REG - Computacenter - Half-year Report
09/09/2022 07:00
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RNS Number : 8535Y Computacenter PLC 09 September 2022
Computacenter plc
Incorporated in England
Registration number: 03110569
LEI: 549300XSXUZ1I19DB105
ISIN: GB00BV9FP302
Computacenter plc
Interim results for the six months ended 30 June 2022
Computacenter plc ("Computacenter" or the "Group"), a leading independent
technology partner trusted by large corporate and public sector organisations,
today announces results, based on unaudited financial information, for the six
month period ended 30 June 2022.
Financial Highlights H1 2022 H1 2021 Percentage
Change
Increase/
(Decrease)
Financial Performance
Technology Sourcing revenue (£ million) 2,074.2 1,719.0 20.7
Services revenue (£ million) 752.5 706.1 6.6
Revenue (£ million) 2,826.7 2,425.1 16.6
Technology Sourcing gross invoiced income (£ million) 3,219.4 2,581.5 24.7
Services revenue (£ million) 752.5 706.1 6.6
Gross invoiced income (£ million) 3,971.9 3,287.6 20.8
Adjusted(1) profit before tax (£ million) 111.9 118.9 (5.9)
Adjusted(1) diluted earnings per share (pence) 69.8 73.1 (4.5)
Dividend per share (pence) 22.1 16.9 30.8
Profit before tax (£ million) 107.8 115.2 (6.4)
Diluted earnings per share (pence) 67.3 70.7 (4.8)
Cash Position
Cash and cash equivalents (£ million) 193.5 158.5
Adjusted net funds(3) (£ million) 159.3 121.8
Net funds/(debt) (£ million) 12.1 (29.4)
Net cash inflow from operating activities (£ million) 8.1 1.5
Reconciliation to Adjusted(1) Measures
Adjusted(1) profit before tax (£ million) 111.9 118.9
Exceptional and other adjusting items:
Amortisation of acquired intangibles (£ million) (4.1) (3.7)
Profit before tax (£ million) 107.8 115.2
Operational Highlights:
· Our strong trading performance over the six months to 30 June 2022
continues to demonstrate the resilience of our business model. Revenue
increased 16.0 per cent on a constant currency(2) basis, however, as we
indicated in our Trading Update on 29 April 2022, adjusted(1) profit before
tax for the first half of the year is behind the comparative period to 30 June
2021.
· The UK saw a decrease in revenues of 7.1 per cent with the Technology
Sourcing business seeing a 10.5 per cent reduction in revenue as the demand
for workplace rollouts declined. The UK saw pleasing growth in higher-margin
data center business, as the market in this area continues to expand rapidly,
although the volumes were not sufficient to replace the workplace business.
Significant increases in low-margin software and resold services impacted
gross invoiced income(4), but are reported net for Technology Sourcing
revenues.
· The German business saw revenues increase 10.2 per cent on a constant
currency(2) basis. Technology Sourcing revenue growth was pleasing during the
period, with significant increases in workplace hardware and software.
Professional Services once again saw double digit growth, with the business
continuing to expand capacity and its offerings. Managed Services generated
excellent growth, benefitting from contract wins in 2021.
· The French business saw Technology Sourcing revenues return to growth
as significant customers increased spend, with a number of enterprise-level
private sector customers and large public-sector framework contracts
increasing purchasing activity. Margins improved as these customers invested
in significant server rack installations. The integration of Computacenter NS
remains on track. As expected, the acquisition had a negative impact on growth
in Professional Services revenue in the period, as older contracts ceased.
This was more than offset by pleasing growth in Managed Services. This has
resulted in a 2.4 per cent decrease in revenues on a constant currency(2)
basis,
· In North America, the results were driven by continued extraordinary
growth in hyperscale data center customers, as well as new customer wins. The
growth was achieved in both Technology Sourcing and Services, as deployment
project activity increased. North America has seen strong revenue growth of
48.3 per cent on a constant currency(2) basis. As this growth was concentrated
in a small number of hyperscale technology customers, which have a much lower
than average margin, growth in profitability has not matched that seen in
revenue.
Mike Norris, Chief Executive of Computacenter plc, commented:
'As we have predicted and announced on multiple occasions, profitability for
Computacenter was down in the first half of 2022 compared to the same period
last year, however, we remain on track to deliver our stated expectations of
profit growth for the year as a whole.
With the exception of networking products where difficulties still remain,
supply chain challenges have eased materially in the last 3 months. However,
our customers have become extremely sensitive about supply chain shortages,
and as such require us to hold more inventory, impacting our balance sheet. In
almost all cases there is a guaranteed sale on the inventory items. The
continuing strength of our balance sheet gives us a significant competitive
advantage in being able to support our customers' requirements in this manner.
How this will unravel as customers get used to the freeing up of supply
remains to be seen.
While the pandemic has accelerated new ways of working the major effects of
Covid-19 are firmly behind us and we believe current market conditions are the
new normal. Our customers commitment to investment in technology feels
extremely robust despite well publicised and difficult economic conditions
around the world. This gives us confidence for 2023 and beyond.'
A reconciliation between key adjusted(1) and statutory measures is provided
within the Group Finance Director's review contained in this announcement.
Further details are provided in note 5 to the summary financial information
contained within this announcement.
Following a recently approved interpretation of the revenue accounting
standard by the International Accounting Standards Board, we, and a number of
our peer value added resellers, have changed the way we recognise revenues for
standalone software and resold third-party services contracts and revised our
accounting policies to reflect this change. Accordingly, we have restated our
prior-period revenues down from £3,180.0 million as reported at 30 June 2021
to £2,425.1 million as we have now determined that we are an agent for these
transactions and will recognise revenue on a net basis, with only the gross
margin on these types of deals, being the gross invoiced income less the costs
of the resold software or third party services, showing as revenue, with
nothing recorded in cost of goods sold. Further information on this change,
including the retrospective restatement of the financial statements, and the
revised accounting policy, is available in note 3 to the summary financial
information contained within this announcement.
(1) Gross invoiced income, adjusted administrative expense, adjusted operating
profit or loss, adjusted profit or loss before tax, adjusted tax, adjusted
profit or loss, adjusted earnings per share and adjusted diluted earnings per
share are, as appropriate, each stated before: exceptional and other adjusting
items, including gains or losses on business acquisitions and disposals,
amortisation of acquired intangibles, utilisation of deferred tax assets
(where initial recognition was as an exceptional item or a fair value
adjustment on acquisition), and the related tax effect of these exceptional
and other adjusting items, as Management does not consider these items when
reviewing the underlying performance of the Segment or the Group as a whole. A
reconciliation to adjusted measures is provided within the Group Finance
Director's review contained in this announcement which details the impact of
exceptional and other adjusted items when compared to the non-Generally
Accepted Accounting Practice (GAAP) financial measures, in addition to those
reported in accordance with IFRS. Further detail is provided within note 4 to
the summary financial information contained in this announcement.
(2) We evaluate the long-term performance and trends within our strategic
priorities on a constant-currency basis. The performance of the Group and its
overseas Segments are also shown, where indicated, in constant currency. The
constant currency presentation, which is a non-GAAP measure, excludes the
impact of fluctuations in foreign currency exchange rates. We believe
providing constant currency information gives valuable supplemental detail
regarding our results of operations, consistent with how we evaluate our
performance. We calculate constant currency percentages by converting our
prior-period local currency financial results using the current period average
exchange rates and comparing these recalculated amounts to our current period
results or by presenting the results in the equivalent local currency amounts.
Wherever the performance of the Group, or its overseas Segments, are presented
in constant currency, or equivalent local currency amounts, the equivalent
prior-period measure is also presented in the reported pound sterling
equivalent, using the exchange rates prevailing at the time. 2022 interim
highlights, as shown above, are provided in the reported pound sterling
equivalent.
(3) Adjusted net funds or adjusted net debt includes cash and cash
equivalents, other short or long-term borrowings and current asset
investments. Following the adoption of IFRS 16 this measure excludes all lease
liabilities. A table reconciling this measure, including the impact of lease
liabilities, is provided within note 12 to the summary financial information
contained in this announcement.
(4)Gross invoiced income is based on the value of invoices raised to
customers, net of the impact of credit notes and excluding VAT and other sales
taxes. This reflects the cash movements 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 Statement of Financial Position and Consolidated
Cash Flow Statement. This measure allows an alternative view of growth in
adjusted gross profit, based on the product mix differences and the accounting
treatment thereon. Gross invoiced income includes all items recognised on an
'agency' basis within revenue, on a gross income billed to customers basis, as
adjusted for deferred and accrued revenue. A reconciliation of revenue to
gross invoiced income is provided within note 5 to the summary financial
information contained in this announcement.
The term Group refers to Computacenter plc and its subsidiaries.
