REG - Computacenter - Half-year Report
08/09/2023 07:00
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RNS Number : 7935L Computacenter PLC 08 September 2023
Computacenter plc
Incorporated in England
Registration number: 03110569
LEI: 549300XSXUZ1I19DB105
ISIN: GB00BV9FP302
Computacenter plc
Interim results for the six months ended 30 June 2023
Computacenter plc ("Computacenter" or the "Group"), a leading independent
technology partner trusted by large corporate and public sector organisations,
today announces results, based on unaudited financial information, for the six
month period ended 30 June 2023.
Financial highlights H1 2023 H1 2022 Percentage Change Increase / (Decrease)
Financial Performance
Technology Sourcing gross invoiced income (£ million) 4,341.7 3,219.4 34.9%
Services revenue (£ million) 816.5 752.5 8.5%
Gross invoiced income (£ million) 5,158.2 3,971.9 29.9%
Technology Sourcing revenue (£ million) 2,768.4 2,074.2 33.5%
Services revenue (£ million) 816.5 752.5 8.5%
Revenue (£ million) 3,584.9 2,826.7 26.8%
Adjusted(1) profit before tax (£ million) 121.8 111.9 8.8%
Adjusted(1) diluted earnings per share (pence) 73.5 69.8 5.3%
Dividend per share (pence) 22.6 22.1 2.3%
Profit before tax (£ million) 122.8 107.8 13.9%
Diluted earnings per share (pence) 76.5 67.3 13.7%
Cash Position
Cash and cash equivalents (£ million) 301.6 193.5
Adjusted net funds(3) (£ million) 285.1 159.3
Net funds (£ million) 164.8 12.1
Net cash inflow from operating activities (£ million) 116.5 8.1
Reconciliation to Adjusted(1) Measures
Adjusted(1) profit before tax (£ million) 121.8 111.9
Exceptional and other adjusting items:
Amortisation of acquired intangibles (£ million) (5.5) (4.1)
Other income related to acquisition of a subsidiary (£ million) 5.3 -
Gain related to acquisition of a subsidiary (£ million) 3.2 -
Interest cost relating to acquisition of a subsidiary (£ million) (2.0) -
Profit before tax (£ million) 122.8 107.8
Operational Highlights:
· On track for the nineteenth consecutive year of adjusted(1) diluted
earnings per share growth.
· Continued significant programme of strategic initiative expenditure
to underpin our long-term resilience, competitiveness and growth with an
additional expected spend of circa £13 million in FY23 compared to FY22.
· Cash has improved as inventory levels have reduced towards normal
levels. Inventory is down by £217.2 million since the highpoint in Q3 2022.
· Revenue across the Group has grown by 26.8 per cent in H1 2023 vs H1
2022 with broad growth across our diversified geographic markets and service
lines.
Mike Norris, Chief Executive of Computacenter plc, commented:
Our performance in the first half sets us on course for our nineteenth year of
uninterrupted full-year adjusted(1) diluted earnings per share growth. Coupled
with this first half performance, we have seen good progress in Q3 to date.
Due to the industry returning to normal supply conditions we have seen a
significant generation of cash as our inventory has reduced in the first half
of 2023. We expect this to continue in the second half which will leave
Computacenter with a strong balance sheet by the end of the year.
We are pleased with our progress towards both our short-term financial
objectives and our long-term aspirations. The investments we are making,
predominantly through our profit and loss account to make Computacenter a more
secure and competitive organisation, are progressing well and continue at
pace.
We are as excited and optimistic about the future as we have ever been.
Following a recently approved interpretation of the revenue accounting
standard by the International Accounting Standards Board, we, and a number of
our peer value-added resellers, have changed the way we recognise revenues for
standalone software and resold third-party services contracts and revised our
accounting policies to reflect this change. Accordingly, we have restated our
prior-period revenues down from 2021 onwards, as we have now determined that
we are an agent for these transactions and will recognise revenue on a net
basis, with only the gross profit on these types of deals, being the gross
invoiced income less the costs of the resold software or third-party services,
showing as revenue, with nothing recorded in cost of goods sold. This change
has been applied from 2022 and, retrospectively, we have restated our
prior-year 2021 revenues. The equivalent adjustment is not available for years
prior to 2021 as it is not practicable to calculate. Further information on
this change, including the retrospective restatement of the financial
statements, and the revised accounting policy, is available in note 3 to the
2022 Consolidated Financial Statements. The result for the period benefited
from £85.5 million of revenue (H1 2022: £0.4 million), and £2.4 million of
adjusted(1) profit before tax (H1 2022: nil), resulting from all acquisitions
made since 1 January 2022. All figures reported throughout this announcement
include the results of these acquired entities. The results of these
acquisitions are excluded where narrative discussion refers to 'organic'
growth within this announcement.
(1)Adjusted administrative expense, adjusted operating profit or loss,
adjusted profit or loss before tax, adjusted tax, adjusted profit or loss,
adjusted earnings per share and adjusted diluted earnings per share are, as
appropriate, each stated before: exceptional and other adjusting items,
including gains or losses on business acquisitions and disposals, amortisation
of acquired intangibles, utilisation of deferred tax assets (where initial
recognition was as an exceptional item or a fair value adjustment on
acquisition), and the related tax effect of these exceptional and other
adjusting items, as Management does not consider these items when reviewing
the underlying performance of the Segment or the Group as a whole. A
reconciliation to adjusted measures is provided in the Chief Financial
Officer's review, which details the impact of exceptional and other adjusted
items when compared to the non-Generally Accepted Accounting Practice (GAAP)
financial measures, in addition to those reported in accordance with IFRS.
Further detail is provided within note 4 to the summary financial information
contained within this announcement.
(2)We evaluate the long-term performance and trends within our strategic
priorities on a constant-currency basis. The performance of the Group and its
overseas Segments are also shown, where indicated, in constant currency. The
constant currency presentation, which is a non-GAAP measure, excludes the
impact of fluctuations in foreign currency exchange rates. We believe
providing constant currency information gives valuable supplemental detail
regarding our results of operations, consistent with how we evaluate our
performance.
We calculate constant currency percentages by converting our prior-period
local currency financial results using the current period average exchange
rates and comparing these recalculated amounts to our current period results
or by presenting the results in the equivalent local currency amounts.
Wherever the performance of the Group, or its overseas Segments, is presented
in constant currency, or equivalent local currency amounts, the equivalent
prior-period measure is also presented in the reported pound sterling
equivalent, using the exchange rates prevailing at the time. 2023 interim
highlights, as shown above, are provided in the reported pound sterling
equivalent.
(3)Adjusted net funds or adjusted net debt includes cash and cash equivalents,
other short- or long-term borrowings and current asset investments. Following
the adoption of IFRS 16, this measure excludes all lease liabilities. A table
reconciling this measure, including the impact of lease liabilities, is
provided within note 13 to the summary financial information contained within
this announcement.
(4)Gross invoiced income is based on the value of invoices raised to
customers, net of the impact of credit notes and excluding VAT and other sales
taxes. This reflects the cash movements to assist Management and the users of
this announcement in understanding revenue growth on a 'principal' basis and
to assist in their assessment of working capital movements in the Consolidated
Balance Sheet and Consolidated Cash Flow Statement. This measure allows an
alternative view of growth in adjusted gross profit, based on the product mix
differences and the accounting treatment thereon. Gross invoiced income
includes all items recognised on an 'agency' basis within revenue, on a gross
income billed to customers basis, as adjusted for deferred and accrued
revenue. A reconciliation of revenue to gross invoiced income is provided
within note 5 to the summary financial information contained within this
announcement.
The term Group refers to Computacenter plc and its subsidiaries.
Enquiries:
Computacenter plc
Mike Norris, Chief Executive 01707 631601
Chris Jehle, Finance Director 01707 631515
Teneo
James Macey White 020 7353 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 Group's intentions, beliefs or current
expectations concerning, amongst other things, results of operations,
prospects, growth, strategies and expectations of its respective businesses.
By their nature, forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances. Forward-looking
statements are not guarantees of future performance and the actual results of
the Group's operations and the development of the markets and the industry in
which they operate or are likely to operate and their respective operations
may differ materially from those described in, or suggested by, the
forward-looking statements contained in this announcement. In addition, even
if the results of operations and the development of the markets and the
industry in which the Group operates are consistent with the forward-looking
statements contained in this announcement, those results or developments may
not be indicative of results or developments in subsequent periods. A number
of factors could cause results and developments to differ materially from
those expressed or implied by the forward-looking statements, including,
without limitation, those risks in the risk factor section of the
Computacenter plc 2022 Annual Report and Accounts, as well as general economic
and business conditions, industry trends, competition, changes in regulation,
currency fluctuations or advancements in research and development.
Forward-looking statements speak only as of the date of this announcement and
may, and often do, differ materially from actual results. Any forward-looking
statements in this announcement reflect the Group's current view with respect
to future events and are subject to risks relating to future events and other
risks, uncertainties and assumptions relating to the Group's operations,
results of operations and growth strategy.
Neither Computacenter plc nor any of its subsidiaries undertakes any
obligation to update the forward-looking statements to reflect actual results
or any change in events, conditions or assumptions or other factors unless
otherwise required by applicable law or regulation.
OUR INTERIM PERFORMANCE IN 2023
GROUP
Financial performance
Our strong trading performance during the period to 30 June 2023 is testament
to the diversity of our business model. We operate in multiple geographies,
multiple business lines, selling a variety of technologies.
We have seen extraordinary growth in gross invoiced income and revenue despite
well published challenging macro-economic conditions. During the period we
have grown significantly faster than the market as a whole and also our major
competitors. Therefore, we have gained market share. Without doubt we have
benefited from the fact our target market, the largest customers, have proved
the most resilient and continued to invest in technology. Additionally, we
have grown our share within our existing customers and also acquired new
customers.
In 2005, we pivoted Computacenter's strategy to dramatically grow our Services
business, and I'm pleased to say we've grown our adjusted(1) earnings per
share (EPS) every year since. That change was made simply because the
diversification allows us to be in control of our own destiny.
We now have the largest services business of any value-added reseller, as well
as the largest value-added reseller capability of any services business
worldwide. Executing our business model, built on the three primary service
lines of Technology Sourcing, Professional Services and Managed Services,
supports Our Purpose of helping our customers change the world.
Over the last 18 years this strategy has worked, particularly in Europe where
we continue to work on behalf of our customers across these primary service
lines whilst remaining independent from our technology vendors even though we
work together in partnership with all of them.
Our expanding global reach has enabled us to serve numerous significant
customers across their various locations. Providing a single point of
accountability for products and services has been well received and our
delivery capabilities across multiple geographies offer us a competitive
advantage in meeting cost requirements, while delivering exceptional customer
service.
As we entered 2023 we continued to focus on a number of areas of our business
identified during 2022. Whilst we were pleased with how the second half of
last year progressed there remained much to do in the first half of 2023 in
order to be truly satisfied with our ongoing performance for the period and
the full year as a whole.
We continue to make progress in each of the following areas, described below,
particularly with the challenges facing the broader market.
Increasing the spend on targeted investments through the income statement,
ensuring another year of adjusted(1) diluted earnings per share growth,
achieving gross invoiced income growth in the United Kingdom Segment,
arresting the growth in our inventory to improve our cash position and
stabilising our Services margins remain key to our ongoing success.
Results H1 2023 H1 2022 Percentage change H1 2022 Percentage change
£m £m £m
constant currency(2)
Professional Services revenue 333.7 298.4 11.8% 308.4 8.2%
Managed Services revenue 482.8 454.1 6.3% 466.3 3.5%
Services revenue 816.5 752.5 8.5% 774.7 5.4%
Technology Sourcing gross invoiced income 4,341.7 3,219.4 34.9% 3,319.3 30.8%
Total gross invoiced income 5,158.2 3,971.9 29.9% 4,094.0 26.0%
Professional Services revenue 333.7 298.4 11.8% 308.4 8.2%
Managed Services revenue 482.8 454.1 6.3% 466.3 3.5%
Services revenue 816.5 752.5 8.5% 774.7 5.4%
Technology Sourcing revenue 2,768.4 2,074.2 33.5% 2,151.3 28.7%
Total revenue 3,584.9 2,826.7 26.8% 2,926.0 22.5%
Gross profit 505.7 424.9 19.0% 437.4 15.6%
Adjusted(1) total administrative expenses (387.2) (310.7) 24.6% (320.5) 20.8%
Adjusted(1) operating profit 118.5 114.2 3.8% 116.9 1.4%
Net adjusted(1) finance costs 3.3 (2.3) (243.5%) (2.4) (237.5%)
Adjusted(1) profit before tax 121.8 111.9 8.8% 114.5 6.4%
Gross profit 505.7 424.9 19.0%
Total administrative expenses (392.7) (314.8) 24.7%
Other income related to acquisition of a subsidiary 5.3 - -
Gain related to acquisition of a subsidiary 3.2 - -
Operating profit 121.5 110.1 10.4%
Net finance costs 1.3 (2.3) (156.5%)
Profit before tax 122.8 107.8 13.9%
Investments
Those of you who follow Computacenter closely will know that this year will
see significant incremental targeted strategic investment project spend
through our income statement.
Spend on our critical strategic corporate initiatives has increased by more
than double to £11.9 million in the first half of the year (H1 2022: £5.5
million) split between projects that will improve capabilities, productivity
and underpin our systems of the future, now. This increase in spend we expect
to continue throughout 2023 and 2024.
While general market conditions are good, they are not as robust as they have
been for the last couple of years. However, we are not letting that affect our
investment strategy.
Most of the spend is focused on our systems to ensure that they continue to be
secure and supportable. We are not just upgrading, that simply isn't enough,
but also moving to new systems in order to obtain the security and support we
need and develop competitive advantage through continued operational leverage
of these new toolsets and processes.
Cyber risk remains one of the greatest risks to our business, but also
presents one of the greatest opportunities to differentiate from our
competitors through our internal resilience and by helping our customers to
overcome these same challenges. We will continue to invest heavily to prevent
a cyber breach.
Whilst cyber risk forms part of the Group's overall Principal Risks, as
detailed on pages 74 to 81 of our 2022 Annual Report and Accounts, it could be
argued that cyber risk is the single major risk facing large corporates today.
In light of recent significant, well-published cyber attacks in the last year
against certain of its key strategic suppliers, the UK Government has sent a
clear and simple message: they want to make cyber security one of the top
priorities for their strategic suppliers, alongside the many other demands on
large corporates.
Adjusted(1) diluted EPS
We are pleased to see the growth in adjusted(1) profit before tax for the
first half of 2023 over the first half of 2022 following the expected
re-emergence of seasonality that is closer to our historical norms.
Historically, revenues have been higher in the second half of the year than in
the first six months, principally due to customer buying behaviour. This
typically leads to a more pronounced effect on operating profit.
