TIDMCCC
RNS Number : 8535Y
Computacenter PLC
09 September 2022
Computacenter plc
Incorporated in England
Registration number: 03110569
LEI: 549300XSXUZ1I19DB105
ISIN: GB00BV9FP302
Computacenter plc
Interim results for the six months ended 30 June 2022
Computacenter plc ("Computacenter" or the "Group"), a leading
independent technology partner trusted by large corporate and
public sector organisations, today announces results , based on
unaudited financial information, for the six month period ended 30
June 2022.
Financial Highlights H1 2022 H1 2021 Percentage
Change
Increase/
(Decrease)
Financial Performance
Technology Sourcing revenue (GBP
million) 2,074.2 1,719.0 20.7
Services revenue (GBP million) 752.5 706.1 6.6
Revenue (GBP million) 2,826.7 2,425.1 16.6
Technology Sourcing gross invoiced
income (GBP million) 3,219.4 2,581.5 24.7
Services revenue (GBP million) 752.5 706.1 6.6
Gross invoiced income (GBP million) 3,971.9 3,287.6 20.8
Ad justed(1) profit before tax
(GBP million) 111.9 118.9 (5.9)
Ad justed(1) diluted earnings
per share (pence) 69.8 73.1 (4.5)
Dividend per share (pence) 22.1 16.9 30.8
Profit before tax (GBP million) 107.8 115.2 (6.4)
Diluted earnings per share (pence) 67.3 70.7 (4.8)
Cash Position
Cash and cash equivalents (GBP
million) 193.5 158.5
Adjusted net funds(3) (GBP million) 159.3 121.8
Net funds/(debt) (GBP million) 12.1 (29.4)
Net cash inflow from operating
activities (GBP million) 8.1 1.5
Reconciliation to Adjusted(1) Measures
Ad justed(1) profit before tax (GBP
million) 111.9 118.9
Exceptional and other adjusting
items:
Amortisation of acquired intangibles
(GBP million) (4.1) (3.7)
Profit before tax (GBP million) 107.8 115.2
Operational Highlights:
-- Our strong trading performance over the six months to 30 June
2022 continues to demonstrate the resilience of our business model.
Revenue increased 16.0 per cent on a constant currency(2) basis,
however, as we indicated in our Trading Update on 29 April 2022,
adjusted(1) profit before tax for the first half of the year is
behind the comparative period to 30 June 2021.
-- The UK saw a decrease in revenues of 7.1 per cent with the
Technology Sourcing business seeing a 10.5 per cent reduction in
revenue as the demand for workplace rollouts declined. The UK saw
pleasing growth in higher-margin data center business, as the
market in this area continues to expand rapidly, although the
volumes were not sufficient to replace the workplace business.
Significant increases in low-margin software and resold services
impacted gross invoiced income(4) , but are reported net for
Technology Sourcing revenues.
-- The German business saw revenues increase 10.2 per cent on a
constant currency(2) basis. Technology Sourcing revenue growth was
pleasing during the period, with significant increases in workplace
hardware and software. Professional Services once again saw double
digit growth, with the business continuing to expand capacity and
its offerings. Managed Services generated excellent growth,
benefitting from contract wins in 2021.
-- The French business saw Technology Sourcing revenues return
to growth as significant customers increased spend, with a number
of enterprise-level private sector customers and large
public-sector framework contracts increasing purchasing activity.
Margins improved as these customers invested in significant server
rack installations. The integration of Computacenter NS remains on
track. As expected, the acquisition had a negative impact on growth
in Professional Services revenue in the period, as older contracts
ceased. This was more than offset by pleasing growth in Managed
Services. This has resulted in a 2.4 per cent decrease in revenues
on a constant currency(2) basis,
-- In North America, the results were driven by continued
extraordinary growth in hyperscale data center customers, as well
as new customer wins. The growth was achieved in both Technology
Sourcing and Services, as deployment project activity increased.
North America has seen strong revenue growth of 48.3 per cent on a
constant currency(2) basis. As this growth was concentrated in a
small number of hyperscale technology customers, which have a much
lower than average margin, growth in profitability has not matched
that seen in revenue.
Mike Norris, Chief Executive of Computacenter plc,
commented:
'As we have predicted and announced on multiple occasions,
profitability for Computacenter was down in the first half of 2022
compared to the same period last year, however, we remain on track
to deliver our stated expectations of profit growth for the year as
a whole.
With the exception of networking products where difficulties
still remain, supply chain challenges have eased materially in the
last 3 months. However, our customers have become extremely
sensitive about supply chain shortages, and as such require us to
hold more inventory, impacting our balance sheet. In almost all
cases there is a guaranteed sale on the inventory items. The
continuing strength of our balance sheet gives us a significant
competitive advantage in being able to support our customers'
requirements in this manner. How this will unravel as customers get
used to the freeing up of supply remains to be seen.
While the pandemic has accelerated new ways of working the major
effects of Covid-19 are firmly behind us and we believe current
market conditions are the new normal. Our customers commitment to
investment in technology feels extremely robust despite well
publicised and difficult economic conditions around the world. This
gives us confidence for 2023 and beyond.'
A reconciliation between key ad justed(1) and statutory measures
is provided within the Group Finance Director's review contained in
this announcement. Further details are provided in note 5 to the
summary financial information contained within this
announcement.
Following a recently approved interpretation of the revenue
accounting standard by the International Accounting Standards
Board, we, and a number of our peer value added resellers, have
changed the way we recognise revenues for standalone software and
resold third-party services contracts and revised our accounting
policies to reflect this change. Accordingly, we have restated our
prior-period revenues down from GBP3,180.0 million as reported at
30 June 2021 to GBP2,425.1 million as we have now determined that
we are an agent for these transactions and will recognise revenue
on a net basis, with only the gross margin on these types of deals,
being the gross invoiced income less the costs of the resold
software or third party services, showing as revenue, with nothing
recorded in cost of goods sold. Further information on this change,
including the retrospective restatement of the financial
statements, and the revised accounting policy, is available in note
3 to the summary financial information contained within this
announcement.
(1) Gross invoiced income, adjusted administrative expense,
adjusted operating profit or loss, 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 gains 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 does
not consider these items when reviewing the underlying performance
of the Segment or the Group as a whole. A reconciliation to
adjusted 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 (GAAP) financial
measures, in addition to those reported in accordance with IFRS.
Further detail is provided within note 4 to the summary financial
information contained in this announcement.
(2) We evaluate the long-term performance and trends within our
strategic priorities on a constant-currency basis. The performance
of the Group and its overseas Segments are also 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. 2022 interim highlights, as
shown above, are provided in the reported pound sterling
equivalent.
(3) Adjusted net funds or adjusted net debt includes cash and
cash equivalents, other short or long-term borrowings and current
asset investments. Following the adoption of IFRS 16 this measure
excludes all lease liabilities. A table reconciling this measure,
including the impact of lease liabilities, is provided within note
12 to the summary financial information contained in this
announcement.
(4) Gross invoiced income is based on the value of invoices
raised to customers, net of the impact of credit notes and
excluding VAT and other sales taxes. This reflects the cash
movements from revenue, to assist Management and the users of this
announcement in understanding revenue growth on a 'Principal' basis
and to assist in their assessment of working capital movements in
the Consolidated Statement of Financial Position and Consolidated
Cash Flow Statement. This measure allows an alternative view of
growth in adjusted gross profit, based on the product mix
differences and the accounting treatment thereon. Gross invoiced
income includes all items recognised on an 'agency' basis within
revenue, on a gross income billed to customers basis, as adjusted
for deferred and accrued revenue. A reconciliation of revenue to
gross invoiced income is provided within note 5 to the summary
financial information contained in this announcement.
The term Group refers to Computacenter plc and its
subsidiaries.
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
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 2021 Computacenter Annual Report and Accounts, as
well as general economic and business conditions, industry trends,
competition, changes in regulation, currency fluctuations or
advancements in research and development.
Forward-looking statements speak only as of the date of this
announcement and may and often do, differ materially from actual
results. Any forward-looking statements in this announcement
reflect the Group's current view with respect to future events and
are subject to risks relating to future events and other risks,
uncertainties and assumptions relating to the Group's operations,
results of operations and growth strategy.
Neither Computacenter plc nor any of its subsidiaries undertakes
any obligation to update the forward-looking statements to reflect
actual results or any change in events, conditions or assumptions
or other factors unless otherwise required by applicable law or
regulation.
OUR INTERIM PERFORMANCE IN 2022
GROUP
Financial performance
Our business model is built on the three primary business lines
of Technology Sourcing, Professional Services and Managed Services,
and reinforces our position as having the largest Services business
of any valued added reseller, as well as the largest value added
reseller capability of any Services business worldwide.
Our strong trading performance over the six months to 30 June
2022 continues to demonstrate the resilience of our business model.
However, as we indicated in our Trading Update on 29 April 2022, ad
justed(1) profit before tax for the first half of the year is
behind the comparative period to 30 June 2021.
As discussed further below, we changed our revenue recognition
accounting policies during the period, including retrospectively.
The Group's revenues increased by 16.6 per cent to GBP2,826.7
million (H1 2021: GBP2,425.1 million) and were 16.0 per cent higher
in constant currency(2) . Gross invoiced income(4) increased by
20.8 per cent to GBP3,971.9 million (H1 2021: GBP3,287.6 million),
and by 19.9 per cent in constant currency(2) .
The Group made a profit before tax of GBP107.8 million, a
decrease of 6.4 per cent (H1 2021: GBP115.2 million). The Group's
ad justed(1) profit before tax decreased by 5.9 per cent to
GBP111.9 million (H1 2021: GBP118.9 million) and by 5.9 per cent in
constant currency(2) .
The difference between profit before tax and adjusted(1) profit
before tax relates to the net charge of GBP4.1 million (H1 2021:
charge of GBP3.7 million) from exceptional and other adjusting
items. In both the current and comparative period, this solely
comprises the amortisation of the acquired intangible assets
resulting from the Group's 2018 acquisition of FusionStorm and the
2020 acquisition of Pivot. Further information on these can be
found in the Group Finance Director's review contained in this
announcement.
Diluted earnings per share (EPS) decreased by 4.8 per cent to
67.3 pence (H1 2021: 70.7 pence). Ad justed(1) diluted EPS, the
Group's primary EPS measure, decreased by 4.5 per cent to 69.8
pence (H1 2021: 73.1 pence) in H1 2022.
Historically, revenues have been higher in the second half of
the year than in the first six months, principally due to customer
buying behaviour. This typically leads to a more pronounced effect
on operating profit.
However, the impact of Covid-19 and the more recent supply
shortages for IT equipment materially altered customer buying
behaviours in 2020 and 2021, including the split of sales volumes
between the first and second halves of the year. In 2021 an
abnormally high percentage of our full-year profits came in the
first half of the year, which means we have a more challenging
comparison for the first half of 2022 than for the second half.
During 2022 we have seen these unusual buying patterns reversing
and the re-emergence of seasonality that is closer to our
historical norms. Ad justed(1) profit before tax for H1 2022 is
therefore behind that in H1 2021. In addition, the unwinding of
some of the Covid-19 related impacts of higher employee charge-out
utilisation with less travel time and lower travel costs has also
impacted the first half results. We have also seen a shift to lower
margin product generally across the business, mainly due to supply
chain shortages. Whilst we remain somewhat affected by supply
shortages in networking IT equipment, we expect customer buying to
be more weighted towards the second half of the year leading, once
again, to a more pronounced effect on operating profit in the
second half which we expect to have a higher proportion of the full
year operating profit than we have seen in the previous two years.
We therefore have confidence for the full year, even though much
work remains to be done.
Trading across all of our major geographies was pleasing
throughout the period, with particular strength at the end of the
second quarter. Indications are that this trading momentum has
continued into the early part of Q3 2022.
Whilst demand has remained high, with order books continuing to
build, the driver of customers' IT purchasing has shifted away from
short-term pandemic responses. Key customers are now focused on
supply issues and the short to medium-term impacts of the economic
downturn, as they look to reengineer IT structures and employ
digital transformation to cope with the ever-evolving technology
landscape, the need to reduce non-IT operating costs and increasing
cyber threats.
As the public health challenges of Covid-19 continue to reduce,
we have retained the flexible working practices we introduced
during the pandemic. The vast majority of our employees now split
their time between home and office, with those employees required
on customer sites now able to work in a similar way to before the
pandemic. We thank all of our people for the continuing flexibility
and dedication they have shown, to cope with the changing external
environment and our move to hybrid working.
Computacenter resells, deploys and manages vendor technology for
customers. This means we are a fundamentally people-centric
business. Customers remain loyal to Computacenter because of the
quality of our people and this will always be the case. However
there are a number of other assets that we employ such as our
Service and Integration Center facilities, methodologies, best
practices, a track record of performance, and in particular, great
systems. We invest many millions of pounds every year in improving
and supporting these systems, which give us a competitive advantage
in a business which is about scale, repeatability and agility.
Our systems need to be robust, secure and able to handle large
volumes. They also have to be simple to use and adaptable to most
customer eventualities. The vast quantities of product we are
holding for customers (see below) put massive pressure on our
operations and systems, as customers call off this stored
technology piecemeal and at short notice, often to thousands of
different users' home addresses. We prioritise our plans for
systems development, other investments in time and capital, in
response to the everchanging environment in which we operate. In
Germany, our focus on growing the workplace business has absorbed
significant capacity in our Integration Center facility, leading to
its expansion.
We remain extremely saddened and concerned by the war in Ukraine
and offer our deepest sympathies and support to the Ukrainian
people. Whilst our business in Russia was extremely limited, we
have completely ceased our activities there as the international
customers we supported in-country through third-party contractors
have closed their operations. However, the war's impact on the
global macro-economic environment, including the exacerbation of
the supply chain issues currently being experienced, continues to
impact our business.
There are clearly many other challenges in the world and we,
like most companies, are affected by wage inflation associated with
the macro-economic disruption, and supply chain shortages, but
these will offer us opportunities to differentiate from our
competition with superior execution. Supply chain constraints
remain forefront of our customers' minds and their planning. Whilst
product availability varies by vendor and product line, product
shortages have materially affected the supply of key networking
equipment for our customers throughout the year, with some orders
being substantially delayed or only partly fulfilled. In a number
of geographies we have been able to replace decreased sales volumes
from selling less networking and data center hardware, where supply
is most restricted, with increased workplace volumes, where supply
is more available, but of a lower margin quality. Although this
affects our gross profits in the short term, due to the strong
growth in the workplace business which is more commoditised, we are
pleased by the flexibility and creativity shown by the sales
teams.
