REG - Computacenter - Final Results 2016 <Origin Href="QuoteRef">CCC.L</Origin> - Part 2
13/03/2017 07:06
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Consolidated 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.
Overall, this resulted in a 21.1 per cent decrease in adjusted1 operating
profit from £59.3 million to £46.8 million. However, it should be noted that
the UK's 2015 profit also benefited by £3 million from the unusual timing of
contract lifecycles, which was first disclosed in the 2015 Interim Report.
Germany
German revenue built on the strong performance of 2015, increasing by 16.1 per
cent in actual currency2 during 2016 to £1,392.2 million (2015: £1,199.6
million). In constant currency2, revenue increased 3.1 per cent.
Supply Chain revenue growth in 2016 was 1.2 per cent on a constant currency2
basis and 13.9 per cent in actual currency2, continuing the momentum seen in
2015. The performance through the middle two quarters of the year gave hope of
an even stronger performance, but growth plateaued towards the end of the
fourth quarter. Whilst the growth was steady overall, the customer-driven
switch away from Workplace solutions towards Security, Networking and Cloud
infrastructure created some portfolio volatility. The business managed these
changes successfully, to achieve the margin increases expected with the move
towards more complex infrastructure sales and achieve an overall contribution
increase.
Services revenues were stronger, with 7.2 per cent growth in 2016 on a
constant currency2 basis and an increase of 20.7 per cent in actual currency2,
with both Professional Services and Managed Services delivering strong
performances.
The business entered the year focused on renewing a number of critical Managed
Services contracts, to refresh the Contract Base. This was largely achieved,
with the business simultaneously winning a number of new significant contracts
to further extend the Contract Base. The contract wins in 2015 resulted in 14
separate contracts being taken on during 2016, and whilst these were largely
successful and all contributed to revenue growth, several contracts
experienced cost overruns, which have been incurred in the 2016 results.
Furthermore, several contracts that have completed take-on and are in the
'run' operating phase have disappointing levels of margin, albeit in
environments with high customer satisfaction. Two of these contracts have had
revenue recognition adjustments made in 2016, within operating costs, for
future operating losses. Continuing negotiations with these customers present
future improvement opportunities. The pipeline remains strong into 2017.
Our Professional Services business was strong throughout the year and
continued the momentum seen in the second half of 2015. The number of Managed
Services contracts taken on provided volumes for the central engines that were
overlaid on the growth in our consulting and project business, driven
primarily by building cloud infrastructure environments for our customers.
Given the challenges in managing the change in focus of the Supply Chain
business away from Workplace and towards more complex infrastructure, the
business was pleased to achieve a substantial increase in margins through the
year. Given the strong growth within both Professional Services and Managed
Services revenue, and the less than desirable performance of a number of
Managed Services contracts, the slight reduction in Services margin was an
acceptable performance. There is some disappointment in knowing what could
have been achieved without the difficulties certain contracts experienced,
which indicates the continuing room for improvement in German Services margin
performance. Overall adjusted1 gross profit margin within the German business
increased from 12.3 per cent in 2015 to 12.6 per cent in 2016, with increasing
Supply Chain margins being slightly diluted by the Services margin
performance.
Administrative expenses increased by 3.4 per cent in constant currency2 and by
16.5 per cent in actual currency2, as the business experienced increasing
challenges in skilled resource recruitment and higher bonuses paid as a
reflection of the overall performance. The German Segment adjusted1 operating
profit increased by 29.6 per cent from £27.4 million to £35.5 million in
actual currency2, which was an increase of 15.4 per cent in constant
currency2.
France
Revenue in the French Segment increased by 1.7 per cent to £404.7 million
(2015: £398.1 million) during 2016 but declined by 9.7 per cent in constant
currency2, due primarily to the continued deliberate contraction of the Supply
Chain business. Supply Chain revenue decreased by 11.0 per cent on a constant
currency2 basis and increased by 0.2 per cent in actual currency2.