Enquiries:
Computacenter plc
Mike Norris, Chief Executive 01707 631601
Tony Conophy, Finance Director 01707 631515
Tulchan Communications
James Macey White 020 7353 4200
Matt Low
DISCLAIMER - FORWARD LOOKING STATEMENTS
This announcement includes statements that are, or may be deemed to be,
'forward-looking statements'. These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
'anticipates', 'believes', 'estimates', 'expects', 'intends', 'may', 'plans',
'projects', 'should' or 'will', or, in each case, their negative or other
variations or comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These forward-looking
statements include all matters that are not historical facts. They appear in a
number of places throughout this announcement and include, but are not limited
to, statements regarding the Groups' 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 2021
Computacenter Annual Report and Accounts, as well as general economic and
business conditions, industry trends, competition, changes in regulation,
currency fluctuations or advancements in research and development.
Forward-looking statements speak only as of the date of this announcement and
may and often do, differ materially from actual results. Any forward-looking
statements in this announcement reflect the Group's current view with respect
to future events and are subject to risks relating to future events and other
risks, uncertainties and assumptions relating to the Group's operations,
results of operations and growth strategy.
Neither Computacenter plc nor any of its subsidiaries undertakes any
obligation to update the forward-looking statements to reflect actual results
or any change in events, conditions or assumptions or other factors unless
otherwise required by applicable law or regulation.
OUR INTERIM PERFORMANCE IN 2022
GROUP
Financial performance
Our business model is built on the three primary business lines of Technology
Sourcing, Professional Services and Managed Services, and reinforces our
position as having the largest Services business of any valued added reseller,
as well as the largest value added reseller capability of any Services
business worldwide.
Our strong trading performance over the six months to 30 June 2022 continues
to demonstrate the resilience of our business model. However, as we indicated
in our Trading Update on 29 April 2022, adjusted(1) profit before tax for the
first half of the year is behind the comparative period to 30 June 2021.
As discussed further below, we changed our revenue recognition accounting
policies during the period, including retrospectively. The Group's revenues
increased by 16.6 per cent to £2,826.7 million (H1 2021: £2,425.1 million)
and were 16.0 per cent higher in constant currency(2). Gross invoiced
income(4) increased by 20.8 per cent to £3,971.9 million (H1 2021: £3,287.6
million), and by 19.9 per cent in constant currency(2).
The Group made a profit before tax of £107.8 million, a decrease of 6.4 per
cent (H1 2021: £115.2 million). The Group's adjusted(1) profit before tax
decreased by 5.9 per cent to £111.9 million (H1 2021: £118.9 million) and by
5.9 per cent in constant currency(2).
The difference between profit before tax and adjusted(1) profit before tax
relates to the net charge of £4.1 million (H1 2021: charge of £3.7 million)
from exceptional and other adjusting items. In both the current and
comparative period, this solely comprises the amortisation of the acquired
intangible assets resulting from the Group's 2018 acquisition of FusionStorm
and the 2020 acquisition of Pivot. Further information on these can be found
in the Group Finance Director's review contained in this announcement.
Diluted earnings per share (EPS) decreased by 4.8 per cent to 67.3 pence (H1
2021: 70.7 pence). Adjusted(1) diluted EPS, the Group's primary EPS measure,
decreased by 4.5 per cent to 69.8 pence (H1 2021: 73.1 pence) in H1 2022.
Historically, revenues have been higher in the second half of the year than in
the first six months, principally due to customer buying behaviour. This
typically leads to a more pronounced effect on operating profit.
However, the impact of Covid-19 and the more recent supply shortages for IT
equipment materially altered customer buying behaviours in 2020 and 2021,
including the split of sales volumes between the first and second halves of
the year. In 2021 an abnormally high percentage of our full-year profits came
in the first half of the year, which means we have a more challenging
comparison for the first half of 2022 than for the second half.
During 2022 we have seen these unusual buying patterns reversing and the
re-emergence of seasonality that is closer to our historical norms.
Adjusted(1) profit before tax for H1 2022 is therefore behind that in H1 2021.
In addition, the unwinding of some of the Covid-19 related impacts of higher
employee charge-out utilisation with less travel time and lower travel costs
has also impacted the first half results. We have also seen a shift to lower
margin product generally across the business, mainly due to supply chain
shortages. Whilst we remain somewhat affected by supply shortages in
networking IT equipment, we expect customer buying to be more weighted towards
the second half of the year leading, once again, to a more pronounced effect
on operating profit in the second half which we expect to have a higher
proportion of the full year operating profit than we have seen in the previous
two years. We therefore have confidence for the full year, even though much
work remains to be done.
Trading across all of our major geographies was pleasing throughout the
period, with particular strength at the end of the second quarter. Indications
are that this trading momentum has continued into the early part of Q3 2022.
Whilst demand has remained high, with order books continuing to build, the
driver of customers' IT purchasing has shifted away from short-term pandemic
responses. Key customers are now focused on supply issues and the short to
medium-term impacts of the economic downturn, as they look to reengineer IT
structures and employ digital transformation to cope with the ever-evolving
technology landscape, the need to reduce non-IT operating costs and increasing
cyber threats.
As the public health challenges of Covid-19 continue to reduce, we have
retained the flexible working practices we introduced during the pandemic. The
vast majority of our employees now split their time between home and office,
with those employees required on customer sites now able to work in a similar
way to before the pandemic. We thank all of our people for the continuing
flexibility and dedication they have shown, to cope with the changing external
environment and our move to hybrid working.
Computacenter resells, deploys and manages vendor technology for customers.
This means we are a fundamentally people-centric business. Customers remain
loyal to Computacenter because of the quality of our people and this will
always be the case. However there are a number of other assets that we employ
such as our Service and Integration Center facilities, methodologies, best
practices, a track record of performance, and in particular, great systems. We
invest many millions of pounds every year in improving and supporting these
systems, which give us a competitive advantage in a business which is about
scale, repeatability and agility.
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.
The vast quantities of product we are holding for customers (see below) put
massive pressure on our operations and systems, as customers call off this
stored technology piecemeal and at short notice, often to thousands of
different users' home addresses. We prioritise our plans for systems
development, other investments in time and capital, in response to the
everchanging environment in which we operate. In Germany, our focus on growing
the workplace business has absorbed significant capacity in our Integration
Center facility, leading to its expansion.
We remain extremely saddened and concerned by the war in Ukraine and offer our
deepest sympathies and support to the Ukrainian people. Whilst our business in
Russia was extremely limited, we have completely ceased our activities there
as the international customers we supported in-country through third-party
contractors have closed their operations. However, the war's impact on the
global macro-economic environment, including the exacerbation of the supply
chain issues currently being experienced, continues to impact our business.
There are clearly many other challenges in the world and we, like most
companies, are affected by wage inflation associated with the macro-economic
disruption, and supply chain shortages, but these will offer us opportunities
to differentiate from our competition with superior execution. Supply chain
constraints remain forefront of our customers' minds and their planning.
Whilst product availability varies by vendor and product line, product
shortages have materially affected the supply of key networking equipment for
our customers throughout the year, with some orders being substantially
delayed or only partly fulfilled. In a number of geographies we have been able
to replace decreased sales volumes from selling less networking and data
center hardware, where supply is most restricted, with increased workplace
volumes, where supply is more available, but of a lower margin quality.
Although this affects our gross profits in the short term, due to the strong
growth in the workplace business which is more commoditised, we are pleased by
the flexibility and creativity shown by the sales teams.
The Group continues to carry more inventory than normal, as we hold stock for
orders that we cannot deliver without a critical part or where customers have
ordered early and subsequently delayed delivery, as their data center
facilities, and other establishments, are not ready.
Total inventory across the Group was £144.9 million higher at 30 June 2022
than at 30 June 2021. While inventory growth has begun to settle across the
business, we do not expect inventory to return to normal levels until there is
a longer-term supply improvement.
The Group had £399.3 million of inventory as at 30 June 2022, an increase
of17.0 per cent during the period (31 December 2021: £341.3 million) and an
increase of 15.4 per cent in constant currency(2). Whilst we have already been
paid for some of this inventory, customers are committed to taking nearly all
of the rest of the holding, so it's a largely risk free position. However as
the volumes have increased, they have filled up our Integration Centers.
With certain hyperscale customers now placing firm orders for delivery in Q3
of 2024, our product order backlogs across all geographies are at all-time
highs and considerably larger than at both 30 June 2021 and the end of 2021.
The committed order backlog at the period end was approximately £3.4 billion
on a gross invoiced income basis, a 41.3 per cent increase since 31 December
2021 (£2.4 billion) in constant currency(2). Whilst the Managed Services
contract base and the Professional Services forward order book have always
given us better visibility of future revenues in these areas, the rapidly
increasing Technology Sourcing backlogs, partly due to the increasing trend
for customers to order in advance, mean that we now have much greater
visibility of future revenues than ever before. This gives us a high degree of
confidence that the Technology Sourcing business will be well placed in the
year ahead.
