REG - Computacenter - Final Results 2023
20/03/2024 07:00
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RNS Number : 5043H Computacenter PLC 20 March 2024
Computacenter plc
Incorporated in England
Registration number: 03110569
LEI: 549300XSXUZ1I19DB105
ISIN: GB00BV9FP302
Computacenter plc
Final results for the year ended 31 December 2023
Computacenter plc ("Computacenter" or the "Group"), a leading independent
technology and services provider, today announces audited results for the year
ended 31 December 2023.
Change in constant currency(1)
Financial highlights 2023 2022 Change
Technology Sourcing gross invoiced income (£m) 8,444.9 7,481.6 12.9% 13.1%
Services revenue (£m) 1,636.5 1,570.6 4.2% 3.1%
Gross invoiced income(1) (£m) 10,081.4 9,052.2 11.4% 11.3%
Technology Sourcing revenue (£m) 5,286.3 4,899.9 7.9% 8.1%
Services revenue (£m) 1,636.5 1,570.6 4.2% 3.1%
Revenue (£m) 6,922.8 6,470.5 7.0% 6.9%
Gross profit (£m) 1,044.0 947.1 10.2% 9.8%
Gross margin (%) 15.1% 14.6% +44bps
Adjusted(1) operating profit (£m) 271.5 269.1 0.9% 0.6%
Adjusted(1) profit before tax (£m) 278.0 263.7 5.4% 5.1%
Adjusted(1) diluted earnings per share (p) 174.8 169.7 3.0%
Dividend per share (p) 70.0 67.9 3.1%
Net cash inflow from operating activities (£m) 410.6 242.1 69.6%
Adjusted(1) net funds (£m) 459.0 244.3 87.9%
Statutory measures 2023 2022 Change
Operating profit (£m) 268.8 256.4 4.8%
Profit before tax (£m) 272.1 249.0 9.3%
Diluted EPS (p) 173.2 159.1 8.9%
Net funds (£m) 343.6 117.2 193.2%
(1)Alternative performance measures (APMs) and other terms are used throughout
this announcement. These are defined in full in the appendix to this
announcement.
Financial highlights - 19(th) consecutive year of adjusted EPS growth
· Another record year of revenue, gross profit and adjusted EPS while
continuing to invest for future growth
· Gross invoiced income of over £10bn, up 11.4%, driven by strong
growth in Technology Sourcing and solid growth in Services, with gross profit
up 10.2%
· Adjusted PBT up 5.4% reflecting higher levels of strategic
investment; adjusted diluted EPS up 3.0%
· Excellent cash generation driven by effective inventory management
with adjusted net funds increasing by £214.7m to £459.0m
Operational and strategic highlights
· Strong Group performance reflects the benefits of our integrated
Technology Sourcing and Services model as well as our broad geographic
diversity
· Technology Sourcing gross invoiced income growth of 13.1% in constant
currency, driven by resilient large enterprise spend and further market share
gains
· Services revenue growth of 3.1% in constant currency, with gross
margin performance improving across the year
· Continued momentum in Germany with adjusted operating profit increase
of 13.8% in constant currency, reinforcing our leading market position
· Strong growth in North America with adjusted operating profit
increase of 24.0% in constant currency, demonstrating the scale of the
long-term growth opportunity
· £28.1m of investment in strategic initiatives (2022: £14.8m) to
improve our capabilities, enhance productivity and secure future growth
· 2032 mid-term and 2040 Net Zero targets approved by SBTi as part of
our Sustainability roadmap
Shareholder returns
· Proposed final dividend of 47.4p, increasing the full year dividend
by 3.1% to 70.0p
· Given the strength of our balance sheet we continue to evaluate a
number of capital allocation options
Outlook
· Expect to make further progress in 2024 with growth weighted to the
second half of the year, reflecting a significantly more challenging
comparison in the first half of the year than in the second half
Mike Norris, Chief Executive Officer of Computacenter plc, commented:
"We delivered our nineteenth consecutive year of growth in adjusted earnings
per share, outperforming our markets in 2023, as our large customers continued
to invest heavily in new technology. We managed an uncertain macroeconomic
backdrop and inflationary pressures effectively, reduced our inventory
significantly, resulting in a record net cash position. As planned, we stepped
up our investment in strategic initiatives to underpin our competitiveness and
future growth.
"Overall we expect 2024 to be another year of progress with growth weighted to
the second half, while continuing to invest for future growth. Looking further
ahead, the combination of the strength of our integrated Technology Sourcing
and Services model and our geographic diversity, gives us continued confidence
in our long-term growth prospects."
Enquiries:
Computacenter plc
Mike Norris, CEO +44 (0) 1707 631 601
Chris Jehle, CFO +44 (0) 1707 631 346
Christian Cowley, Investor Relations +44 (0) 1707 631 132
Teneo
James Macey White / Matt Low +44 (0) 207 353 4200
About Computacenter:
Computacenter is a leading independent technology and services provider,
trusted by large corporate and public sector organisations. We are a
responsible business that believes in winning together for our people and our
planet. We help our customers to Source, Transform and Manage their technology
infrastructure to deliver digital transformation, enabling people and their
business. Computacenter plc is a public company quoted on the London Stock
Exchange (CCC.L) and a member of FTSE 250. Computacenter employs over 20,000
people worldwide.
DISCLAIMER - FORWARD LOOKING STATEMENTS
This announcement includes statements that are, or may be deemed to be,
'forward-looking statements'. These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
'anticipates', 'believes', 'estimates', 'expects', 'intends', 'may', 'plans',
'projects', 'should' or 'will', or, in each case, their negative or other
variations or comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These forward-looking
statements include all matters that are not historical facts. They appear in a
number of places throughout this announcement and include, but are not limited
to, statements regarding the Group's intentions, beliefs or current
expectations concerning, amongst other things, results of operations,
prospects, growth, strategies and expectations of its respective businesses.
By their nature, forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances. Forward-looking
statements are not guarantees of future performance and the actual results of
the Group's operations and the development of the markets and the industry in
which they operate or are likely to operate and their respective operations
may differ materially from those described in, or suggested by, the
forward-looking statements contained in this announcement. In addition, even
if the results of operations and the development of the markets and the
industry in which the Group operates are consistent with the forward-looking
statements contained in this announcement, those results or developments may
not be indicative of results or developments in subsequent periods. A number
of factors could cause results and developments to differ materially from
those expressed or implied by the forward-looking statements, including,
without limitation, those risks in the risk factor section of the
Computacenter plc 2023 Annual Report and Accounts, as well as general economic
and business conditions, industry trends, competition, changes in regulation,
currency fluctuations or advancements in research and development.
Forward-looking statements speak only as of the date of this announcement and
may, and often do, differ materially from actual results. Any forward-looking
statements in this announcement reflect the Group's current view with respect
to future events and are subject to risks relating to future events and other
risks, uncertainties and assumptions relating to the Group's operations,
results of operations and growth strategy.
Neither Computacenter plc nor any of its subsidiaries undertakes any
obligation to update the forward-looking statements to reflect actual results
or any change in events, conditions or assumptions or other factors unless
otherwise required by applicable law or regulation.
Chief Executive Officer's review
2023 was another record year for Computacenter, with further growth in gross
profit, adjusted profit before tax and adjusted earnings per share. This
reflects the strength and benefits of our integrated Technology Sourcing and
Services model, as well as our geographic diversity. We achieved this result
despite the uncertain macroeconomic backdrop and elevated inflation, while
increasing our investment in strategic initiatives to secure future growth.
By staying faithful to our strategy and focusing on customer needs, over the
last five years we have grown organically and also significantly expanded our
geographic footprint through targeted acquisitions in North America. This
enlarged platform has delivered a step change in profits, with adjusted profit
before tax and adjusted earnings per share more than doubling over the same
period.
We now have more than 20,000 colleagues worldwide and their commitment to our
customers drives our success. We believe in empowering our people and helping
them to make good business decisions. With an average service length of over
nine years, many have devoted significant parts of their careers to
Computacenter and I thank them all for their contribution and agility,
especially in navigating the various significant unexpected events of recent
years.
Outperforming our markets
In 2023 we grew faster than both the market and our major competitors and have
gained further market share as a result. We benefited from our target market,
the largest organisations, proving the most resilient and continuing to invest
in technology, combined with the breadth of our capability across Technology
Sourcing and Services. Notable features of 2023 have been the ongoing growth
of our share with some existing large customers, in addition to acquiring some
strategically significant new customers, with whom we expect to grow in the
coming years. We are grateful for their faith in us and look forward to
supporting their ambitions.
Technology Sourcing
Technology Sourcing grew by 12.9% on a gross invoiced income basis and by
13.1% in constant currency, fuelled by strong growth in networking and data
center. Workplace-related activity remained subdued following the significant
spend during the pandemic but will naturally recover as customers refresh the
workplace environment and implement new technologies, including AI. During the
year, and notably in the first half of 2023 we benefited from exceptional
demand from certain customers, which we expect to normalise in 2024. Gross
margin performance was robust, reflecting our scale benefits and changes in
product mix.
Industry supply chains and customer ordering behaviours have returned to
pre-Covid normalised levels, with customers no longer placing long lead-time
orders due to the improved availability of product. Backlogs for most of our
geographies have therefore decreased and as a consequence we responded by
managing down our inventory position very effectively, which has helped drive
very strong cash generation.
We continue to invest in and develop our value-added services to ensure our
customers have consistently great experiences. Our Integration Centers are
benefiting from investment in greater automation to improve efficiency and
agility. Our international reach, which matches the footprint of many of our
large multi-national customers, is helping us to win new business and is an
ongoing source of differentiation. Our Circular Services capability is also
helping customers deliver on their sustainability agendas.
Services
Services, which encompasses Professional and Managed Services, is critical to
our business model. In 2023 Services revenue increased by 4.2% and by 3.1% in
constant currency. Our Services gross margin was impacted by inflation during
the year. However it remains healthy versus historical levels and improved as
the year progressed, as we made efficiencies and took advantage of contractual
opportunities to recover cost increases.
Customers value our highly skilled consultants, engineers and programme
managers across our Professional Services business, using them to deploy new
digital technology, from complex network and data center integrations to
workplace rollouts. Professional Services has been a strong driver of growth
for Services over the last five years, and we see it as an important future
revenue and profit-growth driver for the Group.
In 2023, we grew Professional Services revenue by 6.6% and by 5.7% in constant
currency, fuelled by another strong performance in Germany, which reflects the
strength and breadth of our capability and depth of relationships with large
corporate and public sector customers. We are committed to growing and
enhancing Professional Services by having a broader and scalable portfolio
across all countries, based on a common operating framework and a strong sales
approach.
Managed Services generates visible long-term contract revenue, as we maintain,
support and manage our customers' IT infrastructure and operations, to improve
quality and flexibility while reducing costs. These services are important to
the longevity of our customer relationships, with more than three-quarters of
our major European headquartered customers contracting with us, supported by
our Service Centers globally.
In 2023, we grew Managed Services revenue by 2.5% and by 1.3% in constant
currency. Managed Services contracts generally have specific cost of living
adjustment clauses within them that enable us to increase our rate card prices
and recover increases in our costs at a later date which helped our margin
performance as the year progressed. Towards the end of the year, we won some
significant new contracts which will contribute from 2024 onwards.
To offer increased value to our customers we continue to invest in new and
improved systems, greater automation and offshoring. We now have nearly 1,400
colleagues in India versus 1,100 at the end of 2022, serving our customers.
The market opportunity for Managed Services is substantial in our core areas
of workplace, networking, infrastructure and cloud.
Diversified across markets
Germany had an excellent year, continuing its strong growth trajectory in 2023
as it consolidated its market-leading position for large corporate and public
sector customers. Germany's performance reflects our deep capabilities in
technology areas such as networking and cyber and our ability to support
customers at every stage of the IT lifecycle.
In North America, the largest market globally, we have a clear long-term
growth opportunity as we continue to leverage Computacenter's broader
capability and resources. In 2023, we further integrated the businesses we
have acquired and at the same time delivered a strong financial performance.
We are also pleased to see positive momentum in France, where our enlarged
business is starting to deliver on its potential, as well as strong
performances in Belgium and the Netherlands. Our UK performance was
disappointing, reflecting in part higher exposure to subdued workplace demand.
We responded by making changes to our UK leadership team and our sales
approach and saw the benefits start to come through at the end of last year.
Investing to secure future growth
2023 has been a year of significant additional investment in critical
strategic initiatives, which will improve our capabilities and productivity,
enable us to further leverage AI solutions, and underpin our systems for the
future. This investment increased by £13m to £28m and we expect to maintain
our spending at this level in 2024.
Most of the investment is focused on our systems. We are not just upgrading
but also moving to new systems to obtain the security and support we need and
to develop competitive advantage through new toolsets and processes, all of
which will help secure future growth.
Cyber security remains one of the greatest risks to our business. It also
presents one of the greatest opportunities to differentiate ourselves from our
competitors, both through our own resilience and by helping our customers to
overcome the same challenges. We will continue to invest significantly to
mitigate cyber risks.
Strong inventory management driving excellent cash generation and balance
sheet strength
As noted above, the easing of supply chain challenges and better availability
of product in 2023 meant customers reverted to more normal ordering patterns
and we reduced our inventory significantly as a result. Consequently we
generated excellent levels of cash that exceeded our expectations.
The Group had £216.0m of inventory as at 31 December 2023, a decrease of
48.3% since 31 December 2022 (£417.7m). Adjusted net funds increased by
£214.7m to £459.0m at the year end.
The strength of our balance sheet provides us with significant optionality,
and we continue to evaluate a number of capital allocation options, including
potential inorganic growth and the return of surplus capital to shareholders.
Outlook
Looking ahead to 2024, in the context of a continuing uncertain macroeconomic
backdrop, the Group is well positioned to continue to compete and gain further
market share.
As anticipated, we expect to see Technology Sourcing volumes normalise in 2024
as some of the high-volume, lower-margin projects we delivered, especially in
the first half of 2023, were completed. In Services we expect continued growth
while inflationary pressures are expected to moderate further.
We will continue to invest in strategic initiatives to enhance our systems and
improve our competitive position to sustain our long-term performance. At the
same time, we are increasingly focused on delivering productivity benefits
across the Group.
Overall we expect to make further progress in 2024 with growth weighted to the
second half of the year, reflecting a significantly more challenging
comparison in the first half of the year than in the second half.
Looking further ahead, we are excited by the pace of innovation and growth in
demand for technology. With our strength in Technology Sourcing, Professional
Services and Managed Services, and focus on retaining and maximising customer
relationships over the long term, we believe that we are well placed to
deliver profitable growth and sustained cash generation.
Technical guidance for 2024:
· Strategic initiatives spend expected to be £28-30m
· Adjusted effective tax rate expected to be 28.5%-30.5%
· Capex expected to be £35-40m
· Dividend cover of 2-2.5x adjusted diluted EPS
Our strategic focus
Focus on Target Market Customers: We focus only on a target market of the
largest corporate and public sector organisations in each of our Sales
countries. These target market customers require us to offer significant
flexibility to meet their specific needs while also being competitive in each
part of our portfolio. We invest in sales and customer engagement teams to
build long-term relationships which earn customer loyalty. We work hard to get
to know our customers, understand their needs and put them at the heart of
everything we do.
Build Service Line scale and competitive advantage: We want to be the logical
choice for our target market customers in the activities in which we focus.
Our Service Lines of Technology Sourcing, Professional Services and Managed
Services are focused on building and leveraging capabilities to meet customer
needs efficiently and consistently and to build economic advantage.
Empower our People: We work hard to understand the needs of our customers and
allow our customer-facing people to make responsible decisions that help us
meet the needs of our customers faster. It is an essential part of our culture
and helps us to differentiate from our competition, ensuring that we are
focused on the needs of our target market customers and that our investments
deliver an effective return. We empower our customer-facing people, while
ensuring that all decisions are taken within a clear governance framework,
supported by strong customer profitability reporting and clear remuneration
plans.
We measure our strategic progress as follows:
Customer relationships: retain and maximise the relationships with our large
corporate and public sector customers over the long term
In 2023, we finished with 183 customers generating over £1m of gross profit,
a decline of five from the previous year. This decline is unusual in a year in
which we have maintained positive performance momentum. It is due to a
diversity of performance from our customer base - a small number of customers
have contributed significantly to our overall gross profit through significant
investment programmes, while others have temporarily fallen below the £1m
threshold, although they have continued to spend with us. While the decline is
due to customer spending patterns, we are not complacent about this measure
and have placed renewed focus on improvement in this KPI in the years ahead,
through both growth in spend with existing customers as well as new customer
acquisition. At the same time, we are pleased that the diversity and breadth
of our customer base has delivered resilience in our performance.
Services growth: lead with and grow Services
In 2023, we grew Services revenue by 3.1% in constant currency in the context
of a market where some services competitors have been showing revenue decline.
Group Professional Services revenue grew by 5.7% in constant currency, despite
a decline in the UK. Our Germany business, where we have built greater scale
and competitive advantage, continues to set a benchmark for the levels of
Professional Services growth achievable, with an increase of 13.5% in constant
currency. We believe that we can grow Professional Services across the Group
significantly. We have organised our previously disparate Professional
Services resources into a single Group Service Line to provide the necessary
focus and to leverage our success in Germany across the Group.
Group Managed Services revenue grew by 1.3% in constant currency. Our
Managed Services business has continued to make reasonable progress in
challenging market conditions. Despite the impact of inflation and resulting
upward pressure on our cost base, customers continue to expect productivity
gains through systems and automation, the development of which requires
sustained and consistent investment. We are particularly pleased with some new
Managed Services contract wins towards the end of 2023, which will support our
continued growth in the years ahead.
Productivity: increase the adjusted operating profit we retain as a proportion
of our gross profit
Productivity is an important driver of value for the Group and we have
broadened the way we measure this KPI. We are using gross profit conversion as
the best overall productivity measure for our business across all our
activities. It measures how much of our gross profit we convert into adjusted
operating profit and helps measure how effectively we use our scale to improve
operational leverage.
Management has already been incentivised on this KPI internally for some
years. Gross profit conversion increased to 30.1% in 2021, as a result of both
increased gross profit generation and improved Services productivity as a
result of the Covid-19 pandemic. In 2022, Services productivity returned to
more normal levels while inflation increased selling, general and
administrative costs, resulting in a decline of gross profit conversion to
28.4%.
At the end of 2022 and throughout 2023 we have increased central corporate
costs, primarily driven by the increased spend in strategic initiatives,
resulting in a reduction in gross profit conversion to 26.0%. We believe this
investment is essential to underpin our long-term competitiveness and will
continue at an increased level in 2024.
Responsible business
Computacenter continues to make good progress in line with our Sustainability
Strategy, maintaining Carbon Neutrality for Scope 1 and 2 emissions for the
second year. In 2023, we became one of the first in our industry to have our
near-term, long-term and 2040 Net Zero targets approved by SBTi. During the
same period, we saw our annual CDP disclosure ranking increase again, this
time to A-.
In parallel, we have been creating positive impact for our people, customers
and communities as part of our Social Strategy. Within our business, we have
increased the percentage of senior roles held by women and the percentage of
women across our workforce; we now have 1,400 more women than we did four
years ago. This is just one of the areas of progress across our Diversity and
Inclusion programmes.
We have also continued in our support of the communities around us, combining
fundraising for charities with our own outreach and volunteering initiatives.
During 2023, in the UK alone, we reached 21,135 young people through our
social outreach programmes delivered by our volunteer network.
Underpinning our responsible business approach is our Sustainable Operations
Strategy, which combines the systems and actions we need to ensure our
environmental, social and compliance goals are addressed across our business
and supply chain.
Summary of 2023 Group performance
In 2023, we continued to see strong demand for Technology Sourcing, with our
target market, the largest customers, proving the most resilient and
continuing to invest in technology. We grew our share within existing
customers and also acquired new customers. Our Services business delivered
solid growth during the year, with Professional Services revenue growing
faster than Managed Services.
