RNS Number:8763F
CMG PLC
21 February 2000
CMG plc:Audited results for the year to 31 December 1999
Summary
1999 1998 Increase %
Turnover #608.6m #443.8m 37%
Operating profit
before goodwill
amortisation #85.3m #58.4m 46%
after goodwill
amortisation #83.1m #56.7m 47%
Profit before tax
before goodwill
amortisation #85.8m #59.2m 45%
after goodwill
amortisation #83.6m #57.5m 45%
Profit after tax and
minority interests #55.7m #37.4m 49%
Earnings per share
before goodwill
amortisation 47.2p 31.9p 48%
after goodwill
amortisation 45.4p 30.5p 49%
Full year dividend 8.7p 6.0p 45%
Final dividend 5.8p 4.0p 45%
(Payable on 19 May 2000
to all shareholders on
the register on 14 April 2000.
Ex-dividend date is 10 April 2000.)
Highlights
Continued growth ahead of the market in Group turnover,
primarily organic
Operating margin before goodwill amortisation rising to
14.0% (1998: 13.2%) despite the more competitive
environment of the second half
Staff numbers up 22% to 8,656 in a recruitment market of
reduced mobility in the pre-millennium period
Five acquisitions completed and a further two with
effect from 1 January 2000
Rapid organic growth of global telecoms product business
and early leadership position established in emerging
WAP (Wireless Application Protocol) marketplace.
Operational Summaries
Benelux: Significant growth in turnover and market
share was achieved with high demand for CMG's skills.
The consequent productivity generated a margin of 18.7%,
well above the company's longer term target range of 14-
16%. The breadth and depth of customer relationships in
The Netherlands continued to underpin the performance of
the Group. The acquisition of Thijssen Information
Systems brought valuable experience in process
automation and the objective of securing a growing
number of projects for embedded software was
successfully achieved. The acquisition of Softguide in
Belgium doubled the size of the operations there and
provided a base in the important Antwerp area.
United Kingdom: The UK operation grew more moderately,
at 16%, than in 1998, partly as a result of project
deferrals around the millennium and substantial takeover
activity in some of our chosen sectors. We continued to
be successful in securing significant long term
contracts, from both Government and commercial
customers, that require a combination of consulting,
systems development and managed services expertise.
Germany: Our German operation continued its strong
growth trend with turnover up 65%. This growth was
helped by the acquisition of Partner Consult in
February, but organic growth without the acquisition was
still 37%. We opened an office in Berlin to begin
building a capability in the new centre of Government
and announced two further acquisitions that took effect
in January 2000. We continued to broaden product and
service offerings to the finance sector and extended our
ERP-related business into Customer Relationship
Management and Supply Chain Management.
France: The twin objectives of creating an integrated
French operation in one location and operating
profitably were both achieved during the year. In
addition, the acquisition of Eurasoft brought skills and
a well-established customer list in the insurance
sector. Banking, telecommunications and the broader
market for ERP systems are areas of good growth.
Global telecoms products figures reported as part of
Benelux in the statutory accounts: Our global telecoms
business headquartered in Utrecht had an excellent year
with revenues up 152% to #73 million as demand for
mobile telephony continued to soar. We remain focused
on enabling the provision of value added services
extending our leadership in high capacity Short Message
Service Centres. We opened an additional software
development facility in Cork, Ireland, during the year,
and a further sales and support office in Beijing,
China. In mid-1999, we became the first company to
install a working system based on the new Wireless
Application Protocol (WAP) for Esat Digifone in Ireland.
Outlook for 2000
Commenting on the outlook for the year ahead, CMG
Chairman Cor Stutterheim said:
"We have believed for some time that a fundamental shift
has occurred towards the use of Information and
Communications Technology (ICT) to create new business
models, provide competitive advantage and thereby
generate revenues. This is a long-term driver of growth
unrelated to the millennium phenomenon. Indeed, to the
extent that Year 2000 compliance has required the
attention of in-house IT people, organisations will look
to ICT services companies to provide many of the newer
technology skills they require for systems development.
In the later stages of 1999, customers were building a
backlog of new projects that were only awaiting the
final outcome of the millennium change to become
scheduled. I'm pleased to say that none of our
customers reported any significant issues arising from
the millennium changeover. While therefore order intake
around the turn of the year was slower than normal,
setting aside currency fluctuations, we expect turnover
growth for the full year to be good and ahead of market
growth, even if not as high as the exceptional levels of
the past two years.
