REG - Computacenter - 2015 Final Results <Origin Href="QuoteRef">CCC.L</Origin> - Part 2
11/03/2016 07:05
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9.6 per cent in adjusted revenue1 growth with high staff utilisation levels.
Margin rate in the Supply Chain business showed continued strength in 2015
with another small improvement over 2014 and the mix of business moving
towards Datacenter and Networking. Services margin reduced slightly from last
year mainly due to the expected impact of new Managed Services take-ons, which
whilst better than expected, still had a margin dilutive impact. The UK
continues to lead the Group in efficiency of delivery on Managed Services
customers with the overall margins achieved at a rate which is towards the top
of what can be reasonably expected. Total adjusted gross profit1 rate in the
UK has increased slightly from 15.3 per cent to 15.4 per cent of adjusted
revenue1.
Adjusted administrative expenses1 rose by 5.6 per cent, reducing from the 7.5
per cent increase in 2014 and 9.8 per cent increase in 2013. The UK segment
continues to absorb the majority of the Group's investment costs, as referred
to within 'Investment' section of 'Our Performance', through its income
statement. Where permissible, certain Group Management and Governance costs
are recharged to other Group segments, however the UK segment continues to
incur the majority of Senior Management and Group Governance costs due to the
Group being UK domiciled and will continue to do so going forward as the Group
continues to add strength to the team.
Overall this has resulted in a 2.3 per cent decrease in adjusted operating
profit1 from £60.7 million to £59.3 million.
Germany
German revenue recovered strongly in 2015, in actual currency2, increasing by
2.8 per cent to £1,199.6 million (2014: £1,167.1 million). In constant
currency2 revenue increased 14.1 per cent.
Supply Chain revenue growth was very strong in 2015 at 17.5 per cent on a
constant currency2 basis, 5.8 per cent in actual currency2 continuing the
momentum seen in Q4 2014. Growth was strong across a number of segments with
Workplace experiencing growth, even against the backdrop of an overall
declining market. This was led by the Networking business line, partly driven
by a strong performance on Framework contracts won in 2014.
Services revenues were also strong with 7.4 per cent growth in 2015 on a
constant currency2 basis, a decline of 3.2 per cent in actual currency2, with
significant impact from both Professional Services and Managed Services.
Revenue from existing Managed Services contracts was encouraging, but the
overall growth is mainly driven by a number of strategically important new
wins. There were further contract wins in 2015 which provides a platform for
growth in the year ahead, as these contracts are on-boarded and there is a
strong pipeline into 2017. Significantly, the lessons from 2013 have largely
been learned with nearly all of the new contracts going through a successful
take-on process. One contract has been somewhat disappointing so far, however,
work continues to address this issue and based on past experience we are
confident that it will be resolved. Our Professional Services business was
very strong in the second half of the year, driven by customer focus on Cloud
building and Network and Security refreshes in a post Windows 7 rollout
world.
The rate at which the Supply Chain business grew through the year inevitably
resulted in some margin attrition. The focus for 2016 will be to maintain the
volumes seen in 2015 and to slowly rebuild margin expectations across our
newly won customer portfolio. Given the challenges within the Professional
Services cost base and the inevitable teething problems as new Managed
Services contracts come on stream we are pleased that our Services margins
have improved slightly over 2014, indicating the scope for future potential
improvements as the German result continues to close the gap on the
performance of UK Services margins. Overall adjusted gross profit1 margin
within the German business has decreased from 13.0 per cent in 2014 to 12.3
per cent in 2015, primarily due to the margin dilution within the Supply Chain
business.
Administrative expenses have increased by 6.6 per cent in constant currency2
but have fallen 4.0 per cent in reported currency.
Overall, the German segment adjusted operating profit1 increased by 2.2 per
cent from £26.8 million to £27.4 million in actual currency2, an increase of
13.6 per cent in constant currency2.
France
The revenue in the French segment decreased by 15.5 per cent to £398.1 million
(2014: £471.1 million) during 2015, a decline of 6.3 per cent in constant
currency2 , partly due to a Services business that has not been able to renew
and rebuild its contract base. Supply Chain revenue decreased by 5.5 per cent
on a constant currency2 basis, 14.8 per cent decline in actual currency2, as
the business was much more selective and reduced its focus on low margin high
working capital intensive activities, as well as focusing on the Group's core
target market of large customers, rather than small and medium-sized
customers. Whilst we have made some progress to align the product mix in
France, more towards the more balanced Workplace, Datacenter and Networking
lines of business, there is still substantial further progress required in
this area. Services revenues reduced by 10.1 per cent in 2015 in constant
currency2, 18.8 per cent in actual currency2 with both Managed Services and
Professional Services similarly impacted. The Managed Services contract losses
in 2014 have not been offset by the small number of wins achieved in 2015.
