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Half-year Report
RNS Number : 1957I
Computacenter PLC
26 August 2016
 



Computacenter plc

Interim results for the six months ended 30 June 2016

Computacenter plc ("Computacenter" or the "Group"), the independent provider of IT infrastructure and services that enables users, today announces unaudited results for the six month period ended 30 June 2016.

Financial Highlights


H1 2016

H1 2015

Change  

(per cent)

Financial Performance





Adjusted revenue1 (£ million)

1,478.2

1,438.0

2.8





Adjusted profit before tax1 (£ million)

25.3

29.1

(13.1)





Adjusted diluted earnings per share1 (pence)

15.3

17.0

(10.0)





Dividend per share (pence)

7.2

6.4

12.5





Statutory revenue (£ million)

 

Statutory profit before tax (£ million)

1,478.2

 

23.6

1,441.2

 

70.7

2.6

 

(66.6)





Statutory diluted earnings per share (pence)

13.2

48.8

(73.0)





Cash Position








Net funds3 (£ million)

96.6

 

44.9

 

115.1

 

Revenue Performance by Sector








Adjusted Services revenue1 (£ million)

498.0

489.2

1.8





Adjusted Supply Chain revenue1 (£ million)

980.2

948.8

3.3

 

 

Reconciliation between Adjusted and Statutory Performance

 



Adjusted profit before tax1 (£ million)

25.3

29.1






Exceptional and other adjusting items:

 




Line of business restructuring and other increases in estimated costs of redundancy in French business (£ million)

(1.1)

(0.4)






Release of provision for onerous German contracts (£ million)

-

0.4






Exceptional gain recorded on disposal of R.D. Trading Limited ("RDC") (£ million)

-

42.2






Pre-disposal earnings of RDC in the year (£ million)

-

0.3






Amortisation of acquired intangibles (£ million)

(0.6)

(0.9)






Statutory profit before tax (£ million)

23.6

70.7


 

Highlights:

•       Group's first half performance marginally ahead of Management's expectations for the period as set at the time of our Q1 Trading Update in April 2016;

•       Challenging first half for the UK business, principally due to a reduction in Services volumes driving a decline in Services margins and lower hardware margins;

•       Strong revenue growth across the German business, continuing the momentum generated in the second half of 2015; and

•       Profit performance from the French business significantly ahead of Management's expectations, driven by improvement in Supply Chain and Services margins.

 

Mike Norris, Chief Executive of Computacenter plc, commented:

The first half of 2016 finished slightly better than we had anticipated at the time of our Q1 Trading Update in April 2016, mainly due to the better performance of Computacenter in France. Despite the challenging market conditions in the UK referred to in our Q1 2016 Trading Update, as well as planned investments, the Board expects the full year to show modest progress in our adjusted profit before tax1, as compared to 2015 after allowing for the £3 million benefit from the one-off gain realised in the comparative period.

The pipeline of Managed Services growth in the Group as a whole is encouraging and should deliver growth in 2017. Even more noticeable is the growing pipeline for Digital Workplace projects which we are looking to close in the second half of 2016, as customers look to take advantage of new operating systems. Particularly pleasing is the likely growth in major customers, one of our strategic key performance indicators.

We also remain confident that Computacenter will finish the year with record levels of net funds3.

 

1 Adjusted revenue, adjusted Services revenue, adjusted Professional Services revenue, adjusted Supply Chain revenue, and adjusted administrative expenses excludes the revenue and administrative expenses from a disposed subsidiary, R.D. Trading Ltd (RDC), for the comparative reporting periods. RDC was sold on 2 February 2015. Adjusted operating profit or loss, adjusted profit or loss before tax, adjusted profit or loss for the year, adjusted earnings per share and adjusted diluted earnings per share are, as appropriate, each stated before: exceptional and other adjusting items including gain or loss on business disposals, amortisation of acquired intangibles, utilisation of deferred tax assets (where initial recognition was as an exceptional item or a fair value adjustment on acquisition), and the related tax effect of these exceptional and other adjusting items, as Management do not consider these items when reviewing the underlying performance of the segment or the Group as a whole. Each of these measures also excludes the results of RDC for the comparative periods. Additionally, adjusted operating profit or loss includes the interest paid on customer-specific financing (CSF) which Management considers to be a cost of sale. A reconciliation between key adjusted and statutory measures is provided within the Group Finance Director's review included within this announcement. Further detail is provided within note 5 to the summary financial information included within this announcement.

 

2 The performance of the Group and its overseas segments are shown, where indicated, in constant currency. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information gives valuable supplemental detail regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages by converting our prior-year local currency financial results using the current year average exchange rates and comparing these recalculated amounts to our current year 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, the equivalent prior-year measure is also presented in actual currency using the exchange rates prevailing at the time. Financial Highlights, as shown at the beginning of this announcement, and statutory measures, are provided in actual currency.

 

3 Net funds includes cash and cash equivalents, CSF, other short or other long-term borrowings and current asset investments.

 

Enquiries:

Computacenter plc:


Mike Norris, Chief Executive

01707 631601

Tony Conophy, Finance Director

01707 631515



Tulchan Communications:


James Macey White

0207 353 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 Groups' 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 2015 Computacenter Annual Report & 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 Groups' 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 Groups' 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.

 

LETTER FROM THE CHAIRMAN

INTERESTING TIMES

At a Group level, we have had a result in the first half of the year which was marginally ahead of our expectations as set at the time of our Q1 Trading Update in April 2016. There is much more to be done in the second half. We have had a significant Managed Services win in France as we strive to build our Services business there and we are pleased with our results, our German business has grown well in the first half and our UK business has been disappointing.

120 years ago Joseph Chamberlain said "I think you will agree that we are living in most interesting times. I never remember myself a time in which our history was so full, in which day by day brought us new objects of interest and, let me say also, new objects for anxiety." At about the same time, the head of the US Patent Office said that "everything which can be invented has been invented."

I quote these because of the recent result of the UK referendum on its EU membership, and the question many of you will be asking which is 'what does it mean for Computacenter?' Simply put, we are changing very little in what we do and expect for our business. We are represented in our core countries of the UK, Germany, France, Belgium and Switzerland by our own people, and we will continue to support our customers in their countries and develop our business there.

We will not waver from focusing on our customers and our quality of service to them. Outside of customer-specific finance leases, we have no external debt. We will benefit from a weaker pound, but that is not significant for our future. Of greater significance is winning contracts such as that from a French, truly global, manufacturer, won during the period after a two-year effort to understand the customer and its requirements, and address our team and our offerings to deliver service in many countries which enhances their competitiveness.

I take this opportunity to thank our apprentices around the Group, who now number more than 200. We have high hopes for them, and they represent an investment in their future by our company and themselves.

Nothing we do is good enough for us. We take nothing for granted, but we face the future with confidence in these interesting times.

Greg Lock

Chairman

 

26 August 2016

 

PERFORMANCE REVIEW

GROUP

FINANCIAL PERFORMANCE

The Group's adjusted revenues1 decreased by 0.6 per cent in constant currency2 to £1,478.2 million, and increased by 2.8 per cent in actual currency2 (H1 2015: £1,438.0 million).

The Group's adjusted profit before tax1 has decreased by 13.9 per cent in constant currency2 to £25.3 million, and by 13.1 per cent in actual currency2 (H1 2015: £29.1 million). This profit performance is marginally ahead of Management's expectations for the period as set at the time of our Q1 Trading Update in April 2016, with the comparative performance in H1 2015 benefitting from a one-off gain of approximately £3 million, which as we explained in our 2015 Interim Results, was not expected to repeat in future years. It should be noted that at a country level, a somewhat disappointing result in the UK was offset by a stronger than expected performance across the rest of the Group, particularly in France.

Due to the decrease in the Group's overall profitability, adjusted diluted earnings per share1 decreased by 10.0 per cent to 15.3 pence (H1 2015: 17.0 pence) in the first half of 2016.