The Group has seen significant currency translation movements as the pound
sterling has fluctuated against other currencies, particularly the US dollar
and the euro, which impacts us the most. Further information on currency
impacts is available in the Group Finance Director's review contained in this
announcement.
Whilst both gross invoiced income and revenues saw strong growth in the year,
the product mix and surging levels of business with a small number of North
American hyperscalers during the period have negatively impacted gross margins
for the Group. Overall, Group gross margins, expressed as gross profits as a
percentage of revenue, fell to 15.0 per cent (H1 2021: 17.5 per cent).
Administrative expenses increased by 2.7 per cent to £314.8 million (H1 2021:
£306.5 million). We continue to apply the cost-management lessons from the
Covid-19 crisis, to ensure that as costs inevitably return due to factors such
as increased travel, they remain lower than before, resulting in a more
efficient business. In addition, we have reviewed our office footprint across
our major geographies and will look to rationalise the estate where locations
are no longer necessary, or could be reduced in size, due to our people and
our customers' workforces adopting flexible working. Adjusted(1)
administrative expenses increased by 2.6 per cent to £310.7 million (£302.8
million), and by 2.2 per cent in constant currency(2).
Following a recently approved interpretation of the revenue accounting
standard by the International Accounting Standards Board, we, and a number of
our peer value added resellers, have changed the way we recognise revenues for
standalone software and resold third-party services contracts and revised our
accounting policies to reflect this change. Historically, we had considered
ourselves the principal in the arrangement and largely recognised these
transactions on a principal or gross basis, with the gross invoiced income,
represented by the invoiced amount to customers, reported as revenue and the
cost of the resold software or services reported as cost of goods sold.
Subsequent to the approval of the interpretation of the revenue accounting
standard by the International Accounting Standards Board we have now
determined that we are an agent for these transactions and will recognise
revenue on a net basis, with only the gross margin on these types of deals,
being the gross invoiced income less the costs of the resold software or third
party services, showing as revenue, with nothing recorded in cost of goods
sold. Further information on this change, including the retrospective
restatement of the financial statements, and the revised accounting policy, is
available in note 3 to the summary financial information contained within this
announcement.
We will continue to show our gross invoiced income as an alternative
performance measure. 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 and net of the impact of credit
notes and excluding VAT or other sales taxes. This reflects the cash movements
from revenue, to assist Management and the users of the summary financial
information contained within this announcement in understanding revenue growth
on a 'Principal' basis and to assist their assessment of working capital
movements in the Consolidated Statement of Financial Position and Consolidated
Cash Flow Statement. This alternative performance measure also allows an
alternative view of growth in adjusted(1) gross profit, based on the product
mix differences and the accounting treatment thereon. A reconciliation of
revenue to gross invoiced income is provided within note 5 to the summary
financial information contained within this announcement.
Looking at our performance by geography, the UK in particular has seen the
very strong demand for workplace rollouts decline for the first time in two
years. This was expected, as the Windows 10 deployment cycle comes to an end.
Professional Services growth has settled back slightly following an excellent
2021, as workplace deployment support contracts reduced alongside the demand
for Technology Sourcing. Managed Services increased slightly, with newer
contracts offsetting older contracts that ceased in the period.
The German business has seen pleasing Technology Sourcing revenue growth
during the period, with significant increases in workplace hardware and
software. Professional Services once again saw double digit growth, with the
business continuing to expand capacity and its offerings. Managed Services
generated excellent growth, benefitting from contract wins in 2021.
In North America, the results were driven by continued extraordinary growth in
hyperscale data center customers, as well as new customer wins. The growth was
achieved in both Technology Sourcing and Services, as deployment project
activity increased.
The French business saw Technology Sourcing revenues return to growth as
significant customers increased spend, with a number of enterprise-level
private sector customers and large public-sector framework contracts
increasing purchasing activity. Margins improved as these customers invested
in significant server rack installations. The integration of Computacenter NS
remains on track. As expected, the acquisition had a negative impact on growth
in Professional Services revenue in the period, as older contracts ceased.
This was more than offset by pleasing growth in Managed Services.
The International Segment has improved significantly on H1 2021, with strong
growth in all areas and critical contracts in each of the primary European
trading entities of Belgium, Switzerland and the Netherlands all delivering
ahead of expectations in the period.
Technology Sourcing performance
The Group's Technology Sourcing revenue increased by 20.7 per cent to
£2,074.2 million (H1 2021: £1,719.0 million) and by 19.1 per cent on a
constant currency(2) basis. Overall Group Technology Sourcing margins
decreased by 191 basis points during the period, mainly due to customer and
product mix changes.
Technology Sourcing Gross Invoiced Income increased by 24.7 per cent to
£3,219.4 million (H1 2021: £2,581.5 million) and by 23.1 per cent on a
constant currency(2) basis.
The UK Technology Sourcing business saw a significant reduction in revenue, as
the demand for workplace rollouts declined. The UK saw pleasing growth in
higher-margin data center business, as the market in this area continues to
expand rapidly, although the volumes were not sufficient to replace the
workplace business. Significant increases in low-margin software and resold
services impacted Gross Invoiced Income, but are reported net for Technology
Sourcing revenues.
In Germany, Technology Sourcing revenue saw strong growth as the business
successfully increased its focus on the workplace market. The rapidly
increased volumes helped to offset business lines such as data center and
networking, which are the most significantly impacted by the supply situation,
but this success has led to extraordinary volumes of inventory being processed
through our Integration Center in Kerpen, which has never dealt with workplace
volumes of this scale. As the business adjusts to cope, short-term handling
costs and the lower margins of the workplace product have impacted gross
profits.
The French Technology Sourcing revenue increased, as demand returned in the
period from some major customers.
The North American Technology Sourcing business saw revenues surge. This
growth was concentrated in a small number of hyperscale technology customers,
which have a much lower than average margin.
Services performance
The Group's Services revenue increased by 6.6 per cent to £752.5 million (H1
2021: £706.1 million) and by 8.1 per cent on a constant currency(2) basis.
Within this, the Group's Professional Services revenue increased by 12.3 per
cent to £298.4 million (H1 2021: £265.6 million), and by 13.3 per cent on a
constant currency(2) basis, while the Group's Managed Services revenue
increased by 3.1 per cent to £454.1 million (H1 2021: £440.5 million), and
by 4.8 per cent on a constant currency(2) basis. Overall Group Services
margins decreased by 335 basis points during the period. We have seen
increasing costs and lower utilisation as we exit the Covid-19 pandemic. In
addition, we have continued to invest ahead of demand in the Professional
Services business with an impact on recruitment, training and initial start-up
utilisation impact, especially in the UK.
UK Services revenue was flat overall, primarily due to a slight decrease in
Professional Services work related to the slowdown in workplace deployments.
Our German Managed Services have grown strongly, as customer volumes are now
back to pre-Covid-19 levels and contract wins and scope extensions in 2021
have fed through to the results. The Professional Services business continues
to see strong growth year after year, albeit with margins reducing due to
increases in the cost base and investments in capacity and resourcing that
will come on stream.
Our French Services business saw a reduction in Professional Services, as a
number of older CCNS contracts came to an end as expected. Good growth in
Managed Services was attributed to new contracts coming on stream, albeit at
lower initial margins as the contracts build volumes.
In North America, Professional Services revenue has seen excellent growth, as
deployment projects increased significantly and we benefitted from several
nationwide retail rollouts.
Outlook
As we have predicted and announced on multiple occasions, profitability for
Computacenter was down in the first half of 2022 compared to the same period
last year, however, we remain on track to deliver our stated expectations of
profit growth for the year as a whole.
With the exception of networking products where difficulties still remain,
supply chain challenges have eased materially in the last 3 months. However,
our customers have become extremely sensitive about supply chain shortages,
and as such require us to hold more inventory, impacting our balance sheet. In
almost all cases there is a guaranteed sale on the inventory items. The
continuing strength of our balance sheet gives us a significant competitive
advantage in being able to support our customers' requirements in this manner.
How this will unravel as customers get used to the freeing up of supply
remains to be seen.
While the pandemic has accelerated new ways of working the major effects of
Covid-19 are firmly behind us and we believe current market conditions are the
new normal. Our customers commitment to investment in technology feels
extremely robust despite well publicised and difficult economic conditions
around the world. This gives us confidence for 2023 and beyond.
United Kingdom
Financial performance
Revenues in the UK business decreased by 7.1 per cent per cent to £653.8
million (H1 2021: £703.4 million).
Technology Sourcing revenues were 10.5 per cent lower, in large part because
of reduced demand in workplace, which had been a strong driver of growth in
the previous two years. This also affected demand for technology roll outs in
Professional Services, where revenues were 3.3 per cent down. Revenues in
Managed Services were slightly
up, as new contract wins were offset by contracts lost in the prior year.