Services gross profit in 2015 has been impacted throughout the year by the
weak growth in demand for our Professional Service business where revenue
reduced by 9.4 per cent on a constant currency2 basis, 18.7 per cent in actual
currency2. This exacerbates the continuing capacity utilisation issues seen
since 2013, which results in the French service margins being significantly
lower than those across the rest of the Group.
Similar issues are now being seen in the Managed Services business through the
lack of wins in 2015, and apart from a small number of significant
opportunities, the pipeline is generally fairly weak, this will continue to
impact Services gross margin in 2016, albeit, there should be a small
improvement on 2015. Customer service levels remain high, resulting in
Computacenter France being ranked first for Customer Satisfaction for End-User
Managed Services contracts, by the Whitelane Research Group.
Significant investment is being made in both areas to reposition the business
to deliver a higher quality of service to customers in our target market. This
is evidenced by the opening of the Global Services Desk in Montpellier, our
intention to restructure the sub-scale Field Maintenance business and the
alignment of the Professional Services business to the wider Group Operating
Model.
Gross margins in the Supply Chain business have increased throughout 2015 as
the quality of product mix has improved with significant demand for Datacenter
solutions in Q4 2015. This has materially increased the contribution rate of
the Supply Chain business.
Overall gross margin increased from 6.7 per cent to 8.1 per cent approaching
levels last achieved in 2013.
Administrative expenses decreased by 7.9 per cent on a constant currency2
basis, 17.0 per cent in actual currency2. In 2014 there was an additional
charge of E2 million to provide for doubtful debts and disputes on the sales
ledger at the end of 2014. Due to the efforts in cleansing the sales ledger
and the recovery of overdue balances through 2015, E1.4 million of this
additional provision has now been released back through the administrative
expenses line. Ignoring the impact of this provisioning activity,
administrative expenses has been largely flat with natural increases offset by
the benefit from the French Social Plan and the ongoing business
transformation which continues to take costs out of the business to improve
both the competitiveness and long-term return to profitability. An additional
cost of £1.5 million in implementing the Social Plan has been recorded as an
exceptional item in 2015.
Overall, the adjusted operating loss1 in actual currency2 for France has
decreased from £8.8 million in 2014 to £1.6 million in 2015.
Belgium
Revenue decreased by 6.8 per cent to £49.1 million (2014: £52.7 million) but
increased by 3.4 per cent in constant currency2. Supply Chain revenue
increased 8.2 per cent on a constant currency2 basis, a decline of 2.6 per
cent in actual currency2, rebuilding the business to 2012 levels when it saw a
very significant one-off Supply Chain order from one customer. This is
especially pleasing as the customer base has broadened and become more
international thereby reducing the opportunity for future revenue declines to
be related to large individual customers.
Services revenue declined by 5.8 per cent on a constant currency2 basis, a
decline of 14.9 per cent in actual currency2, during 2015. There was
significant success in renewing existing contracts to underpin the contract
base going forward, however, this has resulted in reduced Services revenue due
to further contract efficiencies made for these long-term customers.
Whilst Services margin declined during the year, partly as a result of renewal
margin pressures, as noted above, the product margin increased during the
year, which offset the decline in Services contribution. This has resulted in
an overall increase in gross profit for Belgium from 11.6 per cent in 2014 to
12.7 per cent in 2015.
Administrative expenses increased 18.0 per cent in constant currency2, 4.9 per
cent in actual currency2, primarily due to take-on costs as the business moved
fully onto the Group ERP system and the Group Operating Model that it
underpins. The transition was implemented smoothly with no material adverse
customer impact. Overall there has been a 4.8 per cent decrease in reported
adjusted operating profit1 from £2.1 million in 2014 to £2.0 million in 2015,
a 7.7 per cent increase in constant currency2.