The Group made a statutory profit before tax of £23.6 million, a decrease of 66.6 per cent in actual currency2 (H1 2015: £70.7 million), with the comparative performance in H1 2015 significantly enhanced by the disposal of the Group's subsidiary, RDC, in February 2015. The Group's statutory diluted earnings per share decreased by 73.0 per cent to 13.2 pence for the period (H1 2015: 48.8 pence).

In the first half of 2016, the Group reported a net cost of £1.7 million from exceptional and other adjusting items, with the exceptional cost of restructuring activity in our French business during the period totalling £1.1 million.

SERVICES PERFORMANCE

The Group's adjusted Services revenue1 decreased by 1.2 per cent on a constant currency2 basis to £498.0 million, and increased by 1.8 per cent in actual currency2 (H1 2015: £489.2 million).

As expected, Services revenue in the UK has declined in the first half of 2016, primarily due to the expiry of a large contract at the end of the first quarter of 2015, and the large volume of business take-on Professional Services activity in H1 2015 creating a challenging comparison. These lower levels of activity have created utilisation challenges, and resulted in a lower contractor mix in Professional Services delivery during the period. Alongside the completion of a significant number of Managed Services renewals, these factors have created a downward pressure on Services margins in the UK business.

Following a breakthrough year in 2015 for its Services growth rate, the German Services business continued to deliver strong top-line growth, although more a result of ongoing demand for its Professional Services offerings rather than Managed Services growth. It was expected that German Services margins would be weaker in the period, principally due to the fact that the majority of these new Managed Services contracts were in lower-margin on-boarding processes during that time. Whilst a small number of isolated issues within our Managed Services business have diluted margins further during H1 2016, these are temporary in nature and therefore we expect Managed Services margins in Germany to improve over the remainder of 2016.

Our French Services business saw an overall Services revenue decline, principally driven by a significant reduction in Professional Services revenue, and it is clear that much work remains to be done in this area. However, from a revenue perspective, the French Managed Services business has stabilised, following investment in its pre-sales capability. We are delighted to have signed an international End User Service Desk Managed Services contract, with a new customer headquartered in France, as we look to build a solid portfolio of contracts with this profile.

SUPPLY CHAIN PERFORMANCE

The Group's adjusted Supply Chain revenue1 decreased by 0.2 per cent on a constant currency2 basis to £980.2 million, and increased by 3.3 per cent in actual currency2 (H1 2015: £948.8 million).

The UK Supply Chain performance in the UK was below Management's expectations, with a number of large customers delaying procurement decisions. It is difficult to assess at this early stage to what extent this was impacted by uncertainty created by the UK referendum on its EU membership held during the period, or around technology choice. However, as we have previously stated, our Supply Chain business remains subject to the short and medium-term buying decisions of our customers, and any external factors which prohibit or delay these decisions will clearly have an impact on this area of our business. Following its exceptional levels of revenue growth in 2015, the German Supply Chain business has consolidated this and delivered high single-figure revenue growth during the period. Margin generation has been assisted by the fact that this growth has come almost exclusively from within the Datacenter line of business. French Supply Chain revenues continued to reduce, as expected, as the business continued to exit mid-market and other low-margin generating business, in order to focus on its core customers. It should be noted that Supply Chain margins in France have increased materially against those generated in H1 2015, again assisted by increased volumes of Datacenter-related sales and an overall improvement in the quality of its customer base.

DIVIDEND

We are pleased to announce an interim dividend of 7.2 pence per share. The dividend announced is inline with our policy that the interim dividend will be approximately one-third of the previous year's full dividend. The interim dividend will be paid on 14 October 2016. The dividend record date is set as Friday 16 September 2016, and the shares will be marked ex-dividend on Thursday 15 September 2016.

CASH

Net funds3 at 30 June 2016 was £96.6 million compared to £44.9 million at 30 June 2015. The cash position remains strong after what is historically the weaker half of the year in terms of our working capital cycle. Net funds3 has decreased by £24.2 million since 31 December 2015 with a net cash outflow from operating activities of £1.1 million for the six months to 30 June 2016 (£1.0 million inflow for the six months to 30 June 2015). The net funds3 positioning at the end of the half provides a platform that will almost certainly leave us in a position of record levels of net funds3 by the end of the year.

The Group continues to have no material borrowings outside of customer-specific finance leases and loans.

OUTLOOK

The first half of 2016 finished slightly better than we had anticipated at the time of our Q1 Trading Update in April 2016, mainly due to the better performance of Computacenter in France. Despite the challenging market conditions in the UK referred to in our Q1 2016 Trading Update, as well as planned investments, the Board expects the full year to show modest progress in our adjusted profit before tax1, as compared to 2015 after allowing for the £3 million benefit from the one-off gain realised in the comparative period.

The pipeline of Managed Services growth in the Group as a whole is encouraging and should deliver growth in 2017. Even more noticeable is the growing pipeline for Digital Work place projects which we are looking to close in the second half of 2016, as customers look to take advantage of new operating systems. Particularly pleasing is the likely growth in major customers, one of our strategic key performance indicators.

We also remain confident that Computacenter will finish the year with record levels of net funds3.

Mike Norris

Chief Executive Officer

 

26 August 2016

 

UNITED KINGDOM

FINANCIAL PERFORMANCE

We have previously explained that the UK business would face a challenging year in 2016, due to incremental tactical and strategic investment through its Income Statement against that seen in 2015, and a quieter rate of Managed Services wins in the second half of 2015. However, notwithstanding the impact of those known factors, its performance has been below Management's expectations for the period.

Adjusted revenue1 in the UK business decreased by 5.2 per cent to £652.7 million (H1 2015: £688.7 million). Adjusted operating profit1 decreased by 38.9 per cent to £14.0 million (H1 2015: £22.9 million), whilst statutory profit before tax decreased by 77.8 per cent to £14.5 million (H1 2015: £65.4 million). These results include incremental strategic and tactical investments of £1.0 million against H1 2015, which principally relate to the ongoing development of our Services offering and the temporary relocation of our UK London office.

SERVICES PERFORMANCE

Adjusted Services revenue1 decreased by 7.3 per cent to £244.3 million (H1 2015: £263.6 million). This included a decline of 10.0 per cent in Professional Services revenue and a decline in Managed Services revenue of 6.4 per cent.

The majority of this decline relates to two issues. The first half of 2015 provides a tough comparison due to the exceptional volume of Professional Services work in 2015, which has not been repeated. Additionally, and as we have previously explained, a significant Managed Services contract finished at the end of Q1 2015. The reduction in Services volumes has reduced utilisation of the Group's central engines, and a consequential reduction in contractor mix used on work completed has impacted the overall margin performance. There is likely to be an increase in the level of Professional Services volumes seen in the second half of the year due to the start-up of some large deployments. In Managed Services, there has been a significant volume of renewal activity during the year, and the business has been successful in each of its Managed Services renewal bids which has been awarded during the period, although there has been a net reduction in the overall contract base. The pipeline for new contracts is somewhat stronger than 12 months ago, but has not yet recovered to a position where we feel fully comfortable.

SUPPLY CHAIN PERFORMANCE

Adjusted Supply Chain revenue1 decreased by 3.9 per cent to £408.4 million (H1 2015: £425.1 million). The first half of the year has been somewhat disappointing. Whilst customer retention has been strong, business uncertainty has caused a number of our large customers to delay procurement decisions. We are beginning to see significant volumes of Digital Workplace replacements, particularly driven by Windows 10, which should assist revenue growth, both in the second half of the year and more significantly in 2017.

SG&A

UK SG&A has reduced by 3.6 per cent compared to the first half of 2015. It should be noted that, although UK SG&A remains under sharp focus, this comparison is assisted by a lower level percentage pay-out of bonus payments during the period. UK SG&A will remain a Management focus for the remainder of the year and into 2017, when we anticipate that it will fall as the requirement for tactical spend reduces.

