RNS No 6622r
CMG PLC
8th March 1999
CMG plc: Audited results for the year to 31 December 1998
Summary
1998 1997 Increase %
Turnover #443.8m #303.0m 46
Operating profit
- before goodwill amortisation #58.4m #37.1m 57
- after goodwill amortisation #56.7m #37.1m 53
Profit before tax
- before goodwill amortisation #59.2m #38.5m 54
- after goodwill amortisation #57.5m #38.5m 49
Profit after tax #37.4m #24.5m 53
Earnings per share
- before goodwill amortisation 31.9p 20.0p 60
- after goodwill amortisation 30.5p 20.0p 53
Final dividend 4.0p 2.6p 54
(Payable on 20 May 1999 to
all shareholders on the
register on 23 April 1999. Ex-
dividend date is 19 April
1999.)
Highlights
* Strong growth in Group turnover and profit, primarily
organic
* Operating margin before goodwill amortisation rises for
the sixth consecutive year to 13.2% (1997: 12.3%)
* Staff numbers up 44% to 7,122
* The Benelux operation continues to perform excellently
and grow market share
* Entry into French market supplemented with 3 acquisitions
to create a 350+ people company
* Turnover growth and margin improvement accelerates in the
UK
* German operation grows strongly to attain critical mass
with subsequent acquisition completed in February 1999
Commenting on the outlook for the year ahead, CMG Chairman Cor
Stutterheim said:
"Our view of the future remains largely unchanged and is very
positive. We believe our customers will be more influenced by
the need to compete in changing markets than by any
recessionary trends when determining their IT budgets. Our
sector and country strategies are sound, and our customer
relationships strong, although we remain vigilant for new
opportunities for profitable growth. There is inevitably some
concern about the development of markets generally and IT in
particular in the final year of this millennium; and
undoubtedly there will be examples of organisations around the
world experiencing millennium related difficulties that
receive publicity. However, we are confident that any such
short-term disruption will not impede CMG's ability to grow
ahead of the market in its chosen areas of operation.
Our strategy of operating globally from a European base allows
us to deliver value to multinational customers without
spreading management too thinly when there are so many
opportunities in markets that we understand well. While our
focus continues to be on strong organic growth, we will make
acquisitions when they help us to enhance our business. We
are profit-driven and are proud of the way we work and the
performance this brings to all of our stakeholders. We are
not complacent about the uncertainties we all face, but firmly
believe that our 35th year of operation will be one of
exciting opportunities and continued growth."
In general, CMG's performance in 1998 was characterised by:
* Growth ahead of both its peers and the market to secure
higher market share in its core territories.
* Continued improvement in margins in the Benelux, the UK
and Germany through higher levels of productivity and
economies of scale.
* Success in attracting and retaining high quality staff to
meet customer demand and fuel strong organic growth.
* Focused acquisitions to accelerate progress. The company
made six acquisitions during 1998: Alias (France) and
Microlex (UK) in the first half; and Cometh (France),
Techside (France), CMS (Germany) and Rohirst (UK) in the
second half. Had all of these been consolidated from the
start of 1998 our turnover would have been some #9
million higher.
* Further development of long term relationships with
customers centred on helping them to apply technology for
revenue generation, enhanced customer loyalty and/or cost
reduction.
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) 171 282 2820
Chairman's Statement
I am very pleased to report another set of strong results and
that the confidence I expressed both in last year's report and
at our interim results was well founded. We have increased
turnover by 46% to #444 million and our pre-tax profit before
goodwill amortisation by 54% to #59.2 million. We have also
increased market share in all our key markets. Earnings per
share before goodwill amortisation were up 60% at 31.9p as a
result of which the Board has recommended a final net dividend
of 4.0p.
The year saw considerable disruption in global financial
markets and consequent reassessment of projected growth rates
in the major European economies. CMG's performance in this
context underlines that our chosen strategy provides
considerable resilience to such pressures. We have focused
our business on organisations and industry sectors where the
market conditions require substantial change to survive and
prosper. In most cases, those changes can only be successful
by better use of information technology.
Our geographic focus in one sense continued to be in Europe
where we achieved good progress in all our country operations
and grew the percentage contributed from outside our Dutch
activities. However, CMG is also an international player,
successfully undertaking projects for customers in countries
around the world. This capability has been crucial in
extending our relationship with major multinational companies
like Exxon, ABN AMRO Bank and KLM Royal Dutch Airlines.