Table 1: Adjusted revenue1(£m)
Half 1£m Half 2£m Total£m
2013 1,403.8 1,626.4 3,030.2
2014 1,435.4 1,627.9 3,063.3
2015 1,438.0 1,616.2 3,054.2
2015/14 0.2% -0.7% -0.3%
Table 2: Adjusted profit before tax1(£m)
Half 1 Half 2 Total
£m % £m % £m %
2013 24.4 1.7% 53.6 3.3% 78.0 2.6%
2014 25.6 1.8% 55.5 3.4% 81.1 2.6%
2015 29.1 2.0% 57.8 3.6% 86.9 2.8%
2015/14 13.7% 4.1% 7.2%
Table 3: Adjusted REVENUE1 BY COUNTRY (£m)
2015 2014
Half 1 Half 2 Total Half 1 Half 2 Total
UK 688.7 718.7 1,407.4 652.5 719.9 1,372.4
Germany 535.4 664.2 1,199.6 526.5 640.6 1,167.1
France 189.8 208.3 398.1 230.9 240.2 471.1
Belgium 24.1 25.0 49.1 25.5 27.2 52.7
Total 1,438.0 1,616.2 3,054.2 1,435.4 1,627.9 3,063.3
Table 4: Adjusted operating profit1 by country (£m)
2015
Half 1 Half 2 Total
£m % £m % £m %
UK 22.9 3.3% 36.4 5.1% 59.3 4.2%
Germany 8.5 1.6% 18.9 2.8% 27.4 2.3%
France (3.0) (1.6%) 1.4 0.7% (1.6) (0.4%)
Belgium 1.1 4.6% 0.9 3.6% 2.0 4.1%
Total 29.5 2.1% 57.6 3.6% 87.1 2.9%
2014
Half 1 Half 2 Total
£m % £m % £m %
UK 22.5 3.4% 38.2 5.3% 60.7 4.4%
Germany 7.8 1.5% 18.9 3.0% 26.7 2.3%
France (5.6) (2.4%) (3.2) (1.3%) (8.8) (1.9%)
Belgium 1.0 3.9% 1.1 4.0% 2.1 4.0%
Total 25.7 1.8% 55.0 3.4% 80.7 2.6%
Net finance costs
Net finance costs amounted to £0.6 million on a statutory basis in the period
(2014: £0.2 million) and were impacted by a number of one-off items including
historical extended credit interest charges for Computacenter Germany of £0.3
million that were previously unbilled by a vendor. In addition, finance
charges were impacted by the final interest charges relating to the unwind of
the discount on the deferred consideration for the purchase of Damax AG for
£0.7 million which was finalised and agreed in June 2015. These one-off costs
have been partially offset by higher than normal interest charges paid by
French government customers for overdue receivables.
On an adjusted basis, prior to the interest on Customer Specific Financing
(CSF), net finance costs were £0.2 million in 2015 (2014: £0.3 million
income).
Customer specific financing
In certain circumstances, the Group enters into customer contracts that are
financed by leases or loans. The leases are secured only on the assets that
they finance. Whilst the outstanding balance of CSF is included within the Net
Funds4 for statutory reporting purposes, this balance is offset by contracted
future receipts from customers.
Whilst CSF is repaid through future customer receipts, Computacenter retains
the credit risk on these customers and ensures that credit risk is only taken
on customers with a strong credit rating.
The Group does not expect a material increase in the level of CSF facilities,
partly as the Group applies a higher cost of finance to these transactions
than customer's marginal cost of finance.
Taxation
The adjusted tax1 charge on ordinary activities was £19.8 million (2014: £20.3
million), on an adjusted profit before tax1 of £86.9 million (2014: £81.1
million). The effective tax rate (ETR) was 22.8 per cent (2014: 25.0 per
cent). The 2015 ETR is lower than the previous year due to a change in
geographic split of adjusted profit before tax1 with significantly lower
losses in France being the primary influence.
The statutory tax charge was £23.7 million (2014: £21.3 million) on profit
before tax of £126.8 million (2014: £76.4 million). This represents a
statutory tax rate of 18.7 per cent (2014: 27.9 per cent). The exceptional
gain on the sale of RDC of £42.2 million recorded in the statutory profit
before tax for the year ended 31 December 2015 is not subject to taxation and
is the major reason for the movement in the statutory tax rate.
The Group's adjusted tax rate continues to benefit from losses utilised on
earnings in Germany and also from the reducing corporation tax rate in the UK.
As the German tax losses continue to be utilised, the deferred tax asset,
previously recognised as an exceptional tax item, is no longer replenishing.
The utilisation of the asset impacts the statutory tax rate but is considered
to be outside of our adjusted tax1 measure. In 2015 this impact increased the
statutory tax rate by 3.2 per cent.
From 2017 onwards the Group expects an increasing adjusted tax1 rate as the
impact of the German loss utilisation manifests itself through an increasing
cash tax payment. In 2016, the German adjusted ETR1 is expected to increase to
circa 22 per cent from circa 15 per cent in 2015 increasing to, and settling
at, circa 32 per cent in 2018 with a direct effect on the Group adjusted ETR1.
At 2015 levels of profitability the increase in German cash tax would raise
the 2015 Group adjusted ETR1 from 22.8 per cent to 27.8 per cent by 2018.
A Group Tax Policy was produced during the year and approved by the Audit
Committee and the Board. The Group makes every effort to pay all the tax
attributable to profits earned in each jurisdiction that it operates in. The
Group does not artificially inflate or reduce profits in one jurisdiction to
provide a beneficial tax result in another and maintains approved transfer
pricing policies and programmes, to meet local compliance requirements,
particularly given the implementation of the Group Operating Model. Virtually
all of the statutory tax charge in 2015 was incurred in either the UK or
German tax jurisdictions. Computacenter will recognise provisions and accruals
in respect of tax where there is a degree of estimation and uncertainty,
including where it relates to transfer pricing, such that a balance cannot
fully be determined until accepted by the relevant tax authorities. There are
no material tax risks across the Group.
The table below reconciles the statutory tax charge to the adjusted tax charge
for the year ended 31 December 2015.