Kevin James

Managing Director, UK

 

26 August 2016

 

GERMANY

FINANCIAL PERFORMANCE

Computacenter in Germany has shown good top-line growth across the business, which has been underpinned by its significant number of Managed Services wins in 2015, and ongoing strong demand for its Professional Services offering.

Total revenue increased by 6.6 per cent on a constant currency2 basis to €779.8 million (H1 2015: €731.3 million), and by 13.5 per cent in actual currency2. Adjusted operating profit1 for the German business, increased by 5.2 per cent on a constant currency2 basis to €12.2 million (H1 2015: €11.6 million), and by 11.8 per cent in actual currency2. Statutory profit before tax increased by 9.6 per cent in constant currency2 to €11.4 million (H1 2015: €10.4 million), and by 17.1 per cent in actual currency2.

SERVICES PERFORMANCE

Services revenue grew by 7.4 per cent in constant currency2 to €272.5 million (H1 2015: €253.7 million), and increased by 14.4 per cent in actual currency2. This included Professional Services growth of 15.9 per cent in constant currency2 (23.1 per cent on an actual currency2 basis) and Managed Services growth of 4.2 per cent in constant currency2 (11.0 per cent on an actual currency2 basis).

Services revenue growth has been assisted by our Managed Services wins in the second half of 2015. However, a significant number of these have been at the on-boarding stage during the period, and the business take-on work associated with this has negatively impacted margins in the first half. This margin dilution is, for the most part, in line with Management's expectations, and it is expected that these margins will improve during the second half of 2016. We have seen a steady performance from the business on those Managed Services contracts in place prior to the start of the period.

In addition to the take-on of a significant number of new Services contracts, much of our bidding activity has been focused on consolidating our existing business through renewals. Out of five significant Managed Services renewal processes due to take place in 2016, we can confirm that we have already extended three of these for a minimum five-year period, and we remain competitively well-positioned in respect of the remaining two bids. We believe that the renewal of these contracts are a clear demonstration of Computacenter's service quality, innovation and value.

Our Professional Services business has performed strongly over the period, particularly in Security, and margin levels remain un impacted by revenue growth in this area. The demands of our customers in technical areas such as Cloud, Digital Workplace and Security are increasing. We are seeing that Windows 10 is becoming the operating system of choice for our customers, and a critical focus for them as they design their strategic infrastructure and enhance the experience of their users. In the second half of 2016, there is a pipeline to deliver some significant projects around a new Digital Workplace environment. We are well positioned to take advantage of demand for private and Hybrid Cloud building services, assisted by our recent track record and significant existing customer advocacy in this area. Additionally, in the second half of the year, we expect to see our first involvement with Industrie 4.0, which is having a significant impact on the automotive and manufacturing customer sectors, which are so important to Computacenter in Germany.

SUPPLY CHAIN PERFORMANCE

Supply Chain revenue grew by 6.2 per cent in constant currency2 to €507.3 million (H1 2015: €477.6 million), and by 13.1 per cent in actual currency2. It has performed strongly, particularly within the Datacenter area which has benefitted from customer demand for private Cloud infrastructure and the ongoing move towards SAP Hana. This mix of business has helped to contribute towards healthy margin levels. Our Networking business remained flat at a top-line level, whilst Workplace revenues fell against a particularly difficult compare from the prior year period.

Our Supply Chain business has benefitted from the 'pull-through' associated with an increase in our Managed Services customer base during the year. Early adoption of Windows 10 will support our Workplace business, although we expect that demand for this will most likely impact activity levels in 2017.

SG&A

The German business saw SG&A costs increase by 5.5 per cent in constant currency2 and by 12.3 per cent in actual currency2 against levels seen in H1 2015. The primary reason for the rise is due to increasing business volumes leading directly to higher variable remuneration and increasing pre-sales costs for the growing Services business. In addition, an agreed 2.0 per cent year on year salary uplift and unplanned levels of severance costs due to certain restructuring initiatives within the German middle management have also contributed to the increase.

Reiner Louis

Managing Director, Germany

 

26 August 2016

 

FRANCE

FINANCIAL PERFORMANCE

Total revenue decreased by 4.4 per cent on a constant currency2 basis to €247.8 million (H1 2015: €259.3 million), and increased by 1.8 per cent in actual currency2. The adjusted operating result1 for the French business improved by €5.3 million to an adjusted operating profit1 of €1.2 million in constant currency2 (H1 2015: adjusted operating loss1 of €4.1 million), and improved by £3.9 million in actual currency2. The statutory loss before tax decreased by 89.1 per cent in constant currency2 to €0.5 million (H1 2015: €4.6 million), and by 90.9 per cent in actual currency2.

SERVICES PERFORMANCE

Services revenue decreased by 3.9 per cent on a constant currency2 basis to €41.8 million (H1 2015: €43.5 million), and increased by 2.2 per cent in actual currency2. Our Managed Services business saw revenues decline by 1.9 per cent in constant currency2, and an increase of 4.3 per cent on an actual currency2 basis. We have made material investments in our local pre-sales capability to drive the growth of our Managed Services business, in line with the Group's strategy. Supported by specialised resources from the Group, we have been driving multiple Managed Services bid campaigns in the first half of the year. We are delighted to have recently signed an international End User Service Desk Managed Services contract supporting over 65,000 users worldwide, and expect this contract to make a positive margin contribution from 2017 onwards. In addition, we are in the final phase of some large Managed Services bid campaigns, and provided we can renew some important existing contracts in the second half of 2016, we should materially increase our Managed Services contract base value and contribution in 2017.

The performance of our Professional Services business remains disappointing, with a top-line revenue decline of 9.6 per cent in constant currency2 against the first half of last year, a decline of 3.6 per cent on an actual currency2 basis. The Social Plan in 2014 significantly reduced our operating and SG&A cost base in this area, as part of our strategic focus on large private, public and international customers, and we are still adopting revised Management processes, both across pre-sales and implementation requirements. In the second half of 2016, we expect to implement a number of important initiatives to address these requirements, and to align our Solutions portfolio better with the Group offering and best practice.

SUPPLY CHAIN PERFORMANCE

Supply Chain revenue decreased by 4.5 per cent in constant currency2 to €206.0 million (H1 2015: €215.7 million), and increased by 1.7 per cent in actual currency2.

Whilst revenues have not increased, we are pleased with the improved margin contribution, as we have continued our focus on removing low- margin, complex to administer, Supply Chain business. After sustained investment in our internal Supply Chain processes and infrastructure, we believe that we have now stabilised our Supply Chain business. The result has been an improved level of customer satisfaction and a reduction in working capital requirements in France. Although much work remains to be done, especially in our Private Sector customer segment, we have improved our product business mix through winning more high-margin Datacenter and Networking solutions. The above mentioned alignment of our Solutions portfolio to the Group's offering should also help to continue this business mix improvement in the second half.

SG&A

Levels of SG&A within the French business have increased by 10.8 per cent in constant currency2 against the first half of 2015, largely driven as a result of the materially improving performance of the business leading to increases within variable bonus, commission and 'interressment' costs. Further, the business absorbed €0.8 million of restructuring costs within SG&A in addition to those restructuring costs reported separately as exceptional. Whilst the implementation of the Social Plan in 2014 has already delivered significant cost reductions in affected areas of the business prior to the period, we expect levels of SG&A to be stable moving forward.

Lieven Bergmans

Managing Director, France

 

26 August 2016

 

BELGIUM

FINANCIAL PERFORMANCE

Total revenue decreased by 4.5 per cent on a constant currency2 basis to €31.5 million (H1 2015: €33.0 million), and increased by 1.7 per cent on an actual currency2 basis. The adjusted operating profit1 for the Belgian business decreased by 42.9 per cent on a constant currency2 basis to €0.8 million (H1 2015: €1.4 million), and by 40.0 per cent on an actual currency2 basis. Statutory profit before tax decreased by 46.2 per cent in constant currency2 to €0.7 million (H1 2015: €1.3 million), and decreased by 50.0 per cent in actual currency2.

