REG - Computacenter - 2015 Final Results <Origin Href="QuoteRef">CCC.L</Origin> - Part 3
11/03/2016 07:05
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contractually defined
obligations. These significant estimates include total contract costs, total
contract revenues, contract risks, including technical risks, and other
judgements. Under the percentage-of-completion method, changes in estimates
may lead to an increase or decrease in revenue recognised at a point in time.
When the outcome of the contract cannot be estimated reliably, revenue is
recognised only to the extent that expenses incurred are eligible to be
recovered. No revenue is recognised if there are significant uncertainties
regarding recovery of the consideration.
Critical Judgements
Judgements made by Management in the process of applying the Group's
accounting policies that have the most significant effect on the amounts
recognised in the Financial Statements:
Exceptional items
Management is required to exercise its judgement in the classification of
certain items as exceptional and outside of the Group's adjusted results.
The Group presents as exceptional items on the face of the income statement,
those material items of income and expense which, because of the nature and
expected infrequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better elements of financial
performance in the year, so as to facilitate comparison with prior years and
to assess better trends in financial performance.
Management have considered the materiality, infrequency and nature of the
French Social Plan against the requirements and guidance provided by IAS 1,
our Group accounting policies and recent press releases from the Financial
Reporting Council (FRC). Management judged that classifying the scale and
transformative nature of the restructuring programme in France and the
subsequent expense related to the French Social Plan as an exceptional item in
the income statement provides the best guidance as to the underlying
profitability trends within the Group and to present the results of the Group
in accordance with the policy above.
During 2015 the reversal of the unutilised portion of the onerous Services
contracts provision was classified as an exceptional item as the original
expense relating to the provision was classified as such in 2013.
Adjusted measures
The Group uses a number of non-Generally Accepted Accounting Practice
(non-GAAP) financial measures in addition to those reported in accordance with
IFRS. The Directors believe that these non-GAAP measures, listed below, are
important when assessing the underlying financial and operating performance of
the Group.
Adjusted revenue, adjusted Services revenue, adjusted Professional Services
revenue, adjusted Supply Chain revenue, and adjusted administrative expenses
excludes the revenue and administrative expenses from a disposed subsidiary,
RDC, for both the current year and the comparative reporting year. RDC was
sold on 2 February 2015.
Adjusted operating profit or loss, adjusted profit or loss before tax,
adjusted profit or loss for the year, adjusted earnings per share and adjusted
diluted earnings per share are, as appropriate, each stated before:
exceptional and other adjusting items including gain or loss on business
disposals, amortisation of acquired intangibles, utilisation of deferred tax
assets (where initial recognition was as an exceptional item or a fair value
adjustment on acquisition), and the related tax effect of these exceptional
and other adjusting items, as Management do not consider these items when
reviewing the underlying performance of the segment or the Group as a whole.
Each of these measures also excludes the results of RDC for both the current
and comparative periods.
Additionally, adjusted operating profit or loss includes of the interest paid
on customer-specific financing (CSF) which Management considers to be a cost
of sale.
A reconciliation between key adjusted and statutory measures is provided
within the Group Finance Director's Review. Further detail is also provided in
note 3, segment information.
3 Segment information
For Management purposes, the Group is organised into geographical segments,
with each segment determined by the location of the Group's assets and
operations. The Group's business in each geography is managed separately and
held in separate statutory entities.
No operating segments have been aggregated to form the below reportable
operating segments.
Management monitors the operating results of its geographical segments
separately for the purposes of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on adjusted
operating profit or loss which is measured differently from statutory
operating profit or loss in the consolidated Financial Statements as defined
above.