Our entry into the French marketplace has been encouraging.
The local recruitment market has responded well to our
approach to people and business, enabling us to attract good
talent. This has been supplemented by three focused
acquisitions that extend both our client base and our skills
set, particularly in Enterprise Resource Planning systems and
advanced technology services. These companies have been
brought together under a common management structure and
support services and, together with our new recruits, create a
platform for profitable growth.
Attracting the right people to our company and keeping them
remains as critical as ever to our business. Our recruitment
programmes have been successful in all countries, as a result
of substantial effort, investment and creativity. When we see
any upward shift in our staff attrition, we move swiftly to
identify the underlying reasons and take measures to
counteract them. We are careful to understand the talents and
ambitions of every person we employ and to structure
appropriate development plans for them. In 1998, over 100,000
days of training were undertaken across the Group. This
investment pays off not only in retention rates that are above
our industry average, but most importantly in the quality of
the work that we are able to carry out for our customers.
The Market
Whatever claims have been made by technologists in the past,
today there is tangible evidence that computers have the power
to change market dynamics. The convergence of IT and
telecommunications, with the Internet as its most visible
presence, is sweeping away barriers to entry in many markets
by creating new ways of engaging customers. Traditional
suppliers have to adapt rapidly to compete. In many cases,
this process is being accelerated by deregulation of markets,
by the advent of a global, 24-hour economy, and by the need to
shorten times to market in such an environment. At the same
time, software is being increasingly embedded in products that
we use, knowingly or otherwise, in every facet of our business
and private lives.
All of these trends create demand for CMG solutions. Our
customers need systems that provide far better visibility of
their clients' profiles, behaviour and ability to generate
profits for their businesses. They wish to enhance service
to, and create loyalty amongst those clients without
spiralling costs. Technologies such as the Internet,
electronic commerce and call centres can provide new customer
relationship models, while within organisations, Intranets can
enable knowledge sharing and the ability to secure a larger
share of business from existing clients by more effective
cross selling.
The millennium and Euro issues continue to be much debated.
For many of our customers, the new systems we are delivering
today have the secondary benefit of reducing their millennium
exposure, but we continue to do relatively little work purely
focused on fixing old systems. Nonetheless, we do believe
that some projects have been postponed due to budget
reallocation and we expect these to return as millennium work
is completed. For most organisations, competitive pressures
will not allow the option of postponing much longer. Nor will
they generally have the depth of skills and scope of
knowledge available in-house to deliver them without help.
Again, we have relatively little work related purely to Euro
conversion, although Euro support is an additional objective
of many of our systems development projects. However, it is
clear that many organisations have yet to identify how to
secure full strategic advantage from the community of Euro-
based markets when fully operational, and we believe this will
generate significant business opportunities in the early years
of the new century.
Customer Relationships
Our positioning is geared to developing long term
relationships with our customers, something we have enjoyed
for a long time in The Netherlands. We are making
considerable progress in replicating that success in Germany -
in the banking community, for instance - and in the United
Kingdom where competition is particularly intense, but our
stature is growing in successfully tendering for high value,
long term contracts. There is a growing realisation that as
IT has become a business critical tool, partnership with IT
service providers is the best model for achieving business
objectives.
Developing long-term relationships is dependent on our ability
to deliver quality solutions consistently. That is partly a
result of formal quality systems and good management control.
However, it is more than anything due to a CMG culture that
encourages total commitment to our customers' success. Most
service companies make such claims; few invest so much time
and effort in making it a reality, particularly in a period
when our staff numbers are growing so rapidly. On behalf of
the Board, I would like to thank all of my CMG colleagues for
maintaining our company ethos and thereby helping to generate
our success.
The Board
At the end of the year, Angus Young retired from his non-
executive directorship. He has been involved with CMG in
different capacities from its very beginnings and I know I
express the profound thanks of all my colleagues for the
wisdom of his advice over the years as our company has
progressed.
