RNS No 3308a
CMG PLC
2nd September 1998
Group interim results for six months to 30 June 1998
Summary
6 months to 30 June
1998 1997 Increase
Turnover #194.2m #140.7m 38% (47%*)
Operating profit #23.3m #14.6m 60% (72%*)
Profit before tax #24.1m #15.1m 59% (71%*)
Profit after tax #15.6m #9.5m 64% (76%*)
Earnings per share 12.2p 7.4p 65% (77%*)
Interim dividend 2.0p 1.3p 54%
Payable on 20 November
1998 to all
shareholders on the
register on 16 October
1998. Ex-dividend date
is 12 October 1998.
The 1997 earnings per share and dividend have been adjusted to
reflect the one for one bonus issue which took place in May
1998.
Highlights
Turnover, profit, headcount and margins show substantial
increases in the Benelux, the UK and Germany.
* Pre-tax profits up 59% (71%*) to #24.1 million
* 38% (47%*) growth in group turnover predominantly organic
* Operating margin up from 10.4% to 12.0%
* Staff numbers up 36% from a year ago to 5,725 at end of
June
On the outlook for the remainder of the year, CMG Chairman Cor
Stutterheim said, "The Group's performance since the end of
June continues to be very satisfactory and our main markets
remain buoyant. Notwithstanding the tight recruitment market,
we anticipate that the second half year, traditionally CMG's
better half, will enable us to produce a further strong set of
results for the full year."
For further information, contact:
Cor Stutterheim, Chairman, CMG plc
Tel: 00 31 20 6720444
Chris Banks, Finance Director, CMG plc
Tel: 00 44 171 5924000
Jan Massier, Group Communications
Tel: 00 31 20 6720444
*At constant exchange rates. The effect of exchange rates on
CMG's reported results is shown on page 4.
CHAIRMAN'S STATEMENT
RESULTS
I am pleased to report that we had an excellent first half
year. Turnover in the six months to 30 June 1998 increased by
38% (47%*) to #194 million. Our operating profit margin rose
strongly from 10.4% to 12.0%. The growth in turnover and the
rise in margin have combined to produce a 60% (72%*) rise in
operating profit. Profit after tax has risen by 64% (76%*) to
#15.6 million, while earnings per share have grown to 12.2p,
an increase of 65% (77%*) on the same period last year. Once
again the growth in our business has predominantly come
through organic growth. Our staff numbers have also risen
significantly despite higher staff turnover, reaching 5,725 at
the end of June, compared to 4,202 a year earlier and 4,945 at
the end of 1997.
OVERVIEW
The IT services industry is continuing to benefit from an
extended period of exceptionally strong demand. Within the
industry we are gaining market share in nearly all areas of
our business. This is being achieved through continued
emphasis on providing quality services and products to our
clients, in the context of long term relationships. These
relationships are in turn strengthened by the skills of our
people and the ethos within which we work. The CMG ethos is
founded on openness, fairness, equality and commitment to the
success of our people and our clients. This ethos has played
an important role in enabling us to attract and retain the
quality people we need to fulfil the growing requirements of
our clients.
As planned, we have significantly extended our European
presence in 1998, to be closer to both our clients and our
people. We are now established in France and Belgium as a
result of acquisitions, which have formed the base for
subsequent organic growth. In the Netherlands we have expanded
coverage of the country by opening an office in Eindhoven and
we plan to open offices in Alkmaar, Enschede and Woerden
before the end of the year. In the UK we now have a base in
Derby in the Midlands through the acquisition of Microlex. We
have also opened an office in Singapore to help sell and
support our mobile telecoms software products in the Asia
Pacific region.
OPERATIONS
BENELUX
In the Benelux region we have grown turnover by 32%, of which
2% is attributable to our Belgian activities that were started
at the end of 1997 with the acquisition of CSS. The
acquisition has progressed well and we have also been
successful in recruiting, with staff numbers in Belgium
reaching 42 at the end of June, as compared with 29 on
acquisition. Our Benelux operating profit margin has increased
from 13.6% in the first half of 1997 to 16.7%. This increase
is principally due to higher staff productivity. This has
resulted from a temporary change in the mix of new employees,
with relatively more experienced staff, who require less
initial training, joining in 1998. We do not therefore expect
the margin improvement to be as pronounced for the full year.