Total gross invoiced income increased by 11.4% and by 11.3% in constant
currency and total revenue increased by 7.0% and by 6.9% in constant currency.
Gross profit increased by 10.2% on a reported basis and by 9.8% in constant
currency, driven by the strength of Technology Sourcing. Group gross margin
increased by 44 basis points to 15.1%, reflecting a 74 basis points increase
in Technology Sourcing and a 32 basis points decline in Services.
Adjusted operating profit increased by 0.9% on a reported basis and by 0.6% in
constant currency, largely reflecting the impact of inflation and incremental
investment in strategic initiatives. By geography, Germany and North America
delivered strong growth in adjusted operating profit, more than offsetting a
weaker performance in the UK.
Adjusted profit before tax increased by 5.4% on a reported basis and by 5.1%
in constant currency, benefiting from higher net finance income. Adjusted
diluted EPS increased by 3.0%, reflecting an increase in the effective tax
rate to 27.6% (2022: 25.5%). Profit before tax increased by 9.3%. The
difference between profit before tax and adjusted profit before tax relates to
the Group's net costs of £5.9m from exceptional and other adjusting items,
related to exceptional and other adjusting items associated with the
acquisitions of Pivot and BITS. Diluted EPS increased by 8.9%.
Our cash performance was excellent as we reduced inventory, resulting in an
increase of adjusted net funds of £214.7m to £459.0m.
Group performance
Results 2023 2022 Change Change in constant currency
£m £m
Technology Sourcing gross invoiced income 8,444.9 7,481.6 12.9% 13.1%
Services revenue 1,636.5 1,570.6 4.2% 3.1%
Professional Services revenue 678.8 636.6 6.6% 5.7%
Managed Services revenue 957.7 934.0 2.5% 1.3%
Total gross invoiced income 10,081.4 9,052.2 11.4% 11.3%
Technology Sourcing revenue 5,286.3 4,899.9 7.9% 8.1%
Services revenue 1,636.5 1,570.6 4.2% 3.1%
Professional Services revenue 678.8 636.6 6.6% 5.7%
Managed Services revenue 957.7 934.0 2.5% 1.3%
Total revenue 6,922.8 6,470.5 7.0% 6.9%
Gross profit 1,044.0 947.1 10.2% 9.8%
Adjusted total administrative expenses (772.5) (678.0) 13.9% 13.5%
Adjusted operating profit 271.5 269.1 0.9% 0.6%
Net adjusted finance income / (costs) 6.5 (5.4)
Adjusted profit before tax 278.0 263.7 5.4% 5.1%
Adjusted diluted earnings per share (p) 174.8 169.7 3.0%
Gross profit 1,044.0 947.1 10.2%
Total administrative expenses (783.3) (690.7) 13.4%
Other income related to acquisition of subsidiary 5.3 -
Gain on acquisition of subsidiary 2.8 -
Operating profit 268.8 256.4 4.8%
Net finance income / (costs) 3.3 (7.4)
Profit before tax 272.1 249.0 9.3%
Diluted EPS (p) 173.2 159.1 8.9%
Technology Sourcing
Technology Sourcing achieved strong growth during the year, driven by the
spread of the customer base across multiple market segments, technology lines
and geographies, which create durability and sustainability through
diversification. After a very strong performance in the first half driven by
certain high-volume projects, as expected, the second half saw more normalised
activity levels as these were completed.
Group Technology Sourcing gross invoiced income grew by 13.1% in constant
currency. Technology Sourcing gross margin increased by 74 basis points,
reflecting broad-based improvements largely offsetting the impact of certain
projects with lower-margin volumes, and a higher-software mix.
By technology area demand has been strongest in networking and data center.
Workplace has been subdued reflecting high levels of investment during the
pandemic. Customers continue to re-engineer IT structures and employ digital
transformation to cope with the ever-evolving technology landscape and the
need to reduce non-IT operating costs. The heightened cyber threat landscape
continues to drive demand in this area.
By geography, Germany and North America were the key drivers of growth. North
America benefited in particular from certain high-volume, lower-margin
projects which are expected to normalise in 2024.
Our product order backlog, which is the total value of committed outstanding
purchase orders placed with our technology vendors against non-cancellable
sales orders for delivery within 12 months, as at 31 December 2023, is
significantly lower than the prior-year equivalent. The reduction largely
reflects the completion of certain high-volume projects in North America and
the return to usual customer ordering behaviour as industry supply chains
returned to normal. The product order backlog at 31 December 2023 was
£1,222.3m, on a gross invoiced income basis, a 56.3% decrease since 31
December 2022 (£2,794.6m) in constant currency.
The Technology Sourcing backlog, alongside the Managed Services contract base
and the Professional Services forward order book, provide visibility of future
revenues in these areas.
Services
Our Services performance for the year was solid. Total Services revenue grew
by 3.1% in constant currency. Services gross margin decreased by 32 basis
points during the year, mainly reflecting the impact of inflation and some
onboarding costs for contracts won in 2022. We managed our margin recovery
more effectively across the year, resulting in a better margin performance in
the second half.
Professional Services revenue grew by 5.7% in constant currency and accounted
for 41% of total Services revenue. Germany, our largest source of Professional
Services revenue, grew strongly during the year across all solutions lines.
This outweighed the weaker performance in the UK, which reflected the softer
environment for workplace.
Managed Services revenue grew by 1.3% in constant currency and accounted for
59% of total Services revenue. Germany, our largest source of Managed Services
revenue, grew well during the year reflecting contracts won in 2022. The UK
experienced a slight decline in revenue in 2023, although a number of contract
wins towards the end of the year are expected to support growth in 2024 and
beyond.
Trading reviews by geography
United Kingdom
Results 2023 2022 Change
£m £m
Technology Sourcing gross invoiced income 1,938.1 1,864.2 4.0%
Services revenue 441.9 460.3 (4.0%)
Professional Services revenue 132.2 147.5 (10.4%)
Managed Services revenue 309.7 312.8 (1.0%)
Total gross invoiced income 2,380.0 2,324.5 2.4%
Technology Sourcing revenue 771.8 809.1 (4.6%)
Services revenue 441.9 460.3 (4.0%)
Professional Services revenue 132.2 147.5 (10.4%)
Managed Services revenue 309.7 312.8 (1.0%)
Total revenue 1,213.7 1,269.4 (4.4%)
Gross profit 250.8 259.2 (3.2%)
Adjusted administrative expenses (192.0) (178.7) 7.4%
Adjusted operating profit 58.8 80.5 (27.0%)
The UK delivered a weaker result in a soft market, especially for workplace
activity. Total gross invoiced income increased by 2.4% reflecting growth in
Technology Sourcing, partly offset by a 4.0% decline in Services revenue.
Total revenue decreased by 4.4% reflecting a higher mix of software. Gross
profit decreased by 3.2% with gross margin increasing by 24 basis points.
Administrative expenses increased by 7.4% largely reflecting inflation and
higher people costs, resulting in adjusted operating profit decreasing by
27.0%.
The UK market softened during the year due to unsettled economic conditions,
with businesses and organisations delaying project implementations and
investment decisions.
Early in the year, we implemented new leadership followed by significant
structural changes, to enhance our focus on our target market of large
corporate and public sector organisations and maximise growth. As part of
this, we expanded our sales sectors from four to five, allowing us to get
closer to our customers, better understand their needs and preferences, and
ultimately drive increased sales opportunities. While near-term demand remains
uncertain, we are encouraged by some significant Services contract wins
towards the end of the year.
Technology Sourcing
Technology Sourcing gross invoiced income increased by 4.0%. Volumes started
the year strongly but softened as the year progressed. Gross margin increased
by 31 basis points.
Demand for hardware was subdued, particularly in the workplace, although we
increased share with our key vendors. This follows customers' significant
investments through the pandemic to support home and hybrid working and the
completion of a number of large Windows 10 rollouts. As anticipated, this has
led to a lag in customer adoption of Windows 11. Workplace activity is an
important driver of utilisation at our Integration Centers, where our costs
remain largely fixed. Software demand was stronger in areas such as data
center and cloud.
We expect the adoption of Windows 11 to gain momentum during the second half
of 2024. This will likely drive increased demand for new hardware, as
customers upgrade their systems to align with the new operating system.
The product order backlog at 31 December 2023 was £364.3m. This represents a
10.1% increase since 31 December 2022 (£331.0m).
Services
Services revenue declined by 4.0%, with Managed Services decreasing by 1.0%
and Professional Services by 10.4%. Gross margin increased by 11 basis points,
reflecting good recovery of cost inflation.
The lower demand in Technology Sourcing has had a ripple effect in
Professional Services, which led to lower demand for workplace-related
activities. This outweighed the significant growth achieved in supporting
customers' adoption of public cloud and expanding and securing their networks.
In Managed Services, we concluded a large number of contract renewals during
the year. Encouragingly, towards the end of the year we secured a large public
sector contract as well as a number of smaller corporate contracts, all of
which also provide growth opportunities in Technology Sourcing and
Professional Services.
Germany
Results 2023 2022 Change Change in constant currency
£m £m
Technology Sourcing gross invoiced income 2,111.5 1,704.7 23.9% 21.7%
Services revenue 765.7 690.4 10.9% 8.7%
Professional Services revenue 365.4 315.7 15.7% 13.5%
Managed Services revenue 400.3 374.7 6.8% 4.7%
Total gross invoiced income 2,877.2 2,395.1 20.1% 17.9%
Technology Sourcing revenue 1,261.8 1,153.1 9.4% 7.5%
Services revenue 765.7 690.4 10.9% 8.7%
Professional Services revenue 365.4 315.7 15.7% 13.5%
Managed Services revenue 400.3 374.7 6.8% 4.7%
Total revenue 2,027.5 1,843.5 10.0% 8.0%
Gross profit 374.5 325.1 15.2% 13.1%
Adjusted administrative expenses (211.5) (184.2) 14.8% 12.5%
Adjusted operating profit 163.0 140.9 15.7% 13.8%
Germany delivered another strong year of growth, reflecting the depth and
breadth of our capabilities and customer relationships. Total gross invoiced
income increased by 17.9% in constant currency, driven by very strong growth
in Technology Sourcing and strong growth in Services revenue. Gross profit
increased by 13.1% in constant currency with gross margin increasing by 84
basis points, largely reflecting the strength of the Technology Sourcing
performance. Administrative expenses increased by 12.5% in constant currency
reflecting higher commissions and inflation, resulting in adjusted operating
profit growth of 13.8% in constant currency.
We are benefiting from our strong focus on public sector and enterprise
business. We significantly broadened our portfolio with existing customers and
expanded our customer base. Our investments in the salesforce and broadening
the technology and skills base are showing clear benefits and creating the
basis for further growth.
The breadth of our portfolio is a key driver of our growth. For example, we
concluded the largest Cisco Whole Portfolio Agreement contract in Europe, with
a major international industrial technology group headquartered in Germany.
This contract will run for five years. We will continue to equip, modernise,
and operate IT infrastructure in all schools for a large southern German state
capital in the coming years. This is an important milestone as we develop our
offer to the German education market. In the transport sector, we expanded our
scope with the largest German transport company and we will now provide a
large part of its personal computer client infrastructure from next year
onwards. Towards the end of the year, we won a significant IT infrastructure
framework agreement with one of Germany's largest airports. In chemical and
pharmaceuticals, we won Managed Services business with a global producer and
will be responsible for the Global Service Desk. In addition, we significantly
expanded our app development and cloud management business following
investment in developers based in Cluj, Romania, to support our solution
designers and project managers in Germany.
Technology Sourcing
Technology Sourcing gross invoiced income increased by 21.7% in constant
currency, well ahead of market growth. This was driven by networking and
security but data center and workplace also showed good growth. Technology
Sourcing gross margin was very strong, increasing by 255 basis points over the
period due to strong product mix and increased share of software volumes.
In addition to the increasingly strong software demand, we are seeing greater
customer demand to bundle procurements in bigger framework contracts. This
particularly applies to the global requirements of large international
customers and to the high demand for infrastructure from our major public
sector clients at state and federal level.
We also see demand for the combination of innovative and flexible financing
solutions with asset management, deployment and maintenance services. The
first international implementation of Computacenter's Device as a Service
(DaaS) solution went live for a large German financial institution during the
year.
The product order backlog at 31 December 2023 was £234.9m, a 25.6% decrease
in constant currency since 31 December 2022 (£315.6m). This decrease largely
reflects customer ordering patterns returning to normal.
Services
Services revenue increased by 8.7% in constant currency with 13.5% growth in
Professional Services and 4.7% growth in Managed Services. Services gross
margin declined by 205 basis points as Managed Services experienced an
increase in costs, most of which was inflation-related. In addition, there
were one-off costs for onboarding new service contracts won in 2022 and
technology refreshes of existing contracts that were up for renewal. Not all
of these cost increases could be passed on to customers or offset by
cost-reduction measures.
Professional Services saw continuing strong demand from public sector
customers for support, engineering and consultancy services. We are
excellently positioned here, with a broad base of framework agreements and a
very good customer structure, primarily with federal and state authorities and
larger local country departments and cities. We expect demand to be robust in
the coming years and these areas will remain our focus. We also see a
continuing need for project support and skills in our corporate customer
segment, especially in networking and security, data center consolidation and
cloud management, as well as for expanding modern workplace infrastructures.
Our application development business, which we have grown organically,
continues to be in high demand with our customers.
In Managed Services we are working hard to mitigate cost inflation by passing
on the higher costs to our customers, where contractually appropriate, and by
achieving additional savings, for example by using more automation. Our second
challenge was to complete the transformational activities and technology
refresh at a small number of customers in 2023. We have a very solid pipeline
particularly in workplace and networking, where we are very well positioned.
An increasing number of our international customers are looking for IT
infrastructure service providers with a global capability for these services
to improve quality and flexibility while reducing costs.
France
Results 2023 2022 Change Change in constant currency
£m £m
Technology Sourcing gross invoiced income 728.5 606.7 20.1% 18.2%
Services revenue 183.6 178.1 3.1% 1.0%
Professional Services revenue 50.8 41.7 21.8% 19.2%
Managed Services revenue 132.8 136.4 (2.6%) (4.6%)
Total gross invoiced income 912.1 784.8 16.2% 14.3%
Technology Sourcing revenue 479.9 435.8 10.1% 8.3%
Services revenue 183.6 178.1 3.1% 1.0%
Professional Services revenue 50.8 41.7 21.8% 19.2%
Managed Services revenue 132.8 136.4 (2.6%) (4.6%)
Total revenue 663.5 613.9 8.1% 6.2%
Gross profit 87.3 76.7 13.8% 12.3%
Adjusted administrative expenses (78.6) (69.6) 12.9% 10.9%
Adjusted operating profit 8.7 7.1 22.5% 26.3%
France continued its momentum into 2023 and delivered further strong growth
during the period. Total gross invoiced income increased by 14.3% in constant
currency, driven by strong growth in Technology Sourcing and a slight increase
in Services revenue. Gross profit rose 12.3% in constant currency with gross
margin increasing by 66 basis points, largely due to higher infrastructure and
software mix. Administrative expenses increased by 10.9% in constant currency,
reflecting targeted investment in sales headcount and inflation, resulting in
adjusted operating profit increasing by 26.3% in constant currency to £8.7m.
Demand for Technology Sourcing was stronger than for Managed Services, where
decision making was slower. During the year we continued to strengthen our
position in networking and data center, aided by the full integration of CCNS,
the business we acquired towards the end of 2020.
Technology Sourcing
Technology Sourcing gross invoiced income increased by 18.2% in constant
currency, with a strong performance across both our corporate and public
sector businesses. Technology Sourcing gross margin increased by 111 basis
points, largely reflecting a higher-margin product mix.
The public sector remains the biggest contributor and this is mainly related
to growth in multi-year framework agreements. We increased our presence in
this area and were successful in winning new software and networking
contracts, which we expect to drive growth. We continue to invest in our
technical skills and are committed to maintaining the highest levels of
accreditations for our priority technology vendors, especially in networking.
The product order backlog at 31 December 2023 was £124.1m representing a 7.9%
increase in constant currency since 31 December 2022 (£115.0m).
Services
Services revenue increased by 1.0% in constant currency, with 19.2% growth in
Professional Services offset by a 4.6% decline in Managed Services. Services
gross margin decreased by 87 basis points, reflecting volume declines in
Managed Services and the impact of inflation.
Growth in Professional Services was mainly driven by large workplace and data
center projects in the public sector. Our Managed Services contracts are
predominantly with corporate customers. We saw a decrease in volume reflecting
the lack of significant new contract wins in 2022. It was a good year for
contract renewals in 2023 and in many instances, we have been able to expand
our scope of work. However, decisions on new contract awards are taking
longer, with some larger outcomes now expected in 2024.
North America
Results 2023 2022 Change Change in constant currency
£m £m
Technology Sourcing gross invoiced income 3,454.4 3,131.7 10.3% 11.8%
Services revenue 146.1 149.4 (2.2%) (0.9%)
Professional Services revenue 118.7 122.5 (3.1%) (1.7%)
Managed Services revenue 27.4 26.9 1.9% 2.7%
Total gross invoiced income 3,600.5 3,281.1 9.7% 11.2%
Technology Sourcing revenue 2,602.6 2,357.9 10.4% 11.8%
Services revenue 146.1 149.4 (2.2%) (0.9%)
Professional Services revenue 118.7 122.5 (3.1%) (1.7%)
Managed Services revenue 27.4 26.9 1.9% 2.7%
Total revenue 2,748.7 2,507.3 9.6% 11.0%
Gross profit 267.5 238.3 12.3% 13.7%
Adjusted administrative expenses (202.5) (185.3) 9.3% 10.7%
Adjusted operating profit 65.0 53.0 22.6% 24.0%
North America delivered a strong performance for the year. Gross invoiced
income increased by 11.2% in constant currency and by 10.2% on an organic(1)
basis, driven by excellent growth in Technology Sourcing, with Services
slightly down.
Gross profit increased by 13.7% in constant currency with gross margin
increasing by 23 basis points, reflecting an underlying improvement across
most of the business, offsetting the impact of high-volume lower-margin
business. Administrative expenses increased by 10.7% in constant currency
driven by higher commissions and wage inflation, resulting in adjusted
operating profit increasing by 24.0% in constant currency and by 22.3% on an
organic basis.
During the year, we significantly simplified the way that we go to market in
North America. We have reduced the number of customer sectors we work in from
13 to seven, to ensure that we are targeting markets with appropriate sizes
and that we can support them effectively. We continue to expand the number of
salespeople to support our growth.
At the beginning of the year, we identified a number of prospective customers
that we consider to be strategic for us in the long term. We received orders
from 24 of these organisations during 2023 and we expect them to become
significant customers for us in the future. We continue to focus heavily on
operational improvements within the North American business and consolidated
our CRM system in 2023. Implementing our Group ERP system remains a top
priority.
Technology Sourcing
Technology Sourcing gross invoiced income grew by 11.8% in constant currency
and by 10.8% on an organic basis, reflecting exceptional growth with a
hyperscale customer. Our gross margin in Technology Sourcing increased by 23
basis points, with the underlying margin improvement across most of the
business outweighing the impact of the growth in the hyperscale customer noted
above, which commands a lower margin.
We continued to see a higher level of 'drop-ship' revenue driven by hyperscale
customers, where products are delivered directly from the vendor rather than
passing through our Integration Centers. Utilisation has however improved
across the year and we have a significant pipeline of opportunities to grow
Integration Center volumes.
We have continued to increase the number of technology vendors we work with
and our US presence is helping to strengthen our relationships and programmes
with existing vendor partners globally.
BITS, which we acquired in July 2022, delivered good growth for the year, with
a large customer order that was deferred in the first half of the year
fulfilled in the second half.
The product order backlog at 31 December 2023 was £487.1m, a 75.8% decrease
in constant currency since 31 December 2022 (£2,009.0m). This decrease
largely reflects the completion of certain high-volume, lower-margin projects.