The Group continues to carry more inventory than normal, as we
hold stock for orders that we cannot deliver without a critical
part or where customers have ordered early and subsequently delayed
delivery, as their data center facilities, and other
establishments, are not ready.
Total inventory across the Group was GBP144.9 million higher at
30 June 2022 than at 30 June 2021. While inventory growth has begun
to settle across the business, we do not expect inventory to return
to normal levels until there is a longer-term supply
improvement.
The Group had GBP399.3 million of inventory as at 30 June 2022,
an increase of17.0 per cent during the period (31 December 2021:
GBP341.3 million) and an increase of 15.4 per cent in constant
currency(2) . Whilst we have already been paid for some of this
inventory, customers are committed to taking nearly all of the rest
of the holding, so it's a largely risk free position. However as
the volumes have increased, they have filled up our Integration
Centers.
With certain hyperscale customers now placing firm orders for
delivery in Q3 of 2024, our product order backlogs across all
geographies are at all-time highs and considerably larger than at
both 30 June 2021 and the end of 2021. The committed order backlog
at the period end was approximately GBP3.4 billion on a gross
invoiced income basis, a 41.3 per cent increase since 31 December
2021 (GBP2.4 billion) in constant currency(2) . Whilst the Managed
Services contract base and the Professional Services forward order
book have always given us better visibility of future revenues in
these areas, the rapidly increasing Technology Sourcing backlogs,
partly due to the increasing trend for customers to order in
advance, mean that we now have much greater visibility of future
revenues than ever before. This gives us a high degree of
confidence that the Technology Sourcing business will be well
placed in the year ahead.
The Group has seen significant currency translation movements as
the pound sterling has fluctuated against other currencies,
particularly the US dollar and the euro, which impacts us the most.
Further information on currency impacts is available in the Group
Finance Director's review contained in this announcement.
Whilst both gross invoiced income and revenues saw strong growth
in the year, the product mix and surging levels of business with a
small number of North American hyperscalers during the period have
negatively impacted gross margins for the Group. Overall, Group
gross margins, expressed as gross profits as a percentage of
revenue, fell to 15.0 per cent (H1 2021: 17.5 per cent).
Administrative expenses increased by 2.7 per cent to GBP314.8
million (H1 2021: GBP306.5 million). We continue to apply the
cost-management lessons from the Covid-19 crisis, to ensure that as
costs inevitably return due to factors such as increased travel,
they remain lower than before, resulting in a more efficient
business. In addition, we have reviewed our office footprint across
our major geographies and will look to rationalise the estate where
locations are no longer necessary, or could be reduced in size, due
to our people and our customers' workforces adopting flexible
working. Ad justed(1) administrative expenses increased by 2.6 per
cent to GBP310.7 million (GBP302.8 million), and by 2.2 per cent in
constant currency(2) .
Following a recently approved interpretation of the revenue
accounting standard by the International Accounting Standards
Board, we, and a number of our peer value added resellers, have
changed the way we recognise revenues for standalone software and
resold third-party services contracts and revised our accounting
policies to reflect this change. Historically, we had considered
ourselves the principal in the arrangement and largely recognised
these transactions on a principal or gross basis, with the gross
invoiced income, represented by the invoiced amount to customers,
reported as revenue and the cost of the resold software or services
reported as cost of goods sold. Subsequent to the approval of the
interpretation of the revenue accounting standard by the
International Accounting Standards Board we have now determined
that we are an agent for these transactions and will recognise
revenue on a net basis, with only the gross margin on these types
of deals, being the gross invoiced income less the costs of the
resold software or third party services, showing as revenue, with
nothing recorded in cost of goods sold. Further information on this
change, including the retrospective restatement of the financial
statements, and the revised accounting policy, is available in note
3 to the summary financial information contained within this
announcement.
We will continue to show our gross invoiced income as an
alternative performance measure. Gross invoiced income includes all
items recognised on an 'Agency' basis within revenue, on a gross
income billed to customers basis, as adjusted for deferred and
accrued revenue and net of the impact of credit notes and excluding
VAT or other sales taxes. This reflects the cash movements from
revenue, to assist Management and the users of the summary
financial information contained within this announcement in
understanding revenue growth on a 'Principal' basis and to assist
their assessment of working capital movements in the Consolidated
Statement of Financial Position and Consolidated Cash Flow
Statement. This alternative performance measure also allows an
alternative view of growth in ad justed(1) gross profit, based on
the product mix differences and the accounting treatment thereon. A
reconciliation of revenue to gross invoiced income is provided
within note 5 to the summary financial information contained within
this announcement.
Looking at our performance by geography, the UK in particular
has seen the very strong demand for workplace rollouts decline for
the first time in two years. This was expected, as the Windows 10
deployment cycle comes to an end. Professional Services growth has
settled back slightly following an excellent 2021, as workplace
deployment support contracts reduced alongside the demand for
Technology Sourcing. Managed Services increased slightly, with
newer contracts offsetting older contracts that ceased in the
period.
The German business has seen pleasing Technology Sourcing
revenue growth during the period, with significant increases in
workplace hardware and software. Professional Services once again
saw double digit growth, with the business continuing to expand
capacity and its offerings. Managed Services generated excellent
growth, benefitting from contract wins in 2021.
In North America, the results were driven by continued
extraordinary growth in hyperscale data center customers, as well
as new customer wins. The growth was achieved in both Technology
Sourcing and Services, as deployment project activity
increased.
The French business saw Technology Sourcing revenues return to
growth as significant customers increased spend, with a number of
enterprise-level private sector customers and large public-sector
framework contracts increasing purchasing activity. Margins
improved as these customers invested in significant server rack
installations. The integration of Computacenter NS remains on
track. As expected, the acquisition had a negative impact on growth
in Professional Services revenue in the period, as older contracts
ceased. This was more than offset by pleasing growth in Managed
Services.
The International Segment has improved significantly on H1 2021,
with strong growth in all areas and critical contracts in each of
the primary European trading entities of Belgium, Switzerland and
the Netherlands all delivering ahead of expectations in the
period.
Technology Sourcing performance
The Group's Technology Sourcing revenue increased by 20.7 per
cent to GBP2,074.2 million (H1 2021: GBP1,719.0 million) and by
19.1 per cent on a constant currency(2) basis. Overall Group
Technology Sourcing margins decreased by 191 basis points during
the period, mainly due to customer and product mix changes.
Technology Sourcing Gross Invoiced Income increased by 24.7 per
cent to GBP3,219.4 million (H1 2021: GBP2,581.5 million) and by
23.1 per cent on a constant currency(2) basis.
The UK Technology Sourcing business saw a significant reduction
in revenue, as the demand for workplace rollouts declined. The UK
saw pleasing growth in higher-margin data center business, as the
market in this area continues to expand rapidly, although the
volumes were not sufficient to replace the workplace business.
Significant increases in low-margin software and resold services
impacted Gross Invoiced Income, but are reported net for Technology
Sourcing revenues.
In Germany, Technology Sourcing revenue saw strong growth as the
business successfully increased its focus on the workplace market.
The rapidly increased volumes helped to offset business lines such
as data center and networking, which are the most significantly
impacted by the supply situation, but this success has led to
extraordinary volumes of inventory being processed through our
Integration Center in Kerpen, which has never dealt with workplace
volumes of this scale. As the business adjusts to cope, short-term
handling costs and the lower margins of the workplace product have
impacted gross profits.
The French Technology Sourcing revenue increased, as demand
returned in the period from some major customers.
The North American Technology Sourcing business saw revenues
surge. This growth was concentrated in a small number of hyperscale
technology customers, which have a much lower than average
margin.
Services performance
The Group's Services revenue increased by 6.6 per cent to
GBP752.5 million (H1 2021: GBP706.1 million) and by 8.1 per cent on
a constant currency(2) basis. Within this, the Group's Professional
Services revenue increased by 12.3 per cent to GBP298.4 million (H1
2021: GBP265.6 million), and by 13.3 per cent on a constant
currency(2) basis, while the Group's Managed Services revenue
increased by 3.1 per cent to GBP454.1 million (H1 2021: GBP440.5
million), and by 4.8 per cent on a constant currency(2) basis.
Overall Group Services margins decreased by 335 basis points during
the period. We have seen increasing costs and lower utilisation as
we exit the Covid-19 pandemic. In addition, we have continued to
invest ahead of demand in the Professional Services business with
an impact on recruitment, training and initial start-up utilisation
impact, especially in the UK.
UK Services revenue was flat overall, primarily due to a slight
decrease in Professional Services work related to the slowdown in
workplace deployments.
Our German Managed Services have grown strongly, as customer
volumes are now back to pre-Covid-19 levels and contract wins and
scope extensions in 2021 have fed through to the results. The
Professional Services business continues to see strong growth year
after year, albeit with margins reducing due to increases in the
cost base and investments in capacity and resourcing that will come
on stream.
Our French Services business saw a reduction in Professional
Services, as a number of older CCNS contracts came to an end as
expected. Good growth in Managed Services was attributed to new
contracts coming on stream, albeit at lower initial margins as the
contracts build volumes.
In North America, Professional Services revenue has seen
excellent growth, as deployment projects increased significantly
and we benefitted from several nationwide retail rollouts.
Outlook
As we have predicted and announced on multiple occasions,
profitability for Computacenter was down in the first half of 2022
compared to the same period last year, however, we remain on track
to deliver our stated expectations of profit growth for the year as
a whole.
With the exception of networking products where difficulties
still remain, supply chain challenges have eased materially in the
last 3 months. However, our customers have become extremely
sensitive about supply chain shortages, and as such require us to
hold more inventory, impacting our balance sheet. In almost all
cases there is a guaranteed sale on the inventory items. The
continuing strength of our balance sheet gives us a significant
competitive advantage in being able to support our customers'
requirements in this manner. How this will unravel as customers get
used to the freeing up of supply remains to be seen.
While the pandemic has accelerated new ways of working the major
effects of Covid-19 are firmly behind us and we believe current
market conditions are the new normal. Our customers commitment to
investment in technology feels extremely robust despite well
publicised and difficult economic conditions around the world. This
gives us confidence for 2023 and beyond.
United Kingdom
Financial performance
Revenues in the UK business decreased by 7.1 per cent per cent
to GBP653.8 million (H1 2021: GBP703.4 million).
Technology Sourcing revenues were 10.5 per cent lower, in large
part because of reduced demand in workplace, which had been a
strong driver of growth in the previous two years. This also
affected demand for technology roll outs in Professional Services,
where revenues were 3.3 per cent down. Revenues in Managed Services
were slightly
up, as new contract wins were offset by contracts lost in the
prior year.
Whilst demand from public sector customers is not as buoyant as
during the pandemic, and is unlikely to reach those levels again in
the near-term, we are confident that spending remains at normal
pre-pandemic levels. However, the private sector is performing
better, particularly as customers return to their offices. Overall,
we remain on track to
deliver growth in both revenue and profit in the second half of
the year and for the full year as a whole.
We have continued to broaden our customer base, benefiting from
the investment in the salesforce we reported in our 2021 results.
This enabled us to expand what we sell to existing customers and to
attract new customers. We are confident that these relationships
will strengthen over time and, when combined with our desire to be
relevant to more customers in our target market, we believe they
will deliver further growth.
Our people costs have increased as inflation has pushed salaries
up and we have had to pass most of this on to our customers,
through higher rate cards.
Overall gross margins in the UK increased by 101 basis points,
with total ad justed(1) gross profit at 19.9 per cent of revenues
(H1 2021: 18.9 per cent). This gross margin ratio increase was
assisted by a higher proportion of software and resold services in
H1 2022 where the margins are recorded directly as net revenue. Ad
justed(1) gross profit was 2.1 per cent lower at GBP130.3 million
(H1 2021: GBP133.1 million).
Administrative expenses increased by 4.8 per cent to GBP85.3
million (H1 2021: GBP81.4 million). This was driven by the impact
of inflation on people costs, as well as the return of both
domestic and international travel. We are carefully managing travel
as we exploit the technology available to allow hybrid working
where appropriate, whilst applying a carbon travel levy to ensure
that our travel choices are more carbon efficient. As a result,
travel overall currently remains below pre-pandemic levels.
Ad justed(1) operating profit was 13.0 per cent lower at GBP45.0
million (H1 2021: GBP51.7 million).
Technology Sourcing performance
Technology Sourcing revenue decreased by 10.5 per cent to
GBP421.9 million (H1 2021: GBP471.2 million). Technology Sourcing
margins increased by 304 basis points compared to the first half of
2021.
We saw a dampening in demand for hardware in the first half.
This was primarily in the workplace area, as some customers
completed Windows 10 rollouts which they had accelerated during the
pandemic. We now expect a lag as we await customer adoption of
Windows 11, which is likely to be more significant in 2023 and
2024. Reduced workplace activity also affected utilisation, and
cost absorption, of our Integration Centre, where we configure
devices for customers, and associated value-add activity
margins.
In the Enterprise space, we are seeing good growth in our data
center and cloud business, as we modernise existing data centers
and help customers to adopt public cloud offerings. In networking,
customer demand is up but our ability to deliver to customers has
been affected by product shortages in the supply chain, which held
back revenues in the period. Overall, we have seen significant
growth in our product order backlog, which is up 18.9 per cent
since the start of the year and by 42.0 per cent since the same
point last year on a gross invoiced income basis.
Elsewhere in Technology Sourcing, we have seen good growth in
our software business, as well as in resold services. Neither of
these areas is subject to the supply chain issues that have
affected hardware sales, allowing us to rapidly fulfil customer
demand.
Services performance
Services revenue was flat at GBP231.9 million (H1 2021: GBP232.2
million). Professional Services declined by 3.3 per cent to GBP72.5
million (H1 2021: GBP75.0 million). Managed Services revenue was
1.4 per cent higher at GBP159.4 million (H1 2021: GBP157.2
million). Services margins decreased by 350 basis points when
compared to the prior period, with margins held back slightly by
higher employment costs that we have not yet been able to pass
on.