Segmental performance for the years ended 31 December 2015 and 2014 was as
follows:
Year ended 31 December 2015
UK£'000 Germany£'000 France£'000 Belgium£'000 Total£'000
Revenue
Adjusted Supply Chain revenue 875,041 820,196 335,024 33,686 2,063,947
Adjusted Services revenue
Adjusted Professional Services revenue 137,390 107,416 16,101 1,645 262,552
Managed Services revenue 394,943 272,006 46,934 13,785 727,668
Total adjusted Services revenue 532,333 379,422 63,035 15,430 990,220
Total adjusted revenue 1,407,374 1,199,618 398,059 49,116 3,054,167
RDC
Supply Chain revenue 3,158 - - - 3,158
Professional Services revenue 290 - - - 290
Total RDC revenue 3,448 - - - 3,448
Statutory revenue 1,410,822 1,199,618 398,059 49,116 3,057,615
Results
Adjusted gross profit 216,445 147,346 32,083 6,258 402,132
Adjusted administrative expenses (157,110) (119,937) (33,715) (4,263) (315,025)
Adjusted operating profit/(loss) 59,335 27,409 (1,632) 1,995 87,107
Adjusted net interest 601 (577) (178) (79) (233)
Adjusted profit/(loss) before tax 59,936 26,832 (1,810) 1,916 86,874
Exceptional items:
- onerous contracts trading losses - (1,123) - - (1,123)
- onerous contracts provision for future losses - 1,559 - - 1,559
- exceptional losses on redundancy and other restructuring costs - - (1,465) - (1,465)
Total exceptional items - 436 (1,465) - (1,029)
Exceptional gain on disposal of a subsidiary 42,155 - - - 42,155
Amortisation of acquired intangibles (361) (1,116) - (76) (1,553)
RDC 320 - - - 320
Statutory profit/(loss) before tax 102,050 26,152 (3,275) 1,840 126,767
The reconciliation for adjusted operating profit to statutory operating profit
as disclosed in the Consolidated Income Statement is as follows:
UK£'000 Germany£'000 France£'000 Belgium£'000 Total£'000
Adjusted operating profit/(loss) 59,335 27,409 (1,632) 1,995 87,107
Add back interest on CSF 56 284 - - 340
Amortisation of acquired intangibles (361) (1,116) - (76) (1,553)
Exceptional items - 436 (1,465) - (1,029)
RDC 320 - - - 320
Statutory operating profit/(loss) 59,350 27,013 (3,097) 1,919 85,185
Other segment information
Property, plant and equipment 34,037 14,286 7,210 1,599 57,132
Investment property 10,260 - - - 10,260
Intangible assets 63,173 16,520 56 1,784 81,533
Capital expenditure:
Property, plant and equipment 5,904 5,224 1,307 868 13,303
Software 6,052 1,186 50 6 7,294
Depreciation of property, plant and equipment 10,667 6,121 1,687 410 18,885
Depreciation of investment property 227 - - - 227
Amortisation of software 11,059 635 59 5 11,758
Share-based payments 4,095 542 33 - 4,670
Year ended 31 December 2014
UK£'000 Germany£'000 France£'000 Belgium£'000 Total£'000
Revenue
Adjusted Supply Chain revenue 878,145 774,913 393,406 34,580 2,081,044
Adjusted Services revenue
Adjusted Professional Services revenue 125,610 108,950 19,752 2,113 256,425
Managed Services revenue 368,663 283,203 57,957 15,979 725,802
Total adjusted Services revenue 494,273 392,153 77,709 18,092 982,227
Total adjusted revenue 1,372,418 1,167,066 471,115 52,672 3,063,271
RDC
Supply Chain revenue 41,197 - - - 41,197
Professional Services revenue 3,291 - - - 3,291
Total RDC revenue 44,488 - - - 44,488
Statutory revenue 1,416,906 1,167,066 471,115 52,672 3,107,759
Results
Adjusted gross profit 209,555 151,682 31,757 6,120 399,114
Adjusted administrative expenses (148,827) (124,906) (40,592) (4,057) (318,382)
Adjusted operating profit/(loss) 60,728 26,776 (8,835) 2,063 80,732
Adjusted net interest 929 452 (929) (125) 327
Adjusted profit/(loss) before tax 61,657 27,228 (9,764) 1,938 81,059
Exceptional items:
- onerous contracts trading losses - (3,824) - - (3,824)
- onerous contracts provision for future losses - 5,364 - - 5,364
- exceptional losses on redundancy and restructuring costs - - (9,128) - (9,128)
Total exceptional items - 1,540 (9,128) - (7,588)
Amortisation of acquired intangibles (551) (1,232) - (85) (1,868)
RDC 4,815 - - - 4,815
Statutory profit/(loss) before tax 65,921 27,536 (18,892) 1,853 76,418
Subsequent to the disposal of RDC, Management does not consider the results of
RDC when reviewing the results of its segments or Group as a whole. Therefore
to be consistent and enable comparison, 2014 segmental information is revised
to present RDC results separately in line with 2015 segmental information.