In 2024 we expect Technology Sourcing volumes to normalise, following the
exceptionally strong growth we achieved with certain high-volume, lower-margin
customers in 2023. We believe we are well positioned to manage this over time
given the structural improvements we have made and our progress with other
large corporate customers.
Services
Services revenue declined by 0.9% in constant currency, reflecting a 1.7%
decline in Professional Services and 2.7% growth in Managed Services. Services
gross margin increased by 23 basis points. Services revenues are currently
small but we are excited by the opportunity to expand and leverage our
Group-wide tools and systems, in both Professional and Managed Services.
Professional Services was impacted by unsatisfactory returns from one large
customer, which has now been addressed. We continue to focus on efficiency to
drive margin improvement.
The Managed Services business continues to execute our slow-and-steady growth
plan. We went live with a large new customer in the US and won two new
contracts in Canada, including one to provide helpdesk, asset and software
license management services to a healthcare customer. We also secured a
contract to provide a multi-year storage and backup service for a large
government entity, which will allow us to sell to a broad range of public
sector and non-profit organisations. Towards the end of the year we won a
contract with a global automotive customer which will start in 2024, through
successful collaboration with our German business.
International
Results 2023 2022 Change Change in constant currency
£m £m
Technology Sourcing gross invoiced income 212.4 174.3 21.9% 19.5%
Services revenue 99.2 92.4 7.4% 5.8%
Professional Services revenue 11.7 9.2 27.2% 21.9%
Managed Services revenue 87.5 83.2 5.2% 3.9%
Total gross invoiced income 311.6 266.7 16.8% 14.8%
Technology Sourcing revenue 170.2 144.0 18.2% 15.9%
Services revenue 99.2 92.4 7.4% 5.8%
Professional Services revenue 11.7 9.2 27.2% 21.9%
Managed Services revenue 87.5 83.2 5.2% 3.9%
Total revenue 269.4 236.4 14.0% 12.0%
Gross profit 63.9 47.8 33.7% 34.8%
Adjusted administrative expenses (44.1) (36.5) 20.8% 20.8%
Adjusted operating profit 19.8 11.3 75.2% 81.7%
The International Segment comprises a number of trading entities, nearshore
and offshore Service Center locations and countries in which we have other
support operations.
The trading entities include Computacenter Switzerland, Computacenter Belgium
and Computacenter Netherlands. As in other markets, we focus on working with
the largest corporate and public sector customers. Our target corporate
customers in these geographies typically have an international footprint and
we are well placed to support them outside their domestic markets. We have a
small number of important Managed Services customers that are managed from our
International Segment and delivered using our Group Managed Services
capability.
Emerge 360 Japan k.k (Emerge), which we acquired in May 2022, has Services
delivery locations in Japan, Australia, Singapore and Hong Kong. These trading
entities are joined in the Segment by the offshore Group Service Center
entities in Spain, Malaysia, India, South Africa, Hungary, Poland, China and
Mexico, and the Professional Services Delivery Center in Romania, which have
limited external revenues as they charge the relevant Group subsidiaries for
the services provided. We established further delivery locations in the
Philippines and Brazil during the year.
Financial performance
Total gross invoiced income increased by 14.8% in constant currency, with
strong growth in both Technology Sourcing and Services revenue. Gross profit
increased by 34.8% in constant currency, with gross margin up 350 basis
points. Technology Sourcing gross margin increased by 72 basis points and
Services gross margin grew by 972 basis points. Administrative expenses
increased by 20.8% in constant currency, resulting in adjusted operating
profit rising 81.7% in constant currency.
Belgium delivered a strong performance, driven primarily by growth in
Technology Sourcing, especially networking, outweighing weaker demand for
workplace. Managed Services also performed strongly helped by new business
with existing customers and a new multi-year outsourcing contract with a
global customer in the financial settlement services industry.
The Netherlands achieved strong growth and made good progress with new
business targets. However, one of the largest public sector Technology
Sourcing contracts was not renewed in the second half, which is expected have
an impact on 2024 performance.
Switzerland had a challenging year, as customers reviewed their hybrid working
approach following the pandemic, resulting in a significant decline in volumes
in our main Services contracts. We have taken action including increasing our
sales activity for national and international opportunities, while resizing
our delivery teams. In Technology Sourcing, we have won some significant
public sector contracts, especially in the education sector, and won new
business by working closely with our preferred technology vendors.
The combined product order backlog at 31 December 2023 was £12.0m, a 50.3%
decrease in constant currency since 31 December 2022 (£24.1m) in constant
currency.
Chief Financial Officer's review
2023 was another record year for Computacenter, with growth in gross invoiced
income, revenue and all adjusted profit measures. Our cash performance was
excellent, driven by strong inventory management, resulting in adjusted net
funds of £459.0m at the end of the year. These strong results have been
achieved while continuing to invest in the business to secure future growth.
Gross profit
Gross profit grew by 10.2% in the year reflecting strong growth in gross
invoiced income and revenue and a robust gross margin performance. Group gross
margin increased by 44 basis points with an increase in Technology Sourcing
gross margin outweighing a slight decline in Services, as we managed
inflationary pressures effectively.
Overall, Group gross margin, expressed as gross profit as a percentage of
revenue, increased to 15.1% (2022: 14.6%).
Operating profit
Operating profit grew by 4.8% to £268.8m (2022: 256.4m). Adjusted operating
profit grew by 0.9% to £271.5m (2022: £269.1m), and by 0.6% in constant
currency.
Administrative expenses increased by 13.4% to £783.3m (2022: £690.7m). We
continue to monitor cost-management initiatives across the Group to drive
unnecessary cost out of the business. However, we have balanced this with the
need to invest to ensure future growth is protected. During the year we
increased our spend on strategic corporate initiatives by 89.8% to £28.1m
(2022: £14.8m). Adjusted administrative expenses increased by 13.9% to
£772.5m (2022: £678.0m), and by 13.5% in constant currency.
Group gross profit conversion, expressed as adjusted operating profit as a
percentage of gross profit, fell to 26.0% (2022: 28.4%) partly reflecting the
increase in investment during the year.
Profit before tax
The Group's profit before tax for the year increased by 9.3% to £272.1m
(2022: £249.0m). Adjusted profit before tax increased by 5.4% to £278.0m
(2022: £263.7m) and by 5.1% in constant currency.
The acquisitions of BITS and Emerge, completed in 2022, added £221.4m of
revenue (2022: £187.1m) and £9.3m of adjusted profit before tax (2022:
£7.1m) to the Group's reported results.
The difference between profit before tax and adjusted profit before tax
relates to the Group's net costs of £5.9m (2022: net costs of £14.7m) from
exceptional and other adjusting items, associated with the acquisitions of
Pivot and BITS and the amortisation of acquired intangibles as a result of
these and other North American acquisitions. Further information on these
items can be found below.
Reconciliation to adjusted measures for the year ended 2023
Reported Adjustments
full-year results
£m
Principal element on agency contracts Amortisation Exceptionals Adjusted
of acquired intangibles
£m
£m and others full-year
£m results
£m
Revenue 6,922.8 3,158.6 - - 10,081.4
Cost of sales (5,878.8) (3,158.6) - - (9,037.4)
Gross profit 1,044.0 - - - 1,044.0
Administrative expenses (783.3) - 10.8 - (772.5)
Other income related to acquisition of subsidiary 5.3 - - (5.3) -
Gain related to acquisition of subsidiary 2.8 - - (2.8) -
Operating profit 268.8 - 10.8 (8.1) 271.5
Finance income 13.8 - - - 13.8
Finance costs (10.5) - - 3.2 (7.3)
Profit before tax 272.1 - 10.8 (4.9) 278.0
Income tax expense (72.7) - (4.0) - (76.7)
Profit for the year 199.4 - 6.8 (4.9) 201.3
Reconciliation to adjusted measures for the year ended 2022
Reported Adjustments
full-year results
£m
Principal element on agency contracts Amortisation Exceptionals Adjusted
of acquired intangibles
£m
£m and others full-year
£m results
£m
Revenue 6,470.5 2,581.7 - - 9,052.2
Cost of sales (5,523.4) (2,581.7) - - (8,105.1)
Gross profit 947.1 - - - 947.1
Administrative expenses (690.7) - 10.9 1.8 (678.0)
Operating profit 256.4 - 10.9 1.8 269.1
Finance income 2.4 - - - 2.4
Finance costs (9.8) - - 2.0 (7.8)
Profit before tax 249.0 - 10.9 3.8 263.7
Income tax expense (64.8) - (2.3) (0.2) (67.3)
Profit for the year 184.2 - 8.6 3.6 196.4
Net finance income
Net finance income in the year amounted to £3.3m (2022: £7.4m charge). The
main items included within the net income for the year were £4.7m of interest
charged on lease liabilities recognised under IFRS 16 (2022: £4.9m) and
exceptional interest costs of £3.2m relating to the unwinding of the discount
on the contingent consideration for the purchase of BITS, which was excluded
on an adjusted basis (2022: £2.0m). Outside of the specific items above, net
finance income of £11.2m was recorded (2022: net finance costs of £0.5m). On
an adjusted basis, the net finance income was £6.5m during the year (2022:
net finance cost of £5.4m).
Taxation
The tax charge was £72.7m (2022: £64.8m) on profit before tax of £272.1m
(2022: £249.0m). This represented a tax rate of 26.7% (2022: 26.0%).
The tax credit related to the amortisation of acquired intangibles was £4.0m
(2022: £2.3m). The £10.8m of amortisation of intangible assets was almost
entirely a result of the North American acquisitions (2022: £10.9m). As the
amortisation is recognised outside of our adjusted profitability, the tax
benefit on the amortisation is also reported outside of our adjusted tax
charge.
The adjusted tax charge for the year was £76.7m (2022: £67.3m), on an
adjusted profit before tax for the year of £278.0m (2022: £263.7m). The
effective tax rate (ETR) was therefore 27.6% (2022: 25.5%) on an adjusted
basis.
Overall, the adjusted ETR, is continuing to trend upwards due to an increasing
reweighting of the geographic split of adjusted profit before tax away from
the United Kingdom to Germany and the United States, where tax rates are
higher. Further, a substantively enacted tax increase has taken effect in the
United Kingdom from 1 April 2023, with a rise from 19% to 25%.
The adjusted ETR is therefore within the full-year range that we indicated at
the time of our 2023 Interim Results, which showed an expected ETR for 2023 of
27% to 29.5%. We expect that the full year ETR in 2024 will be subject to
increasing upwards pressure, due to the changing mix in where profits are
earned geographically to where tax rates are higher, as noted above, and also
as governments across our primary jurisdictions come under fiscal and
political pressure to increase corporation tax rates.
The Group Tax Policy was reviewed during the year and approved by the Audit
Committee and the Board, with no material changes from the prior year. We make
every effort to pay all the tax attributable to profits earned in each
jurisdiction that we operate. We do not artificially inflate or reduce profits
in one jurisdiction to provide a beneficial tax result in another and maintain
approved transfer pricing policies and programmes, to meet local compliance
requirements. Virtually all of the tax charge in 2023 was incurred in either
the United Kingdom, Germany or United States tax jurisdictions, as it was in
2022. Computacenter France, which includes the Computacenter NS acquisition
within a tax group, has returned to being in a profit-making position,
increasing the amount of tax paid locally.
There are no material tax risks across the Group. 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. For 2023, the Group Transfer Pricing policy implemented in
2013 resulted in a licence fee of £36.9m (2022: £38.7m), charged by
Computacenter UK to Computacenter Germany, Computacenter France and
Computacenter Belgium. The licence fee is equivalent to 1.0% of revenue and
reflects the value of the best practice and know-how that is owned by
Computacenter UK and used by the Group. It is consistent with the requirements
of the Organisation for Economic Co-operation and Development (OECD) base
erosion and profit shifting. The licence fee is recorded outside the Segmental
results found in note 4 to the summary financial information within this
announcement, which analyses Segmental results down to adjusted operating
profit.
The table below reconciles the tax charge to the adjusted tax charge for the
years ended 31 December 2023 and 31 December 2022.
2023 2022
£m £m
Tax charge 72.7 64.8
Items to exclude from adjusted tax:
Tax credit on amortisation of acquired intangibles 4.0 2.3
Tax on exceptional items - 0.2
Adjusted tax charge 76.7 67.3
Effective tax rate 26.7% 26.0%
Adjusted effective tax rate 27.6% 25.5%
Profit for the year
The profit for the year increased by 8.3% to £199.4m (2022: £184.2m). The
adjusted profit for the year increased by 2.5% to £201.3m (2022: £196.4m)
and by 1.8% in constant currency.
Exceptional and other adjusting items
The net loss from exceptional and other adjusting items in the year was £1.9m
(2022: loss of £12.2m). Excluding the tax items noted above, which resulted
in a gain of £4.0m (2022: gain of £2.5m), the profit before tax impact was a
net loss from exceptional and other adjusting items of £5.9m (2022: loss of
£14.7m).
A $9.3m (£7.4m) settlement was received on 8 May 2023 from the Washington
State Department of Revenue. The settlement related to litigation contesting a
historic, pre-acquisition, sales tax assessment that was paid by antecedent
companies related to the acquired Pivot group of companies. Of this amount,
$6.7m (£5.3m) has been recognised as other income relating to the acquisition
of a subsidiary for the refunded sales tax amount. Further amounts of $1.6m
(£1.3m) and $1.0m (£0.8m) have been credited to adjusted interest income,
for the refund of statutory overpayment interest receivable on the original
payment, and adjusted administrative expenses, to reimburse legal expenses
incurred since acquisition, respectively. The element related to the refunded
sales tax amount is non-operational in nature, significant in size and
unlikely to recur and has therefore been classified as exceptional.
At acquisition, contingent consideration was agreed which required the Group
to pay former owners of Business IT Source Holdings, Inc. (BITS), two earn-out
payments based on BITS's 2022 and 2023 earnings before interest, taxation,
depreciation and amortisation (EBITDA) and indebtedness. During the year, and
in accordance with the share purchase agreement, the Group made its first
earn-out payment amounting to £17.4m ($21.2m) which was broadly in line with
the estimate made as at 31 December 2022.
On 30 June 2023, a renegotiated agreement was signed with the former owners
following which, the second earn-out is now based on BITS's 2023 EBIDTA, H1
2024 EBIDTA, and indebtedness over these periods. Having considered a range of
possible earn-out scenarios, Management has determined that a gross liability
of £21.2m under the revised agreement should be recorded as contingent
consideration of £20.2m on a discounted basis as at 31 December 2023. The
impact of changes to the payment structures under the renegotiated agreement
has resulted in a release during the year of £2.8m. This release related to
the acquisition is non-operational in nature, significant in size and has
therefore been classified as an exceptional item.
A further £3.2m relating to the unwinding of the discount on the contingent
consideration for the purchase of BITS has been removed from the adjusted net
finance expense and classified as exceptional interest costs.
During 2022, an exceptional loss during the year of £1.8m resulted from costs
directly relating to the acquisitions made during the year of BITS and Emerge.
These costs include professional advisor fees and seller's fees that were paid
on completion of the transaction. These costs are non-operational in nature,
significant in size and unlikely to recur and have therefore been classified
as outside our adjusted results. A further £2.0m relating to the unwinding of
the discount on the contingent consideration for the purchase of BITS has been
removed from the 2022 adjusted net finance expense and classified as
exceptional interest costs.
We have continued to exclude, as an 'other adjusting item', the amortisation
of acquired intangible assets in calculating our adjusted results.
Amortisation of intangible assets is non-cash, does not relate to the
operational performance of the business, and is significantly affected by the
timing and size of our acquisitions, which distorts the understanding of our
Group and Segmental operating results.
The amortisation of acquired intangible assets was £10.8m (2022: £10.9m),
primarily relating to the amortisation of the intangibles acquired as part of
the recent North American acquisitions.
Earnings per share
Diluted EPS increased by 8.9% to 173.2p per share (2022: 159.1p per share).
Adjusted diluted EPS increased by 3.0% to 174.8p per share (2022: 169.7p per
share).
2023 2022
Basic weighted average number of shares (excluding own shares held) (m) 112.9 112.8
Effect of dilution:
Share options 1.2 2.1
Diluted weighted average number of shares 114.1 114.9
Profit for the year attributable to equity holders of the Parent (£m) 197.6 182.8
Basic earnings per share (p) 175.0 162.1
Diluted earnings per share (p) 173.2 159.1
Adjusted profit for the year attributable to equity holders of the Parent 199.5 195.0
(£m)
Adjusted basic earnings per share (p) 176.7 172.9
Adjusted diluted earnings per share (p) 174.8 169.7
Dividend
The Board recognises the importance of dividends to shareholders and the Group
has a long track record of paying dividends and other special cash returns.
Computacenter's approach to capital management is to ensure that the Group has
a robust capital base and maintains a strong credit rating, whilst aiming to
maximise shareholder value. The Group is highly cash generative enabling
organic and inorganic investment in recent years to be funded from cash
reserves.
Dividends are paid from the standalone balance sheet of the Parent Company
and, as at 31 December 2023, the distributable reserves were £474.1m (31
December 2022: £257.4m). The distributable reserves have increased as a
result of the capital restructure described on below.
The Board is pleased to propose a final dividend for 2023 of 47.4p per share
(2022: 45.8p per share). Together with the interim dividend, this brings the
total ordinary dividend for 2023 to 70.0p per share, representing a 3.1%
increase on the 2022 total dividend per share of 67.9p.
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
based on adjusted diluted EPS. In 2023, the cover was 2.5 times (2022: 2.5
times).
Subject to the approval of shareholders at our Annual General Meeting on 14
May 2024, the proposed dividend will be paid on Friday 5 July 2024. The
dividend record date is set as Friday 7 June 2024 and the shares will be
marked ex-dividend on Thursday 6 June 2024.
As a business that has returned £945m through a combination of dividends and
share buybacks since flotation, with no additional investment required from
shareholders over that time, we are committed to managing the cash position
for shareholders. The strength of our balance sheet provides us with
significant optionality, and we continue to evaluate a number of capital
allocation options, including potential inorganic growth and the return of
surplus capital to shareholders.
Capitalisation issue and capital reductions
The Company's cash generation over recent years has enabled it to have a
strong dividend policy and to periodically return additional value to its
shareholders, most recently by way of a tender offer in 2018. While the
Company has sufficient profits available for distribution (also known as
'distributable reserves') to fund its projected distributions in the immediate
future, the Board recently undertook an assessment of the balance sheet to
identify any reserves that were not distributable, and which could be
converted into distributable reserves to provide flexibility for future
returns of value to the Company's shareholders.
Following that assessment, the Board identified certain reserves and commenced
a programme of reductions of capital during the first half of 2023 (each a
'capital reduction' and together the 'capital reductions'). In order to
achieve this, it was necessary first to convert certain of these reserves into
share capital by issuing New Deferred Shares (the 'Capitalisation Issue'), and
then cancelling those shares as part of the first capital reduction. The
second capital reduction involved the cancellation of the Company's capital
redemption reserve. The capitalisation issue, the changes to the Company's
articles of association required in order to effect it, and the subsequent
capital reductions were each approved at the Company's Annual General Meeting
held on 17 May 2023. The capital reductions were then confirmed by the court
in order to become effective.
The capitalisation issue and capital reductions did not result in any change
to the nominal value of the Company's ordinary shares, had no impact on the
Company's cash position or on its net assets, did not involve any repayment or
distribution of capital by the Company, and did not result in any changes to
the Company's existing dividend policy.
The capitalisation issue and capital reductions should not result in any UK
tax charge for the shareholders.
As a result of the capitalisation issue and capital reductions, the
distributable reserves of the Company have been increased by £183.9m as at 31
December 2023.
Central corporate costs
Certain expenses are not specifically allocated to individual Segments because
they are not directly attributable to any single Segment. These include the
costs of the Board itself, related public company costs, Group Executive
members not aligned to a specific geographic trading entity and the cost of
centrally funded strategic initiatives that benefit the whole Group.