The lower workplace demand in Technology Sourcing also had an
impact on Professional Services, where our teams roll out
technology that we have sold to our customers. We have seen growth
in supporting customers to adopt public cloud, as well as in
expanding and securing customer networks. There has also been
significant growth in our resources on demand business, where we
provide specialist resource to support our customers' operations.
At the same time, there has been a slight decline in the number of
large programmes of work that are on an outcome based commercial
model. The pipeline for Professional Services is particularly
strong for the next 12 months, giving us confidence that growth
opportunities are realisable.
Revenue in Managed Services was broadly flat, as discussed
above. We have seen an uptick in logistics-based and maintenance
services, and particular interest in global end user services,
where we are confident in our delivery capabilities. We have some
significant opportunities to close in the second half, which gives
us confidence of growth into
2023.
In 2021, we won a significant Managed Services contract with a
large retail bank, to provide a device-as-a-service model with
worldwide support coverage and Technology Sourcing embedded in the
contract. We have successfully transitioned some of the customer's
key countries to the new model at the end of the first half, with
further countries to follow in the second half of the year.
Germany
Financial performance
Total revenue increased by 10.2 per cent to EUR941.0 million (H1
2021: EUR854.2 million) and by 6.8 per cent in reported pound
sterling equivalents(2) .
The German business delivered a pleasing overall performance in
the first half. Against a difficult market backdrop and a strong
comparative period, our double-dight top line growth was above
expectations, while the bottom line was slightly below our
aspirations. This performance reflects our robust competitive
position, including our focus on enterprise customers and major
public sector organisations, and the increasing importance of our
international capabilities. We expect a much stronger performance
in the second half of the year, with continued revenue growth and
profitability in line with our expectations.
The market uncertainties are mainly due to the war in Ukraine,
the consequences of which are unforeseeable, and the continuing
shortages of products, especially in the area of networking. Long
lead times are causing customers to order in very large quantities
well ahead of when they need the products, contributing to very
high inventory and activity levels in our Integration Center in
Kerpen. This is our biggest challenge at the moment and we have
therefore expanded our warehouse and logistics space by 20,000 m(2)
to 55,000 m(2) , which will bring us relief in the second half of
the year. The very competitive labour market is also making it
difficult to recruit additional skills and, above all, to expand
our sales force as we had planned, while high inflation is putting
upward pressure on salaries.
Our strong position is helping us to grow our market share
despite the quality of our competition. Our public sector business
is a notable plus for us and demand remains high, with the pipeline
promising good potential for the future. We are opening up a new
customer segment in education and significantly expanding our sales
capacities in most federal and state authorities. In the enterprise
market, we have developed a retail customer into a potential
strategic customer for Computacenter, and successfully renewed a
large Managed Services contract with a customer in aerospace
research. However, we were unable to renew a workplace contract
with a large automotive supplier that we had held over several
contract cycles, and we were also unable to conclude a new contract
with a large automotive manufacturer, which we are now only
providing in part. On the Professional Services side, we further
expanded the business even under difficult conditions and achieved
good project successes, including on an international basis.
Ad justed(1) gross profit decreased by 2.2 per cent to EUR166.3
million (H1 2021: EUR170.1 million) and reduced by 5.1 per cent in
reported pound sterling equivalents(2) . Margins in Germany
decreased by 222 basis points, with ad justed(1) gross profit
decreasing from 19.9 per cent to 17.7 per cent of revenues as
explained below in the Technology Sourcing and Services performance
areas.
Administrative expenses increased by 1.2 per cent to EUR100.6
million (H1 2021: EUR99.4 million), and reduced by 2.1 per cent in
reported pound sterling equivalents(2) .
Ad justed(1) operating profit for the German business decreased
by 7.1 per cent to EUR65.7 million (H1 2021: EUR70.7 million) and
by 9.3 per cent in reported pound sterling equivalents(2) .
Even though the geopolitical and economic situation in Germany
is unpredictable, we are continuing to invest for growth. We remain
convinced that enterprise companies and public clients must
continue to invest in expanding their IT infrastructures and in
digitalisation projects. Furthermore, the shortage of skilled
workers is adding impetus for Professional and Managed Services
projects. Requirements are becoming increasingly global, which
should also benefit us.
Technology Sourcing performance
Technology Sourcing revenue increased by 11.2 per cent to
EUR551.5 million (H1 2021: EUR496.0 million) and by 7.8 per cent in
reported pound sterling equivalents(2) . Technology Sourcing
margins remained strong but slipped by 135 basis points over the
same period last year.
We significantly increased turnover in this segment in the first
half of the year, while margins were slightly lower, as a result of
greater competition, significantly increased handling costs and a
shift in business mix. Software volumes have increased while
profitable hardware framework contracts either cannot be serviced
or deliveries are delayed due to non-availability of mainly
networking products. Manufacturers are also giving preference to
large-volume workplace contracts, where we achieve lower
margins.
Looking ahead, whilst we believe these developments will
continue for the second half of the year and beyond, we also expect
to continue to grow strongly. This will put additional demands on
our delivery capacities in our Integration Centers but the capacity
expansion should stabilise this in the second half of the year.
Furthermore, whilst product shortages will continue, we expect
significantly improved delivery capacity, especially in the area of
networking and data center components. Our product order backlog
has grown 11.5 per cent since the start of the year and is up by
86.0 per cent since the same point last year on a gross invoiced
income basis.
Overall, we expect Technology Sourcing revenues for 2022 to be
significantly above the previous year, with an outcome slightly
above our internal forecasts set at the end of last year.
Services performance
Services revenue grew by 8.7 per cent to EUR389.5 million (H1
2021: EUR358.2 million) and by 5.5 per cent in reported pound
sterling equivalents(2) . This included Professional Services
growth of 13.3 per cent to EUR177.0 million (H1 2021: EUR156.2
million), an increase of 9.9 per cent in reported pound sterling
equivalents(2) , and a Managed Services increase of 5.2 per cent to
EUR212.5 million (H1 2021: EUR202.0 million), an increase of 2.1
per cent in reported pound sterling equivalents(2) . Services
margins decreased by 334 basis points over the period.
The Services business also recorded significant growth in the
first half of the year. This was driven by both our Professional
Services business and Managed Services. In the latter, we are
benefiting from deals won in 2021 and expansion of the existing
business. In Professional Services, we grew in all solution lines
and expanded the business. We were also able to benefit more from
the nearshore and offshore capacities we have created. We are
increasingly seeing growth in international business, in both the
Professional and Managed Services businesses. Our global presence
and the opportunities we have created in the near and offshore area
are boosting business and have potential for the future.
The Services margin is weaker than in the same period last year.
In Managed Services, we are recording a stable margin despite
increased salary costs, as our improvement, efficiency and
optimisation measures of the last 18 months are taking effect.
On the Professional Services side, we have recorded a decline in
margins, which is due to two effects. We currently have ongoing
transformation projects that have been set up as planned for the
new Managed Services win. However margins are usually much lower at
the beginning of a project than will be realised over the lifetime
of the project. We are also seeing higher salaries, due to the
necessary adjustments to the new market level. It will take some
time for these increased costs to be effectively passed on to the
customer.
A shift towards more normal employee availability levels
post-Covid-19 and our investments for growth also reduced margins
against the comparative period. In the first half of 2021, we had
very high availability, especially in consulting, as Covid-19
restrictions meant we had a very low sickness rate and few
employees taking holidays. We also incurred virtually no travel or
event costs. In the first half of this year, on-site activities and
travel have increased, although they remain below pre-pandemic
levels, and sickness and holiday rates are at normal levels. In
addition, we have increased investments in additional resources,
with new joiners having a high need for training and therefore
taking time to reach a normal workload. These investments are
sensible and necessary to ensure future growth.
In summary, we are satisfied with the development of our
business in the Services sector and there is potential to address
even more opportunities with our customers. This requires, above
all, senior skills in consulting and engineering, which we are
trying to recruit with all our energy and attention.
The outlook for the second half of the year is positive and we
expect further growth.
France
Financial performance
Revenue increased by 2.4 per cent to EUR318.8 million (H1 2021:
EUR311.2 million). In reported pound sterling equivalents(2) ,
revenue was reduced by 0.7 per cent.
In the context of worldwide geopolitical and economic
challenges, our French business made progress in the first half of
2022. Continued component shortages caused the Technology Sourcing
backlog to grow during the period but we succeeded in growing our
Technology Sourcing revenues compared to last year.
Towards the end of 2020, we acquired BT's domestic services
operations in France and renamed the subsidiary Computacenter NS
(CCNS). From an operational point of view, we have integrated
approximately 80 per cent of CCNS staff into the Computacenter
Group model which will generate efficiencies in the operating model
going forward. In the first half, we started a project to integrate
the last two independent activities (network maintenance and 24/7
data center, network and security operations) into the Group
delivery structure. We aim to finalise this integration by the end
of the year.
It was clear when we bought CCNS that it would incur some losses
in the first few years of integration. Whilst we benefitted in 2021
from contracts and projects that started before the acquisition, we
knew that this business would decline in 2022 as some contracts
would not be renewed or extended. Despite a promising pipeline, we
struggled to compensate for these losses in the first half but
remain optimistic about reporting good progress in the second half
of the year.
Ad justed(1) gross profit increased by 0.3 per cent to EUR37.9
million (H1 2021: EUR37.8 million) and reduced by 2.1 per cent in
reported pound sterling equivalents(2) . Margins in France
decreased by 18 basis points, with ad justed(1) gross profit
decreasing from 12.1 per cent to 12.0 per cent of revenues.
The improved contribution in the period came mainly from our
Technology Sourcing activities where volumes were slightly
ahead.
Administrative expenses decreased by 6.7 per cent to EUR37.4
million (H1 2021: EUR40.1 million), and by 9.2 per cent in reported
pound sterling equivalents(2) .
Ad justed(1) operating profit for the French business increased
by EUR2.8 million to a profit of EUR0.5 million (H1 2021: a loss of
EUR2.3 million), and by GBP2.5 million in reported pound sterling
equivalents(2) .
Compared to the previous year, our operating profit for the
first half showed signs of improvement but we can still further
improve our results, by optimising resource utilisation across all
service departments.
We had hoped to enter a period of economic growth after the
pandemic but current economic forecasts are quite pessimistic for a
variety of reasons, including the war in Ukraine. Companies will
not be immune from these challenges and they will start to think
about reducing their costs and transforming their businesses to
stay competitive. This gives us both a challenge and an
opportunity. Customers driving down costs will affect our volume
business but transformation programmes very often include a
digitalisation aspect, where we can help our customers succeed by
offering them innovative and futureproof solutions.
Technology Sourcing performance
Technology Sourcing revenue increased by 2.6 per cent to
EUR217.1 million (H1 2021: EUR211.7 million) and reduced by 0.5 per
cent in reported pound sterling equivalents(2) . Technology
Sourcing margins increased by 192 basis points.
Continued component shortages kept us very busy during the first
half, as we spent a lot of time with technology partners and
customers, managing delivery date challenges and offering
alternatives. The Technology Sourcing order backlog again increased
significantly during the period, with 17.3 per cent growth since
the start of the year and 51.9 per cent growth since the same time
last year. We believe that the worldwide shortages will remain a
challenge throughout the rest of the year and probably for a
considerable period in 2023.
Thanks to our top-level certifications with all the important
technology partners worldwide and our international service
capability, we have identified multiple large framework
opportunities where we can help large, international customers to
deliver and install standardised equipment in all their locations
worldwide. We are pleased to see that technology partners have
started to recommend Computacenter to large enterprises, as the
partner of choice for value added reselling with outstanding
worldwide service capabilities.
Our French public sector business remains an important
contributor overall, and a key part of our Technology Sourcing
success, and we have seen some pleasing framework contract wins
around collaboration and networking that will start delivering
results in the second half of the year.
Services performance
Services revenue increased by 2.2 per cent to EUR101.7 million
(H1 2021: EUR99.5 million) and decreased by 1.0 per cent in
reported pound sterling equivalents(2) . Professional Services
revenue decreased by 3.4 per cent to EUR22.8 million (H1 2021:
EUR23.6 million), which was a decrease of 6.8 per cent in reported
pound sterling equivalents(2) . Managed Services revenue increased
by 4.0 per cent to EUR78.9 million (H1 2021: EUR75.9 million), an
increase of 0.8 per cent in reported pound sterling equivalents(2)
. Services margins decreased by 468 basis points.
Delays in starting some Professional Services projects in the
period, along with the decline in volumes and therefore utilisation
in CCNS noted above, resulted in a significant impact on
contribution and a weak first half for Professional Services as a
whole. In addition, and as planned as part of the CCNS acquisition,
we have spent EUR0.7 million during the period, reducing gross
margins, to move a data center utilising internal resources. We are
optimistic about improving our results in the second half, based on
the strong Professional Services pipeline for the rest of the
year.
Following successes elsewhere in the Group, we identified the
opportunity to focus on our resource on demand (ROD) practice,
which helps customers to succeed by providing specialised resources
on a time and materials basis. Although it is not always easy to
find resources with specific skills, we have seen pleasing growth
in our ROD practice.
Our Managed Services contribution remained broadly flat but with
many underlying changes. We were successful in winning new
contracts in 2021, which compensated in the first half for the lost
contribution from contracts we knew would come to an end this year.
As often happens at the start of new contracts, they are not yet
delivering the predicted contributions and we are working hard to
optimise their profitability. Additionally, we agreed with a
customer to review the scope and delivery period of an
underperforming contract to increase the positive outcomes for both
parties.
Sales cycles for our Managed Services solutions are typically
long, and we were pleased to conclude a network operations contract
with one of our largest podium customers at the beginning of the
year.
In addition to developing a pipeline of new Managed Services
contracts, we will also focus in the second half of the year on
renewing a few important Managed Services and network maintenance
contracts we have had in place for many years.
North America
Financial performance
Total revenue increased by 48.3 per cent to $1,301.7 million (H1
2021: $877.7 million). In reported pound sterling equivalents(2) ,
total revenue was up 58.9 per cent.
Growth in North America was driven by continued growth in
hyperscale data center customers, as well as new customer wins. The
growth was achieved in both Technology Sourcing and Services.
The Technology Sourcing business saw significant revenue growth.