SERVICES PERFORMANCE

Services revenue increased by 0.9 per cent during the period in constant currency2 to €11.1 million (H1 2015: €11.0 million), and increased by 8.7 per cent on an actual currency2 basis.

We have benefitted from the implementation of both the Group ERP system and the Group Operating Model, which has enabled the transfer of best practice and sharing of Group capability which improved our competitive positioning and have been selected as preferred bidder on a significant Managed Services contract. In addition, we are starting to see opportunities in the Digital Workplace using Windows 10 which will generate demand in H2 2016 and beyond.

SUPPLY CHAIN PERFORMANCE

Supply Chain revenue decreased by 7.3 per cent in constant currency2 to €20.4 million (H1 2015: €22.0 million), and decreased by 1.9 per cent in actual currency2.

SG&A

SG&A increased by 48.1 per cent on a constant currency2 basis to €4.0 million (H1 2015: €2.7 million), and by 55.0 per cent on an actual currency2 basis. As a result of the rollout of the Group Operating Model and the implementation of the Group ERP system, certain cost elements that were previously recognised within gross profit, are now recognised within SG&A. Whilst there is no impact on adjusted operating profit1, the H1 2016 SG&A now includes these cost elements, and the SG&A comparison against H1 2015 is therefore not on a like- for-like basis.

Jurgen Strijkers

Managing Director, Belgium

 

26 August 2016

 

GROUP FINANCE DIRECTOR's REVIEW

 

MAXIMISING SHAREHOLDER VALUE

 

REVENUE

Adjusted revenue1 for the Group has increased by £40.2 million or 2.8 per cent over the period to £1,478.2 million as measured in actual currency2. The revenue result has been assisted by the decline in Sterling over the period with a decrease of 0.6 per cent when measured in constant currency2.

Statutory revenue for the Group, including the results of RDC for January 2015 within the comparative results, increased by £36.8 million or 2.6 per cent from £1,441.4 million.

OPERATING PROFIT

Adjusted operating profit1 for the Group has decreased by 15.3 per cent to £25.0 million (H1 2015: £29.5 million) primarily due to lower adjusted operating profit1 in the UK segment.

The Group's statutory operating profit of £23.4 million for the period to 30 June 2016 is 19.6 per cent lower than the comparative period (H1 2015: £29.1 million).

EXCEPTIONAL AND OTHER ADJUSTING ITEMS

A net loss of £1.7 million resulting from exceptional and other adjusted items was recorded (2015: net gain of £41.6 million).

During the current period a Line of Business restructure has been agreed with the business in France. This initiative to reduce the underutilised resources within our Professional Services arm will complete in H2 2016, the full cost of £1.0 million has been recognised as at 30 June 2016. This restructure will see France exit the direct provision of Group Field Maintenance Services. This Line of Business has materially decreased over time, leading to a significant resourcing overcapacity. Any future residual customer requirement will be sub-contracted to an existing third party provider.

Further provisioning to the existing Social Plan in France of £0.1 million (H1 2015: £0.4 million) was also required during the period ended 30 June 2016.

The principal item in the period to 30 June 2015 was the gain on the disposal of R.D. Trading Limited ('RDC'), a Group's subsidiary, of £42.2 million. The disposal occurred on 2 February 2015 with cash proceeds, net of disposal costs and cash disposed of £56.0 million.

PROFIT BEFORE TAX

Adjusted profit before tax1 decreased by 13.1 per cent to £25.3 million at actual currency2 (H1 2015: £29.1 million), a decrease of 13.9 per cent in constant currency2.

The statutory profit before tax decreased by £47.1 million to £23.6 million (H1 2015: £70.7 million), primarily due to the gain of £42.2 million generated on the disposal of RDC in the prior period.

RECONCILIATION FROM STATUTORY TO ADJUSTED1 MEASURES H1 2016


 

 

Statutory

results

£'000

Adjustments

 

 

Adjusted results

£'000


RDC

£'000

CSF

interest

£'000

Utilisation of deferred tax

£'000

Exceptionals

& others

£'000

Revenue

1,478,219

-

-

-

-

1,478,219

Cost of sales

(1,288,844)

-

(111)

-

-

(1,288,955)

Gross profit

189,375

-

(111)

-

-

189,264





Administrative expenses

(164,228)

-

-

-

-

(164,228)

Operating profit:




Before amortisation of acquired intangibles and exceptional items

 

 

25,147

 

 

-

 

 

(111)

 

 

-

 

 

-

 

 

25,036

Amortisation of acquired intangibles

 

(601)

 

-

 

-

 

-

 

601

 

-

Exceptional items

(1,114)

-

-

-

1,114

-

Operating profit

23,432

-

(111)

-

1,715

25,036





Exceptional gain on disposal of a subsidiary

-

-

-

-

-

-

Finance revenue

689

-

-

-

-

689

Finance costs

(551)

-

111

-

-

(440)

Profit before tax

23,570

-

-

-

1,715

25,285





Income tax expense:




Before exceptional items

(7,509)

-

-

892

(114)

(6,731)

Exceptional items

-

-

-

-

-

-

Profit for the period

16,061

-

-

892

1,601

18,554

 

RECONCILIATION FROM STATUTORY TO ADJUSTED1 MEASURES H1 2015


 

 

Statutory

results

£'000

Adjustments

 

 

Adjusted results

£'000


RDC

£'000

CSF

interest

£'000

Utilisation of deferred tax

£'000

Exceptionals

& others

£'000

Revenue

1,441,404

(3,447)

-

-

-

1,437,957

Cost of sales

(1,255,033)

2,774

(180)

-

-

(1,252,439)

Gross profit

186,371

(673)

(180)

-

-

185,518





Administrative expenses

(156,383)

354

-

-

-

(156,029)

Operating profit:




Before amortisation of acquired intangibles and exceptional items

 

29,988

 

(319)

 

(180)

 

-

 

-

 

29,489

Amortisation of acquired intangibles

(851)

-

-

-

851

-

Exceptional items

(13)

-

-

-

13

-

Operating profit

29,124

(319)

(180)

-

864

29,489





Exceptional gain on disposal of a subsidiary

42,155

-

-

-

(42,155)

-

Finance revenue

621

(1)

-

-

-

620

Finance costs

(1,223)

-

180

-

-

(1,043)

Profit before tax

70,677

(320)

-

-

(41,291)

29,066





Income tax expense:




Before exceptional items

(8,883)

71

-

1,387

(113)

(7,538)

Exceptional items

(52)

-

-

-

52

-

Profit for the period

61,742

(249)

-

1,387

(41,352)

21,528

 

 

TAXATION

The adjusted tax charge1 on ordinary activities was £6.7 million (H1 2015: £7.5 million), on an adjusted profit before tax1 of £25.3 million (H1 2015:£29.1 million). The adjusted effective tax rate1 ('ETR') was 26.6 per cent (H1 2015: 25.9 per cent). The H1 2016 ETR is higher than the prior year period due to a change in the geographic split of profit before tax with reducing losses in France being offset by an increasing German cash tax rate and a reduction in profits in the United Kingdom, where the tax rate is substantially lower than in the other European countries.

The statutory tax charge was £7.5 million (H1 2015: £8.9 million) on profit before tax of £23.6 million (H1 2015: £70.7 million). This represents a statutory ETR of 31.9 per cent (H1 2015: 12.6 per cent). The gain on the disposal of RDC of £42.2 million recorded in the statutory profit before tax for the period ended 30 June 2015 was not a taxable gain and is the most significant reason for the movement in the ETR.

As the German tax losses continue to be utilised, the deferred tax asset, previously recognised as an exceptional tax item, is no longer replenishing and the utilisation of the asset impacts the statutory ETR.