Management's strategy over the last three years has been to reposition the
Supply Chain business away from low-margin, high working capital intensive
activities, and to only serve the Group's core target market of large
customers. This strategy is nearly complete and, other factors being constant,
we feel we are nearing the bottom of the revenue performance readjustment
cycle. After reducing the core portfolio of customers, the business is now
concentrating on growing this refocused target market to reduce dependencies
on several large customers that are now responsible for significant volumes
and margins. Services revenues reduced by 2.6 per cent during 2016 in constant
currency2 and increased by 9.5 per cent in actual currency2. Whilst
Professional Services volumes continued to decline and further exacerbated the
levels of utilisation and over-resourcing in this area, the Managed Services
business saw encouraging signs of growth. Several important new contract wins
and a more positive pipeline provide some encouragement, albeit tempered by
several Managed Services contracts that are up for renewal in 2017 that are
critical to the Group overall.
Given the headwinds created by the continued underperformance of the
Professional Services business, it was pleasing to see an overall increase in
service margins for France. This is being driven by the continued refinement
of local execution of key Managed Services contracts. Whilst service margins
are still significantly lower than those across the rest of the Group, further
improvement is available as the business continues to reduce the cost base
associated with the over-capacity in its Professional Services business, as
evidenced by the restructure of 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 exceeded those of
both the UK and Germany, demonstrating the effectiveness of Management's
French recovery strategy. Overall gross margin increased from 8.1 per cent to
10.5 per cent.
Administrative expenses increased by 4.5 per cent on a constant currency2
basis and by 17.5 per cent in actual currency2. This increase was driven by
non-exceptional restructuring costs alongside increased variable bonus,
commission and 'interressement' costs, largely contributing to, or driven by,
the increased performance of the business. As indicated in our 2016 Interim
Report, an additional cost of £1.1 million in strategic restructuring has been
recorded as
an exceptional item in 2016.
Overall, the French adjusted1 operating profit increased from a loss in actual
currency2 of £1.6 million in 2015 to a profit of £2.9 million in 2016,
materially improving the overall performance of the Group.
Belgium
Revenue increased by 15.7 per cent to £56.8 million (2015: £49.1 million) in
actual currency2 and increased by 2.7 per cent in constant currency2.
Supply Chain revenue was flat on a constant currency2 basis and increased by
12.5 per cent in actual currency2, in an environment of increasing competition
and slowing IT spend, due to local economic difficulties.
Services revenue increased by 9.0 per cent on a constant currency2 basis
during 2016, which was an increase of 22.7 per cent in actual currency2. In
2015, the business adopted a strategy to renew existing contracts to underpin
the Contract Base, albeit at reduced overall ACV reflecting shared contract
efficiencies made for these long-term customers. This strategy has been
validated, with a number of in-life contract scope extensions increasing the
overall volumes seen. The take-on of a significant new customer during 2016,
and the win towards the end of the year of another major customer, should
sustain growth into 2017.
Overall, Belgium increased its gross profit margin from 12.7 per cent in 2015
to 13.2 per cent in 2016.
Administrative expenses increased 35.6 per cent in constant currency2 and by
51.2 per cent in actual currency2, primarily due to continuing costs as the
business moved fully onto the Group ERP system and the Group Operating Model
that it underpins. These costs include strategic local investments, to provide
the scale to fully benefit from leveraging Group expertise.
Overall there has been a 50.0 per cent decrease in adjusted1 operating profit,
from £2.0 million in 2015 to £1.0 million in 2016, which was a 57.1 per cent
decrease in constant currency2.