However, this was concentrated in a small number of hyperscale
customers where account margins are materially lower than average,
due to the volumes addressed. Global supply chain challenges
continue to impact the Technology Sourcing business. Product order
backlog, where we have confirmed orders but no supply, has
increased by over $230 million since 30 June 2021, excluding a
single major hyperscale customer. This single customer's product
order backlog has increased by $1,842 million over the same period,
with committed orders being placed for delivery into Q3 2024.
Overall the backlog is 64.7 per cent higher since the beginning of
the year.
Professional Services margins improved compared to the prior
period, due to higher volume resulting in better utilisation across
the Services organisation. The Managed Services business reported
lower margins year-on-year, due to a combination of customer mix
and lower margins on projects in their early stages.
Overall, margins in North America decreased by 483 basis points,
with ad justed(1) gross profit decreasing from 14.9 per cent to
10.1 per cent of revenues. We have seen exceptional growth with one
hyperscale customer where we supply large volumes on a direct
delivery basis with lower than normal value added levels and
therefore at significantly reduced margins.
Ad justed(1) gross profit grew by 0.5 per cent to $131.6 million
(H1 2021: $130.9 million) and by 7.5 per cent in reported pound
sterling equivalents(2) .
Administrative expenses increased by 0.3 per cent to $105.3
million (H1 2021: $105.0 million), and by 7.3 per cent in reported
pound sterling equivalents(2) . Within this there has been growth
in travel costs, as Covid-19 restrictions have loosened, further
investments in additional capabilities to support hyperscale
customers, and higher than historical average increases in
compensation due to wage inflation. These were mostly offset by
lower facility costs and foreign currency exchange gains.
The lower facility costs were driven by reduced facility size in
San Antonio, Texas, combining locations in Dallas, Texas, and
exiting two facilities in California. North America is expanding
its Integration Center capability overall, with new larger
facilities in Washington and Indiana to better allocate capacity
across the business's expanding geographical footprint in the
Continental USA.
Ad justed(1) operating profit for the North America business
increased by 1.5 per cent to $26.3 million (H1 2021: $25.9
million), and by 8.6 per cent in reported pound sterling
equivalents(2) .
The increase in ad justed(1) operating profit compared to a very
strong first half of 2021 was achieved while investing in new
capabilities and expanding the portfolio, largely focused on adding
workplace capabilities and continued hyperscale capability. North
America continues to manage through its system conversions to the
Group ERP system and is preparing to migrate the Pivot business in
2023.
After the period end, the Group completed the acquisition of
Business IT Source (BITS), a regional value added reseller which
provides additional geographic reach to North America, allowing us
access to significant new markets. The acquisition of BITS will
primarily benefit the North American Technology Sourcing
business.
Technology Sourcing performance
Technology Sourcing revenue increased by 47.7 per cent to
$1,215.8 million (H1 2021: $823.3 million) and by 58.3 per cent in
reported pound sterling equivalents(2) . Technology Sourcing
margins decreased by 505 basis points over the same period last
year.
The growth was driven by increased spending by hyperscale
customers, growth in sales to international customers with
operations in the United States, as well as a material new customer
win in the financial services sector. Technology Sourcing has grown
in 'drop-ship' revenue, where products are delivered directly from
the vendor, and experienced a decline in integration driven
revenue. This leads to less opportunities to add value to the
transaction and decreases the utilisation of our facilities and
personnel leading to lower cost absorption.
Compared to the same period in 2021, we saw a similar technology
spending mix amongst major partners and technologies, particularly
in the data center and networking lines of business. We continue to
have a very high order backlog, which has been impacted by the
well-publicised continuing supply chain shortages. This supply
shortage has also resulted in continued high inventory levels,
which we saw in 2021. Inventory levels are up by approximately 17.1
per cent for North America since 30 June 2021, totalling $247.9
million (H1 2021: $211.6 million), but have decreased by 13.5 per
cent from $286.4 million at 31 December 2021. Hyperscale customers
have ordered in advance of the normal demand profile, which should
return to a more normal level when the supply chain shortages are
resolved.
We benefited from significant continuing investments by our
customers, as they 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.
Technology Sourcing margins reduced as a result of significant
revenue growth with hyperscale customers that command a lower
margin profile, coupled with a reduction in in our usually
higher-margin server rack fabrication business, typically also
concentrated within hyperscale customers, which has experienced a
slowdown. This decline in rack fabrication is expected to continue
during the second half of the year, as rack volume demand has
decreased overall from that seen during 2021. Further, as the
increase in revenue was primarily direct delivery, lower
Integration Center activity resulted in lower absorption of the
fixed cost base. We continue to see significant activity and
opportunity for our Integration Center, including complex
distributed branch rollouts, as well as global data center
build-out projects for our hyperscale customers. However the
probability and timing of these opportunities are difficult to
predict.
Services performance
Services revenue increased by 57.9 per cent to $85.9 million (H1
2021: $54.4 million) and by 69.1 per cent in reported pound
sterling equivalents(2) . Professional Services revenue increased
by 62.3 per cent to $68.8 million (H1 2021: $42.4 million), which
was an increase of 74.1 per cent in reported pound sterling
equivalents(2) . Managed Services revenue increased by 42.5 per
cent to $17.1 million (H1 2021: $12.0 million), which was an
increase of 51.7 per cent in reported pound sterling equivalents(2)
. Services margins decreased by 157 basis points.
North American Services revenue growth was primarily due to
significant deployment projects, with several large ongoing
projects with country-wide retail customers. Project activity has
continued to recover after customers delayed expected projects
while they responded to Covid-19 in 2020 and into 2021.
The decrease in margins is due to certain Managed Service
projects, which are in their first year of operation, which tends
to be lower margin whilst the project scales up and efficiencies
are generated. Further impacts on the margin percentage include the
lower margins generated from the significant deployment projects
seen during the period. In addition, wage inflation, particularly
for scarce technical resources, has been higher than expected and
more than in prior periods, which is contributing downwards
pressure on Services margins.
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.
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, and the Professional
Services Centre of Excellence in Romania, which have limited
external revenues as they charge the relevant Group subsidiaries
for the services provided.
The newly acquired Emerge business joins the International
Segment, with Services delivery locations in Japan, Australia,
Singapore and Hong Kong.
Financial performance
Revenues in the International business increased by 38.2 per
cent to GBP107.5 million (H1 2021: GBP77.8 million) and by 40.2 per
cent in constant currency(2) .
Overall, margins in the International business decreased by 299
basis points, with ad justed(1) gross profit decreasing from 22.6
per cent to 19.6 per cent of revenues.
Ad justed(1) gross profit increased by 19.9 per cent to GBP21.1
million (H1 2021: GBP17.6 million), and by 20.6 per cent in
constant currency(2) .
Our performance varied in each of our international entities.
The Belgian business's performance improved primarily due to
project wins in our workplace segment and excellent Managed
Services performance. The short-term focus is now to finalise the
extension of two of our largest Managed Services contracts.
Our Dutch operation has fully implemented an international
Technology Sourcing and Services contract and identified some good
additional opportunities under this framework. We also continue to
see good performance in our public sector segment. The Dutch entity
joined Computacenter in August 2018 through an acquisition and we
are pleased that the business is now fully aligned with our
portfolio, operating and organisational model and our target
customer market.
Our Swiss operations had a challenging start to the year, as the
scopes of our main Services contracts were temporarily changed as
customers reviewed their hybrid working approach after the
pandemic. In line with the strategies of the other international
entities, we have positioned our Group capabilities towards
international customers with Swiss headquarters. We celebrated an
important workplace-based international procurement and support
win, and while we are only at the beginning of the contract
implementation, we are confident it will deliver stable and ongoing
contribution in the future.
Administrative expenses increased by 22.2 per cent to GBP16.5
million (H1 2021: GBP13.5 million) and by 23.1 per cent in constant
currency(2) , primarily due to one-off systems improvement related
expenditure in the period to better align with central Group
Information Systems practices and methodologies.
Overall ad justed(1) operating profit increased by 12.2 per cent
in both actual and constant currency(2) to GBP4.6 million (H1 2021:
GBP4.1 million).
Whilst our sales specialist and solution specialist teams have
grown and matured over the last few years in all areas of the
business, we are still working to attract new sales talent and
further develop our target market in these countries. We are doing
this either by focusing more on a specific sector or by developing
our full offering with existing customers.
Technology Sourcing performance
Technology Sourcing revenue increased by 64.7 per cent to
GBP66.7 million (H1 2021: GBP40.5 million) and by 68.4 per cent in
constant currency(2) . Technology Sourcing margins have decreased
by 342 basis points.
Significant revenue increases were seen in Switzerland and
Belgium, with revenue in Netherlands nearly doubling. These
entities, with a different customer mix to our larger operating
entities, were impacted the most during the Covid-19 crisis and the
results in the period confirm that normal trading patterns have
resumed. These entities are each taking advantage of the
opportunities afforded from being part of a larger Group by winning
contracts, expanding account spend and increasing market share.
In common with other countries, the International Segment
continues to be impacted by the worldwide shortages of IT
components and we were not able to deliver all ordered goods within
normal timescales. The value of our backlog of outstanding orders
has increased by 5.7 per cent in constant currency(2) since the
beginning of the year. Whilst we are pleased that demand remains
strong, and that customer behaviour is leading to lengthening of
their procurement timeline horizons, we expect this trend to
continue for at least the rest of the year, with expected vendor
driven price increases that will be passed on potentially impacting
future, currently unplaced, orders.
In all regions, our teams focused on keeping our customer base
up to date about delivery delays, identifying alternatives and
handling prioritisation requests. We have also been able to replace
some of the traditional hardware reselling revenues by winning some
additional software and resold services bids to partly offset the
impact, as these do not suffer from shortage constraints.
Our pipeline remains healthy for the rest of the year and we are
confident we will be able to deliver good results, even in these
difficult market conditions.
Margins reduced as the product mix moved towards workplace
equipment, following the recent wins in the period.
Services performance
Services revenue increased by 9.4 per cent to GBP40.8 million
(H1 2021: GBP37.3 million) and by 10.0 per cent in constant
currency(2) . Services margins have increased by 199 basis
points.
Professional Services revenue increased by 17.5 per cent to
GBP4.7 million (H1 2021: GBP4.0 million) and by 17.5 per cent in
constant currency(2) . Managed Services revenue increased by 8.4
per cent to GBP36.1 million (H1 2021: GBP33.3 million), which was
an increase of 9.1 per cent in constant currency(2) .
We grew our Services revenues in Belgium and the Netherlands,
with this growth mainly driven by long-term Managed Services
contracts. Our largest Managed Services contracts in Switzerland
saw a slow start after the Covid-19 period and we scaled back our
delivery teams in the first quarter. We now have a flexible and
optimised delivery model to meet all future needs and we are
pleased to see that demand is picking up again. Continued portfolio
efficiencies and increasing volumes have increased the Services
margins.
Our main focus for the rest of the year will be to renew two
large contracts in our International Segment and continue to pursue
identified opportunities with customers leveraging our Group
capabilities in international Technology Sourcing product
supply.
Group Finance Director's Review
During the first half of 2022, the Group benefited from
continued strong revenue growth in both Technology Sourcing and
Services. Growth across all Segments was excellent, apart from
France where the expected cessation of legacy contracts stemming
from the CCNS acquisition led to a decline in Professional
Services, and the UK where, despite strong growth in gross invoiced
income, saw a decline in reported revenues as the product mix
changed.
Overall, gross profit was flat despite this excellent revenue
growth due to Technology Sourcing customer and product mix, cost
inflation and lower utilisation within our Services business
following the end of the Covid-19 pandemic, and ongoing supply
chain disruption as described earlier in this announcement.
The Technology Sourcing growth was driven by increasing
workplace business in Germany and incredible demand from a small
number of Californian hyperscale customers in North America.
However, a lack of product supply, specifically in high-end server
rack componentry and networking hardware, has restricted higher
margin revenue growth and led to a decline in margins overall. As
supply of these higher-margin items has become more challenged, the
business has been able to increase our sales of other product
lines. These include software and resold services, which are
naturally not impacted by supply shortages, and workplace, which is
much less affected. Germany has seen very strong growth in
workplace, which has stretched our onsite handling and
configuration capacities. Germany already had a high percentage of
workplace product delivered via our Integration Centers, rather
than direct delivery from the vendors, and the increased volumes
have almost fully utilised our existing facilities. This has led to
increased handling costs for these inventories, as they are moved
around increasingly scarce space in our Integration Centers. We
have implemented a mitigation strategy towards the end of H1 2022,
with additional Integration Center capacity being added near to our
existing facility. These increased handling costs, alongside the
lower-margin nature of the workplace revenues, have reduced German
margins.
Reconciliation to ad justed(1) measures for the period ended 30
June 2022
Adjustments
------------------------
Principal
element
Reported on Amortisation Ad justed(1)
interim agency of acquired interim
results contracts intangibles results
GBPm GBPm GBPm GBPm
Revenue 2,826.7 1,145.2 - 3,971.9
Cost of sales (2,401.8) (1,145.2) - (3,547.0)
Gross profit 424.9 - - 424.9
Administrative expenses (314.8) - 4.1 (310.7)
Operating profit 110.1 - 4.1 114.2
Finance income 1.0 - - 1.0
Finance costs (3.3) - - (3.3)
Profit before tax 107.8 - 4.1 111.9
Income tax expense (30.0) - (1.2) (31.2)
Profit for the period 77.8 - 2.9 80.7
Reconciliation to restated adjusted(1) measures for the period
ended 30 June 2021
Adjustments
------------------------
Principal
Restated element Restated
reported on Amortisation ad justed(1)
interim agency of acquired interim
results contracts intangibles results
GBPm GBPm GBPm GBPm
Revenue 2,425.1 862.5 - 3,287.6
Cost of sales (1,999.8) (862.5) - (2,862.3)
Gross profit 425.3 - - 425.3
Administrative expenses (306.5) - 3.7 (302.8)
Operating profit 118.8 - 3.7 122.5
Finance income 0.2 - - 0.2
Finance costs (3.8) - - (3.8)
Profit before tax 115.2 - 3.7 118.9
Income tax expense (33.1) - (0.9) (34.0)
Profit for the period 82.1 - 2.8 84.9
Whilst the UK saw significant gross invoiced income growth
through increasing software and resold services activity, only the
margins on this business, which are naturally low, are reported as
revenue following the changes to our accounting policy for agent
versus principal recognition. See notes 3 to 5 to the summary
financial information contained within this announcement for more
information on the impact of our change in accounting policies.