2015£'000 2014£'000
Statutory tax charge 23,657 21,300
Adjustments to exclude:
Utilisation of German deferred tax assets (4,045) -
Tax on amortisation of acquired intangibles 314 238
Tax on exceptional items (52) (185)
RDC (72) (1,098)
Adjusted tax charge 19,802 20,255
Statutory ETR (18.7%) (27.9%)
Adjusted ETR (22.8%) (25.0%)
Exceptional items
A gain from net exceptional items in the year of £41.1 million was recorded
(2014: a net loss of £7.6 million).
The principal item was the gain on the sale of RDC of £42.2 million. The sale
occurred on 2 February 2015 with cash proceeds net of disposal costs of £59.8
million.
Further Social Plan provisioning in France of £1.5 million was required during
the year. Whilst costs incurred against the existing level of the Social Plan
provision have been at an expected level, further redundancy scope has been
added to the Social Plan during the year with un-forecasted additional support
to certain employees within the plan. An additional provision for legal costs
of £0.4 million is included within this and has been made due to pending
litigation stemming from appeals lodged by some employees within the plan.
Further detail on these claims can be found in note 24 to the Annual Report
and Accounts (see note 2).
A release from the onerous contracts provision in Germany has been made for
£0.4 million. This represents better than forecast performance over the year
from the two remaining contracts resulting in less utilisation of the
provision than planned. The initial contractual period for the two remaining
contracts finishes in 2016.
Earnings per share
The adjusted diluted earnings per share1 has increased in line with profit
performance by 21.1 per cent from 44.1 pence in 2014 to 53.4 pence in 2015.
The statutory diluted earnings per share has increased from 40.0 pence in 2014
to 82.1 pence in 2015, primarily driven by the impact of the gain on disposal
of RDC.
2015 2014
Basic weighted average number of shares (excluding own shares held) (no. '000) 122,948 135,985
Effect of dilution:
Share options 2,655 1,784
Diluted weighted average number of shares 125,603 137,769
Statutory profit attributable to equity holders of the parent (£ '000) 103,110 55,117
Basic earnings per share (pence) 83.9 40.5
Diluted earnings per share (pence) 82.1 40.0
Adjusted profit for the year1 attributable to equity holders of the parent (£ '000) 67,072 60,803
Adjusted basic earnings per share1 (pence) 54.6 44.7
Adjusted diluted earnings per share1 (pence) 53.4 44.1
Dividends
The Board has consistently applied the Company's Dividend Policy, which states
that the total dividend paid will result in a dividend cover of 2 to 2.5 times
adjusted diluted earnings per share1. In 2015 the cover was 2.5 times (2014:
2.5 times).
The Group remains highly cash generative and Net Funds4 continues to build on
the Group balance sheet. Computacenter's approach to capital management is to
ensure that the Group has a robust capital base and to maintain a strong
credit rating whilst aiming to maximise shareholder value. If further funds
are not required to be available for investment within the business, either
for fixed assets or working capital support, and the distributable reserves
are available in the Parent Company, we will aim to return the additional cash
to investors through one-off Returns of Value. Dividends are paid from the
stand alone balance sheet of Computacenter Plc, and as at 31 December 2015,
the distributable reserves are approximately £166.7 million.
Ahead of changes to dividend taxation which will take effect on 6 April 2016,
we are pleased to announce a second interim dividend for 2015 (the Second
Interim Dividend) of 15.0 pence per share, in lieu of a final dividend for
2015. The second interim dividend will be paid on 5 April 2016.
The dividend record date is set on Thursday 24 March 2016, and the shares will
be marked ex-dividend on Wednesday 23 March 2016. This has been agreed with
the London Stock Exchange, given that these dates fall outside its normal
dividend procedure timetable.
Following the payment of a first interim dividend for 2015 of 6.4 pence per
share on 16 October 2015, the total dividend per share for 2015 will be 21.4
pence per share. The total dividend per share for 2014 was 19.8 pence per
share for those shares in existence immediately after the Share
Consolidation.
Capital Management
Details of the Group's capital management policies are included within note 26
to the Annual Report and Accounts (see note 2).
Net funds4
Net Funds4 have increased from £119.2 million at the end of 2014 to £120.8
million as at 31 December 2015. In addition to the final 2014 dividend paid in
June 2015 of £15.8 million and the interim 2015 dividend paid in October 2015
of £7.7 million, the Group had a net cash outflow arising from the disposal of
RDC and the Return of Value of £43.2 million.
£'000
Net Funds4 as at 31 December 2014 119,197
Less: RDC cash as at 31 December 2014 (489)
Total consideration received in cash and cash equivalents 59,974
Less: cash and cash equivalents disposed of (3,829)
Proceeds from disposal of RDC, net of cash disposed of 56,145
RDC disposal costs (176)
Net cash inflows arising from RDC disposal after disposal costs and cash disposed 55,969
Return of Value (97,916)
Expenses on Return of Value (753)
Total cash outflow from Return of Value (98,669)
Net impact of disposal of RDC and Return of Value (43,189)
Other cash flows in the year 46,579
Non-cash flow movements (175)
Exchange differences (1,624)
Net funds4 as at 31 December 2015 120,788
The Group had no material borrowings outside of CSF leases and loans.