The table below reconciles the statutory tax charge to the adjusted tax charge1 for the period ended 30 June 2016.

H1 2016

£'000

H1 2015

£'000

Year 2015

£'000

Statutory tax charge

7,509

8,935

23,657

Adjustments to exclude:



Utilisation of German deferred tax assets

(892)

(1,387)

(4,045)

Tax on amortisation of acquired intangibles

114

113

314

Tax on exceptional items

-

(52)

(52)

RDC

-

(71)

(72)

Adjusted tax charge

6,731

7,538

19,802

Statutory ETR

31.9%

12.6%

18.7%

Adjusted ETR

26.6%

25.9%

22.8%

 

PROFIT FOR THE PERIOD

The adjusted profit for the period1 decreased by 13.5 per cent to £18.6 million (H1 2015: £21.5 million). The statutory profit after tax decreased by £45.6 million to £16.1 million (H1 2015: £61.7 million).

EARNINGS PER SHARE

The adjusted diluted earnings per share1 decreased by 10.0 per cent to 15.3 pence per share (H1 2015: 17.0 pence per share). The adjusted diluted earnings per share1 for the 2015 comparative has been restated to exclude the result of RDC which was sold on 2 February 2015.

The statutory diluted earnings per shares has decreased 73.0 per cent to 13.2 pence per share (H1 2015: 48.8 pence per share). The 2015 comparative includes the exceptional gain on the disposal of RDC.

H1 2016

H1 2015

Year 2015

Basic weighted average number of shares (excluding own shares held) (no. '000)

120,617

124,571

122,948

Effect of dilution:



Share options

879

2,014

2,655

Diluted weighted average number of shares

121,496

126,585

125,603




Statutory profit attributable to equity holders of the parent (£'000)

16,059

61,742

103,110

Basic earnings per share (pence)

13.3

49.6

83.9

Diluted earnings per share (pence)

13.2

48.8

82.1




Adjusted profit for the year1 attributable to equity holders of the parent (£'000)

18,553

21,528

67,072

Adjusted basic earnings per share1 (pence)

15.4

17.3

54.6

Adjusted diluted earnings per share1 (pence)

15.3

17.0

53.4

 

NET FUNDS3

Net funds3 have decreased from £120.8 million at the end of 2015 to £96.6 million as at 30 June 2016. In addition to the second interim 2015 dividend (paid in April 2016) of £18.1 million, the Group has generated a relatively flat operating cash flow performance with an outflow of £1.1 million for the period to 30 June 2016 (H1 2015: £1 million inflow).

The Group net funds3 position takes account of current asset investments of £35 million, an increase of £20 million since 31 December 2015 (H1 2015: nil).

The Group had no material borrowings outside of customer-specific finance leases and loans

CURRENCY

The Group reports its results in Pound Sterling. The weakening of Sterling, particularly against the Euro, is expected to continue to be a foreign exchange translation benefit to the Group. If the 30 June 2016 spot rates were to continue through the remainder of 2016, the impact of restating 2015 at 2016 exchange rates would be an increase of approximately £122 million in 2015 adjusted revenue1 and an increase of approximately £2 million in 2015 adjusted profit before tax1.

BREXIT CONSIDERATIONS

After the vote on 23 June 2016, the Management and the Board have considered the implications of the vote to leave the European Union on both the short and medium prospects of the Group.

Outside of two principal areas where Brexit could affect the Group, including weakness within the UK economy driving down short term demand for the Group's products and services, the potential impact of which is too early to foresee at this stage, and the impact of the change in foreign currency exchange rates, which has been modelled on the 2015 results and disclosed above, the Group does not see any major impact on its day to day business activities. Clearly, we cannot comment on the likely impact when the United Kingdom leaves the European Union, as the terms and conditions have not yet been negotiated.

Due to the positive net funds3 of the Group, our ongoing strong cash generation and our continued policy to return excess cash to shareholders, we are not adversely impacted by short term fluctuations in interest rates. Further, our lack of material defined benefit pension schemes makes our exposure to extremely low gilt yields negligible.

Specifically the Group sees no change to its Going Concern assumptions, Group Operating Model or Principal Risks and Uncertainties as a result of the vote.

In short, we believe the Group is well positioned, through its geographic spread, balance sheet strength, and diversity of offering, to meet the foreseeable challenges that Brexit may present. With change usually comes opportunity for Computacenter and we remain positively focused on the interesting times ahead.

RISK AND UNCERTAINTIES

The Group's activities expose it to a variety of risks; economic, financial, operational and regulatory.

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, take on and running of large Services contracts.

The principal risks and uncertainties facing the Group are set out on pages 16 to 19 of the 2015 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 largely unchanged from those set out in the 2015 Annual Report and Accounts. Two new risks have been added, the first of which is the result of the Brexit vote as set out above. The second new risk relates to the potential for underinvestment in our indirect costs, particularly sales, leading to missed opportunities or poor decisions adversely impacting revenue and gross profit. Finally, weak Group culture is no longer considered a primary risk.

 

Tony Conophy

Group Finance Director

 

26 August 2016

 

DIRECTORS' RESPONSIBILITY STATEMENT

 

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 by the EU

•       the interim management report includes a fair review of the information required by:

 

(a)           DTR 4.2.7R of the Disclosure 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 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.

 

Mike Norris                                          Tony Conophy

Chief Executive Officer                     Group Finance Director

 

26 August 2016

 

CONSOLIDATED INCOME STATEMENT

 

 

 

Note

Unaudited

H1 2016

£'000

Unaudited

H1 2015

£'000

Audited

Year 2015

£'000

Revenue

5

1,478,219

1,441,404

3,057,615

Cost of sales

(1,288,844)

(1,255,033)

(2,654,468)

Gross profit

189,375

186,371

403,147




Administrative expenses

(164,228)

(156,383)

(315,380)

Operating profit:



Before amortisation of acquired intangibles and exceptional items

25,147

29,988

87,767

Amortisation of acquired intangibles

(601)

(851)

(1,553)

Exceptional items

8

(1,114)

(13)

(1,029)

Operating profit

23,432

29,124

85,185




Exceptional gain on disposal of a subsidiary

8

-

42,155

42,155

Finance revenue

689

621

1,598

Finance costs

(551)

(1,223)

(2,171)

Profit before tax

23,570

70,677

126,767




Income tax expense:



Before exceptional items

(7,509)

(8,883)

(23,605)

Exceptional items

8

-

(52)

(52)

Income tax expense

9

(7,509)

(8,935)

(23,657)

Profit for the period

16,061

61,742

103,110




Attributable to:



Equity holders of the parent

16,061

61,742

103,110

Non-controlling interests

-

-

-

Profit for the period

16,061

61,742

103,110




Earnings per share



- basic for profit for the period

10

13.3p

49.6p

83.9p

- diluted for profit for the period

10

13.2p

48.8p

82.1p

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

Unaudited

H1 2016

£'000

Unaudited

H1 2015

£'000

Audited

Year 2015

£'000

Profit for the period:

16,061

61,742

103,110





Items that may be reclassified to consolidated income statement




Gain/(loss) arising on cash flow hedge, net of amount transferred to consolidated income statement

728

(480)

1,191

Income tax effect

(143)

97

(244)


585

(383)

947

Exchange differences on translation of foreign operations

21,942

(12,662)

(7,783)


22,527

(13,045)

(6,836)

Items not to be reclassified to consolidated income statement:



Remeasurement of defined benefit plan

-

-

24

Other comprehensive income for the period, net of tax

22,527

(13,045)

(6,812)




Total comprehensive income for the period

38,588

48,697

96,298




Attributable to:



Equity holders of the parent

38,581

48,697

96,299

Non-controlling interests

7

(2)

(1)


38,588

48,695

96,298

 

CONSOLIDATED BALANCE SHEET

 

 

 

