets. Our Registrar
engaged a specialist company, to help us trace shareholders with
unclaimed assets. Following this process, all shares in the names
of shareholders who had not cashed dividend cheques in over 12
years, and that could not be traced through the asset unification
process, were sold with the resultant funds returned to the company
alongside all uncashed dividends. A total of 21,458 shares were
forfeited from 355 shareholders with a total of GBP0.2 million
returned to the Company from the sale of the shares. These funds
have been allocated by the Board to be used to support the
charitable partners selected by our employees.
RDC acquisition
During the year we bought back R.D. Trading Limited (RDC), to
ensure that we have an organic capability dedicated to the
repurposing and recycling of IT equipment our customers no longer
need. This allows us to have a positive impact at the end of the IT
lifecycle, rather than assuming our responsibilities stop when we
sell product to customers.
Segmental reporting structure changes
Due to the acquisitions made in 2018, Management 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 for the year ended 31 December 2019.
In accordance with IFRS 8 Operating Segments, the Group has
identified five revised operating Segments:
-- UK;
-- Germany;
-- France;
-- USA; and
-- International.
The Group has now added a fifth operating Segment which
comprises the FusionStorm 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 for UK customers.
The TeamUltra operations have been absorbed into the UK trading
entity, reflecting the importance of this capability to the UK
business. This has also resulted in the combination of the
previously separate cash-generating units for these businesses as,
post-absorption, the ongoing operation is now assessed at this
level. The reacquisition of R.D. Trading Limited has been added to
the UK Segment in the year, as the business primarily serves our UK
customer base.
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 year, Computacenter
Switzerland acquired 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 break-even margins to ensure
compliance with transfer pricing regulations.
The French and German Segments remain unchanged from those
reported at 31 December 2018.
As noted previously, 'Central Corporate Costs' continue to be
disclosed as a separate column 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 4 to the Consolidated Financial Statements where, to enable
comparisons with prior year performance, historical segment
information for the year ended 31 December 2018 has been restated
in accordance with the revised Segmental reporting structure. All
discussion within this Annual Report and Accounts on Segmental
results reflects this revised structure and the resultant prior
year restatements.
Trade creditor arrangements
Computacenter has a strong covenant and enjoys a favourable
credit rating from IT vendors and suppliers. Some suppliers provide
standard credit directly on their own credit risk, whereas some
suppliers decide to sell the debt to banks, who offer to purchase
the receivables and manage collection. The standard credit terms
offered by suppliers are typically between 30 and 60 days, whether
provided directly or when sold to a third-party finance provider.
In the latter case, the cost of the free trade credit period is
paid by the relevant supplier, as part of the overall package of
terms provided by suppliers to Computacenter and our competitors.
The finance providers offer extended credit terms at relatively low
interest rates. However, these rates are always higher than the
rate at which we deposit and therefore we do not currently use this
facility.
Capital management
Details of the Group's capital management policies are included
in note 27 to the Consolidated Financial Statements.
Financial instruments
The Group's financial instruments comprise borrowings, cash and
liquid resources, and various items that arise directly from its
operations.
The Group enters into hedging transactions, principally forward
exchange contracts or currency swaps, to manage currency risks
arising from the Group's operations and its sources of finance. As
the Group continues to expand its global reach and benefit from
lower cost operations in geographies such as South Africa, Poland,
Mexico and India, it has entered into forward exchange contracts to
help manage cost increases due to currency movements.
The Group's policy is not to undertake speculative trading in
financial instruments. The main risks arising from the Group's
financial instruments are interest rate, liquidity and foreign
currency risks. The overall financial instruments strategy is to
manage these risks in order to minimise their impact on the Group's
financial results. The policies for managing each of these risks
are set out below. Further disclosures in line with the
requirements of IFRS 7 are included in the Consolidated Financial
Statements.
Interest rate risk
The Group finances its operations through a mixture of retained
profits, bank borrowings, leases and loans for certain customer
contracts. The Group's general bank borrowings, other facilities
and deposits are at floating rates. No interest rate derivative
contracts have been entered into. The Group's specific borrowing
facility for the purchase of FusionStorm, and the undrawn committed
facility of GBP60 million, are at floating rates. However, the
borrowing facility for the new operational headquarters in Germany
is at a fixed rate.
Liquidity risk
The Group's policy is to ensure that it has sufficient funding
and facilities in place to meet any foreseeable peak in borrowing
requirements. The Group's positive net cash was maintained
throughout 2019 and at the year end was GBP217.9 million, with net
fund(s3) of GBP20.3 million after including the Group's two
specific borrowing facilities and lease liabilities recognised
under IFRS 16. Excluding these lease liabilities, adjusted net
funds(3) was GBP137.1 million at the year end.
Due to strong cash generation over the past four years, the
Group can currently finance its operational requirements from its
cash balance, and it operates an informal cash pooling arrangement
for the majority of Group entities. During 2015, we extended an
existing specific committed facility of GBP40.0 million for a
three-year term through to February 2018. In January 2018, we
extended the facility to GBP60.0 million with an expiry date of 22
May 2021. The Group has never drawn on this committed facility.
The Group has a Board-monitored policy to manage its
counterparty risk. This ensures that cash is placed on deposit
across a range of reputable banking institutions.
Foreign currency risk
The Group operates primarily in the United Kingdom, Germany,
France and the United States of America, with smaller operations in
Belgium, China, Hungary, India, Malaysia, Mexico, the Netherlands,
Poland, South Africa, Spain and Switzerland.
The Group uses an informal cash pooling facility to ensure that
its operations outside the UK are adequately funded, where
principal receipts and payments are denominated in euros and US
dollars. For those countries within the Eurozone, the level of
non-euro denominated sales is small and, if material, the Group's
policy is to eliminate currency exposure through forward currency
contracts. For our US operations, most transactions are denominated
in US dollars. For the UK, the majority of sales and purchases are
denominated in sterling and any material trading exposures are
eliminated through forward currency contracts.
The Group has been successful in winning international Services
contracts, where Services are provided in multiple countries.
We aim to minimise currency exposure by invoicing the customer
in the same currency in which the costs are incurred. For certain
contracts, the Group's committed contract costs are not denominated
in the same currency as its sales. In such circumstances, for
example where contract costs are denominated in South African rand,
we eliminate currency exposure for a foreseeable period on these
future cash flows, through forward currency contracts.
In 2019, the Group recognised a loss of GBP0.8 million (2018:
loss of GBP3.2 million) through other comprehensive income in
relation to the changes in fair value of related forward currency
contracts, where the cash flow hedges relating to firm commitments
were assessed to be highly effective.
The Group reports its results in pound sterling. The ongoing
weakness in the value of sterling against most currencies during
2019, in particular the euro, continued to benefit our revenues and
profitability as a result of the conversion of our foreign
earnings. However, the exchange rates seen in 2019 were not
materially dissimilar to those seen in 2018. The impact of
restating 2018 results at 2019 exchange rates would be a decrease
of approximately GBP32.0 million in 2018 revenue and a decrease of
GBP1.2 million in 2018 adjusted(1) profit before tax.
Credit risk
The Group principally manages credit risk through customer
credit limits. The credit limit is set for each customer based on
its creditworthiness, assessed by using credit rating agencies, and
the anticipated levels of business activity. These limits are
determined when the customer account is first set up and are
regularly monitored thereafter.
There are no significant concentrations of credit risk within
the Group. The Group's major customer, disclosed in note 4 to the
Consolidated Financial Statements, consists of entities under the
control of the UK Government. The maximum credit risk exposure
relating to financial assets is represented by their carrying value
as at the balance sheet date.
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 European Union (EU) requirements from our 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. Therefore, the concept of
exporting to and importing from multiple countries with the related
systems requirements is already functioning across the
business.
There remains considerable uncertainty around the structure of
the future trading relationship between the UK and EU, following
the UK's legal departure from the EU on 31 January 2020, which
makes it difficult to develop specific plans for the various
potential outcomes. However, we established a Committee for
Planning for the United Kingdom exiting the European Union (the
'Committee') in 2017, to consider the key risks and changes that
may be required.
This Committee is led by the Group Finance Director and includes
senior staff from the key areas that may be affected,
including:
-- Finance, including Group Tax & Treasury and Group Commercial Finance;
-- Group Human Resources, for employment and related matters;
-- Group Legal & Contracting, including intellectual
property, data protection and supplier contracting;
-- Group Information Services, including IT systems, location of
IT infrastructure and location of data; and
-- Group Technology Sourcing, including Export/Import, Supply
Chain Services, Commercial Operations, Technology Provider
Relations and the potential impact of Waste Electrical and
Electronic Equipment (WEEE).
The Committee meets regularly to review papers submitted by the
subject matter experts and monitors an action list, to identify
ways to minimise the impact of this change. The Committee monitors
negotiation developments, actively considers the possible impacts
of the United Kingdom's departure from the EU on our business and
plans for changes to our processes and procedures that may be
required. The Committee, through its members, liaises with our
customers and our Technology Providers, and is supported in its
work by specialist external advisors. The Committee has issued a
series of briefing notes and FAQs to customer facing employees, so
they can respond to customer queries. The minutes of the meetings
and the subject matter papers are reviewed at the Group Risk
Committee and updates have been provided to both the Audit
Committee and the Board.
Initial position and preparation
We are committed to operating our business and serving our
customers in a way that properly manages and mitigates the impact
of the UK leaving the EU. We will continue to work with our
customers and partners to deliver leading IT infrastructure
products and services during and after the UK's departure from the
EU, including any period of transition.
While Computacenter advocates barrier-free trade in products,
services and data between the UK and the EU, there remains
considerable uncertainty about the changes to trade arrangements
that will occur. This makes it difficult to take specific action
and communicate specific plans. Computacenter believes however,
that it is well placed to deal effectively with any likely
eventuality. The Company, led by the Committee, has taken a number
of preparatory steps and assessed what we currently consider could
be the main impacts on the Company of exiting the EU and our
initial views on managing those impacts, so as to cause minimal
disruption to our customers.
Due to the already global nature of Computacenter's business,
its in-house logistics and Service capabilities in the UK, Germany,
France, Belgium and the Netherlands, and its placement in the IT
infrastructure industry, the Committee does not currently consider
that we will be materially impacted by the UK's departure from the
EU. All the same, the Committee is paying particular attention to
our Technology Sourcing business, where products routinely cross
between continental Europe and the UK, and our IT Services
business, where data can flow across borders, especially within the
EU. For one large customer, we have already transferred the
responsibility for its EU27 shipments from our UK Integration
Center to our German Integration Center and can manage similar
changes for other customers if required.
Technology Sourcing
Computacenter does not manufacture products, and instead sources
and resells products manufactured by leading Technology Providers
worldwide. We have over 30 years of Technology Sourcing experience
and routinely trade with manufacturers, distributors and customers
located both inside and outside the EU.
Any trade barriers created as a result of the UK's departure
from the EU have the potential to increase cross-border supply
complexity and cause delivery delays. We have been in regular
dialogue with our suppliers to understand their strategies to deal
with these, and to put in place appropriate mitigation strategies
to reduce the risk to us and our customers. Additionally, we have
been closely examining the countries of origin and destination of
the deliveries we make to customers from each Integration Center.