Accordingly, these expenses are disclosed separately as central corporate
costs, within the Segmental note. These costs are borne within the
Computacenter (UK) Limited legal entity and have been removed for Segmental
reporting and performance analysis but form part of the overall Group adjusted
administrative expenses.
Total central corporate costs were significantly increased on last year with
an 84.8% increase to £43.8m (2022: £23.7m). Within this:
· Board expenses, related public company costs and costs associated with
Group Executive members not aligned to a specific geographic trading entity,
increased to £12.8m (2022: £7.2m) due to certain project costs, the dual
running of several Group Executive members handing over portfolios during the
year, and the increase in headcount aligned with central corporate costs;
· share-based payment charges associated with Group Executive members as
identified above, including the Group Executive Directors, increased from
£1.7m in 2022 to £2.8m in 2023, due primarily to the value of Computacenter
plc ordinary shares, the overall outlook for the vesting of in-flight PSP
awards and the increase in management personnel aligned with central corporate
costs; and
· strategic corporate initiatives are designed to increase capability and
therefore competitive position, enhance productivity or strengthen systems
which underpin the Group. During the year this spend was £28.1m, up 89.9%
over 2022 (£14.8m), in line with forecasts, as the Group increases the pace
of its investment in new systems, toolsets and cyber resilience.
Investments
In 2023 we nearly doubled our spend on strategic corporate initiatives to
£28.1m, all of which was recognised through the income statement. This spend
was spread across projects that will improve our capabilities, productivity
and underpin our systems of the future.
Computacenter resells, deploys and manages vendor technology for customers.
This means we are fundamentally a people-centric business. Customers remain
loyal to Computacenter because of the quality of our people and service and
this will always be the case. However there are a number of other assets that
we employ to deliver to our customers such as our Service and Integration
Center facilities, methodologies, best practices and, in particular, great
systems. We invest consistently to improve and support these systems, which
give us a competitive advantage in a business which is about scale,
repeatability and agility.
Most of the spend is focused on our systems to ensure that they continue to be
secure and supportable. We are not just upgrading, but also moving to new
systems in order to obtain the security and support we need and develop
competitive advantage through continued operational leverage of these new
toolsets and processes. We have continued to refine our systems investment
roadmap through to the end of 2027, with a programme to replace legacy systems
that enable our Technology Sourcing and Services businesses. Investing in
best-of-breed tools will lower cost to serve, improve the quality of our
offerings and enhance our relevance to customers in the marketplace
Our systems need to be robust, secure and able to handle large volumes. They
also have to be simple to use and adaptable to most customer eventualities. We
prioritise our plans for systems development, and other investments in time
and capital, in response to the ever-changing environment in which we operate.
Cyber risk remains one of the greatest risks to our business, but also
presents one of the greatest opportunities to differentiate from our
competitors through our internal resilience and by helping our customers to
overcome these same challenges. We will continue to invest heavily in cyber
resilience.
Whilst cyber risk forms part of the Group's overall Principal Risks, it could
be argued that cyber risk is the single major risk facing large corporates
today.
Cash flow
The Group delivered a substantial increase in net cash flow from operating
activities, which totalled £410.6m for 2023 (2022: £242.1m inflow).
During the year, net operating cash inflows from working capital, including
inventories, trade and other receivables, and trade and other payables, were
£136.7m (2022: £60.8m outflow).
Throughout 2022, customers placed advance orders of product, due to the
significant product shortages seen during the 18 months to 31 December 2022,
to ensure continuity of supply. Additionally, inventory increased as we
deliberately invested in working capital by pre-ordering inventory, once a
committed purchase order had been received from the customer, using the
strength of our balance sheet to support our customers during product
shortages. During 2023, supply chains returned to more normal conditions and,
as a result, customers have returned to normal purchasing patterns. This has
naturally led to both reduced levels of inventory and product order backlogs.
Our focus on inventory control has delivered substantial reductions in both
Germany and North America, the two Segments where we experienced the greatest
inventory accumulation through 2022.
The implementation of additional inventory holding approval controls in the
final quarter of 2022, the continued focus from the Group Technology Sourcing
and Finance teams, and the re-implementation of internal inventory holding
charges across the sales teams from April 2023, have also all contributed to
this improvement in our overall working capital balance sheet position.
After interest, tax and gross capital expenditure cashflows, our free cash
flow was £339.9m (2022: £150.9m).
31 December 2023 31 December 2022
£m
£m
Adjusted operating profit 271.5 269.1
Adjusting items (2.7) (12.7)
Operating profit 268.8 256.4
Other non-cash items and adjustments 47.3 49.4
Change in working capital 136.7 (60.8)
Change in pensions and provisions (0.8) (0.7)
Depreciation of right-of-use assets 41.4 50.5
Cash generated from operations 493.4 294.8
Interest and payments related to lease liabilities (46.1) (55.2)
Adjusted operating cash flow 447.3 239.6
Net interest received/(paid) 10.5 (0.5)
Tax paid (82.8) (52.7)
Gross capital expenditure (35.1) (35.5)
Free cash flow 339.9 150.9
Dividends paid (77.3) (80.5)
Purchase of own shares net of proceeds of exercise of employee share options (28.8) (28.2)
Acquisition of subsidiaries, including contingent consideration and purchase (19.3) (28.3)
of
non-controlling interests
Disposal of assets - 1.1
Net cash flow 214.5 15.0
Net debt repayment (6.9) (16.6)
Increase/(decrease) in cash and cash equivalents 207.6 (1.6)
Effect of exchange rates on cash and cash equivalents (0.8) (7.2)
Cash and cash equivalents at the beginning of the year 264.4 273.2
Cash and cash equivalents at the year end 471.2 264.4
Opening net funds 117.2 95.3
Increase/(decrease) in cash and cash equivalents including impact of exchange 206.8 (8.8)
rates
Movements in borrowings 7.9 11.7
Movements in lease liabilities 11.7 19.0
Closing net funds 343.6 117.2
Opening adjusted net funds 244.3 241.4
Increase/(decrease) in cash and cash equivalents including impact of exchange 206.8 (8.8)
rates
Movements in borrowings 7.9 11.7
Closing adjusted net funds 459.0 244.3
The Group had £216.0m of inventory as at 31 December 2023, a decrease of
48.3% on the balance as at 31 December 2022 of £417.7m. The closing balance
was materially lower than the high point of £532.6m as at 30 September 2022,
with a reduction of £316.6m since that time. We expect that levels of
inventory will remain near the levels seen in the second half of 2023, in-line
with historical operational norms. Whilst inventory has materially improved,
working capital cash flows during the year were still impacted by the strong
growth in revenue seen as the business continues to expand.
Capital expenditure in the year was £35.1m (2022: £35.5m) representing,
primarily, investments in IT equipment and software tools, to enable us to
deliver improved service to our customers.
The Group's Employee Benefit Trust (EBT) made market purchases of the
Company's ordinary shares of £38.0m (2022: £34.4m) to satisfy maturing PSP
awards and Sharesave schemes and to reprovision the EBT in advance of future
maturities. During the year the Company received savings from employees of
£9.2m to purchase options within the Sharesave schemes (2022: £6.2m).
During the year the Group made two additional payments related to previous
acquisitions. The first was for BITS where, in accordance with the share
purchase agreement, the Group made its first earn-out payment amounting to
$21.2m (£17.4m) which was broadly in line with the estimate made as at 31
December 2022. The second was on 7 June 2023, where the remaining 5.0% of the
voting shares in R.D. Trading Limited (RDC) were acquired for a cash
consideration of £1.9m. This completes the acquisition of RDC, which is a
central component of our Circular Services offering to customers where we
repurpose or recycle end-of-life IT equipment and a key element of our
sustainability strategy.
The Group reduced loans during the year by a net £6.9m (2022: £16.6m). We
made regular repayments towards the loan related to the construction of the
German headquarters in Kerpen and the customer financing facility in Pivot.
The Group continued to manage its cash and working capital positions
appropriately, using standard mechanisms, to ensure that cash levels remained
within expectations throughout the year. From time-to-time, some customers
request credit terms longer than our typical period of 30-60 days. In certain
instances, we will arrange for the sale of the receivables on a true sale
basis to a finance institution on the customers' behalf. We would typically
receive funds on 45-day terms from the finance institution, which will then
recover payment from the customer on terms agreed with them. The cost of such
an arrangement is borne by the customer, either directly or indirectly,
enabling us to receive the full amount of payment in line with our standard
terms.
The benefit to the cash and cash equivalents position of such arrangements as
at 31 December 2023 was £33.8m (31 December 2022: £45.1m).
The Group had no other debt factoring at the end of 31 December 2023, outside
this normal course of business.
During December 2022, the Group engaged in a limited factoring programme of
trade receivables within the German business, on a non-recourse basis, to
provide assurance against unforeseen liquidity issues which did not, in the
event, arise due to the continued aforementioned strength of cash receipts in
the final weeks of 2022. This factoring was for £46.1m or 2.7% of the trade
receivables before provisions balance as at 31 December 2022, the comparative
balance sheet date. The Group had no other debt factoring at the end of 31
December 2022, outside this normal course of business.
Cash and cash equivalents and net funds
Cash and cash equivalents as at 31 December 2023 were £471.2m, compared to
£264.4m at 31 December 2022. Net funds as at 31 December 2023 were £343.6m
(31 December 2022: £117.2m).
The Group excludes £115.4m, as at 31 December 2023 (31 December 2022:
£127.1m), of lease liabilities from its non-GAAP adjusted net funds measure,
to allow an alternative view of the Group's overall liquidity position
excluding the effect of the lease liabilities required to be capitalised the
under the IFRS 16 accounting standard.
Adjusted net funds as at 31 December 2023 were £459.0m, compared to adjusted
net funds of £244.3m as at 31 December 2022.
Net funds as at 31 December 2023 and 31 December 2022 were as follows:
31 December 2023 31 December 2022
£m £m
Cash and short-term deposits 471.2 264.4
Bank overdraft - -
Cash and cash equivalents 471.2 264.4
Bank loans - Pivot customer specific facility (4.5) (7.7)
Bank loans - BITS facility - (2.0)
Bank loans - Kerpen building facility (7.7) (10.4)
Total bank loans (12.2) (20.1)
Adjusted net funds (excluding lease liabilities) 459.0 244.3
Lease liabilities (115.4) (127.1)
Net funds 343.6 117.2
For a full reconciliation of net funds and adjusted net funds, see note 9 to
the to the summary financial information within this announcement.
The Group had five specific credit facilities in place during the year and no
other material borrowings.
The Group entered into a multi-currency revolving loan committed facility of
£200m on 9 December 2022. This facility had a term of five years plus two
one-year extension options exercisable on the first and second anniversary of
the facility and was due to expire on 8 December 2027. The Group has exercised
the extension option on the first anniversary of the commencement of the
facility, extending the term to six years with a revised expiry of 8 December
2028. A further term extension option of one additional year remains
available. The Group is subject to certain key financial covenants under this
syndicated facility with Barclays, Lloyds, HSBC, BNP Paribas, JPMorgan Chase
and PNC Bank. These covenants, as defined in the agreement, are monitored
regularly to ensure compliance. As at 31 December 2023, the Group was in
compliance with all covenants. To improve short-term liquidity, £60m was
drawn down on Friday 6 April 2023 and was repaid in full on Tuesday 9 May
2023. April is typically the lowest point of the cash cycle for the Group and
cash can be impacted, from time-to-time, by individual large deals with
hyperscale customers depending on the payment terms specific to that deal or
customer. This facility is undrawn as at 31 December 2023.
The Group also has a specific term loan for the build and purchase of our
German office headquarters and fit out of the Integration Center in Kerpen,
which stood at £7.7m at 31 December 2023 (31 December 2022: £10.4m).
Pivot had £4.5m (31 December 2022: £9.7m) financed with a major technology
partner for hardware, software and resold maintenance contracts that the
Company had purchased as part of a contract to lease these items to a key
North American customer.
Computacenter India Private Limited has a local facility with HSBC India for
local cash liquidity to facilitate the continued growth of our operations in
the country. There was no interest-bearing debt drawn under this facility as
at 31 December 2023.
The BITS subsidiary maintains a ringfenced accounts receivable and inventory
flooring arrangement facility with Wells Fargo of up to $100m, secured on the
assets of that subsidiary. The facility is provided on a rolling basis and the
latest amendment was signed on 20 July 2023. There was no interest-bearing
debt drawn under this facility as at 31 December 2023 (31 December 2022:
£2.0m).
There were no other interest-bearing trade payables as at 31 December 2023 (31
December 2022: nil).
The Group's adjusted net funds position contains no current asset investments
(31 December 2022: nil).
Trade creditor arrangements
Computacenter has a strong covenant and enjoys a favourable credit rating from
technology vendors and other suppliers. Some suppliers provide standard credit
directly on their own credit risk, whereas other suppliers decide to sell the
debt to banks, which offer to purchase the receivables and manage collection.
The standard credit terms offered by suppliers are typically between 30 and 60
days, whether provided directly or when sold to a third-party finance
provider. In the latter case, the cost of the free-trade credit period is paid
by the relevant supplier, as part of the overall package of terms provided by
suppliers to Computacenter and our competitors.
Financial instruments
The Group's financial instruments comprise borrowings, cash and liquid
resources, and various items that arise directly from its operations. The
Group's policy is not to undertake speculative trading in financial
instruments.
The Group enters into hedging transactions, principally forward exchange
contracts or currency swaps, 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, Poland, Mexico and India, it has entered into forward exchange
contracts to help manage cost increases due to currency movements.
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
Group's financial results. The policies for managing each of these risks are
set out below.
Interest rate risk
The Group finances its operations through a mixture of retained profits, bank
borrowings, leases and loans for certain customer contracts. The Group's
general bank borrowings, other facilities and deposits are at floating rates.
No interest rate derivative contracts have been entered into. The undrawn
committed facility of £200m is at floating rates. However, the borrowing
facility for the operational headquarters in Germany is at a fixed rate.
Liquidity risk
The Group's policy is to ensure that it has sufficient funding and facilities
to meet any foreseeable peak in borrowing requirements. The Group's positive
net cash was maintained throughout 2023 and at the year end was £471.2m, with
net funds of £343.6m after including the Group's two specific borrowing
facilities and lease liabilities recognised under IFRS 16. Excluding lease
liabilities, adjusted net funds was £459.0m at the year end.
Due to strong cash generation over many years, the Group can currently finance
its operational requirements from its cash balance, and it operates an
informal cash pooling arrangement for the majority of Group entities. The
Group has a committed facility of £200m, as noted above.
The Group has a Board-monitored policy to manage its counterparty risk. This
ensures that cash is placed on deposit across a range of reputable banking
institutions.
Foreign currency risk
The Group operates primarily in the United Kingdom, Germany, France and the
United States, with smaller operations in Australia, Belgium, Brazil Canada,
China, Hong Kong, Hungary, India, Ireland, Japan, Malaysia, Mexico, the
Netherlands, the Philippines, Poland, Romania, South Africa, Singapore, Spain
and Switzerland. The Group uses an informal cash pooling facility to ensure
that its operations outside the United Kingdom are adequately funded, where
principal receipts and payments are denominated in euros and US dollars. For
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 our North American operations, most
transactions are denominated in US dollars.
For the UK, the majority of sales and purchases are denominated in pounds
sterling and any material trading exposures are eliminated through forward
currency contracts.
The Group has been successful in winning international Services contracts,
where Services are provided in multiple countries. We aim to minimise currency
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, we
eliminate currency exposure for a foreseeable period on these future cash
flows, through forward currency contracts.
In 2023, the Group recognised a gain of £2.8m (2022: loss of £2.5m) 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 Group has seen
relatively minor currency translation movements, as the pound sterling
fluctuations against other currencies, particularly the US dollar and the
euro, which impacts us the most, largely offset each other.
The impact of restating 2022 results at 2023 exchange rates would be an
increase of £5.0m in 2022 revenue and an increase of £0.5m in 2022 adjusted
profit before tax.
Credit risk
The Group principally manages credit risk through customer credit limits. The
credit limit is set for each customer based on its creditworthiness, using
credit rating agencies as a guide, and the anticipated levels of business
activity. These limits are 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 within this
announcement, is a hyperscale North American technology company which
typically settles outstanding amounts on shorter-than-average payment terms.
The maximum credit risk exposure relating to financial assets is represented
by their carrying value as at the balance sheet date.
This Strategic Report was approved by the Board on 19 March 2024 and was
signed on its behalf by:
MJ Norris MC Jehle
Chief Executive Officer Chief Financial Officer
Consolidated Income Statement
For the year ended 31 December 2023
Note 2023 2022
£m £m
Revenue 4,5 6,922.8 6,470.5
Cost of sales (5,878.8) (5,523.4)
Gross profit 4 1,044.0 947.1
Administrative expenses (783.3) (690.7)
Other income related to acquisition of a subsidiary 5.3 -
Gain related to acquisition of a subsidiary 2.8 -
Operating profit 268.8 256.4
Finance income 13.8 2.4
Finance costs (10.5) (9.8)
Profit before tax 272.1 249.0
Income tax expense 7 (72.7) (64.8)
Profit for the year 199.4 184.2
Attributable to:
Equity holders of the Parent 197.6 182.8
Non-controlling interests 1.8 1.4
Profit for the year 199.4 184.2
Earnings per share:
- basic 8 175.0p 162.1p
- diluted 8 173.2p 159.1p
All of the activities of the Group relate to continuing operations.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2023 Note 2023 2022
£m £m
Profit for the year 199.4 184.2
Items that may be reclassified to the Consolidated Income Statement:
Gain/(loss) arising on cash flow hedge 2.8 (2.5)
Income tax effect 7 (0.9) 1.0
1.9 (1.5)
Exchange differences on translation of foreign operations (25.8) 47.5
(23.9) 46.0
Items not to be reclassified to the Consolidated Income Statement:
Remeasurement of defined benefit plan (2.8) 1.7
Other comprehensive expense for the year, net of tax (26.7) 47.7
Total comprehensive income for the year 172.7 231.9
Attributable to:
Equity holders of the Parent 171.3 229.9
Non-controlling interests 1.4 2.0
Total comprehensive income for the year 172.7 231.9
Consolidated Balance Sheet
As at 31 December 2023
Note 2023 2022 1 January
£m (restated*) 2022*
£m £m
Non-current assets
Property, plant and equipment 96.1 94.1 90.0
Right-of-use assets 104.5 119.4 138.1
Intangible assets 322.4 342.1 273.7
Investment in associate 0.1 0.1 0.1
Deferred income tax assets 7 11.6 11.3 30.2
Trade and other receivables* 21.1 9.9 -
Prepayments 5 10.3 19.4 16.6
566.1 596.3 548.7
Current assets
Inventories 216.0 417.7 341.3
Trade and other receivables* 1,498.1 1,683.8 1,254.7
Income tax receivable 12.5 14.6 8.8
Prepayments 5 139.7 130.5 103.0
Accrued income* 5 151.9 129.2 148.1
Derivative financial instruments 2.5 7.5 3.6
Cash and short-term deposits* 9 471.2 264.4 285.2
2,491.9 2,647.7 2,144.7
Total assets 3,058.0 3,244.0 2,693.4
Current liabilities
Bank overdraft* 9 - - 12.0
Trade and other payables 1,674.5 1,857.5 1,410.4
Deferred income 5 230.3 265.3 249.3
Financial liabilities 4.8 7.5 15.1
Lease liabilities 37.3 36.9 43.0
Derivative financial instruments 6.3 8.7 2.5
Income tax payable* 16.9 30.9 27.4
Provisions 2.2 3.8 3.5
1,972.3 2,210.6 1,763.2
Non-current liabilities
Financial liabilities 7.4 12.6 16.7
Lease liabilities 78.1 90.2 103.1
Deferred income 5 4.3 7.9 8.3
Retirement benefit obligation 26.2 23.0 21.8
Provisions 6.9 7.0 9.7
Deferred income tax liabilities 7 13.4 20.7 25.8
136.3 161.4 185.4
Total liabilities 2,108.6 2,372.0 1,948.6
Net assets 949.4 872.0 744.8
Capital and reserves
Issued share capital 9.3 9.3 9.3
Share premium 4.0 4.0 4.0
Capital redemption reserve - 75.0 75.0
Own shares held (140.4) (127.7) (115.5)
Translation and hedging reserve 27.2 50.7 5.4
Retained earnings 1,041.6 854.4 762.3
Shareholders' equity 941.7 865.7 740.5
Non-controlling interests 7.7 6.3 4.3
Total equity 949.4 872.0 744.8
* Refer to note 2 for restatement of prior-year comparatives.