The Group continued to deliver strong cash generation from its operations in
2015, with net cash flow from operating activities of £93.9 million (2014:
£94.4 million).
During the year material improvements were made in the collection of overdue
debt within the French business. The Finance Shared Service Centre in Budapest
has standardised and focused cash collection processes and cleansed a number
of issues stemming from the poor ERP implementation in 2013. This, coupled
with the disruption from the Social Plan implementation which led to backlogs
preventing the timely processing of transactions, impacted cash collection and
payment of invoices. Along with a drive from Senior Group Management the
legacy collection and system related invoicing issues are now understood and
have been largely resolved. The French debt balance overdue by more than 60
days has decreased to under £4.6 million at 31 December 2015 from £17.6
million at 31 December 2014.
In the year we spent £20.6 million (2014: £17.7 million) on capital
expenditure, primarily on investments in IT equipment in our business and
software tools, to enable us to deliver improved service to our customers.
Whilst the cash position remains robust, the Group continued to benefit from
the extension of an improvement in credit terms with a significant vendor,
equivalent to £47.8 million at 31 December 2015, an increase of £9.2 million
from 31 December 2014. This improvement in credit terms has been in operation
since 2009 and whilst the continuation of these terms is not guaranteed and
can be withdrawn at any time, the terms are generally available to all
material partners of that significant vendor.
CSF decreased in the year from £9.3 million to £5.9 million. CSF remains low
compared to historical levels due to a decision to restrict this form of
financing in light of the current credit environment and reduced customer
demand.
The Group's Net Funds4 position takes account of current asset investments of
£15 million.
Net Funds4 excluding CSF decreased from £128.5 million to £126.7 million by
the end of the year.
Financial instruments
The Group's financial instruments comprise borrowings, cash and liquid
resources, and various items that arise directly from its operations. The
Group enters into hedging transactions, principally forward exchange contracts
or currency swaps. The purpose of these transactions is to manage currency
risks arising from the Group's operations and its sources of finance. As the
Group continues to expand its global reach and benefit from lower cost
operations in certain geographies such as South Africa, it has entered into
forward exchange contracts to help manage cost increases due to currency
movement. The Group's policy remains that no speculative trading in financial
instruments shall be undertaken.
The main risks arising from the Group's financial instruments are interest
rate, liquidity and foreign currency risks. The overall financial instruments
strategy is to manage these risks in order to minimise their impact on the
financial results of the Group. The policies for managing each of these risks
are set out below. Further disclosures in line with the requirements of IFRS 7
are included in the Financial Statements.
Interest rate risk
The Group finances its operations through a mixture of retained profits, bank
borrowings and finance leases and loans for certain customer contracts. The
Group's bank borrowings, other facilities and deposits are at floating rates.
No interest rate derivative contracts have been entered into.
Liquidity risk
The Group's policy is to ensure that it has sufficient funding and facilities
in place to meet any foreseeable peak in borrowing requirements. The Group's
positive Net Funds4 position was maintained throughout 2015, and at the
year-end was £126.7 million excluding CSF, and £120.8 million including CSF.
Due to strong cash generation over the past three years, the Group is
currently in a position where it can finance its requirements from its cash
balance, and the Group operates a cash pooling arrangement for the majority of
Group entities.
During 2013 the Group entered into a specific committed facility of £40.0
million for a three-year term which was to expire in May 2016. In February
2015 this facility was extended at the same value through to February 2018.
The Group has a Board monitored policy in place to manage its counterparty
risk. This ensures that cash is placed on deposit across a range of reputable
banking institutions.
CSF facilities are committed.
Foreign currency risk
The Group operates primarily in the UK, Germany and France with smaller
operations in Belgium, Hungary, India, Malaysia, Luxembourg, Spain, South
Africa, Switzerland and the United States of America. The Group uses a cash
pooling facility to ensure that its operations outside of the UK are
adequately funded, where principal receipts and payments are denominated in
Euros. For those countries within the Eurozone, the level of non-Euro
denominated sales is small and, if material, the Group's policy is to
eliminate currency exposure through forward currency contracts. For the UK,
the majority of sales and purchases are denominated in Sterling and any
material trading exposures are eliminated through forward currency contracts.
The Group has been increasingly successful in winning international Services
contracts where services are provided in multiple countries. The Group aims to
minimise this exposure by invoicing the customer in the same currency in which
the costs are incurred. For certain contracts, the Group's committed contract
costs are not denominated in the same currency as its sales. In such
circumstances, for example where contract costs are denominated in South
African Rand, the Group eliminates currency exposure for a foreseeable future
period on these future cash flows through forward currency contracts. In 2015,
the Group recognised a gain of £1.2 million (2014: loss of £0.3 million)
through other comprehensive income in relation to the changes in fair value of
related forward currency contracts, where the cash flow hedges relating to
firm commitments were assessed to be highly effective.