This revised analysis may be reconciled to segmental information presented in
the published 2014 accounts as follows:
UK segment as presented in 2014 published Financial Statements£'000 Adjust for RDC£'000 UK segment as presented above£'000
Results
Adjusted gross profit 219,789 (10,234) 209,555
Adjusted administrative expenses (154,259) 5,432 (148,827)
Adjusted operating profit 65,530 (4,802) 60,728
Adjusted net interest 942 (13) 929
Adjusted profit before tax 66,472 (4,815) 61,657
Amortisation of acquired intangibles (551) - (551)
RDC - 4,815 4,815
Statutory profit before tax 65,921 - 65,921
The reconciliation for adjusted operating profit to statutory operating profit
as disclosed in the Consolidated Income Statement is as follows:
UK£'000 Germany£'000 France£'000 Belgium£'000 Total£'000
Adjusted operating profit/(loss) 60,728 26,776 (8,835) 2,063 80,732
Add back interest on CSF 178 391 - - 569
Amortisation of acquired intangibles (551) (1,232) - (85) (1,868)
Exceptional items - 1,540 (9,128) - (7,588)
RDC 4,802 - - - 4,802
Statutory operating profit/(loss) 65,157 27,475 (17,963) 1,978 76,647
Other segment information
Property, plant and equipment 53,719 16,540 8,009 1,672 79,940
Intangible assets 70,431 17,833 69 2,011 90,344
Capital expenditure:
Property, plant and equipment 4,802 7,344 759 1,172 14,077
Software 5,078 412 4 - 5,494
Depreciation of property, plant and equipment 10,719 7,505 2,047 127 20,398
Amortisation of software 10,018 706 83 - 10,807
Share-based payments 2,531 215 64 - 2,810
Information about major customers
Included in revenues arising from the UK segment are revenues of approximately
£281 million (2014: £285 million) which arose from sales to the Group's
largest customer. For the purposes of this disclosure a single customer is
considered to be a group of entities known to be under common control. This
customer consists of entities under control of the UK Government.
4 Exceptional items
2015£'000 2014£'000
Operating profit
Redundancy and other restructuring costs (1,465) (9,128)
Onerous contracts 436 1,540
(1,029) (7,588)
Exceptional gain on disposal of a subsidiary 42,155 -
Exceptional items before taxation 41,126 (7,588)
Income tax
Tax on onerous contracts included in operating profit (52) (185)
Exceptional items after taxation 41,074 (7,773)
2015:
Included within the current year are the following exceptional items:
· Computacenter (UK) Limited disposed of its wholly owned subsidiary
RDC during the year. An exceptional gain of £42.2 million was recognised on
the disposal. See note 16 to the Annual Report and Accounts (see note 2) for
details. In line with our accounting policy, Management has elected under IAS
1 to report this gain as a separate line item on the face of the consolidated
income statement due to the materiality, infrequency and nature of this gain.
As noted within the summary of significant accounting policies the adjusted
results exclude this gain. This election provides the best guidance to users
of our external reporting as to the underlying profitability trends within the
Group and to present the results of the Group in a way that is fair, balanced
and understandable.
· Computacenter France continued with its substantial restructuring
exercise that began in 2014. An additional cost of £1.5 million has been
recognised as part of the Social Plan. As the redundancy and restructuring
costs were treated as an exceptional item on recognition, the further
provision has also been treated as an exceptional item. Within this balance
Management has provided for legal expenses of £0.4 million directly related to
individual legal challenges to termination settlements provided under the
Social Plan.
· The Group's remaining two onerous contracts continue to show
operational improvements therefore Management has revised its estimates of the
losses to be incurred. On this basis the Group has released £0.4 million of
the provision. As the onerous contracts were treated as an exceptional item on
recognition, the write back of the provision has also been released as an
exceptional item.
2014:
Included within the prior year are the following exceptional items:
Computacenter France incurred an exceptional charge of £9.1 million relating
to the estimated costs of a comprehensive restructuring plan with the Group's
French business. The substantial restructuring exercise aimed to reduce the
cost base, improve the competitiveness and therefore improve the profitability
of the Group's French business.
In line with our accounting policy, Management elected under IAS 1 to report
this provision under the heading of 'Exceptional Items' due to the
materiality, infrequency and nature of the restructuring plan. This election
provides the best guidance to users of our external reporting as to the
underlying profitability trends within the Group and to present the results of
the Group in a way that is fair, balanced and understandable. Excluding the
costs related to the restructuring plan is consistent with treatment of
similar costs in prior years and presents the adjusted profit before tax in a
way that enables users to better assess the quality of the Group's underlying
profitability.
The Group's three onerous contracts performed within the provisions previously
taken, and one of these contracts came to an end as of 30 September 2014. A
related legal dispute with a sub-contractor on one of these contracts, that
was previously provided for, was resolved. Given these factors and ongoing
operational improvements within the two remaining contracts, Management
revised its estimates of the losses to be incurred. On this basis the Group
released £1.5 million of the provision. As the onerous contracts were treated
as an exceptional item on recognition, the write back of the provision was
also released as an exceptional item.