Unaudited

H1 2016

£'000

Unaudited

H1 2015

£'000

Audited

Year 2015

£'000

Non-current assets




Property, plant and equipment

62,983

75,000

57,132

Investment property

10,147

-

10,260

Intangible assets

75,816

79,032

81,533

Investment in associate

53

38

40

Deferred income tax asset

11,973

14,177

12,840


160,972

168,247

161,805

Current assets



Inventories

40,546

41,379

45,647

Trade and other receivables

525,493

506,375

621,756

Prepayments

63,516

50,640

44,735

Accrued income

98,179

89,478

61,785

Derivative financial instruments

4,694

1,157

2,220

Current asset investments

35,000

-

15,000

Cash and short-term deposits

65,884

53,619

111,770


833,312

742,648

902,913

Total assets

994,284

910,895

1,064,718




Current liabilities



Trade and other payables

484,212

466,481

581,855

Deferred income

105,072

95,762

93,861

Financial liabilities

2,904

6,169

4,279

Derivative financial instruments

1,170

1,368

922

Income tax payable

12,275

8,188

10,981

Provisions

4,038

6,264

4,050


609,671

584,232

695,948

Non-current liabilities



Financial liabilities

1,339

2,564

1,703

Provisions

4,999

3,380

5,094

Deferred income tax liabilities

446

696

523


6,784

6,640

7,320

Total liabilities

616,455

590,872

703,268

Net assets

377,829

320,023

361,450




Capital and reserves



Issued capital

9,299

9,297

9,297

Share premium

3,913

3,830

3,830

Capital redemption reserve

74,957

74,957

74,957

Own shares held

(11,025)

(10,260)

(10,571)

Translation and hedging reserves

11,359

(16,988)

(11,161)

Retained earnings

289,307

259,176

295,086

Shareholders' equity

377,810

320,012

361,438

Non-controlling interests

19

11

12

Total equity

377,829

320,023

361,450

 

Approved by the Board on 26 August 2016

 

MJ Norris                                                       FA Conophy

Chief Executive Officer                              Group Finance Director

 

 

Consolidated statement of changes in equity

For the six months ended 30 June 2016

 


Attributable to equity holders of the parent

Total

£'000

Non- controlling interests

£'000

Total

equity

£'000


Issued capital

£'000

Share

premium

£'000

Capital

redemption

reserve

£'000

Own

shares

held

£'000

Translation & hedging

reserves

£'000

Retained earnings

£'000

At 1 January 2015

9,283

4,597

74,957

(10,760)

(4,326)

311,648

385,399

13

385,412

Profit for the period

-

-

-

-

-

61,742

61,742

-

61,742

Other comprehensive income

-

-

-

-

(12,662)

(383)

(13,045)

(2)

(13,047)

Total comprehensive income

-

-

-

-

(12,662)

61,359

48,697

(2)

48,695

Cost of share-based payments

-

-

-

-

-

2,033

2,033

-

2,033

Tax on share-based payments

-

-

-

-

-

761

761

-

761

Exercise of options

-

-

-

3,874

-

(2,933)

941

-

941

Return of Value (RoV)

-

-

-

-

-

(97,916)

(97,916)

-

(97,916)

Expenses on RoV

-

(753)

-

-

-

-

(753)

-

(753)

Issues of B shares relating to RoV

 

14

 

(14)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Purchase of own shares

-

-

-

(3,374)

-

-

(3,374)

-

(3,374)

Equity dividends

-

-

-

-

-

(15,776)

(15,776)

-

(15,776)

At 30 June 2015

9,297

3,830

74,957

(10,260)

(16,988)

259,176

320,012

11

320,023

Profit for the period

-

-

-

-

-

41,368

41,368

-

41,368

Other comprehensive income

-

-

-

-

5,827

407

6,234

1

6,235

Total comprehensive income

-

-

-

-

5,827

41,775

47,602

1

47,603

Cost of share-based payments

-

-

-

-

-

2,637

2,637

-

2,637

Tax on share-based payments

-

-

-

-

-

898

898

-

898

Exercise of options

-

-

-

6,093

-

(1,702)

4,391

-

4,391

Purchase of own shares

-

-

-

(6,404)

-

-

(6,404)

-

(6,404)

Equity dividends

-

-

-

-

-

(7,698)

(7,698)

-

(7,698)

At 31 December 2015

9,297

3,830

74,957

(10,571)

(11,161)

295,086

361,438

12

361,450

Profit for the period

-

-

-

-

-

16,061

16,061

-

16,061

Other comprehensive income

-

-

-

-

22,520

-

22,520

7

22,527

Total comprehensive income

-

-

-

-

22,520

16,061

38,581

7

38,588

Cost of share-based payments

-

-

-

-

-

1,697

1,697

-

1,697

Tax on share-based payments

-

-

-

-

-

(854)

(854)

-

(854)

Exercise of options

-

-

-

4,613

-

(4,577)

36

-

36

Issue of shares

2

83

-

-

-

-

85

-

85

Purchase of own shares

-

-

-

(5,067)

-

-

(5,067)

-

(5,067)

Equity dividends

-

-

-

-

-

(18,106)

(18,106)

-

(18,106)

At 30 June 2016

9,299

3,913

74,957

(11,025)

11,359

289,307

377,810

19

377,829

 

CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2016

 


Unaudited

H1 2016

£'000

Unaudited

H1 2015

£'000

Audited

Year 2015

£'000

Operating activities



Profit before tax

23,570

70,677

126,767

Net finance (income)/costs

(138)

601

573

Depreciation of property, plant and equipment

7,009

9,425

18,885

Depreciation of investment property

113

-

227

Amortisation of intangible assets

6,820

6,648

13,311

Share-based payments

1,697

2,033

4,670

Loss on disposal of property, plant and equipment

24

147

388

Loss on disposal of intangibles

114

21

9

Exceptional gain from disposal of a subsidiary

-

(42,155)

(42,155)

Net cash flow from inventories

9,161

(1,568)

(4,530)

Net cash flow from trade and other receivables

95,803

111,834

46,023

Net cash flow from trade and other payables

(137,922)

(146,362)

(43,073)

Net cash flow from provisions

(957)

(1,172)

(8,009)

Other adjustments

178

(102)

(137)

Cash generated from operations

5,472

10,027

112,949

Income taxes paid

(6,582)

(9,029)

(18,611)

Net cash flow from operating activities

(1,110)

998

94,338




Investing activities



Interest received

689

621

1,598

Increase in current asset investments

(20,000)

-

(15,000)

Proceeds from disposal of a subsidiary, net of cash disposed of

-

56,145

56,145

Proceeds from disposal of property, plant and equipment

97

18

653

Purchases of property, plant and equipment

(6,531)

(7,862)

(13,303)

Purchases of intangible assets

(2,071)

(2,000)

(7,294)

Net cash flow from investing activities

(27,816)

46,922

22,799




Financing activities



Interest paid

(551)

(1,042)

(2,171)

Dividends paid to equity shareholders of the parent

(18,106)

(15,776)

(23,474)

Return of Value

-

(97,916)

(97,916)

Expenses on Return of Value

-

(767)

(753)

Proceeds from share issues

121

941

5,332

Purchase of own shares

(5,067)

(3,374)

(9,778)

Repayment of capital element of finance leases

(1,247)

(1,704)

(3,223)

Repayment of loans

(942)

(433)

(1,713)

New borrowings

-

113

1,030

Net cash flow from financing activities

(25,792)

(119,958)

(132,666)




Decrease in cash and cash equivalents

(54,718)

(72,038)

(15,529)

Effect of exchange rates on cash and cash equivalents

8,861

(4,493)

(1,937)

Cash and cash equivalents at the beginning of the period

111,680

129,146

129,146

Cash and cash equivalents at the end of the period

65,823

52,615

111,680

 

 

1    CORPORATE INFORMATION

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2016 were authorised for issue in accordance with a resolution of the Directors on 26 August 2016.