The Group reports its results in Pounds Sterling. The strengthening of
Sterling, particularly against the Euro has impacted the 2015 adjusted
operating profit1 by circa £2 million.
Credit risk
The Group principally manages credit risk through the management of customer
credit limits. The credit limits are set for each customer based on the
creditworthiness of the customer and the anticipated levels of business
activity. These limits are initially determined when the customer account is
first set up and are regularly monitored thereafter.
There are no significant concentrations of credit risk within the Group. The
Group's major customer, disclosed in note 3 to the summary financial
information included within this announcement consists of entities under the
control of the UK Government. The maximum credit risk exposure relating to
financial assets is represented by their carrying value as at the balance
sheet date.
Going concern
As disclosed in the Directors' Report, the Directors have a reasonable
expectation that the Group has adequate resources to continue its operations
for the foreseeable future. Accordingly they continue to adopt the Going
Concern basis in preparing the consolidated Financial Statements.
Fair balanced and understandable
The UK Corporate Governance Code includes a requirement for the Board to
consider whether the Annual Report and Accounts are 'fair, balanced and
understandable' and 'provides the information necessary for shareholders to
assess the Group's performance, business model and strategy.'
Management undertakes a formal process through which it can provide comfort to
the Board in making this statement.
Tony Conophy
Group Finance Director
11 March 2016
Consolidated income statement
For the year ended 31 December 2015
Note 2015£'000 2014£'000
Revenue 3 3,057,615 3,107,759
Cost of sales (2,654,468) (2,697,842)
Gross profit 403,147 409,917
Administrative expenses (315,380) (323,814)
Operating profit:
Before amortisation of acquired intangibles and exceptional items 87,767 86,103
Amortisation of acquired intangibles (1,553) (1,868)
Exceptional items 4 (1,029) (7,588)
Operating profit 85,185 76,647
Exceptional gain on disposal of a subsidiary 4 42,155 -
Finance revenue 1,598 1,615
Finance costs (2,171) (1,844)
Profit before tax 126,767 76,418
Income tax expense:
Before exceptional items (23,605) (21,115)
Exceptional items 4 (52) (185)
Income tax expense 5 (23,657) (21,300)
Profit for the year 103,110 55,118
Attributable to:
Equity holders of the parent 103,110 55,117
Non-controlling interests - 1
Profit for the year 103,110 55,118
Earnings per share
- basic 6 83.9p 40.5p
- diluted 6 82.1p 40.0p
Consolidated statement of comprehensive income
For the year ended 31 December 2015
2015£'000 2014£'000
Profit for the year: 103,110 55,118
Items that may be reclassified to consolidated income statement
Gain/(loss) arising on cash flow hedge, net of amount transferred to consolidated income statement 1,191 (251)
Income tax effect (244) 54
947 (197)
Exchange differences on translation of foreign operations (7,783) (10,976)
(6,836) (11,173)
Items not to be reclassified to consolidated income statement:
Remeasurement of defined benefit plan 24 (1,177)
Other comprehensive income for the year, net of tax (6,812) (12,350)
Total comprehensive income for the year 96,298 42,768
Attributable to:
Equity holders of the parent 96,299 42,768
Non-controlling interests (1) -
96,298 42,768
Consolidated balance sheet
As at 31 December 2015
2015£'000 2014£'000
Non-current assets
Property, plant and equipment 57,132 79,940
Investment property 10,260 -
Intangible assets 81,533 90,344
Investment in associate 40 42
Deferred income tax asset 12,840 15,049
161,805 185,375
Current assets
Inventories 45,647 50,006
Trade and other receivables 621,756 695,915
Prepayments 44,735 52,688
Accrued income 61,785 50,869
Derivative financial instruments 2,220 2,434
Current asset investments 15,000 -
Cash and short-term deposits 111,770 129,865
902,913 981,777
Total assets 1,064,718 1,167,152
Current liabilities
Trade and other payables 581,855 635,279
Deferred income 93,861 106,862
Financial liabilities 4,279 6,850
Derivative financial instruments 922 389
Income tax payable 10,981 9,810
Provisions 4,050 9,808
695,948 768,998
Non-current liabilities
Financial liabilities 1,703 3,818
Provisions 5,094 8,176
Deferred income tax liabilities 523 748
7,320 12,742
Total liabilities 703,268 781,740
Net assets 361,450 385,412
Capital and reserves
Issued capital 9,297 9,283
Share premium 3,830 4,597
Capital redemption reserve 74,957 74,957
Own shares held (10,571) (10,760)
Translation and hedging reserves (11,161) (4,326)