Whilst demand from public sector customers is not as buoyant as during the
pandemic, and is unlikely to reach those levels again in the near-term, we are
confident that spending remains at normal pre-pandemic levels. However, the
private sector is performing better, particularly as customers return to their
offices. Overall, we remain on track to
deliver growth in both revenue and profit in the second half of the year and
for the full year as a whole.
We have continued to broaden our customer base, benefiting from the investment
in the salesforce we reported in our 2021 results. This enabled us to expand
what we sell to existing customers and to attract new customers. We are
confident that these relationships will strengthen over time and, when
combined with our desire to be relevant to more customers in our target
market, we believe they will deliver further growth.
Our people costs have increased as inflation has pushed salaries up and we
have had to pass most of this on to our customers, through higher rate cards.
Overall gross margins in the UK increased by 101 basis points, with total
adjusted(1) gross profit at 19.9 per cent of revenues (H1 2021: 18.9 per
cent). This gross margin ratio increase was assisted by a higher proportion of
software and resold services in H1 2022 where the margins are recorded
directly as net revenue. Adjusted(1) gross profit was 2.1 per cent lower at
£130.3 million (H1 2021: £133.1 million).
Administrative expenses increased by 4.8 per cent to £85.3 million (H1 2021:
£81.4 million). This was driven by the impact of inflation on people costs,
as well as the return of both domestic and international travel. We are
carefully managing travel as we exploit the technology available to allow
hybrid working where appropriate, whilst applying a carbon travel levy to
ensure that our travel choices are more carbon efficient. As a result, travel
overall currently remains below pre-pandemic levels.
Adjusted(1) operating profit was 13.0 per cent lower at £45.0 million (H1
2021: £51.7 million).
Technology Sourcing performance
Technology Sourcing revenue decreased by 10.5 per cent to £421.9 million (H1
2021: £471.2 million). Technology Sourcing margins increased by 304 basis
points compared to the first half of 2021.
We saw a dampening in demand for hardware in the first half. This was
primarily in the workplace area, as some customers completed Windows 10
rollouts which they had accelerated during the pandemic. We now expect a lag
as we await customer adoption of Windows 11, which is likely to be more
significant in 2023 and 2024. Reduced workplace activity also affected
utilisation, and cost absorption, of our Integration Centre, where we
configure devices for customers, and associated value-add activity margins.
In the Enterprise space, we are seeing good growth in our data center and
cloud business, as we modernise existing data centers and help customers to
adopt public cloud offerings. In networking, customer demand is up but our
ability to deliver to customers has been affected by product shortages in the
supply chain, which held back revenues in the period. Overall, we have seen
significant growth in our product order backlog, which is up 18.9 per cent
since the start of the year and by 42.0 per cent since the same point last
year on a gross invoiced income basis.
Elsewhere in Technology Sourcing, we have seen good growth in our software
business, as well as in resold services. Neither of these areas is subject to
the supply chain issues that have affected hardware sales, allowing us to
rapidly fulfil customer demand.
Services performance
Services revenue was flat at £231.9 million (H1 2021: £232.2 million).
Professional Services declined by 3.3 per cent to £72.5 million (H1 2021:
£75.0 million). Managed Services revenue was 1.4 per cent higher at £159.4
million (H1 2021: £157.2 million). Services margins decreased by 350 basis
points when compared to the prior period, with margins held back slightly by
higher employment costs that we have not yet been able to pass on.
The lower workplace demand in Technology Sourcing also had an impact on
Professional Services, where our teams roll out technology that we have sold
to our customers. We have seen growth in supporting customers to adopt public
cloud, as well as in expanding and securing customer networks. There has also
been significant growth in our resources on demand business, where we provide
specialist resource to support our customers' operations. At the same time,
there has been a slight decline in the number of large programmes of work that
are on an outcome based commercial model. The pipeline for Professional
Services is particularly strong for the next 12 months, giving us confidence
that growth opportunities are realisable.
Revenue in Managed Services was broadly flat, as discussed above. We have seen
an uptick in logistics-based and maintenance services, and particular interest
in global end user services, where we are confident in our delivery
capabilities. We have some significant opportunities to close in the second
half, which gives us confidence of growth into
2023.
In 2021, we won a significant Managed Services contract with a large retail
bank, to provide a device-as-a-service model with worldwide support coverage
and Technology Sourcing embedded in the contract. We have successfully
transitioned some of the customer's key countries to the new model at the end
of the first half, with further countries to follow in the second half of the
year.
Germany
Financial performance
Total revenue increased by 10.2 per cent to €941.0 million (H1 2021:
€854.2 million) and by 6.8 per cent in reported pound sterling
equivalents(2).
The German business delivered a pleasing overall performance in the first
half. Against a difficult market backdrop and a strong comparative period, our
double-dight top line growth was above expectations, while the bottom line was
slightly below our aspirations. This performance reflects our robust
competitive position, including our focus on enterprise customers and major
public sector organisations, and the increasing importance of our
international capabilities. We expect a much stronger performance in the
second half of the year, with continued revenue growth and profitability in
line with our expectations.
The market uncertainties are mainly due to the war in Ukraine, the
consequences of which are unforeseeable, and the continuing shortages of
products, especially in the area of networking. Long lead times are causing
customers to order in very large quantities well ahead of when they need the
products, contributing to very high inventory and activity levels in our
Integration Center in Kerpen. This is our biggest challenge at the moment and
we have therefore expanded our warehouse and logistics space by 20,000 m(2) to
55,000 m(2), which will bring us relief in the second half of the year. The
very competitive labour market is also making it difficult to recruit
additional skills and, above all, to expand our sales force as we had planned,
while high inflation is putting upward pressure on salaries.
Our strong position is helping us to grow our market share despite the quality
of our competition. Our public sector business is a notable plus for us and
demand remains high, with the pipeline promising good potential for the
future. We are opening up a new customer segment in education and
significantly expanding our sales capacities in most federal and state
authorities. In the enterprise market, we have developed a retail customer
into a potential strategic customer for Computacenter, and successfully
renewed a large Managed Services contract with a customer in aerospace
research. However, we were unable to renew a workplace contract with a large
automotive supplier that we had held over several contract cycles, and we were
also unable to conclude a new contract with a large automotive manufacturer,
which we are now only providing in part. On the Professional Services side, we
further expanded the business even under difficult conditions and achieved
good project successes, including on an international basis.
Adjusted(1) gross profit decreased by 2.2 per cent to €166.3 million (H1
2021: €170.1 million) and reduced by 5.1 per cent in reported pound sterling
equivalents(2). Margins in Germany decreased by 222 basis points, with
adjusted(1) gross profit decreasing from 19.9 per cent to 17.7 per cent of
revenues as explained below in the Technology Sourcing and Services
performance areas.
Administrative expenses increased by 1.2 per cent to €100.6 million (H1
2021: €99.4 million), and reduced by 2.1 per cent in reported pound sterling
equivalents(2).
Adjusted(1) operating profit for the German business decreased by 7.1 per cent
to €65.7 million (H1 2021: €70.7 million) and by 9.3 per cent in reported
pound sterling equivalents(2).
Even though the geopolitical and economic situation in Germany is
unpredictable, we are continuing to invest for growth. We remain convinced
that enterprise companies and public clients must continue to invest in
expanding their IT infrastructures and in digitalisation projects.
Furthermore, the shortage of skilled workers is adding impetus for
Professional and Managed Services projects. Requirements are becoming
increasingly global, which should also benefit us.
Technology Sourcing performance
Technology Sourcing revenue increased by 11.2 per cent to €551.5 million (H1
2021: €496.0 million) and by 7.8 per cent in reported pound sterling
equivalents(2). Technology Sourcing margins remained strong but slipped by 135
basis points over the same period last year.
We significantly increased turnover in this segment in the first half of the
year, while margins were slightly lower, as a result of greater competition,
significantly increased handling costs and a shift in business mix. Software
volumes have increased while profitable hardware framework contracts either
cannot be serviced or deliveries are delayed due to non-availability of mainly
networking products. Manufacturers are also giving preference to large-volume
workplace contracts, where we achieve lower margins.
Looking ahead, whilst we believe these developments will continue for the
second half of the year and beyond, we also expect to continue to grow
strongly. This will put additional demands on our delivery capacities in our
Integration Centers but the capacity expansion should stabilise this in the
second half of the year. Furthermore, whilst product shortages will continue,
we expect significantly improved delivery capacity, especially in the area of
networking and data center components. Our product order backlog has grown
11.5 per cent since the start of the year and is up by 86.0 per cent since the
same point last year on a gross invoiced income basis.
Overall, we expect Technology Sourcing revenues for 2022 to be significantly
above the previous year, with an outcome slightly above our internal forecasts
set at the end of last year.