Adjusted1 revenue
Half 1£m Half 2£m Total£m
2014 1,435.4 1,627.9 3,063.3
2015 1,438.0 1,616.2 3,054.2
2016 1,478.2 1,767.2 3,245.4
2016/15 2.8% 9.3% 6.3%
Adjusted1 profit before tax
Half 1 Half 2 Total
£m % Revenue £m % Revenue £m % Revenue
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%
2016 25.3 1.7% 61.1 3.5% 86.4 2.7%
2016/15 (13.1%) 5.7% (0.6%)
Adjusted1 Revenue by country
2016 2015
Half 1 Half 2 Total Half 1 Half 2 Total
£m £m £m £m £m £m
UK 652.7 739.0 1,391.7 688.7 718.7 1,407.4
Germany 607.8 784.4 1,392.2 535.4 664.2 1,199.6
France 193.2 211.5 404.7 189.8 208.3 398.1
Belgium 24.5 32.3 56.8 24.1 25.0 49.1
Total 1,478.2 1,767.2 3,245.4 1,438.0 1,616.2 3,054.2
Adjusted1 operating profit by country
2016
Half 1 Half 2 Total
£m % Revenue £m % Revenue £m % Revenue
UK 14.0 2.1% 32.8 4.4% 46.8 3.4%
Germany 9.5 1.6% 26.0 3.3% 35.5 2.5%
France 0.9 0.5% 2.0 0.9% 2.9 0.7%
Belgium 0.6 2.4% 0.4 1.2% 1.0 1.8%
Total 25.0 1.7% 61.2 3.5% 86.2 2.7%
2015
Half 1 Half 2 Total
£m % Revenue £m % Revenue £m % Revenue
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%
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 customer-specific financing
(CSF) is included within net funds3 for statutory reporting purposes, this
balance is offset by contracted future receipts from customers. 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 customers' marginal cost of finance.
Net finance income
Net finance income amounted to £0.1 million on a statutory basis in the year
(2015: expense of £0.6 million) and was impacted by a number of one-off items,
including historical interest charges of £0.3 million relating to routine tax
audits completed in Computacenter Germany.
The comparative 2015 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 of £0.7 million, which was finalised and agreed
in June 2015.
On an adjusted1 basis, prior to interest on CSF, net finance income was £0.3
million in 2016 (2015: expense of £0.2 million).
Taxation
The adjusted1 tax charge on ordinary activities was £20.6 million (2015: £19.8
million), on an adjusted1 profit before tax of £86.4 million (2015: £86.9
million). The Effective Tax Rate (ETR) was 23.8 per cent (2015: 22.8 per
cent). The 2016 ETR is higher than the previous year, primarily due to
increasing cash tax in Germany as the historical tax losses readily available
for use expire. The ETR is lower than Management's expectations, due to a
change in the geographic split of adjusted1 profit before tax, with France's
return to profit being the primary driver.
The statutory tax charge was £23.3 million (2015: £23.7 million) on statutory
profit before tax of £87.1 million (2015: £126.8 million). This represents a
statutory tax rate of 26.8 per cent (2015: 18.7 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 was not subject to taxation and
is the major reason for the movement in the statutory tax rate.
The Group's adjusted1 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 adjusted1 tax measure. In 2016, this impact increased the
statutory tax rate by 3.0 per cent.
From 2017 onwards the Group expects an increasing adjusted1 tax rate, as the
impact of the German loss utilisation manifests itself through an increasing
cash tax payment. In 2017, the German statutory ETR is expected to increase to
circa 28 per cent from circa 26 per cent in 2016, then increase to and settle
at circa 32 per cent in 2018, with a direct effect on the Group adjusted1 ETR.
At 2016 levels of profitability, the increase in German cash tax would raise
the Group adjusted1 ETR from 23.8 per cent in 2016 to circa 28 per cent by
2019, without regard to other factors that could influence the Group's
adjusted1 ETR.
The Group Tax Policy was updated 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 2016 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. For 2016, a revised Group Transfer
pricing policy was implemented that resulted in a royalty payment charged by
Computacenter UK to Computacenter Germany equivalent to one per cent of
revenue or £14.2 million. This royalty charge was driven by the Group's Tax
Advisors' interpretation of the Organisation for Economic Co-operation and
Development (OECD) base erosion and profit shifting requirements and as it is
purely tax compliance driven, it is recorded outside of the Segmental results
found in note 4 to the summary financial information included within this
announcement, Segment Information.
The table below reconciles the statutory tax charge to the adjusted1 tax
charge for the year ended 31 December 2016.