The vast majority of current customer Technology Sourcing product
supply is transacted on a country to country basis. There are some
instances where our UK business ships to Germany and our German
business ships to the UK. This is primarily due to local customer
ordering requirements. We have established a process where EU27
requirements of our UK customers will be shipped from Germany and
vice versa.
While the precise outcome of the UK's departure from the EU is
not yet clear, we are confident the imposition of new trade
barriers will not require Computacenter to develop fundamentally
new Technology Sourcing systems and processes. We are confident
that adapting existing systems and processes to cope with an
additional non-EU trading country, along with our multinational
Integration Centers and our experience of international trade, will
mean that we are well positioned in this regard.
Data transfer regulation
By incorporating the EU Commission approved Standard Contractual
Clauses, the Group has built data transfer adequacy into its
intra-Group agreements, to which all of its relevant UK and EU
legal entities are party.
In this regard, the Company establishes appropriate safeguards
for the purposes of General Data Protection Regulation Article 46,
when transferring personal data to third countries not considered
adequate by EU data protection standards. Computacenter has a
strong desire for both the UK and EU Governments to agree an
adequacy agreement on data protection, to ensure the continued
smooth transfer of data post the UK's departure from the EU.
People
Whilst we do not employ a significant number of EU27 citizens in
the UK or UK citizens in the EU, and all indications suggest that
the UK Government and the EU have agreed that EU citizens living
and working in the UK will be able to carry on doing so with
undiminished rights after the UK's departure from the EU, there is
still uncertainty. We will continue to closely support employees
throughout the process of the UK's departure from the EU, including
helping them to be fully aware of the applicable
status/registration processes as they become known.
Opportunities
We are not alone in our sector in facing these challenges. A
number of our European competitors have strong presences within the
EU and sell from this base into the UK. Equally, a number of our
global competitors have their European headquarters in the UK and
address the EU market from there. Once the details of the trade
deal following the UK's departure from EU are known, we will work
with our major Technology Providers to address any concerns they
may have about end-customers currently serviced by other resellers
with single country operations or those stranded on either side of
the UK-EU border.
It is likely that there will be additional investment required
in IT systems to manage the transition. Whilst this will be a cost
to us, it will also be an opportunity, as our customers, in some
cases, may need to increase investment in a similar manner.
Wider economic impact
There is significant uncertainty in relation to the ultimate
outcome of the trade negotiations that are expected to be resolved
in 2020, to avoid a final 'no-deal' type departure from the EU on
31 December 2020, and the impact that this may have on business
confidence and investment plans and therefore the marketplaces in
which we operate. Whilst the UK's departure from the EU is
frequently seen as only a risk or a negative event, it may also
create new opportunities and we remain well positioned to support
our customers whatever the outcome.
Going Concern
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are set out within this Group
Finance Director's Review.
The Directors have, after due consideration, a reasonable
expectation that the Group has adequate resources to continue in
operational existence for a period of 12 months from the date of
approval of the Consolidated Financial Statements.
Thus, they continue to adopt the Going Concern basis of
accounting in preparing the Consolidated Financial Statements.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance
Code, the Directors have assessed the Group's prospects over a
longer period than the 12 months required by the Going Concern
Statement.
Viability timeframe
The Directors have assessed the Group's viability over a period
of three years from 31 December 2019. This period was selected as
an appropriate timeframe for the following reasons:
-- the Group's rolling strategic review, as considered by the
Board, covers a three-year period;
-- the period is aligned to the length of the Group's Managed
Services contracts, which are typically three to five years
long;
-- the short lifecycle and constantly evolving nature of the
technology industry lends itself to a period not materially longer
than three years;
-- Technology Sourcing has seen greater recent growth than the
Group's Services business, increasing the revenue mix towards the
part of the business that has less medium-term visibility and is
therefore more difficult to forecast; and
-- the continuing macro-economic and political environment,
following the Referendum on leaving the European Union, introduces
greater uncertainty into a forecasting period longer than three
years.
Whilst the Directors have no reason to believe the Group will
not be viable over a longer period than three years, we believe
that a three-year period presents shareholders with a reasonable
degree of confidence, while providing a longer-term
perspective.
With regard to the principal risks, the Directors remain assured
that the business model will be valid beyond the period of this
Viability Statement. There will continue to be demand for both our
Professional and Managed Services businesses, and it is the
responsibility of the Management to ensure that the Group remains
able to meet that demand at an appropriate cost to our customers.
The Group's value-added product reselling Technology Sourcing
business only appears vulnerable to disintermediation at the low
end of the product range, as the Group continues to provide a
valuable service to customers and vendors alike.
Prospects of the Group assessment process and key
assumptions
The assessment of the Group's prospects derives from the annual
strategic planning and review process. This begins with an annual
away day for the Board, where Management presents the strategic
review for discussion against the Group's current and future
operating environments.
High-level expectations for the following year are set with the
Board's full involvement and are delivered to Management, who
prepare the detailed bottom-up financial target for the following
year. This financial target is reviewed and agreed by Management
before presentation to the Board for approval.
On a rolling annual basis, the Board considers a three-year
business plan consisting of the detailed bottom-up financial target
for the following year (2020) and forecast information for two
further years (2021 and 2022), which is driven by top-down
assumptions overlaid on the detailed target year. Key assumptions
used in formulating the forecast information include organic
revenue growth, margin improvement and cost control, continued
strategic investments through the Consolidated Income Statement,
and forecast Group effective tax rates, with no changes to dividend
policy or capital structure beyond what is known at the time of the
forecast. The financial target for 2020 was considered and approved
by the Board on 17 December 2019, with amendments and enhancements
to the target as part of the full three-year plan considered and
approved by the Board on 5 March 2020.
Impact of risks and assessment of viability
The three-year business plan is subject to sensitivity analysis
which involves flexing a number of the main assumptions underlying
the forecast. The forecast cash flows from the three-year plan are
aggregated with the current position, to provide a total three-year
cash position against which the impact of potential risks and
uncertainties can be assessed. In the absence of significant
external debt, the analysis also considers access to available
committed and uncommitted finance facilities, ability to raise new
finance in most foreseeable market conditions and the ability to
restrict dividend payments as an instrument of last resort.
The potential impact of the principal risks and uncertainties is
then applied to the sensitised three-year business plan. This
assessment includes only those risks and uncertainties that,
individually or in plausible combination, would threaten the
Group's business model, future performance, solvency or liquidity
over the assessment period and which are considered to be severe,
but reasonable scenarios. It also takes into account an assessment
of how the risks are managed and the effectiveness of any
mitigating actions. The combined effect of the potential occurrence
of several of the most impactful risks and uncertainties is then
compared to the cash position generated throughout the sensitised
three-year plan, to assess whether the business will be able to
continue in operation.
For the current period, the risk related to an eventual
'no-deal' departure of the UK from the EU on 31 December 2020 has
been added to the sensitivity analysis. The analysis now includes
assumptions of limited short-term one-off costs required to adapt
systems and processes to changes in cross-border selling and
customs regimes, in order to avoid Technology Sourcing friction and
to remediate any concerns over data storage and transfer. These
cost assumptions have been aggregated into existing sensitivities,
which already model a general prolonged market downturn scenario
that represents the 'worst-case' impact from the UK leaving the EU
under a 'no-deal' basis on 31 December 2020. Whilst the immediate
risk of such an exit has receded following the successful passage
of the Withdrawal Agreement and the legal departure from the EU on
31 January 2020, the robust sensitivity analysis remains in place
throughout the 2020 transition period ahead of the deadline to
agree a trade deal by 31 December 2020.
Conclusion
Based on the period and assessment above, the Directors have a
reasonable expectation that the Group will be able to continue in
operation and meets its liabilities as they fall due over the
three-year period to 31 December 2022.
Fair, balanced and understandable
The UK Corporate Governance Code requires the Board to consider
whether the Annual Report and Accounts, taken as a whole, are
'fair, balanced and understandable' and 'provide the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy'.
Management undertakes a formal process through which it can
provide comfort to the Board in making this statement.
This Strategic Report was approved by the Board on 11 March 2020
and signed on its behalf by:
MJ Norris
Chief Executive Officer
FA Conophy
Group Finance Director
Consolidated Income Statement
For the year ended 31 December 2019
2019 2018
Note GBP'000 GBP'000
Revenue 4,5 5,052,779 4,352,570
---- ----------- -----------
Cost of sales (4,389,665) (3,804,019)
---- ----------- -----------
Gross profit 663,114 548,551
---- ----------- -----------
Administrative expenses (516,090) (439,183)
---- ----------- -----------
Operating profit 147,024 109,368
---- ----------- -----------
Finance income 980 1,250
---- ----------- -----------
Finance costs (7,046) (2,490)
---- ----------- -----------
Profit before tax 140,958 108,128
---- ----------- -----------
Income tax expense 7 (39,397) (27,199)
---- ----------- -----------
Profit for the year 101,561 80,929
---- ----------- -----------
Attributable to:
---- ----------- -----------
Equity holders of the Parent 101,655 80,931
---- ----------- -----------
Non-controlling interests (94) (2)
---- ----------- -----------
Profit for the year 101,561 80,929
---- ----------- -----------
Earnings per share:
---- ----------- -----------
- basic 8 90.3p 71.4p
---- ----------- -----------
- diluted 8 89.0p 70.1p
---- ----------- -----------
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
2019 2018
Note GBP'000 GBP'000
Profit for the year 101,561 80,929
-------- --------
Items that may be reclassified to Consolidated
Income Statement:
----- -------- --------
Loss arising on cash flow hedge (915) (3,231)
-------- --------
Income tax effect 176 490
-------- --------
(739) (2,741)
---------------------------------------------------------- -------- --------
Exchange differences on translation of foreign
operations (18,175) 7,828
-------- --------
(18,914) 5,087
---------------------------------------------------------- -------- --------
Items not to be reclassified to Consolidated Income
Statement:
----- -------- --------
Remeasurement of defined benefit plan (786) (1,000)
-------- --------
Other comprehensive income for the year, net of
tax (19,700) 4,087
-------- --------
Total comprehensive income for the year 81,861 85,016
-------- --------
Attributable to:
----- -------- --------
Equity holders of the Parent 81,956 85,013
-------- --------
Non-controlling interests (95) 3
-------- --------
Total comprehensive income for the year 81,861 85,016
-------- --------
Consolidated Balance Sheet
As at 31 December 2019
2019 2018
Note GBP'000 GBP'000
Non-current assets
---- --------- ---------
Property, plant and equipment 212,325 106,267
---- --------- ---------
Intangible assets 175,670 184,613
---- --------- ---------
Investment in associate 54 57
---- --------- ---------
Deferred income tax assets 7d 9,204 9,587
---- --------- ---------
Prepayments 3,520 3,524
---- --------- ---------
400,773 304,048
---- --------- ---------
Current assets
---- --------- ---------
Inventories 122,189 99,524
---- --------- ---------
Trade and other receivables 996,462 1,180,394
---- --------- ---------
Prepayments 82,315 69,320
---- --------- ---------
Accrued income 94,030 101,899
---- --------- ---------
Forward currency contracts 3,218 3,851
---- --------- ---------
Cash and short-term deposits 9 217,881 200,442
---- --------- ---------
1,516,095 1,655,430
---- --------- ---------
Total assets 1,916,868 1,959,478
---- --------- ---------
Current liabilities
---- --------- ---------
Trade and other payables 978,220 1,142,628
---- --------- ---------
Deferred income 174,258 143,080
---- --------- ---------
Financial liabilities 56,606 10,640
---- --------- ---------
Forward currency contracts 1,707 612
---- --------- ---------
Income tax payable 39,278 42,184
---- --------- ---------
Provisions 7,703 11,990
---- --------- ---------
1,257,772 1,351,134
---- --------- ---------
Non-current liabilities
---- --------- ---------
Financial liabilities 140,932 132,522
---- --------- ---------
Provisions 13,982 15,041
---- --------- ---------
Deferred income tax liabilities 7d 11,698 13,009
---- --------- ---------
166,612 160,572
---- --------- ---------
Total liabilities 1,424,384 1,511,706
---- --------- ---------
Net assets 492,484 447,772
---- --------- ---------
Capital and reserves
---- --------- ---------
Issued share capital 9,270 9,270
---- --------- ---------
Share premium 3,942 3,942
---- --------- ---------
Capital redemption reserve 74,957 74,957
---- --------- ---------
Own shares held (113,563) (113,474)
---- --------- ---------
Translation and hedging reserves 14,028 32,941
---- --------- ---------
Retained earnings 503,928 440,119
---- --------- ---------
Shareholders' equity 492,562 447,755
---- --------- ---------
Non-controlling interests (78) 17
---- --------- ---------
Total equity 492,484 447,772
---- --------- ---------
Approved by the Board on 11 March 2020.