Computacenter plc is a limited company incorporated and domiciled in England whose shares are publicly traded.

2    BASIS OF PREPARATION

The interim condensed consolidated financial statements for the six months ended 30 June 2016 have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. 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 annual financial statements as at 31 December 2015 which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The Group has maintained its positive cash position in the period. In order to ensure that the Group can maintain its strong liquidity position it has a £40 million committed facility, which remained unutilised at the reporting date. The Group's forecast and projections, which allow for reasonably possible variations, show that the Group will continue to maintain its strong liquidity position, and therefore supports the Directors' view that the Group has sufficient funds available to meet its foreseeable requirements. The Directors have concluded therefore that the going concern basis remains appropriate.

3    BASIS OF PREPARATION

The accounting policies applied by the Group in these interim condensed consolidated financial statements are the same as those applied by the Group in its consolidated financial statements for the year ended 31 December 2015, except for the adoption of new standards and interpretations as of 1 January 2016, which did not have any impact on the accounting policies, financial position or performance of the Group, as noted below:

•     Annual Improvements to IFRSs - 2010-2012 Cycle

•     Annual Improvements to IFRSs - 2011-2013 Cycle

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

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, detailed below, are important when assessing the underlying financial and operating performance of the Group.

Adjusted revenue, adjusted Services revenue, adjusted Professional Services revenue, adjusted Supply Chain revenue, and adjusted administrative expenses excludes the revenue and administrative expenses from a disposed subsidiary, RDC, for the comparative reporting periods. RDC was sold on 2 February 2015.

Adjusted operating profit or loss, adjusted profit or loss before tax, adjusted profit or loss for the year, adjusted earnings per share and adjusted diluted earnings per share are, as appropriate, each stated before: exceptional and other adjusting items including gain or loss on business disposals, amortisation of acquired intangibles, utilisation of deferred tax assets (where initial recognition was as an exceptional item or a fair value adjustment on acquisition), and the related tax effect of these exceptional and other adjusting items, as Management do not consider these items when reviewing the underlying performance of the segment or the Group as a whole. Each of these measures also excludes the results of RDC for the comparative periods.

Additionally, adjusted operating profit or loss includes the interest paid on customer-specific financing (CSF) which Management considers to be a cost of sale.

A reconciliation between key adjusted and statutory measures is provided on page 13 of the Group Finance Director's review. Further detail is also provided within note 5, segment information.

5    SEGMENT INFORMATION

For management purposes, the Group is organised into geographical segments, with each segment determined by the location of the Group's assets and operations. The Group's business in each geography is managed separately.

No operating segments have been aggregated to form the reportable operating segments shown below.

Segmental performance for the periods to H1 2016, H1 2015 and Full Year 2015 were as follows:

Six months ended 30 June 2016 (unaudited)


UK

£'000

Germany

£'000

France

£'000

Belgium

£'000

Total

£'000

Revenue


Adjusted Supply Chain revenue

408,448

395,395

160,569

15,837

980,249

Adjusted Services revenue


Professional Services

58,194

62,943

8,063

851

130,051

Managed Services

186,116

149,453

24,519

7,831

367,919

Total adjusted Services revenue

244,310

212,396

32,582

8,682

497,970

Total adjusted revenue

652,758

607,791

193,151

24,519

1,478,219



RDC

-

-

-

-

-

Supply Chain revenue

-

-

-

-

-

Professional Services revenue

-

-

-

-

-

Total RDC revenue

-

-

-

-

-

Statutory revenue

652,758

607,791

193,151

24,519

1,478,219



Results


Adjusted gross profit

91,080

75,219

19,259

3,706

189,264

Administrative expenses

(77,050)

(65,703)

(18,354)

(3,121)

(164,228)

Adjusted operating profit

14,030

9,516

905

585

25,036

Adjusted net interest

457

(36)

(158)

(14)

249

Adjusted profit before tax

14,487

9,480

747

571

25,285

Exceptional items:


- onerous contracts trading losses

-

-

-

-

-

- onerous contracts provision for future losses

-

-

-

-

-

- exceptional gains/(losses)

-

-

(1,114)

-

(1,114)

Total exceptional items

-

-

(1,114)

-

(1,114)

Gain on disposal of a subsidiary

-

-

-

-

-

Amortisation of acquired intangibles

-

(561)

-

(40)

(601)

RDC

-

-

-

-

-

Statutory profit/(loss) before tax

14,487

8,919

(367)

531

23,570

The reconciliation for adjusted operating profit to statutory operating profit as disclosed in the Consolidated Income Statement is as follows:

 

Six months ended 30 June 2016 (unaudited)

 


UK

£'000

Germany

£'000

France

£'000

Belgium

£'000

Total

£'000

Adjusted segment operating profit/(loss)

14,030

9,516

905

585

25,036

Add back interest on CSF

5

106

-

-

111

Amortisation of acquired intangibles

-

(561)

-

(40)

(601)

Exceptional items

-

-

(1,114)

-

(1,114)

RDC

-

-

-

-

-

Segment operating profit/(loss)

14,035

9,061

(209)

545

23,432



Other segment information


Share-based payments

1,375

306

16

-

1,697

 

 

Six months ended 30 June 2015 (unaudited)



UK

£'000

Germany

£'000

France

£'000

Belgium

£'000

Total

£'000

Revenue






Adjusted Supply Chain revenue

425,099

349,624

157,937

16,106

948,766

Adjusted Services revenue






Professional Services

64,665

51,061

8,381

752

124,859

Managed Services

198,923

134,669

23,477

7,263

364,332

Total adjusted Services revenue

263,588

185,730

31,858

8,015

489,191

Total adjusted revenue

688,687

535,354

189,795

24,121

1,437,957







RDC






Supply Chain revenue

3,157

-

-

-

3,157

Professional Services revenue

290

-

-

-

290

Total RDC revenue

3,447

-

-

-

3,447

Statutory revenue

692,134

535,354

189,795

24,121

1,441,404







Results






Adjusted gross profit

102,920

67,026

12,561

3,011

185,518

Administrative expenses

(80,008)

(58,505)

(15,554)

(1,962)

(156,029)

Adjusted operating profit/(loss)

22,912

8,521

(2,993)

1,049

29,489

Adjusted net interest

273

(738)

94

(52)

(423)

Adjusted profit/(loss) before tax

23,185

7,783

(2,899)

997

29,066

Exceptional items:






- onerous contracts trading losses

-

(690)

-

-

(690)

- onerous contracts provision for future losses

-

1,126

-

-

1,126

- exceptional gains/(losses)

-

-

(449)

-

(449)

Total exceptional items

-

436

(449)

-

(13)

Gain on disposal of a subsidiary

42,155

-

-

-

42,155

Amortisation of acquired intangibles

(240)

(572)

-

(39)

(851)

RDC

320

-

-

-

320

Statutory profit/(loss) before tax

65,420

7,647

(3,348)

958

70,677

The reconciliation for adjusted operating profit to operating profit, as disclosed in the Consolidated Income Statement, is as follows:

 

Six months ended 30 June 2015 (unaudited)

 


UK

£'000

Germany

£'000

France

£'000

Belgium

£'000

Total

£'000

Adjusted segment operating profit/(loss)

22,912

8,521

(2,993)

1,049

29,489

Add back interest on CSF

33

147

-

-

180

Amortisation of acquired intangibles

(240)

(572)

-

(39)

(851)

Exceptional items

-

436

(449)

-

(13)

RDC

319

-

-

-

319

Segment operating profit/(loss)

23,024

8,532

(3,442)

1,010

29,124







Other segment information






Share-based payments

1,711

180

142

-

2,033







 

 