The result for the period benefited from £85.5 million of revenue (H1 2022:
£0.4 million), and £2.4 million of adjusted(1) profit before tax (H1 2022:
nil), resulting from all acquisitions made since 1 January 2022. All figures
reported throughout this announcement include the results of these acquired
entities.
Our growth performance in the first half of 2023 has been assisted by currency
movements and the BITS acquisition made in the second half of last year. This
was far outweighed by the challenges presented by cost inflation, salary
increases and demand variability. Despite these headwinds, our continued
growth means that Computacenter remains poised to achieve a nineteenth
consecutive year of adjusted(1) diluted EPS growth.
Adjusted(1) diluted EPS, the Group's primary EPS measure, increased by 5.3
per cent in H1 2023 to 73.5 pence (H1 2022: 69.8 pence). Diluted EPS increased
by 13.7 per cent to 76.5 pence (H1 2022: 67.3 pence).
Inventory
The supply chain constraints that we saw during the last 18 months to 31
December 2022 have now eased materially with availability of product now
largely returning to normal.
The Group had £315.4 million of inventory as at 30 June 2023, a decrease of
21.0 per cent since 30 June 2022 (£399.3 million), and a decrease of 19.4 per
cent in constant currency(2). In the last six months, inventory has fallen
£102.3 million (31 December 2022: £417.7 million). Whilst we have already
been paid for some of this inventory, customers are committed, through
individual non-cancellable purchase orders, to taking nearly all of the rest
of the holding, so it is a largely risk-free position.
Total inventory across the Group has fallen by £217.2 million since 30
September 2022 at the high point of the product supply issues.
During 2021 and 2022, customers switched to ordering much further in advance
of their requirement than normal. This spiked our inventory levels and our
product order backlogs.
The Group continues to carry more inventory than normal, however customers are
becoming more assured that they no longer need to order significantly further
in advance of their requirement and are becoming confident that even large
orders are addressable in standard time frames.
This positivity in customer outlook is naturally reducing our inventory as
inventory was accumulated well in advance of dispatch and also our product
order backlogs as delivery lead-times are able to be reduced. Further,
manufacturers are more able to deliver complete orders ready for shipment
rather than supplying product into inventory when an order was only partly
available. Finally, we are holding significantly less stock for orders that
are delayed pending a critical part or where customers had ordered early and
subsequently delayed delivery, as their data center facilities or other
project requirements were not ready.
Further commentary on progress and initiatives in reducing our inventory and
improving our cash generation is available in the Chief Financial Officer's
Review.
United Kingdom performance
The United Kingdom saw 8.7 per cent growth in gross invoiced income during the
first half of the year. Within this top-line growth, the product mix has
changed significantly from hardware, which decreased, towards software and
resold services where, with software in particular, longer-term framework
contracts are becoming prevalent.
Whilst gross invoiced income and revenue growth remains robust in a
challenging market, we remain unsatisfied with the overall UK profitability
performance. Reducing Services margins, the change in Technology Sourcing
product mix towards lower margin revenues and increasing administrative
expenses have all impacted the UK profitability in the period. We will look to
achieve a stronger second half performance to drive the Group result.
Services margins
Computacenter, like most companies, is affected by wage inflation associated
with the macroeconomic disruption. Whilst the Services business continues to
offer us opportunities to differentiate from our competition and the ability
to penetrate customers with the three elements of our business model, it
remains a people-intensive operation and therefore is more exposed to these
inflationary pressures.
Pay rises in our Services business often precede price rises to our customers.
Services contracts generally have specific cost of living adjustment clauses
within them that enable us to increase our rate card prices and recover
increases in our costs at a later date.
Services margins are 156 basis points down from that achieved in H1 2022. This
is not far below pre-Covid-19 levels and a marginally better performance than
we had anticipated.
We feel that we have managed these inflationary pressures well during the
first half of the year with margins down less than expected within our early
forecasts for the performance over the first six months.
We believe that we have absorbed the majority of the cost increases foreseen
within a flat overall Services gross profit performance in H1 2023 and expect
that the continued robustness of the Services top-line growth, which saw H1
2023 Services revenue grow by 8.5 per cent compared to H1 2022, will flow
through to gross profit unhindered by this short-term reversal in Services
margins.
Less than 20 per cent of our employees now reside in the United Kingdom, so
the impact of these inflationary pressures should be considered on a more
global basis than simply on the macroeconomic performance within the United
Kingdom itself.
Technology Sourcing trading performance
Our Technology Sourcing product sales continued the extremely strong
performance seen in the second half of 2022 throughout the first half of 2023,
with very strong demand in all countries in which we operate. Trading across
all of our major geographies was pleasing throughout the year, with
double-digit growth, again, in gross invoiced income in each Segment.
Group Technology Sourcing gross invoiced income grew by 34.9 per cent
including the effects of acquisitions made in the middle of 2022, and by 30.8
per cent in constant currency(2).
Product order backlogs have fallen sharply as customer ordering behaviour
returns to normal, however demand and gross invoiced income growth has
remained very high. The recent driver of customers' IT purchasing has focused
on the near-term impacts of the economic downturn, as they look to re-
engineer IT structures and employ digital transformation to cope with the
ever-evolving technology landscape and the need to reduce non-IT operating
costs. This, coupled with an escalatory cyber threat landscape will continue
to sustain demand in the short to medium term.
We believe that IT spend remains strategic to our customers and will be
amongst the last expenditure categories to be retrenched if the forecast
global-economic recession becomes a reality.
The strength of the overall Technology Sourcing result is driven by the spread
of the customer base across multiple market segments, technology lines and
geographies, which create durability and sustainability within the business
model through diversification.
Our product order backlogs, which are the total value of committed outstanding
purchase orders placed with our technology vendors against non-cancellable
sales orders received from our customers for delivery within 12 months, across
all geographies, remain buoyant against historical trends, but are
considerably lower than as at 30 June 2022. As described above, both the
product supply situation and the ordering behaviour of customers has also
returned to normal, with customers no longer placing long-lead-time orders due
to the availability of product. The product order backlog at 30 June 2023 was
£1,521.2 million, on a gross invoiced income basis, a 48.3 per cent decrease
since 30 June 2022 (£2,943.3 million) in constant currency(2). The June 2022
backlog is impacted by a one-off order from a single customer placed in May
2022 for $847 million that has now been delivered.
The Technology Sourcing backlog, alongside the Managed Services Contract Base
and the Professional Services forward order book allow us visibility of future
revenues in these areas. This gives us confidence that the Technology Sourcing
business will be well placed in the year ahead.
Overall Group Technology Sourcing margins, based on gross profit as a
percentage of revenue, held firm experiencing a slight drop of 38 basis points
during the year, mainly due to customer and product mix changes.
Services trading performance
Our Services revenue performance was robust during the period and we are
confident of continued Services revenue growth fuelled by the continuing
success story that is our Professional Services business and the strength of
recent wins within Managed Services that will deliver growth over the next 12
months.
Professional Services is an essential part of our integrated business model -
to help us create significant value for our customers and to be a
volume-revenue and profit-growth driver for our business. We now have a
Professional Services business with more than 6,000 people who completed over
1,900 projects in 2022, with more than 1.4 million billed consultancy hours in
that time. We are committed to growing and enhancing our Professional Services
business even further by having a broader and scalable portfolio across all
countries, based on a common operating framework and a strong sales approach.
We continue to focus on the importance of our Services businesses within the
context of our overall business model offering to our customers. Managed
Services in particular is important to the longevity of customer relationships
with us. The ability to cross-sell and upsell Professional Services and
Technology Sourcing to our Managed Services customers increases our share of
the overall IT wallet in those customers and makes those customers stick with
Computacenter. More than three-quarters of our major European headquartered
customers contract with us for our Managed Services.
Our Services margin performance was impacted in H1 2023 through the effects of
price inflation on our delivery models which we expect to continue, albeit
stabilise, into H2 2023 as noted above.
United Kingdom
Financial performance
In the UK, the well-publicised unsettled economic conditions impacted our
business in the first half of 2023. Businesses and organisations have
experienced delays in project implementations and have been deferring critical
technology investment decisions, resulting in the market softening as the year
has progressed.
Early in the year, we implemented new leadership followed by significant
structural changes, to enhance our focus on our target market and maximise
growth opportunities. As part of this, we expanded our sales sectors from four
to five, allowing us to get closer to our customers, better understand their
needs and preferences, and ultimately drive increased sales opportunities. Our
focus on large customers has never been more evident and we continue to
identify opportunities in this area of the market. Our strategy has been
streamlined to cater to a core set of enterprise organisations in the private
and public sectors, ensuring a targeted, efficient and differentiated
approach.
With the backdrop of the increased cost of living in the UK, the action we
have taken to restructure the business has enabled us to keep tight control of
our cost base. We believe this sets us up well for growth in the second half
of the year.
Overall, gross margins in the United Kingdom decreased by 139 basis points,
with total adjusted(1) gross profit at 18.5 per cent of revenues (H1 2022:
19.9 per cent).
Results H1 2023 H1 2022 Percentage change
£m £m
Professional Services revenue 65.6 72.5 (9.5%)
Managed Services revenue 154.6 159.4 (3.0%)
Services revenue 220.2 231.9 (5.0%)
Technology Sourcing gross invoiced income 1,051.0 937.8 12.1%
Total gross invoiced income 1,271.2 1,169.7 8.7%
Professional Services revenue 65.6 72.5 (9.5%)
Managed Services revenue 154.6 159.4 (3.0%)
Services revenue 220.2 231.9 (5.0%)
Technology Sourcing revenue 465.9 421.9 10.4%
Total revenue 686.1 653.8 4.9%
Gross profit 127.2 130.3 (2.4%)
Adjusted(1) administrative expenses (101.7) (85.3) 19.2%
Adjusted(1) operating profit 25.5 45.0 (43.3%)
Technology Sourcing performance
Technology Sourcing volumes started the year strongly but softened as the
first half of the year progressed. This challenge was accentuated by two very
large transactions that were concluded earlier in the period. The variability
in demand also resulted in a particular squeeze on margins. This resulted in
our Technology Sourcing margins, based on gross profit as a percentage of
revenue, reducing by 123 basis points during H1 2023. We see evidence to
suggest that margins will continue to improve in the second half of the year
but not to the levels of 2022.
In the first half of 2023, we experienced a continued dampening in demand for
hardware, particularly in the workplace area. This can be attributed to the
significant investments customers made through the pandemic to support home
and hybrid working and the completion of a number of large Windows 10
rollouts. As anticipated in our previous statement, this has led to a lag in
customer adoption of Windows 11, a trend that is likely to continue into the
rest of 2023 and 2024. Workplace activity is critical for sustaining our
margins within our Integration Centers. This facility plays a crucial role in
configuring devices for our customers and provides a comprehensive set of
value-added services. Decreased hardware demand has affected margins
associated with these activities as our costs remain largely fixed even as
volumes decline.
As we move further into 2023 and approach 2024, we expect the adoption of
Windows 11 to gain momentum. This will likely drive increased demand for new
hardware, as customers upgrade their systems to align with the new operating
system. We are well prepared to support our customers to transition seamlessly
to Windows 11.
In the enterprise space, we are pleased to report good growth in our data
center and cloud businesses. Our efforts to assist customers in adopting
public cloud offerings have yielded positive results. We are also seeing
increasing regulatory pressure on some of our largest customers, which is
resulting in more balance between public and private cloud requirements.
The product order backlog at 30 June 2023 was £303.4 million of committed
outstanding purchase orders placed with our technology vendors against
non-cancellable sales orders received from our customers for delivery within
12 months, on a gross invoiced income basis - a 19.7 per cent increase since
30 June 2022 (£253.5 million), and an 8.3 per cent decrease since 31 December
2022 (£331.0 million). The UK has seen several large customers place
significant hardware orders leading to a recent overall increase in the
product order backlog, against the trend seen within the rest of the Group.
Services performance
In Managed Services, customers are increasingly looking to achieve cost and
efficiency benefits by outsourcing elements of their IT infrastructure. We
have concluded a large number of contract renewals already this year and have
some exciting new business campaigns coming to an imminent conclusion.
Services volumes and margins increased as the first half of the year
progressed and with an improving pipeline of opportunities, we are confident
this trajectory will continue.
While revenue in Managed Services has remained relatively stable, we have
observed an uptick in logistics-based and maintenance services, indicating
potential growth avenues in these areas. This is in addition to the continued
interest in our established global end-user services, where we are highly
confident in our delivery capabilities and growth opportunities with our
network Managed Services.
In 2021, we secured a significant Managed Services contract with a large
retail bank, encompassing a Device as a Service (DaaS) model with worldwide
support coverage and integrated Technology Sourcing. We continue to transition
some of the customer's key countries to the new model at the end of H1 2023,
with further countries set to follow in the second half of 2023. This
successful implementation showcases our expertise and strengthens our position
as a reliable partner for complex and globally-scaled projects. In addition to
this contract, we have actively engaged in a multitude of opportunities
related to DaaS. Customers are showing interest in optimising their end-user
compute into a single service offering, and with a strong international
product and large complementary services business, we are well positioned to
meet their needs.
The lower demand in Technology Sourcing has had a ripple effect in
Professional Services, where our teams roll out technology solutions sold to
our customers. However, we have witnessed significant growth in supporting
customers' adoption of public cloud and expanding and securing their networks.
Our Professional Services have become increasingly sought after in this area,
as we help our customers navigate through this complexity.
The pipeline for Professional Services remains robust for the next 12 months.
This strong pipeline instils confidence in our ability to capitalise on growth
opportunities and drive positive outcomes for our customers.
There has been a slight decline in the number of large outcome-based
commercial projects executed in the period. The reduction in Professional
Services volumes against a fixed resource base, and the cost inflation seen
across both Services businesses has seen Services margins decrease by 117
basis points when compared to the prior period.
As we move into the second half of 2023 and beyond, we remain focused on
leveraging growth opportunities and optimising our service offerings. While
challenges persist, our unwavering commitment to excellence and customer
satisfaction positions us for continued positive momentum in the market.
Germany
Financial performance
We closed the first half successfully, with very good revenue and profit
growth driven by an exceptionally strong Technology Sourcing business.
Professional Services achieved good double-digit growth and a strong pipeline.
There are some challenges, especially in Managed Services, which impacted the
results and will continue in the second half of the year.
Despite the uncertain economic and political situation, with high inflation
and significant cost increases, especially in personnel and energy costs, the
economy is proving stable and robust. We are benefiting from our strong focus
on enterprise and public sector business. We expanded our customer base and
significantly broadened our portfolio with existing customers. Our investments
in expanding the sales force and broadening the technology and skills base are
showing clear benefits and creating the basis for further sustained growth.