5 Income tax
a) Tax on profit from ordinary activities
2015£'000 2014£'000
Tax charged in the consolidated income statement
Current income tax
UK corporation tax 14,639 17,048
Foreign tax
- operating results before exceptional items 6,485 5,820
- exceptional items - (459)
Total foreign tax 6,485 5,361
Adjustments in respect of prior years (232) 191
Total current income tax 20,892 22,600
Deferred tax
Operating results before exceptional items
- origination and reversal of temporary differences (1,276) (1,340)
- adjustments in respect of prior years (276) (604)
- changes in recoverable amounts of deferred tax assets 4,265 -
Exceptional items 52 644
Total deferred tax 2,765 (1,300)
Tax charge in the consolidated income statement 23,657 21,300
b) Reconciliation of the total tax charge
2015£'000 2014£'000
Accounting profit before income tax 126,767 76,418
At the UK standard rate of corporation tax of 20.25 per cent (2014: 21.49 per cent) 25,670 16,422
Expenses not deductible for tax purposes 1,187 1,173
Non-deductible element of share-based payment charge 128 60
Adjustments in respect of current income tax of previous years (599) (510)
Higher tax on overseas earnings 3,140 1,417
Other differences (39) (591)
Effect of changes in tax rate on deferred tax 220 -
Utilisation of previously unrecognised deferred tax assets - (3,238)
Overseas tax not based on earnings 1,065 1,345
Non-chargeable exceptional gain on disposal of subsidiary (8,529) -
Deferred tax not recognised on current year losses 1,414 5,222
At effective income tax rate of 18.7 per cent (2014: 27.9 per cent) 23,657 21,300
c) Tax losses
Deferred tax assets of £7.4 million (2014: £12.2 million) have been recognised
in respect of losses carried forward.
In addition, at 31 December 2015, there were unused tax losses across the
Group of £130.9 million (2014: £115.8 million) for which no deferred tax asset
has been recognised. Of these losses, £33.5 million (2014: £35.9 million)
arise in Germany and £93.3 million (2014: £78.9 million) arise in France. A
significant proportion of the losses arising in Germany have been generated in
statutory entities that no longer have significant levels of trade. The
remaining unrecognised tax losses relate to other loss-making overseas
subsidiaries.
d) Deferred tax
Deferred income tax at 31 December relates to the following:
Consolidated balance sheet Consolidated income statement and other comprehensive income
2015£'000 2014£'000 2015£'000 2014£'000
Deferred income tax liabilities
Accelerated capital allowances 1,197 1,781 (584) (189)
Revaluations of foreign exchange contracts to fair value 370 - 370 -
Amortisation of intangibles 661 976 (315) (309)
Gross deferred income tax liabilities 2,228 2,757
Deferred income tax assets
Relief on share option gains 2,590 1,645 (945) (502)
Other temporary differences 4,348 3,205 (364) (1,118)
Revaluations of foreign exchange contracts to fair value 176 54 (122) 273
Losses available for offset against future taxable income 7,431 12,155 4,725 545
Gross deferred income tax assets 14,545 17,059
Deferred income tax (credit)/charge 2,765 (1,300)
Net deferred income tax assets 12,317 14,301
Disclosed on the consolidated balance sheet
Deferred income tax assets 12,840 15,049
Deferred income tax liabilities (523) (748)
Net deferred income tax assets 12,317 14,301
At 31 December 2015, there was no recognised or unrecognised deferred income
tax liability (2014: £nil) for taxes that would be payable on the unremitted
earnings of the Group's subsidiaries as the Group expects that future
remittances of earnings from its overseas subsidiaries will be covered by the
UK dividend exemption.
e) Impact of rate change
The main rate of UK Corporation will be reduced to 19 per cent from 1 April
2017 and 18 per cent from 1 April 2020, as enacted in the Finance Act 2015.
The deferred tax in these Financial Statements reflects this.
6 Earnings per share
Earnings per share ('EPS') amounts are calculated by dividing profit
attributable to ordinary equity holders by the weighted average number of
ordinary shares outstanding during the 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.
2015£'000 2014£'000
Profit attributable to equity holders of the parent 103,110 55,117
2015£'000 2014£'000
Basic weighted average number of shares (excluding own shares held) 122,948 135,985
Effect of dilution:
Share options 2,655 1,784
Diluted weighted average number of shares 125,603 137,769
2015pence 2014pence
Basic earnings per share 83.9 40.5
Diluted earnings per share 82.1 40.0
Return of Value
On 20 February 2015 (the Issue Date), Computacenter Plc (the Company) effected
a capital reorganisation (the Capital Reorganisation) in order to facilitate
the Return of Value to shareholders. As part of the Capital Reorganisation,
each existing ordinary share of 62/3 each was subdivided into 15 undesignated
shares of 4/9 pence each, and immediately following such subdivision every 17
undesignated shares were consolidated into 1 new ordinary share of 75/9 pence
each. Additionally on the Issue Date, an amount of 14,500 standing to the
credit of the Company's share premium account was applied to pay up in full
145,000,000 non-redeemable B shares with a nominal value of 0.01 pence each.