A growing proportion of CMG's business is related to the
issue of how our customers will access, service and
develop their customers in a multimedia world.
Organisations are beginning to move from relatively
small-scale pilot projects to embedding eBusiness into
the heart of their systems and processes. This allows
CMG to leverage the breadth of our experience and skills
to provide solutions that are resilient and flexible -
and which will help to enhance the reputations of our
customers. There are challenges ahead for all of our
industry, but the opportunities are manifold and very
exciting. We look forward to another year of good
growth and enter the new millennium with confidence in
the longer-term prospects for the markets we address."
A copy of the full Chairman's Statement is included
below.
For further information, contact:
Cor Stutterheim, Chairman, CMG plc
Tel: +31 (0) 20 67 20 444
Chris Banks, Finance Director, CMG plc
Tel: +44 (0) 171 592 4000
Tony Richards, Group Communications Manager, CMG plc
Tel: +44 (0) 171 592 4000
Jan Massier, Group Communications (Amsterdam), CMG B.V.
Tel: +31 (0) 20 67 20 444
Toby Mountford, Citigate Dewe Rogerson
Tel: +44 (0) 171 638 9571
Chairman's Statement
It is especially pleasing to report a very good set of
results in a year when market conditions have been a
subject of considerable speculation. Our performance
has been in line with my comments at the interim stage,
and while turnover growth slowed as forecast in the
second half, turnover for the full year was still up 37%
to #609 million. The vast majority of this growth was
achieved organically. Our operating margin before
goodwill amortisation improved from 13.2% to 14.0% and
our profit before tax and goodwill amortisation was up
45% to #85.8 million. These headline results
demonstrate that we are continuing to take market share
in our key territories. Earnings per share before
goodwill amortisation were up 48% from 31.9p to 47.2p.
The Board has in consequence recommended a final net
dividend of 5.8p, up 45% from 4.0p.
We were always mindful of the potential for the
approaching millennium to cause short term disruption in
the market. There was undoubtedly a tightening of
conditions in the second half, particularly in the very
competitive UK environment and in the international
financial services sector where the regulatory bodies
recommended extreme caution. It is very important,
therefore, that I place my thanks on record to all of
the CMG people who remained very focused and disciplined
in achieving our customers' goals during that period.
After reporting our half year results in September, the
investment community's confidence in our ability to
manage the short-term market conditions grew steadily
and was reflected in our share price. That confidence
was underpinned as always by our 35 year history of
unbroken profitable growth and was rewarded by our entry
into the FTSE 100 index in London in December and the
Midcap index in Amsterdam in February 2000.
Customer relationships
The confidence we expressed at each stage of the year
was based on the resilience inherent in our customer
relationship model. We have built those relationships
over many years on a reputation for providing the right
skills in the right place at the right time, and
delivering practical working solutions on time and to
budget. In The Netherlands, we have the greatest
breadth and depth of customer relations. There we were
often able to maintain or even grow our representation,
even in organisations that were reducing their overall
requirements in the second half.
Through our ongoing discussions with customers we have
very good visibility of their future plans and
requirements and can adjust our resource management
systems accordingly. In the United Kingdom, where the
short-term reluctance to start new projects was most
acute, we were additionally cushioned by our success
over the previous 18 months in obtaining a number of
large, long-term projects generating regular and
profitable revenue streams. In both The Netherlands and
The United Kingdom, we also enjoyed the benefits of our
successful payroll processing and other business
services operations.
People and management
While our growth rate remains well above industry
averages, we have been constrained by the availability
of skilled people. We did add a net 1,534 people to our
staff during 1999 to take our year-end total to 8,656.
This is a good performance by any comparison. We placed
more emphasis on experienced people than during 1998
when we recruited a relatively large number of
graduates. However, there are still not enough people
entering our industry to meet the projected future
demands on our industry. Offering a working
environment in which people want to work and want to
stay remains one of our most important assets. Our
investment in personal development - in terms of
technical skills, market knowledge and management
disciplines - remains very high and rightly so. We are
also working closely with universities and business
colleges to create an enhanced perspective on the
attractions of a career in Information & Communications
Technology (ICT) consulting and services.
We continue to produce the vast majority of our managers
from within the Group and that has been very important
to maintaining our ethos, working methodology and
quality standards through a period of rapid growth. It
receives little publicity externally, of course, but is
a phenomenal achievement given our focus on organic
growth first. Once appointed, all managers are required
to build a share-holding stake in the business over a
five year period which we firmly believe keeps them
focused on delivering our promises to customers. Today
over 70% of all our employees hold shares or options in
the company.