All our business areas in the Netherlands have performed well
and we have gained many new orders, principally from existing
clients. We have expanded our work on the implementation of
ERP (Enterprise Resource Planning) packages such as Baan and
SAP, including for the first time work in the Government area.
We are also further developing our expertise in the areas of
embedded software and call centre technology.
UK
We have also had an excellent first half in the UK, where
turnover has risen by 48% and operating profit by 100%. Our UK
operating margin has improved from 6.0% to 8.2%, making good
progress towards our medium-term target of 10%. The
acquisition of Microlex in February has gone well, with new
products launched in the last quarter.
Following success in providing solutions for the deregulated
industrial gas market, our UK Utilities business has developed
the first suite of packages (known as Archipel) for the
deregulating consumer gas and electricity markets.
In June we announced the formation of a joint venture company
with the Radiocommunications Agency (RA), an agency of the
Department of Trade and Industry (DTI). CMG owns 70% of the
company, which will provide IT services to the RA and spectrum
management consulting services to other potential customers.
The arrangement will run for a minimum of seven years, with
revenues over the period expected to be in excess of #50
million. CMG has been a major supplier of IT services to both
the DTI and RA for many years.
GERMANY
Our German operations have continued to improve their
performance, with turnover growth of 42%, operating profit up
83% and an operating margin of 6.0%. We have grown business
from existing clients significantly. We have also won business
at a number of new large clients, with scope for growth in the
future.
We are enhancing SAMBA, our market leading bank regulatory
reporting software. This includes adding new features for the
recently introduced capital adequacy directive and an
interface between SAP's IS-Banking Software and SAMBA.
We have gained Preferred Consulting Partner status with Baan
and have become a leading supplier of Baan-related IT services
in Germany. In addition, we have won a special contract to
support Baan's EXPO2000 activities in Hannover. We have also
been one of the first companies in Germany to enter into a
partnership contract with SUN and become one of the few SUN
Authorized Java Centers.
FRANCE
As part of our strategy of broadening our base within Europe
we opened an office in Paris at the start of 1998 and, in
February, we acquired Alias. The acquisition brought 43 staff
and is profitable. Through these initiatives we have generated
turnover of #2.3 million. The operating loss of #0.8 million
reflects the initial costs of starting in a new country and
the significant expenditure incurred on recruitment for the
telecoms and finance activities that we are building up
separately from Alias. Our total headcount in France reached
81 at the end of June.
Since 30 June we have acquired two companies in France. On 1
July we acquired COMETH which added 38 people to our French
operations and extended the base of our SAP related activities
to make CMG one of the leading SAP partners in France. On 26
August we acquired Techside which added a further 108 people.
Techside provides advanced technology services to a range of
industry sectors and expands the range of services offered by
CMG in France.
CASH
The group's cash performance is seasonally weaker in the first
half, but we again expect cash generation to be strong in the
second half of the year.
YEAR 2000/EMU
We have carried out a review of the services and products we
have sold to clients in the past as well as those we currently
offer. We have also reviewed our internal systems. In the
limited instances where millennium non-compliance has been
identified remedial work has either already been carried out
or is actively planned. We will maintain the review process to
ensure prompt identification and resolution of any future
issues. Similar review procedures are in place in respect of
the introduction of the Euro.
THE BOARD
We were pleased to welcome George Loudon to the Group board as
a non-executive director in April. He has wide boardroom-level
experience in the finance sector and is currently a non-
executive director of a number of companies, including Arjo
Wiggins Appleton plc, Geveke NV and EASDAQ SA.
Joop Feilzer, a non-executive director of CMG since 1993,
retired from the board at the conclusion of the AGM on 12 May.
We would like to offer him our sincere thanks for his valuable
contribution to the group over the last five years.
DIVIDEND
In the light of the excellent first half year results the
Board has declared an interim dividend of 2.0p net per share.