2016£'000 2015£'000
Statutory tax charge 23,300 23,658
Adjustments to exclude:
Utilisation of German deferred tax assets (2,580) (4,045)
Tax on amortisation of acquired intangibles 72 314
Tax on exceptional items (192) (52)
RDC - (71)
Adjusted1 tax charge 20,600 19,804
Statutory ETR 26.8% 18.7%
Adjusted1 ETR 23.8% 22.8%
Exceptional items
The gain from net exceptional items in the year was £1.4 million (2015: £41.1
million).
The most significant item within exceptional items during 2016 was the £3.0
million release of historical fair value adjustments made on the 2009
acquisition of becom Informationssysteme GmbH (becom). This followed the final
payment of the contingent consideration to the vendor during 2016. For further
information, refer to note 5 to the summary financial information included
within this announcement. Due to the materiality and nature of the item,
Management decided to classify this one-off gain as exceptional.
As outlined in our 2016 Interim Report, a Line of Business restructure was
agreed with Computacenter's business in France. This initiative to reduce the
under-utilised resources within our Professional Services arm completed in the
second half of 2016, for a cost of £1.0 million. This restructure has seen
Computacenter France exit the direct provision of Group Field Maintenance
Services. This Line of Business had materially decreased over time, leading to
significant resourcing overcapacity. Any residual customer requirement will be
sub-contracted to an existing third party provider. Additionally, as also
detailed in the 2016 Interim Report, further provisioning to the existing 2014
Social Plan in France of £0.1 million was also required during the period.
During the third quarter, a Group subsidiary domiciled in Luxembourg,
Computacenter PSF SA, was disposed of for a net loss of £0.5 million. As the
principal item in the year to 31 December 2015 was the gain on the disposal of
a Group subsidiary, R.D. Trading Limited (RDC), of £42.2 million, the current
year loss on disposal of a subsidiary has also been classified as
exceptional.
Earnings per share
Adjusted1 diluted earnings per share increased slightly from 53.4 pence in
2015 to 54.0 pence in 2016, due to a lower weighted average number of shares.
The statutory diluted earnings per share decreased from 82.1 pence in 2015 to
52.3 pence in 2016, primarily driven by the impact of the gain on disposal of
RDC in 2015.
2016 2015
Basic weighted average number of shares (excluding own shares held) (no. '000) 120,540 122,948
Effect of dilution:
Share options 1,344 2,655
Diluted weighted average number of shares 121,884 125,603
Statutory profit for the year attributable to equity holders of the parent (£'000) 63,773 103,110
Basic earnings per share (pence) 52.9 83.9
Diluted earnings per share (pence) 52.3 82.1
Adjusted1 profit for the year attributable to equity holders of the parent (£'000) including RDC 65,829 67,320
Adjusted1 basic earnings per share (pence) including RDC 54.6 54.8
Adjusted1 diluted earnings per share (pence) including RDC 54.0 53.6
RDC - 248
Adjusted1 profit for the year attributable to equity holders of the parent (£'000) 65,829 67,072
Adjusted1 basic earnings per share (pence) 54.6 54.6
Adjusted1 diluted earnings per share (pence) 54.0 53.4
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
by adjusted1 diluted earnings per share. In 2016, the cover was 2.4 times
(2015: 2.5 times).
The Group remains highly cash generative and net funds3 continue to build on
the Consolidated 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
standalone Balance Sheet of the Parent Company, and as at 31 December 2016,
the distributable reserves were approximately £262.5 million (2015: £166.7
million).
The Board is pleased to propose a final dividend of 15.0 pence per share. The
interim dividend paid on 14 October 2016 was 7.2 pence per share. Together
with the final dividend, this brings the total ordinary dividend for 2016 to
22.2 pence per share, representing a 3.7 per cent increase on the 2015 total
dividend per share of 21.4 pence.