Sustaining growth
Another important aspect to sustaining growth ahead of
the market is being involved in sectors faced with
significant change and which recognise the role of ICT
in enabling that change. Today, indeed, it is often
ICT that is creating the new market dynamics driving
that need to change - eBusiness being the most obvious
example. CMG is well positioned on both accounts as is
described in more detail elsewhere in this document.
Of particular note in 1999 was the accelerating growth
of our global telecoms business. This is an
international software products business in mobile
telephony and wireless networking. It is the fastest
growing technology market in the world. We
substantially enhanced our position in the value added
services segment by taking an early lead in the emerging
WAP (Wireless Application Protocol) arena. We are also
enabling our other industry sector businesses to
capitalise on this unique expertise to create innovative
solutions for their customers. Wireless banking is a
notable example, but there are further potential
synergies throughout the Group.
We made a number of acquisitions during 1999 that
brought additional skills and established customer
relationships to our Group. The aggregate cost of those
acquisitions was #29 million. We still place priority
on organic growth, but continue to invest a lot of time
targeting and evaluating potential acquisitions to
accelerate our progress, particularly in our developing
territories. Given the competition for experienced
people, it is inevitable that acquisitions will feature
in our future development. We look first at the
strategic fit and then at whether the operations are
well managed with the right customer profile. It is
also critical that the people are committed to working
in a similar way to us.
The Board
To prepare for the next phase of the Group's growth, the
Board will be expanded on 1 April 2000. We are pleased
to announce that Hugo Schaap, Bernd Lantermann and Ian
Taylor will join it. They are currently the Country
Chairmen of our Benelux, German and UK operations. Hugo
will join as Marketing Director, responsible for
developing the CMG brand and the development, marketing
and sales of cross-border products and services. Bernd
will join as Business Development Director, responsible
for the development of the Group's business plans and
acquisition programme. Ian will join as Human Resources
and Organisation Director and will replace Barbara Ward
when she reaches normal retirement age at the end of
June. The lack of Barbara's presence will be felt by
many across the company. She is the longest serving CMG
employee and has contributed immeasurably to the
development of CMG's business and in particular our
unique culture and ethos.
In December, Chris Banks, our Finance Director, decided
to reduce his executive duties in mid-2000 in order to
spend more time with his family. At the time of
writing, the process for recruiting his successor is
progressing well. We are extremely pleased that Chris
has accepted an ongoing role as a non-executive director
so that CMG will continue to benefit from his
considerable experience.
Share sub-division and bonus issue
In order to improve the marketability of our shares, we
are proposing to sub-divide each 5p share into two 2.5p
shares. This will be followed immediately by a one for
one bonus issue to achieve the total effect of three
additional shares for every share currently held.
Resolutions to this effect will be put before the AGM on
17 May 2000.
Outlook
We have believed for some time that a fundamental shift
has occurred towards the use of ICT to create new
business models, provide competitive advantage and
thereby generate revenues. This is a long-term driver
of growth unrelated to the millennium phenomenon.
Indeed, to the extent that Year 2000 compliance has
required the attention of in-house IT people,
organisations will look to ICT services companies to
provide many of the newer technology skills they require
for systems development. In the later stages of 1999,
customers were building a backlog of new projects that
were only awaiting the final outcome of the millennium
change to become scheduled. I'm pleased to say that
none of our customers reported any significant issues
arising from the millennium changeover. While therefore
order intake around the turn of the year was slower than
normal, setting aside currency fluctuations we expect
turnover growth for the full year to be good and ahead
of market growth, even if not as high as the exceptional
levels of the past two years.
A growing proportion of CMG's business is related to the
issue of how our customers will access, service and
develop their customers in a multimedia world.
Organisations are beginning to move from relatively
small-scale pilot projects to embedding eBusiness into
the heart of their systems and processes. This allows
CMG to leverage the breadth of our experience and skills
to provide solutions that are resilient and flexible -
and which will help to enhance the reputations of our
customers. There are challenges ahead for all of our
industry, but the opportunities are manifold and very
exciting. We look forward to another year of good
growth and enter the new millennium with confidence in
the longer-term prospects for the markets we address.