Outlook
Our view of the future remains largely unchanged and is very
positive. We believe our customers will be more influenced by
the need to compete in changing markets than by any
recessionary trends when determining their IT budgets. Our
sector and country strategies are sound, and our customer
relationships strong, although we remain vigilant for new
opportunities for profitable growth. There is inevitably some
concern about the development of markets generally and IT in
particular in the final year of this millennium; and
undoubtedly there will be examples of organisations around the
world experiencing millennium related difficulties that
receive publicity. However, we are confident that any such
short-term disruption will not impede CMG's ability to grow
ahead of the market in its chosen areas of operation.
Our strategy of operating globally from a European base allows
us to deliver value to multinational customers without
spreading management too thinly when there are so many
opportunities in markets that we understand well. While our
focus continues to be on strong organic growth, we will make
acquisitions when they help us to enhance our business. We
are profit-driven and are proud of the way we work and the
performance this brings to all of our stakeholders. We are
not complacent about the uncertainties we all face, but firmly
believe that our 35th year of operation will be one of
exciting opportunities and continued growth.
Cor Stutterheim
Chairman
Summary financial information is set out below:
Exchange Rate impact table
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 443.8 296.8 303.0 50 46
Operating
Profit* 58.4 36.2 37.1 61 57
Profit
before 59.2 37.6 38.5 58 54
tax*
Profit
after tax 37.4 24.0 24.5 56 53
---- ---- ---- ---- ----
Earnings
per share* 31.9p 19.6p 20.0p 63 60
---- ---- ---- ---- ----
Key
exchange
rates used
above: #1
=
Netherlands
Guilder 3.28 3.28 3.19
Deutsche
Mark 2.91 2.91 2.84
* before goodwill amortisation
Consolidated Profit and Loss Account
for the year ended 31 December 1998
Notes 1998 1997
#'000 #'000
Turnover 3 443,832 302,992
Net operating costs (387,155) (265,857)
------- -------
Operating profit
Before goodwill amortisation 58,371 37,135
Goodwill amortisation (1,694) -
56,677 37,135
Net interest receivable 805 1,332
------- -------
Profit on ordinary activities
before tax 3 57,482 38,467
Tax on profit on ordinary
activities (20,065) (13,961)
------- -------
Profit on ordinary activities
after tax 37,417 24,506
Dividends - ordinary shares 5 (7,351) (4,777)
------- -------
Retained profit for the year 30,066 19,729
------- -------
All results are derived from
continuing activities.
Earnings per share 6
headline and basic 30.5p 20.0p
before goodwill amortisation 31.9p 20.0p
effect of goodwill amortisation (1.4p) -
diluted 29.0p 19.1p
The 1997 comparatives have been restated to comply with
FRS14 in relation to dividends payable to the Employee
Trust and to remove the shares held by the Employee
Trust from the earnings per share calculation. The
restated earnings per share also reflect the one for one
bonus issue which took place in May 1998.
Consolidated Balance Sheet
31 December 1998
1998 1998 1997 1997
#'000 #'000 #'000 #'000
Fixed assets
Goodwill 28,463 -
Tangible assets 17,794 12,672
Investments - own 2,790 2,798
shares ----- -----
49,047 15,470
Current assets
Debtors 115,930 66,715
Cash at bank and in
hand 39,467 38,896
----- -----
155,397 105,611
Creditors
Amounts falling due
within one year 114,592 67,355
----- -----
Net current assets 40,805 38,256
----- -----
Total assets less
current liabilities 89,852 53,726
Provisions for liabilities
and charges (5,449) (3,669)
----- -----
Net assets 84,403 50,057
----- -----
Capital and reserves
Called up equity share
capital 6,406 3,203
Share premium account 10,382 13,585
Reserves of Employee Trust 2,197 1,912
Profit and loss account 65,418 31,357
----- -----
Capital employed 84,403 50,057
----- -----
The 1997 comparatives have been restated to comply with FRS14
in relation to dividends payable to the Employee Trust.