Supply bottlenecks and interrupted logistics chains had a very negative impact
on business in 2022 but will only have a minor effect in 2023. Our investments
in our logistics and warehouse capacities have proven beneficial.
We achieved some good successes on the customer side, which show our portfolio
breadth and our ability to help our customers with their IT challenges. For
example, we concluded the largest Cisco Whole Portfolio Agreement contract in
Europe, with a major international industrial technology group headquartered
in Germany. This contract covers the full Cisco software portfolio, which we
will implement and support for at least five years. We will continue to equip,
modernise, and operate IT infrastructure of all schools for a large southern
German state capital in the coming years. This is an important success in our
initiative to develop the German education market and to improve schools'
technical equipment, with modern and innovative infrastructure and solutions.
In the transport sector, we already configure and deliver more than 100,000
mobiles per year for the largest German transport company, and we will now
provide a large part of its personal computer client infrastructure from next
year onwards.
In addition, we significantly expanded our app development and cloud
management business. The investment in our near-shore location in Cluj,
Romania, gives us a perfect combination of skills in state-of-the-art
development technologies in Cluj and solution designers and project managers
from our German business, to support the many customers cannot, or do not want
to, outsource these tasks off-shore.
We are looking positively to the second half of the year. Even though the
challenges in Managed Services will continue, our current forecast shows
strong top-line growth for the year as a whole. We will also show good growth
in earnings, despite the significant increase in our cost base, which is
mainly due to inflation.
The ongoing investments, especially in sales but also in technological skills,
create a good basis for continued growth beyond 2023.
Margins in Germany increased by 72 basis points, with adjusted(1) gross profit
increasing from 17.7 per cent to 18.4 per cent of revenues, as explained
below.
Results H1 2023 H1 2022 Percentage change H1 2023 H1 2022 Percentage change
£m £m €m €m
Professional Services revenue 181.8 149.0 22.0% 207.4 177.0 17.2%
Managed Services revenue 199.1 179.0 11.2% 226.9 212.5 6.8%
Services Revenue 380.9 328.0 16.1% 434.3 389.5 11.5%
Technology Sourcing gross invoiced income 1,042.5 668.1 56.0% 1,188.8 793.7 49.8%
Total gross invoiced income 1,423.4 996.1 42.9% 1,623.1 1,183.2 37.2%
Professional Services revenue 181.8 149.0 22.0% 207.4 177.0 17.2%
Managed Services revenue 199.1 179.0 11.2% 226.9 212.5 6.8%
Services revenue 380.9 328.0 16.1% 434.3 389.5 11.5%
Technology Sourcing revenue 592.8 464.1 27.7% 676.5 551.5 22.7%
Total revenue 973.7 792.1 22.9% 1,110.8 941.0 18.0%
Gross profit 179.1 140.0 27.9% 204.3 166.3 22.9%
Adjusted(1) administrative expenses (105.8) (84.6) 25.1% (120.7) (100.6) 20.0%
Adjusted(1) operating profit 73.3 55.4 32.3% 83.6 65.7 27.2%
Technology Sourcing performance
The first-half result was outstanding, with growth very much above previous
periods, and ahead of the market. Growth was driven by networking and security
but data center and workplace also showed good growth.
It was important not to sacrifice margin for revenue growth and we are more
than satisfied with the result. Despite the significant increase in the share
of software in total Technology Sourcing revenue, the percentage margin was
stable, at a good level.
In addition to the increasingly strong software business, we are seeing
greater customer demand to bundle procurements in bigger framework contracts.
This particularly applies to the global requirements of large international
customers.
Another trend is to combine innovative and flexible financing solutions with
asset management, deployment and maintenance services. The DaaS solution,
developed by Computacenter based on ServiceNow and an Asset Intelligence Hub,
is exactly the right solution for this. The first international implementation
of this solution went live for a large German financial institution at the end
of the first half.
Technology Sourcing margins, based on gross profit as a percentage of revenue,
were very strong increasing by 243 basis points over the period.
The product order backlog at 30 June 2023 was €168.7 million of committed
outstanding purchase orders placed with our technology vendors against
non-cancellable sales orders received from our customers for delivery within
12 months, on a gross invoiced income basis - a 63.0 per cent decrease since
30 June 2022 (€456.4 million), and a 53.5 per cent decrease since 31
December 2022 (€362.9 million).
Services performance
While Professional Services showed good revenue and profit growth, Managed
Services faced some challenges. Although we achieved slight turnover growth in
Managed Services, the cost base increased significantly. Most of this was
inflation-related, with a significant rise in personnel expenses in
particular. In addition, there were one-off costs for onboarding new service
contracts won in 2022 and technology refreshes of existing contracts that were
up for renewal. Not all of these cost increases could be passed on to
customers or offset by cost-reducing measures.
The Professional Services business saw continuing strong demand for support,
engineering and consultancy services from public sector customers. We are
excellently positioned here, with a broad base of framework agreements and a
very good customer structure, primarily with federal and state authorities and
larger local country departments and cities. This demand will be robust in the
coming years and will remain our focus. However, we also see a continuing need
for project support and skills in our enterprise customer segment, especially
in networking and security, data center consolidation and cloud management, as
well as for expanding modern workplace infrastructures. Our application
development business, that we have grown organically, continues to be in high
demand with our customers.
The picture in Managed Services is complex, with both challenges and
opportunities. One challenge is to mitigate the increased cost base, either by
passing on the higher costs to our customers or by achieving additional
savings, for example by using more automation. An initiative we launched in
2022 is showing good success here. The second challenge is to successfully
conclude the current transformation projects and transfer the services to
ongoing operations.
The opportunities come from an increasing number of our international
customers looking for IT infrastructure service providers who can deliver
these services themselves, with a high proportion of their own input, own
toolings and interfaces like we have in our new DaaS offering. In workplace
and networking we have positioned ourselves precisely for this and see clear
opportunities to differentiate ourselves from the competition.
Overall, we are not completely satisfied with the results in Services with
margins falling 154 basis points in the period. However, the very different
pictures in the two services lines also show that we can compensate for
weaknesses in one area with strengths in the other. This is a great advantage
of Computacenter's strategic orientation, with its three service lines of
Technology Sourcing, Professional Services and Managed Services.
France
Financial performance
Building on a very strong 2022 year-end performance, our French business
continued its excellent momentum into 2023 and delivered good growth over the
same period last year. As expected, this progress was mainly driven by our
Technology Sourcing business, with higher volumes and improved contribution
due to a better mix, with more enterprise technology sales. We were also
pleased to add a new multi-year networking public framework contract to our
portfolio.
Simultaneously, we have developed our competencies in software licensing
solutions. We made good progress in 2022 leveraging these new capabilities and
this has helped us deliver some significant new wins in this area in H1 2023.
We are confident this trend will continue in the remainder of 2023, as the
majority of our technology vendors continue to move their businesses to
software and subscription services.
Towards the end of 2020, we acquired BT's domestic services operations in
France and renamed the subsidiary Computacenter NS (CCNS). CCNS has
significantly improved our capabilities around networking and security in
France and brought our capability much more in line with other Computacenter
territories. Since 1 January 2023, all CCNS operations teams have been fully
integrated within our Computacenter operating model. During the period, we
drove the merger project consultation process in conjunction with the two
Works Councils, leading to a single company in France.
Compared to the previous year, our operating profit improved in the first
half. Nevertheless, we are still working to increase this further, mainly
through higher resources utilisation across Managed Services departments. At
the end of the first half, we appointed a new Managed Services Sales Director
to increase the focus on Managed Services selling.
The French market continues to be affected by inflation, although this is now
at a lower rate. We have been working with customers to apply new rates where
appropriate and our contracts permit it. Customers are still strongly
investing in IT but decision making is taking longer and this has impacted
sales cycles. We remain very focused on our core target market and driving
business with new customers, to increase our share of the market and improve
our visibility.
Margins in France increased by 62 basis points, with adjusted(1) gross profit
increasing from 12.0 per cent to 12.6 per cent of revenues.
Results H1 2023 H1 2022 Percentage change H1 2023 H1 2022 Percentage change
£m £m €m €m
Professional Services revenue 25.5 19.1 33.5% 29.1 22.8 27.6%
Managed Services revenue 67.9 66.4 2.3% 77.4 78.9 (1.9%)
Services revenue 93.4 85.5 9.2% 106.5 101.7 4.7%
Technology Sourcing gross invoiced income 337.7 255.6 32.1% 385.6 303.0 27.3%
Total gross invoiced income 431.1 341.1 26.4% 492.1 404.7 21.6%
Professional Services revenue 25.5 19.1 33.5% 29.1 22.8 27.6%
Managed Services revenue 67.9 66.4 2.3% 77.4 78.9 (1.9%)
Services revenue 93.4 85.5 9.2% 106.5 101.7 4.7%
Technology Sourcing revenue 227.9 183.1 24.5% 260.2 217.1 19.9%
Total revenue 321.3 268.6 19.6% 366.7 318.8 15.0%
Gross profit 40.4 32.1 25.9% 46.2 37.9 21.9%
Adjusted(1) administrative expenses (37.6) (31.6) 19.0% (43.0) (37.4) 15.0%
Adjusted(1) operating profit 2.8 0.5 460.0% 3.2 0.5 540.0%
Technology Sourcing performance
Technology Sourcing performance was very strong in the first half of the year,
across both our public and private sector businesses. The public sector
remains the biggest contributor and this is mainly related to multi-year
framework agreements. We are pleased to have increased our presence in this
area and were successful in winning new software and networking contracts in
the period, which will continue to drive growth.
The first half saw increased revenue in the networking business, due to the
improved availability of products and high product order backlog in this
category. The mix of products we are now selling is less reliant on workplace
technology and more evenly balanced with enterprise technology (data center
and network), resulting in improved margins.
Our product order backlog was stable in H1 and is running at a slightly lower
level than the 2022 monthly average, due to the better availability of
products, although it is still 35 per cent higher than the 2021 average. The
backlog has been bolstered by strong software growth, mainly in the public
sector.
We continue to invest in our technical skills in France and are committed to
maintaining the highest levels of accreditations for our priority technology
vendors. This is true for our portfolio and specifically in the networking
area.
Our Integration Center in Gonesse was busy in the first half of the year, with
a slight decrease in utilisation compared to H2 last year. Our spike in the
storage of customer equipment is now more controlled, with inventory levels
being managed through weekly analysis and regular challenge, to ensure we are
meeting customer needs but not holding stock unnecessarily.
This resulted in our Technology Sourcing margins, based on gross profit as a
percentage of revenue, increasing by 140 basis points during H1 2023.
The product order backlog at 30 June 2023 was €68.8 million of committed
outstanding purchase orders placed with our technology vendors against
non-cancellable sales orders received from our customers for delivery within
12 months, on a gross invoiced income basis - a 60.3 per cent decrease since
30 June 2022 (€173.1 million), and a 48.0 per cent decrease since 31
December 2022 (€132.2 million).
Services performance
Our Services performance was broadly in line with our expectation, with growth
in Professional Services and a slight decrease in Managed Services, resulting
in stable volumes overall. Services margins decrease by 204 basis points.
Growth in Professional Services was mainly correlated with large outcome-based
projects in the public sector. Maintaining this level of growth is directly
related to having the right skills available at the right time and in the
right place, which is still a challenge due to the low availability in some
areas, despite the acquisition of CCNS. Recruitment is a key success factor
for future growth in Professional Services and a new campaign around
Computacenter as an employer is planned for launch in H2.
In Managed Services, we saw a slight decrease in volume and performance.
Managed Services contracts are predominantly in the private sector rather than
the public sector, with a high level of price competition for end user
services. Contracts won in 2022 around networking maintenance are delivering
the planned profit but we need to win more contracts that utilise our
infrastructure to improve our margins. Despite the loss of a high revenue but
low-margin contract, H1 was good for contract renewals through proactive
discussions with our customers, and in many instances, we have been able to
expand the scope of these contracts.
We have initiated a refreshed plan, with the support of wider Group resources,
to ensure contract base growth in 2024 and 2025, as we know that sales cycles
for our Managed Services can be very long. The finalisation of the Group
operating model around Managed Services, the integration of CCNS on 1 January
this year and the merger will support our growth aspirations.
North America
Financial performance
North America's financial results for the period include revenue of $102.8
million and adjusted(1) operating profit of $3.0 million from Business IT
Source (BITS), which we acquired on 1 July 2022. The comparative figures for
the first half of 2022 do not include any results for BITS.
North America had a positive first half, finishing well against both our
target and the prior period. Excluding BITS, organic revenue growth was 30.9
per cent in constant currency(2). This performance was driven by Technology
Sourcing, with revenue in Services up modestly.
During the period, we significantly simplified the way that the North America
business goes to market. We have reduced the number of customer sectors we
work in from thirteen to seven, to ensure that we are targeting markets with
appropriate sizes and that we can support them effectively. In addition, we
have consolidated the senior leadership team beyond the sales area, to give us
a more streamlined and strategic approach to managing the business.
We continue to expand the number of salespeople to support our growth. Towards
the end of the period, we received signed offers from all 13 finalists that
participated in our early careers programme. This approach is well established
in our European businesses and we are excited to introduce it to North
America. The 13 finalists distinguished themselves throughout a rigorous
process that showcased sales skills, creativity and perseverance. We received
over 5,000 applications for the roles and we are delighted to be welcoming
significant new talent to Computacenter. At the same time, we continue to add
experienced sellers in markets such as Texas, where there is abundant
opportunity.
At the beginning of the year, we identified a number of prospective customers
that we consider to be strategic for us in the long term. In the first half,
we received orders from nearly 20 of these organisations and we expect them to
become significant customers for us in the future. We also moved the bottom 10
per cent of revenue customers to highly effective Inside Sales teams, which
lowers our cost to serve without compromising customer quality.
Margins in North America decreased by 106 basis points, with adjusted(1) gross
profit decreasing from 10.1 per cent to 9.0 per cent of revenues. The
acquisition of BITS did not significantly impact the overall margin
percentage.
We maintained tight cost control, with administrative costs coming in below
budget. The growth in Technology Sourcing has resulted in higher commissions
and we have also seen a shift towards next-generation technologies in this
business, which results in greater initial selling costs. Pay awards to our
services and back-office people resulted in annualised growth in salaries of
approximately five per cent, higher than usual but justified due to
inflationary macroeconomic conditions.
We continue to focus heavily on operational improvements within the North
American business. We have broad transformational programmes ongoing and also
celebrate small '1 per cent' improvements to our operations. Consolidation of
our ERP and CRM systems continue to be top priorities and will see major
milestones in the second half of 2023 and the first half of 2024. Meanwhile,
we launched a new Professional Services solutioning tool in June that allows
our business to more accurately and efficiently scope projects. For sales
support, we established regional hubs at Computacenter facilities in Atlanta,
Dallas and Irvine, to provide same time zone support for our East, Central and
West customers. From a systems standpoint, we continued to invest in our
SmartHub Asset Intelligence portal and HyperScale Configuration Automation
Platform (HCAP), both of which offer unique value to our North American
customers.