Subject to the approval of shareholders at our Annual General Meeting on 4 May
2017, the proposed dividend will be paid on Friday 9 June 2017. The dividend
record date is set as Friday 12 May 2017, and the shares will be marked
ex-dividend on 11 May 2017.
Net funds
Net funds3 increased from £120.8 million at the end of 2015 to £144.5 million
as at 31 December 2016.
The Group had no material borrowings.
The Group saw a reduction in its overall cash generation from operations in
2016, with net cash flow from operating activities of £68.2 million (2015:
£94.3 million).
Whilst it is encouraging that the year end cash position was strong, it is
clear that we have experienced increased cash volatility due to higher product
sales, particularly in the fourth quarter, and have agreed longer credit terms
with some new product-based customers. In addition we have seen in the second
half of the year an adverse revenue mix changing towards customers with longer
credit terms.
Capital expenditure in the year was £22.6 million (2015: £20.6 million),
primarily on investments in IT equipment in our business and software tools,
to enable us to deliver improved service to our customers, and on the
refurbishment of our London office at 100 Blackfriars Road.
Whilst the cash position remains robust, the Group continued to benefit from
the extension of an improvement in credit terms with a significant vendor.
This was equivalent to £69.1 million as at 31 December 2016, an increase of
£21.3 million from 31 December 2015 (£47.8 million). 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. The
amount of benefit at any one time fluctuates as a direct result of the volume
of business with that vendor.
CSF decreased in the year from £5.9 million to £3.9 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.
At 31 December 2016 the Group had interest-bearing trade payables of £13.3
million (2015: nil) where we have taken advantage of supplier extended
payment-term credit facilities within the UK. This was a short term position
taken to provide additional operational payment flexibility and was closed out
immediately after balance sheet date. The interest bearing extended-term
payable balances remain classified within trade payables, and are therefore
net funds3 enhancing, at 31 December 2016.
The Group's net funds3 position takes account of current asset investments of
£30 million (2015: £15 million). Net funds3 excluding CSF increased from
£126.7 million to £148.4 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 geographies such as South Africa, it has entered into forward
exchange contracts to help manage cost increases due to currency movements.
The Group's policy remains that it will not undertake speculative trading in
financial instruments. 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 funds3 position was maintained throughout 2016, and at year end
was £148.4 million excluding CSF, and £144.5 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 an informal cash pooling arrangement for the majority of Group
entities. During 2015, the Group extended an existing specific committed
facility of £40.0 million for a three-year term 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 United Kingdom, Germany and France, with
smaller operations in Belgium, China, Hungary, India, Malaysia, Mexico, South
Africa, Spain, Switzerland and the United States of America.
The Group uses an informal cash pooling facility to ensure that its operations
outside 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 2016, the Group recognised a gain of £5.3 million (2015: £1.2 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 weakening of sterling,
particularly against the euro, positively impacted 2016 adjusted1 operating
profit by circa £3.5 million.