Approved by the Board on 19 March 2024.
MJ Norris MC Jehle
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 December 2023
Attributable to equity holders of the Parent
Issued share capital Share Capital Own Translation and hedging Retained earnings Share- Non-controlling interest Total
£m premium Redemption shares reserves £m holders' equity £m equity
£m reserve held £m £m £m
£m £m
At 1 January 2023 9.3 4.0 75.0 (127.7) 50.7 854.4 865.7 6.3 872.0
Profit for the year - - - - - 197.6 197.6 1.8 199.4
Other comprehensive (expense) - - - - (23.5) (2.8) (26.3) (0.4) (26.7)
Total comprehensive (expense)/income - - - - (23.5) 194.8 171.3 1.4 172.7
Transactions with owners:
- Cost of share-based payments - - - - - 7.7 7.7 - 7.7
- Tax on share-based payments - - - - - 3.1 3.1 - 3.1
- Capital reduction - - (75.0) - - 75.0 - - -
- Exercise of options - - - 25.3 - (16.1) 9.2 - 9.2
- Purchase of own shares - - - (38.0) - - (38.0) - (38.0)
- Equity dividends - - - - - (77.3) (77.3) - (77.3)
Total - - (75.0) (12.7) - (7.6) (95.3) - (95.3)
At 31 December 2023 9.3 4.0 - (140.4) 27.2 1,041.6 941.7 7.7 949.4
At 1 January 2022 9.3 4.0 75.0 (115.5) 5.4 762.3 740.5 4.3 744.8
Profit for the year - - - - - 182.8 182.8 1.4 184.2
Other comprehensive income - - - - 45.3 1.8 47.1 0.6 47.7
Total comprehensive income - - - - 45.3 184.6 229.9 2.0 231.9
Transactions with owners:
- Cost of share-based payments - - - - - 8.6 8.6 - 8.6
- Tax on share-based payments - - - - - (4.6) (4.6) - (4.6)
- Exercise of options - - - 22.2 - (16.0) 6.2 - 6.2
- Purchase of own shares - - - (34.4) - - (34.4) - (34.4)
- Equity dividends - - - - - (80.5) (80.5) - (80.5)
Total - - - (12.2) - (92.5) (104.7) - (104.7)
At 31 December 2022 9.3 4.0 75.0 (127.7) 50.7 854.4 865.7 6.3 872.0
Consolidated Cash Flow Statement
For the year ended 31 December 2023 Note 2023 2022
£m £m
Operating activities
Profit before taxation 272.1 249.0
Net finance (income)/cost (3.3) 7.4
Depreciation of property, plant and equipment 20.4 21.5
Depreciation of right-of-use assets 41.4 50.5
Amortisation of intangible assets 18.9 18.9
Share-based payments 7.7 8.6
Loss on disposal of property, plant and equipment 0.2 0.5
Net cash flow from inventories 189.2 (7.0)
Net cash flow from trade and other receivables (including contract assets) 107.7 (317.2)
Net cash flow from trade and other payables (including contract liabilities) (160.2) 263.4
Net cash flow from provisions and employee benefits (0.8) (0.7)
Other adjustments 0.1 (0.1)
Cash generated from operations 493.4 294.8
Income taxes paid (82.8) (52.7)
Net cash flow from operating activities 410.6 242.1
Investing activities
Interest received 13.1 2.4
Acquisition of subsidiaries, net of cash acquired - (28.3)
Contingent consideration (17.4) -
Purchases of property, plant and equipment (21.9) (23.7)
Purchases of intangible assets (13.2) (11.8)
Proceeds from disposal of property, plant and equipment - 1.1
Net cash flow from investing activities (39.4) (60.3)
Financing activities
Interest paid (2.6) (2.9)
Interest paid on lease liabilities (4.7) (4.9)
Purchase of non-controlling interest (1.9) -
Dividends paid to equity shareholders of the Parent (77.3) (80.5)
Proceeds from exercise of share options 9.2 6.2
Purchase of own shares (38.0) (34.4)
Repayment of loans and credit facility (69.8) (20.6)
Payment of capital element of lease liabilities (41.4) (50.3)
Drawdown of borrowings 62.9 4.0
Net cash flow from financing activities (163.6) (183.4)
Increase/(decrease) in cash and cash equivalents 207.6 (1.6)
Effect of exchange rates on cash and cash equivalents (0.8) (7.2)
Cash and cash equivalents at the beginning of the year 9 264.4 273.2
Cash and cash equivalents at the year end 9 471.2 264.4
1 General information
Computacenter plc is a limited company incorporated and domiciled in England
whose shares are publicly traded. Its registered address is Hatfield Business
Park, Hatfield Avenue, Hatfield, AL10 9TW.
2 Summary of significant accounting policies
The accounting policies adopted are consistent with those of the previous
financial year as applied in the 2022 Annual Report and Accounts.
New or revised standards or interpretations
Some accounting pronouncements which have become effective from 1 January 2023
and have therefore been adopted do not have a significant impact on the
Group's financial results or position other than the change discussed below.
IAS 12 does not specifically address the tax effects of right-of-use assets
and lease liabilities. However, in May 2021 the IASB made amendments to IAS 12
which narrow the scope of the initial recognition exemption in paragraphs 15
and 24 of IAS 12 and require entities to recognise deferred tax on
transactions that, on initial recognition, give rise to equal amounts of
taxable and deductible temporary differences. As a consequence, entities are
now required to recognise both a deferred tax asset and a deferred tax
liability on the initial recognition of a lease. While these would typically
qualify for offsetting in the balance sheet, the notes to the financial
statements need to disclose the gross amounts. The amendments apply to annual
reporting periods beginning on or after 1 January 2023.
The Group was previously recording deferred tax on right-of-use assets and
lease liabilities on a net basis. Upon adoption of the amendments, the
cumulative effect of initially applying the amendments at 1 January 2022 was
not material to the retained earnings position and therefore no adjustment has
been made for this date. The Group has now grossed up deferred tax liabilities
of £26.6m (2022: £31.1m) on right-of-use assets and deferred tax assets of
£27.9m (2022: £32.4m) on lease liabilities which are disclosed in note 7.
Due to the offsetting of these deferred tax assets and liabilities on the
basis that they relate to income taxes levied by the same taxation authority
on the same taxable entity, there is no material impact on the deferred tax
position reported on the Consolidated Balance Sheet. The application of these
amendments to IAS 12 has had no material impact on the Group's profit before
tax or profit after tax, net assets and earnings per share.
New standards, interpretations or amendments not yet effective have not been
early adopted and have not been disclosed as they are not expected to have a
material effect on the Group's Consolidated Financial Statements. The Group
anticipates that all relevant pronouncements will be adopted for the first
period beginning on or after the effective date of the pronouncement.
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 2023 or 2022. The summary financial information set out above is
derived from the Statutory Consolidated Financial Statements for the Group for
the year ended 31 December 2022, prepared in accordance with adopted IFRS,
which have been delivered to the Registrar of Companies and those for 2023
will be delivered in due course. The auditor has 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.
This preliminary announcement does not constitute the Group's full financial
statements for 2023 within the meaning of Section 434 of the United Kingdom
Companies Act 2006.
The Consolidated Financial Statements are prepared on the historical cost
basis, other than derivative financial instruments and contingent
consideration, which are stated at fair value.
The Consolidated Financial Statements are presented in pound sterling (£) and
all values are rounded to the nearest hundred thousand, except when otherwise
indicated.
In determining whether it is appropriate to prepare the financial statements
on a going concern basis, the Group prepares a three-year Plan (the 'Plan')
annually by aggregating top-down expectations of business performance across
the Group in the second and third year of the Plan with a detailed 12-month
bottom-up budget for the first year, which was approved by the Board. The Plan
is subject to rigorous downside sensitivity analysis which involves flexing a
number of the main assumptions underlying the forecasts within the Plan. The
forecast cash flows from the Plan are aggregated with the current position to
provide a total three-year cash position against which the impact of potential
risks and uncertainties can be assessed. In the absence of significant
external debt, the analysis also considers access to available committed and
uncommitted finance facilities, the ability to raise new finance in most
foreseeable market conditions and the ability to restrict dividend payments.
The Directors have identified a period of not less than 12 months through to
19 March 2025, as the appropriate period for the going concern assessment and
have based their assessment on the relevant forecasts from the Plan for that
period. No events or conditions beyond the assessment period that may cast
significant doubt on the Group's ability to continue as a going concern have
been identified.
The potential impact of the principal risks and uncertainties is then applied
to the Plan. This assessment includes only those risks and uncertainties that,
individually or in plausible combination, would threaten the Group's business
model, future performance, solvency or liquidity over the assessment period
and which are considered to be severe but reasonable scenarios. It also takes
into account an assessment of how the risks are managed and the effectiveness
of any mitigating actions.
The combined effect of the potential occurrence of several of the most
impactful risks and uncertainties is represented by a large adjustment to the
cash flows over the assessment period which is then compared to the cash
position generated by the Plan, throughout the assessment period, to model
whether the business will be able to continue in operation. This application
of the risk impact adjustment is performed under two sensitivity scenarios.
For the current period, the primary downside sensitivity relates to a
modelled, but not predicted, severe downturn in Group revenues, beginning in
2024, simulating a continued impact for some of our customers from a reduction
in customer demand due to the current economic crisis, and ongoing impact on
the Group's revenues from this macroeconomic instability. This sensitivity
analysis models a continued market downturn scenario, with
slower-than-predicted recovery estimates, for some of our customers whose
businesses have been affected by the downturn occurring for our customer base
as a result of the emerging negative global macroeconomic environment due to
the current economic crisis.
The second sensitivity scenario includes a further extreme, but not predicted,
severe downturn in Group revenues and margins leading to a substantial
loss-making position over the assessment period. Included within this
sensitivity scenario is the modelled lack of access to our committed facility.
Under both scenarios, the business demonstrates modelled solvency and
liquidity over the assessment period where the supporting models were tested
with rigorous downside sensitivity analysis, which involved flexing a number
of the main assumptions underlying the forecasts.
Our cash and borrowing capacity provides sufficient funds to meet the
foreseeable needs of the Parent and Group. At 31 December 2023, the Group had
cash and short-term deposits of £471.2m and bank debt, primarily related to
the recently built headquarters in Germany and operations in North America, of
£12.2m. On 9 December 2022, the Group entered into a new unsecured
multi-currency revolving loan facility of £200.0m in order to rationalise its
treasury operations. The new facility has a term of five years plus two
one-year extension options exercisable on the first and second anniversary of
the facility. The Group has exercised the extension option on the first
anniversary, extending the term to six years with one further one-year
extension option available.
The Group has a resilient balance sheet position, with net assets of £949.4m
as at 31 December 2023. The Group made a profit after tax of £199.4m, and
delivered net cash flows from operating activities of £410.6m, for the year
ended 31 December 2023.
As the analysis continues to show a strong forecast cash position, even under
the severe economic conditions modelled in the sensitivity scenarios, the
Directors continue to consider that the Parent and Group are well placed to
manage business and financial risks in the current economic environment. Based
on this assessment, the Directors confirm that they have a reasonable
expectation that the Parent and Group will be able to continue in operation
and meet their liabilities as they fall due over the period of not less than
12 months from the date of signing the Consolidated Financial Statements and
therefore have prepared the Consolidated Financial Statements on a going
concern basis.
Consolidated Balance Sheet - restatement of comparative information
At 31 December 2022, certain items were incorrectly presented on the
Consolidated Balance Sheet as follows:
· Tax balances of £25.5m were included as part of 'Trade and other
receivables'. These have been re-presented by reclassifying to 'Income tax
payable' and netting these amounts against payable balances in the same tax
jurisdiction.
· Trade and other receivables relating to a contract of £6.0m was
included as part of 'Accrued income'. This has now been reclassified to 'Trade
and other receivables'. Further to this, and related to the same contract, an
amount of £9.9m has been reclassified from 'Trade and other receivables'
(current) to 'Trade and other receivables' (non-current).
· A bank overdraft balance of £10.7m has been reclassified to 'Cash and
short-term deposits' as the 'right of offset' has been established.
Of the above, only the reclassification of the tax balances has an impact on
the Consolidated Balance Sheet as at 1 January 2022, which is to decrease
Trade and other receivables by £20.5m and decrease Income tax payable by the
same amount. There is no impact on reported 'Net funds' and 'Net assets' from
the above changes for any of the periods presented.
2.2 Basis of consolidation
The Consolidated Financial Statements comprise the financial statements of the
Parent Company 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 from Parent shareholders' equity in the Consolidated
Balance Sheet.
2.2.1 Foreign currency translation
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, or where relevant, the rate of a specific forward exchange
contract. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency rate of exchange ruling at the
Consolidated Balance Sheet date. All differences are taken to the Consolidated
Income Statement except foreign currency differences arising from the
translation of qualifying cash flow hedges, which are recognised in the
Consolidated Statement of Comprehensive Income, to the extent that the hedges
are effective.
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 main overseas subsidiaries are euro (€) and
US dollar ($). The Group's presentation currency is pound sterling (£). As at
the reporting date, the assets and liabilities of overseas subsidiaries are
translated into the presentation currency of the Group at the rate of exchange
ruling at the Consolidated Balance Sheet date and their income statements are
translated at the average exchange rates for the year. Exchange differences
arising on the retranslation are recognised in the Consolidated Statement of
Comprehensive Income. On disposal of a foreign entity, the deferred cumulative
amount recognised in the Consolidated Statement of Comprehensive Income
relating to that particular foreign operation is recognised in the
Consolidated Income Statement.
2.3 Revenue
Revenue is recognised when the Group's performance obligations are fulfilled
to the extent of the amount which is expected to be received from customers as
consideration for the transfer of goods and services to the customer.
In multi-element contracts with customers where more than one good (Technology
Sourcing) or service (Professional Services and Managed Services) is provided
to the customer, analysis is performed to determine whether the separate
promises are distinct performance obligations within the context of the
contract. To the extent that this is the case, the transaction price is
allocated between the distinct performance obligations based upon relative
standalone selling prices. The revenue is then assessed for recognition
purposes based upon the nature of the activity and the terms and conditions of
the associated customer contract relating to that specific distinct
performance obligation.
The following specific recognition criteria must also be met before revenue is
recognised:
2.3.1 Technology Sourcing
The Group supplies hardware, software and resold third-party services
(together as 'goods') to customers that are sourced from and delivered by a
number of suppliers.
Technology Sourcing revenue is recognised when the Group's performance
obligations are fulfilled at a point in time when control of the goods has
been transferred to the customer. Typically, customers obtain control of the
goods when they are delivered to and have been accepted at their premises,
depending on individual customer arrangements. Invoices are routinely
generated at despatch from our Integration Centers or, in the case of direct
delivery by supplier, upon receipt at customer locations. At each reporting
date, a process is undertaken to ensure revenue is not recognised for goods
that have not been received by customers at that reporting date. Payment for
the goods is generally received on, or before, industry-standard payment
terms, ordinarily within 30 days. Refer to note 3.2.1 for 'bill and hold'
transactions.
Revenue is recorded at the price specified in sales invoices which is based on
the customer contracts, net of any agreed discounts and rebates, and exclusive
of value added tax on goods or services supplied to customers during the year.
In limited instances, the Group provides early payment discounts or rebates to
its customers which create variability in the transaction price. In
determining the variable consideration to be recognised, these discounts and
rebates are estimated based on the terms of contractually agreed arrangements
and the amount of consideration to which the Group will be entitled in
exchange for supplying the goods or services. The level of estimation involved
in assessing the variable consideration is minimal given the arrangements are
generally prospective in nature and therefore deductions from revenue and
trade receivables are appropriately accounted for at the point revenue is
recognised.
Revenue is recognised to the extent that it is highly probable that a
significant reversal in the amount of cumulative revenue recognised will not
occur.
Technology Sourcing principal versus agent recognition
Management assesses the classification of certain revenue contracts for
Technology Sourcing revenue recognition on either an agent or principal basis.
Because the identification of the principal in a contract is not always clear,
Management makes a determination by evaluating the nature of our promise to
our customer as to whether it is a performance obligation to pass control of
the specified goods or services ourselves, in which case we are the principal,
or to arrange for those goods or services to be provided by the other party,
where we are the agent. We determine whether we are a principal or an agent
for each specified good or service promised to the customer by evaluating the
nature of our promise to the customer against a non-exhaustive list of
indicators that a performance obligation could involve an agency relationship:
· we do not control each specified good or service before that good or
service is delivered to the customer;
· the vendor retains primary responsibility for fulfilling the sale;
· we take no inventory risk before or after the goods have been ordered,
during shipping or on return;
· we do not have discretion to establish pricing for the vendor's goods,
limiting the benefit we can receive from the sale of those goods; and
· our consideration is in the form of a, usually predetermined,
commission.
2.3.2 Professional Services
The Group provides skilled professionals to customers either operating within
a project framework or on a 'resource on demand' basis.
For contracts operating within a project framework, revenue is recognised
based on the transaction price with reference to the costs incurred as a
proportion of the total estimated costs (percentage of completion basis) of
the contract.
For those contracts which are 'resource on demand', where highly skilled
employees work for a customer on projects and engagements managed by the
customer, revenue is billed on a timesheet basis. The Group elects to use the
practical expedient in IFRS 15.B16, as we have a right to consideration from
our 'resource on demand' Professional Services customers in an amount that
corresponds directly with the value to our customer of the Group's performance
completed to date. The practical expedient applied permits the Group to
recognise these 'resource on demand' Professional Services revenues in the
amount to which the entity has a right to invoice. Professional Services
revenue is therefore recognised throughout the term of the contract, as
services are delivered, with amounts recognised based on monthly invoiced
amounts, as this corresponds to the service delivered to the customer and the
satisfaction of the Group's performance obligations.
Under either basis, Professional Services revenue is recognised over time. The
majority of the Group's Professional Services revenue is constituted by
'resource on demand' arrangements, is recognised in this manner and
represents the primary area of growth in this business line. As the majority
of Professional Services revenue is recognised as 'resource on demand', the
overall balance of risks to recognition for this business is decreased as
compared to the scenario where the majority of Professional Services revenue
would be recognised on a percentage of completion basis. This is due to the
monthly timesheet nature of the billing which is agreed regularly with the
customer as the service is delivered.
If the total estimated costs and revenues of a contract cannot be reliably
estimated, revenue is recognised only to the extent that costs have been
incurred and where the Group has an enforceable right to payment as work is
being performed.
A provision for forecast excess costs over forecasted revenue is made as soon
as a loss is foreseen (see note 2.12.1 for further detail). Payment for the
Services, which are invoiced monthly, is generally on industry standard
payment terms.
2.3.3 Managed Services
The Group sells maintenance, support and management of customers' IT
infrastructures and operations.
The specific performance obligations and invoicing conditions in our Managed
Services contracts are typically related to the number of calls, interventions
or users that we manage and therefore the customer simultaneously receives and
consumes the benefits of the services as they are performed. The Group elects
to use the practical expedient in IFRS 15.B16, as we have a right to
consideration from our Managed Services customers in an amount that
corresponds directly with the value to our customer of the Group's performance
completed to date. The practical expedient applied permits the Group to
recognise Managed Services revenue in the amount to which the entity has a
right to invoice. Managed Services revenue is therefore recognised throughout
the term of the contract, as services are delivered, with amounts recognised
based on monthly invoiced amounts, as this corresponds to the service
delivered to the customer and the satisfaction of the Group's performance
obligations.