MJ Norris FA Conophy
Chief Executive Group Finance Director
Officer
-----------------------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Attributable to equity holders of the
Parent
Issued Capital Own Translation Non-
share Share redemption shares and hedging Retained Shareholder's controlling Total
capital premium reserve held reserves earnings equity interests equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------- -------- ---------- --------- ----------- ---------
At 1 January
2019 9,270 3,942 74,957 (113,474) 32,941 440,119 447,755 17 447,772
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Profit for the
year - - - - - 101,655 101,655 (94) 101,561
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Other
comprehensive
income - - - - (18,913) (786) (19,699) (1) (19,700)
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Total
comprehensive
income - - - - (18,913) 100,869 81,956 (95) 81,861
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Cost of
share-based
payments - - - - - 6,775 6,775 - 6,775
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Tax on
share-based
payments - - - - - 1,790 1,790 - 1,790
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Exercise of
options - - - 15,798 - (10,071) 5,727 - 5,727
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Purchase of
own
shares - - - (15,887) - - (15,887) - (15,887)
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Asset
reunification - - - - - 210 210 - 210
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Equity
dividends - - - - - (35,764) (35,764) - (35,764)
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
At 31 December
2019 9,270 3,942 74,957 (113,563) 14,028 503,928 492,562 (78) 492,484
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
At 1 January
2018 9,299 3,913 74,957 (11,360) 27,859 390,725 495,393 14 495,407
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Profit for the
year - - - - - 80,931 80,931 (2) 80,929
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Other
comprehensive
income - - - - 5,082 (1,000) 4,082 5 4,087
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Total
comprehensive
income - - - - 5,082 79,931 85,013 3 85,016
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Cost of
share-based
payments - - - - - 6,425 6,425 - 6,425
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Tax on
share-based
payments - - - - - 2,706 2,706 - 2,706
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Exercise of
options - - - 11,158 - (7,592) 3,566 - 3,566
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Purchase of
own
shares - - - (13,274) - - (13,274) - (13,274)
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Return of
Value
(RoV) - - - (99,998) - - (99,998) - (99,998)
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Expenses
relating
to RoV - - - - - (1,196) (1,196) - (1,196)
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Cancellation
of deferred
shares (29) 29 - - - - - - -
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Equity
dividends - - - - - (30,880) (30,880) - (30,880)
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
At 31 December
2018 9,270 3,942 74,957 (113,474) 32,941 440,119 447,755 17 447,772
------- -------- ---------- --------- ----------- --------- ------------- ----------- --------
Consolidated Cash Flow Statement
For the year ended 31 December 2019
2019 2018
Note GBP'000 GBP'000
Operating activities
---- ---------- ---------
Profit before taxation 140,958 108,128
---- ---------- ---------
Net finance cost 6,066 1,240
---- ---------- ---------
Depreciation of property, plant and equipment (excluding
right-of-use assets) 21,456 19,380
---- ---------- ---------
Depreciation of right-of-use asset 40,266 -
---- ---------- ---------
Amortisation of intangible assets 11,543 15,428
---- ---------- ---------
Share-based payments 6,775 6,425
---- ---------- ---------
Loss on disposal of intangibles 116 164
---- ---------- ---------
Loss on disposal of property, plant and equipment 347 177
---- ---------- ---------
Net cash flow from inventories (27,422) (28,887)
---- ---------- ---------
Net cash flow from trade and other receivables
(including contract assets) 136,682 (274,968)
---- ---------- ---------
Net cash flow from trade and other payables (including
contract liabilities) (108,799) 285,361
---- ---------- ---------
Net cash flow from provisions 10,670 5,865
---- ---------- ---------
Other adjustments (2,414) 726
---- ---------- ---------
Cash generated from operations 236,244 139,039
---- ---------- ---------
Income taxes paid (34,231) (23,821)
---- ---------- ---------
Net cash flow from operating activities 202,013 115,218
---- ---------- ---------
Investing activities
---- ---------- ---------
Interest received 980 1,250
---- ---------- ---------
Acquisition of subsidiaries, net of cash acquired 6,116 (55,970)
---- ---------- ---------
Purchases of property, plant and equipment (30,132) (45,442)
---- ---------- ---------
Purchases of intangible assets (8,737) (5,935)
---- ---------- ---------
Proceeds from disposal of property, plant and equipment 1,009 146
---- ---------- ---------
Net cash flow from investing activities (30,764) (105,951)
---- ---------- ---------
Financing activities
---- ---------- ---------
Interest paid (3,318) (2,490)
---- ---------- ---------
Interest expense on lease liabilities (3,728) -
---- ---------- ---------
Dividends paid to equity shareholders of the Parent (35,764) (30,880)
---- ---------- ---------
Return of Value (RoV) - (99,998)
---- ---------- ---------
Expenses on RoV - (1,196)
---- ---------- ---------
Asset reunification 210 -
---- ---------- ---------
Proceeds from share issues 5,727 3,566
---- ---------- ---------
Purchase of own shares (15,887) (13,274)
---- ---------- ---------
Repayment of capital element of finance leases - (803)
---- ---------- ---------
Repayment of loans 9 (51,755) (1,119)
---- ---------- ---------
Payment of lease liabilities 9 (42,346) -
---- ---------- ---------
New borrowings - finance leases - 5,125
---- ---------- ---------
New borrowings - bank loan - 124,065
---- ---------- ---------
Net cash flow from financing activities (146,861) (17,004)
---- ---------- ---------
Increase/(decrease) in cash and cash equivalents 24,388 (7,737)
---- ---------- ---------
Effect of exchange rates on cash and cash equivalents (6,949) 1,580
---- ---------- ---------
Cash and cash equivalents at the beginning of the
year 9 200,442 206,599
---- ---------- ---------
Cash and cash equivalents at the year end 9 217,881 200,442
---- ---------- ---------
1 Authorisation of Consolidated Financial Statements and
statement of compliance with IFRS
The Consolidated Financial Statements of Computacenter plc
(Parent Company or the Company) and its subsidiaries (the Group)
for the year ended 31 December 2019 were authorised for issue in
accordance with a resolution of the Directors on 11 March 2020. The
Consolidated Balance Sheet was signed on behalf of the Board by MJ
Norris and FA Conophy. Computacenter plc is a limited company
incorporated and domiciled in England whose shares are publicly
traded.
The Group's Consolidated Financial Statements have been prepared
in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union as they apply to the
Consolidated Financial Statements of the Group for the year ended
31 December 2019 and applied in accordance with the Companies Act
2006.
2 Summary of 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 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 related to leases existing at 31 December 2018;
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. When measuring lease liabilities,
the Group discounted lease payments using its incremental borrowing
rate at 1 January 2019. The average rate applied is 4.0 per
cent.
The Group has recognised GBP110.9 million of right-of-use assets
and GBP116.8 million of lease liability as at 31 December 2019.
Consolidated Income Statement
Under IFRS 16, the Group has seen a different categorisation of
expense within the Consolidated Income Statement, as the IAS 17
operating lease expense is replaced by depreciation and interest
costs. During the year ended 31 December 2019, the Group has
recognised GBP40.3 million of depreciation costs and GBP3.7 million
of interest costs from these leases and has seen a decrease of
GBP42.3 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 GBP1.7
million higher.
Consolidated Cash Flow Statement
The change in presentation because of the adoption of IFRS 16
has seen 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)
---------
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 3,098
---------
Total additional lease liabilities recognised on adoption of
IFRS 16 111,839
---------
Existing finance lease liabilities at 31 December 2018 8,767
---------
Lease liabilities recognised at 1 January 2019 120,606
---------
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 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 into, or changed, on
or after 1 January 2019. The Group has elected to separate the
non-lease components and elected to apply several practical
expedients as stated 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.
Effective for the year ending 31 December 2020
No new standards, interpretations and amendments not yet
effective are expected to have a material effect on the Group's
future financial statements.
2.1. Basis of preparation
The summary financial information set out above does not
constitute the Group's statutory Consolidated Financial Statements
for the years ended 31 December 2019 or 2018. Statutory
Consolidated Financial Statements for the Group for the year ended
31 December 2018, prepared in accordance with adopted IFRS, have
been delivered to the Registrar of Companies and those for 2019
will be delivered in due course. The auditors have reported on
those accounts; their report was (i) unqualified, (ii) did not
include a reference to any matters to which the auditors drew
attention by way of any emphasis without qualifying their opinion
and (iii) did not contain a statement under Section 498 (2) or (3)
of the Companies Act 2006.
The summary financial information for the year ended 31 December
2019 has been prepared by the directors based upon the results and
position that are reflected in the Consolidated Financial
Statements of the Group.
The Consolidated Financial Statements are prepared on the
historical cost basis other than derivative financial instruments,
which are stated at fair value.
The Consolidated Financial Statements are presented in pound
sterling (GBP) and all values are rounded to the nearest thousand
(GBP'000) except when otherwise indicated.
2.2. Basis of consolidation
The Consolidated Financial Statements comprise the Financial
Statements of the Parent Company and its subsidiaries as at 31
December each year. The Financial Statements of subsidiaries are
prepared for the same reporting year as the Parent Company, using
existing GAAP in each country of operation. Adjustments are made on
consolidation for differences that may exist between the respective
local GAAPs and IFRS.
All intra-Group balances, transactions, income and expenses and
profit and losses resulting from intra-Group transactions have been
eliminated in full.