This will be paid on the share capital enlarged by the one for
one bonus issue announced in March and completed in May. This
represents an increase of 54% over the 1997 interim dividend.
The dividend will be paid on 20 November 1998 to shareholders
on the register on 16 October 1998.
PROSPECTS
The Group's performance since the end of June continues to be
very satisfactory and our main markets remain buoyant.
Notwithstanding the tighter recruitment market, we anticipate
that the second half year, traditionally CMG's better half,
will enable us to produce a further strong set of results for
the full year.
* At constant exchange rates. The effect of exchange rates on
CMG's reported results is shown in the table below.
EXCHANGE RATES
CMG's reported results can be significantly influenced by
movements in exchange rates, which can hinder understanding of
the underlying financial performance. To provide a more
meaningful basis of comparison, the table below provides key
financial information expressed both at 1998 exchange rates
("constant exchange rates") and at the exchange rates used for
1997 ("actual exchange rates").
Six months to 30 June:1998 1997 1997 % growth % growth
At At at at
constant actual constant actual
exchange exchange exchange exchange
rates rates rates rates
#m #m #m
Turnover 194.2 132.1 140.7 47% 38%
Operating profit 23.3 13.5 14.6 72% 60%
Profit before tax 24.1 14.1 15.1 71% 59%
Profit after tax 15.6 8.9 9.5 76% 64%
Earnings per share 12.2p 6.9p 7.4p 77% 65%
Key exchange rates used above: #1 =
Netherlands Guilder 3.36 3.36 3.09
Deutsche Mark 2.98 2.98 2.75
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Unaudited Unaudited
6 months 6 months Audited
ended ended year ended
30 June 30 June 31 December
1998 1997 1997
Notes #'000 #'000 #'000
Turnover 3 194,151 140,704 302,992
Net operating costs (170,845) (126,126) (265,821)
------ ------ ------
Operating profit
Before goodwill
amortisation 23,630 14,578 37,171
Goodwill (324) - -
amortisation ------ ------ ------
23,306 14,578 37,171
Net income of Employee 89 36 142
Trust
Net interest receivable 656 503 1,332
------ ------ ------
Profit on ordinary
activities before tax 24,051 15,117 38,645
Tax on profit on
ordinary activities 5 (8,469) (5,591) (13,920)
------ ------ ------
Profit on ordinary
activities after tax 15,582 9,526 24,725
Dividends - ordinary 6 (2,562) (1,665) (4,996)
shares
------ ------ ------
Retained profit for the
period 13,020 7,861 19,729
====== ====== ======
Earnings per share
- headline and 7 12.2p 7.4p 19.3p
basic
- before
goodwill 12.4p 7.4p 19.3p
amortisation
- effect of
goodwill (0.2)p - -
amortisation ====== ====== ======
The historic earnings per share numbers have been adjusted to
reflect the one for one bonus issue which took
place in May 1998.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited
6 months 6 Audited
ended months year ended
ended
30 June 30 June 31 December
1998 1997 1997
#'000 #'000 #'000
Profit for the period 15,582 9,528 24,725
Currency translation
differences on
foreign currency net
investments (564) (2,388) (2,993)
------ ------ ------
Total recognised gains 15,018 7,138 21,732
====== ====== ======
CONSOLIDATED BALANCE SHEET
Unaudited
Unaudited
6 months 6 Audited
ended months year ended
ended
30 June 30 June 31 December
1998 1997 1997
Notes #'000 #'000 #'000
Fixed assets
Goodwill 18,608 - -
Tangible assets 15,426 11,665 12,672
Investments - own shares 2,798 2,839 2,798
------ ------ ------
36,832 14,504 15,470
------ ------ ------
Current assets
Debtors 93,025 64,485 66,861
Cash at bank and in hand 30,214 23,374 38,896
------ ------ ------
123,239 87,859 105,757
Creditors
Amounts falling due
within one year (94,745) (58,660) (67,501)
------ ------ ------