Credit risk
The Group principally manages credit risk through customer credit limits. The
credit limit is set for each customer based on the creditworthiness of the
customer, assessed by using credit rating agencies, 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 4 to the summary financial
information included within this announcement, Segment Information, 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 'provide 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
13 March 2017
Consolidated income statement
For the year ended 31 December 2016
Note 2016£'000 2015£'000
Revenue 4 3,245,397 3,057,615
Cost of sales (2,817,350) (2,654,468)
Gross profit 428,047 403,147
Administrative expenses (341,668) (315,380)
Operating profit:
Before amortisation of acquired intangibles and exceptional items 86,379 87,767
Amortisation of acquired intangibles (710) (1,553)
Exceptional items 5 1,876 (1,029)
Operating profit 87,545 85,185
Exceptional (loss)/gain on disposal of a subsidiary 5 (522) 42,155
Finance revenue 1,629 1,598
Finance costs (1,579) (2,171)
Profit before tax 87,073 126,767
Income tax expense:
Before exceptional items (23,108) (23,605)
Exceptional items 5 (192) (52)
Income tax expense 6 (23,300) (23,657)
Profit for the year 63,773 103,110
Attributable to:
Equity holders of the parent 63,773 103,110
Profit for the year 63,773 103,110
Earnings per share:
- basic 7 52.9p 83.9p
- diluted 7 52.3p 82.1p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
2016£'000 2015£'000
Profit for the year 63,773 103,110
Items that may be reclassified to consolidated income statement
Gain arising on cash flow hedge, net of amount transferred to consolidated income statement 5,353 1,191
Income tax effect (879) (244)
4,474 947
Exchange differences on translation of foreign operations 29,374 (7,783)
33,848 (6,836)
Items not to be reclassified to consolidated income statement:
Remeasurement of defined benefit plan (710) 24
Other comprehensive income for the year, net of tax 33,138 (6,812)
Total comprehensive income for the year 96,911 96,298
Attributable to:
Equity holders of the parent 96,909 96,299
Non-controlling interests 2 (1)
96,911 96,298
Consolidated balance sheet
AS AT 31 December 2016
2016£'000 2015£'000
Non-current assets
Property, plant and equipment 63,020 57,132
Investment property 10,033 10,260
Intangible assets 76,285 81,533
Investment in associate 55 40
Deferred income tax asset 10,537 12,840
159,930 161,805
Current assets
Inventories 44,015 45,647
Trade and other receivables 740,371 621,756
Prepayments 58,959 44,735
Accrued income 80,554 61,785
Derivative financial instruments 8,127 2,220
Current asset investments 30,000 15,000
Cash and short-term deposits 118,676 111,770
1,080,702 902,913
Total assets 1,240,632 1,064,718
Current liabilities
Trade and other payables 679,538 581,855
Deferred income 102,112 93,861
Financial liabilities 2,352 4,279
Derivative financial instruments 273 922
Income tax payable 17,410 10,981
Provisions 3,075 4,050
804,760 695,948
Non-current liabilities
Financial liabilities 1,832 1,703
Provisions 5,732 5,094
Deferred income tax liabilities 341 523
7,905 7,320
Total liabilities 812,665 703,268
Net assets 427,967 361,450
Capital and reserves
Issued share capital 9,299 9,297
Share premium 3,913 3,830
Capital redemption reserve 74,957 74,957
Own shares held (12,115) (10,571)
Translation and hedging reserves 22,685 (11,161)
Retained earnings 329,214 295,086
Shareholders' equity 427,953 361,438
Non-controlling interests 14 12
Total equity 427,967 361,450
Approved by the Board on 13 March 2017
MJ Norris FA Conophy
Chief Executive Officer Group Finance Director
Consolidated statement of changes in equity
For the year ended 31 December 2016
Attributable to equity holders of the parent
Issued share capital£'000 Sharepremium£'000 Capitalredemptionreserve£'000 Ownsharesheld£'000 Translation and hedgingreserves£'000 Retained earnings£'000 Total£'000 Non- controlling interests£'000 Totalequity£'000
At 1 January 2016 9,297 3,830 74,957 (10,571) (11,161) 295,086 361,438 12 361,450
Profit for the year - - - - - 63,773 63,773 - 63,773
Other comprehensive income - - - - 33,846 (710) 33,136 2 33,138
Total comprehensive income - - - - 33,846 63,063 96,909 2 96,911
Cost of share-based payments - - - - - 3,345 3,345 - 3,345
Tax on share-based payments - - - - - 236 236 - 236
Exercise of options - - - 7,449 - (5,714) 1,735 - 1,735
Issue of shares 2 83 - - - - 85 - 85
Purchase of own shares - - - (8,993) - - (8,993) - (8,993)
Equity dividends - - - - - (26,802) (26,802) - (26,802)
At 31 December 2016 9,299 3,913 74,957 (12,115) 22,685 329,214 427,953 14 427,967
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