Subsidiaries are consolidated from the date on which the Group
obtains control and cease to be consolidated from the date on which
the Group no longer retains control. Non-controlling interests
represent the portion of profit or loss and net assets in
subsidiaries that is not held by the Group and is presented
separately within equity in the Consolidated Balance Sheet,
separately from Parent shareholders' equity.
2.2.1. Foreign currency translation
Each entity in the Group determines its own functional currency
and items included in the Financial Statements of each entity are
measured using that functional currency. Transactions in foreign
currencies are initially recorded in the functional currency at the
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling at
the Consolidated Balance Sheet date. All differences are taken to
the Consolidated Income Statement.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rate as at
the date of initial transaction.
The functional currencies of the material overseas subsidiaries
are euro (EUR), US dollar ($), South African rand (ZAR) and Swiss
franc (CHF). The Group's presentation currency is pound sterling.
As at the reporting date, the assets and liabilities of these
overseas subsidiaries are translated into the presentation currency
of the Group at the rate of exchange ruling at the balance sheet
date and their Consolidated Income Statements are translated at the
average exchange rates for the year. Exchange differences arising
on the retranslation are recognised in the Consolidated Statement
of Comprehensive Income. On disposal of a foreign entity, the
deferred cumulative amount recognised in the Consolidated Statement
of Comprehensive Income relating to that particular foreign
operation is recognised in the Consolidated Income Statement.
2.3. Revenue
Revenue is recognised to the extent of the amount which is
expected to be received from customers as consideration for the
transfer of goods and services to the customer.
In multi-element contracts with customers where more than one
good (Technology Sourcing) or service (Professional Services and
Managed Services) is provided to the customer, analysis is
performed to determine whether the separate promises are distinct
performance obligations within the context of the contract. To the
extent that this is the case, the transaction price is allocated
between the distinct performance obligations based upon relative
standalone selling prices. The revenue is then assessed for
recognition purposes based upon the nature of the activity and the
terms and conditions of the associated customer contract relating
to that specific distinct performance obligation.
The following specific recognition criteria must also be met
before revenue is recognised:
2.3.1. Technology Sourcing
The Group supplies hardware and software (together as 'goods')
to customers that is sourced from and delivered by a number of
suppliers.
Technology Sourcing revenue is recognised at a point in time,
when control of the goods have passed to the customer, usually on
despatch.
Payment for the goods is generally received on industry standard
payment terms.
Technology Sourcing principal versus agent recognition
Management is required to exercise its judgement in the
classification of certain revenue contracts for Technology Sourcing
revenue recognition on either an agent or principal basis.
Because the identification of the principal in a contract is not
always clear, Management will make a determination by evaluating
the nature of our promise to our customer as to whether it is a
performance obligation to provide the specified goods or services
ourselves, in that we are the principal, or to arrange for those
goods or services to be provided by the other party, where we are
the agent. We determine whether we are a principal or an agent for
each specified good or service promised to the customer by
evaluating the nature of our promise to the customer against a
non-exhaustive list of indicators that a performance obligation
could involve an agency relationship:
-- Evaluating who controls each specified good or service before
that good or service is transferred to the customer;
-- The vendor retains primary responsibility for fulfilling the sale;
-- We take no inventory risk before or after the goods have been
ordered, during shipping or on return;
-- We do not have discretion to establish pricing for the vendor
's goods limiting the benefit we can receive from the sale of those
goods; and
-- Our consideration is in the form of a usually predetermined commission.
2.3.2 Professional Services
The Group provides skilled professionals to customers either on
a 'resource on demand' basis or operating within a project
framework.
For those contracts which are 'resource on demand', where the
revenue is billed on a timesheet basis, revenue is recognised based
on monthly invoiced amounts as this corresponds to the service
delivered to the customer and the satisfaction of the Company's
performance obligations.
For contracts operating within a project framework, revenue is
recognised based on the transaction price with reference to the
costs incurred as a proportion of the total estimated costs
(percentage of completion basis) of the contract. Under either
basis, Professional Services revenue is recognised over time.
If the total estimated costs and revenues of a contract cannot
be reliably estimated, revenue is recognised only to the extent
that costs have been incurred and where the Group has an
enforceable right to payment as work is being performed.
A provision for forecast excess costs over forecasted revenue is
made as soon as a loss is foreseen (see note 2.13.1 to the summary
financial information within this announcement for further
detail).
Unbilled Professional Services revenue is classified as a
contract asset and is included within accrued income in the
Consolidated Balance Sheet.
Unearned Professional Services revenue is classified as a
contract liability and is included within deferred income in the
Consolidated Balance Sheet. Payment for the Services, which are
invoiced monthly, are generally on industry standard payment
terms.
2.3.3 Managed Services
The Group sells maintenance, support and management of
customers' IT infrastructures and operations.
Managed Services revenue is recognised over time, throughout the
term of the contract, as services are delivered. The specific
performance obligations and invoicing conditions in our Managed
Services contracts are typically related to the number of calls,
interventions or users that we manage and therefore the customer
simultaneously receives and consumes the benefits of the services
as they are performed. Revenue is recognised based on monthly
invoiced amounts as this corresponds to the service delivered to
the customer and the satisfaction of the Company's performance
obligations.
Unbilled Managed Services revenue is classified as a contract
asset and is included within accrued income in the Consolidated
Balance Sheet.
Unearned Managed Services revenue is classified as a contract
liability and is included within deferred income in the
Consolidated Balance Sheet.
Amounts invoiced relating to more than one year are deferred and
recognised over the relevant period. Payment for the services is
generally on industry standard payment terms.
If the total estimated costs and revenues of a contract cannot
be reliably estimated, revenue is recognised only to the extent
that costs have been incurred and where the Group has an
enforceable right to payment as work is being performed. A
provision for forecast excess costs over forecasted revenue is made
as soon as a loss is foreseen (see note 2.12.1 to the summary
financial information within this announcement for further detail).
On occasion, the Group may have a limited number of Managed
Services contracts where revenue is recognised on a percentage of
completion basis, which is determined by reference to the costs
incurred as a proportion of the total estimated costs of the
contract (see note 3.1.1 to the summary financial information
within this announcement for further detail).
Costs of obtaining and fulfilling revenue contracts
The Group operates in a highly competitive environment and is
frequently involved in contract bids with multiple competitors,
with the outcome usually unknown until the contract is awarded and
signed.
When accounting for costs associated with obtaining and
fulfilling customer contracts, the Group first considers whether
these costs fit within a specific IFRS standard or policy. Any
costs associated with obtaining or fulfilling revenue contracts
which do not fall into the scope of other IFRS standards or
policies are considered under IFRS 15. All such costs are expensed
as incurred other than the two types of costs noted below:
1. Win fees - The Group pays 'win fees' to certain employees as
bonuses for successfully obtaining customer contracts. As these are
incremental costs of obtaining a customer contract, they are
capitalised along with any associated payroll tax expense to the
extent they are expected to be recovered. These balances are
presented within prepayments in the Consolidated Balance Sheet. The
win fee balance that will be realised after more than 12 months is
disclosed as non-current.
2. Fulfilment costs - The Group often incurs costs upfront
relating to the initial set-up phase of an outsourcing contract,
which the Group refers to as Entry Into Service. These costs do not
relate to a distinct performance obligation in the contract, but
rather are accounted for as fulfilment costs under IFRS 15 as they
are directly related to the future performance on the contract.
They are therefore capitalised to the extent that they are expected
to be recovered. These balances are presented within prepayments in
the Consolidated Balance Sheet.
Both win fees and Entry Into Service costs are amortised on a
straight-line basis over the contract term, as this is materially
equivalent to the pattern of transfer of services to the customer
over the contract term. The amortisation charges on win fees and
Entry Into Service costs are recognised in the Consolidated Income
Statement within administration expenses and cost of sales,
respectively.
Any bid costs incurred by the Group's Central Bid Management
Engines are not capitalised or charged to the contract, but instead
directly charged to selling, general and administrative expenses as
they are incurred. These costs associated with bids are not
separately identifiable nor can they be measured reliably as the
Group's internal bid team's work across multiple bids at any one
time.
2.3.4. Finance income
Income is recognised as interest accrues.
2.3.5. Operating lease income
Rental income arising from operating leases is accounted for on
a straight-line basis over the lease term.
2.4. Exceptional items
The Group presents those material items of income and expense as
exceptional items which, because of the nature and expected
infrequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better elements of
financial performance in the year, so as to facilitate comparison
with prior years and to assess better trends in financial
performance.
2.5. Adjusted(1) 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, listed below, assist in providing additional
useful information on the underlying trends, performance and
position of the Group. The non-GAAP measures also used to enhance
the comparability of information between reporting periods by
adjusting for nonrecurring or uncontrollable factors which affect
IFRS measures, to aid the user in understanding the Group's
performance.
Consequently, non-GAAP measures are used by the Directors and
management for performance analysis, planning, reporting and
incentive-setting purposes and have remained consistent with prior
year.
These non-GAAP measures comprise of:
Adjusted operating profit or loss, adjusted profit or loss
before tax, adjusted tax, adjusted profit or loss for the year,
adjusted earnings per share and adjusted diluted earnings per share
are, as appropriate, each stated before: exceptional and other
adjusting items including gain or loss on business disposals, gain
or loss on disposal of investment properties, expenses related to
material acquisitions, 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.
Additionally, adjusted gross profit or loss and adjusted operating
profit or loss includes the interest paid on customer-specific
financing (CSF) which Management considers to be a cost of
sale.
A reconciliation between key adjusted and statutory measures is
provided in the Group Finance Director 's Review which details the
impact of exceptional and other adjusting items when comparing to
the non-GAAP financial measures in addition to those reported in
accordance with IFRS. Further detail is also provided within note 4
to the summary financial information included within this
announcement , Segment information.
2.6. Impairment of assets
The Group assesses at each reporting date whether there is an
indication that an asset may be impaired. If any such indication
exists, or when annual impairment testing for an asset is required,
the Group makes an estimate of the asset 's recoverable amount.
Where an asset does not have independent cash flows, the
recoverable amount is assessed for the cash-generating unit (CGU)
to which it belongs. Certain other corporate assets are unable to
be allocated against specific CGUs. These assets are tested across
an aggregation of CGUs that utilise the asset. The recoverable
amount is the higher of the fair value less costs to sell and the
value-in-use of the asset or CGU. Where the carrying amount of an
asset exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount. In
assessing value-in-use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset. Impairment losses of
continuing operations are recognised in the Consolidated Income
Statement in those expense categories consistent with the function
of the impaired asset.
For assets excluding goodwill, an assessment is made at each
reporting date whether there is any indication that previously
recognised impairment losses may no longer exist or may have
decreased. If such indication exists, the Group estimates the asset
's or CGU's recoverable amount. A previously recognised impairment
loss is reversed only if there has been a change in the assumptions
used to determine the asset's recoverable amount since the last
impairment was recognised. The reversal is limited so that the
carrying amount of the asset does not exceed its recoverable
amount, nor exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been
recognised for the asset in prior years. As the Group has no assets
carried at revalued amounts, such reversal is recognised in the
Consolidated Income Statement.
2.7. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any accumulated impairment losses.