The incredible volume growth in North America is an indication
of the trust that these hyperscale technology customers place in us
to deliver for them. This small number of high volume customers
continue to recognise and value our capability to source and
deliver product for their needs, in an incredibly competitive
marketplace, through our close relationships with our vendor
technology partners. As this hyperscale business grows in relation
to the rest of the business, the margin in North America will
continue to decline relative to our other key geographies over the
longer term.
On 13 July 2022 the Group announced that it acquired one of the
fastest-growing value-added resellers in the United States of
America, Business IT Source ('BITS') effective from 1 July 2022.
The Group has paid an initial $35.1 million with two additional
payments contingent on the future performance of the acquired
business through to 31 December 2024.
BITS employs around 100 people and has a headquarters and
Integration Center in Buffalo Grove, Illinois, approximately 45
minutes from downtown Chicago. BITS recorded revenue in 2021 of
approximately USD 245 million with EBIT of approximately USD 8.9
million.
The existing BITS leadership team will stay to run the business
as a separate operating unit within Computacenter North America to
maximise the growth opportunity. The business and the team will be
fully integrated into Computacenter's North American operations
over time.
Whilst our North American business continues to see substantial
organic growth, we will continue to take additional opportunities
to improve our positioning in this important market. BITS gives us
a much stronger presence in the Midwest of the United States and
brings some great people, customers and leadership to our business.
The Buffalo Grove Integration Center will allow us to serve more of
our Midwest regional customers locally over time, helping us to
meet our sustainability goals. We are optimistic that the BITS
leadership team will seize the opportunity to continue their
current growth momentum.
BITS will have the opportunity to provide a much broader range
of capabilities to our customers and growth opportunities for its
people. Operating as a separate business unit, over the short-term,
will allow us to continue our personalized service while leveraging
Computacenter's capabilities and balance sheet to best serve
customers and associates.
On 25 May 2022, the Group acquired 100 per cent of the share
capital in Emerge 360 Japan k.k (Emerge) and the associated
Asia-Pacific (APAC) operations from Emerge 360, Inc., for
consideration of $3.5 million (USD). The acquired APAC business has
a presence in Japan, Singapore, Australia and Hong Kong.
This continues our strategy of building the best international
capability of any value added reseller in the world. Emerge was
already a valued partner in the region, working to extend our reach
and capability for our international customers. Following the
acquisition, over 230 engineers and service managers have joined
Computacenter in Singapore, Hong Kong, Australia, Japan and India.
This brings our total number of people in APAC to nearly 300 and in
India to over 1,000. Our strategy in APAC is to build better
operational capability and coverage to support our international
customers headquartered in Europe and North America. We will
enhance the credibility of our offering to our existing customer
base by employing our own service leadership in the region, who
will have local interaction with customers and manage delivery,
whether it is by Computacenter or our partners. In India, although
our strategy is centred on building our offshore Services Center
capability, our 80 new people join an existing and growing
engineering team who work on key customer sites. This acquisition
enhances our Services offerings within the region and, in both APAC
and India, this will continue to be complemented by the great
Technology Sourcing experience provided by our local and regional
partners.
Migrating our recently acquired, material, entities onto our
leading ERP platform technologies and toolsets will help to unlock
their potential for growth and efficiencies. The integration of
Pivot onto Group systems is planned for 2023 and will benefit from
the recent migration of FusionStorm and the legacy US business,
which transitioned to the Group ERP in September 2021. This is by
no means an easy task and a number of issues remain from the recent
transition activity, as the business adapts to Group processes.
Further, a number of next-generation upgrades to the customer
relationship management and configure-price-quote systems were
implemented within the US rollout, which are being progressively
introduced through the rest of the Group, will continue to evolve
the way we do business with our customers, ensuring that ordering
friction is reduced and cost-to-serve efficiencies improved.
A reconciliation to adjusted(1) measures is provided above
within this Group Finance Director's review. Further details are
provided in note 4 to the summary financial information contained
within this announcement, adjusted measures.
Profit before tax
The Group's profit before tax for the period decreased by 6.4
per cent to GBP107.8 million (H1 2021: GBP115.2 million). Adju
sted(1) profit before tax decreased by 5.9 per cent to GBP111.9
million (H1 2021: GBP118.9 million) and by 5.9 per cent in constant
currency(2) . The difference between profit before tax and adju
sted(1) profit before tax relates to the Group's net costs of
GBP4.1 million (H1 2021: net costs of GBP3.7 million) from the
amortisation of acquired intangibles as a result of the acquisition
of FusionStorm on 30 September 2018 and Pivot on 2 November
2020.
The Group adopted IFRS 16 'Leases' from 1 January 2019, which
has resulted in changes in accounting policies and adjustments to
the amounts recognised in the Consolidated Financial Statements, as
disclosed in the 2019 Annual Report and Accounts. The current
period results include an overall decrease in profit before tax of
GBP0.7 million, including on an adju sted(1) basis, due to the
impact of IFRS 16 (H1 2021: GBP1.7 million).
Net finance charge
The net finance charge in the period amounted to GBP2.3 million
(H1 2021: GBP3.6 million). The main items included within the net
charge for the year are GBP2.5 million of interest charged on lease
liabilities recognised under IFRS 16 (H1 2021: GBP2.7 million) and
GBP0.6 million of interest charged for the Pivot facility (H1 2021:
GBP0.6 million). No interest items were excluded on an adju sted(1)
basis.
Taxation
The tax charge was GBP30.0 million (H1 2021: GBP33.1 million) on
profit before tax of GBP107.8 million (H1 2021: GBP115.2 million).
This represents an effective tax rate (ETR) of 27.8 per cent (H1
2021: 28.7 per cent). The current period rate includes the
recognition of a EUR2.4 million deferred tax asset representing the
probable benefit of future utilisation of losses within the French
business due to a forecast improvement in profitability in this
geography.
The tax credit related to the amortisation of acquired
intangibles was GBP1.2 million in the period (H1 2021: GBP0.9
million). As the amortisation is recognised outside of our adju
sted(1) profitability, the tax benefit on the amortisation is also
reported outside of our adju sted(1) tax charge. The adju sted(1)
tax charge for the period was GBP31.2 million (H1 2021: GBP34.0
million), on an adju sted(1) profit before tax for the period of
GBP111.9 million (H1 2021: GBP118.9 million). The ETR was therefore
27.9 per cent (H1 2021: 28.6 per cent) on an adju sted(1)
basis.
We expect that the ETR in 2022 will be subject to upwards
pressure, particularly in comparison to the prior year, due to the
one-off tax benefits booked in the second half of 2021, as detailed
in the 2021 Annual Report and Accounts on page 72. Looking further
ahead, substantially enacted tax increases are set to take effect
in the UK from 1 April 2023, although the planned rise from 19 per
cent to 25 per cent is subject to the direction of the UK
Government subsequent to the election of a Prime Minister by the
governing party. Longer-term, the geographic split of adju sted(1)
profit before tax is increasingly shifting from the UK to Germany
and the US, where tax rates are substantially higher, and
governments across our primary jurisdictions are also coming under
fiscal and political pressure to increase corporation tax
rates.
The table below reconciles the tax charge to the adju sted(1)
tax charge for the periods ended 30 June 2022 and 30 June 2021 and
the year ended 31 December 2021.
H1 2022 H1 2021 Year 2021
GBPm GBPm GBPm
Statutory tax charge 30.0 33.1 61.5
Adjustments to exclude:
Tax on amortisation of acquired intangibles 1.2 0.9 2.1
Ad justed(1) tax charge 31.2 34.0 63.6
ETR 27.8% 28.7% 24.8%
Ad justed(1) ETR 27.9% 28.6% 24.9%
Profit for the period
The profit for the period decreased by 5.2 per cent to GBP77.8
million (H1 2021: GBP82.1 million). The adju sted(1) profit for the
period decreased by 4.9 per cent to GBP80.7 million (H1 2021:
GBP84.9 million) and by 4.5 per cent in constant currency(2) .
Exceptional and other adjusting items
The net loss from exceptional and other adjusting items in the
period was GBP2.9 million (H1 2021: loss of GBP2.8 million).
Excluding the tax items noted above, which resulted in a gain of
GBP1.2 million (H1 2021: gain of GBP0.9 million), the profit before
tax impact was a net loss from exceptional and other adjusting
items of GBP4.1 million (H1 2021: loss of GBP3.7 million).
There were no exceptional items in the six months to 30 June
2022 (H1 2021: nil).
We have continued to exclude, as an 'other adjusting item', the
amortisation of acquired intangible assets in calculating our adju
sted(1) results. Amortisation of intangible assets is non-cash,
does not relate to the operational performance of the business, 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 GBP4.1 million (H1 2021: GBP3.7 million),
primarily relating to the amortisation of the intangibles acquired
as part of the recent North American acquisitions.
There were no other adjusting items in the six months to 30 June
2022 (H1 2021: nil).
Earnings per share
Diluted EPS decreased by 4.8 per cent to 67.3 pence per share
(H1 2021: 70.7 pence per share). Adju sted(1) diluted EPS decreased
by 4.5 per cent to 69.8 pence per share (H1 2021: 73.1 pence per
share).
H1 2022 H1 2021 Year 2021
Basic weighted average number of shares (excluding
own shares held) (m) 112.9 113.0 113.0
Effect of dilution:
Share options 1.8 2.8 2.2
Diluted weighted average number of shares 114.7 115.8 115.2
Profit for the year attributable to equity
holders of the Parent (GBPm) 77.2 81.9 185.3
Basic earnings per share (pence) 68.4 72.5 164.0
Diluted earnings per share (pence) 67.3 70.7 160.9
Ad justed(1) profit for the period attributable
to equity holders of the Parent (GBPm) 80.1 84.7 190.8
Ad justed(1) basic earnings per share (pence) 70.9 74.9 168.6
Ad justed(1) diluted earnings per share (pence) 69.8 73.1 165.6
Dividend
We are pleased to announce an interim dividend of 22.1 pence per
share (H1 2021: 16.9 pence per share). This is in line with our
policy that the interim dividend will be approximately one third of
the previous year's total dividend. The interim dividend will be
paid on Friday 28 October 2022.
The dividend record date is Friday 30 September 2022, and the
shares will be marked ex-dividend on Thursday 29 September
2022.
Central Corporate Costs
Certain expenses are not specifically allocated to individual
Segments because they are not directly attributable to any single
Segment. These include the costs of the Board itself, related
public company costs, Group Executive members not aligned to a
specific geographic trading entity and the cost of centrally funded
strategic initiatives that benefit the whole Group.
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 adju sted(1) administrative
expenses.
During the period, total Central Corporate Costs increased to
GBP11.6 million (H1 2021: GBP11.1 million). Within this:
-- Board expenses, related public company costs, costs
associated with Group Executive members not aligned to a specific
geographic trading entity, and certain one-off costs in relation to
the cancellation of Group-wide central meetings, increased to
GBP4.2 million (H1 2021: GBP4.1 million);
-- share-based payment charges associated with the Group
Executive members identified above, including the Group Executive
Directors, increased from GBP1.4 million in H1 2021 to GBP1.9
million in H1 2022; and
-- spend on strategic corporate initiatives, which are designed
to increase capability and therefore competitive position, enhance
productivity or strengthen systems which underpin the Group, was
GBP5.5 million (H1 2021: GBP5.6 million).
Cashflow
The Group delivered an operating cash inflow of GBP8.1 million
for the six months to 30 June 2022 (H1 2021: GBP1.5 million
inflow). During the period, net operating cash outflows from
working capital, including inventories, trade and other receivables
and trade and other payables, were GBP120.5 million (H1 2021:
GBP143.7 million outflow).
Working capital cash flows continue to be affected by both the
revenue growth and the increased inventory levels, in particular
within our North American and German businesses. Due to the
significant product shortages seen during the last 18 months, a
number of hyperscale customers continue to place advance orders of
product with delayed delivery, to ensure continuity of supply.
Finally, the transition of the FusionStorm business to the Group
ERP, whilst now complete, did result in short-term operational
issues that impacted working capital, as the picking and shipping
of complex inventory items, invoicing and cash collection in
particular experienced significant delays late in 2021. Whilst the
position has improved, as the FusionStorm entity continues to gain
experience in using the system and tools and learns how to leverage
their advantages, progress remains slower than desired and
considerable improvement is still required. Volume challenges due
to the spectacular recent growth of the business have also impacted
other areas of working capital. However the Group is working
through a remediation plan to improve processes, systems and
resourcing levels, in order to accommodate the increasing demands
of the business.
The Group had GBP399.3 million of inventory as at 30 June 2022,
a 17.0 per cent increase on the balance as at 31 December 2021 of
GBP341.3 million. North American inventories fell by 3.9 per cent
to GBP204.2 million, and by 13.5 per cent in constant currency(2) ,
as year-end positions were closed out and a significant balance of
inventory present at the cutover to the Group ERP system in
September 2021 was successfully shipped to customers. German
inventories increased by 67.2 per cent to GBP147.1 million, and by
62.7 per cent in constant currency(2) as inventory built up in the
Integration Center, waiting for configuration to complete before
shipping to customers. We expect this German position to materially
improve by the end of the year. An additional Integration Center
facility has been added near to the existing facility in Kerpen,
which is running at record levels of capacity and utilisation, to
provide additional inventory storage space and processing
capacity.
Capital expenditure in the period was GBP15.5 million (H1 2021:
GBP17.5 million, FY 2021: GBP30.3 million), primarily representing
investments in IT equipment and software tools, to enable us to
deliver improved service to our customers.
The Group's Employee Benefit Trust (EBT) made market purchases
of the Company's ordinary shares of GBP34.4 million (H1 2021
GBP20.3 million, FY 2021: GBP25.5 million) to satisfy maturing PSP
awards and Sharesave schemes and to re-provision the EBT in advance
of future maturities. During the period, the Company received
savings from employees of GBP1.6 million to purchase options within
the Sharesave schemes (H1 2021: GBP1.5 million, FY 2021: GBP6.2
million).
During the period the Group made one acquisition, Emerge, as
described above, for GBP2.3 million, net of cash acquired.
The Group reduced loans and credit facilities during the period
by GBP1.3 million (H1 2021: GBP82.9 million, FY2021: GBP89.0
million). We made regular repayments towards the loan related to
the construction of the German headquarters in Kerpen and continued
to restrict the amount drawn under the Pivot credit facility, as
detailed below.