Excluding BITS, North America's adjusted(1) operating profit was up by 26.6
per cent to $33.3 million.
Results H1 2023 H1 2022 Percentage change H1 2023 H1 2022 Percentage change
£m £m $m $m
Professional Services revenue 55.7 53.1 4.9% 68.8 68.8 -
Managed Services revenue 14.6 13.2 10.6% 18.0 17.1 5.3%
Services revenue 70.3 66.3 6.0% 86.8 85.9 1.0%
Technology Sourcing gross invoiced income 1,805.6 1,277.9 41.3% 2,223.0 1,651.3 34.6%
Total gross invoiced income 1,875.9 1,344.2 39.6% 2,309.8 1,737.2 33.0%
Professional Services revenue 55.7 53.1 4.9% 68.8 68.8 -
Managed Services revenue 14.6 13.2 10.6% 18.0 17.1 5.3%
Services revenue 70.3 66.3 6.0% 86.8 85.9 1.0%
Technology Sourcing revenue 1,398.6 938.4 49.0% 1,720.4 1,215.8 41.5%
Total revenue 1,468.9 1,004.7 46.2% 1,807.2 1,301.7 38.8%
Gross profit 132.7 101.4 30.9% 163.7 131.6 24.4%
Adjusted(1) administrative expenses (103.4) (81.1) 27.5% (127.4) (105.3) 21.0%
Adjusted(1) operating profit 29.3 20.3 44.3% 36.3 26.3 38.0%
Technology Sourcing performance
Excluding BITS, Technology Sourcing gross invoiced income grew by 28.0 per
cent on an organic basis. This was driven significantly by one hyperscale
customer, although numerous other customers also delivered good growth. We
have continued to increase the number of technology vendors we work with,
which helps us to support customers with their transformation programmes but
also increases our cost base.
Driven by hyperscale customers, the higher level of drop-shipping revenue we
saw in 2022 has continued during H1 2023, where products are delivered
directly from the vendor rather than passing through our North American
Integration Centers. This gives us fewer opportunities to add value for the
customer and results in lower utilisation of our facilities and personnel,
leading to lower cost absorption. We have a pipeline of opportunities to drive
volume through our Integration Centers and we continue to monitor the
situation closely.
BITS delivered a slow performance in the period, as a large customer deferred
spending until new technology is available in the second half of the year. We
therefore anticipate a stronger finish to 2023 for this business, as the new
technology set becomes generally available.
Our gross margin in Technology Sourcing was largely unchanged, reflecting
underlying margin improvement across most of the business, offset by the
hyperscale customer growth noted above, which commands a lower margin. We
expect our margin in the second half to improve, with our performance being
less dominated by the hyperscale customer. BITS has a similar margin profile
to the rest of the business and did not significantly affect the overall
margin in Technology Sourcing.
The product order backlog at 30 June 2023 was $1,269.7 million of committed
outstanding purchase orders placed with our technology vendors against
non-cancellable sales orders received from our customers for delivery within
12 months, on a gross invoiced income basis - a 52.5 per cent decrease since
30 June 2022 ($2,672.5 million), and a 50.4 per cent decrease since 31
December 2022 ($2,557.4 million).
This was due to conditions in the supply chain continuing to ease, reducing
the need for customers to place orders significantly ahead of time to
guarantee delivery. In recent months, we have seen the volume of orders we
receive being broadly in line with the volume of product we have supplied to
customers.
Services performance
North American Services revenue was somewhat disappointing, with only modest
growth in the period. This gives us available capacity and we have an
improving pipeline of opportunities, making us confident of growth in the
medium term. BITS does not have a services business and therefore had no
effect on our Services results in the first half.
In Professional Services, we were held back by one large account where we have
taken action to focus our sales on services with appropriate returns. Margins
were lower, although the underlying margin excluding this customer was up.
This is encouraging for us, after absorbing increased employee costs in the
period.
The Managed Services business continues to execute against our slow and steady
growth plan. During the first half of the year, we went live with a large new
customer in the United States and won two new contracts in Canada, including
one to provide helpdesk, asset and software license management services to a
healthcare client. We also secured a contract to provide a multi-year storage
and backup service for a large government entity, which will allow us to sell
to a broad range of public sector and non-profit organisations. Whilst margins
in the Managed Services business were robust in the period, overall Services
margins were down by 316 basis points.
International
The International Segment comprises a number of trading entities, near-shore
and off-shore Service Center locations and countries in which we have other
support operations.
The trading entities include Computacenter Switzerland, Computacenter Belgium
and Computacenter Netherlands. In addition to their operational delivery
capabilities, these entities have in-country sales organisations, which enable
us to engage with local customers. The newly acquired Emerge 360 Japan k.k
(Emerge) business has joined the International Segment, with Services delivery
locations in Japan, Australia, Singapore and Hong Kong.
These trading entities are joined in the Segment by the off-shore Group
Service Center entities in Spain, Malaysia, India, South Africa, Hungary,
Poland, China and Mexico, and the Professional Services Delivery Center in
Romania, which have limited external revenues as they charge the relevant
Group subsidiaries for the services provided. Further delivery locations have
been stood up in the Philippines and Brazil during the period.
Financial performance
Our performance varied in each of our International entities. Our Belgian
business delivered a strong first half of growth compared to H1 2022.
Performance improved primarily due to excellent project wins in the
infrastructure product line and Managed Services, while our continued
investments in our solutions business are delivering growth and additional
value for our customers. The quality of our offering in the Belgian market was
again reflected in the 2023 Whitelane Survey, which awarded us number one
positions in both General Satisfaction and End User Computing.
We continued to see excellent growth in our Dutch business in the first half
of 2023. We are increasingly focused on the biggest private and public sector
customers in the Netherlands, selling to them locally and increasingly using
our Group Technology Sourcing and Services capabilities to deliver
internationally. This has been working well and we are making progress with
our new business customer list, which is reflected in our results for the
first half of the year.
Our Swiss operations had a challenging start to the year, as the scope of our
main Services contracts were temporarily changed as customers reviewed their
hybrid working approach after the pandemic. In line with the strategies of the
other international entities, we have positioned our Group capabilities
towards international customers with Swiss headquarters. We celebrated an
important workplace-based International procurement and support win, and while
we are only at the beginning of the contract implementation, we are confident
it will deliver stable and ongoing contribution in the future.
Overall, margins in the International Segment were broadly flat with a slight
decrease of 13 basis points, with adjusted(1) gross profit decreasing from
19.6 per cent to 19.5 per cent of revenues.
Results H1 2023 H1 2022 Percentage change H1 2022 Percentage change
£m £m £m
constant
currency(2)
Professional Services revenue 5.1 4.7 8.5% 4.9 4.1%
Managed Services revenue 46.6 36.1 29.1% 37.7 23.6%
Services revenue 51.7 40.8 26.7% 42.6 21.4%
Technology Sourcing gross invoiced income 104.9 80.0 31.1% 83.5 25.6%
Total gross invoiced income 156.6 120.8 29.6% 126.1 24.2%
Professional Services revenue 5.1 4.7 8.5% 4.9 4.1%
Managed Services revenue 46.6 36.1 29.1% 37.7 23.6%
Services revenue 51.7 40.8 26.7% 42.6 21.4%
Technology Sourcing revenue 83.2 66.7 24.7% 69.7 19.4%
Total revenue 134.9 107.5 25.5% 112.3 20.1%
Gross profit 26.3 21.1 24.6% 21.4 22.9%
Adjusted(1) administrative expenses (19.6) (16.5) 18.8% (17.1) 14.6%
Adjusted(1) operating profit 6.7 4.6 45.7% 4.3 55.8%
Technology Sourcing performance
In Belgium, Technology Sourcing was weak in the workplace area, due to demand
being pulled forward post-Covid-19 and customers reducing spend. This was
offset by significant growth in the infrastructure product line, primarily
networking. We have a differentiated offering in this area which is resonating
well with customers. We have invested in skills and resources to help our
customers maximise their investments and to support the adoption of technology
over the lifecycle of new long-term software agreements.
Our business in the Netherlands is highly dependent on a small number of large
customer contracts. As these contracts have matured, we have seen
profitability improve over time. We have increased our focus on software and
we are already seeing new wins. These are typically at lower initial margins
and we will monitor this closely moving forwards. We are currently in a
competitive process with one of our largest public sector customers and the
successful renewal of this contract is important to maintain our growth
trajectory.
In our Swiss business, we achieved good growth by securing and extending key
contracts, winning significant public sector clients, boosting our
manufacturer relationships and up-selling opportunities. We also made strong
headway in the education sector, seeing a 40 per cent year-on-year revenue
increase.
The Technology Sourcing pipeline in all countries remains strong and despite
elongated customer decision-making cycles, we see the continued reliance on
and investment in IT as a strong tail wind for the remainder of the year.
The product order backlog at 30 June 2023 was £7.0 million of committed
outstanding purchase orders placed with our technology vendors against
non-cancellable sales orders received from our customers for delivery within
12 months, on a gross invoiced income basis - a 76.2 per cent decrease since
30 June 2022 (£29.4 million), and a 70.5 per cent decrease since 31 December
2022 (£23.7 million), both in constant currency(2).
Technology Sourcing margins have increased by 26 basis points, based on gross
profit as a percentage of revenue.
Services performance
We have a small number of very important Managed Services customers that are
managed from our International Segment and delivered using our Group Managed
Services capability. We successfully renewed our key contracts in the first
half of the year, including our longest-standing customer, which has now been
with us for over 25 years. This gives us stability to focus on continuing to
deliver a fantastic quality of service as the year progresses.
Our Swiss business has seen a significant decline in volume in its two largest
Services contracts. The business has therefore focused throughout the year on
reviewing the size and structure of our delivery teams. We now have a more
flexible and optimised delivery model to meet future needs and we are pleased
that we were able to start some projects in the public and corporate sectors.
We have also mitigated the volume decline by strengthening Computacenter Group
cooperation, targeting international clients in Switzerland, and improving our
services. In addition, we have made good progress in completing our services
and solutions portfolio, increasing our sales capacity, optimising various
processes through ServiceNow and acquiring important certifications to win new
customers, such as the ISO 27001 information security certification.
Overall, Services margins decreased by 98 basis points when compared to the
prior period.
We have a small number of prioritised Services deals that are progressing well
through the campaign cycles and we remain committed to adding a new material
Services contract by the end of the year.
In summary, we believe we have a strong opportunity for growth, particularly
by increasing our presence in the public sector, and will be focused on
executing our plans in the second half of the year.
Group Finance Director's review
During the first half of 2023, the Group generated continued strong revenue
growth in both Technology Sourcing and Services. Growth across all Segments
and services line was generally excellent, apart from the United Kingdom where
there was a softening of Services volumes.
Margins have remained robustly ahead of forecasts as we continue to minimise
the impact of inflationary cost increases.
As cash continued to grow, primarily due to the unwind of record high
inventory positions seen in 2022, we have restructured the Company's equity
accounts to create more distributable reserves in anticipation of a cash
return.
We remain extremely pleased by the scale of our growth in North America which,
after removing the impact of the BITS acquisition, still saw 28.0 per cent
growth in Technology Sourcing gross invoiced income during the period on a
constant currency basis(2). Overall Technology Sourcing gross invoiced income
is now nearly 380 per cent higher in H1 2023 than H1 2019 in North America. We
anticipate all of our key North American subsidiaries will be on our core ERP
platform by the end of 2024, leading to greater process efficiency and
operational leverage.
The French business continued to strengthen, particularly in Technology
Sourcing, led by a product mix that continued to include higher proportions of
data center and networking products, as opposed to workplace product, as the
business continues to evolve to be as differentiated as our other key
geographies.
Reconciliation to adjusted(1) measures for the period ended 30 June 2023
Reported Adjustments Adjusted(1)
Interim Interim results
results £m
£m
Principal element on agency contracts Amortisation Exceptionals
of acquired intangibles
£m
£m and others
£m
Revenue 3,584.9 1,573.3 - - 5,158.2
Cost of sales (3,079.2) (1,573.3) - - (4,652.5)
Gross profit 505.7 - - - 505.7
Administrative expenses (392.1) - 5.5 - (386.6)
Impairment loss on trade receivables and contract assets (0.6) - - - (0.6)
Other income related to acquisition of subsidiary 5.3 - - (5.3) -
Gain related to acquisition of subsidiary 3.2 - - (3.2) -
Operating profit 121.5 - 5.5 (8.5) 118.5
Finance income 6.6 - - - 6.6
Finance costs (5.3) - - 2.0 (3.3)
Profit before tax 122.8 - 5.5 (6.5) 121.8
Income tax expense (33.4) - (2.4) - (35.8)
Profit for the period 89.4 - 3.1 (6.5) 86.0
Reconciliation to adjusted(1) measures for the period ended 30 June 2022
Reported Adjustments Adjusted(1)
Interim Interim results
results £m
£m
Principal element on agency contracts Amortisation Exceptionals
of acquired intangibles
£m
£m and others
£m
Revenue 2,826.7 1,145.2 - - 3,971.9
Cost of sales (2,401.8) (1,145.2) - - (3,547.0)
Gross profit 424.9 - - - 424.9
Administrative expenses (315.3) - 4.1 - (311.2)
Impairment loss on trade receivables and contract assets 0.5 - - - 0.5
Operating profit 110.1 - 4.1 - 114.2
Finance income 1.0 - - - 1.0
Finance costs (3.3) - - - (3.3)
Profit before tax 107.8 - 4.1 - 111.9
Income tax expense (30.0) - (1.2) - (31.2)
Profit for the period 77.8 - 2.9 - 80.7
Profit before tax
The Group's profit before tax for the period increased by 13.9 per cent to
£122.8 million (H1 2022: £107.8 million). Adjusted(1) profit before tax
increased by 8.8 per cent to £121.8 million (H1 2022: £111.9 million) and by
6.4 per cent in constant currency(2).
The difference between profit before tax and adjusted(1) profit before tax
relates to the Group's net income of £1.0 million (H1 2022: net costs of
£4.1 million) from exceptional and other adjusting items, which relates
wholly to events associated with the acquisitions of Pivot and BITS and the
amortisation of acquired intangibles as a result of these and other North
American acquisitions.
Net finance income/charge
Net finance income in the year amounted to £1.3 million (H1 2022: £2.3
million charge). The main items included within the net charge for the period
were £2.3 million of interest charged on lease liabilities recognised under
IFRS 16 (H1 2022: £2.5 million) and exceptional interest costs of £2.0
million relating to the unwinding of the discount on the contingent
consideration for the purchase of BITS, which was excluded on an adjusted(1)
basis (H1 2022: nil). Outside of the specific items above, net finance income
of £5.6 million was recorded (H1 2022: £0.2 million).