Cor Stutterheim
Chairman
Summary financial information is set out below:
Exchange Rate impact table
1999 1998 1998 %Growth %Growth
at constant at actual at constant at actual
exchange exchange exchange exchange
rates rates rates rates
#m #m #m
Turnover 608.6 436.9 443.8 39 37
EBITDA 91.8 62.1 63.3 48 45
Operating
Profit* 85.3 57.2 58.4 49 46
Profit
before
tax* 85.8 58.1 59.2 48 45
Profit
after tax
and
minority
interests 55.7 36.7 37.4 52 49
Earnings
per share* 47.2p 31.3p 31.9p 51 48
Key exchange rates
used above: #1 =
Netherlands
Guilder 3.35 3.35 3.28
Deutsche
Mark 2.97 2.97 2.91
French
Franc 9.97 9.97 9.76
Euro 1.52 - -
* before goodwill amortisation
Consolidated Profit and Loss Account
for the year ended 31 December 1999
Notes 1999 1998
#'000 #'000
Turnover 3 608,588 443,832
Net operatingcosts (525,475) (387,155)
Operating profit
Before goodwill
amortisation 85,288 58,371
Goodwill amortisation (2,175) (1,694)
83,113 56,677
Net interest receivable 516 805
Profit on ordinary
activities beforetax 3 83,629 57,482
Tax on profit on
ordinary activities (27,676) (20,065)
Profit on ordinary
activities aftertax 55,953 37,417
Minority interests
(equity) (252) -
Profit for the year 55,701 37,417
Dividends -
ordinary shares 5 (10,668) (7,351)
Retained profit for
the year 45,033 30,066
All results are derived from continuing activities.
Earnings per share 6
headline and basic
before goodwill
amortisation 47.2p 31.9p
after goodwill
amortisation 45.4p 30.5p
diluted
before goodwill
amortisation 44.5p 30.4p
after goodwill
amortisation 42.8p 29.0p
Consolidated statement of total recognised gains and losses
for the year ended 31 December 1999
1999 1998
#'000 #'000
Profit for the year 55,701 37,417
Currency translation
differences on foreign
currency net investments (7,906) 4,280
Total recognised gains 47,795 41,697
Consolidated Balance Sheet
31 December 1999
Notes 1999 1999 1988 1998
#'000 #'000 #'000 #'000
Fixed assets
Goodwill 45,603 28,463
Tangible assets 16,877 17,794
Investments
own shares 2,787 2,790
65,267 49,047
Current assets
Debtors 146,164 115,930
Cash at bank and
in hand 31,180 39,467
177,344 155,397
Creditors
Amounts falling due
within one year (116,293) (114,592)
Net current assets 61,051 40,805
Total assets less
current liabilities 126,318 89,852
Provisions for liabilities
and charges (4,696) (5,449)
Net assets 121,622 84,403
Capital and reserves
Called up equity
share capital 8 6,411 6,406
Share premium account 8 10,469 10,382
Reserves of
Employee Trust 8 2,599 2,197
Profit and loss
account 8 102,143 65,418
Equity shareholders' funds 121,622 84,403
Consolidated Cash Flow Statement
for the year ended 31 December 1999
1999 1999 1998 1998
Notes #'000 #'000 #'000 #'000
Net cash inflow from
operating activities 7 70,916 51,762
Returns on investments
and servicing of finance
Interest received 1,907 1,843
Interest paid (1,308) (898)
Net cash inflow from
returns on investments
and servicing of finance 599 945
Taxation (35,683) (15,286)
Capitalexpenditure (6,528) (9,814)
Acquisitions (27,455) (22,456)
Equity dividends paid (8,457) (5,636)
Net cash outflow before
use of liquid resources
and financing (6,608) (484)
Financing activities
Proceeds from exercise
of share options 92 -
Managementof liquid resources (236) 498
(Decrease)/increase in cash (6,752) 14
Notes
1. Source of financial information
The financial information above does not comprise
statutory accounts. Financial statements for the
year ended 31 December 1998,which include an
unqualified audit report, have been delivered to the
Registrar of Companies. The 1999 financial
statements, including an unqualified audit report,
will be posted to shareholders and will be filed
with the Registrar of Companies.