Consolidated cash flow statement
For the year ended 31 December 2016
2016£'000 2015£'000
Operating activities
Profit before tax 87,073 126,767
Net finance (income)/ costs (50) 573
Depreciation of property, plant and equipment 15,631 18,885
Depreciation of investment property 227 227
Amortisation of intangible assets 13,197 13,311
Share-based payments 3,345 4,670
Loss on disposal of property, plant and equipment 168 388
Loss on disposal of intangibles 25 9
Exceptional loss/(gain) from disposal of a subsidiary 522 (42,155)
Net cash flow from inventories 7,185 (4,530)
Net cash flow from trade and other receivables (73,980) 46,023
Net cash flow from trade and other payables 31,377 (43,073)
Net cash flow from provisions (2,149) (8,009)
Other adjustments 374 (137)
Cash generated from operations 82,945 112,949
Income taxes paid (14,711) (18,611)
Net cash flow from operating activities 68,234 94,338
Investing activities
Interest received 1,629 1,598
Increase in current asset investments (15,000) (15,000)
Proceeds from disposal of a subsidiary, net of cash disposed of (319) 56,145
Proceeds from disposal of property, plant and equipment 112 653
Purchases of property, plant and equipment (17,641) (13,303)
Purchases of intangible assets (4,943) (7,294)
Net cash flow from investing activities (36,162) 22,799
Financing activities
Interest paid (1,579) (2,171)
Dividends paid to equity shareholders of the parent (26,802) (23,474)
Return of Value - (97,916)
Expenses on Return of Value - (753)
Proceeds from share issues 1,820 5,332
Purchase of own shares (8,993) (9,778)
Repayment of capital element of finance leases (2,679) (3,223)
Repayment of loans (1,101) (1,713)
New borrowings 1,512 1,030
Net cash flow from financing activities (37,822) (132,666)
Decrease in cash and cash equivalents (5,750) (15,529)
Effect of exchange rates on cash and cash equivalents 12,746 (1,937)
Cash and cash equivalents at the beginning of the year 111,680 129,146
Cash and cash equivalents at the year end 118,676 111,680
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2016
1 AUTHORISATION OF FINANCIAL STATEMENTS AND STATEMENT OF COMPLIANCE WITH
IFRS
The Consolidated Financial Statements of Computacenter plc (Parent Company or
the Company) and its subsidiaries (the Group) for the year ended 31 December
2016 were authorised for issue in accordance with a resolution of the
Directors on 13 March 2017. The Consolidated 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 (IFRS) as adopted by the European
Union as they apply to the Financial Statements of the Group for the year
ended 31 December 2016 and applied in accordance with the Companies Act 2006.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in the preparation of these Consolidated
Financial Statements are consistent with those followed in the preparation of
the Consolidated Financial Statements for the year ended 31 December 2016,
except for the adoption of new and amended IFRS that are applicable to the
Group for the year ended 31 December 2016. Adoption of these standards did not
have any effect on the financial performance or position of the Group. They
may however give rise to additional disclosures.
The other pronouncements which came into force during the year were not
relevant to the Group.
The following new or revised standards and interpretations issued by the
International Accounting Standards Board have not been applied in preparing
these accounts as their effective dates fall in years beginning after 31
December 2016.
Effective for the year ending 31 December 2017
IAS 16 and IAS 38 Amendments relating to Clarification of Acceptable Methods
of Depreciation and Amortisation.
IAS 27 Amendments relating to Equity Method in Separate Financial Statements.
IFRS 10 and IAS 28 Amendments relating to Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture. IFRS 11 Amendments
relating to Acquisitions of Interests in Joint Operations.
Effective for the year ending 31 December 2018
IFRS 15 Revenue from Contracts with Customers (IFRS 15).
IFRS 9 Financial Instruments - Finalised version, incorporating requirements
for classification and measurement, impairment, general hedge accounting and
derecognition.
Effective for the year ending 31 December 2019
IFRS 16 Leases.
Management's assessment of the impact and accepted best practice is ongoing.
Certain of these standards and interpretations will, when adopted, require
addition to or amendment of disclosures in the accounts. With the exception of
IFRS 15 and IFRS 16, it is not anticipated that the adoption of these
standards and interpretations will have a material impact on the Group's
Financial Statements.