Depreciation, down to residual value, is calculated on a
straight-line basis over the estimated useful life of the asset as
follows:
-- freehold buildings: 25-50 years
-- short leasehold improvements: shorter of seven years and period to expiry of lease
-- fixtures and fittings
-- head office: 5-15 years
-- other: shorter of seven years and period to expiry of lease
-- office machinery and computer hardware: 2-15 years
-- motor vehicles: three years
-- Right-of-use assets: over respective lease term
Freehold land is not depreciated. An item of property, plant and
equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset.
Any gain or loss arising on derecognition of the asset (calculated
as the difference between the net disposal proceeds and the
carrying amount of the item) is included in the Consolidated Income
Statement in the year the item is derecognised.
2.8. Leases
Group as lessee - from 1 January 2019
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 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 into, or changed, on
or after 1 January 2019. The Group has elected to separate the
non-lease components and elected to apply several practical
expedients as stated 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
The Group measures the right-of-use asset at cost, which
includes 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
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.
Group as lessee - until 31 December 2018
Assets held under finance leases, which transfer to the Group
substantially all the risks and benefits incidental to ownership of
the leased item, are capitalised at the inception of the lease at
the fair value of the leased asset or, if lower, at the present
value of the minimum lease payments.
Lease payments are apportioned between the finance charges and
reduction of the lease liability so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance
charges are charged directly against income.
Capitalised leased assets are depreciated over the shorter of
the estimated useful life of the asset and the lease term.
Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating
leases. Operating lease payments are recognised as an expense in
the Consolidated Income Statement on a straight-line basis over the
lease term.
2.9. Intangible assets
2.9.1. Software and software licences
Software and software licences include computer software that is
not integral to a related item of hardware. These assets are stated
at cost less accumulated amortisation and any impairment in value.
Amortisation is calculated on a straight-line basis over the
estimated useful life of the asset. Currently software is amortised
over four years.
The carrying values of software and software licences are
reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable. If any
such indication exists and where the carrying values exceed the
estimated recoverable amount, the assets are written down to their
recoverable amount.
2.9.2. Software under development
Costs that are incurred and that can be specifically attributed
to the development phase of management information systems for
internal use are capitalised and amortised over their useful life,
once the asset becomes available for use.
2.9.3. Other intangible assets
Intangible assets acquired as part of a business combination are
carried initially at fair value. Following initial recognition
intangible assets are carried at cost less accumulated amortisation
and any impairment in value. Intangible assets with a finite life
have no residual value and are amortised on a straight-line basis
over their expected useful lives with charges included in
administrative expenses as follows:
-- order back log: three months
-- existing customer relationships: 10-15 years
-- tools and technology: seven years.
The carrying value of intangible assets is reviewed for
impairment whenever events or changes in circumstances indicate the
carrying value may not be recoverable.
2.9.4. Goodwill
Business combinations are accounted for under IFRS 3 Business
Combinations using the acquisition method. Any excess of the cost
of the business combination over the Group's interest in the net
fair value of the identifiable assets, liabilities and contingent
liabilities is recognised in the Consolidated Balance Sheet as
goodwill and is not amortised. Any goodwill arising on the
acquisition of equity accounted entities is included within the
cost of those entities.
After initial recognition, goodwill is stated at cost less any
accumulated impairment losses, with the carrying value being
reviewed for impairment at least annually and whenever events or
changes in circumstances indicate that the carrying value may be
impaired.
For the purpose of impairment testing, goodwill is allocated to
the related CGU monitored by Management, usually at business
Segment level or statutory Company level as the case may be. Where
the recoverable amount of the CGU is less than its carrying amount,
including goodwill, an impairment loss is recognised in the
Consolidated Income Statement.
2.10. Inventories
Inventories are carried at the lower of weighted average cost
and net realisable value after making allowance for any obsolete or
slow-moving items. Costs include those incurred in bringing each
product to its present location and condition, on a First-In,
First-Out basis.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs necessary to
make the sale.
2.11. Financial assets
Financial assets are recognised at their fair value, which
initially equates to the sum of the consideration given and the
directly attributable transaction costs associated with the
investment. Subsequently, the financial assets are measured at
either amortised cost or fair value depending on their
classification under IFRS 9. The Group currently holds only debt
instruments. The classification of these debt instruments depends
on the Group's business model for managing the financial assets and
the contractual terms of the cash flows.
2.11.1. Trade and other receivables
Trade receivables, which generally have 30- to 90-day credit
terms, are initially recognised and carried at their original
invoice amount less an allowance for any uncollectable amounts. The
Group sometimes uses debt factoring to managing liquidity and, as a
result, the business model for Trade receivables is that they are
held for the collection of contractual cash flows, which are solely
payments of principal and interest, and for selling. As a result,
IFRS 9 requires that, subsequent to initial recognition, they are
measured at fair value through other comprehensive income (except
for the recognition of impairment gains and losses and foreign
exchange gains and losses, which are recognised in profit or loss).
The trade receivables are derecognised on receipt of cash from the
factoring party. Given the short lives of the trade receivables,
there are generally no material fair value movements between
initial recognition and the derecognition of the receivable.
The Group assesses for doubtful debts (impairment) using the
expected credit losses model as required by IFRS 9. For trade
receivables, the Group applies the simplified approach which
requires expected lifetime losses to be recognised from the initial
recognition of the receivables.
2.11.2. Current asset investments
Current asset investments comprise deposits held for a term of
greater than three months from the date of deposit and which are
not available to the Group on demand. The business model for
current asset investments is that they are held for the collection
of contractual cash flows, which are not solely payments of
principal and interest. As a result, subsequent to initial
measurement, current asset investments are measured at fair value
with fair value movements recognised in profit and loss.
2.11.3. Cash and cash equivalents
Cash and short-term deposits in the Consolidated Balance Sheet
comprise cash at bank and in hand, and short-term deposits with an
original maturity of three months or less. Cash is held for the
collection of contractual cash flows which are solely payments of
principal and interest and therefore is measured at amortised cost
subsequent to initial recognition.
For the purpose of the Consolidated Cash Flow Statement, cash
and cash equivalents consist of cash and short-term deposits as
defined above, net of outstanding bank overdrafts, where there is a
legal right of set off.
2.12. Financial liabilities
Financial liabilities are initially recognised at their fair
value and, in the case of loans and borrowings, net of directly
attributable transaction costs.
The subsequent measurement of financial liabilities is at
amortised cost, unless otherwise described below:
2.12.1. Provisions (excluding Restructuring provision)
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an out flow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions
are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision
due to the passage of time is recognised as a borrowing cost.
Customer contract provisions
A provision for forecast excess costs over forecasted revenue is
made as soon as a loss is foreseen.
Management continually monitor the financial performance of
contracts, and where there are indicators that a contract could
result in a negative margin, the future financial performance of
that contract will be reviewed in detail. If, after further
financial analysis, the full financial consequence of the contract
can be reliably estimated, and it is determined that the contract
is potentially loss-making, then the best estimate of the losses
expected to be incurred until the end of the contract will be
provided for (see note 3.1.1 to the summary financial information
within this announcement for further detail).
The Group applies IAS 37 in its assessment of whether contracts
are considered onerous and in subsequently estimating the
provision. An agenda decision published by the IFRS Interpretations
Committee outlined that the current wording of IAS 37 allows for
two interpretations of what can constitute 'unavoidable' costs when
determining whether a contract is onerous. One of the acceptable
interpretations noted by the Committee is in line with our current
practice, which is to consider costs such as overhead allocations
as 'unavoidable'. The matter has been put on the agenda for future
discussion at the IFRS Interpretations Committee, with a view to
drafting clarifications to IAS 37. Until there is clarity on this
matter, we have concluded that our current approach, that considers
total estimated costs (i.e. directly attributable variable costs
and fixed allocated costs) as included in the assessment of whether
the contract is onerous or not and in the measurement of the
provision, remains appropriate.
2.12.2. Restructuring provisions
The Group recognises a 'restructuring' provision when there is a
programme planned and controlled by Management that changes
materially the scope of the business or the manner in which it is
conducted.
Further to the Group's general provision recognition policy, a
restructuring provision is only considered when the Group has a
detailed formal plan for the restructuring identifying, as a
minimum; the business or part of the business concerned; the
principal locations affected; the location, function and
approximate number of employees who will be compensated for
terminating their services; the expenditures that will be under
taken and when the plan will be implemented.
The Group will only recognise a specific restructuring provision
once a valid expectation in those affected that it will carry out
the restructuring by star ting to implement that plan or announcing
its main features to those affected by it.
The Group only includes incremental costs associated directly
with the restructuring within the restructuring provisions such as
employee termination benefits and consulting fees. The Group
specifically excludes from recognition in a restructuring provision
any costs associated with ongoing activities such as the costs of
training or relocating staff that are redeployed within the
business and costs for employees who continue to be employed in
ongoing operations, regardless of the status of these operations
post restructure.
2.12.3. Pensions and other post-employment benefits
The Group operates a defined contribution pension scheme
available to all UK employees. Contributions are recognised as an
expense in the Consolidated Income Statement as they become payable
in accordance with the rules of the scheme. There are no material
pension schemes within the Group's overseas operations.
The Group has an obligation to make a one-off payment to French
employees upon retirement, the Indemnités de Fin de Carrière
(IFC).
French employment law requires that a company pays employees a
one-time contribution when, and only when, the employee leaves the
Company on retirement at the mandatory age. This is a legal
requirement for all businesses who incur the obligation upon
departure, due to retirement, of an employee.
Typically, the retirement benefit is based on length of service
of the employee and his or her salary at retirement. The amount is
set via a legal minimum, but the retirement premiums can be
improved by the collective agreement or employment contract in some
cases. In Computacenter France, the payment is based on accrued
service and ranges from one month of salary after five years of
service to 9.4 months of salary after 47 years of service.
If the employee leaves voluntarily at any point before
retirement, all liability is extinguished, and any accrued service
is not transferred to any new employment.
Management continues to account for this obligation according to
IAS 19 (revised).
2.13. Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- the rights to receive cash flows from the asset have expired; or
-- the Group retains the right to receive cash flows from the
asset, but has assumed an obligation to pay them in full without
material delay to a third party under a 'pass-through' arrangement;
or
-- the Group has transferred its rights to receive cash flows
from the asset and either (a) has transferred substantially all the
risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset but
has transferred control of the asset.
Financial liabilities
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled or expired.
2.14. Derivative financial instruments and hedge accounting
The Group uses foreign currency forward contracts to hedge its
foreign currency risks associated with foreign currency
fluctuations affecting cash flows from forecasted transactions and
unrecognised firm commitments.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which the Group
wishes to apply hedge accounting and the risk management objective
and strategy for under taking the hedge. The documentation includes
identification of both the hedging instrument and, the hedged item
or transaction and then the economic relationship between the two,
including whether the hedging instrument is expected to offset
changes in cash flow of the hedged item. Such hedges are expected
to be highly effective in achieving offsetting changes in cash
flows. The Group designates the full change in the fair value of
the forward contract (including forward points) as the hedging
instrument. Forward contracts are initially recognised at fair
value on the date that the contract is entered into and are
subsequently remeasured at fair value at each reporting date. The
fair value of forward currency contracts is calculated by reference
to current forward exchange rates for contracts with similar
maturity profiles. Forward contracts are recorded as assets when
the fair value is positive and as liabilities when the fair value
is negative.