Year ended 31 December 2015


UK

£'000

Germany

£'000

France

£'000

Belgium

£'000

Total

£'000

Revenue






Adjusted Supply Chain revenue

875,041

820,196

335,024

33,686

2,063,947

Adjusted Services revenue






Adjusted Professional Services revenue

137,390

107,416

16,101

1,645

262,552

Managed Services revenue

394,943

272,006

46,934

13,785

727,668

Total adjusted Services revenue

532,333

379,422

63,035

15,430

990,220

Total adjusted revenue

1,407,374

1,199,618

398,059

49,116

3,054,167







RDC






Supply Chain revenue

3,158

-

-

-

3,158

Professional Services revenue

290

-

-

-

290

Total RDC revenue

3,448

-

-

-

3,448

Statutory revenue

1,410,822

1,199,618

398,059

49,116

3,057,615







Results






Adjusted gross profit

216,445

147,346

32,083

6,258

402,132

Adjusted administrative expenses

(157,110)

(119,937)

(33,715)

(4,263)

(315,025)

Adjusted operating profit/(loss)

59,335

27,409

(1,632)

1,995

87,107

Adjusted net interest

601

(577)

(178)

(79)

(233)

Adjusted profit/(loss) before tax

59,936

26,832

(1,810)

1,916

86,874

Exceptional items:






- onerous contracts trading losses

-

(1,123)

-

-

(1,123)

- onerous contracts provision for future losses

-

1,559

-

-

1,559

- exceptional losses on redundancy and other restructuring costs

-

-

(1,465)

-

(1,465)

Total exceptional items

-

436

(1,465)

-

(1,029)

Exceptional gain on disposal of a subsidiary

42,155

-

-

-

42,155

Amortisation of acquired intangibles

(361)

(1,116)

-

(76)

(1,553)

RDC

320

-

-

-

320

Statutory profit/(loss) before tax

102,050

26,152

(3,275)

1,840

126,767

The reconciliation for adjusted operating profit to statutory operating profit as disclosed in the Consolidated Income Statement is as follows:

 

Year ended 31 December 2015

 


UK

£'000

Germany

£'000

France

£'000

Belgium

£'000

Total

£'000

Adjusted operating profit/(loss)

59,335

27,409

(1,632)

1,995

87,107

Add back interest on CSF

56

284

-

-

340

Amortisation of acquired intangibles

(361)

(1,116)

-

(76)

(1,553)

Exceptional items

-

436

(1,465)

-

(1,029)

RDC

320

-

-

-

320

Statutory operating profit/(loss)

59,350

27,013

(3,097)

1,919

85,185

 

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. In addition, the effect is compounded further by the tendency for the holiday entitlements of our employees to accrue during the first half of the year and to be utilised in the second half.

 

7    DIVIDENDS PAID AND PROPOSED

A second interim dividend for 2015 of 15.0 pence per ordinary share was paid on 5 April 2016. An interim dividend in respect of 2016 of 7.2 pence per ordinary share, amounting to a total dividend of £8,831,370, was declared by the Directors at their meeting on 25 August 2016. The expected payment date of the dividend declared is 14 October 2016. This interim report does not reflect this dividend payable.

 

8    EXCEPTIONAL ITEMS

Unaudited

H1 2016

£'000

Unaudited H1 2015 £'000

Audited Year 2015 £'000

Operating profit



Redundancy and other restructuring costs

(1,114)

(449)

(1,465)

Onerous contracts

-

436

436


(1,114)

(13)

(1,029)

Gain on disposal of a subsidiary

-

42,155

42,155

Exceptional items before taxation

(1,114)

42,142

41,126




Income tax



Tax on onerous contracts included in operating profit

-

(52)

(52)

Exceptional items after taxation

(1,114)

42,090

41,074

 

2016:

Included within the current period are the following exceptional items:

 

•       During the current period a Line of Business restructure has been agreed with the business in France. This initiative to reduce the underutilised resources within our Professional Services arm will complete in H2 2016, the full cost of £1.0 million has been recognised as at 30 June 2016. This restructure will see Computacenter France exit the direct provision of Group Field Maintenance Services. This Line of Business has materially decreased over time, leading to a significant resourcing overcapacity. Any future residual customer requirement will be sub-contracted to an existing third party provider.

•       Computacenter France is close to completing responsibilities under the Social Plan related to the substantial restructuring exercise that occurred in 2014. An additional cost of £0.1 million has been recognised as part of the wind-down of the Social Plan. As the redundancy and restructuring costs were previously treated as an exceptional item on recognition, this further provision has also been treated as an exceptional item.

 

2015:

Included within the prior period are the following exceptional items:

 

•       Computacenter (UK) Limited disposed of its wholly owned subsidiary RDC during the year. An exceptional gain of £42.2 million was recognised on disposal of RDC. In line with our accounting policy, Management elected under IAS1 to report this gain as a separate line item on the face      of the income statement due to the materiality, infrequency and nature of the gain on disposal of RDC. As noted within the summary of significant accounting policies the adjusted results excluded this gain. This election provided the best guidance to users of our external reporting as to the underlying profitability trends within the Group and presented the results of the Group in a way that is fair, balanced and understandable.

•       Computacenter France continued with its substantial restructuring exercise that began in 2014. An additional cost of £0.4 million was recognised as part of the Social Plan. As the redundancy and restructuring costs were previously treated as an exceptional item on recognition, the further provision has also been treated as an exceptional item.

•       The Group's remaining two onerous contracts continued to show operational improvements therefore management revised its estimates of the losses to be incurred. On this basis the Group released £0.4 million of the provision. As the onerous contracts were previously treated as   an exceptional item on recognition, the write back of the provision was also released as an exceptional item

 

9    INCOME TAX

The Group calculates the period income tax expense using the tax rate that would be applicable to the total expected annual earnings.

The charge based on the profit for the period comprises:

Unaudited

H1 2016

£'000

Unaudited
H1 2015 £'000

Audited Year 2015 £'000

Tax charged in the consolidated income statement






Current income tax



UK corporation tax

3,487

6,077

14,639

Foreign tax

3,244

3,643

6,485

Adjustments in respect of prior periods

-

-

(232)

Total current income tax

6,731

9,720

20,892




Deferred tax



- origination and reversal of temporary differences

(114)

(785)

(1,276)

- adjustments in respect of prior years

-

-

(276)

- changes in recoverable amounts of deferred tax assets

892

-

4,265

Exceptional items

-

-

52

Total deferred tax

778

(785)

2,765




Tax charge in the consolidated income statement

7,509

8,935

23,657

 

10  EARNINGS PER SHARE

Earnings per share ('EPS') amounts are calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period (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 period are considered to be dilutive potential shares.

Unaudited

H1 2016

£'000

Unaudited

H1 2015

£'000

Audited

Year 2015

£'000

Profit attributable to equity holders of the parent

16,061

61,742

103,110

 

Unaudited

H1 2016

£'000

Unaudited

H1 2015

£'000

Audited

Year 2015

£'000

Basic weighted average number of shares (excluding own shares held)

120,617

124,571

122,948

Effect of dilution:



Share options

879

2,014

2,655

Diluted weighted average number of shares

121,496

126,585

125,603

 

Unaudited

H1 2016

pence

Unaudited

H1 2015

pence

Audited

Year 2015

pence





Basic earnings per share

13.3

49.6

83.9

Diluted earnings per share

13.2

48.8

82.1

 

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:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

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

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 2016 the Group had forward currency contracts, which were measured at Level 2 fair value subsequent to initial recognition, to the value of a net asset of £3,524,000 (30 June 2015: £210,000 net liability, 31 December 2015: £1,298,000 net asset).

The net realised gains from forward currency contracts in the period to 30 June 2016 of £1,335,000 (30 June 2015: £2,255,000 loss, 31 December 2015: £747,000 gain), are offset by broadly equivalent realised losses/gains on the related underlying transactions. There were no transfers between Level 1 and Level 2 during the period (2015: nil).

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 Group's financial statements is not materially different from their carrying amount.

12  PUBLICATION OF NON-STATUTORY ACCOUNTS

The financial information contained in the interim statement 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 2014 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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