Amounts invoiced relating to more than one month are deferred into contract
liabilities and recognised over the relevant periods, where the Group has an
unconditional right of payment. Invoice payment is generally on industry
standard payment terms.
If the total estimated costs and revenues of a contract cannot be reliably
estimated, revenue is recognised only to the extent that costs have been
incurred and where the Group has an enforceable right to payment as work is
being performed. A provision for forecast excess costs over forecasted revenue
is made as soon as a loss is foreseen (see note 2.12.1 for further detail). On
occasion, the Group may have a limited number of Managed Services contracts
where revenue is recognised on a percentage of completion basis, which is
determined by reference to the costs incurred as a proportion of the total
estimated costs of the contract.
Costs of obtaining and fulfilling revenue contracts
The Group operates in a highly competitive environment and is frequently
involved in contract bids with multiple competitors, with the outcome usually
unknown until the contract is awarded and signed.
When accounting for costs associated with obtaining and fulfilling customer
contracts, the Group first considers whether these costs fit within a specific
IFRS standard or policy. Any costs associated with obtaining or fulfilling
revenue contracts which do not fall into the scope of other IFRS standards or
policies are considered under IFRS 15. All such costs are expensed as
incurred, other than the two types of costs noted below:
1. Win fees - The Group pays 'win fees' to certain employees as
bonuses for successfully obtaining customer contracts. As these are
incremental costs of obtaining a customer contract, they are deferred along
with any associated payroll tax expense to the extent they are expected to be
recovered. These balances are presented within prepayments in the Consolidated
Balance Sheet. The win fee balance that will be realised after more than 12
months is disclosed as non-current.
2. Fulfilment costs - The Group often incurs costs upfront relating to
the initial set-up phase of an outsourcing contract, which the Group refers to
as 'Entry Into Service'. These costs do not relate to a distinct performance
obligation in the contract, but rather are accounted for as fulfilment costs
under IFRS 15 as they are directly related to the future performance on the
contract. They are therefore capitalised to the extent that they are expected
to be recovered. These balances are presented within prepayments in the
Consolidated Balance Sheet.
Both types of assets resulting from capitalised win fees and Entry Into
Service costs are amortised on a systematic basis that is consistent with the
transfer to the customer of the goods and services to which the asset relates
over the contract term. The amortisation charges on win fees and Entry Into
Service costs are recognised in the Consolidated Income Statement within
administration expenses and cost of sales, respectively.
Any bid costs incurred by the Group's Central Bid Management Engines are not
capitalised or charged to the contract, but instead directly charged to
selling, general and administrative expenses as they are incurred. These costs
associated with bids are not separately identifiable nor can they be measured
reliably as the Group's internal bid teams work across multiple bids at any
one time.
2.3.4 Contract assets and liabilities
A contract asset is recognised when the Group has a right to consideration for
goods or services which have been transferred to the customer but have not
been billed, therefore excluding receivable balances. Contract assets
typically relate to longer-term Professional and Managed Services contracts
where work has been performed but has not been invoiced to the customer, and
are included within accrued income on the Consolidated Balance Sheet.
A contract liability is recognised when a customer pays the Group, or the
Group has a right to consideration that is unconditional, before the transfer
of the goods or services to which it relates. Contract liabilities typically
relate to longer-term Professional and Managed Services contracts where
consideration has been received under agreed billing timelines for which work
has yet to be performed, and are included within deferred income on the
Consolidated Balance Sheet.
2.3.5 Finance income
Income is recognised as interest accrues.
2.4 Exceptional items
The Group presents those items of income and expense as exceptional items
which, because of the nature and expected infrequency of the events giving
rise to them, merit separate presentation to allow shareholders to understand
the elements of financial performance in the year, so as to facilitate
comparison with prior years and to assess trends in financial performance.
2.5 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, set out below,
assist in providing additional useful information on the underlying trends,
performance and position of the Group. The non-GAAP measures are also used to
enhance the comparability of information between reporting periods by
adjusting for non-recurring or uncontrollable factors which affect IFRS
measures, to aid the user in understanding the Group's performance.
Consequently, non-GAAP measures are used by the Directors and Management for
performance analysis, planning, reporting and incentive-setting purposes.
Adjusted measures have remained consistent with the prior year. However, as
with all non-GAAP alternative performance measures, these adjusted measures
present some natural limitations in their usage to understand the Group's
performance. These limitations include the lack of comparability with non-GAAP
and GAAP measures used by other companies and the fact that the results may,
from time-to-time, contain the benefit of acquisitions made but exclude the
significant costs associated with that acquisition or the amortisation of
acquired intangibles. It is therefore not a complete record of the Group's
financial performance as compared to its GAAP results. The exclusion of other
adjusting items may result in adjusted earnings being materially higher or
lower than reported earnings. In particular, when significant acquisition
related charges are excluded, adjusted earnings will be higher than reported
GAAP-compliant earnings.
These non-GAAP measures comprise: gross invoiced income, adjusted
administrative expenses, adjusted operating profit or loss, adjusted profit or
loss before tax, adjusted tax, adjusted profit or loss for the year, adjusted
earnings per share and adjusted diluted earnings per share. They are, as
appropriate, each stated before: exceptional and other adjusting items
including gain or loss on acquisitions, expenses related to material
acquisitions, amortisation of acquired intangibles, utilisation of deferred
tax assets (where initial recognition was as an exceptional item or a fair
value adjustment on acquisition), and the related tax effect of these
exceptional and other adjusting items, as Management does not consider these
items when reviewing the underlying performance of the Segment or the Group as
a whole.
Gross invoiced income is based on the value of invoices raised to customers,
net of the impact of credit notes and excluding VAT and other sales taxes.
This reflects the cash movements from revenue, to assist Management and the
users of this announcement in understanding revenue growth on a 'Principal'
basis and to assist in their assessment of working capital movements in the
Consolidated Balance Sheet and Consolidated Cash Flow Statement. This measure
allows an alternative view of growth in adjusted gross profit, based on the
product mix differences and the accounting treatment thereon. Gross invoiced
income includes all items recognised on an agency basis within revenue, on a
gross income billed to customers basis, as adjusted for deferred and accrued
revenue.
A reconciliation to adjusted measures is provided in the Chief Financial
Officer's review which details the impact of exceptional and other adjusting
items when comparing to the non-GAAP financial measures, in addition to those
reported in accordance with IFRS. Further detail is also provided within note
4, Segment information.
2.6 Impairment of assets
The Group assesses at each reporting date whether there is an indication that
an asset may be impaired. If any such indication exists, or when annual
impairment testing for an asset is required, the Group makes an estimate of
the asset's recoverable amount. Where an asset does not have independent cash
flows, the recoverable amount is assessed for the cash-generating unit (CGU)
to which it belongs. These assets are tested across an aggregation of CGUs
that utilise the asset. The recoverable amount is the higher of the fair value
less costs to sell and the value-in-use of the asset or CGU. Where the
carrying amount of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount. In
assessing value-in-use, the estimated future cash flows are discounted to
their present value using a post-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset. Impairment losses of continuing operations are recognised in the
Consolidated Income Statement in those expense categories consistent with the
function of the impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date
whether there is any indication that previously recognised impairment losses
may no longer exist or may have decreased. If such indication exists, the
Group estimates the asset's or CGU's recoverable amount. A previously
recognised impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset's recoverable amount since the last
impairment was recognised. The reversal is limited so that the carrying amount
of the asset does not exceed its recoverable amount, nor exceed the carrying
amount that would have been determined, net of depreciation, had no impairment
loss been recognised for the asset in prior years. As the Group has no assets
carried at revalued amounts, such reversal is recognised in the Consolidated
Income Statement.
2.7 Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and any accumulated impairment losses. Depreciation, down to residual value,
is calculated on a straight-line basis over the estimated useful life of the
asset as follows:
· freehold buildings: 25-50 years
· short leasehold improvements: shorter of seven years and period to
expiry of lease
· fixtures and fittings:
- head office: 5-15 years
- other: shorter of seven years and period to expiry of lease
· office machinery and computer hardware: 2-15 years
- motor vehicles: three years
Freehold land is not depreciated. An item of property, plant and equipment is
derecognised upon disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the item) is included in the
Consolidated Income Statement in the year the item is derecognised.
2.8 Leases
2.8.1 Group as lessee
Recognition of a lease
The contracts are assessed by the Group, to determine whether a contract is,
or contains a lease. In general, arrangements are a lease when all of the
following apply:
· it conveys the right to control the use of an identified asset for a
certain period, in exchange for consideration;
· the Group obtains substantially all economic benefits from the use of
the asset; and
· the Group can direct the use of the identified asset.
The Group elects to separate the non-lease components.
Measurement of a right-of-use asset and lease liability
Right-of-use asset
The Group measures the right-of-use asset at cost, which includes the
following:
· the initial amount of the lease liability, adjusted for any lease
payments made at or before the lease commencement date;
· any lease incentives received; and
· any initial direct costs incurred by the Group as well as an
estimate of costs to be incurred by the Group in dismantling and removing the
underlying asset, restoring the site on which it is located or restoring the
underlying asset to the condition required by the lease contract. Cost for
dismantling, removing or restoring the site on which it is located and/or the
underlying asset is only recognised when the Group incurs an obligation to do
so.
The right-of-use asset is depreciated over the lease term, using the
straight-line method.
Lease liability
The lease liability is initially measured at the present value of the unpaid
lease payments, discounted using the interest rate implicit in the lease, or
if the rate cannot be readily determined, the Group's incremental borrowing
rate. Lease payments included in the measurement comprise fixed payments,
variable lease payments that depend on an index or a rate, amounts to be paid
under a residual value guarantee and lease payments in an optional renewal
period, if the Group is reasonably certain to exercise an extension option, as
well as penalties for early termination of a lease, if the Group is reasonably
certain to terminate early. If there is a purchase option present, this will
be included if the Group is reasonably certain to exercise the option.
Leases of low-value assets and short term
Leases of low-value assets (< £5,000) and short term leases with a term of
12 months or less are not required to be recognised on the Consolidated
Balance Sheet and payments made in relation to these leases are recognised on
a straight-line basis in the Consolidated Income Statement.
2.8.2 Group as a lessor
The Group has entered into lease agreements as a lessor on certain items of IT
equipment and software. Leases for which the Group is a lessor are classified
as either operating or finance leases. The Group assesses whether it transfers
substantially all the risks and rewards of ownership. Those leases that do not
transfer substantially all the risks and rewards are classified as operating
leases. Rental income arising from operating leases is accounted for on a
straight-line basis over the lease term.
If an arrangement contains lease and non-lease components, then the Group
applies IFRS 15 to allocate the consideration of the contract.
The Group applies the derecognition and impairment requirements in IFRS 9 to
the net investment in the lease.
In cases where the Group acts as an intermediate lessor, it accounts for its
interests in the head-lease and the sub-lease separately.
2.9 Intangible assets
2.9.1 Software and software licences
Software and software licences include computer software that is not integral
to a related item of hardware. These assets are stated at cost less
accumulated amortisation and any impairment in value. Amortisation is
calculated on a straight-line basis over the estimated useful life of the
asset. Currently software is amortised over four years.
The carrying values of software and software licences are reviewed for
impairment when events or changes in circumstances indicate that the carrying
value may not be recoverable. If any such indication exists and where the
carrying values exceed the estimated recoverable amount, the assets are
written down to their recoverable amount.
2.9.2 Software under development
Costs that are incurred and that can be specifically attributed to the
development phase of management information systems for internal use are
capitalised only if the expenditure can be measured reliably, the management
information system is technically and commercially feasible, future economic
benefits are probable, and the Group intends to and has sufficient resources
to complete development and to use the system.
Research expenditure and development expenditure that do not meet the criteria
above are recognised as an expense as incurred. Development costs previously
recognised as an expense are not recognised as an asset in a subsequent
period.
Directly attributable costs that are capitalised typically include
professional fees and cost of material/services consumed.
Capitalised development costs are recorded as intangible assets and amortised
over their useful life from the point at which the management information
system is ready for use.
Costs associated with maintaining in-use software programs are recognised as
an expense as incurred.
2.9.3 Other intangible assets
Intangible assets acquired as part of a business combination are carried
initially at fair value. Following initial recognition intangible assets are
carried at cost less accumulated amortisation and any impairment in value.
Intangible assets with a finite life have no residual value and are amortised
on a straight-line basis over their expected useful lives, with charges
included in administrative expenses as follows:
· order back log: within three months
· existing customer relationships: 10-15 years
· tools and technology: seven years.
The carrying value of intangible assets is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value may not be
recoverable and expected useful lives are reviewed on a yearly basis.
2.9.4 Goodwill
Business combinations are accounted for under IFRS 3 Business Combinations
using the acquisition method. Any excess of the cost of the business
combination over the Group's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities is recognised in
the Consolidated Balance Sheet as goodwill and is not amortised. Any goodwill
arising on the acquisition of equity-accounted entities is included within the
cost of those entities.
After initial recognition, goodwill is stated at cost less any accumulated
impairment losses, with the carrying value being reviewed for impairment at
least annually and whenever events or changes in circumstances indicate that
the carrying value may be impaired.
For the purpose of impairment testing, goodwill is allocated to the related
CGU monitored by Management, usually at business Segment level or statutory
Company level as the case may be. Where the recoverable amount of the CGU is
less than its carrying amount, including goodwill, an impairment loss is
recognised in the Consolidated Income Statement.
2.10 Inventories
Inventories are carried at the lower of weighted average cost and net
realisable value after making allowance for any obsolete or slow-moving items.
Costs include those incurred in bringing each product to its present location
and condition, on a first-in, first-out basis.
Net realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs necessary to make the sale.
2.11 Financial assets
Financial assets are recognised at their fair value, which initially equates
to the sum of the consideration given and the directly attributable
transaction costs associated with the investment. Subsequently, the financial
assets are measured at either amortised cost or fair value, depending on their
classification under IFRS 9. The Group currently holds only debt instruments.
The classification of these debt instruments depends on the Group's business
model for managing the financial assets and the contractual terms of the cash
flows.
2.11.1 Trade receivables
Trade receivables, which generally have 30- to 90-day credit terms, are
initially recognised and carried at their original invoice amount less an
allowance for any uncollectable amounts. The business model for trade
receivables is that they are held for the collection of contractual cash
flows, therefore they are subsequently measured at amortised cost. The trade
receivables are derecognised on receipt of cash from the customer. The Group
sometimes uses debt factoring, without recourse, to manage liquidity and, as a
result, the business model for factored trade receivables is that they are not
held for the collection of contractual cash flows.
As a result, subsequent to initial recognition, they are measured at fair
value through other comprehensive income (except for the recognition of
impairment gains and losses and foreign exchange gains and losses, which are
recognised in profit or loss).
Factored trade receivables are derecognised on receipt of cash from the
factoring party. Given the short lives of the trade receivables, there are
generally no material fair value movements between initial recognition and the
derecognition of the receivable.
The Group assesses for doubtful debts (impairment) using the expected credit
losses model as required by IFRS 9. For trade receivables, the Group applies
the simplified approach, which requires expected lifetime losses to be
recognised from the initial recognition of the receivables. Material or
high-risk balances are reviewed and provided for individually based on a
number of factors including:
· the financial strength of the customer;
· the level of default that the Group has suffered in the past;
· the age of the receivable outstanding; and
· the Group's trading experience with that customer.
2.11.2 Cash and cash equivalents
Cash and short-term deposits in the Consolidated Balance Sheet comprise cash
at bank and in hand, and short-term deposits with an original maturity of
three months or less. Cash is held for the collection of contractual cash
flows which are solely payments of principal and interest and therefore is
measured at amortised cost subsequent to initial recognition.
For the purpose of the Consolidated Cash Flow Statement, cash and cash
equivalents consist of cash and short-term deposits as defined above, net of
outstanding bank overdrafts, as the bank overdrafts form an integral part of
the Group's cash management.
2.12 Financial liabilities
Financial liabilities are initially recognised at their fair value and, in the
case of loans and borrowings (including credit facility), net of directly
attributable transaction costs.
The subsequent measurement of financial liabilities is at amortised cost,
unless otherwise described below:
2.12.1 Provisions (excluding restructuring provision)
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation.
If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability. Where discounting is used,
the increase in the provision due to the passage of time is recognised as a
borrowing cost.
Customer contract provisions
Management continually monitors the financial performance of contracts, and
where there are indicators that a contract could result in a negative margin,
the future financial performance of that contract will be reviewed in detail.
If, after further financial analysis, the full financial consequence of the
contract can be reliably estimated, and it is determined that the contract is
potentially loss-making, then the best estimate of the losses expected to be
incurred until the end of the contract will be provided for.
In establishing if future costs are forecast to exceed the future revenue,
Management will take into account the anticipated inflationary impact on the
cost base, offset by any rights to increase pricing under Cost of Living
Adjustment (COLA) clauses that have been incorporated in the customer
contract.
The Group applies IAS 37 - 'Provisions, Contingent Liabilities and Contingent
Assets' in its assessment of whether contracts are considered onerous and in
subsequently estimating the provision. The Group's approach is to apply the
full cost approach, which considers total estimated costs (i.e. directly
attributable variable costs and fixed allocated costs) in the assessment of
whether the contract is onerous or not and in the measurement of the
provision.
A provision for onerous contracts is made as soon as a loss is foreseen and is
measured at the present value of the lower of the expected cost of terminating
the contract and the expected net cost of continuing with the contract, which
is determined based on incremental costs necessary to fulfil the obligation
under the contract. Before a provision is established, the Group recognises
any impairment loss on the assets associated with that contract.
2.12.2 Pensions and other post-employment benefits
The Group operates a defined contribution pension scheme available to all UK
employees and similar schemes are operating, as appropriate for the
jurisdiction, for North America and Germany. Contributions are recognised as
an expense in the Consolidated Income Statement as they become payable in
accordance with the rules of the scheme. There are no material pension schemes
within the Group's overseas operations.
The Group has an obligation to make a one-off payment to French employees upon
retirement, the Indemnités de Fin de Carrière (IFC).
French employment law requires that a company pays employees a one-time
contribution when, and only when, the employee leaves the company on
retirement at the mandatory age. This is a legal requirement for all
businesses which incur the obligation upon departure, due to retirement, of an
employee.
Typically, the retirement benefit is based on length of service of the
employee and his or her salary at retirement. The amount is set via a legal
minimum, but the retirement premiums can be improved by the collective
agreement or employment contract in some cases. For Computacenter's French
employees, the payment is based on accrued service and ranges from one month
of salary after five years of service to 9.4 months of salary after 47 years
of service.
If the employee leaves voluntarily at any point before retirement, all
liability is extinguished, and any accrued service is not transferred to any
new employment.
Management continues to account for this obligation according to IAS 19
(revised).
2.13 Derecognition of financial assets and liabilities
2.13.1 Financial assets
A financial asset or, where applicable, a part of a financial asset or part of
a group of similar financial assets, is derecognised where:
· the rights to receive cash flows from the asset have expired; or
· the Group retains the right to receive cash flows from the asset, but
has assumed an obligation to pay them in full without material delay to a
third party under a pass-through arrangement; or
· the Group has transferred its rights to receive cash flows from the
asset and either (a) has transferred substantially all the risks and rewards
of the asset, or (b) has neither transferred nor retained substantially all
the risks and rewards of the asset but has transferred control of the asset.
2.13.2 Financial liabilities
A financial liability is derecognised when the obligation under the liability
is discharged, cancelled or expired.
2.14 Derivative financial instruments and hedge accounting
The Group uses foreign currency forward contracts to hedge its foreign
currency risks associated with foreign currency fluctuations affecting cash
flows from forecast transactions and unrecognised firm commitments.