For the purposes of hedge accounting, hedges are classified as
cash flow hedges when hedging the exposure to variability in cash
flows that is either attributable to a particular risk associated
with a recognised asset or liability, a highly probable forecast
transaction, or the foreign currency risk in an unrecognised firm
commitment.
Cash flow hedges that meet the criteria for hedge accounting are
accounted for as follows: the effective portion of the gain or loss
on the hedging instrument is recognised directly in other
comprehensive income in the cash flow hedge reserve, while any
ineffective portion is recognised immediately in the Consolidated
Income Statement in administrative expenses.
Amounts recognised within other comprehensive income are
transferred to the Consolidated Income Statement, within
administrative expenses, when the hedged transaction affects the
Consolidated Income Statement, such as when the hedged financial
expense is recognised.
If the forecast transaction or firm commitment is no longer
expected to occur, the cumulative gain or loss previously
recognised in equity is transferred to the Consolidated Income
Statement within administrative expenses. If the hedging instrument
mature or is sold, terminated or exercised without replacement or
rollover, any cumulative gain or loss previously recognised within
Consolidated Other Comprehensive Income remains within Consolidated
Other Comprehensive Income until after the forecast transaction or
firm commitment affects the Consolidated Income Statement.
Any other gains or losses arising from changes in fair value on
forward contracts are taken directly to administrative expenses in
the Consolidated Income Statement.
2.15. Taxation
2.15.1. Current tax
Current tax assets and liabilities for the current and prior
years are measured at the amount expected to be recovered from or
paid to the tax authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively
enacted by the balance sheet date.
2.15.2. Deferred income tax
Deferred income tax is recognised on all temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the Consolidated Financial Statements, with the
following exceptions:
-- where the temporary difference arises from the initial
recognition of goodwill or from an asset or liability in a
transaction that is not a business combination that at the time of
the transaction affects neither accounting nor taxable profit or
loss;
-- in respect of taxable temporary differences associated with
investments in subsidiaries, associates and joint ventures, where
the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will
not reverse in the foreseeable future; and
-- deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available in the
future against which the deductible temporary differences, carried
forward tax credits or tax losses, can be utilised.
Deferred income tax assets and liabilities are measured on an
undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax
rates and laws enacted, or substantively enacted, at the balance
sheet date.
Income tax is charged or credited directly to the statement of
comprehensive income if it relates to items that are credited or
charged to the statement of comprehensive income. Otherwise, income
tax is recognised in the Consolidated Income Statement.
2.16. Share-based payment transactions
Employees (including Executive Directors) of the Group can
receive remuneration in the form of share-based payment
transactions, whereby employees render services in exchange for
shares or rights over shares ('equity-settled transactions').
The cost of equity-settled transactions with employees is
measured by reference to the fair value of the award at the date at
which they are granted. The fair value is determined by utilising
an appropriate valuation model. In valuing equity-settled
transactions, no account is taken of any performance conditions as
none of the conditions set are market-related.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, over the period in which
the performance and/or service conditions are fulfilled, ending on
the date on which the relevant employees become fully entitled to
the award ('vesting date').
The cumulative expense recognised for equity-settled
transactions at each reporting date, until the vesting date,
reflects the extent to which the vesting period has expired and the
Directors' best estimate of the number of equity instruments that
will ultimately vest. The Consolidated Income Statement charge or
credit for a period represents the movement in cumulative expense
recognised as at the beginning and end of that period. As the
schemes do not include any market-related performance conditions,
no expense is recognised for awards that do not ultimately
vest.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of earnings per share
(see note 8 to the summary financial information included within
this announcement ).
The Group has an employee share trust for the granting of
non-transferable options to Executive Directors and senior
management. Shares in the Group held by the employee share trust
are treated as investment in own shares and are recorded at cost as
a deduction from equity.
2.17. Own shares held
Computacenter plc shares held by the Group are classified in
shareholders' equity as 'own shares held' and are recognised at
cost. Consideration received for the sale of such shares is also
recognised in equity, with any difference between the proceeds from
sale and the original cost being taken to reserves. No gain or loss
is recognised in the performance statements on the purchase, sale,
issue or cancellation of equity shares.
2.18. Fair value measurement
The Group measures certain financial instruments at fair value
at each balance sheet date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
3 Critical accounting estimates and judgements
The preparation of the Consolidated Financial Statements
requires Management to exercise judgement in applying the Group's
accounting policies. It also requires the use of estimates and
assumptions that affect the reported amounts of assets,
liabilities, income and expenses.
Due to the inherent uncertainty in making these critical
judgements and estimates, actual outcomes could be different.
During the year, Management set aside time to consider the
critical accounting estimates and judgements for the Group. This
process included reviewing the last reporting period's disclosures,
the key judgements required on the implementation of forthcoming
standards such as IFRS 16 and the current period's challenging
accounting issues. Where Management deemed an area of accounting to
be no longer a critical estimate or judgement, an explanation for
this decision is found in the relevant accounting notes to the
summary financial information.
3.1. Critical estimates
Estimates and underlying assumptions are reviewed on an ongoing
basis, with revisions recognised in the year in which the estimates
are revised and in any future years affected. The areas involving
significant risk resulting in a material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are as follows:
3.1.1. Services revenue recognition and contract provisions
Percentage of completion revenue recognition
On occasion, the Group accounts for certain Services contracts
using the percentage of completion method, recognising revenue by
reference to the stage of completion of the contract which is
determined by actual costs incurred as a proportion of total
forecast contract costs. This method places considerable importance
on accurate estimates of the extent of progress towards completion
of the contract and may involve estimates on the scope of services
required for fulfilling the contractually defined obligations.
These significant estimates include total contract costs, total
contract revenues, contract risks, including technical risks, and
other assumptions. Under the percentage of completion method, the
changes in these estimates and assumptions may lead to an increase
or decrease in revenue recognised at the balance sheet date with
the in-year revenue recognition appropriately adjusted as required.
When the outcome of the contract cannot be estimated reliably,
revenue is recognised only to the extent that expenses incurred are
eligible to be recovered. No revenue is recognised if there are
significant uncertainties regarding recovery of the
consideration.
The key judgements are the extent to which revenue should be
recognised and also, where total contract costs are not covered by
total contract revenue, the extent to which an adjustment is
required.
Contract provisions
During the year, Management held a number of 'difficult'
contracts under review that were considered to be performing below
expectation.
The number of contracts under review fluctuated during the year
between seven and 12 (2018: seven and 12). Each contract was
subject to a detailed review to consider the reasons behind the
lower than anticipated performance and the potential accounting
impacts related effect on revenue recognition estimates and
contract provisions.
For a limited number of these 'difficult' contracts, where there
was no immediate operational or commercial remedy for the
performance, a range of possible outcomes for the estimate of the
total contract costs and total contract revenues was considered to
determine whether a provision is required and, if so, the best
estimate of the provision.
The revenue recognised in the year from these contracts under
review was approximately GBP31.5 million (2018: GBP30.1 million).
The range of potential scenarios considered by management in
respect of these specific contracts resulted in a reduction in
margins, recognised in 2019 of [GBP23.7] million (2018: GBP13.6
million), in the year. At 31 December 2019, based on Management 's
best estimate, there was a provision of GBP7.8 million (2018:
GBP16.4 million) against future losses with the total costs to
complete on these contracts estimated at GBP54.7 million (2018:
GBP76.9 million).
The key judgements are determining which contracts are
considered 'difficult' and estimating the provision from the range
of possible outcomes.
3.2. Critical judgements
Judgements made by Management in the process of applying the
Group's accounting policies, that have the most significant effect
on the amounts recognised in the Consolidated Financial Statements,
are as follows:
3.2.1. Exceptional items
Exceptional items remain a core focus of Management with the
recent Alternative Performance Measure regulations providing
further guidance in this area.
Management is required to exercise its judgement in the
classification of certain items as exceptional and outside of the
Group's adjusted results. The overall goal of Management is to
present the Group's underlying performance without distortion from
one-off or non-trading events regardless of whether they are
favourable or unfavourable to the underlying result.
To achieve this, Management have considered the materiality,
infrequency and nature of the various items classified as
exceptional this year against the requirements and guidance
provided by IAS 1, our Group accounting policies and the recent
regulatory interpretations and guidance.
In reaching their conclusions, Management consider not only the
effect on the overall underlying Group performance but also where
an item is critical in understanding the performance of its
component Segments which is of relevance to investors and analysts
when assessing the Group result and its future prospects as a
whole.
Further details of the individual exceptional items, and the
reasons for their disclosure treatment, are set out in note 6 to
the summary financial information included within this announcement
.
3.2.2. Bill-and-hold
The Group generates some of its revenue through its
'bill-and-hold' arrangement with its customers. This arises when
the customer is invoiced but the product is not shipped to the
customer until a later date, in accordance with the customer's
request in a written agreement. In order to determine the
appropriate timing of revenue recognition, it is assessed whether
control has transferred to the customer.
A bill-and-hold arrangement is only put in place when customer
lacks the physical space to store the product or the product
previously ordered is not yet needed in accordance with the
customer's schedule, the customer wants to guarantee supply of
identical product. In order to determine the bill-and-hold
arrangements, the following criteria must be met;
a) the reason for the bill-and-hold arrangement must be
substantive (for example: the customer has requested the
arrangement);
b) the product must be identified separately as belonging to the customer;
c) the product currently must be ready for physical transfer to the customer; and
d) the entity cannot have the ability to use the product or to direct it to another customer.
Judgement is required to determine if all of the criteria (a) to
(d) has been met to recognise a bill-and-hold sale. This is
determined by segregation and readiness of inventory, review of
customer requests, test of a sample of orders in order to assess
whether the accounting policy had been correctly applied to
recognise a bill-and-hold sale.
3.3. Change in critical estimates and critical judgements
During the year, Management reassessed the critical estimates
and critical judgements. Technology Sourcing principal versus agent
recognition was taken out as the level of judgement involved for
this does not elevate to a critical judgement in the current year.
Management spent a reduced amount of time on this judgement, after
spending a greater amount of time due to the adoption of IFRS 15 in
the prior year. Bill-and-hold has been included in the current year
within critical judgements due to an increased volume of
bill-and-hold transactions and hence is elevated to a critical
judgement.
4 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 for the year ended 31 December 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. The TeamUltra operations have been
absorbed into the UK trading entity, reflecting the importance of
the capability to the UK business. This has also resulted in the
combination of the previously separate cash-generating units for
these businesses as, post-absorption, this is now the level that
the ongoing operation is assessed at. The re-acquisition of R.D.
Trading Limited has been added to the UK Segment in the year as the
business primarily serves our UK customer base.
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 year, 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 included within this announcement
.
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/(loss) and
adjusted(1) profit/(loss) before tax.
The change in Segmental reporting has no impact on reported
Group numbers.