Services performance
Services revenue grew by 8.7 per cent to €389.5 million (H1 2021: €358.2
million) and by 5.5 per cent in reported pound sterling equivalents(2). This
included Professional Services growth of 13.3 per cent to €177.0 million (H1
2021: €156.2 million), an increase of 9.9 per cent in reported pound
sterling equivalents(2), and a Managed Services increase of 5.2 per cent to
€212.5 million (H1 2021: €202.0 million), an increase of 2.1 per cent in
reported pound sterling equivalents(2). Services margins decreased by 334
basis points over the period.
The Services business also recorded significant growth in the first half of
the year. This was driven by both our Professional Services business and
Managed Services. In the latter, we are benefiting from deals won in 2021 and
expansion of the existing business. In Professional Services, we grew in all
solution lines and expanded the business. We were also able to benefit more
from the nearshore and offshore capacities we have created. We are
increasingly seeing growth in international business, in both the Professional
and Managed Services businesses. Our global presence and the opportunities we
have created in the near and offshore area are boosting business and have
potential for the future.
The Services margin is weaker than in the same period last year. In Managed
Services, we are recording a stable margin despite increased salary costs, as
our improvement, efficiency and optimisation measures of the last 18 months
are taking effect.
On the Professional Services side, we have recorded a decline in margins,
which is due to two effects. We currently have ongoing transformation projects
that have been set up as planned for the new Managed Services win. However
margins are usually much lower at the beginning of a project than will be
realised over the lifetime of the project. We are also seeing higher salaries,
due to the necessary adjustments to the new market level. It will take some
time for these increased costs to be effectively passed on to the customer.
A shift towards more normal employee availability levels post-Covid-19 and our
investments for growth also reduced margins against the comparative period. In
the first half of 2021, we had very high availability, especially in
consulting, as Covid-19 restrictions meant we had a very low sickness rate and
few employees taking holidays. We also incurred virtually no travel or event
costs. In the first half of this year, on-site activities and travel have
increased, although they remain below pre-pandemic levels, and sickness and
holiday rates are at normal levels. In addition, we have increased investments
in additional resources, with new joiners having a high need for training and
therefore taking time to reach a normal workload. These investments are
sensible and necessary to ensure future growth.
In summary, we are satisfied with the development of our business in the
Services sector and there is potential to address even more opportunities with
our customers. This requires, above all, senior skills in consulting and
engineering, which we are trying to recruit with all our energy and attention.
The outlook for the second half of the year is positive and we expect further
growth.
France
Financial performance
Revenue increased by 2.4 per cent to €318.8 million (H1 2021: €311.2
million). In reported pound sterling equivalents(2), revenue was reduced by
0.7 per cent.
In the context of worldwide geopolitical and economic challenges, our French
business made progress in the first half of 2022. Continued component
shortages caused the Technology Sourcing backlog to grow during the period but
we succeeded in growing our Technology Sourcing revenues compared to last
year.
Towards the end of 2020, we acquired BT's domestic services operations in
France and renamed the subsidiary Computacenter NS (CCNS). From an operational
point of view, we have integrated approximately 80 per cent of CCNS staff into
the Computacenter Group model which will generate efficiencies in the
operating model going forward. In the first half, we started a project to
integrate the last two independent activities (network maintenance and 24/7
data center, network and security operations) into the Group delivery
structure. We aim to finalise this integration by the end of the year.
It was clear when we bought CCNS that it would incur some losses in the first
few years of integration. Whilst we benefitted in 2021 from contracts and
projects that started before the acquisition, we knew that this business would
decline in 2022 as some contracts would not be renewed or extended. Despite a
promising pipeline, we struggled to compensate for these losses in the first
half but remain optimistic about reporting good progress in the second half of
the year.
Adjusted(1) gross profit increased by 0.3 per cent to €37.9 million (H1
2021: €37.8 million) and reduced by 2.1 per cent in reported pound sterling
equivalents(2). Margins in France decreased by 18 basis points, with
adjusted(1) gross profit decreasing from 12.1 per cent to 12.0 per cent of
revenues.
The improved contribution in the period came mainly from our Technology
Sourcing activities where volumes were slightly ahead.
Administrative expenses decreased by 6.7 per cent to €37.4 million (H1 2021:
€40.1 million), and by 9.2 per cent in reported pound sterling
equivalents(2).
Adjusted(1) operating profit for the French business increased by €2.8
million to a profit of €0.5 million (H1 2021: a loss of €2.3 million), and
by £2.5 million in reported pound sterling equivalents(2).
Compared to the previous year, our operating profit for the first half showed
signs of improvement but we can still further improve our results, by
optimising resource utilisation across all service departments.
We had hoped to enter a period of economic growth after the pandemic but
current economic forecasts are quite pessimistic for a variety of reasons,
including the war in Ukraine. Companies will not be immune from these
challenges and they will start to think about reducing their costs and
transforming their businesses to stay competitive. This gives us both a
challenge and an opportunity. Customers driving down costs will affect our
volume business but transformation programmes very often include a
digitalisation aspect, where we can help our customers succeed by offering
them innovative and futureproof solutions.
Technology Sourcing performance
Technology Sourcing revenue increased by 2.6 per cent to €217.1 million (H1
2021: €211.7 million) and reduced by 0.5 per cent in reported pound sterling
equivalents(2). Technology Sourcing margins increased by 192 basis points.
Continued component shortages kept us very busy during the first half, as we
spent a lot of time with technology partners and customers, managing delivery
date challenges and offering alternatives. The Technology Sourcing order
backlog again increased significantly during the period, with 17.3 per cent
growth since the start of the year and 51.9 per cent growth since the same
time last year. We believe that the worldwide shortages will remain a
challenge throughout the rest of the year and probably for a considerable
period in 2023.
Thanks to our top-level certifications with all the important technology
partners worldwide and our international service capability, we have
identified multiple large framework opportunities where we can help large,
international customers to deliver and install standardised equipment in all
their locations worldwide. We are pleased to see that technology partners have
started to recommend Computacenter to large enterprises, as the partner of
choice for value added reselling with outstanding worldwide service
capabilities.
Our French public sector business remains an important contributor overall,
and a key part of our Technology Sourcing success, and we have seen some
pleasing framework contract wins around collaboration and networking that will
start delivering results in the second half of the year.
Services performance
Services revenue increased by 2.2 per cent to €101.7 million (H1 2021:
€99.5 million) and decreased by 1.0 per cent in reported pound sterling
equivalents(2). Professional Services revenue decreased by 3.4 per cent to
€22.8 million (H1 2021: €23.6 million), which was a decrease of 6.8 per
cent in reported pound sterling equivalents(2). Managed Services revenue
increased by 4.0 per cent to €78.9 million (H1 2021: €75.9 million), an
increase of 0.8 per cent in reported pound sterling equivalents(2). Services
margins decreased by 468 basis points.
Delays in starting some Professional Services projects in the period, along
with the decline in volumes and therefore utilisation in CCNS noted above,
resulted in a significant impact on contribution and a weak first half for
Professional Services as a whole. In addition, and as planned as part of the
CCNS acquisition, we have spent €0.7 million during the period, reducing
gross margins, to move a data center utilising internal resources. We are
optimistic about improving our results in the second half, based on the strong
Professional Services pipeline for the rest of the year.
Following successes elsewhere in the Group, we identified the opportunity to
focus on our resource on demand (ROD) practice, which helps customers to
succeed by providing specialised resources on a time and materials basis.
Although it is not always easy to find resources with specific skills, we have
seen pleasing growth in our ROD practice.
Our Managed Services contribution remained broadly flat but with many
underlying changes. We were successful in winning new contracts in 2021, which
compensated in the first half for the lost contribution from contracts we knew
would come to an end this year. As often happens at the start of new
contracts, they are not yet delivering the predicted contributions and we are
working hard to optimise their profitability. Additionally, we agreed with a
customer to review the scope and delivery period of an underperforming
contract to increase the positive outcomes for both parties.
Sales cycles for our Managed Services solutions are typically long, and we
were pleased to conclude a network operations contract with one of our largest
podium customers at the beginning of the year.
In addition to developing a pipeline of new Managed Services contracts, we
will also focus in the second half of the year on renewing a few important
Managed Services and network maintenance contracts we have had in place for
many years.
North America
Financial performance
Total revenue increased by 48.3 per cent to $1,301.7 million (H1 2021: $877.7
million). In reported pound sterling equivalents(2), total revenue was up 58.9
per cent.
Growth in North America was driven by continued growth in hyperscale data
center customers, as well as new customer wins. The growth was achieved in
both Technology Sourcing and Services.
The Technology Sourcing business saw significant revenue growth. However, this
was concentrated in a small number of hyperscale customers where account
margins are materially lower than average, due to the volumes addressed.