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. 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 typically receive
funds 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, either
directly or indirectly, enabling 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 30 June
2022 was GBP46.3 million (30 June 2021: GBP41.1 million, 31
December 2021: GBP53.7 million).
Towards the end of June 2022, the Group elected to factor an
additional EUR26 million of trade receivables within the German
business. The Group had no other debt factoring at the end of the
year, outside this normal course of business.
Also in June 2022, the Group used a prearranged vendor finance
facility to delay payment of cGBP15 million of trade payables. This
balance has been paid after the period end. There were no other
interest-bearing trade payables as at 30 June 2022 (30 June 2021:
nil, 31 December 2021: nil).
Cash and cash equivalents and net funds/(debt)
Cash and cash equivalents as at 30 June 2022 were GBP193.5
million, compared to GBP158.5 million at 30 June 2021. Cash and
cash equivalents have decreased by GBP79.7 million from GBP273.2
million as at 31 December 2021 (H1 2021: decrease of GBP151.3
million from GBP309.8 million as at 31 December 2020).
Net funds as at 30 June 2022 was GBP12.1 million, compared to
net debt of GBP29.4 million as at 30 June 2021 and net funds of
GBP95.3 million as at 31 December 2021.
Adjusted net funds(3) as at 30 June 2022 was GBP159.3 million,
compared to adjusted net funds(3) of GBP121.8 million as at 30 June
2021 and adjusted net funds(3) of GBP241.4 million as at 31
December 2021. The Group excludes GBP147.2 million, as at 30 June
2022 (30 June 2021: GBP151.2 million), of 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 IFRS 16 accounting standard. Net funds
as at 30 June 2022, 30 June 2021 and 31 December 2021 were as
follows:
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
Cash and short-term deposits 199.0 164.2 285.2
Bank overdraft (5.5) (5.7) (12.0)
Cash and cash equivalents 193.5 158.5 273.2
Bank loans/Credit facility (34.2) (36.7) (31.8)
Adjusted net funds(3) (excluding lease
liabilities) 159.3 121.8 241.4
Lease liabilities (147.2) (151.2) (146.1)
Net funds/(debt) 12.1 (29.4) 95.3
For a full reconciliation of net funds and adjusted net funds(3)
, see note 12 to the summary financial information included within
this announcement, net funds.
The Group drew down a GBP100 million term loan on 1 October 2018
to complete the acquisition of FusionStorm. This loan was on a
seven-year repayment cycle, with a renewal of the loan facility due
on 30 September 2021. The Group repaid the remaining balance of
GBP41.6 million in full during the first half of 2021 and retired
the credit facility.
The Group had three other residual specific credit facilities in
place during the current period and no other material
borrowings.
Pivot has a substantially unutilised $100.0 million senior
secured asset-based revolving credit facility, from a lending group
represented by JPMorgan Chase Bank, N.A. The residual facility can
be used for revolving loans, letters of credit, protective
advances, over advances, and swing line loans. During the period,
the Group has continued to maintain limited amounts drawn on the
facility, with GBP11.9 million remaining drawn as at 30 June 2022
(30 June 2021: GBP8.3 million, 31 December 2021 GBP7.0 million). In
addition, Pivot has GBP9.0 million financed with a major technology
partner for hardware, software and resold technology partner
maintenance contracts, which the Company has purchased as part of a
contract to lease these items to a key North American customer (30
June 2021: GBP10.5 million, 31 December 2021: GBP9.4 million).
The Group also has a specific term loan for the build and
purchase of our German office headquarters and fit out of the
Integration Center in Kerpen, which stood at GBP12.7 million as at
30 June 2022 (30 June 2021: GBP17.5 million, 31 December 2021:
GBP14.7 million).
The Group has a committed facility of GBP60.0 million, which
expires on 7 September 2023. The Group has never drawn on this
facility.
The Group's adjusted net funds(3) position contains no current
asset investments as at 30 June 2022 (30 June 2021: nil, 31
December 2021: nil).
Currency
The Group reports its results in pounds sterling. The weakness
in the value of sterling against most currencies during the first
half of 2022, in particular the US Dollar, has begun to impact our
revenues and profitability, as a result of the conversion of our
foreign earnings. However, the exchange rates seen during the
period, in aggregate effect, were not materially dissimilar to
those seen in the first half of 2021.
Restating the first half of 2021 at 2022 exchange rates would
increase H1 2021 revenue by approximately GBP12.6 million, whilst
H1 2021 adju sted(1) profit before tax would be unchanged.
If the 30 June 2022 spot rates were to continue through the
remainder of 2022, the impact of restating 2021 at 2022 exchange
rates would be to increase 2021 revenue by approximately GBP102.7
million and 2021 adju sted(1) profit before tax by approximately
GBP1.3 million.
The Group benefited from circa GBP5 million of net
mark-to-market gains on forward currency contracts over the period
(H1 2021: GBP3 million of gains). These gains are on contracts
taken out to hedge currency movement on significant foreign
exchange flows across the Group and are expected to reverse during
the second half of the year.
Principal risks and uncertainties
The Group's activities expose it to a variety of economic,
financial, operational and regulatory risks. Our principal risks
continue to be concentrated in the availability and resilience of
systems, our people, our cost base, technology change, and in the
design, entry into service and running of large Services contracts.
The principal risks and uncertainties facing the Group are set out
on pages 80 to 85 of the 2021 Annual Report and Accounts, a copy of
which is available on the Group's website.
The Group's risk management approach and the principal risks,
potential impacts and primary mitigating activities are unchanged
from those set out in the 2021 Annual Report and Accounts. Our risk
management approach operated effectively in the six months to 30
June 2022, with systems and controls functioning as designed.
Whilst we have not identified any new principal risks during the
period, we acknowledge the heightened level of overall risk across
several risk categories, due to the ongoing pandemic, the war in
Ukraine, and the subsequent and other macroeconomic uncertainty and
its impact on our operating environment in general, particularly in
relation to our identified Strategic,
Infrastructure and Financial Risks.
This Strategic Report was approved by the Board on 8 September
2022 and signed on its behalf by:
MJ Norris
Chief Executive Officer
FA Conophy
Group Finance Director
Directors' Responsibilities
Responsibility statement of the directors in respect of the
half-yearly financial report.
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted
for use in the UK the interim management report includes a fair
review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
MJ Norris
Chief Executive Officer
FA Conophy
Group Finance Director
Consolidated Income Statement
For the six months ended 30 June 2022
H1 2021 Year 2021
H1 2022 GBPm GBPm
Note GBPm (restated) (restated)
Revenue 5 2,826.7 2,425.1 5,034.5
Cost of sales (2,401.8) (1,999.8) (4,166.7)
Gross profit 424.9 425.3 867.8
Administrative expenses (315.3) (305.5) (612.0)
Impairment loss on trade receivables and
contract assets 0.5 (1.0) (0.6)
Operating profit 110.1 118.8 255.2
Finance income 1.0 0.2 0.3
Finance costs (3.3) (3.8) (7.5)
Profit before tax 107.8 115.2 248.0
Income tax expense (30.0) (33.1) (61.5)
Profit for the period/year 77.8 82.1 186.5
Attributable to:
Equity holders of the Parent 77.2 81.9 185.3
Non-controlling interests 0.6 0.2 1.2
Profit for the period/year 77.8 82.1 186.5
Earnings per share:
- basic for profit for the period/year 9 68.4p 72.5p 164.0p
- diluted for profit for the period/year 9 67.3p 70.7p 160.9p
Refer note 3 for the restatement of Technology Sourcing revenue
for H1 2021 and Year 2021. Gross profit, operating profit, and
profit before and after taxes has remained unchanged. There was no
impact on basic and diluted earnings per share.
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2022
H1 2022 H1 2021 Year 2021
GBPm GBPm GBPm
Profit for the period/year 77.8 82.1 186.5
Items that may be reclassified to the Consolidated
Income Statement:
Gain/(loss) arising on cash flow hedge 5.6 0.2 (0.9)
Income tax effect (1.4) (0.1) 0.2
4.2 0.1 (0.7)
Exchange differences on translation of foreign
operations 36.8 (10.2) (9.6)
41.0 (10.1) (10.3)
Items not to be reclassified to the Consolidated
Income Statement:
Remeasurement of defined benefit plan 5.6 - 1.2
Other comprehensive (expense)/income for the period/year,
net of tax 46.6 (10.1) (9.1)
Total comprehensive income for the period/year 124.4 72.0 177.4
Attributable to:
Equity holders of the Parent 123.3 71.8 176.2
Non-controlling interests 1.1 0.2 1.2
Total comprehensive income for the period/year 124.4 72.0 177.4
Consolidated Balance Sheet
As at 30 June 2022
H1 2022 H1 2021 Year 2021
Note GBPm GBPm GBPm
Non-current assets
Property, plant and equipment 88.3 101.2 90.0
Right-of-use assets 138.5 141.9 138.1
Intangible assets 296.5 272.8 273.7
Investment in associate 0.1 0.1 0.1
Deferred income tax assets 22.2 18.9 30.2
Prepayments 16.5 16.6 16.6
562.1 551.5 548.7
Current assets
Inventories 399.3 254.4 341.3
Trade and other receivables 1,368.6 1,069.6 1,275.2
Income tax receivable 8.5 9.6 8.8
Prepayments 136.2 112.6 103.0
Accrued income 162.0 142.8 148.1
Derivative financial instruments 11 15.1 3.2 3.6
Cash and short-term deposits 12 199.0 164.2 285.2
2,288.7 1,756.4 2,165.2
Total assets 2,850.8 2,307.9 2,713.9
Current liabilities
Bank overdraft 12 5.5 5.7 12.0
Trade and other payables 1,411.3 1,076.7 1,410.4
Deferred income 308.4 224.1 249.3
Financial liabilities 12 19.0 15.8 15.1
Lease liabilities 12 43.6 44.1 43.0
Derivative financial instruments 11 3.5 1.6 2.5
Income tax payable 42.7 49.6 47.9
Provisions 13 4.3 3.2 3.5
1,838.3 1,420.8 1,783.7
Non-current liabilities
Financial liabilities 12 15.2 20.9 16.7
Lease liabilities 12 103.6 107.1 103.1
Deferred income 8.6 11.7 8.3
Retirement benefit obligation* 14 17.4 23.0 21.8
Provisions* 13 6.5 9.7 9.7
Deferred tax liabilities 20.9 23.9 25.8
172.2 196.3 185.4
Total liabilities 2,010.5 1,617.1 1,969.1
Net assets 840.3 690.8 744.8
Capital and reserves
Issued share capital 9.3 9.3 9.3
Share premium 4.0 4.0 4.0
Capital redemption reserve 75.0 75.0 75.0
Own shares held (141.3) (125.3) (115.5)
Translation and hedging reserve 45.9 5.5 5.4
Retained earnings 842.0 719.0 762.3
Shareholders' equity 834.9 687.5 740.5
Non-controlling interests 5.4 3.3 4.3
Total equity 840.3 690.8 744.8
*Retirement benefit obligation of GBP23.0 million was included
as part of 'Provisions' in H1 2021. The H1 2021 comparative has
been re-presented for this amount. There is no impact on reported
'Non-current liabilities' and 'Net assets' from this change.
Approved by the Board on 8 September 2022.
MJ Norris FA Conophy
Chief Executive Group Finance Director
Officer
-----------------------
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2022
Attributable to equity holders
of the Parent
Issued Capital Own Translation Non-
share Share redemption shares and hedging Retained Share-holders' controlling Total
capital premium reserve held reserves earnings equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2021 9.3 4.0 75.0 (111.7) 15.7 635.5 627.8 3.1 630.9
Profit for the
period - - - - - 81.9 81.9 0.2 82.1
Other
comprehensive
income/(expense) - - - - (10.2) - (10.2) - (10.2)
Total
comprehensive
income/(expense) - - - - (10.2) 81.9 71.7 0.2 71.9
Cost of
share-based
payments - - - - - 4.5 4.5 - 4.5
Tax on
share-based
payments - - - - - 2.2 2.2 - 2.2
Exercise of
options - - - 6.6 - (5.1) 1.5 - 1.5
Purchase of own
shares - - - (20.2) - - (20.2) - (20.2)
At 30 June 2021 9.3 4.0 75.0 (125.3) 5.5 719.0 687.5 3.3 690.8
Profit for the
period - - - - - 103.4 103.4 1.0 104.4
Other
comprehensive
income/(expense) - - - - (0.1) 1.2 1.1 - 1.1
Total
comprehensive
income/(expense) - - - - (0.1) 104.6 104.5 1.0 105.5
Cost of
share-based
payments - - - - - 6.1 6.1 - 6.1
Tax on
share-based
payments - - - - - 5.4 5.4 - 5.4
Exercise of
options - - - 15.1 - (10.4) 4.7 - 4.7
Purchase of own
shares - - - (5.3) - - (5.3) - (5.3)
Equity Dividend - - - - - (62.4) (62.4) - (62.4)
At 31 December
2021 9.3 4.0 75.0 (115.5) 5.4 762.3 740.5 4.3 744.8
Profit for the
period - - - - - 77.2 77.2 0.6 77.8
Other
comprehensive
income/(expense) - - - - 40.5 5.6 46.1 0.5 46.6
Total
comprehensive
income - - - - 40.5 82.8 123.3 1.1 124.4
Cost of
share-based
payments - - - - - 5.2 5.2 - 5.2
Tax on
share-based
payments - - - - - (1.3) (1.3) - (1.3)
Exercise of
options - - - 8.6 - (7.0) 1.6 - 1.6
Purchase of own
shares - - - (34.4) - - (34.4) - (34.4)
At 30 June 2022 9.3 4.0 75.0 (141.3) 45.9 842.0 834.9 5.4 840.3
Consolidated Cash Flow Statement
For the six months ended 30 June 2022
H1 2022 H1 2021 Year 2021
GBPm GBPm GBPm
Operating activities
Profit before tax 107.8 115.2 248.0
Net finance cost 2.3 3.6 7.2
Depreciation of property, plant and equipment 10.3 12.7 24.8
Depreciation of right-of-use assets 26.2 26.3 50.6
Amortisation of intangible assets 8.0 7.0 15.3
Share-based payments 5.2 4.5 10.6
Loss on disposal of intangibles - - 0.5
Loss/(Gain) on disposal of property, plant and
equipment 0.4 0.1 (1.3)
Net cash flow from inventories (33.0) (47.0) (131.5)
Net cash flow from trade and other receivables
(including contract assets) (67.6) (27.9) (238.5)
Net cash flow from trade and other payables (including
contract liabilities) (19.9) (68.8) 292.2
Net cash flow from provisions and employee benefits (1.9) (2.6) (1.7)
Other adjustments 0.1 0.7 1.3
Cash generated from operations 37.9 23.8 277.5
Income taxes paid (29.8) (22.3) (53.2)
Net cash flow from operating activities 8.1 1.5 224.3
Investing activities
Interest received 1.0 0.2 0.3
Acquisition of subsidiaries, net of cash acquired (2.3) (1.1) (2.5)
Purchases of property, plant and equipment (8.7) (9.6) (18.8)
Purchases of intangible assets (6.8) (7.9) (11.5)
Proceeds from disposal of property, plant and equipment 1.0 0.2 7.5
Net cash flow from investing activities (15.8) (18.2) (25.0)
Financing activities
Interest paid (0.7) (1.1) (2.3)
Interest paid on lease liabilities (2.5) (2.7) (5.2)
Dividends paid to equity shareholders of the Parent - - (62.4)
Proceeds from share issues 1.6 1.5 6.2
Purchase of own shares (34.4) (20.3) (25.5)
Repayment of loans and credit facility (5.8) (93.3) (99.7)
Payment of capital element of lease liabilities (25.9) (24.6) (50.2)
New borrowings - bank loan 4.5 10.4 10.7
Net cash flow from financing activities (63.2) (130.1) (228.4)
Decrease in cash and cash equivalents (70.9) (146.8) (29.1)
Effect of exchange rates on cash and cash equivalents (8.8) (4.5) (7.5)
Cash and cash equivalents at the beginning of the
period/year 273.2 309.8 309.8
Cash and cash equivalents at the end of the period/year 193.5 158.5 273.2
1 Corporate information
The Interim Condensed Consolidated Financial Statements
(Financial Statements) of the Group for the six months ended 30
June 2022 contained in this announcement were authorised for issue
in accordance with a resolution of the Directors on 8 September
2022. 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.