Net current assets 28,494 29,199 38,256
------ ------ ------
Total assets less
current liabilities 65,326 43,703 53,726
Provisions for
liabilities and charges (2,813) (2,560) (3,669)
------ ------ ------
Net assets 62,513 41,143 50,057
====== ====== ======
Capital and reserves
Called up equity share
capital 6,406 3,203 3,203
Share premium account 9 10,382 13,585 13,585
Reserves of Employee 9 2,001 1,806 1,912
Trust
Profit and loss account 9 43,724 22,549 31,357
------ ------ ------
Capital employed 62,513 41,143 50,057
====== ====== ======
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited
6 months 6 months Audited
ended ended year ended
30 June 30 June 31 December
Notes 1998 1997 1997
#'000 #'000 #'000
Net cash inflow from
operating activities 8 12,180 9,282 39,241
Returns on investments
and servicing of finance
Interest received 787 682 1,495
Interest paid (217) (591) (468)
------ ------ ------
Net cash inflow from
returns
on investments and
servicing of finance 570 91 1,027
Taxation (4,927) (3,366) (12,180)
Capital expenditure (4,642) (3,199) (6,141)
Acquisitions (8,085) (4,151) (4,393)
Equity dividends paid (3,331) (2,514) (4,179)
------ ------ ------
Net cash (outflow) /
inflow before use of
liquid
resources and financing (8,235) (3,857) 13,375
Management of liquid
resources (244) (10) (270)
------ ------ ------
(Decrease) / increase in (8,479) (3,867) 13,105
cash ====== ====== ======
The 1997 interim results have been restated to comply with the
revised FRS1 in relation to management of liquid
resources.
NOTES TO THE INTERIM REPORT
1.Basis of preparation
The unaudited results have been prepared in accordance with
the accounting policies set out in the Annual Report for the
year ended 31 December 1997 with the exception of the
implementation of FRS 10, the new accounting standard on
goodwill which is effective for financial years ending on or
after 23 December 1998. CMG's new policy on goodwill is to
capitalise it and amortise it over its estimated useful
life. The useful life will normally be presumed to be 20
years. Goodwill arising prior to 1 January 1998 remains
written off to the profit and loss account reserve as
permitted by the standard.
The financial information in this interim report does not
constitute statutory accounts within the meaning of section
240 of the Companies Act 1985. Statutory accounts for the
year ended 31 December 1997, upon which the auditors gave an
unqualified opinion, have been delivered to the Registrar of
Companies.
2.Exchange rates
The most important exchange rates for the Group were:
30 June 1998 30 June 1997 31 December 1997
Period Average Period Average Year Average
end end end
Netherlands 3.39 3.36 3.26 3.09 3.34 3.19
Guilder
Deutsche Mark 3.01 2.98 2.90 2.75 2.96 2.84
French Franc 10.09 9.99 - - - -
3.Segmental information
Analyses of turnover and profit before tax by geographic
area are given below :
Turnover Profit before tax
30 30 31 30 30 31
June June Decem- June June Decem-
ber ber
1998 1997 1997 1998 1997 1997
#'000 #'000 #'000 #'000 #'000 #'000
Benelux 127,093 96,597 207,879 21,185 13,176 33,645
United Kingdom 49,505 33,369 71,966 4,035 2,018 4,638
Germany 15,240 10,738 23,147 914 500 1,131
France 2,313 - - (768) - -
------ ------ ------ ------ ------ ------
194,151 140,704 302,992 25,366 15,694 39,414
Common costs - - - (1,736) (1,116) (2,243)
Goodwill
amortisation - - - (324) - -
Net income of
Employee Trust - - - 89 36 142
Net interest
receivable - - - 656 503 1,332
------ ------ ------ ------ ------ ------
194,151 140,704 302,992 24,051 15,117 38,645
====== ====== ====== ====== ====== ======
#279,000 of the goodwill amortisation is attributable to the
UK and the remaining #45,000 to France.