Retained earnings 295,086 311,648
Shareholders' equity 361,438 385,399
Non-controlling interests 12 13
Total equity 361,450 385,412
Approved by the Board on 11 March 2016
MJ Norris FA
Conophy
Chief Executive Officer Group Finance
Director
Consolidated statement of changes in equity
For the year ended 31 December 2015
Attributable to equity holders of the parent Total£'000 Non- controlling interests£'000 Total equity£'000
Issued capital£'000 Share premium£'000 Capitalredemptionreserve£'000 Ownsharesheld£'000 Translation & hedgingreserves£'000 Retained earnings£'000
At 1 January 2015 9,283 4,597 74,957 (10,760) (4,326) 311,648 385,399 13 385,412
Profit for the year - - - - - 103,110 103,110 - 103,110
Other comprehensive income - - - - (6,835) 24 (6,811) (1) (6,812)
Total comprehensive income - - - - (6,835) 103,134 96,299 (1) 96,298
Cost of share-based payments - - - - - 4,670 4,670 - 4,670
Tax on share-based payments - - - - - 1,659 1,659 - 1,659
Exercise of options - - - 9,967 - (4,635) 5,332 - 5,332
Return of Value (RoV) - - - - - (97,916) (97,916) - (97,916)
Expenses on RoV - (753) - - - - (753) - (753)
Issues of B shares relating to RoV 14 (14) - - - - - - -
Purchase of own shares - - - (9,778) - - (9,778) - (9,778)
Equity dividends - - - - - (23,474) (23,474) - (23,474)
At 31 December 2015 9,297 3,830 74,957 (10,571) (11,161) 295,086 361,438 12 361,450
At 1 January 2014 9,271 4,362 74,963 (11,976) 6,649 281,388 364,657 13 364,670
Profit for the year - - - - - 55,117 55,117 1 55,118
Other comprehensive income - - - - (10,975) (1,373) (12,350) (1) (12,351)
Total comprehensive income - - - - (10,975) 53,744 42,767 - 42,768
Prior period corrections 6 - (6) 695 - (695) - - -
Cost of share-based payments - - - - - 2,810 2,810 - 2,810
Tax on share-based payments - - - - - 39 39 - 39
Exercise of options 6 235 - 2,804 - (965) 2,080 - 2,080
Purchase of own shares - - - (2,283) - - (2,283) - (2,283)
Equity dividends - - - - - (24,673) (24,673) - (24,673)
At 31 December 2014 9,283 4,597 74,957 (10,760) (4,326) 311,648 385,399 13 385,412
Consolidated cash flow statement
For the year ended 31 December 2015
Note 2015£'000 2014£'000
Operating activities
Profit before tax 126,767 76,418
Net finance costs 573 229
Depreciation of property, plant and equipment 18,885 20,398
Depreciation of investment property 227 -
Amortisation of intangible assets 13,311 12,675
Share-based payments 4,670 2,810
Loss on disposal of property, plant and equipment 388 676
Loss on disposal of intangibles 9 1
Exceptional gain from disposal of a subsidiary (42,155) -
Net cash flow from inventories (4,530) 5,834
Net cash flow from trade and other receivables 46,023 (51,167)
Net cash flow from trade and other payables (43,073) 50,275
Net cash flow from provisions (8,009) (1,851)
Other adjustments (137) (473)
Cash generated from operations 112,949 115,825
Income taxes paid (18,611) (21,408)
Net cash flow from operating activities 94,338 94,417
Investing activities
Interest received 1,598 1,615
Increase in current asset investments (15,000) -
Proceeds from disposal of a subsidiary, net of cash disposed of 56,145 -
Acquisition of subsidiaries, net of cash acquired - (465)
Proceeds from disposal of property, plant and equipment 653 44
Purchases of property, plant and equipment (13,303) (12,189)
Proceeds from disposal of intangible assets - 1
Purchases of intangible assets (7,294) (5,494)
Net cash flow from investing activities 22,799 (16,488)
Financing activities
Interest paid (2,171) (1,275)
Dividends paid to equity shareholders of the parent 7 (23,474) (24,673)
Return of Value (97,916) -
Expenses on Return of Value (753) -
Proceeds from share issues 5,332 1,791
Purchase of own shares (9,778) (2,283)
Repayment of capital element of finance leases (3,223) (4,983)
Repayment of loans (1,713) (7,767)
New borrowings 1,030 3,908
Net cash flow from financing activities (132,666) (35,282)
(Decrease)/increase in cash and cash equivalents (15,529) 42,647
Effect of exchange rates on cash and cash equivalents (1,937) (3,835)
Cash and cash equivalents at the beginning of the year 129,146 90,334
Cash and cash equivalents at the year end 111,680 129,146
1 Authorisation of financial statements and statement of compliance with IFRS
The consolidated Financial Statements of Computacenter plc (Parent Company)
for the year ended 31 December 2015 were authorised for issue in accordance
with a resolution of the Directors on 11 March 2016. The balance sheet was
signed on behalf of the Board by MJ Norris and FA Conophy. Computacenter plc
is a limited company incorporated and domiciled in England whose shares are
publicly traded.