2 Basis of preparation
The Financial Statements for the six months ended 30 June 2022
have been prepared in accordance with International Accounting
Standard 34 'Interim Financial Reporting', as adopted by the United
Kingdom. They do not include all of the information and disclosures
required in the annual financial statements, and should be read in
conjunction with the Group's 2021 Annual Report and Accounts which
have been prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the United Kingdom. The
Financial Statements contained in this announcement are
unaudited.
The Financial Statements are presented in pound sterling (GBP)
and all values are rounded to the nearest hundred thousand, except
when otherwise indicated.
As described in note 4, in accordance with IAS 8, a
retrospective restatement of the relevant prior period reported
financial statements for the period to 30 June 2021 and the year to
31 December 2021 has taken place due to a change in revenue
recognition policies relating to software licences and third-party
services agreements resold on a standalone basis following the
finalisation of an agenda decision by the IFRS Interpretation
Committee (the 'Committee').
For our trading businesses which operate on our Group Enterprise
Resource Planning (ERP) system we were able to quickly determine
the adjustments required under the new accounting policy to restate
the comparative information through readily available high quality
data. For one of our North American business units, an entity
operated on a legacy ERP system following its acquisition in
October 2018, prior to its migration to the Group ERP system on 1
September 2021, this has proved more difficult. The legacy ERP
system used at the time was not designed to produce the analysis to
identify software and resold services product sales that are now
recognised on an agent basis to the degree of precision required.
Further, data migration issues have been identified that also
impact this analysis post-migration and during the first six months
of 2022.
Significant data interrogation has been performed by the Group
to produce the adjustment for this business unit both for the 8
month time period concerned, in 2021, where it continued to operate
on the legacy system, and subsequently where it now operates on our
Group ERP system.
The detailed work to date has produced the comparative
adjustment required for this business unit which forms part of the
overall Group, and North American Segment, restatement, and for the
impact on the current period revenue and cost of goods sold.
For the comparative period to 30 June 2021, the business unit
recorded GBP414.7 million of gross invoiced income with an
estimated netting adjustment to revenue and cost of sales of
GBP122.7 million and therefore revenue of GBP292.0 million compared
to Group gross invoiced income of GBP3,287.6 million, an adjustment
of GBP862.5 million and revenue of GBP2,425.1 million.
For the year to 31 December 2021, the business unit recorded
GBP917.3 million of gross invoiced income with an estimated netting
adjustment to revenue and cost of sales of GBP294.9 million and
therefore revenue of GBP622.4 million compared to Group gross
invoiced income of GBP6,923.5 million, an adjustment of GBP1,889.0
million and revenue of GBP5,034.5 million.
For the current period to 30 June 2022, the business unit
recorded GBP756.3 million of gross invoiced income with an
estimated netting adjustment to revenue and cost of sales of
GBP169.3 million and therefore revenue of GBP587.0 million compared
to Group gross invoiced income of GBP3,971.9 million, an adjustment
of GBP1,145.2 million and revenue of GBP2,826.7 million.
We continue to cleanse and address residual data migration
issues, and consider that any differences that may be identified as
a result of this, will be immaterial. The issues identified affect
only the quantification of revenue and cost of goods sold, by equal
amounts, for this impacted business unit. Gross profit, operating
profit, profit before and after taxes, and cash, are not changed by
the new accounting policy.
In determining whether it is appropriate to prepare the
financial statements on a 'going concern' basis, the Group prepares
a three-year Plan (the 'Plan') annually by aggregating top down
expectations of business performance across the Group in the second
and third year of the Plan with a detailed 12-month 'bottom-up'
budget for the first year, which was approved by the Board. The
first year of the Plan is subject to reforecasting during the year,
the most recent of which occurred during July 2022. This reforecast
of the first year of the Plan has been updated into the Plan
alongside a revision of cashflow assumptions for the year and a
review of the second and third years of the Plan. The Plan is
subject to rigorous downside sensitivity analysis which involves
flexing a number of the main assumptions underlying the forecasts
within the Plan. The forecast cash flows from the 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, the ability to raise
new finance in most foreseeable market conditions and the ability
to restrict dividend payments.
The Directors have identified a period of not less than 12
months as the appropriate period for the going concern assessment
and have based their assessment on the relevant forecasts from the
Plan for that period.
The potential impact of the principal risks and uncertainties,
as set out on pages 80 to 85 of the of the 2021 Annual Report and
Accounts, is then applied to the 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.
For the current period, the primary downside sensitivity relates
to a modelled, but not predicted, severe downturn in Group
revenues, beginning in the second half of 2022, simulating a
continued impact for some of our customers from the Covid-19
crisis, together with the Group's revenues being impacted by supply
shortages. This sensitivity analysis models a continued market
downturn scenario, with slower than predicted recovery estimates,
for some of our customers whose businesses have been affected by
Covid-19 and a similar downturn occurring for the remainder of our
customer base as a result of the emerging negative global
macroeconomic environment. A further impact on the Group's
Technology Sourcing revenues through the second half of 2022 from
possible ongoing vendor-related supply shortage issues has also
been included in the sensitivity analysis.
Our cash and borrowing capacity provides sufficient funds to
meet the foreseeable needs of the Group. At 30 June 2022, the Group
had cash and cash equivalents of GBP193.5 million and bank loans
and credit facility, primarily related to the recent North American
acquisitions and the headquarters in Germany, of GBP34.2 million.
In addition, the Group has a committed facility of GBP60.0 million,
which was extended in September 2020 and has an expiry date of 7
September 2023. The Group has never drawn on this committed
facility. The Group is currently engaged in discussions for a
revised committed facility arrangement to replace the current
agreement.
The Group has a resilient balance sheet position, with net
assets of GBP840.3 million as at 30 June 2022. The Group made a
profit after tax of GBP77.8 million and delivered net cash flows
from operating activities of GBP8.1 million, for the period ended
30 June 2022. As the analysis continues to show a strong forecast
cash position, even under the severe economic conditions modelled
in the sensitivity scenarios, the Directors continue to consider
that the Group is well placed to manage business and financial
risks in the current economic environment. Based on this
assessment, the Directors confirm that they have a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the period of not
less than 12 months from the date of signing the Financial
Statements and therefore have prepared the Financial Statements on
a going concern basis.
3 Significant Accounting Policies
The accounting policies adopted are consistent with those of the
previous financial year as disclosed in the Computacenter plc 2021
Annual Report and Accounts except for the change in revenue
recognition policies relating to software licences and third-party
services agreements resold on a standalone basis following the
finalisation of an agenda decision by the IFRS Interpretation
Committee (the 'Committee').
Following its meeting that concluded on 1 December 2021, the
Committee published a tentative agenda decision in response to a
submission from a valued added reseller to determine whether an
entity should treat revenue from the resale of standard software
licences on a principal or agent recognition basis under IFRS 15
Revenue from Contracts with Customers (IFRS 15).
The Committee did not reach a definitive conclusion on the
submission received, as it maintained that an entity should apply
judgement in making its assessment under the principles contained
within IFRS 15, using the specific facts and circumstances relevant
to the entity and the transactions or contracts entered into.
However, the Committee did provide a number of discrete guidance
points on the application of various control criteria or indicators
that entities should consider under their IFRS 15 agent and
principal recognition criteria processes that specifically relate
to the resale of standalone software and have an impact on those
valued added resellers within the industry. Computacenter plc
included a preliminary assessment of the impact of the tentative
agenda decision within Note 3.2.1 of the 2021 Annual Report and
Accounts.
At its 20 April 2022 meeting, the Committee finalised and
approved its agenda decision. The International Accounting
Standards Board, at its May 2022 meeting, did not object to the
agenda decision.
The discussion and guidance within the approved agenda decision
provides direction for the implementation of the principal or agent
elements of IFRS 15 Revenue from Contracts with Customers for value
added resellers where standard standalone software and implicitly,
due to the similarity in the transactional fact pattern, resold
services such as maintenance contracts, extended warranties or
support contracts, that are sourced from a third party vendor and
resold to a customer. As noted in our 2021 Annual Report and
Accounts the approved agenda decision has impacted our existing
treatment for the principal or agent recognition of these revenue
streams, and whether they are recorded on a gross or net basis
within revenue. Previously such sales were recognised on a
principal or gross basis, apart from in certain limited instances
as described in Note 3.2.1 of the 2021 Annual Report and Accounts,
with gross invoiced income reported as revenue, and costs of the
resold software or services presented as part of cost of goods
sold.
The Group has now completed its assessment of the impacts of the
agenda decision and revised its accounting policies accordingly.
Standalone revenue from standard software sales is now recognised
on an Agency or 'net' basis where the margin earned on the contract
is recognised as revenue with zero cost of goods sold. Other
software revenues, particularly where the Group has performed
configuration or customisation services, as part of the software
sales agreement, or where the software is included alongside
hardware elements within a pre-configured bundle from the vendor
and resold within the pre-set bundle, continue to be recognised on
a principal basis. Similarly, the Group has determined that
third-party services agreements resold on a standalone basis are
also recognised on an agent basis due to the similar fact pattern
of the transaction to that of software sales unless these are also
included alongside hardware elements within a pre-configured bundle
from the vendor and resold within the pre-set bundle.
Management continues to assess the classification of other
revenue contracts for Technology Sourcing revenue recognition on
either an agent or a principal basis. Because the identification of
the principal in a contract is, on occasion, not always clear and
the level of judgement required can, in small number of instances,
be high with the outcomes of assessments finely balanced,
Management makes 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.
Resultingly, the Group continues to report all hardware elements
of its Technology Sourcing business, along with its internally
provided Managed Services and Professional Services revenues, on a
principal basis.
The Group will continue to report Technology Sourcing Gross
Invoiced Income and aggregated with our Services revenues as Total
Group Gross Invoiced Income as an Alternative Performance
Measure.
The changes in the Group's revenue accounting policies to
reflect the agenda decision of the Committee have resulted in the
following impact on the current period Financial Statements and, in
accordance with IAS8, a retrospective restatement of the relevant
prior period reported financial statements:
Revenue and cost of sales decreased by the value of revenue
assessed as being recognised on an agency basis by GBP1,142.8
million in H1 2022 (H1 2021: GBP862.5 million; FY 2021: GBP1,889.0
million).
Gross profit, operating profit, and profit before and after
taxes has remained unchanged in all periods. As a result, there is
no impact on basic and diluted earnings per share.
Previous Accounting
Policy Revised Accounting Policy
Principal Principal
Gross element Gross element
Invoiced on agency Invoiced on agency
Income contracts Revenue Income contracts Revenue
GBPm GBPm GBPm GBPm GBPm GBPm
Six months to 30 June 2021 3,287.6 107.6 3,180.0 3,287.6 862.5 2,425.1
Year to 31 December 2021 6,923.5 197.7 6,725.8 6,923.5 1,889.0 5,034.5
Apart from changes discussed above, the Critical accounting
estimates and judgements reported in the Group's 2021 Annual Report
and Accounts are unchanged.
4 Adjusted measures
The Group uses a number of non-Generally Accepted Accounting
Practice (non-GAAP) financial measures in addition to those
reported in accordance with IFRS. The Directors believe that these
non-GAAP measures, 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 non-recurring 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. Adjusted measures have remained
consistent with the prior period except for the addition of gross
invoiced income, as an alternative performance measure, due to the
change in Technology Sourcing revenue accounting policy for
principal versus agent recognition. Refer to note 3 for further
information on the change in accounting policy.
Gross invoiced income is based on the value of invoices raised
to customers, net of the impact of credit notes and excluding VAT
and other sales taxes. This reflects the cash movements from
revenue, to assist Management and the users of the Financial
Statements in understanding revenue growth on a 'Principal' basis
and to assist in their assessment of working capital movements in
the Consolidated Statement of Financial Position and Consolidated
Cash Flow Statement. This measure allows an alternative view of
growth in adjusted gross profit, based on the product mix
differences and the accounting treatment thereon. Gross invoiced
income includes all items recognised on an 'agency' basis within
revenue, on a gross income billed to customers basis, as adjusted
for deferred and accrued revenue.