At the inception of a hedge relationship, the Group formally designates and
documents the hedge relationship to which the Group wishes to apply hedge
accounting and the risk management objective and strategy for undertaking the
hedge. The documentation includes identification of both the hedging
instrument and the hedged item or transaction and then the economic
relationship between the two, including whether the hedging instrument is
expected to offset changes in cash flow of the hedged item. Such hedges are
expected to be highly effective in achieving offsetting changes in cash flows.
The Group designates the full change in the fair value of the forward contract
(including forward points) as the hedging instrument. Forward contracts are
initially recognised at fair value on the date that the contract is entered
into and are subsequently remeasured at fair value at each reporting date. The
fair value of forward currency contracts is calculated by reference to current
forward exchange rates for contracts with similar maturity profiles. Forward
contracts are recorded as assets when the fair value is positive and as
liabilities when the fair value is negative.
For the purposes of hedge accounting, hedges are classified as cash flow
hedges when hedging the exposure to variability in cash flows that is either
attributable to a particular risk associated with a recognised asset or
liability, a highly probable forecast transaction, or the foreign currency
risk in an unrecognised firm commitment.
Cash flow hedges that meet the criteria for hedge accounting are accounted for
as follows: the effective portion of the gain or loss on the hedging
instrument is recognised directly in other comprehensive income in the cash
flow hedge reserve, while any ineffective portion is recognised immediately in
the Consolidated Income Statement in administrative expenses.
Amounts recognised within the Consolidated Statement of Comprehensive Income
are transferred to the Consolidated Income Statement, within administrative
expenses, when the hedged transaction affects the Consolidated Income
Statement, such as when the hedged financial expense is recognised.
If the forecast transaction or firm commitment is no longer expected to occur,
the cumulative gain or loss previously recognised in equity is transferred to
the Consolidated Income Statement within administrative expenses. If the
hedging instrument matures or is sold, terminated or exercised without
replacement or rollover, any cumulative gain or loss previously recognised
within the Consolidated Statement of Comprehensive Income remains within the
Consolidated Statement of Comprehensive Income until after the forecast
transaction or firm commitment affects the Consolidated Income Statement.
Any other gains or losses arising from changes in fair value on forward
contracts are taken directly to administrative expenses in the Consolidated
Income Statement.
2.15 Taxation
2.15.1 Current tax
Current tax assets and liabilities for the current and prior years are
measured at the amount expected to be recovered from or paid to the tax
authorities. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted by the balance sheet date.
2.15.2 Deferred income tax
Deferred income tax is recognised on all temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the
Consolidated Financial Statements, with the following exceptions:
· where the temporary difference arises from the initial recognition of
goodwill or from an asset or liability in a transaction that is not a business
combination that at the time of the transaction affects neither accounting nor
taxable profit or loss;
· in respect of taxable temporary differences associated with investments
in subsidiaries, associates and joint ventures, where the timing of the
reversal of the temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the foreseeable future; and
· deferred income tax assets are recognised only to the extent that it is
probable that taxable profit will be available in the future against which the
deductible temporary differences, carried forward tax credits or tax losses
can be utilised.
Deferred income tax assets and liabilities are measured on an undiscounted
basis at the tax rates that are expected to apply when the related asset is
realised or liability is settled, based on tax rates and laws enacted, or
substantively enacted, at the balance sheet date.
Income tax is charged or credited directly to the Consolidated Statement of
Comprehensive Income if it relates to items that are credited or charged to
the Consolidated Statement of Comprehensive Income. Otherwise, income tax is
recognised in the Consolidated Income Statement.
2.16 Share-based payment transactions
Employees (including Executive Directors) of the Group can receive
remuneration in the form of share-based payment transactions, whereby
employees render services in exchange for shares or rights over shares
(equity-settled transactions).
The cost of equity-settled transactions with employees is measured by
reference to the fair value of the award at the date at which they are
granted. The fair value is determined by utilising an appropriate valuation
model. In valuing equity-settled transactions, no account is taken of any
performance conditions, as none of the conditions set are market related.
The cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the performance
and/or service conditions are fulfilled, ending on the date on which the
relevant employees become fully entitled to the award (vesting date).
The cumulative expense recognised for equity-settled transactions at each
reporting date, until the vesting date, reflects the extent to which the
vesting period has expired and the Directors' best estimate of the number of
equity instruments that will ultimately vest. The Consolidated Income
Statement charge or credit for a period represents the movement in cumulative
expense recognised as at the beginning and end of that period. As the schemes
do not include any market-related performance conditions, no expense is
recognised for awards that do not ultimately vest.
Movements in the estimated employer's National Insurance liability related to
the awards, carried on the Consolidated Balance Sheet, are recognised in the
Consolidated Income Statement.
The dilutive effect of outstanding options is reflected as additional share
dilution in the computation of earnings per share (see note 8).
The Group has an employee share trust for the granting of non-transferable
options to Executive Directors and senior Management. Shares in the Group held
by the employee share trust are treated as investment in own shares and are
recorded at cost as a deduction from equity.
2.17 Own shares held
Computacenter plc shares held by the Group are classified in shareholders'
equity as 'own shares held' and are recognised at cost. Consideration received
for the sale of such shares is also recognised in equity, with any difference
between the proceeds from sale and the original cost being taken to reserves.
No gain or loss is recognised in the performance statements on the purchase,
sale, issue or cancellation of equity shares. These shares are held in
Computacenter Employee Benefit Trust which is called "Employee share ownership
Plan" (ESOP). Computacenter being the sponsoring entity has control over the
ESOP under IFRS 10 as Computacenter makes the decisions on how the ESOP
operates per the following criteria:
· Computacenter has power over the relevant activities of the ESOP
· Computacenter has exposure, or rights, to variable returns from its
involvement with the ESOP
· Computacenter has the ability to use its power over the ESOP to affect
the amount of the ESOP returns
As the IFRS 10 criteria are satisfied, Computacenter ESOP is accounted for
under IFRS 10 and is consolidated on the basis that the parent (Computacenter
plc) has control, thus the assets and liabilities of the ESOP are included on
the Company's Balance Sheet and the Group's Consolidated Balance Sheet. The
shares held by the ESOP are presented as a deduction from equity within the
Consolidated Statement of Changes in Equity under the 'own shares held'
column.
2.18 Fair value measurement
The Group measures certain financial instruments at fair value at each balance
sheet date.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
The fair value of an asset or a liability is measured using the assumptions
that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs.
3 Critical accounting estimates and judgements
The preparation of the Consolidated 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.
During the year, Management reconsidered the critical accounting estimates and
judgements for the Group. This process included reviewing the last reporting
period's disclosures, the key judgements required on the implementation of
forthcoming standards and the current period's challenging accounting issues.
Where Management deemed there is a change for an area of accounting to be
considered a critical estimate or judgement, an explanation for this decision
is provided in note 3.3.
3.1 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 are no areas involving significant risk resulting
in a material adjustment to the carrying amounts of assets and liabilities
within the next financial year.
3.2 Critical judgements
Judgements made by Management in the process of applying the Group's
accounting policies, which have the most significant effect on the amounts
recognised in the Consolidated Financial Statements, are as follows:
3.2.1 Bill and hold
The Group generates some of its revenue through its bill and hold arrangements
with its customers. These arise when the customer is invoiced but the product
is not shipped to the customer until a later date, in accordance with the
customer's request in a written agreement. In order to determine the
appropriate timing of revenue recognition, it is assessed whether control has
transferred to the customer.
A bill and hold arrangement is only put in place when a customer lacks the
physical space to store the product or the product previously ordered is not
yet needed in accordance with the customer's schedule and the customer wants
to guarantee supply of the product. In order to determine whether an
arrangement is bill and hold and control has been transferred to the customer,
a customer request must have been approved and all of the below criteria must
have been met :
a) the reason for the bill and hold arrangement must be substantive (for
example, the customer has requested the arrangement);
b) the product must be identified separately as belonging to the customer;
c) the product currently must be ready for physical transfer to the customer;
and
d) the Group cannot have the ability to use the product or to direct it to
another customer.
Judgement is required to determine if all of the criteria (a) to (d) have been
met, to recognise a bill and hold sale. This is determined by segregation and
readiness of inventory and the review and approval of all customer requests,
in order to assess whether the accounting policy had been correctly applied to
recognise a bill and
hold sale.
£407.6m of product sold is held by the Group for bill and hold transactions
as at 31 December 2023 (2022: £386.9m).
3.3 Change in critical estimates and critical judgements
During the year, Management reassessed the critical estimates and critical
judgements.
At its 20 April 2022 meeting, the IFRS Interpretation Committee (the
Committee) finalised and approved its agenda decision in response to a
submission from a valued added reseller to determine whether an entity should
treat revenue from the resale of standard software licences on a principal or
agent recognition basis under IFRS 15 Revenue from Contracts with Customers
(IFRS 15).
As noted in our 2022 Annual Report and Accounts, the Group revised its
accounting policies accordingly and implemented a series of system and process
changes. The impact of this is to make the determination of Agent vs Principal
routine and embedded within the transactional flows of the business, reducing
significantly the day-to-day judgement required. Therefore, Management has
concluded that the level of judgement now involved in Technology Sourcing
principal versus agent recognition will not result in a significant effect on
the amounts recognised in the Consolidated Financial Statements and this is no
longer considered a critical judgement.
Exceptional items are no longer considered a critical judgement by Management
and have therefore been removed from the above disclosure, as reported
exceptional items are not material and do not involve a significant level of
judgement.
Apart from the changes discussed above, the critical accounting estimates and
judgements reported in the Group's 2022 Annual Report and Accounts are
unchanged.
4 Segment information
The Segment information is reported to the Board and the Chief Executive
Officer. The Chief Executive Officer is the Group's Chief Operating Decision
Maker (CODM). The Group has the same operating Segments and reporting Segments
and these remain unchanged from those reported at 31 December 2022.
The Segmental reporting structure is the basis on which internal reports are
provided to the Chief Executive Officer, as the CODM, for assessing
performance and determining the allocation of resources within the Group, in
accordance with IFRS 8.25. Segmental performance is measured based on external
revenues, gross profit, adjusted operating profit and adjusted profit before
tax. Central Corporate Costs continue to be disclosed as a separate column
within the Segmental note.
Segmental performance for the years ended 31 December 2023 and 31 December
2022 was as follows:
Year ended UK Germany France North International Central Total
31 December 2023 £m £m £m America* £m Corporate £m
£m Costs
£m
Revenue
Technology Sourcing revenue
Gross invoiced income 1,938.1 2,111.5 728.5 3,454.4 212.4 - 8,444.9
Adjustment to gross invoiced income for income recognised as agent (1,166.3) (849.7) (248.6) (851.8) (42.2) - (3,158.6)
Total Technology Sourcing revenue 771.8 1,261.8 479.9 2,602.6 170.2 - 5,286.3
Services revenue
Professional Services 132.2 365.4 50.8 118.7 11.7 - 678.8
Managed Services 309.7 400.3 132.8 27.4 87.5 - 957.7
Total Services revenue 441.9 765.7 183.6 146.1 99.2 - 1,636.5
Total revenue 1,213.7 2,027.5 663.5 2,748.7 269.4 - 6,922.8
Results
Gross profit 250.8 374.5 87.3 267.5 63.9 - 1,044.0
Adjusted administrative expenses (192.0) (211.5) (78.6) (202.5) (44.1) (43.8) (772.5)
Adjusted operating profit/(loss) 58.8 163.0 8.7 65.0 19.8 (43.8) 271.5
Adjusted net interest 5.5 1.0 (0.8) 1.7 (0.9) - 6.5
Adjusted profit/(loss) before tax 64.3 164 7.9 66.7 18.9 (43.8) 278.0
Exceptional items:
- unwinding of discount relating to acquisition of a subsidiary (3.2)
- gain relating to acquisition of a subsidiary 2.8
- other income relating to acquisition of a subsidiary 5.3
Total exceptional items 4.9
Amortisation of acquired intangibles (10.8)
Profit before tax 272.1
* Included within the North America Segment total revenue of £2,748.7m is an
amount of £2,703.4m revenue for the United States of America.
The reconciliation of adjusted operating profit to operating profit as
disclosed in the Consolidated Income Statement is as follows:
Year ended Total
31 December 2023 £m
Adjusted operating profit 271.5
Amortisation of acquired intangibles (10.8)
Exceptional items 8.1
Operating profit 268.8
Year ended UK Germany France North International Central Total
31 December 2023 £m £m £m America* £m Corporate £m
£m Costs
£m
Other Segment information
Property, plant and equipment 31.7 40.7 5.5 9.9 8.3 - 96.1
Right-of-use assets 9.0 45.4 14.3 18.8 17.0 - 104.5
Intangible assets 54.8 17.1 10.2 225.8 14.5 - 322.4
Capital expenditure:
Property, plant and equipment 5.7 7.8 1.6 2.4 4.4 - 21.9
Right-of-use assets 3.5 13.2 1.7 2.8 12.6 - 33.8
Software 12.0 0.3 - 0.2 0.7 - 13.2
Depreciation of property, plant and equipment 6.2 6.9 1.6 3.6 2.1 - 20.4
Depreciation of right-of-use assets 4.6 20.5 5.3 5.4 5.6 - 41.4
Amortisation of software 5.7 0.4 0.1 1.4 0.5 - 8.1
Share-based payments 2.7 1.8 0.1 0.3 - 2.8 7.7
* Included within the North America segment Intangible assets of £225.8m is
an amount of £218.4m Intangible assets for the United States of America.
Year ended UK Germany France North International Central Total
31 December 2022 £m £m £m America* £m Corporate £m
£m Costs
£m
Revenue
Technology Sourcing revenue
Gross invoiced income 1,864.2 1,704.7 606.7 3,131.7 174.3 - 7,481.6
Adjustment to gross invoiced income for income recognised as agent (1,055.1) (551.6) (170.9) (773.8) (30.3) - (2,581.7)
Total Technology Sourcing revenue 809.1 1,153.1 435.8 2,357.9 144.0 - 4,899.9
Services revenue
Professional Services 147.5 315.7 41.7 122.5 9.2 - 636.6
Managed Services 312.8 374.7 136.4 26.9 83.2 - 934.0
Total Services revenue 460.3 690.4 178.1 149.4 92.4 - 1,570.6
Total revenue 1,269.4 1,843.5 613.9 2,507.3 236.4 - 6,470.5
Results
Gross profit 259.2 325.1 76.7 238.3 47.8 - 947.1
Adjusted administrative expenses (178.7) (184.2) (69.6) (185.3) (36.5) (23.7) (678.0)
Adjusted operating profit/(loss) 80.5 140.9 7.1 53.0 11.3 (23.7) 269.1
Adjusted net interest 2.6 (2.2) (0.8) (4.2) (0.8) - (5.4)
Adjusted profit/(loss) before tax 83.1 138.7 6.3 48.8 10.5 (23.7) 263.7
Exceptional items:
- unwinding of discount relating to acquisition of a subsidiary (2.0)
- costs relating to acquisition of a subsidiary (1.8)
Total exceptional items (3.8)
Amortisation of acquired intangibles (10.9)
Profit before tax 249.0
* Included within the North America segment Total revenue of £2,507.3m is an
amount of £2,470.0m revenue for the United States of America.
The reconciliation of adjusted operating profit to operating profit as
disclosed in the Consolidated Income Statement is as follows:
Year ended 31 December 2022 Total
£m
Adjusted operating profit 269.1
Amortisation of acquired intangibles (10.9)
Exceptional items (1.8)
Operating profit 256.4
UK Germany France North International Central Total
Year ended £m £m £m America* £m Corporate £m
31 December 2022 £m Costs
£m
Other Segment information
Property, plant and equipment 29.6 40.7 5.6 11.7 6.5 - 94.1
Right-of-use assets 10.3 53.8 18.2 22.5 14.6 - 119.4
Intangible assets 49.5 17.5 10.4 250.6 14.1 - 342.1
Capital expenditure:
Property, plant and equipment 7.2 7.8 2.2 3.9 2.6 - 23.7
Right-of-use assets 2.6 22.6 4.8 10.5 4.5 - 45.0
Software 10.5 0.5 0.3 0.1 0.4 - 11.8
Depreciation of property, plant and equipment 6.9 6.8 2.2 3.3 2.3 - 21.5
Depreciation of right-of-use assets 4.6 30.2 4.9 5.5 5.3 - 50.5
Amortisation of software 5.7 0.4 0.1 1.4 0.4 - 8.0
Share-based payments 4.2 1.9 0.1 0.7 - 1.7 8.6
* Included within the North America segment Intangible assets of £250.6m is
an amount of £242.3m Intangible assets for the United States of America.
Charges for the amortisation of acquired intangibles (where initial
recognition was an exceptional item or a fair value adjustment on acquisition)
are excluded from the calculation of adjusted operating profit. This is
because these charges are based on judgements about their value and economic
life, are the result of the application of acquisition accounting rather than
core operations, and whilst revenue recognised in the Consolidated Income
Statement does benefit from the underlying asset that has been acquired, the
amortisation costs bear no relation to the Group's underlying ongoing
operational performance. In addition, amortisation of acquired intangibles is
not included in the analysis of Segment performance used by the CODM.
Information about major customers
Included in revenues arising from the North American Segment are revenues of
approximately £1,511.0m (2022: £963.1m) which arose from sales to the
Group's largest customer.
5 Revenue
Revenue recognised in the Consolidated Income Statement is analysed as
follows:
2023 2022
£m £m
Revenue by type
Gross invoiced income 8,444.9 7,481.6
Adjustment to gross invoiced income for income recognised as agent (3,158.6) (2,581.7)
Technology Sourcing revenue* 5,286.3 4,899.9
Services revenue
Professional Services 678.8 636.6
Managed Services 957.7 934.0
Total Services revenue 1,636.5 1,570.6
Total revenue 6,922.8 6,470.5
* Included within the amount of Technology Sourcing revenue shown above is
£85.3m (2022: £42.1m) recognised under IFRS 16. All other Technology
Sourcing revenue is recognised at a point in time under IFRS 15 as described
in our accounting policy 2.3.1.
Contract balances
The following table provides the information about contract assets and
contract liabilities from contracts with customers.
31 December 31 December
2023 2022
£m £m
Trade receivables 1,471.8 1,659.7
Contract assets, which are included in prepayments 19.6 23.7
Contract assets, which are included in accrued income 151.9 129.2
Contract liabilities, which are included in deferred income 234.6 273.2
The prepayments balance within the Consolidated Balance Sheet of £150.0m
consists of £19.6m contract assets and £130.4m other prepayments.
The Group has implemented an expected credit loss impairment model with
respect to contract assets which are included in accrued income using the
simplified approach. These contract assets have been grouped on the basis of
their shared risk characteristics and a provision matrix has been developed
and applied to these balances to generate the loss allowance. The majority of
these contract asset balances are with blue chip customers and the incidence
of credit loss is low. There has therefore been no material adjustment to the
loss allowance under IFRS 9. Specific provisions are made against material or
high-risk balances based on trading experience or where doubt exists about the
counterparty's ability to pay. The expected credit losses on contract assets
which are within accrued income are considered to be immaterial.
Significant changes in contract assets and liabilities
Contract assets are balances due from customers under long-term contracts as
work is performed and therefore a contract asset is recognised over the period
in which the performance obligation is fulfilled. This represents the Group's
right to consideration for the services transferred to date. Amounts are
generally reclassified to trade and other receivables when these have been
certified or invoiced to a customer. Refer to note 2.11.1 for credit terms of
trade receivables.
The decrease in trade receivables mainly in the North American Segment is
driven by higher cash collections due to operational improvements and the
continued easing of supply chain conditions for the customers, in addition to
the impact of timing of large deals.
Win fees, deferred contract costs and fulfilment costs are included in the
prepayments balance above. The Consolidated Income Statement impact of the win
fees was a recognition of a net loss in 2023 of £0.9m, with a corresponding
credit to income tax of £0.2m for the year. As at 31 December 2023, the win
fee balance was £10.5m. The Consolidated Income Statement impact of
fulfilment costs was a recognition of a net cost in 2023 of £0.1m, with a
corresponding tax charge of £0.1m for the year.