2. Exchange rates
The most important exchange rates used in preparing
the financial information were:
1999 1999 1999 1998
Year end Average Year end Average
Netherlands Guilder 3.54 3.35 3.12 3.28
Deutsche Mark 3.14 2.97 2.77 2.91
French Franc 10.55 9.97 9.29 9.76
Euro 1.61 1.52 1.42 -
3. Segmental information
Analyses of turnover and profit before tax by geographic
origin are given below:
Turnover Turnover Profit Profit
1999 1998 before tax before tax
1999 1998
#'000 #'000 #'000 #'000
Benelux 398,586 290,270 74,534 53,317
United Kingdom 125,924 108,230 10,299 9,161
Germany 59,809 36,182 3,996 2,215
France 24,269 9,150 (81) (2,748)
608,588 443,832 88,748 61,945
Common costs - - (3,460) (3,574)
Goodwill
Amortisation - - (2,175) (1,694)
608,588 443,832 83,113 56,677
Net interest
receivable - - 516 805
608,588 443,832 83,629 57,482
#482,000 of the goodwill amortisation is attributable to
The Benelux (1998: nil), #898,000 to the UK (1998:
#1,454,000), #361,000 to Germany (1998: #21,000) and the
remaining #434,000 to France (1998: #219,000).
Turnover by country of destination is given below:
Turnover
1999 1998
Benelux 330,812 266,400
United Kingdom 118,106 98,681
Germany 82,095 44,105
France 28,346 10,395
Rest of World 49,229 24,251
608,588 443,832
4. Employees
1999 1998 1999 1998
Average Average Year end Year end
The number of
employees was:
Benelux 5,277 4,157 5,666 4,752
United Kingdom 1,645 1,294 1,713 1,500
Germany 705 394 776 513
France 436 160 501 357
8,063 6,005 8,656 7,122
5. Ordinary dividends paid and proposed
1999 1999 1998 1998
#'000 #'000 #'000 #'000
Interim dividend of
2.9 pence on 128,212,658
ordinary shares (1998: 2.0 pence
on 128,112,658
ordinary shares) 3,718 2,562
Less dividends (162) (112)
payable to the
Employee Trust
3,556 2,450
Proposed final
dividend of
5.8 pence on
128,212,658
ordinary shares
(1998: 4.0 pence
on 128,112,658
ordinary shares) 7,436 5,125
Less dividends (324) (224)
payable to the
Employee Trust
7,112 4,901
10,668 7,351
6. Earnings per share
1999 1998
Earnings
standard basis (#'000) 55,701 37,417
add back goodwill amortisation 2,175 1,694
before goodwill amortisation (#'000) 57,876 39,111
Number of shares ('000)
Weighted average number
of shares in issue 128,187 128,113
Shares held by
the Employee Trust (5,590) (5,599)
Shares used to calculate
earnings per share 122,597 122,514
Effect of dilutive
potential ordinary shares
share options 7,404 6,331
Shares used to calculate
diluted earnings per share 130,001 128,845
7. Reconciliation of operating profit to net cash inflow
from operating activities
31 December 31 December
1999 1998
#'000 #'000
Operating profit 83,113 56,677
Goodwill amortisation 2,175 1,694
Depreciation of
tangible fixed assets 6,469 4,890
Loss on disposal
of fixed assets 34 524
Increase in debtors (32,492) (42,021)
Increase in creditors
and provisions 11,617 29,998
Net cash inflow from
operating activities 70,916 51,762
8. Reconciliation of group reserves
Share Share Reserves Profit Total
capital premium of and loss
capital Employee account
Trust
#'000 #'000 #'000 #'000 #'000
Balance at
1 January 1999 6,406 10,382 2,197 65,418 84,403
Change in value
due to
currency
fluctuations - - - (7,906) (7,906)
Retained profit
for the year - - - 45,033 45,033
Shares issued
during the year 5 87 - - 92
Transfer in respect
of Employee Trust
result - 7 (7) - -
Transfer in respect
of Employee Trust
dividends after tax - - 395 (395) -
Balance at
31 December 1999 6,411 10,469 2,599 102,143 121,622
9. Acquisitions
The Group completed five acquisitions during the year.
Partner Consult, a German company, was acquired on 19
February 1999 for a cash consideration of DM23.9 million
(#8.2 million). Softguide Group, a Belgian company, was
acquired on 30 March 1999 for a cash consideration of
BFr 991.5 million (#16.5 million). Softguide France was
acquired on 23 June 1999 for a cash consideration of FFr
0.7 million (#0.1 million). Thijssen Information
Systems, a Dutch company, was acquired on 1 October 1999
for NLG 2.5 million (#0.7 million). Eurasoft SA, a
French company, was acquired on 19 October 1999 for a
cash consideration of FFr 33.0 million (#3.3 million).
These acquisitions contributed a total of #16.3 million
to group turnover during the year and #2.2 million to
group operating profit before goodwill amortisation.
END
FR TPMRTMMIBBLM
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