To enable comparisons with prior year performance, historical
Segment information for the year ended 31 December 2018 are
restated in accordance with the revised Segmental reporting
structure. All discussion within this Annual Report and Accounts on
Segmental results reflects this revised structure and the resultant
prior period restatements.
Segmental performance for the years ended 31 December 2019 and
31 December 2018 were as follows:
Year ended 31 December 2019
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 1,142,746 1,366,392 457,454 732,009 123,626 - 3,822,227
---------- ---------- -------- -------- ------------- ---------- ----------
Services revenue
---------- ---------- -------- -------- ------------- ---------- ----------
Professional Services 117,685 207,038 23,844 13,512 4,004 - 366,083
---------- ---------- -------- -------- ------------- ---------- ----------
Managed Services 321,175 370,232 81,633 27,634 63,795 - 864,469
---------- ---------- -------- -------- ------------- ---------- ----------
Total Services revenue 438,860 577,270 105,477 41,146 67,799 - 1,230,552
---------- ---------- -------- -------- ------------- ---------- ----------
Total revenue 1,581,606 1,943,662 562,931 773,155 191,425 - 5,052,779
---------- ---------- -------- -------- ------------- ---------- ----------
Results
---------- ---------- -------- -------- ------------- ---------- ----------
Adjusted(1) gross profit 221,208 260,677 68,195 69,493 43,541 - 663,114
---------- ---------- -------- -------- ------------- ---------- ----------
Administrative expenses (156,673) (176,199) (55,884) (60,369) (35,358) (27,139) (511,622)
---------- ---------- -------- -------- ------------- ---------- ----------
Adjusted(1) operating
profit/(loss) 64,535 84,478 12,311 9,124 8,183 (27,139) 151,492
---------- ---------- -------- -------- ------------- ---------- ----------
Adjusted(1) net interest (1,286) (1,987) (524) (871) (573) - (5,241)
---------- ---------- -------- -------- ------------- ---------- ----------
Adjusted(1) profit/(loss)
before tax 63,249 82,491 11,787 8,253 7,610 (27,139) 146,251
---------- ---------- -------- -------- ------------- ---------- ----------
Exceptional items:
---------- ---------- -------- -------- ------------- ---------- ----------
-- unwinding of discount
relating to acquisition
of a subsidiary (825)
---------- ---------- -------- -------- ------------- ---------- ----------
-- costs relating to acquisition
of a subsidiary (94)
---------- ---------- -------- -------- ------------- ---------- ----------
Total exceptional items (919)
---------- ---------- -------- -------- ------------- ---------- ----------
Amortisation of acquired
intangibles (4,374)
---------- ---------- -------- -------- ------------- ---------- ----------
Statutory profit before
tax 140,958
---------- ---------- -------- -------- ------------- ---------- ----------
Year ended 31 December 2019
Total
GBP'000
Adjusted(1) operating profit 151,492
--------
Add back interest on CSF -
--------
Amortisation of acquired intangibles (4,374)
--------
Exceptional items (94)
--------
Statutory operating profit 147,024
--------
Central
Corporate
UK Germany France USA International Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Other Segment information
-------- -------- -------- -------- ------------- ---------- --------
Property, plant and equipment 57,496 112,074 14,353 12,013 16,389 - 212,325
-------- -------- -------- -------- ------------- ---------- --------
Intangible assets 54,035 16,678 108 93,696 11,153 - 175,670
-------- -------- -------- -------- ------------- ---------- --------
Capital expenditure:
-------- -------- -------- -------- ------------- ---------- --------
Property, plant and equipment 13,482 34,891 2,574 5,449 8,707 - 65,103
-------- -------- -------- -------- ------------- ---------- --------
Software 7,903 616 13 - 205 - 8,737
-------- -------- -------- -------- ------------- ---------- --------
Depreciation of property,
plant and equipment (excluding
right-of-use asset) 9,968 6,356 1,788 748 2,596 - 21,456
-------- -------- -------- -------- ------------- ---------- --------
Depreciation of right-of-use
asset 3,056 27,007 4,076 2,224 3,903 - 40,266
-------- -------- -------- -------- ------------- ---------- --------
Amortisation of software 5,616 1,187 45 - 321 - 7,169
-------- -------- -------- -------- ------------- ---------- --------
Share-based payments 5,089 1,417 119 150 - - 6,775
-------- -------- -------- -------- ------------- ---------- --------
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 118,900 166,471 18,914 13,763 3,867 - 321,915
---------- ---------- -------- -------- ------------- ---------- ----------
Managed Services 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
---------- ---------- -------- -------- ------------- ---------- ----------
Administrative expenses (147,467) (164,332) (48,601) (22,666) (21,238) (25,188) (429,492)
---------- ---------- -------- -------- ------------- ---------- ----------
Adjusted(1) operating
profit/(loss) 58,241 66,859 7,054 4,341 7,459 (25,188) 118,766
---------- ---------- -------- -------- ------------- ---------- ----------
Adjusted(1) net interest (158) 45 (162) (200) (55) - (530)
---------- ---------- -------- -------- ------------- ---------- ----------
Adjusted(1) profit/(loss)
before tax 58,083 66,904 6,892 4,141 7,404 (25,188) 118,236
---------- ---------- -------- -------- ------------- ---------- ----------
Exceptional items:
---------- ---------- -------- -------- ------------- ---------- ----------
-- 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
--------
Central
Corporate
UK Germany France USA International Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Other Segment information
-------- -------- -------- -------- ------------- ---------- --------
Property, plant and equipment 41,505 50,558 5,612 1,099 7,493 - 106,267
-------- -------- -------- -------- ------------- ---------- --------
Intangible assets 51,730 18,444 148 105,732 8,559 - 184,613
-------- -------- -------- -------- ------------- ---------- --------
Capital expenditure:
-------- -------- -------- -------- ------------- ---------- --------
Property, plant and equipment 12,103 30,408 867 60 2,004 - 45,442
-------- -------- -------- -------- ------------- ---------- --------
Software 4,870 730 166 - 169 - 5,935
-------- -------- -------- -------- ------------- ---------- --------
Depreciation of property,
plant and equipment (excluding
right-of-use asset) 7,910 7,287 1,630 260 2,293 - 19,380
-------- -------- -------- -------- ------------- ---------- --------
Depreciation of right-of-use
asset - - - - - - -
-------- -------- -------- -------- ------------- ---------- --------
Amortisation of software 9,449 1,275 50 - 203 - 10,669
-------- -------- -------- -------- ------------- ---------- --------
Share-based payments 5,034 1,334 57 - - - 10,977
-------- -------- -------- -------- ------------- ---------- --------
Charges for the amortisation of acquired intangibles and
utilisation of deferred tax assets (where initial recognition was
an exceptional item or a fair value adjustment on acquisition) are
excluded from the calculation of adjusted(1) operating profit. This
is because these charges are based on judgements about their value
and economic life, are the result of the application of acquisition
accounting rather than core operations, and whilst revenue
recognised in the Consolidated Income Statement does benefit from
the underlying technology that has been acquired, the amortisation
costs bear no relation to the Group's underlying ongoing
operational performance. In addition, amortisation of acquired
intangibles is not included in the analysis of Segment performance
used by the CODM.
Information about major customers
Included in revenues arising from the UK Segment are revenues of
approximately GBP317 million (2018: GBP277 million) which arose
from sales to the Group's largest customer. For the purpose of this
disclosure, a single customer is considered to be a group of
entities known to be under common control. This customer consists
of entities under control of the UK Government.
5 Revenue
Revenue recognised in the Consolidated Income Statement is
analysed as follows:
2019 2018
GBP'000 GBP'000
Revenue by Type
--------- ---------
Technology Sourcing revenue 3,822,227 3,177,581
--------- ---------
Services revenue
--------- ---------
Professional Services 366,083 321,915
--------- ---------
Managed Services 864,469 853,074
--------- ---------
Total Services revenue 1,230,552 1,174,989
--------- ---------
Total revenue 5,052,779 4,352,570
--------- ---------
Contract balances
The following table provides the information about contract
assets and contract liabilities from contracts with customers.
31 December 1 January
2019 2019
GBP'000 GBP'000
Trade and other receivables 996,462 1,180,394
----------- ---------
Contract assets, which are included in 'prepayments' 5,959 6,451
----------- ---------
Contract assets, which are included in 'accrued income' 94,030 101,899
----------- ---------
Contract liabilities, which are included in 'deferred
income' 174,258 143,080
----------- ---------
The Group has implemented an expected credit loss impairment
model with respect to contract assets using the simplified
approach. Contract assets have been grouped on the basis of their
shared risk characteristics and a provision matrix has been
developed and applied to these balances to generate the loss
allowance. The majority of these contract asset balances are with
blue chip customers and the incidence of credit loss is low. There
has therefore been no material adjustment to the loss allowance
under IFRS 9.
Significant changes in contract assets and liabilities
Contract assets are balances due from customers under long-term
contracts as work is performed and therefore a contract asset is
recognised over the period in which the performance obligation is
fulfilled. This represents the Group's right to consideration for
the services transferred to date. Amounts are generally
reclassified to contract receivables when these have been certified
or invoiced to a customer.
Win fees and fulfilment costs are included in prepayments
balance above. Refer to 2.3.3 for accounting policy of these costs.
The Consolidated Income Statement impact of win fees was a
recognition of a net cost in FY2019 of GBP0.2 million with a
corresponding credit to tax of GBP0.05 for the year. As at 31
December 2019, the win fee balance was GBP6.0 million. The
Consolidated Income Statement impact of fulfilment costs was a
recognition of a net cost in FY2019 of GBP0.05 million with a
corresponding credit to tax of GBP0.05 million for the year. As at
31 December 2019, the fulfilment costs balance was GBP6.6 million.
No impairment loss was recorded for win fees or fulfilment costs
during the year.
Revenue recognised in the reporting period from accrued income
balance was GBP2.8 million with a credit to foreign exchange of
GBP5.1 million. No impairment loss was recorded for accrued income
during the year.
Revenue recognised in the reporting period that was included in
the contract liability balance at the beginning of the period was
GBP96.8 million. Revenue recognised in the reporting period from
performance obligations satisfied or partially satisfied in
previous periods was GBPnil. Partially satisfied performance
obligations continue to incur revenue and costs in the period.
Remaining performance obligations (Work in hand)
Contracts which have remaining performance obligations as at 31
December 2019 and 31 December 2018 are set out in the table below.
The table below discloses the aggregate transaction price relating
to those unsatisfied or partially unsatisfied performance
obligations, excluding both (a) amounts relating to contracts for
which revenue is recognised as invoiced and (b) amounts relating to
contracts where the expected duration of the ongoing performance
obligation is one year or less.
Managed Services
Within Within
Within Within three four Five years
one year two years years years and beyond Total
GBPm GBPm GBPm GBPm GBPm GBPm
As at 31 December 2019 588 317 198 70 34 1,207
--------- ---------- ------ ------ ----------- -----
As at 31 December 2018 613 323 216 146 48 1,346
--------- ---------- ------ ------ ----------- -----
The average duration of contracts is between one to five years,
however some contracts will vary from these typical lengths.
Revenue is typically earned over these varying timeframes, however
more of the revenue noted above is expected to be earned in the
short term.