The total number of B shares actually issued to shareholders were 139,012,000.
Immediately after the issue of B shares relating to Return of Value, total B
shares of the Company were converted to deferred shares.
As part of the Return of Value, Shareholders were able to elect between the
following alternatives in relation to their B Shares:
Alternative 1 - Single B Share Dividend (Income)
Shareholders could elect to receive the Single B Share Dividend of 71.9 pence
per B Share in respect of all of their B Shares.
Alternative 2 - Purchase Offer (Capital)
Alternatively, Shareholders (other than US Shareholders) could elect for all
of their B Shares to be purchased by Investec Bank plc, acting as principal on
23 February 2015, at 71.9 pence per B Share, free of all dealing expenses and
commissions.
7 Dividends paid and proposed
2015£'000 2014£'000
Declared and paid during the year:
Equity dividends on Ordinary Shares:
Final dividend for 2014: 13.1 pence (2013: 12.3 pence) 15,776 16,636
First interim dividend for 2015: 6.4 pence (2014: 5.9 pence) 7,698 8,037
23,474 24,673
Proposed (not recognised as a liability as at 31 December)
Equity dividends on Ordinary Shares:
Second interim dividend for 2015: 15.0 pence (2014: nil pence) 18,399 -
Final dividend for 2015: nil pence (2014: 13.1 pence) - 15,737
8 Analysis of changes in net funds
At 1 January2015£'000 Cash flowsin year£'000 Non-cashflow£'000 Exchangedifferences£'000 At 31 December2015£'000
Cash and short-term deposits 129,865 (16,113) - (1,982) 111,770
Bank overdraft (719) 584 - 45 (90)
Cash and cash equivalents 129,146 (15,529) - (1,937) 111,680
Current asset investments - 15,000 - - 15,000
Bank loans (120) 107 - 8 (5)
Other loans non-CSF (517) 517 - - -
Net funds excluding CSF 128,509 95 - (1,929) 126,675
CSF leases (6,696) 2,193 (175) 305 (4,373)
Customer specific other loans (2,616) 1,089 - - (1,514)
Total CSF (9,312) 3,282 (175) 305 (5,887)
Net funds 119,197 3,377 (175) (1,624) 120,788
At 1 January2014£'000 Cash flowsin year£'000 Non-cashflow£'000 Exchangedifferences£'000 At 31 December2014£'000
Cash and short-term deposits 91,098 42,682 - (3,915) 129,865
Bank overdraft (764) (35) - 80 (719)
Cash and cash equivalents 90,334 42,647 - (3,835) 129,146
Bank loans (63) (61) - 4 (120)
Other loans non-CSF - (517) - - (517)
Net funds excluding CSF 90,271 42,069 - (3,831) 128,509
CSF leases (11,577) 4,983 (342) 240 (6,696)
Customer specific other loans (7,280) 4,664 - - (2,616)
Total CSF (18,857) 9,647 (342) 240 (9,312)
Net funds 71,414 51,716 (342) (3,591) 119,197
9 Related party transactions
During the year the Group entered into transactions, in the ordinary course of
business, with related parties. Transactions entered into are as described
below:
Biomni provides the Computacenter e-procurement system used by many of
Computacenter's major customers. An annual fee has been agreed on a commercial
basis for use of the software for each installation. Both PJ Ogden and PW
Hulme are Directors of and have a material interest in Biomni Limited.
Triage Services Limited mainly provides IT hardware repair services to many of
Computacenter's customers. MJ Norris is a Director of and has a material
interest in Triage Services Limited.
The table below provides the total amount of transactions that have been
entered into with related parties for the relevant financial year:
Salesto relatedparties£'000 Purchasesfrom relatedparties£'000 Amounts owed to relatedparties£'000
Biomni Limited 10 946 29
Triage Services Limited - 43 43
10 989 72
Terms and conditions of transactions with related parties
Sales to and purchases from related parties are made on terms equivalent to
those that prevail in arm's length transactions. Outstanding balances at the
year-end are unsecured and settlement occurs in cash. There have been no
guarantees provided or received for any related party receivables. The Group
has not recognised any provision for doubtful debts relating to amounts owed
by related parties. This assessment is undertaken each financial year through
examining the financial position of the related party and the market in which
the related party operates.
This information is provided by RNS
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