4.Employees
30 June 30 June 31 December
1998 1997 1997
The average number of employees
during the period was:
Benelux 3,815 2,866 3,111
United Kingdom 1,206 843 939
Germany 331 217 244
France 59 - -
------ ------ ------
5,411 3,926 4,294
====== ====== ======
30 June 30 June 31 December
1998 1997 1997
The number of employees at the
end of the period was:
Benelux 3,997 3,063 3,558
United Kingdom 1,285 910 1,094
Germany 362 229 293
France 81 - -
------ ------ ------
5,725 4,202 4,945
====== ====== ======
5.Taxation
The tax charge for the half year has been based on the
estimated effective tax rate for the full year of 35.2%.
The charge includes overseas tax of #7.3 million (1997: #4.8
million).
6.Dividends on ordinary shares
An interim dividend of 2.0 pence (1997: 1.3 pence after
adjusting for the May 1998 bonus issue), net of the
associated tax credit will be paid on 20 November 1998 to
shareholders on the register on 16 October 1998.
7.Earnings per share
Headline and basic earnings per share, calculated on a
standard basis, of 12.2 pence (1997: 7.4 pence) are based on
profits after tax of #15.6 million (1997: #9.5 million) and
on the weighted average number of shares in issue during
the period of 128.1 million (1997: 128.1 million after
adjusting for the May 1998 bonus issue).
Earnings per share, excluding goodwill amortisation have
also been included as the directors consider that this
figure is helpful for a better understanding of the
underlying business, given that the significance of this
figure is likely to increase.
8.Reconciliation of operating profit to net cash inflow from
operating activities
30 June 30 June 31
December
1998 1997 1997
#'000 #'000 #'000
Operating profit 23,306 14,578 37,171
Goodwill amortisation 324 - -
Depreciation of tangible
fixed assets 2,306 2,385 4,779
(Profit) / loss on disposal
of fixed assets 220 - (43)
Increase in debtors (25,413) (18,824) (17,430)
Increase in creditors and
provisions 12,058 10,817 15,955
Exchange rate adjustments
on debtors and creditors (621) 326 (1,191)
------ ------ ------
Net cash inflow from
operating activities 12,180 9,282 39,341
====== ====== ======
9.Reconciliation of group reserves
Res-
Good- erves
Share will of Profit
premium elimi- Emp- and
account nation loyee loss
reserve Trust account
#'000 #'000 #'000 #'000
Balance at 1 January 13,585 (28,901) 1,912 60,258
1998
Prior year adjustment to
transfer goodwill
reserve to the profit - 28,901 - (28,901)
and loss account ------ ------ ------ ------
Restated balance as at 1
January 1998 13,585 - 1,912 31,357
Change in value due to
currency fluctuations - - - (564)
Transfer to share
capital for bonus issue (3,203) - - -
Retained profit for the
period - - - 13,020
Transfer in respect of
Employee Trust results - - 89 (89)
------ ------ ------ ------
Balance at 30 June 1998 10,382 - 2,001 43,724
====== ====== ====== ======
10.Interim report
Copies of the interim report are available from CMG plc,
Parnell House, 25 Wilton Road, London SW1V 1EJ and CMG B V,
Johannes Vermeerstraat 29, 1071 DL Amsterdam, The
Netherlands.
Exchange rates
CMG's reported results can be significantly influenced by
movements in exchange rates, which can hinder understanding
of the underlying financial performance. To provide a more
meaningful basis of comparison, the table below provides key
financial information expressed both at 1998 exchange rates
("constant exchange rates") and at the exchange rates used
for 1997 ("actual exchange rates").
Six months to 30 % %
June 1998 1997 1997 growth growth
at at at at
constant actual constant actual
exchangeexchange exchange exchange
rates rates rates rates
#m #m #m
Turnover 194.2 132.1 140.7 47% 38%
Operating profit 23.3 13.5 14.6 72% 60%
Profit before tax 24.1 14.1 15.1 71% 59%
Profit after tax 15.8 8.9 9.5 76% 64%
Earnings per share 12.2p 6.9p 7.4p 77% 65%
------ ------ --- --- ---
Key exchange rates
used above:#1 =
Netherlands Guilder 3.36 3.36 3.09
DeutscheMark 2.98 2.98 2.75
END
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