Global supply chain challenges continue to impact the Technology Sourcing
business. Product order backlog, where we have confirmed orders but no supply,
has increased by over $230 million since 30 June 2021, excluding a single
major hyperscale customer. This single customer's product order backlog has
increased by $1,842 million over the same period, with committed orders being
placed for delivery into Q3 2024. Overall the backlog is 64.7 per cent higher
since the beginning of the year.
Professional Services margins improved compared to the prior period, due to
higher volume resulting in better utilisation across the Services
organisation. The Managed Services business reported lower margins
year-on-year, due to a combination of customer mix and lower margins on
projects in their early stages.
Overall, margins in North America decreased by 483 basis points, with
adjusted(1) gross profit decreasing from 14.9 per cent to 10.1 per cent of
revenues. We have seen exceptional growth with one hyperscale customer where
we supply large volumes on a direct delivery basis with lower than normal
value added levels and therefore at significantly reduced margins.
Adjusted(1) gross profit grew by 0.5 per cent to $131.6 million (H1 2021:
$130.9 million) and by 7.5 per cent in reported pound sterling equivalents(2).
Administrative expenses increased by 0.3 per cent to $105.3 million (H1 2021:
$105.0 million), and by 7.3 per cent in reported pound sterling
equivalents(2). Within this there has been growth in travel costs, as Covid-19
restrictions have loosened, further investments in additional capabilities to
support hyperscale customers, and higher than historical average increases in
compensation due to wage inflation. These were mostly offset by lower facility
costs and foreign currency exchange gains.
The lower facility costs were driven by reduced facility size in San Antonio,
Texas, combining locations in Dallas, Texas, and exiting two facilities in
California. North America is expanding its Integration Center capability
overall, with new larger facilities in Washington and Indiana to better
allocate capacity across the business's expanding geographical footprint in
the Continental USA.
Adjusted(1) operating profit for the North America business increased by 1.5
per cent to $26.3 million (H1 2021: $25.9 million), and by 8.6 per cent in
reported pound sterling equivalents(2).
The increase in adjusted(1) operating profit compared to a very strong first
half of 2021 was achieved while investing in new capabilities and expanding
the portfolio, largely focused on adding workplace capabilities and continued
hyperscale capability. North America continues to manage through its system
conversions to the Group ERP system and is preparing to migrate the Pivot
business in 2023.
After the period end, the Group completed the acquisition of Business IT
Source (BITS), a regional value added reseller which provides additional
geographic reach to North America, allowing us access to significant new
markets. The acquisition of BITS will primarily benefit the North American
Technology Sourcing business.
Technology Sourcing performance
Technology Sourcing revenue increased by 47.7 per cent to $1,215.8 million (H1
2021: $823.3 million) and by 58.3 per cent in reported pound sterling
equivalents(2). Technology Sourcing margins decreased by 505 basis points over
the same period last year.
The growth was driven by increased spending by hyperscale customers, growth in
sales to international customers with operations in the United States, as well
as a material new customer win in the financial services sector. Technology
Sourcing has grown in 'drop-ship' revenue, where products are delivered
directly from the vendor, and experienced a decline in integration driven
revenue. This leads to less opportunities to add value to the transaction and
decreases the utilisation of our facilities and personnel leading to lower
cost absorption.
Compared to the same period in 2021, we saw a similar technology spending mix
amongst major partners and technologies, particularly in the data center and
networking lines of business. We continue to have a very high order backlog,
which has been impacted by the well-publicised continuing supply chain
shortages. This supply shortage has also resulted in continued high inventory
levels, which we saw in 2021. Inventory levels are up by approximately 17.1
per cent for North America since 30 June 2021, totalling $247.9 million (H1
2021: $211.6 million), but have decreased by 13.5 per cent from $286.4 million
at 31 December 2021. Hyperscale customers have ordered in advance of the
normal demand profile, which should return to a more normal level when the
supply chain shortages are resolved.
We benefited from significant continuing investments by our customers, as they
digitise their operations and modernise their infrastructure. We continue to
see customers seeking to simplify their operations by consolidating to fewer
suppliers, resulting in long-term commitments and larger transactions.
Technology Sourcing margins reduced as a result of significant revenue growth
with hyperscale customers that command a lower margin profile, coupled with a
reduction in in our usually higher-margin server rack fabrication business,
typically also concentrated within hyperscale customers, which has experienced
a slowdown. This decline in rack fabrication is expected to continue during
the second half of the year, as rack volume demand has decreased overall from
that seen during 2021. Further, as the increase in revenue was primarily
direct delivery, lower Integration Center activity resulted in lower
absorption of the fixed cost base. We continue to see significant activity and
opportunity for our Integration Center, including complex distributed branch
rollouts, as well as global data center build-out projects for our hyperscale
customers. However the probability and timing of these opportunities are
difficult to predict.
Services performance
Services revenue increased by 57.9 per cent to $85.9 million (H1 2021: $54.4
million) and by 69.1 per cent in reported pound sterling equivalents(2).
Professional Services revenue increased by 62.3 per cent to $68.8 million (H1
2021: $42.4 million), which was an increase of 74.1 per cent in reported pound
sterling equivalents(2). Managed Services revenue increased by 42.5 per cent
to $17.1 million (H1 2021: $12.0 million), which was an increase of 51.7 per
cent in reported pound sterling equivalents(2). Services margins decreased by
157 basis points.
North American Services revenue growth was primarily due to significant
deployment projects, with several large ongoing projects with country-wide
retail customers. Project activity has continued to recover after customers
delayed expected projects while they responded to Covid-19 in 2020 and into
2021.
The decrease in margins is due to certain Managed Service projects, which are
in their first year of operation, which tends to be lower margin whilst the
project scales up and efficiencies are generated. Further impacts on the
margin percentage include the lower margins generated from the significant
deployment projects seen during the period. In addition, wage inflation,
particularly for scarce technical resources, has been higher than expected and
more than in prior periods, which is contributing downwards pressure on
Services margins.
International
The International Segment comprises a number of trading entities and offshore
Global Service Desk delivery locations.
The trading entities include Computacenter Switzerland, Computacenter Belgium
and Computacenter Netherlands. In addition to their operational delivery
capabilities, these entities have in-country sales organisations, which enable
us to engage with local customers.
These trading entities are joined in the Segment by the offshore Global
Service Desk entities in Spain, Malaysia, India, South Africa, Hungary,
Poland, China and Mexico, and the Professional Services Centre of Excellence
in Romania, which have limited external revenues as they charge the relevant
Group subsidiaries for the services provided.
The newly acquired Emerge business joins the International Segment, with
Services delivery locations in Japan, Australia, Singapore and Hong Kong.
Financial performance
Revenues in the International business increased by 38.2 per cent to £107.5
million (H1 2021: £77.8 million) and by 40.2 per cent in constant
currency(2).
Overall, margins in the International business decreased by 299 basis points,
with adjusted(1) gross profit decreasing from 22.6 per cent to 19.6 per cent
of revenues.
Adjusted(1) gross profit increased by 19.9 per cent to £21.1 million (H1
2021: £17.6 million), and by 20.6 per cent in constant currency(2).
Our performance varied in each of our international entities. The Belgian
business's performance improved primarily due to project wins in our workplace
segment and excellent Managed Services performance. The short-term focus is
now to finalise the extension of two of our largest Managed Services
contracts.
Our Dutch operation has fully implemented an international Technology Sourcing
and Services contract and identified some good additional opportunities under
this framework. We also continue to see good performance in our public sector
segment. The Dutch entity joined Computacenter in August 2018 through an
acquisition and we are pleased that the business is now fully aligned with our
portfolio, operating and organisational model and our target customer market.
Our Swiss operations had a challenging start to the year, as the scopes of our
main Services contracts were temporarily changed as customers reviewed their
hybrid working approach after the pandemic. In line with the strategies of the
other international entities, we have positioned our Group capabilities
towards international customers with Swiss headquarters. We celebrated an
important workplace-based international procurement and support win, and while
we are only at the beginning of the contract implementation, we are confident
it will deliver stable and ongoing contribution in the future.
Administrative expenses increased by 22.2 per cent to £16.5 million (H1 2021:
£13.5 million) and by 23.1 per cent in constant currency(2), primarily due to
one-off systems improvement related expenditure in the period to better align
with central Group Information Systems practices and methodologies.
Overall adjusted(1) operating profit increased by 12.2 per cent in both actual
and constant currency(2) to £4.6 million (H1 2021: £4.1 million).
Whilst our sales specialist and solution specialist teams have grown and
matured over the last few years in all areas of the business, we are still
working to attract new sales talent and further develop our target market in
these countries. We are doing this either by focusing more on a specific
sector or by developing our full offering with existing customers.
Technology Sourcing performance
Technology Sourcing revenue increased by 64.7 per cent to £66.7 million (H1
2021: £40.5 million) and by 68.4 per cent in constant currency(2). Technology
Sourcing margins have decreased by 342 basis points.