On an adjusted(1) basis, the net finance income was £3.3 million during the
period (H1 2022: £2.3 million charge).
Taxation
The tax charge was £33.4 million (H1 2022: £30.0 million) on profit before
tax of £122.8 million (H1 2022: £107.8 million). This represented a tax rate
of 27.2 per cent (H1 2022: 27.8 per cent).
The tax credit related to the amortisation of acquired intangibles during the
period was £2.4 million (H1 2022: £1.2 million). The £5.5 million of
amortisation of intangible assets was almost entirely a result of the recent
North American acquisitions (H1 2022: £4.1 million). As the amortisation is
recognised outside of our adjusted(1) profitability, the tax benefit on the
amortisation is also reported outside of our adjusted(1) tax charge.
The adjusted(1) tax charge for the period was £35.8 million (H1 2022: £31.2
million), on an adjusted(1) profit before tax for the period of £121.8
million (H1 2022: £111.9 million). The effective tax rate (ETR) for the
period was therefore 29.4 per cent (H1 2022: 27.9 per cent) on an adjusted(1)
basis.
The prior period result included the recognition of a €2.4 million deferred
tax asset representing the probable benefit of future utilisation of losses
within the French business due to a forecast improvement in the short- to
medium-term profitability in this geography. Combined with an additional
recognition of a deferred tax asset for the future utilisation of carry
forward losses in the Netherlands, this resulted in an overall one-time credit
to the tax expense of £3.1 million in H1 2022. These one-off tax items
substantially reduced the tax charge, and therefore the adjusted(1) ETR, for
the prior period and prior year as a whole.
Excluding the recognition of the £3.1 million tax credit, the prior-period
adjusted(1) ETR would have been 30.7 per cent as compared on a like-for-like
basis to the current period adjusted(1) ETR of 29.4 per cent.
Overall, the adjusted(1) ETR on this like-for-like basis, excluding the
one-off impacts, is continuing to trend upwards due to an increasing
reweighting of the geographic split of adjusted(1) profit before tax away from
the United Kingdom to Germany and the United States, where tax rates are
higher. Further, a substantively enacted tax increase has taken effect in the
United Kingdom from 1 April 2023, with a rise from 19 per cent to 25 per cent.
The adjusted(1) ETR is therefore slightly above the full-year range that we
indicated in the presentation that accompanied our 2022 full-year results,
which showed an expected ETR for 2023 of 27 to 29 per cent.
We expect that the full year ETR in 2023 will be subject to increasing upwards
pressure, due to the changing mix in where profits are earned geographically
to where tax rates are higher, as noted above, and also as governments across
our primary jurisdictions come under fiscal and political pressure to increase
corporation tax rates.
The table below reconciles the tax charge to the adjusted(1) tax charge for
the periods ended 30 June 2023 and 30 June 2022 and the year ended 31 December
2022.
H1 2023 H1 2022 Year 2022
£m £m £m
Tax charge 33.4 30.0 64.8
Adjustments to exclude:
Tax on amortisation of acquired intangibles 2.4 1.2 2.3
Tax on exceptional items - - 0.2
Adjusted1 tax charge 35.8 31.2 67.3
Effective tax rate 27.2% 27.8% 26.0%
Adjusted1 effective tax rate 29.4% 27.9% 25.5%
Profit for the period
The profit for the period increased by 14.9 per cent to £89.4 million (H1
2022: £77.8 million). The adjusted(1) profit for the period increased by 6.6
per cent to £86.0 million (H1 2022: £80.7 million) and by 3.2 per cent in
constant currency(2).
Exceptional and other adjusting items
The net gain from exceptional and other adjusting items in the period was
£3.4 million (H1 2022: loss of £2.9 million). Excluding the tax items noted
above, which resulted in a gain of £2.4 million (H1 2022: gain of £1.2
million), the profit before tax impact was a net gain from exceptional and
other adjusting items of £1.0 million (H1 2022: loss of £4.1 million).
A $9.3 million (£7.4 million) settlement was received on 8 May 2023 from the
Washington State Department of Revenue. The settlement related to litigation
contesting a historic, pre-acquisition, sales tax assessment that was paid by
antecedent companies relating to the acquired Pivot group of companies. Of
this amount, $6.7 million (£5.3 million) has been recognised as other income
relating to acquisition of a subsidiary for the refunded sales tax amount.
Further amounts of $1.6 million (£1.3 million) and $1.0 million (£0.8
million) have been credited to adjusted(1) interest income, for the refund of
statutory overpayment interest receivable on the original payment, and
adjusted(1) administrative expenses, to reimburse legal expenses incurred
since acquisition, respectively. The element related to the refunded sales tax
amount is non-operational in nature, material in size and unlikely to recur
and has therefore been classified as exceptional.
At acquisition, contingent consideration was agreed which required the Group
to pay former owners of Business IT Source Holdings, Inc. (BITS), two earn-out
payments based on BITS's 2022 EBITDA & 2023 EBITDA and indebtedness.
During the period and in accordance with the share purchase agreement, the
Group made its first earn-out payment amounting to £17.4 million ($21.2
million) which was broadly in line with the estimate made as at 31 December
2022.
On 30 June 2023, a renegotiated agreement was signed with the former owners
following which, the second earn-out is now based on BITS's 2023 EBIDTA, H1
2024 EBIDTA, and indebtedness over these periods. Having considered a range of
possible earn out scenarios, Management has determined that a gross liability
of $26.0 million under the revised agreement should be recorded as contingent
consideration of $24.2 million on a discounted basis. The impact of changes to
the payment structures under the renegotiated agreement has resulted in a
release during the period of £3.2 million which has been recognised as an
exceptional item.
A further £2.0 million relating to the unwinding of the discount on the
contingent consideration for the purchase of BITS has been removed from the
adjusted(1) net finance expense and classified as exceptional interest costs.
There were no exceptional items in H1 2022.
We have continued to exclude, as an 'other adjusting item', the amortisation
of acquired intangible assets in calculating our adjusted(1) results.
Amortisation of intangible assets is non-cash, does not relate to the
operational performance of the business, and is significantly affected by the
timing and size of our acquisitions, which distorts the understanding of our
Group and Segmental operating results.
The amortisation of acquired intangible assets was £5.5 million during the
period (H1 2022: £4.1 million), primarily relating to the amortisation of the
intangibles acquired as part of the North American acquisitions.
Earnings per share
Diluted EPS increased by 13.7 per cent to 76.5 pence per share (H1 2022: 67.3
pence per share). Adjusted(1) diluted EPS increased by 5.3 per cent to 73.5
pence per share (H1 2022: 69.8 pence per share).
H1 2023 H1 2022 Year 2022
Basic weighted average number of shares (excluding own shares held) (m) 113.4 112.9 112.8
Effect of dilution:
Share options 1.3 1.8 2.1
Diluted weighted average number of shares 114.7 114.7 114.9
Profit attributable to equity holders of the Parent (£m) 87.7 77.2 182.8
Basic earnings per share (pence) 77.3 68.4 162.1
Diluted earnings per share (pence) 76.5 67.3 159.1
Adjusted1 profit attributable to equity holders of the Parent (£m) 84.3 80.1 195.0
Adjusted1 basic earnings per share (pence) 74.3 70.9 172.9
Adjusted1 diluted earnings per share (pence) 73.5 69.8 169.7
Dividend
The Board recognises the importance of dividends to shareholders and the Group
prides itself on a long track record of paying dividends and other special
one-off cash returns.
Computacenter's approach to capital management is to ensure that the Group has
a robust capital base and maintains a strong credit rating, whilst aiming to
maximise shareholder value. The Group remains highly cash generative and
adjusted net funds(3) continues to increase on the Consolidated Balance Sheet,
which allowed acquisitions such as FusionStorm in 2018, Pivot in 2020 and BITS
in 2022, alongside a number of other small acquisitions.
If further funds are not required for investment within the business, either
for fixed assets, working capital support or acquisitions, and the
distributable reserves are available in the Parent Company, we will aim to
return the additional cash to shareholders through one-off returns of value,
as we did in February 2018. As a business that has returned £919 million
through a combination of dividends and share buybacks since flotation, with no
additional investment required from shareholders over that time, we are
committed to managing the cash position for shareholders and would look to
return up to 10 per cent of the market capitalisation of the Company as soon
as cash reserves have replenished to enable us to do so and, assuming no
further acquisitions, we would aim to do this by the end of 2024 at the
latest.
Dividends are paid from the standalone balance sheet of the Parent Company
and, as at 30 June 2023, the distributable reserves were £378.2 million (30
June 2022: £143.7 million, 31 December 2022: £246.3 million).
The Board has consistently applied the Company's dividend policy, which states
that the interim dividend will be approximately one third of the previous
year's total dividend and that the total dividend paid will result in a
dividend cover of 2 to 2.5 times based on adjusted(1) diluted EPS. In 2022,
the cover was 2.5 times (2021: 2.5 times).
The Board is therefore pleased to announce an interim dividend of 22.6 pence
per share (H1 2022: 22.1 pence per share).
The interim dividend will be paid on Friday 27 October 2023. The dividend
record date is set as Friday 29 September 2023 and the shares will be marked
ex-dividend on Thursday 28 September 2023.
Central corporate costs
Certain expenses are not specifically allocated to individual Segments because
they are not directly attributable to any single Segment. These include the
costs of the Board itself, related public company costs, Group Executive
members not aligned to a specific geographic trading entity and the cost of
centrally funded strategic initiatives that benefit the whole Group.
Accordingly, these expenses are disclosed as a separate column, central
corporate costs, within the Segmental note. These costs are borne within the
Computacenter (UK) Limited legal entity and have been removed for Segmental
reporting and performance analysis but form part of the overall Group
adjusted(1) administrative expenses.
Total central corporate costs were significantly increased on last year with a
64.7 per cent increase to £19.1 million (H1 2022: £11.6 million). Within
this:
· Board expenses, related public company costs and costs associated
with Group Executive members not aligned to a specific geographic trading
entity, increased to £5.9 million (H1 2022: £4.2 million).
· share-based payment charges associated with Group Executive members
as identified above, including the Group Executive Directors, decreased from
£1.9 million in H1 2022 to £1.3 million in H1 2023, due primarily to the
decreased value of Computacenter plc ordinary shares and the overall outlook
for the vesting of in-flight PSP awards; and
· strategic corporate initiatives are designed to increase capability
and therefore competitive position, enhance productivity or strengthen systems
which underpin the Group. During the period this spend was £11.9 million, up
116.4 per cent over H1 2022 (£5.5 million), in line with forecasts, as the
Group increases the pace of its investment in modern systems, toolsets and
cyber defences.
Cash flow
The Group delivered an operating cash inflow of £116.5 million for the six
months to 30 June 2023 (H1 2022: £8.1 million).
During the period, net operating cash outflows from working capital, including
inventories, trade and other receivables and trade and other payables, were
£3.4 million (H1 2022: £120.5 million).
Throughout 2022, a number of hyperscale customers continued to place advance
orders of product with delayed delivery, due to the significant product
shortages seen during the 18 months to 31 December 2022, to ensure continuity
of supply. These significant product shortages have now largely eased to
standard operating conditions. Additionally, inventory increased as we
deliberately invested in working capital by pre-ordering inventory, once a
committed purchase order had been received from the customer, thereby using
the strength of our balance sheet to support our customers during product
shortages. The sales teams continue to work with customers to realign
inventory support expectations, now that the supply situation has materially
improved across the industry. As a result, customers have returned to normal
purchasing patterns and are no longer placing large advance orders of product
with the significant delayed delivery seen through 2022.
This has naturally led to both reduced levels of inventory and product order
backlogs. Inventory has, pleasingly, seen substantial reductions in both
Germany and North America, the two Segments where we experienced the greatest
inventory accumulation through 2022.
Further, a number of rack build orders took longer than expected to complete
during 2022, sometimes due to shortages of smaller components required to
complete the rack build, which increased inventory. Again, this situation has
largely eased and rack builds are progressing as normal.
An additional Integration Center facility was added near to the existing
facility in Kerpen, which was running at record levels of capacity and
utilisation, and had provided additional inventory storage space and
processing capacity which has, in turn, increased the throughput overall
allowing orders that were backed up in the Integration Center, waiting for
additional components and confirmed customer delivery dates before shipping to
customers, to be cleared down.
The implementation of additional inventory holding approval controls in the
final quarter of 2022, the continued focus from the Group Technology Sourcing
and Finance teams, and the re-implementation of internal inventory holding
charges across the sales teams from April 2023 have also all contributed to
this improvement.
The Group had £315.4 million of inventory as at 30 June 2023, a decrease of
21.0 per cent on the balance as at 30 June 2022 of £399.3 million and a
decrease of 24.5 per cent in the six months since 31 December 2022 (£417.7
million). The closing balance was materially lower than the high point of
£532.6 million seen as at 30 September 2022 with a reduction of £217.2
million since that time.
We expect that levels of inventory will continue to reduce, albeit more
slowly, towards historical operational norms during second half of 2023.
Whilst inventory has materially improved, working capital cash flows during
the period are still impacted by the excellent growth in revenue seen as the
business continues to expand.
Capital expenditure in the year was £17.1 million (H1 2022: £15.5 million)
representing, primarily, investments in IT equipment and software tools, to
enable us to deliver improved service to our customers.
The Group's Employee Benefit Trust (EBT) made market purchases of the
Company's ordinary shares of £26.1 million (H1 2022: £34.4 million) to
satisfy maturing PSP awards and Sharesave schemes and to reprovision the EBT
in advance of future maturities. During the period the Company received
savings from employees of £3.2 million to purchase options within the
Sharesave schemes (H1 2022: £1.6 million).
During the period the Group made two additional payments related to previous
acquisitions. The first was for BITS where, in accordance with the share
purchase agreement, the Group made its first earn-out payment amounting to
$21.2 million (£17.4 million) which was broadly in line with the estimate
made as at 31 December 2022. The second was on 7 June 2023, where the
remaining 5.0 per cent of the voting shares in R.D. Trading Limited (RDC) were
acquired for a cash consideration of £1.9 million. This completes the
acquisition of RDC which is a central component of our Circular Services
offering to customers where we repurpose or recycle end-of-life IT equipment
and a key element of our Sustainability strategy.
The Group reduced loans and credit facilities during the period by a net
amount of £2.7 million (H1 2022: £1.3 million). We made regular repayments
towards the loan related to the construction of the German headquarters in
Kerpen and the customer financing facility in Pivot, offset by the drawdown of
a new facility in India as detailed below.