6 Exceptional items
2019 2018
GBP'000 GBP'000
Operating profit
-------- --------
Costs relating to acquisition of a subsidiary (94) (5,240)
-------- --------
Exceptional operating loss (94) (5,240)
-------- --------
Interest cost relating to acquisition of a subsidiary (825) (417)
-------- --------
Loss on exceptional items before taxation (919) (5,657)
-------- --------
Income tax
-------- --------
Tax credit on exceptional items 39 1,353
-------- --------
Tax credit relating to acquisition of a subsidiary 839 3,091
-------- --------
Loss on exceptional items after taxation (41) (1,213)
-------- --------
2019: Included within the current year are the following
exceptional items:
-- An exceptional operating loss during the year of GBP0.1
million resulted from residual costs directly relating to the
acquisition of FusionStorm. 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
year 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 GBP0.8 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
GBP0.8 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: Included within the prior year are the following
exceptional items:
-- An exceptional loss during the year of GBP5.2 million
resulted from costs directly relating to the acquisition of
FusionStorm. These costs include 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 are non-operational in
nature, material in size and unlikely to recur and have therefore
been classified as outside our adjusted1 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 adjusted1 net finance expense and classified as exceptional
interest costs.
-- A credit of GBP1.4 million arising from the tax benefit on
the FusionStorm exceptional acquisition costs has been recognised
as tax on the above exceptional items. A further tax credit of
GBP3.1 million was recorded due to post-acquisition activity in
FusionStorm, related to the transaction, which has resulted in a
material in-year tax benefit. This activity included settlement of
phantom stock awards, deal bonus and change of control 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, it was classified this as an exceptional tax
item.
7 Income tax
a) Tax on profit from ordinary activities
2019 2018
GBP'000 GBP'000
Tax charged in the Consolidated Income Statement
-------- --------
Current income tax
-------- --------
UK corporation tax 13,213 12,528
-------- --------
Foreign tax
-------- --------
- operating results before exceptional items 26,724 20,942
-------- --------
- exceptional items (878) (4,444)
-------- --------
Total foreign tax 25,846 16,498
-------- --------
Adjustments in respect of prior years (460) 148
-------- --------
Total current income tax 38,599 29,174
-------- --------
Deferred tax
-------- --------
Operating results before exceptional items:
-------- --------
- origination and reversal of temporary differences 311 (1,830)
-------- --------
- adjustments in respect of prior years 487 (145)
-------- --------
Total deferred tax 798 (1,975)
-------- --------
Tax charge in the Consolidated Income Statement 39,397 27,199
-------- --------
b) Reconciliation of the total tax charge
2019 2018
GBP'000 GBP'000
Accounting profit before income tax 140,958 108,128
-------- --------
At the UK standard rate of corporation tax of 19 per cent
(2018: 19 per cent) 26,782 20,544
-------- --------
Expenses not deductible for tax purposes 1,474 987
-------- --------
Non-deductible element of share-based payment charge 432 589
-------- --------
Adjustments in respect of current income tax of previous
years 266 (384)
-------- --------
Effect of different tax rates of subsidiaries operating
in other jurisdictions 8,876 6,736
-------- --------
Other differences 32 (334)
-------- --------
Overseas tax not based on earnings 1,604 1,390
-------- --------
Tax effect of income not taxable in determining taxable
profit (69) (2,427)
-------- --------
Deferred tax not recognised on current year losses - 98
-------- --------
At effective income tax rate of 27.9 per cent (2018: 25.2
per cent) 39,397 27,199
-------- --------
c) Tax losses
Deferred tax assets of GBP2.0 million (2018: GBP4.2 million)
have been recognised in respect of losses carried forward.
In addition, at 31 December 2019, there were unused tax losses
across the Group of GBP143.0 million (2018: GBP152.6 million) for
which no deferred tax asset has been recognised. Of these losses,
GBP39.8 million (2018: GBP40.1 million) arise in Germany and
GBP103.2 million (2018: GBP112.5 million) arise in France. A
significant proportion of the losses arising in Germany have been
generated in statutory entities that no longer have significant
levels of trade. The remaining unrecognised tax losses relate to
other loss-making overseas subsidiaries.
d) Deferred tax
Deferred income tax at 31 December relates to the following:
Consolidated
Income Statement
and Consolidated
Statement
Consolidated of Comprehensive
Balance Sheet Income
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- --------- --------
Deferred income tax assets
-------- -------- --------- --------
Relief on share option gains 5,300 4,868 432 (2,000)
-------- -------- --------- --------
Other temporary differences 6,575 4,887 (285) (277)
-------- -------- --------- --------
Revaluations of foreign exchange contracts
to fair value 369 121 247 119
-------- -------- --------- --------
Losses available for offset against future
taxable income 1,343 4,167 (2,131) 1,934
-------- -------- --------- --------
Gross deferred income tax assets 13,587 14,043
-------- -------- --------- --------
Deferred income tax liabilities
-------- -------- --------- --------
Revaluations of foreign exchange contracts
to fair value 809 738 (71) (555)
-------- -------- --------- --------
Amortisation of intangibles 15,272 16,727 1,186 (1,196)
-------- -------- --------- --------
Gross deferred income tax liabilities 16,081 17,465
-------- -------- --------- --------
Deferred income tax charge (622) (1,975)
-------- -------- --------- --------
Net deferred income tax assets (2,494) (3,422)
-------- -------- --------- --------
Disclosed on the Consolidated Balance Sheet
-------- -------- --------- --------
Deferred income tax assets 9,204 9,587
-------- -------- --------- --------
Deferred income tax liabilities (11,698) (13,009)
-------- -------- --------- --------
Net deferred income tax liabilities (2,494) (3,422)
-------- -------- --------- --------
At 31 December 2019, there was no recognised or unrecognised
deferred income tax liability (2018: GBPnil) for taxes that would
be payable on the unremitted earnings of the Group's subsidiaries
as the Group expects that future remittances of earnings from its
overseas subsidiaries will continue to be covered by relevant
dividend exemptions. Where, following the departure of the UK from
the European Union, the Group's European subsidiaries' unremitted
earnings are no longer covered by a dividend exemption, appropriate
mitigating steps are envisaged that would eliminate the incidence
of withholding tax.
e) Impact of rate change
The main rate of UK Corporation tax is 19 per cent from 1 April
2017 and will be reduced to 17 per cent from 1 April 2020, as
enacted in the Finance Act 2015. The deferred tax in these
Consolidated Financial Statements reflects this.
8 Earnings per share
Earnings per share amounts are calculated by dividing profit
attributable to ordinary equity holders by the weighted average
number of ordinary shares outstanding during the year (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 year are
considered to be dilutive potential shares.
2019 2018
GBP'000 GBP'000
Profit attributable to equity holders of the Parent 101,655 80,931
-------- --------
2019 2018
GBP'000 GBP'000
Basic weighted average number of shares (excluding own
shares held) 112,514 113,409
-------- --------
Effect of dilution:
-------- --------
Share options 1,655 1,984
-------- --------
Diluted weighted average number of shares 114,169 115,393
-------- --------
2019 2018
pence pence
Basic earnings per share 90.3 71.4
------ ------
Diluted earnings per share 89.0 70.1
------ ------
9 Analysis of changes in net funds
At At
1 January Implementation Cash flows Non-cash Exchange 31 December
2019 of IFRS 16 in year flow differences 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and short-term deposits 200,442 - 24,388 - (6,949) 217,881
---------- -------------- ---------- -------- ------------ ------------
Cash and cash equivalents 200,442 - 24,388 - (6,949) 217,881
---------- -------------- ---------- -------- ------------ ------------
Bank loans (134,234) - 51,755 - 1,707 (80,772)
---------- -------------- ---------- -------- ------------ ------------
Adjusted net funds(3) (excluding
CSF and lease liabilities) 66,208 - 76,142 - (5,241) 137,109
---------- -------------- ---------- -------- ------------ ------------
CSF leases (8,928) 8,928 - - - -
---------- -------------- ---------- -------- ------------ ------------
Lease liabilities - (120,606) 42,346 (43,793) 5,287 (116,766)
---------- -------------- ---------- -------- ------------ ------------
Total lease liabilities (8,928) (111,678) 42,346 (43,793) 5,287 (116,766)
---------- -------------- ---------- -------- ------------ ------------
Net funds 57,280 (111,678) 118,488 (43,793) 46 20,343
---------- -------------- ---------- -------- ------------ ------------
The financing cash flows included in the table above are
repayment of bank loans of GBP51.8 million and lease liabilities of
GBP42.3 million during the year. The repayment of lease liabilities
also included interest payment of GBP3.7 million.
At At
1 January Cash flows Non-cash Exchange 31 December
2018 in year flow differences 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cash and short-term deposits 206,605 (7,743) - 1,580 200,442
---------- ---------- -------- ------------ ------------
Bank overdraft (6) 6 - - -
---------- ---------- -------- ------------ ------------
Cash and cash equivalents 206,599 (7,737) - 1,580 200,442
---------- ---------- -------- ------------ ------------
Bank loans (10,667) (122,946) - (621) (134,234)
---------- ---------- -------- ------------ ------------
Adjusted net funds(3) (excluding CSF) 195,932 (130,683) - 959 66,208
---------- ---------- -------- ------------ ------------
CSF leases (4,745) (4,322) 433 (294) (8,928)
---------- ---------- -------- ------------ ------------
Total CSF (4,745) (4,322) 433 (294) (8,928)
---------- ---------- -------- ------------ ------------
Net funds 191,187 (135,005) 433 665 57,280
---------- ---------- -------- ------------ ------------
10 Related party transactions
During the year the Group entered into transactions, in the
ordinary course of business, with related parties. Transactions
entered into are as described below:
-- Biomni provides the Computacenter e-procurement system used
by many of Computacenter's major customers. An annual fee has been
agreed on a commercial basis for use of the software for each
installation. Both PJ Ogden and PW Hulme are Directors of and have
a material interest in Biomni Limited
The table below provides the total amount of transactions that
have been entered into with related parties for the relevant
financial year:
2019 2018
GBP'000 GBP'000
Biomni Limited
-------- --------
Sales to related parties 32 23
-------- --------
Purchase from related parties 654 838
-------- --------
Amounts owed to related parties 6 -
-------- --------
Terms and conditions of transactions with related parties
Sales to and purchases from related parties are made on terms
equivalent to those that prevail in arm's-length transactions.
Outstanding balances at the year end are unsecured and settlement
occurs in cash. There have been no guarantees provided or received
for any related party receivables. The Group has not recognised any
provision for doubtful debts relating to amounts owed by related
parties. This assessment is undertaken each financial year through
examining the financial position of the related party and the
market in which the related party operates.
Compensation of key management personnel (including
Directors)
The Board of Directors is identified as the Group's key
management personnel. A summary of the compensation of key
management personnel is provided below:
2019 2018
GBP'000 GBP'000
Short-term employee benefits 2,447 1,791
-------- --------
Social security costs 422 433
-------- --------
Share-based payment transactions 2,623 1,367
-------- --------
Pension costs 40 65
-------- --------
Total compensation paid to key management personnel 5,532 3,656
-------- --------
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
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