Significant revenue increases were seen in Switzerland and Belgium, with
revenue in Netherlands nearly doubling. These entities, with a different
customer mix to our larger operating entities, were impacted the most during
the Covid-19 crisis and the results in the period confirm that normal trading
patterns have resumed. These entities are each taking advantage of the
opportunities afforded from being part of a larger Group by winning contracts,
expanding account spend and increasing market share.
In common with other countries, the International Segment continues to be
impacted by the worldwide shortages of IT components and we were not able to
deliver all ordered goods within normal timescales. The value of our backlog
of outstanding orders has increased by 5.7 per cent in constant currency(2)
since the beginning of the year. Whilst we are pleased that demand remains
strong, and that customer behaviour is leading to lengthening of their
procurement timeline horizons, we expect this trend to continue for at least
the rest of the year, with expected vendor driven price increases that will be
passed on potentially impacting future, currently unplaced, orders.
In all regions, our teams focused on keeping our customer base up to date
about delivery delays, identifying alternatives and handling prioritisation
requests. We have also been able to replace some of the traditional hardware
reselling revenues by winning some additional software and resold services
bids to partly offset the impact, as these do not suffer from shortage
constraints.
Our pipeline remains healthy for the rest of the year and we are confident we
will be able to deliver good results, even in these difficult market
conditions.
Margins reduced as the product mix moved towards workplace equipment,
following the recent wins in the period.
Services performance
Services revenue increased by 9.4 per cent to £40.8 million (H1 2021: £37.3
million) and by 10.0 per cent in constant currency(2). Services margins have
increased by 199 basis points.
Professional Services revenue increased by 17.5 per cent to £4.7 million (H1
2021: £4.0 million) and by 17.5 per cent in constant currency(2). Managed
Services revenue increased by 8.4 per cent to £36.1 million (H1 2021: £33.3
million), which was an increase of 9.1 per cent in constant currency(2).
We grew our Services revenues in Belgium and the Netherlands, with this growth
mainly driven by long-term Managed Services contracts. Our largest Managed
Services contracts in Switzerland saw a slow start after the Covid-19 period
and we scaled back our delivery teams in the first quarter. We now have a
flexible and optimised delivery model to meet all future needs and we are
pleased to see that demand is picking up again. Continued portfolio
efficiencies and increasing volumes have increased the Services margins.
Our main focus for the rest of the year will be to renew two large contracts
in our International Segment and continue to pursue identified opportunities
with customers leveraging our Group capabilities in international Technology
Sourcing product supply.
Group Finance Director's Review
During the first half of 2022, the Group benefited from continued strong
revenue growth in both Technology Sourcing and Services. Growth across all
Segments was excellent, apart from France where the expected cessation of
legacy contracts stemming from the CCNS acquisition led to a decline in
Professional Services, and the UK where, despite strong growth in gross
invoiced income, saw a decline in reported revenues as the product mix
changed.
Overall, gross profit was flat despite this excellent revenue growth due to
Technology Sourcing customer and product mix, cost inflation and lower
utilisation within our Services business following the end of the Covid-19
pandemic, and ongoing supply chain disruption as described earlier in this
announcement.
The Technology Sourcing growth was driven by increasing workplace business in
Germany and incredible demand from a small number of Californian hyperscale
customers in North America. However, a lack of product supply, specifically in
high-end server rack componentry and networking hardware, has restricted
higher margin revenue growth and led to a decline in margins overall. As
supply of these higher-margin items has become more challenged, the business
has been able to increase our sales of other product lines. These include
software and resold services, which are naturally not impacted by supply
shortages, and workplace, which is much less affected. Germany has seen very
strong growth in workplace, which has stretched our onsite handling and
configuration capacities. Germany already had a high percentage of workplace
product delivered via our Integration Centers, rather than direct delivery
from the vendors, and the increased volumes have almost fully utilised our
existing facilities. This has led to increased handling costs for these
inventories, as they are moved around increasingly scarce space in our
Integration Centers. We have implemented a mitigation strategy towards the end
of H1 2022, with additional Integration Center capacity being added near to
our existing facility. These increased handling costs, alongside the
lower-margin nature of the workplace revenues, have reduced German margins.
Reconciliation to adjusted(1) measures for the period ended 30 June 2022
Reported interim Adjustments Adjusted(1)
results interim
£m results
£m
Principal Amortisation
of acquired intangibles
element on
£m
agency
contracts
£m
Revenue 2,826.7 1,145.2 - 3,971.9
Cost of sales (2,401.8) (1,145.2) - (3,547.0)
Gross profit 424.9 - - 424.9
Administrative expenses (314.8) - 4.1 (310.7)
Operating profit 110.1 - 4.1 114.2
Finance income 1.0 - - 1.0
Finance costs (3.3) - - (3.3)
Profit before tax 107.8 - 4.1 111.9
Income tax expense (30.0) - (1.2) (31.2)
Profit for the period 77.8 - 2.9 80.7
Reconciliation to restated adjusted(1) measures for the period ended 30 June
2021
Restated reported interim Adjustments Restated adjusted(1)
results interim
£m results
£m
Principal Amortisation
of acquired intangibles
element on
£m
agency
contracts
£m
Revenue 2,425.1 862.5 - 3,287.6
Cost of sales (1,999.8) (862.5) - (2,862.3)
Gross profit 425.3 - - 425.3
Administrative expenses (306.5) - 3.7 (302.8)
Operating profit 118.8 - 3.7 122.5
Finance income 0.2 - - 0.2
Finance costs (3.8) - - (3.8)
Profit before tax 115.2 - 3.7 118.9
Income tax expense (33.1) - (0.9) (34.0)
Profit for the period 82.1 - 2.8 84.9
Whilst the UK saw significant gross invoiced income growth through increasing
software and resold services activity, only the margins on this business,
which are naturally low, are reported as revenue following the changes to our
accounting policy for agent versus principal recognition. See notes 3 to 5 to
the summary financial information contained within this announcement for more
information on the impact of our change in accounting policies.
The incredible volume growth in North America is an indication of the trust
that these hyperscale technology customers place in us to deliver for them.
This small number of high volume customers continue to recognise and value our
capability to source and deliver product for their needs, in an incredibly
competitive marketplace, through our close relationships with our vendor
technology partners. As this hyperscale business grows in relation to the rest
of the business, the margin in North America will continue to decline relative
to our other key geographies over the longer term.
On 13 July 2022 the Group announced that it acquired one of the
fastest-growing value-added resellers in the United States of America,
Business IT Source ('BITS') effective from 1 July 2022. The Group has paid an
initial $35.1 million with two additional payments contingent on the future
performance of the acquired business through to 31 December 2024.
BITS employs around 100 people and has a headquarters and Integration Center
in Buffalo Grove, Illinois, approximately 45 minutes from downtown Chicago.
BITS recorded revenue in 2021 of approximately USD 245 million with EBIT of
approximately USD 8.9 million.
The existing BITS leadership team will stay to run the business as a separate
operating unit within Computacenter North America to maximise the growth
opportunity. The business and the team will be fully integrated into
Computacenter's North American operations over time.
Whilst our North American business continues to see substantial organic
growth, we will continue to take additional opportunities to improve our
positioning in this important market. BITS gives us a much stronger presence
in the Midwest of the United States and brings some great people, customers
and leadership to our business. The Buffalo Grove Integration Center will
allow us to serve more of our Midwest regional customers locally over time,
helping us to meet our sustainability goals. We are optimistic that the BITS
leadership team will seize the opportunity to continue their current growth
momentum.
BITS will have the opportunity to provide a much broader range of capabilities
to our customers and growth opportunities for its people. Operating as a
separate business unit, over the short-term, will allow us to continue our
personalized service while leveraging Computacenter's capabilities and balance
sheet to best serve customers and associates.
On 25 May 2022, the Group acquired 100 per cent of the share capital in Emerge
360 Japan k.k (Emerge) and the associated Asia-Pacific (APAC) operations from
Emerge 360, Inc., for consideration of $3.5 million (USD). The acquired APAC
business has a presence in Japan, Singapore, Australia and Hong Kong.
This continues our strategy of building the best international capability of
any value added reseller in the world. Emerge was already a valued partner in
the region, working to extend our reach and capability for our international
customers. Following the acquisition, over 230 engineers and service managers
have joined Computacenter in Singapore, Hong Kong, Australia, Japan and India.
This brings our total number of people in APAC to nearly 300 and in India to
over 1,000. Our strategy in APAC is to build better operational capability and
coverage to support our international customers headquartered in Europe and
North America. We will enhance the credibility of our offering to our existing
customer base by employing our own service leadership in the region, who will
have local interaction with customers and manage delivery, whether it is by
Computacenter or our partners. In India, although our strategy is centred on
building our offshore Services Center capability, our 80 new people join an
existing and growing engineering team who work on key customer sites. This
acquisition enhances our Services offerings within the region and, in both
APAC and India, this will continue to be complemented by the great Technology
Sourcing experience provided by our local and regional partners.