The Group's Financial Statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union
(IFRS) as they apply to the Financial Statements of the Group for the year
ended 31 December 2015 and applied in accordance with the Companies Act 2006.
2 Summary of significant accounting policies
Basis of preparation
The summary financial information set out above does not constitute the
Group's statutory financial statements for the years ended 31 December 2015 or
2014. Statutory consolidated Financial Statements for the Group for the year
ended 31 December 2014, prepared in accordance with adopted IFRS, have been
delivered to the Registrar of Companies and those for 2015 will be delivered
in due course. The auditors have reported on those accounts; their report was
(i) unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of any emphasis without qualifying their
opinion and (iii) did not contain a statement under Section 498 (2) or (3) of
the Companies Act 2006.
The financial information for the year ended 31 December 2015 has been
prepared by the directors based upon the results and position that are
reflected in the consolidated Financial Statements of the Group.
The consolidated Financial Statements are presented in Pound Sterling (£) and
all values are rounded to the nearest thousand (£'000) except when otherwise
indicated.
Significant accounting policies
The accounting policies adopted in the preparation of this summary financial
information are consistent with those followed in preparation of the Group's
consolidated Financial Statements for the year ended 31 December 2015.
In line with UK Corporate Governance Code requirements, the Directors have
made enquiries concerning the potential of the business to continue as a going
concern. Enquiries included a review of performance in 2015, 2016 annual
plans, a review of working capital including the liquidity position, financial
covenant compliance and a review of current cash levels.
As a result, they have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Given this expectation they have continued to adopt the going concern basis in
preparing the Financial Statements.
Critical judgements and estimates
The preparation of Financial Statements requires Management to exercise
judgement in applying the Group's accounting policies. It also requires the
use of estimates and assumptions that affect the reported amounts of assets,
liabilities, income and expenses. Due to the inherent uncertainty in making
these critical judgements and estimates, actual outcomes could be different.
Critical Estimates
Estimates and underlying assumptions are reviewed on an ongoing basis, with
revisions recognised in the year in which the estimates are revised and in any
future years affected. The areas involving significant risk resulting in a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year are as follows:
Impairment of intangible assets, goodwill and other non-current assets
Determining whether goodwill, intangible assets and other non-current assets
are impaired requires an estimation of their recoverable amount which is the
higher of either the value in use to the cash-generating units (CGU) to which
these assets belong or the fair value less costs of disposal. The value in use
calculation requires appropriate forecasts of future cash flows expected to
arise for the CGU and the selection of suitable discount rates and future
growth rates. The Group reviews impairment of these assets at least on an
annual basis, or more frequently if there is an indicator of impairment.
Further detail on the impairment testing of intangible assets, goodwill and
non-current assets is disclosed in note 15 to the Annual Report and Accounts
(see note 2).
Provisions
Provisions are established by the Group based on Management's assessment of
relevant information and advice available at the time of preparing the
Financial Statements. Outcomes are uncertain and dependent on future events.
Where outcomes differ from Management's expectations, differences from the
amount initially provided will impact the income statement in the year the
outcome is determined.
As disclosed in note 24 to the Annual Report and Accounts (see note 2), the
Group's provisions principally relate to obligations arising from onerous
lease property provisions, customer contract provisions, restructuring
provisions and retirement benefit obligations. Further details of specific
estimates used in arriving at these provisions are provided in the note.
Providing for doubtful debts
The Group provides services and equipment to business and public sector
customers, mainly on credit terms. Management know that certain debts due to
us will not be paid through the default of a small number of our customers.
Estimates, based on our historical experience, are used in determining the
level of debts that we believe will not be collected. These estimates include
such factors as the current state of the economy, particular industry issues
and the individual credit risk assessed against each customer. Refer to note
25 to the Annual Report and Accounts (see note 2) for further details on
credit risk.
The value of the provision for doubtful debts is disclosed in note 18 to the
Annual Report and Accounts (see note 2).
Taxation
In arriving at the current and deferred tax liability the Group has taken
account of tax issues that are subject to ongoing discussions with the
relevant tax authorities. Liabilities have been calculated based on
Management's assessment of relevant information and advice. Where outcomes
differ from the amounts initially recorded, such differences impact current
and deferred tax amounts in the year the outcome is determined.
Further details on the deferred tax balances held at 31 December 2015 are
disclosed in note 5d.
Revenue recognition
For a limited number of Services contracts, an estimate of the total contract
costs and total contract revenues is required to determine the stage of
completion.
The Group accounts for these contracts using the percentage-of-completion
(units of work) method, recognising revenue and direct costs as performance on
the contract progresses through the recorded utilisation of our services. This
method places considerable importance on accurate estimates of the extent of
progress towards completion of the contract and may involve estimates on the
scope of services required for fulfilling the
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