As at 31 December 2023, the deferred contract costs balance was £4.2m and the
fulfilment costs balance was £4.9m. No impairment loss was recorded for win
fees, deferred contract costs or fulfilment costs during the year.
Revenue recognised in the reporting period from movement in accrued income
balances was £27.1m, with a credit to foreign exchange of £4.4m. No
impairment loss was recorded for accrued income during the year.
Revenue recognised in the reporting period that was included in the contract
liability balance at the beginning of the period was £122.3m. No revenue was
recognised in the reporting period from performance obligations that were
satisfied or partially satisfied in previous periods.
Remaining performance obligations (work in hand)
Contracts which have remaining performance obligations as at 31 December 2023
and 31 December 2022 are set out in the table below. The table below discloses
the aggregate transaction price relating to those remaining performance
obligations, excluding both (a) amounts relating to contracts for which
revenue is recognised as invoiced and (b) amounts relating to contracts where
the expected duration of the ongoing performance obligation is one year or
less.
Managed Services Less than One to Two to Three to Four years Total
one year two years three years four years and beyond £m
£m £m £m £m £m
As at 31 December 2023 747.4 528.4 370.3 194.6 152.0 1,992.7
As at 31 December 2022 729.1 513.2 374.0 266.7 226.8 2,109.8
The duration of most contracts is between one and five years. However some
contracts will vary from these typical lengths. Revenue is typically earned
over these varying timeframes.
6 Exceptional items 2023 2022
£m £m
Operating profit
Other income related to acquisition of a subsidiary 5.3 -
Costs related to acquisition of a subsidiary - (1.8)
Gain related to acquisition of a subsidiary 2.8 -
Exceptional operating profit/(loss) 8.1 (1.8)
Interest cost relating to acquisition of a subsidiary (3.2) (2.0)
Profit/(loss) on exceptional items before taxation 4.9 (3.8)
Income tax
Tax credit relating to acquisition of a subsidiary - 0.2
Loss on exceptional items after taxation 4.9 (3.6)
Included within 2023 are the following exceptional items:
· £3.2m relating to the unwinding of the discount on the contingent
payment for the purchase of BITS has been classified as exceptional interest
costs. This is consistent with our prior-year treatment.
· A $9.3m (£7.4m) settlement was received on 8 May 2023 from the
Washington State Department of Revenue. The settlement related to litigation
contesting a historic, pre-acquisition, sales tax assessment that was paid by
antecedent companies related to the acquired Pivot group of companies. Of this
amount, $6.7m (£5.3m) has been recognised as other income relating to
acquisition of a subsidiary for the refunded sales tax amount. This other
income is non-operational in nature, material in size and unlikely to recur,
and has therefore been classified as exceptional. Further amounts of $1.6m
(£1.3m) and $1.0m (£0.8m) have been credited to adjusted interest income,
for the refund of statutory overpayment interest receivable on the original
payment, and adjusted administrative expenses, to reimburse legal expenses
incurred since acquisition, respectively.
· £2.8m relating to a release of contingent consideration in relation to
the BITS acquisition. As this release is related to the acquisition and not
operational activity within BITS and is of a one-off nature, it was classified
as an exceptional item.
7 Income tax
a) Tax on profit from ordinary activities 2023 2022
£m £m
Tax charged in the Consolidated Income Statement
Current income tax
UK corporation tax 13.6 15.1
Foreign tax:
- operating results before exceptional items 64.0 49.0
- exceptional items - (0.2)
Total foreign tax 64.0 48.8
Adjustments in respect of prior years 2.1 (5.1)
Total current income tax 79.7 58.8
Deferred income tax
Operating results before exceptional items:
- origination and reversal of temporary differences 0.3 1.0
- change in tax rates (0.5) 0.6
- adjustments in respect of prior years (6.8) 4.4
Total deferred income tax (7.0) 6.0
Tax charge in the Consolidated Income Statement 72.7 64.8
b) Reconciliation of the total tax charge 2023 2022
£m £m
Profit before income tax 272.1 249.0
At the UK standard rate of corporation tax of 23.5% (2022: 19%) 63.9 47.3
Expenses not deductible for tax purposes 2.8 1.2
Non-deductible element of share-based payment charge (0.1) 2.3
Adjustments in respect of prior years (4.7) (0.7)
Effect of different tax rates of subsidiaries operating in other jurisdictions 12.0 17.6
Change in tax rate (0.5) 0.6
Other differences (0.1) 0.5
Overseas tax not based on earnings 1.5 1.1
Previously unrecognised tax losses used to reduce deferred income tax expense - (3.2)
Previously unrecognised tax losses used to reduce current tax expense (0.9) (0.9)
Tax effect of income not taxable in determining taxable profit (1.2) (1.0)
At effective income tax rate of 26.7% (2022: 26.0%) 72.7 64.8
Taxation for subsidiaries operating in other jurisdictions is calculated at
the rates prevailing in the respective jurisdictions, these being a blended
rate of 31% in Germany (2022: 32%) and a blended (Federal/State) rate of 26%
in the US (2022: 25%), which mainly drive the 'Effect of different tax rates
of subsidiaries operating in other jurisdictions' above.
c) Tax losses
Deferred income tax assets of £3.7m (2022: £3.9m) have been recognised in
respect of losses carried forward, primarily in France.
In considering the probable utilisation of the carried forward tax losses, and
therefore the likely recoverability of these assets, the Group makes an
assessment based upon a reasonably foreseeable timeframe, being typically up
to three years, taking into account the future expected profit profile and
business model of each relevant company or country. The reasonably foreseeable
timeframe is derived based on the confidence the Group has in the performance
of these companies or countries and therefore the reliability of forecasts
over the timeframe in which the asset would be recovered. If the reasonably
foreseeable timeframe is extended to five years for our French business, an
additional £2.3m (2022: £0.9m) of deferred income tax asset would be
recognised.
As at 31 December 2023, there were further unused tax losses across the Group
of £284.2m (2022: £293.5m) for which no deferred income tax asset has been
recognised. Of these losses, £256.1m (2022: £263.5m) arise in France,
£26.4m (2022: £26.3m) arise in Germany and £1.8m (2022: £3.7m) arise in
the Netherlands. No deferred tax has been recognised on these losses due to
the potential uncertainty around whether future taxable profits would be
available against which these tax losses can be utilised. Following the merger
of CC France SAS and Computacenter NS (CCNS), a request has been made to the
French tax authorities to preserve the historic tax losses of CCNS (£172.3m)
and a decision is pending in this regard. A significant proportion of the
losses arising in Germany have been generated in statutory entities that no
longer have significant levels of trade.
The Group has other timing differences, primarily in France, of £30.1m (2022:
£28.7m), for which no deferred tax asset has been recognised. These timing
differences mainly relate to the retirement benefit obligation which is of a
long-term nature. The amount that would be recognised over our reasonably
foreseeable timeframe of up to three years would therefore be immaterial.
In addition, there are unutilised capital tax losses as at 31 December 2023 of
£7.4m (2022: £7.4m) but no deferred tax asset has been recognised as it is
not considered probable that these losses will be utilised in the foreseeable
future.
d) Deferred income tax
Deferred income tax as at 31 December 2023 and 31 December 2022 relates to the
following:
Consolidated Consolidated Consolidated
Balance Sheet Income Statement Statement of Comprehensive Income
2023 2022 2023 2022 2023 2022
£m (restated*) £m £m £m £m
£m
Deferred income tax assets/(liabilities)
Property, plant and equipment (3.1) (3.2) (2.1) (5.8) - -
Right-of-use assets (26.6) (31.1) 4.2 0.3 - -
Intangible assets (19.9) (29.9) 8.0 (0.2) - -
Inventories 2.5 3.9 (2.0) (0.9) - -
Derivative financial instruments 0.1 1.2 - - (0.9) 1.0
Lease liabilities 27.9 32.4 (4.1) (0.2) - -
Share-based payments 8.0 6.8 0.4 (0.8) - -
Tax losses carried forward 3.7 3.9 - 3.2 - -
Other temporary differences 5.6 6.6 2.6 (1.6) - -
Deferred income tax (charge)/credit 7.0 (6.0) (0.9) 1.0
Net deferred income tax asset/(liabilities) (1.8) (9.4)
Disclosed on the Consolidated Balance Sheet
Deferred income tax assets 11.6 11.3
Deferred income tax liabilities (13.4) (20.7)
Net deferred income tax asset/(liabilities) (1.8) (9.4)
*Deferred tax on right-of-use assets and lease liabilities has been grossed up
in 2022 following the adoption of IAS 12 amendments relating to the initial
recognition exemption (note 2). This has no impact on the Consolidated Balance
Sheet.
Deferred tax is not recognised in respect of the Group's investments in
subsidiaries where Computacenter is able to control the timing of remittance,
or other realisation, of unremitted earnings and where remittance or
realisation is not probable in the foreseeable future.
e) Factors affecting current and future tax charge
The March 2021 Budget announced that a UK Corporation tax rate of 25% will
apply with effect from 1 April 2023, and this change was substantively enacted
on 11 March 2021. The deferred income tax in the summary financial information
within this announcement reflects this. The main rate of UK Corporation tax in
2022 and up to 31 March 2023 was 19%, as enacted in the Finance Act 2020.
The Group is within the scope of the Organisation for Economic Cooperation and
Development (OECD) Pillar Two model rules. UK legislation has been enacted
which introduces the OECD's Pillar Two model Income Inclusion Rules into UK
law, where Computacenter Plc is incorporated. Finance (No2) Act received Royal
Assent on 11 July 2023 meaning the Income Inclusion Rule (IIR) and the UK's
Domestic Top-up Tax (DTT) will come into effect for accounting periods
beginning on or after 31 December 2023. Draft legislation has now been
published to introduce the OECD's Undertaxed Profits Rule (UTPR) to the UK.
This is due to be in place for accounting periods commencing not before 31
December 2024.
Since the Pillar Two legislation was not effective at the reporting date, the
Group has no related current tax exposure. The Group applies the exception to
recognising and disclosing information about deferred tax assets and
liabilities related to Pillar Two income taxes, as provided in the amendments
to IAS 12 issued in May 2023.
Under the legislation, the Group is liable to pay a top-up tax for the
difference between the Pillar Two Global anti-Base Erosion (GloBE) effective
tax rate per jurisdiction and the 15% minimum rate. The Group is currently
engaged with tax specialists to assist it with applying the legislation. An
initial review by the tax specialist has indicated that the Group does not
expect to experience a material impact on its effective tax rate as a result
of the OECD Pillar Two model rules.
f) Uncertain tax positions
The Group operates in numerous jurisdictions and has ongoing tax audits and
open tax matters with certain tax authorities which mainly relate to
interpretation of how relevant tax legislation applies to the Group's transfer
pricing arrangements. The matters under discussion can be complex and often
take several years to resolve. The Group records a provision against uncertain
tax positions based on Management's estimate of either the most likely amount
or the expected value amount depending on which method is expected to better
reflect the resolution of the uncertainty.
The potential exposure of the Group to an unfavourable outcome in any
uncertain tax matter is not expected to result in material additional tax
expense or liabilities and therefore the amounts, where already recognised,
are not material and are considered appropriate for the current status of the
matters under review.
8 Earnings per share
Earnings per share amounts are calculated by dividing profit attributable to
ordinary equity holders by the weighted average number of ordinary shares
outstanding during the year (excluding own shares held).
To calculate diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all dilutive
potential shares. Share options granted to employees where the exercise price
is less than the average market price of the Company's ordinary shares during
the year are considered to be dilutive potential shares.
2023 2022
£m £m
Profit attributable to equity holders of the Parent 197.6 182.8
2023 2022
m m
Basic weighted average number of shares (excluding own shares held) 112.9 112.8
Effect of dilution:
Share options 1.2 2.1
Diluted weighted average number of shares 114.1 114.9
2023 2022
pence pence
Basic earnings per share 175.0 162.1
Diluted earnings per share 173.2 159.1
9 Analysis of changes in net funds At 1 January Cash flows Non-cash Exchange At 31 December
2023 in year flow differences 2023
£m £m £m £m £m
Cash and short-term deposits 264.4 207.6 - (0.8) 471.2
Cash and cash equivalents 264.4 207.6 - (0.8) 471.2
Bank loans (20.1) 6.9 - 1.0 (12.2)
Adjusted net funds (excluding lease liabilities) 244.3 214.5 - 0.2 459.0
Lease liabilities (127.1) 46.1 (30.7) (3.7) (115.4)
Net funds 117.2 260.6 (30.7) (3.5) 343.6
At 1 January Cash flows Non-cash Exchange At 31 December
2022 in year flow differences 2022
£m £m £m £m (restated*)
£m
Cash and short-term deposits* 285.2 (13.6) - (7.2) 264.4
Bank overdrafts* (12.0) 12.0 - - -
Cash and cash equivalents 273.2 (1.6) - (7.2) 264.4
Bank loans and credit facility (31.8) 12.9 - (1.2) (20.1)
Adjusted net funds (excluding lease liabilities) 241.4 11.3 - (8.4) 244.3
Lease liabilities (146.1) 55.2 (28.7) (7.5) (127.1)
Net funds 95.3 66.5 (28.7) (15.9) 117.2
* Refer to note 2 for restatement of prior-year comparatives.
10 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 Limited 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 Peter Ogden and
Philip Hulme are Directors of and have a material interest in Biomni Limited.
Biomni Limited ceased to be a related party on 22 December 2023.
The table below provides the total amount of transactions that have been
entered into with related parties for the relevant financial year:
2023 2022
£m £m
Biomni Limited
Sales to related parties - -
Purchase from related parties 0.9 0.6
There was no outstanding balance as at 31 December 2023 (31 December 2022:
nil).
In addition to the above, a relative of a Director of the Company is employed
by a subsidiary of the Company under normal terms and conditions and with
remuneration commensurate with the role. Total remuneration for 2023 was
£0.2m (2022: £0.2m).
Terms and conditions of transactions with related parties
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 allowance for expected credit
losses 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.
Compensation of key management personnel (including Directors)
The Board of Directors is identified as the Group's key management personnel. 2023 2022
A summary of the compensation of key management personnel is provided below:
£m £m
Short-term employee benefits 3.7 2.1
Social security costs 0.9 0.5
Share-based payment transactions 1.9 3.7
Pension costs 0.1 0.1
Total compensation paid to key management personnel 6.6 6.4
Appendix:
Alternative performance measures
Alternative Performance Measures are used by the Group to understand and
manage performance. These are not defined under International Financial
Reporting Standards (IFRS) or UK-adopted International Accounting Standards
(UK-IFRS) and are not intended to be a substitute for any IFRS or UK-IFRS
measures of performance but have been included as Management considers them to
be important measures, alongside the comparable Generally Accepted Accounting
Practice (GAAP) financial measures, in assessing underlying performance.
Wherever appropriate and practical, we provide reconciliations to relevant
GAAP measures. The table below sets out the basis of calculation of the
Alternative Performance Measures and the rationale for their use.
Measure Description Rationale
Adjusted net funds and net funds Adjusted net funds or adjusted net debt includes cash and cash equivalents, A table reconciling this measure, including the impact of lease liabilities,
other short- or long-term borrowings and current asset investments. Following is provided within note 9 to the summary financial information within this
the adoption of IFRS 16, this measure excludes all lease liabilities announcement.
recognised under IFRS 16.
Net funds is adjusted net funds including all lease liabilities recognised
under IFRS 16.
Adjusted (expense and profit) measures Adjusted administrative expense, adjusted operating profit or loss, adjusted Adjusted measures exclude items which in Management's judgement need to be
profit or loss before tax, adjusted tax, adjusted profit or loss, adjusted disclosed separately by virtue of their size, nature or frequency to aid
earnings per share and adjusted diluted earnings per share are, as understanding of the performance for the year or comparability between
appropriate, are each stated before: exceptional and other adjusting items, periods.
including gains or losses on business acquisitions and disposals, amortisation
of acquired intangibles, utilisation of deferred tax assets (where initial Adjusted measures allow Management and investors to compare performance
recognition was as an exceptional item or a fair value adjustment on without these recurring or non-recurring items.
acquisition), and the related tax effect of these exceptional and other
adjusting items. Management does not consider these items when reviewing the underlying
performance of the Segment or the Group as a whole. A reconciliation to
· Recurring items include purchase price adjustments, including adjusted measures is provided within the Chief Financial Officer's review,
amortisation of acquired intangible assets and adjustments made to reduce which details the impact of exceptional and other adjusted items when compared
deferred income arising on acquisitions and acquisition-related items. to the non-GAAP financial measures, in addition to those reported in
Recurring items are adjusted each period irrespective of materiality, to accordance with IFRS. Further detail is provided within note 4 to the summary
ensure consistent treatment. financial information within this announcement.
· Non-recurring items are those that Management judge to be one-off or
non-operational, such as gains and losses on the disposal of assets,
impairment charges and reversals, and restructuring related costs.
Constant currency We evaluate the long-term performance and trends within our strategic KPIs on We believe providing constant currency information gives valuable supplemental
a constant-currency basis. The performance of the Group and its overseas detail regarding our results of operations, consistent with how we evaluate
Segments are also shown, where indicated, in constant currency. The constant our performance.
currency presentation, which is a non-GAAP measure, excludes the impact of
fluctuations in foreign currency exchange rates.
Free cash flow Free Cash Flow is Cash Flow from Operations minus net interest received, To measure the cash generated by the operating activities during the period
interest and payments related to lease liabilities, income tax paid and gross that is available to repay debt, undertake acquisitions or distribute to
capital expenditure. shareholders.
Gross invoiced income and IFRS revenue Gross invoiced income is based on the value of invoices raised to customers, Gross invoiced income reflects the cash movements to assist Management and the
net of the impact of credit notes and excluding VAT and other sales taxes. users of the Annual Report and Accounts in understanding revenue growth on a
Gross invoiced income includes all items recognised on an 'agency' basis 'principal' basis and to assist in their assessment of working capital
within revenue, on a gross income billed to customers basis, as adjusted for movements in the Consolidated Balance Sheet and Consolidated Cash Flow
deferred and accrued revenue. A reconciliation of revenue to gross invoiced Statement. This measure allows an alternative view of growth in adjusted gross
income is provided within note 4 to the summary financial information within profit, based on the product mix differences and the accounting treatment
this announcement. thereon.
IFRS revenue refers to revenue recognised in accordance with International
Financial Reporting Standards including IFRS 15 ' Revenue from Contracts
with Customers' and IFRS 16 'Leases'.
Organic (revenue and profit) measures In addition to the adjustments made for adjusted measures, organic measures: Organic measures allow management and investors to understand the
like-for-like revenue and current-period margin performance of the continuing
· exclude the contribution from discontinued operations, disposals and business.
assets held for sale of standalone businesses in the current and prior period;
The result for the year benefited from £221.4m of revenue (2022: £187.1m),
· exclude the contribution from acquired businesses until the year after and £9.3m of adjusted profit before tax (2022: £7.1m), resulting from all
the first full year following acquisition; and acquisitions made since 1 January 2022. All figures reported throughout this
Annual Report and Accounts include the results of these acquired entities. The
· adjust the comparative period to exclude prior-period acquired results of these acquisitions are excluded where narrative discussion refers
businesses if they were acquired part-way through the prior period. to 'organic' growth in this Annual Report and Accounts.
Acquisitions and disposals where the revenue and contribution impact would be
immaterial are not adjusted.
Product order backlog The total value of committed outstanding purchase orders placed with our The Technology Sourcing backlog, alongside the Managed Services Contract Base
technology vendors against non-cancellable sales orders received from our and the Professional Services forward order book, allows us visibility of
customers for delivery within 12 months, on a gross invoiced income basis. future revenues in these
areas.
Return on capital employed (ROCE) ROCE is calculated as adjusted operating profit, divided by capital employed, As an indicator of the current period financial return on the capital invested
which is the closing total net assets excluding adjusted net funds. in the company.
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