The Group continued to manage its cash and working capital positions
appropriately, using standard mechanisms, to ensure that cash levels remained
within expectations throughout the year. From time to time, some customers
request credit terms longer than our standard of 30-60 days. In certain
instances, we will arrange for the sale of the receivables on a true sale
basis to a finance institution on the customers' behalf. We would typically
receive funds on 45-day terms from the finance institution, which will then
recover payment from the customer on terms agreed with them. The cost of such
an arrangement is borne by the customer, either directly or indirectly,
enabling us to receive the full amount of payment in line with our standard
terms. The benefit to the cash and cash equivalents position of such
arrangements as at 30 June 2023 was £48.4 million (30 June 2022: £46.3
million, 31 December 2022: £45.1 million).
The Group had no other debt factoring at the end of the period, outside this
normal course of business.
As at 30 June 2022, the comparative balance sheet date, there were two further
activities impacting the cash position. Towards the end of June 2022, the
Group elected to factor an additional €26 million of trade receivables
within the German business. There was no other debt factoring activity in June
2022 outside the normal course of business described above. Also in June 2022,
the Group used a pre-arranged vendor finance facility to delay payment of
circa £15 million of trade payables. This balance was paid after the period
end. There were no other interest-bearing trade payables as at 30 June 2022.
Cash and cash equivalents and net funds
Cash and cash equivalents as at 30 June 2023 were £301.6 million compared to
£193.5 million as at 30 June 2022. Cash and cash equivalents have increased
by £37.2 million from £264.4 million as at 31 December 2022 (H1 2022:
decrease of £79.7 million from £273.2 million as at 31 December 2021).
Net funds as at 30 June 2023 were £164.8 million, compared to net funds of
£12.1 million as at 30 June 2022 and net funds of £117.2 million as at 31
December 2022.
The Group excluded £120.3 million, as at 30 June 2023 (30 June 2022: £147.2
million and 31 December 2022: £127.1 million), of lease liabilities from its
non-GAAP adjusted net funds(3) measure, due to the distorting effect of the
capitalised lease liabilities on the Group's overall liquidity position under
the IFRS 16 accounting standard.
Adjusted net funds(3) as at 30 June 2023 were £285.1 million, compared to
adjusted net funds(3) of £159.3 million as at 30 June 2022 and £244.3
million as at 31 December 2022.
Net funds as at 30 June 2023, 30 June 2022 and 31 December 2022 were as
follows:
30 June 30 June 31 December 2022
2023 2022 £m
£m £m
Cash and short-term deposits 301.6 199.0 264.4
Bank overdraft - (5.5) -
Cash and cash equivalents 301.6 193.5 264.4
Bank loans - Pivot customer specific facility (6.0) (9.0) (9.7)
Bank loans - Kerpen building facility (8.6) (12.7) (10.4)
Bank loans - Computacenter India facility (1.9) - -
Bank loans - Pivot facility - (11.9) -
Other bank loans - (0.6) -
Total bank loans (16.5) (34.2) (20.1)
Adjusted net funds3 (excluding lease liabilities) 285.1 159.3 244.3
Lease liabilities (120.3) (147.2) (127.1)
Net funds 164.8 12.1 117.2
The Group had five specific credit facilities in place during the current
period and no other material borrowings.
On 9 December 2022, the Group entered into a multicurrency revolving loan
committed facility of £200 million. This replaced the previous committed
facility of £60 million which was terminated and all security was released.
This new facility has a term of five years plus two one-year extension options
exercisable on the first and second anniversary of the facility. The Group is
subject to certain key financial covenants under this syndicated facility with
Barclays, Lloyds, HSBC, BNP Paribas, JPMorgan Chase and PNC Bank. These
covenants, as defined in the agreement, are monitored regularly to ensure
compliance. As at 30 June 2023, the Group was in compliance with all
covenants. To improve short-term liquidity, £60 million was drawn down on
Friday 6 April 2023 and was repaid in full on Tuesday 9 May 2023. April is
typically the lowest point of the cash cycle for the Group and cash can be
impacted, from time-to-time, by individual large deals with hyperscale
customers depending on the payment terms specific to that deal or customer.
This facility is undrawn as at 30 June 2023.
The Group also has a specific term loan for the build and purchase of our
German office headquarters and fit out of the Integration Center in Kerpen,
which stood at £8.6 million at (30 June 2022: £12.7 million, 31 December
2022: £10.4 million).
Pivot had £6.0 million (30 June 2022: £9.0 million, 31 December 2022: £9.7
million) financed with a major technology partner for hardware, software and
resold technology partner maintenance contracts that the Company had purchased
as part of a contract to lease these items to a key North American customer.
At the start of 2022, Pivot had a substantially unutilised $100 million senior
secured asset-based revolving credit facility, from a lending group
represented by JPMorgan Chase Bank, N.A. As at 30 June 2022, £11.9 million
was drawn on this facility. This was repaid in full during the second half of
2022 and all security was released on termination of the arrangement.
Computacenter India Private Limited has a local facility with HSBC India for
£1.9 million as at 30 June 2023 (30 June 2022: nil) for local cash liquidity
to facilitate the continued growth of our operations in the country.
The BITS subsidiary maintains a ringfenced 'accounts receivable and inventory
flooring arrangement' facility with Wells Fargo of up to $100 million, secured
on the assets of that subsidiary. The facility is provided on a rolling basis
and the latest amendment was signed on 20 July 2023. There was no
interest-bearing debt drawn under this facility as at 30 June 2023.
There were no other interest-bearing trade payables as at 30 June 2023 (30
June 2022: nil, 31 December 2022: nil).
The Group's adjusted net funds(3) position contains no current asset
investments (30 June 2022: nil, 31 December 2022 nil).
Capitalisation issue and capital reductions
The Company's cash generation over recent years has enabled it to have a
strong dividend policy and to periodically return additional value to its
shareholders, most recently by way of a tender offer in the first quarter of
2018. While the Company has sufficient profits available for distribution
(also known as 'distributable reserves') to fund its projected distributions
in the immediate future, the Board recently undertook an assessment of the
balance sheet to identify any reserves that were not distributable, and which
could be converted into distributable reserves to provide flexibility for
future returns of value to the Company's shareholders.
Following that assessment, the Board identified certain reserves and commenced
a programme of reductions of capital during the first half of 2023 (each a
'capital reduction' and together the 'capital reductions'). In order to
achieve this, it was necessary first to convert certain of these reserves into
share capital by issuing New Deferred Shares (the 'Capitalisation Issue'), and
then cancelling those shares as part of the first capital reduction. The
second capital reduction involved the cancellation of the Company's capital
redemption reserve. The capitalisation issue, the changes to the Company's
articles of association required in order to effect it, and the subsequent
capital reductions were each approved at the Company's Annual General Meeting
held on 17 May 2023. The capital reductions were then confirmed by the court
in order to become effective.
The capitalisation issue and capital reductions did not result in any change
to the nominal value of the Company's ordinary shares, had no impact on the
Company's cash position or on its net assets, did not involve any repayment or
distribution of capital by the Company, and did not result in any changes to
the Company's existing dividend policy.
The capitalisation issue and capital reductions should not result in any UK
tax charge for the shareholders.
As a result of the capitalisation issue and capital reductions, the
distributable reserves of the Company have been increased by £183.9 million
as at 30 June 2023. The Board will continue to review its cash position and
will provide an update on any proposed future return of value when
appropriate.
Currency
The Group reports its results in pounds sterling. The weakness in the value of
sterling against most currencies during the first half of 2022, in particular
the US Dollar, has begun to impact our revenues and profitability, as a result
of the conversion of our foreign earnings. However, the exchange rates seen
during the period, in aggregate effect, were not materially dissimilar to
those seen in the first half of 2021.
Restating the first half of 2022 at 2023 exchange rates would increase H1 2022
revenue by approximately £99.3 million, whilst H1 2022 adjusted(1) profit
before tax would be higher by £2.6 million.
If the 30 June 2023 spot rates were to continue through the remainder of 2023,
the impact of restating 2022 at 2023 exchange rates would be to decrease 2022
revenue by approximately £37.2 million and 2022 adjusted(1) profit before tax
by approximately £0.3 million.
Principal risks and uncertainties
The Group's activities expose it to a variety of economic, financial,
operational and regulatory risks. Our principal risks continue to be
concentrated in the availability and resilience of systems, our people, our
cost base, technology change, and in the design, entry into service and
running of large Services contracts. The principal risks and uncertainties
facing the Group are set out on pages 74 to 81 of the 2022 Annual Report and
Accounts, a copy of which is available on the Group's website at
investors.computacenter.com.
The Group's risk management approach and the principal risks, potential
impacts and primary mitigating activities are unchanged from those set out in
the 2022 Annual Report and Accounts. Our risk management approach operated
effectively in the six months to 30 June 2023, with systems and controls
functioning as designed. Whilst we have not identified any new principal risks
during the period, we acknowledge the heightened level of overall risk across
several risk categories, due to the current macroeconomic uncertainty and its
impact on our operating environment in general.
This Strategic Report was approved by the Board on 7 September 2023 and signed
on its behalf by:
MJ Norris MC Jehle
Chief Executive Officer Chief Financial Officer
Directors' Responsibilities
Responsibility statement of the directors in respect of the half-yearly
financial report.
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for use in the
UK;
· the interim management report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being
an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
MJ Norris MC Jehle
Chief Executive Officer Chief Financial Officer
Consolidated Income Statement
For the six months ended 30 June 2023
Note H1 2023 H1 2022 Year 2022
£m £m £m
Revenue 5 3,584.9 2,826.7 6,470.5
Cost of sales (3,079.2) (2,401.8) (5,523.4)
Gross profit 5 505.7 424.9 947.1
Administrative expenses (392.1) (315.3) (691.8)
Impairment (loss)/reversal on trade receivables and contract assets (0.6) 0.5 1.1
Other income related to acquisition of a subsidiary 8 5.3 - -
Gain related to acquisition of a subsidiary 8 3.2 - -
Operating profit 121.5 110.1 256.4
Finance income 6.6 1.0 2.4
Finance costs (5.3) (3.3) (9.8)
Profit before tax 122.8 107.8 249.0
Income tax expense (33.4) (30.0) (64.8)
Profit for the period/year 89.4 77.8 184.2
Attributable to:
Equity holders of the Parent 87.7 77.2 182.8
Non-controlling interests 1.7 0.6 1.4
Profit for the period/year 89.4 77.8 184.2
Earnings per share:
- basic for profit for the period/year 10 77.3p 68.4p 162.1p
- diluted for profit for the period/year 10 76.5p 67.3p 159.1p
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2023
H1 2023 H1 2022 Year 2022
£m £m £m
Profit for the period/year 89.4 77.8 184.2
Items that may be reclassified to the Consolidated Income Statement:
Gain/(loss) arising on cash flow hedge 2.5 5.6 (2.5)
Income tax effect (0.9) (1.4) 1.0
1.6 4.2 (1.5)
Exchange differences on translation of foreign operations (26.3) 36.8 47.5
(24.7) 41.0 46.0
Items not to be reclassified to the Consolidated Income Statement:
Remeasurement of defined benefit plan - 5.6 1.7
Other comprehensive income/(expense) for the period/year, net of tax (24.7) 46.6 47.7
Total comprehensive income for the period/year 64.7 124.4 231.9
Attributable to:
Equity holders of the Parent 63.3 123.3 229.9
Non-controlling interests 1.4 1.1 2.0
Total comprehensive income for the period/year 64.7 124.4 231.9
Consolidated Balance Sheet
As at 30 June 2023
Note H1 2023 H1 2022 Year 2022
£m (restated*) (restated*)
£m £m
Non-current assets
Property, plant and equipment 93.0 88.3 94.1
Right-of-use assets 112.9 138.5 119.4
Intangible assets 328.6 296.5 342.1
Investment in associate 0.1 0.1 0.1
Deferred income tax assets 11.4 22.2 11.3
Trade and other receivables* 16.0 - 9.9
Prepayments 16.5 16.5 19.4
578.5 562.1 596.3
Current assets
Inventories 315.4 399.3 417.7
Trade and other receivables* 1,261.4 1,350.2 1,683.8
Income tax receivable 12.2 8.5 14.6
Prepayments 154.9 136.2 130.5
Accrued income* 178.7 162.0 129.2
Derivative financial instruments 12 3.7 15.1 7.5
Cash and short-term deposits* 13 301.6 199.0 264.4
2,243.9 2,270.3 2,657.7
Total assets 2,806.4 2,832.4 3,244.0
Current liabilities
Bank overdraft* 13 - 5.5 -
Trade and other payables 1,421.1 1,411.3 1,857.5
Deferred income 249.8 308.4 265.3
Financial liabilities 13 6.7 19.0 7.5
Lease liabilities 13 36.7 43.6 36.9
Derivative financial instruments 12 4.2 3.5 8.7
Income tax payable* 22.7 24.3 30.9
Provisions 4.3 4.3 3.8
1,745.5 1,819.9 2,210.6
Non-current liabilities
Financial liabilities 13 9.8 15.2 12.6
Lease liabilities 13 83.6 103.6 90.2
Deferred income 5.5 8.6 7.9
Retirement benefit obligation 22.4 17.4 23.0
Provisions 5.2 6.5 7.0
Deferred income tax liabilities 15.1 20.9 20.7
141.6 172.2 161.4
Total liabilities 1,887.1 1,992.1 2,372.1
Net assets 919.3 840.3 872.0
Capital and reserves
Issued share capital 14 9.3 9.3 9.3
Share premium 4.0 4.0 4.0
Capital redemption reserve 14 - 75.0 75.0
Own shares held (131.4) (141.3) (127.7)
Translation and hedging reserve 26.3 45.9 50.7
Retained earnings 1,003.4 842.0 854.4
Shareholders' equity 911.6 834.9 865.7
Non-controlling interests 7.7 5.4 6.3
Total equity 919.3 840.3 872.0
* Refer note 2 for restatement of prior period comparatives.
Approved by the Board on 7 September 2023.