Management is currently assessing the implication of IFRS 16 on the Group
Financial Statements but has not yet formed a conclusion.
IFRS 15, Revenue from Contracts with Customers, becomes effective for the
Group on 1 January 2018. The guidance permits two methods of adoption:
retrospectively to each prior reporting period presented (full retrospective
method), or retrospectively with the cumulative effect of initially applying
the guidance recognised at the date of initial application (the cumulative
catch-up transition method).
The Group is currently performing a detailed analysis of the impact of IFRS 15
on its business. The preliminary analysis has identified various areas in
which adjustments may be required in revenue and cost recognition and in the
related procedures and processes. The most significant of these is expected to
be that some of our Supply Chain revenue, which has previously been presented
gross, will be presented net under IFRS 15 as 'agency' revenue. This change is
likely to impact our Software sales and certain Resold Services, which
contributed £337 million and £298 million to the Group's gross revenue in 2016
respectively.
Additional areas of difference identified include:
• the method in which we recognise revenue over time on some of
our Managed Services and Professional Services contracts may need to change,
for example to utilise output-driven as opposed to input-driven methods to
determine the amount of revenue to be recognised, or to recognise revenue upon
achievement of certain performance milestones in the contracts;
• the identification and recognition of revenue for separate,
distinct performance obligations in our Professional Services contracts may
change, for example in areas such as Transition and Transformation; and
• certain costs, such as win fees (a form of commission), may
need to be capitalised and spread over the life of the contract, as opposed to
being expensed as incurred.
The impact of these items, individually or in aggregate, may be material to
the revenue and profits in any given financial year, however there will be no
impact on cash in any given financial year nor is there expected to be any
ultimate long-term impact on the cumulative profits of the Group. The Group's
IFRS 15 impact assessment and implementation work remains ongoing, alongside a
quantification exercise which is expected to be finalised during the year
ending 31 December 2017.
2.1. Basis of preparation
The summary financial information set out above does not constitute the
Group's statutory Consolidated Financial Statements for the years ended 31
December 2016 or 2015. Statutory Consolidated Financial Statements for the
Group for the year ended 31 December 2015, prepared in accordance with adopted
IFRS, have been delivered to the Registrar of Companies and those for 2016
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 summary financial information for the year ended 31 December 2016 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 prepared on the historical cost
basis other than derivative financial instruments, which are stated at fair
value.
The Consolidated Financial Statements are presented in Pounds Sterling (£) and
all values are rounded to the nearest thousand (£'000) except when otherwise
indicated.
2.2. Basis of consolidation
The Consolidated Financial Statements comprise the Financial Statements of
Computacenter plc and its subsidiaries as at 31 December each year. The
Financial Statements of subsidiaries are prepared for the same reporting year
as the Parent Company, using existing GAAP in each country of operation.
Adjustments are made on consolidation for differences that may exist between
the respective local GAAPs and IFRS.
All intra-group balances, transactions, income and expenses and profit and
losses resulting from intra-group transactions have been eliminated in full.
Subsidiaries are consolidated from the date on which the Group obtains control
and cease to be consolidated from the date on which the Group no longer
retains control. Non-controlling interests represent the portion of profit or
loss and net assets in subsidiaries that is not held by the Group and is
presented separately within equity in the Consolidated Balance Sheet,
separately from parent shareholders equity.
2.2.1. Foreign currency translation
The Group's presentation currency is Pounds Sterling (£). Each entity in the
Group determines its own functional currency and items included in the
Financial Statements of each entity are measured using that functional
currency. Transactions in foreign currencies are initially recorded in the
functional currency at the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency rate of exchange ruling at the
balance sheet date. All differences are taken to the Consolidated Income
Statement.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate as at the date of initial
transaction.
The functional currencies of the material overseas subsidiaries are Euro (E),
US Dollar (US$), South African Rand (ZAR) and Swiss Franc (CHF). As at the
reporting date, the assets and liabilities of these overseas subsidiaries are
translated into the presentation currency of the
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