These non-GAAP measures comprise of:
Gross invoiced income, adjusted administrative expenses,
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. They
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 does not consider these items when reviewing
the underlying performance of the Segment or the Group as a
whole.
A reconciliation to key adjusted measures is provided within the
Group Finance Director 's Review contained in this announcement
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 5, Segment information.
5 Segment information
The operating Segments remain unchanged from those reported at
31 December 2021. Central Corporate Costs continue to be disclosed
as a separate column within the Segmental note.
Segmental performance for the periods to H1 2022, H1 2021 and
Full Year 2021 were as follows:
Six months ended 30 June 2022
Central
North Corporate
UK Germany France America International Costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue
Technology Sourcing
revenue
Gross invoiced income 937.8 668.1 255.6 1,277.9 80.0 - 3,219.4
Principal element on
agency contracts (515.9) (204.0) (72.5) (339.5) (13.3) - (1,145.2)
Total Technology Sourcing
revenue 421.9 464.1 183.1 938.4 66.7 - 2,074.2
Services revenue
Professional Services 72.5 149.0 19.1 53.1 4.7 - 298.4
Managed Services 159.4 179.0 66.4 13.2 36.1 - 454.1
Total Services revenue 231.9 328.0 85.5 66.3 40.8 - 752.5
Total revenue 653.8 792.1 268.6 1,004.7 107.5 - 2,826.7
Results
Gross profit 130.3 140.0 32.1 101.4 21.1 - 424.9
Adjusted1 administrative
expenses (85.3) (84.6) (31.6) (81.1) (16.5) (11.6) (310.7)
Adjusted1 operating
profit/(loss) 45.0 55.4 0.5 20.3 4.6 (11.6) 114.2
Net interest 1.2 (1.2) (0.3) (1.5) (0.5) - (2.3)
Adjusted1 profit/(loss)
before tax 46.2 54.2 0.2 18.8 4.1 (11.6) 111.9
Amortisation of acquired
intangibles - - - - - - (4.1)
Profit before tax - - - - - - 107.8
The reconciliation of adjusted(1) operating profit to operating
profit as disclosed in the Consolidated Income Statement is as
follows:
Total
GBPm
Adjusted 1 operating profit 114.2
Amortisation of acquired intangibles (4.1)
Operating profit 110.1
Six months ended 30 June 2021
Central
North Corporate
UK Germany France America International Costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue (restated*)
Technology Sourcing
revenue
Gross invoiced income 799.3 618.7 226.7 883.2 53.6 - 2,581.5
Principal element on
agency contracts (328.1) (188.3) (42.7) (290.3) (13.1) - (862.5)
Total Technology Sourcing
revenue 471.2 430.4 184.0 592.9 40.5 - 1,719.0
Services revenue
Professional Services 75.0 135.6 20.5 30.5 4.0 - 265.6
Managed Services 157.2 175.4 65.9 8.7 33.3 - 440.5
Total Services revenue 232.2 311.0 86.4 39.2 37.3 - 706.1
Total revenue 703.4 741.4 270.4 632.1 77.8 - 2,425.1
Results
Gross profit 133.1 147.5 32.8 94.3 17.6 - 425.3
Adjusted1 administrative
expenses (81.4) (86.4) (34.8) (75.6) (13.5) (11.1) (302.8)
Adjusted1 operating
profit/(loss) 51.7 61.1 (2.0) 18.7 4.1 (11.1) 122.5
Net interest (0.3) (1.2) (0.3) (1.2) (0.6) - (3.6)
Adjusted1 profit/(loss)
before tax 51.4 59.9 (2.3) 17.5 3.5 (11.1) 118.9
Amortisation of acquired
intangibles (3.7)
Profit before tax 115.2
* Technology Sourcing revenue for the six months ended 30 June
2021 has been restated to reflect the change in revenue recognition
policies relating to software licences and third-party services
agreements resold on a standalone basis following the finalisation
of an agenda decision by the IFRS Interpretation Committee (the
'Committee'). Gross profit, operating profit, and profit before and
after taxes has remained unchanged. Refer note 3.
The reconciliation of adjusted1 operating profit to operating
profit as disclosed in the Consolidated Income Statement is as
follows:
Six months ended 30 June 2021
Total
GBPm
Adjusted 1 operating profit 122.5
Amortisation of acquired intangibles (3.7)
Operating profit 118.8
Year ended 31 December 2021
Central
North Corporate
UK Germany France America International Costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue (restated*)
Technology Sourcing
revenue
Gross invoiced income 1,581.5 1,427.7 481.4 1,869.2 112.8 - 5,472.6
Principal element on
agency contracts (638.3) (485.1) (98.2) (642.9) (24.5) - (1,889.0)
Total Technology Sourcing
revenue 943.2 942.6 383.2 1,226.3 88.3 - 3,583.6
Services revenue
Professional Services 154.6 273.8 38.0 77.5 8.5 - 552.4
Managed Services 327.6 348.6 134.0 18.6 69.7 - 898.5
Total Services revenue 482.2 622.4 172.0 96.1 78.2 - 1,450.9
Total revenue 1,425.4 1,565.0 555.2 1,322.4 166.5 - 5,034.5
Results
Gross profit 268.2 312.0 68.1 180.2 39.3 - 867.8
Adjusted1 administrative
expenses (165.3) (174.2) (64.6) (149.2) (28.0) (23.7) (605.0)
Adjusted1 operating
profit/(loss) 102.9 137.8 3.5 31.0 11.3 (23.7) 262.8
Net interest - (2.7) (0.8) (2.7) (1.0) - (7.2)
Adjusted1 profit/(loss)
before tax 102.9 135.1 2.7 28.3 10.3 (23.7) 255.6
Amortisation of acquired
intangibles (7.6)
Profit before tax 248.0
* Technology Sourcing revenue for the year ended 31 December
2021 has been restated to reflect the change in revenue recognition
policies relating to software licences and third-party services
agreements resold on a standalone basis following the finalisation
of an agenda decision by the IFRS Interpretation Committee (the
'Committee'). Gross profit, operating profit, and profit before and
after taxes has remained unchanged. Refer note 3.
The reconciliation of adjusted1 operating profit to operating
profit as disclosed in the Consolidated Income Statement is as
follows:
Year ended 31 December 2021
Total
GBPm
Adjusted 1 operating profit 262.8
Amortisation of acquired intangibles (7.6)
Operating profit 255.2
6 Seasonality of operations
Historically, revenues have been higher in the second half of
the year than in the first six months. This is principally driven
by customer buying behaviour in the markets in which we operate.
Typically, this leads to a more pronounced effect on operating
profit.
The Company saw the historical patterns of seasonality change
due to the unpredictability created first by the impact of
COVID-19, beginning in 2020, and then the more recent impact of
supply shortages. Certain customers pulled orders of information
technology equipment forward into the first half of 2021 that would
otherwise have naturally occurred in the second half of 2021. Both
of these events have materially impacted customer buying behaviours
impacting the timing of sales volumes between the first and second
halves of the year for 2020 and 2021 and therefore our historical
seasonality of operations patterns.
During 2022 we have seen these unusual buying patterns reversing
and the re-emergence of seasonality that is closer to our
historical norms. Whilst still somewhat affected by supply
shortages in networking IT equipment, we expect customer buying to
be more weighted towards the second half of the year leading, once
again, to a more pronounced effect on operating profit in the
second half which we expect to have a higher proportion of the full
year operating profit than we have seen in the previous two
years.
7 Dividends paid and proposed
A final dividend for 2021 of 49.4 pence per ordinary share was
paid on 8 July 2022. An interim dividend in respect of 2022 of 22.1
pence per ordinary share, amounting to a total dividend of GBP25.2
million, was declared by the Directors at their meeting on 7
September 2022. The expected payment date of the dividend declared
is 28 October 2022. This announcement does not reflect this
dividend payable.
8 Income tax
Tax for the six-month period is charged at 27.8 per cent (six
months ended 30 June 2021: 28.7 per cent; year ended 31 December
2021: 24.8 per cent), representing the best estimate of the average
annual effective tax rate expected for the full year, applied to
the pre-tax income of the six-month period.
9 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.
H1 2022 H1 2021 Year 2021
GBPm GBPm GBPm
Profit attributable to equity holders of the Parent 77.2 81.9 185.3
H1 2022 H1 2021 Year 2021
No. '000 No. '000 No. '000
Basic weighted average number of shares (excluding
own shares held) 112.9 113.0 113.0
Effect of dilution:
Share options 1.8 2.8 2.2
Diluted weighted average number of shares 114.7 115.8 115.2
H1 2022 H1 2021 Year 2021
pence pence pence
Basic earnings per share 68.4 72.5 164.0
Diluted earnings per share 67.3 70.7 160.9
10 Investments
On 25th May 2022, the Group acquired 100 per cent of the share
capital in Emerge 360 Japan k.k (Emerge Japan) from Emerge 360,
Inc., for a consideration of USD $3.5 million cash. Emerge Japan is
an IT Outsourcing Services provider based in Tokyo, Japan. The
business has presence in Japan, Singapore, Australia and Hong Kong.
The acquisition has been accounted for using the purchase method of
accounting.
11 Fair value measurements recognised in the consolidated
Balance Sheet
Financial instruments which are recognised at fair value
subsequent to initial recognition are grouped into Levels 1 to 3
based on the degree to which the fair value is observable. The
three levels are defined as follows:
1. Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
2. Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
3. Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
At 30 June 2022 the Group had forward currency contracts, which
were measured at Level 2 fair value subsequent to initial
recognition, to the value of an asset of GBP15.1 million and a
liability of GBP3.5 million (30 June 2021: asset of GBP3.2 million
and liability of GBP1.6 million; 31 December 2021: asset of GBP3.6
million and liability of GBP2.5 million). The net realised losses
from forward currency contracts, designated as cashflow hedges, in
the period to 30 June 2022 of GBP0.5 million (30 June 2021: gains
of GBP0.4 million; 31 December 2021: gains of GBP0.4 million) are
offset by broadly equivalent realised losses/gains on the related
underlying transactions.
The foreign currency forward contracts are measured based on
observable spot exchange rates, the yield curves of the respective
currencies as well as the currency basis spreads between the
respective currencies. All contracts are fully cash collateralised,
thereby eliminating both counterparty and the Group's own credit
risk.
The carrying value of the Group's short-term receivables and
payables is a reasonable approximation of their fair values. The
fair value of all other financial instruments carried within the
Financial Statements is not materially different from their
carrying amount.
12 Net funds
H1 2022 H1 2021 Year 2021
GBPm GBPm GBPm
Cash and short-term deposits 199.0 164.2 285.2
Bank overdrafts (5.5) (5.7) (12.0)
Cash and cash equivalents 193.5 158.5 273.2
Bank loans and credit facility (34.2) (36.7) (31.8)
Adjusted net funds 3 (excluding lease liabilities) 159.3 121.8 241.4
Lease liabilities (147.2) (151.2) (146.1)
Net funds 12.1 (29.4) 95.3
Bank loans /Credit facility (19.0) (15.8) (15.1)
Lease liability (43.6) (44.1) (43.0)
Financial liabilities - Current (62.6) (59.9) (58.1)
Bank loans (15.2) (20.9) (16.7)
Lease liability (103.6) (107.1) (103.1)
Financial liabilities - Non-current (118.8) (128.0) (119.8)
13 Provisions
Customer
contract Property Other Total
provisions provisions provisions provisions
GBPm GBPm GBPm GBPm
At 1 January 2022 5.9 5.6 1.7 13.2
Amount unused reversed (1.6) - (0.6) (2.2)
Arising during the period 1.0 - - 1.0
Utilisation (0.5) (0.6) (0.2) (1.3)
Exchange adjustment 0.1 - - 0.1
At 30 June 2022 4.9 5.0 0.9 10.8
Current 2.6 1.0 0.7 4.3
Non-current 2.3 4.0 0.2 6.5
4.9 5.0 0.9 10.8
Customer contract provision
During the period GBP0.5 million of customer contract provisions
had been utilised in line with individual contract forecasts.
14 Retirement benefit obligation
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. 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. The Group continues to make a provision for this
obligation according to IAS19 (revised).
The actuarial assumptions applied for the estimation of the
retirement benefit obligation are disclosed in the annual financial
statements for the year ended 31 December 2021 and continue to be
applied in H1 2022, except for the discount rate applied to future
cash flows which is discussed below.
Against the backdrop of high global inflation and rising
interest rates which resulted in a significant increase in AA-rated
corporate bonds yields, Management has revised the discount rate
assumption to 3.2 per cent (31 December 2021: 1.0 per cent). This
change has resulted in an unrealised actuarial gain of GBP5.6
million which has been recognised in the Consolidated Statement of
Comprehensive Income for the period ended 30 June 2022. The level
of unrealised actuarial gains or losses is sensitive to further
changes in the discount rate, which is affected by market
conditions and therefore subject to variation.
An updated estimation of the retirement benefit obligation for
IAS 19 financial reporting purposes will be completed for the
annual financial statements for the year ending 31 December 2022,
making use of an independent actuarial valuation. At that time any
actuarial gains/losses arising throughout the year will be
recognised, including those arising from a change in all key
assumptions applied for the estimation.
The Group made GBP0.3 million of payments during H1 2022 under
this obligation (H1 2021: GBPnil).
The net retirement benefit charge to the Consolidated Income
Statement for H1 2022 of GBP0.8 million (H1 2021: GBP0.8 million)
represents the relevant proportion of the annual amounts expected
to be recognised for the year ending 31 December 2022.
15 Post balance sheet event
Acquisition of Business IT Source Holdings, Inc.
On 13 July 2022 the Group announced that it acquired one of the
fastest-growing value-added resellers in the United States of
America, Business IT Source Holdings, Inc. ("BITS") for an initial
cash consideration of approximately USD 35.1 million effective from
1 July 2022. Two further earn-out payments in April 2023 and April
2024 are contingent on the future performance of the acquired
business through to 31 December 2023. The value of these contingent
payments will be determined in accordance with the share purchase
agreement.
16 Publication of non-statutory accounts
The financial information contained in this announcement does
not constitute statutory accounts as defined in section 435 of the
Companies Act 2006.
The comparative figures for the financial year ended 31 December
2021 are not the company's statutory accounts for that financial
year. Those accounts have been reported on by the company's auditor
and delivered to the registrar of companies. The report of the
auditor was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
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IR EAFNPEFPAEAA
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