MJ Norris MC Jehle
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2023
Attributable to equity holders of the Parent Share-holders' equity Non- controlling interests Total
£m £m equity
£m
Issued share capital Share Capital Own Translation and hedging Retained earnings
£m premium redemption shares reserves £m
£m reserve held £m
£m £m
At 1 January 2022 9.3 4.0 75.0 (115.5) 5.4 762.3 740.5 4.3 744.8
Profit for the period - - - - - 77.2 77.2 0.6 77.8
Other comprehensive income/(expense) - - - - 40.5 5.6 46.1 0.5 46.6
Total comprehensive income/(expense) - - - - 40.5 82.8 123.3 1.1 124.4
Cost of share-based payments - - - - - 5.2 5.2 - 5.2
Tax on share-based payments - - - - - (1.3) (1.3) - (1.3)
Exercise of options - - - 8.6 - (7.0) 1.6 - 1.6
Purchase of own shares - - - (34.4) - - (34.4) - (34.4)
At 30 June 2022 9.3 4.0 75.0 (141.3) 45.9 842.0 834.9 5.4 840.3
Profit for the period - - - - - 105.6 105.6 0.8 106.4
Other comprehensive income/(expense) - - - - 4.8 (3.8) 1.0 0.1 1.1
Total comprehensive income/(expense) - - - - 4.8 101.8 106.6 0.9 107.5
Cost of share-based payments - - - - - 3.4 3.4 - 3.4
Tax on share-based payments - - - - - (3.3) (3.3) - (3.3)
Exercise of options - - - 13.6 - (9.0) 4.6 - 4.6
Equity dividends - - - - - (80.5) (80.5) - (80.5)
At 31 December 2022 9.3 4.0 75.0 (127.7) 50.7 854.4 865.7 6.3 872.0
Profit for the period - - - - - 87.7 87.7 1.7 89.4
Other comprehensive income/(expense) - - - - (24.4) - (24.4) (0.3) (24.7)
Total comprehensive income/(expense) - - - - (24.4) 87.7 63.3 1.4 64.7
Cost of share-based payments - - - - - 4.0 4.0 - 4.0
Tax on share-based payments - - - - - 1.5 1.5 - 1.5
Exercise of options - - - 22.4 - (19.2) 3.2 - 3.2
Purchase of own shares - - - (26.1) - - (26.1) - (26.1)
Capital reduction - - (75.0) - - 75.0 - - -
At 30 June 2023 9.3 4.0 - (131.4) 26.3 1,003.4 911.6 7.7 919.3
Consolidated Cash Flow Statement
For the six months ended 30 June 2023
Note H1 2023 H1 2022 Year 2022
£m £m £m
Operating activities
Profit before taxation 122.8 107.8 249.0
Net finance (income)/cost (1.3) 2.3 7.4
Depreciation of property, plant and equipment 10.0 10.3 21.5
Depreciation of right-of-use assets 20.9 26.2 50.5
Amortisation of intangible assets 9.4 8.0 18.9
Share-based payments 4.0 5.2 8.6
Loss on disposal of property, plant and equipment - 0.4 0.5
Net cash flow from inventories 90.6 (33.0) (7.0)
Net cash flow from trade and other receivables (including contract assets) 293.6 (67.6) (317.2)
Net cash flow from trade and other payables (including contract liabilities) (387.6) (19.9) 263.4
Net cash flow from provisions and employee benefits (1.2) (1.9) (0.7)
Other adjustments 0.2 0.1 (0.1)
Cash generated from operations 161.4 37.9 294.8
Income taxes paid (44.9) (29.8) (52.7)
Net cash flow from operating activities 116.5 8.1 242.1
Investing activities
Interest received 6.7 1.0 2.4
Acquisition of subsidiaries, net of cash acquired (1.9) (2.3) (28.3)
Contingent consideration 12 (17.4) - -
Purchases of property, plant and equipment (11.4) (8.7) (23.7)
Purchases of intangible assets (5.7) (6.8) (11.8)
Proceeds from disposal of property, plant and equipment 0.1 1.0 1.1
Net cash flow from investing activities (29.6) (15.8) (60.3)
Financing activities
Interest paid (1.0) (0.7) (2.9)
Interest paid on lease liabilities (2.3) (2.5) (4.9)
Dividends paid to equity shareholders of the Parent - - (80.5)
Proceeds from exercise of share options 3.2 1.6 6.2
Purchase of own shares (26.1) (34.4) (34.4)
Repayment of loans (64.6) (5.8) (20.6)
Payment of capital element of lease liabilities (20.9) (25.9) (50.3)
Borrowings 61.9 4.5 4.0
Net cash flow from financing activities (49.8) (63.2) (183.4)
(Decrease)/increase in cash and cash equivalents 37.1 (70.9) (1.6)
Effect of exchange rates on cash and cash equivalents 0.1 (8.8) (7.2)
Cash and cash equivalents at the beginning of the period/year 264.4 273.2 273.2
Cash and cash equivalents at the end of the period/year 13 301.6 193.5 264.4
1 Corporate information
The Interim Condensed Consolidated Financial Statements (Financial Statements)
of the Group for the six months ended 30 June 2023 contained in this
announcement were authorised for issue in accordance with a resolution of the
Directors on 7 September 2023. The Consolidated Balance Sheet was signed on
behalf of the Board by MJ Norris and MC Jehle.
Computacenter plc is a limited company incorporated and domiciled in England
whose shares are publicly traded.
2 Basis of preparation
The Financial Statements for the six months ended 30 June 2023 have been
prepared in accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the United Kingdom. They do not include
all of the information and disclosures required in the annual financial
statements, and should be read in conjunction with the Group's 2022 Annual
Report and Accounts which have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the United Kingdom. The
Financial Statements contained in this announcement are unaudited.
The Financial Statements are presented in pound sterling (£) and all values
are rounded to the nearest hundred thousand, except when otherwise indicated.
In determining whether it is appropriate to prepare the Financial Statements
on a 'going concern' basis, the Group prepares a three-year Plan (the 'Plan')
annually by aggregating top down expectations of business performance across
the Group in the second and third year of the Plan with a detailed 12-month
bottom-up budget for the first year, which was approved by the Board. The Plan
is subject to rigorous downside sensitivity analysis which involves flexing a
number of the main assumptions underlying the forecasts within the Plan. The
forecast cash flows from the Plan are aggregated with the current position, to
provide a total three-year cash position against which the impact of potential
risks and uncertainties can be assessed. In the absence of significant
external debt, the analysis also considers access to available committed and
uncommitted finance facilities, the ability to raise new finance in most
foreseeable market conditions and the ability to restrict dividend payments.
The Directors have identified a period of not less than 12 months from the
date of signing the Financial Statements, through to 6 September 2024, as the
appropriate period for the going concern assessment and have based their
assessment on the relevant forecasts from the Plan for that period.
The potential impact of the principal risks and uncertainties, as set out on
pages 74 to 81 of the 2022 Annual Report and Accounts, is then applied to the
Plan. This assessment includes only those risks and uncertainties that,
individually or in plausible combination, would threaten the Group's business
model, future performance, solvency or liquidity over the assessment period
and which are considered to be severe but reasonable scenarios. It also takes
into account an assessment of how the risks are managed and the effectiveness
of any mitigating actions.
For the current period, the primary downside sensitivity relates to a
modelled, but not predicted, severe downturn in Group revenues, beginning in
the second half of 2023, simulating a reduction in customer demand due to the
current economic crisis, and ongoing impacts on the Group's revenues from
supply shortages. This sensitivity analysis models a continued market downturn
scenario, with slower-than-predicted recovery estimates, for our customer base
as a result of the emerging negative global macroeconomic environment due to
the current economic crisis. A further impact on the Group's Technology
Sourcing revenues through the second half of 2023 from possible ongoing
vendor-related supply shortage issues has also been included in the
sensitivity analysis.
Our cash and borrowing capacity provides sufficient funds to meet the
foreseeable needs of the Group. At 30 June 2023, the Group had cash and
short-term deposits of £301.6 million and bank debt, primarily related to the
headquarters in Germany and operations in North America, of £16.5 million. On
9 December 2022, the Group entered into a new unsecured multicurrency
revolving loan facility of £200.0 million in order to rationalise its
treasury operations. The new facility has a term of five years plus two
one-year extension options exercisable on the first and second anniversary of
the facility. The Group-specific committed facility of £60.0 million that was
due to expire on 8 September 2023 was terminated and all security was
released. The revolving credit facility which its subsidiary, Pivot, had with
JPMorgan Chase Bank, N.A. (JPMC) of $100.0 million that was due to expire on
14 May 2024 was also repaid in full and all security was released.
The Group has a resilient balance sheet position, with net assets of £919.3
million as at 30 June 2023. The Group made a profit after tax of £89.4
million and delivered net cash flows from operating activities of £116.5
million, for the period ended 30 June 2023.
As the analysis continues to show a strong forecast cash position, even under
the severe economic conditions modelled in the sensitivity scenarios, the
Directors continue to consider that the Group is well placed to manage
business and financial risks in the current economic environment. Based on
this assessment, the Directors confirm that they have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities
as they fall due over the period of not less than 12 months from the date of
signing Financial Statements, through to 6 September 2024, and therefore have
prepared the Financial Statements on a going concern basis.
Consolidated Balance Sheet
At 30 June 2022 and 31 December 2022, certain items were incorrectly presented
on the consolidated balance sheet as follows:
· Tax balances of £18.4 million at 30 June 2022 (31 December 2022:
£25.5 million) were included as part of 'Trade and other receivables'. These
have been re-presented by reclassifying and netting these amounts within
'Income tax payable'.
· Trade and other receivables relating to a contract at 31 December
2022 of £6.0 million was included as part of 'Accrued income'. This has now
been reclassified to 'Trade and other receivables'. Further to this, and
related to the same contract, an amount of £9.9 million has been reclassified
from 'Trade and other receivables' (current) to 'Trade and other receivables'
(non-current).
· Bank overdraft balance of £10.7 million at 31 December 2022 has been
reclassified to 'Cash and short-term deposits' as this should have been netted
off against 'Cash and short-term deposits'.
There is no impact on reported 'Net funds' and 'Net assets' from the above
changes.
3 Significant Accounting Policies
The accounting policies adopted are consistent with those of the previous
financial year as disclosed in the Computacenter plc 2022 Annual Report and
Accounts.
4 Adjusted(1) measures
The Group uses a number of non-Generally Accepted Accounting Practice
(non-GAAP) financial measures in addition to those reported in accordance with
IFRS. The Directors believe that these non-GAAP measures, listed below, assist
in providing additional useful information on the underlying trends,
performance and position of the Group. The non-GAAP measures also used to
enhance the comparability of information between reporting periods by
adjusting for non-recurring or uncontrollable factors which affect IFRS
measures, to aid the user in understanding the Group's performance.
Consequently, non-GAAP measures are used by the Directors and management for
performance analysis, planning, reporting and incentive setting purposes.
Adjusted measures have remained consistent with the prior period.
These non-GAAP measures comprise of: gross invoiced income, adjusted
administrative expenses, adjusted operating profit or loss, adjusted profit or
loss before tax, adjusted tax, adjusted profit or loss for the year, adjusted
earnings per share and adjusted diluted earnings per share. They are, as
appropriate, each stated before: exceptional and other adjusting items
including gain or loss on acquisitions, expenses related to material
acquisitions, amortisation of acquired intangibles, utilisation of deferred
tax assets (where initial recognition was as an exceptional item or a fair
value adjustment on acquisition), and the related tax effect of these
exceptional and other adjusting items, as Management does not consider these
items when reviewing the underlying performance of the Segment or the Group as
a whole.
A reconciliation to adjusted measures is provided in the Chief Financial
Officer's Review contained in this announcement which details the impact of
exceptional and other adjusting items when comparing to the non-GAAP financial
measures, in addition to those reported in accordance with IFRS. Further
detail is also provided within note 5, Segment information, and note 8,
Exceptional items.
5 Segment information
The operating Segments remain unchanged from those reported at 31 December
2022. Central Corporate Costs continue to be disclosed as a separate column
within the Segmental note.
Segmental performance for the periods to H1 2023, H1 2022 and Full Year 2022
were as follows:
Six months ended 30 June 2023
UK Germany France North International Central Corporate Total
America
£m £m £m
£m Costs £m
£m
£m
Revenue
Technology Sourcing revenue
Gross invoiced income 1,051.0 1,042.5 337.7 1,805.6 104.9 - 4,341.7
Adjustment to gross invoiced income for income recognised as agent (585.1) (449.7) (109.8) (407.0) (21.7) - (1,573.3)
Total Technology Sourcing revenue 465.9 592.8 227.9 1,398.6 83.2 - 2,768.4
Services revenue
Professional Services 65.6 181.8 25.5 55.7 5.1 - 333.7
Managed Services 154.6 199.1 67.9 14.6 46.6 - 482.8
Total Services revenue 220.2 380.9 93.4 70.3 51.7 - 816.5
Total revenue 686.1 973.7 321.3 1,468.9 134.9 - 3,584.9
Results
Gross profit 127.2 179.1 40.4 132.7 26.3 - 505.7
Adjusted(1) administrative expenses (101.7) (105.8) (37.6) (103.4) (19.6) (19.1) (387.2)
Adjusted(1) operating profit/(loss) 25.5 73.3 2.8 29.3 6.7 (19.1) 118.5
Net interest 3.8 0.3 (0.6) 0.2 (0.4) - 3.3
Adjusted(1) profit/(loss) before tax 29.3 73.6 2.2 29.5 6.3 (19.1) 121.8
Exceptional items:
- unwinding of discount relating to acquisition of a subsidiary (2.0)
- gain related to acquisition of a subsidiary 3.2
- other income relating to acquisition of a subsidiary 5.3
Total exceptional items 6.5
Amortisation of acquired intangibles (5.5)
Profit before tax 122.8
The reconciliation of adjusted(1) operating profit to operating profit as
disclosed in the Consolidated Income Statement is as follows:
Six months ended 30 June 2023
Total
£m
Adjusted(1) operating profit 118.5
Amortisation of acquired intangibles (5.5)
Exceptional items 8.5
Operating profit 121.5
Six months ended 30 June 2022
UK Germany France North International Central Corporate Total
America
£m £m £m
£m Costs £m
£m
£m
Revenue
Technology Sourcing revenue
Gross invoiced income 937.8 668.1 255.6 1,277.9 80.0 - 3,219.4
Adjustment to gross invoiced income for income recognised as agent (515.9) (204.0) (72.5) (339.5) (13.3) - (1,145.2)
Total Technology Sourcing revenue 421.9 464.1 183.1 938.4 66.7 - 2,074.2
Services revenue
Professional Services 72.5 149.0 19.1 53.1 4.7 - 298.4
Managed Services 159.4 179.0 66.4 13.2 36.1 - 454.1
Total Services revenue 231.9 328.0 85.5 66.3 40.8 - 752.5
Total revenue 653.8 792.1 268.6 1,004.7 107.5 - 2,826.7
Results
Gross profit 130.3 140.0 32.1 101.4 21.1 - 424.9
Adjusted(1) administrative expenses (85.3) (84.6) (31.6) (81.1) (16.5) (11.6) (310.7)
Adjusted(1) operating profit/(loss) 45.0 55.4 0.5 20.3 4.6 (11.6) 114.2
Net interest 1.2 (1.2) (0.3) (1.5) (0.5) - (2.3)
Adjusted(1) profit/(loss) before tax 46.2 54.2 0.2 18.8 4.1 (11.6) 111.9
Amortisation of acquired intangibles - - - - - - (4.1)
Profit before tax - - - - - - 107.8
The reconciliation of adjusted(1) operating profit to operating profit as
disclosed in the Consolidated Income Statement is as follows:
Six months ended 30 June 2022
Total
£m
Adjusted(1) operating profit 114.2
Amortisation of acquired intangibles (4.1)
Operating profit 110.1
Year ended 31 December 2022
UK Germany France North International Central Corporate Total
America
£m £m £m
£m Costs £m
£m
£m
Revenue
Technology Sourcing revenue
Gross invoiced income 1,864.2 1,704.7 606.7 3,131.7 174.3 - 7,481.6
Adjustment to gross invoiced income for income recognised as agent (1,055.1) (551.6) (170.9) (773.8) (30.3) - (2,581.7)
Total Technology Sourcing revenue 809.1 1,153.1 435.8 2,357.9 144.0 - 4,899.9
Services revenue
Professional Services 147.5 315.7 41.7 122.5 9.2 - 636.6
Managed Services 312.8 374.7 136.4 26.9 83.2 - 934.0
Total Services revenue 460.3 690.4 178.1 149.4 92.4 - 1,570.6
Total revenue 1,269.40 1,843.5 613.9 2,507.3 236.4 - 6,470.5
Results
Gross profit 259.2 325.1 76.7 238.3 47.8 - 947.1
Adjusted(1) administrative expenses (178.7) (184.2) (69.6) (185.3) (36.5) (23.7) (678.0)
Adjusted(1) operating profit/(loss) 80.5 140.9 7.1 53.0 11.3 (23.7) 269.1
Net interest 2.6 (2.2) (0.8) (4.2) (0.8) - (5.4)
Adjusted(1) profit/(loss) before tax 83.1 138.7 6.3 48.8 10.5 (23.7) 263.7
Exceptional items:
- unwinding of discount relating to acquisition of a subsidiary (2.0)
- costs relating to acquisition of a subsidiary (1.8)
Total exceptional items (3.8)
Amortisation of acquired intangibles (10.9)
Profit before tax 249.0
The reconciliation of adjusted(1) operating profit to operating profit as
disclosed in the Consolidated Income Statement is as follows:
Year ended 31 December 2022
Total
£m
Adjusted(1) operating profit 269.1
Amortisation of acquired intangibles (10.9)
Exceptional items (1.8)
Operating profit 256.4
6 Seasonality of operations
Historically, revenues have been higher in the second half of the year than in
the first six months. This is principally driven by customer buying behaviour
in the markets in which we operate. Typically, this leads to a more pronounced
effect on operating profit.