Consolidated Cash Flow Statement
for the year ended 31 December 1998
1998 1998 1997 1997
#'000 #'000 #'000 #'000
Net cash inflow from
operating activities 51,762 39,241
Returns on investments
and servicing of finance
Interest received 1,843 1,495
Interest paid (898) (468)
----- -----
Net cash inflow from
returns on investments
and servicing of finance 945 1,027
Taxation (15,286) (12,180)
Capital expenditure (9,814) (6,141)
Acquisitions (22,456) (4,393)
Equity dividends paid (5,635) (4,179)
----- -----
Net cash (outflow)/inflow
before use of liquid resources
and financing (484) 13,375
Management of liquid
resources 498 (270)
----- -----
Increase in cash 14 13,105
----- -----
Notes
1. Source of financial information
The financial information above does not comprise
statutory accounts. Financial statements for the year
ended 31 December 1997,which include an unqualified audit
report, have been delivered to the Registrar of Companies.
The 1998 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:
1998 1998 1997 1997
Year end Average Year Average
end
Netherlands Guilder 3.12 3.28 3.34 3.19
Deutsche Mark 2.77 2.91 2.96 2.84
French Franc 9.29 9.76 - -
3. Segmental information
Analyses of turnover and profit before tax by geographic
area are given below:
Profit Profit
Turnover Turnover before Before
1998 1997 tax tax
1998 1997
#'000 #'000 #'000 #'000
Benelux 290,270 207,879 53,317 33,645
United Kingdom 108,230 71,966 9,161 4,638
Germany 36,182 23,147 2,215 1,131
France 9,150 - (2,748) -
----- ----- ----- -----
443,832 302,992 61,945 39,414
Common costs - - (3,574) (2,279)
Goodwill amortisation - - (1,694) -
----- ----- ----- -----
443,832 302,992 56,677 37,135
Net interest receivable - - 805 1,332
----- ----- ----- -----
443,832 302,992 57,482 38,467
----- ----- ----- -----
#1,454,000 of the goodwill amortisation is attributable to
the UK; #219,000 is attributable to France; and the remaining
#21,000 to Germany. The UK goodwill amortisation includes
#752,000 of goodwill (net of sales proceeds) which was
previously written off against reserves. This relates to the
disposal of the IMACS business which was acquired in 1994 for
a consideration of #927,000 and sold in 1998 for #175,000.
4. Employees
1998 1997 1998 1997
Average Average Year end Year end
The number of
employees was:
Benelux 4,157 3,111 4,752 3,558
United Kingdom 1,294 939 1,500 1,094
Germany 394 244 513 293
France 160 - 357 -
----- ----- ----- -----
6,005 4,294 7,122 4,945
----- ----- ----- -----
5. Ordinary dividends paid and proposed
1998 1998 1997 1997
#'000 #'000 #'000 #'000
Interim dividend of
2.0 pence on
128,112,658
ordinary shares
(1997: 1.3 pence on
128,112,658
ordinary shares) 2,562 1,665
Less dividends
payable to
the Employee Trust (112) (73)
----- -----
2,450 1,592
Proposed final dividend
of 4.0 pence on 128,112,658
ordinary shares (1997:
2.6 pence on 128,112,658
ordinary shares) 5,125 3,331
Less dividends payable
to the Employee Trust (224) (146)
----- -----
4,901 3,185
----- -----
7,351 4,777
----- -----
The comparatives have been adjusted to remove dividends paid
to the Employee Trust in accordance with FRS14 and also to
reflect the bonus issue.
6. Earnings per share
1998 1997
Earnings
- standard basis (#'000) 37,417 24,506
- before goodwill amortisation (#'000) 39,111 24,506
----- -----
Number of shares ('000)
Weighted average number of shares
in issue 128,112 128,112
Shares held by the Employee Trust (5,599) (5,616)
----- -----
Shares used to calculate
earnings per share 122,513 122,496
----- -----
Effect of dilutive potential ordinary
shares
- share options 6,331 5,631
----- -----
Shares used to calculate diluted
earnings per share 128,844 128,127
----- -----
Earnings per share
- headline and basic 30.5p 20.0p
- before goodwill amortisation 31.9p 20.0p
- effect of goodwill amortisation (1.4p) -
- diluted 29.0p 19.1p
The headline and basic earnings per share have been
calculated in accordance with FRS14 using the profit after
tax, which excludes any dividends paid or payable by CMG to
the Employee Trust, and on the weighted average number of
ordinary shares in issue during the period less shares held
by the Employee Trust. The comparatives have been restated
to comply with FRS14 and to reflect the May 1998 bonus issue.
END
FR JAMRBLLJMBIL
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