The Company saw the historical patterns of seasonality change due to the
unpredictability created first by the impact of Covid-19, beginning in 2020,
and then the more recent impact of supply shortages. Certain customers pulled
orders of information technology equipment forward into the first half of 2021
that would otherwise have naturally occurred in the second half of 2021. Both
of these events have materially impacted customer buying behaviours impacting
the timing of sales volumes between the first and second halves of the year
for 2020 and 2021 and therefore our historical seasonality of operations
patterns.
During 2022 and the first half of 2023 we have seen these unusual buying
patterns reversing and the re-emergence of seasonality that is closer to our
historical norms. Whilst still somewhat affected by supply shortages in
networking IT equipment, we expect customer buying to be more weighted towards
the second half of the year leading, once again, to a more pronounced effect
on operating profit in the second half which we expect to have a higher
proportion of the full-year operating profit than we have seen over the period
from 2020 to 2021.
7 Dividends paid and proposed
A final dividend for 2022 of 45.8 pence per ordinary share was paid on 14 July
2023. An interim dividend in respect of 2023 of 22.6 pence per ordinary share,
amounting to a total dividend of £25.8 million, was declared by the Directors
at their meeting on 6 September 2023. The expected payment date of the
dividend declared is 27 October 2023. This announcement does not reflect this
dividend payable.
8 Exceptional items
H1 2023 H1 2022 Year 2022
£m £m £m
Operating profit
Other income related to acquisition of a subsidiary 5.3 - -
Costs related to acquisition of a subsidiary - - (1.8)
Gain related to acquisition of a subsidiary 3.2 - -
Exceptional operating gain/(loss) 8.5 - (1.8)
Interest cost relating to acquisition of a subsidiary (2.0) - (2.0)
Profit/(Loss) on exceptional items before taxation 6.5 - (3.8)
Income tax
Tax relating to exceptional items - - 0.2
Loss on exceptional items after taxation (6.5) - (3.6)
Included within H1 2023 are the following exceptional items:
· A further £2.0 million relating to the unwinding of the discount on
the contingent payment for the purchase of BITS have been classified as
exceptional interest costs. This is consistent with our prior-year treatment
of acquisition costs.
· A $9.3 million (£7.4 million) settlement was received on 8 May 2023
from the Washington State Department of Revenue. The settlement related to
litigation contesting a historic, pre-acquisition, sales tax assessment that
was paid by antecedent companies related to the acquired Pivot group of
companies. Of this amount, $6.7 million (£5.3 million) has been recognised as
other income relating to acquisition of a subsidiary for the refunded sales
tax amount. This other income is non-operational in nature, material in size
and unlikely to recur and has therefore been classified as exceptional.
Further amounts of $1.6 million (£1.3 million) and $1.0 million (£0.8
million) have been credited to adjusted(1) interest income, for the refund of
statutory overpayment interest receivable on the original payment, and
adjusted(1) administrative expenses, to reimburse legal expenses incurred
since acquisition, respectively.
· £3.2 million relating to a release of contingent consideration in
relation to BITS acquisition (refer note 12). As this release is related to
the acquisition and not operational activity within BITS and is of a one-off
nature, it was classified as an exceptional item.
Included within the 12 months to 31 December 2022 are the following
exceptional items:
· An exceptional cost of £1.8 million resulted from costs directly
relating to the acquisition of BITS and Emerge. These costs primarily related
to advisor's fees and seller's costs that were paid on completion of the
transaction. As these costs are non-operational and unlikely to recur, they
have been classified as exceptional items, consistent with our prior-year
treatment of acquisition costs on material transactions.
· £2.0 million relating to the unwinding of the discount on the
contingent payment for the purchase of BITS have been classified as
exceptional interest costs. As this credit is related to the acquisition and
not operational activity within BITS and is of a one-off nature, it was
classified as an exceptional item.
· A credit of £0.2 million arising from the tax benefit on the BITS
exceptional acquisition costs has been recognised as tax on the above
exceptional items. As this credit is related to the acquisition and not
operational activity within BITS and is of a one-off nature, it was classified
as an exceptional tax item.
9 Income tax
Tax for the six-month period is charged at 27.2 per cent (six months ended 30
June 2022: 27.8 per cent; year ended 31 December 2022: 26.0 per cent),
representing the best estimate of the average annual effective tax rate
expected for the full year, applied to the pre-tax income of the six-month
period.
10 Earnings per share
Earnings per share amounts are calculated by dividing profit attributable to
ordinary equity holders by the weighted average number of ordinary shares
outstanding during the year (excluding own shares held).
To calculate diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all dilutive
potential shares. Share options granted to employees where the exercise price
is less than the average market price of the Company's ordinary shares during
the year are considered to be dilutive potential shares.
H1 2023 H1 2022 Year 2022
£m £m £m
Profit attributable to equity holders of the Parent 87.7 77.2 182.8
H1 2023 H1 2022 Year 2022
m m m
Basic weighted average number of shares (excluding own shares held) 113.4 112.9 112.8
Effect of dilution:
Share options 1.3 1.8 2.1
Diluted weighted average number of shares 114.7 114.7 114.9
H1 2023 H1 2022 Year 2022
pence pence pence
Basic earnings per share 77.3 68.4 162.1
Diluted earnings per share 76.5 67.3 159.1
11 Investments
R.D. Trading Limited (RDC)
On 10 August 2019, the Group acquired 90 per cent of the voting shares of RDC
for a consideration of 90 pence and on 26 October 2021, the Group acquired a
further 5.0 per cent of the voting shares for a cash consideration of £1.4
million from the seller of RDC. On 7 June 2023, the remaining 5.0 per cent of
the voting shares were acquired for a cash consideration of £1.9 million. RDC
is based in the UK and is an IT assets disposal business. This acquisition has
been accounted for using the purchase method of accounting.
Business IT Source Holdings, Inc. (BITS)
On 1 July 2022, the Group acquired 100 per cent of the voting shares of
Business IT Source Holdings, Inc. (BITS) and the acquisition has been
accounted for using the purchase method of accounting. The provisional fair
values presented in the 2022 Annual Report and Accounts for customer
relationship and tax balances relating to the acquisition of BITS remain
unchanged as at 30 June 2023.
12 Fair value measurements recognised in the Consolidated
Balance Sheet
Financial instruments which are recognised at fair value subsequent to initial
recognition are grouped into Levels 1 to 3 based on the degree to which the
fair value is observable. The three levels are defined as follows:
1. Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or liabilities;
2. Level 2 fair value measurements are those derived from inputs other
than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices); and
3. Level 3 fair value measurements are those derived from valuation
techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
At 30 June 2023 the Group had forward currency contracts, which were measured
at Level 2 fair value subsequent to initial recognition, to the value of an
asset of £3.7 million and a liability of £4.2 million (30 June 2022: asset
of £15.1 million and liability of £3.5 million; 31 December 2022: asset of
£7.5 million and liability of £8.7 million). The net realised loss from
forward currency contracts, designated as cashflow hedges, in the period to 30
June 2023 of £0.5 million (30 June 2022: losses of £0.5 million; 31 December
2022: losses of £0.5 million) are offset by broadly equivalent realised
losses/gains on the related underlying transactions.
The foreign currency forward contracts are measured based on observable spot
exchange rates, the yield curves of the respective currencies as well as the
currency basis spreads between the respective currencies. All contracts are
fully cash collateralised, thereby eliminating both counterparty and the
Group's own credit risk.
The carrying value of the Group's short-term receivables and payables is a
reasonable approximation of their fair values. The fair value of all other
financial instruments carried within the Financial Statements is not
materially different from their carrying amount.
Contingent consideration
At acquisition, contingent consideration was agreed which required the Group
to pay former owners of Business IT Source Holdings, Inc. (BITS), two earn-out
payments based on BITS's 2022 EBITDA & 2023 EBITDA and indebtedness.
During the period and in accordance with the share purchase agreement, the
Group made its first earn-out payment amounting to £17.4 million ($21.2
million) which was broadly in line with the estimate made as at 31 December
2022.
On 30 June 2023, a renegotiated agreement was signed with the former owners
following which, the second earn-out is now based on BITS's 2023 EBIDTA, H1
2024 EBIDTA, and indebtedness over these periods. Having considered a range of
possible earn out scenarios, Management has determined that an accrual of
$24.2 million under the revised agreement should be recorded as contingent
consideration. Therefore, subsequent to initial recognition, this will
continue to be measured at Level 3 fair value using discounted cash flows
(DCF) as an estimation technique. The impact of changes to the payment
structures under the renegotiated agreement has resulted in a release during
the period of £3.2 million which has been recognised as an exceptional item.
The carrying value at 30 June 2023 of £19.2 million ($24.2 million) is
included within Trade and other payables.
13 Net funds
H1 2023 H1 2022 Year 2022
£m £m £m
Cash and short-term deposits 301.6 199.0 264.4
Bank overdrafts - (5.5) -
Cash and cash equivalents 301.6 193.5 264.4
Bank loans and credit facility (16.5) (34.2) (20.1)
Adjusted net funds(3) (excluding lease liabilities) 285.1 159.3 244.3
Lease liabilities (120.3) (147.2) (127.1)
Net funds 164.8 12.1 117.2
Current
Financial liabilities: Bank loans (6.7) (19.0) (7.5)
Lease liabilities (36.7) (43.6) (36.9)
Non-current
Financial liabilities: Bank loans (9.8) (15.2) (12.6)
Lease liabilities (83.6) (103.6) (90.2)
14 Issued Share Capital and Reserves
Issued and fully paid 7⁵⁄₉ pence ordinary shares 0.01 pence Total
No. '000 deferred shares £'m
No. '000
At 1 January 2022 and 1 January 2023 122,688 - 9.3
Deferred shares issued during the year for the capitalisation of reserves - 10,895,383.8 109.0
Deferred shares capital reduction - (10,895,383.8) (109.0)
At 30 June 2023 122,688 - 9.3
During the year, the issued share capital was increased by £109.0 million by
the issue of deferred shares of 0.01 pence each (the 'New Deferred Shares').
The New Deferred Shares were issued through the capitalisation of the
following reserves (together the 'Capitalised Amount') in Computacenter plc
(the 'Company'):
i. an amount of up to £55.9 million, being the full amount standing
to the credit of the merger reserve account of the Company as at 31 December
2022 (being the date of the latest audited accounts of the Company); and
ii. an amount of up to £53.1 million, being part of the amount
standing to the credit of the Company's retained earnings reserve as at 31
December 2022 (being the date of the latest audited accounts of the Company)
and attributable to the dividend in specie made to the Company by
Computacenter (UK) Limited in December 2020 in respect of shares in Pivot
Technology Solutions, Ltd.
The Capitalised Amount was applied in paying up in full and at par
10,895,383,765 New Deferred Shares in the capital of the Company.
These New Deferred Shares were allotted and issued to a nominee appointed by
the Company on behalf of the holders of ordinary shares entered in the
register of members of the Company at the Capitalisation Record Time (in
proportion, as nearly as practicable to the aggregate nominal amount of the
ordinary shares held by such holders at the Capitalisation Record Time,
subject to such adjustments as the Directors saw fit to deal with any
fractional entitlements).
The holders of the New Deferred Shares were conferred no material rights from
the New Deferred Shares including no rights to receive any dividend or other
distribution of the Company, nor any right to participate in the profits of
the Company, with further details of these rights limitations available within
the 2023 Notice of General Meeting. The New Deferred Shares were then subject
to a Capital Reduction and creation of distributable reserves within the
Company for £109.0 million.
Capital Redemption Reserve
The capital redemption reserve is used to maintain the Company's capital
following the purchase and cancellation of its own shares. During the year,
the Company repurchased nil of its own shares for cancellation (2022: nil).
The High Court of Justice of England and Wales on 20 June 2023 confirmed an
application for a Capital Reduction that subsequently became effective on 21
June 2023 following the necessary regulatory filings. This Capital Reduction
reduced the Company's Capital Redemption Reserve of £75.0 million to nil and
created distributable reserves for this same amount.
15 Publication of non-statutory accounts
The financial information contained in this announcement does not constitute
statutory accounts as defined in section 435 of the Companies Act 2006.
The comparative figures for the financial year ended 31 December 2022 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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