Migrating our recently acquired, material, entities onto our leading ERP
platform technologies and toolsets will help to unlock their potential for
growth and efficiencies. The integration of Pivot onto Group systems is
planned for 2023 and will benefit from the recent migration of FusionStorm and
the legacy US business, which transitioned to the Group ERP in September 2021.
This is by no means an easy task and a number of issues remain from the recent
transition activity, as the business adapts to Group processes. Further, a
number of next-generation upgrades to the customer relationship management and
configure-price-quote systems were implemented within the US rollout, which
are being progressively introduced through the rest of the Group, will
continue to evolve the way we do business with our customers, ensuring that
ordering friction is reduced and cost-to-serve efficiencies improved.
A reconciliation to adjusted¹ measures is provided above within this Group
Finance Director's review. Further details are provided in note 4 to the
summary financial information contained within this announcement, adjusted
measures.
Profit before tax
The Group's profit before tax for the period decreased by 6.4 per cent to
£107.8 million (H1 2021: £115.2 million). Adjusted(1) profit before tax
decreased by 5.9 per cent to £111.9 million (H1 2021: £118.9 million) and by
5.9 per cent in constant currency(2). The difference between profit before tax
and adjusted(1) profit before tax relates to the Group's net costs of £4.1
million (H1 2021: net costs of £3.7 million) from the amortisation of
acquired intangibles as a result of the acquisition of FusionStorm on 30
September 2018 and Pivot on 2 November 2020.
The Group adopted IFRS 16 'Leases' from 1 January 2019, which has resulted in
changes in accounting policies and adjustments to the amounts recognised in
the Consolidated Financial Statements, as disclosed in the 2019 Annual Report
and Accounts. The current period results include an overall decrease in profit
before tax of £0.7 million, including on an adjusted(1) basis, due to the
impact of IFRS 16 (H1 2021: £1.7 million).
Net finance charge
The net finance charge in the period amounted to £2.3 million (H1 2021: £3.6
million). The main items included within the net charge for the year are £2.5
million of interest charged on lease liabilities recognised under IFRS 16 (H1
2021: £2.7 million) and £0.6 million of interest charged for the Pivot
facility (H1 2021: £0.6 million). No interest items were excluded on an
adjusted(1) basis.
Taxation
The tax charge was £30.0 million (H1 2021: £33.1 million) on profit before
tax of £107.8 million (H1 2021: £115.2 million). This represents an
effective tax rate (ETR) of 27.8 per cent (H1 2021: 28.7 per cent). The
current period rate includes the recognition of a €2.4 million deferred tax
asset representing the probable benefit of future utilisation of losses within
the French business due to a forecast improvement in profitability in this
geography.
The tax credit related to the amortisation of acquired intangibles was £1.2
million in the period (H1 2021: £0.9 million). As the amortisation is
recognised outside of our adjusted(1) profitability, the tax benefit on the
amortisation is also reported outside of our adjusted(1) tax charge. The
adjusted(1) tax charge for the period was £31.2 million (H1 2021: £34.0
million), on an adjusted(1) profit before tax for the period of £111.9
million (H1 2021: £118.9 million). The ETR was therefore 27.9 per cent (H1
2021: 28.6 per cent) on an adjusted(1) basis.
We expect that the ETR in 2022 will be subject to upwards pressure,
particularly in comparison to the prior year, due to the one-off tax benefits
booked in the second half of 2021, as detailed in the 2021 Annual Report and
Accounts on page 72. Looking further ahead, substantially enacted tax
increases are set to take effect in the UK from 1 April 2023, although the
planned rise from 19 per cent to 25 per cent is subject to the direction of
the UK Government subsequent to the election of a Prime Minister by the
governing party. Longer-term, the geographic split of adjusted(1) profit
before tax is increasingly shifting from the UK to Germany and the US, where
tax rates are substantially higher, and governments across our primary
jurisdictions are also coming under fiscal and political pressure to increase
corporation tax rates.
The table below reconciles the tax charge to the adjusted(1) tax charge for
the periods ended 30 June 2022 and 30 June 2021 and the year ended 31 December
2021.
H1 2022 H1 2021 Year 2021
£m £m £m
Statutory tax charge 30.0 33.1 61.5
Adjustments to exclude:
Tax on amortisation of acquired intangibles 1.2 0.9 2.1
Adjusted(1) tax charge 31.2 34.0 63.6
ETR 27.8% 28.7% 24.8%
Adjusted(1) ETR 27.9% 28.6% 24.9%
Profit for the period
The profit for the period decreased by 5.2 per cent to £77.8 million (H1
2021: £82.1 million). The adjusted(1) profit for the period decreased by 4.9
per cent to £80.7 million (H1 2021: £84.9 million) and by 4.5 per cent in
constant currency(2).
Exceptional and other adjusting items
The net loss from exceptional and other adjusting items in the period was
£2.9 million (H1 2021: loss of £2.8 million). Excluding the tax items noted
above, which resulted in a gain of £1.2 million (H1 2021: gain of £0.9
million), the profit before tax impact was a net loss from exceptional and
other adjusting items of £4.1 million (H1 2021: loss of £3.7 million).
There were no exceptional items in the six months to 30 June 2022 (H1 2021:
nil).
We have continued to exclude, as an 'other adjusting item', the amortisation
of acquired intangible assets in calculating our adjusted(1) results.
Amortisation of intangible assets is non-cash, does not relate to the
operational performance of the business, and is significantly affected by the
timing and size of our acquisitions, which distorts the understanding of our
Group and Segmental operating results. The amortisation of acquired intangible
assets was £4.1 million (H1 2021: £3.7 million), primarily relating to the
amortisation of the intangibles acquired as part of the recent North American
acquisitions.
There were no other adjusting items in the six months to 30 June 2022 (H1
2021: nil).
Earnings per share
Diluted EPS decreased by 4.8 per cent to 67.3 pence per share (H1 2021: 70.7
pence per share). Adjusted(1) diluted EPS decreased by 4.5 per cent to 69.8
pence per share (H1 2021: 73.1 pence per share).
H1 2022 H1 2021 Year 2021
Basic weighted average number of shares (excluding own shares held) (m) 112.9 113.0 113.0
Effect of dilution:
Share options 1.8 2.8 2.2
Diluted weighted average number of shares 114.7 115.8 115.2
Profit for the year attributable to equity holders of the Parent (£m) 77.2 81.9 185.3
Basic earnings per share (pence) 68.4 72.5 164.0
Diluted earnings per share (pence) 67.3 70.7 160.9
Adjusted(1) profit for the period attributable to equity holders of the Parent 80.1 84.7 190.8
(£m)
Adjusted(1) basic earnings per share (pence) 70.9 74.9 168.6
Adjusted(1) diluted earnings per share (pence) 69.8 73.1 165.6
Dividend
We are pleased to announce an interim dividend of 22.1 pence per share (H1
2021: 16.9 pence per share). This is in line with our policy that the interim
dividend will be approximately one third of the previous year's total
dividend. The interim dividend will be paid on Friday 28 October 2022.
The dividend record date is Friday 30 September 2022, and the shares will be
marked ex-dividend on Thursday 29 September 2022.
Central Corporate Costs
Certain expenses are not specifically allocated to individual Segments because
they are not directly attributable to any single Segment. These include the
costs of the Board itself, related public company costs, Group Executive
members not aligned to a specific geographic trading entity and the cost of
centrally funded strategic initiatives that benefit the whole Group.
Accordingly, these expenses are disclosed as a separate column, Central
Corporate Costs, within the Segmental note. These costs are borne within the
Computacenter (UK) Limited legal entity and have been removed for Segmental
reporting and performance analysis but form part of the overall Group
adjusted(1) administrative expenses.
During the period, total Central Corporate Costs increased to £11.6 million
(H1 2021: £11.1 million). Within this:
· Board expenses, related public company costs, costs associated with
Group Executive members not aligned to a specific geographic trading entity,
and certain one-off costs in relation to the cancellation of Group-wide
central meetings, increased to £4.2 million (H1 2021: £4.1 million);
· share-based payment charges associated with the Group Executive
members identified above, including the Group Executive Directors, increased
from £1.4 million in H1 2021 to £1.9 million in H1 2022; and
· spend on strategic corporate initiatives, which are designed to
increase capability and therefore competitive position, enhance productivity
or strengthen systems which underpin the Group, was £5.5 million (H1 2021:
£5.6 million).
Cashflow
The Group delivered an operating cash inflow of £8.1 million for the six
months to 30 June 2022 (H1 2021: £1.5 million inflow). During the period, net
operating cash outflows from working capital, including inventories, trade and
other receivables and trade and other payables, were £120.5 million (H1 2021:
£143.7 million outflow).
Working capital cash flows continue to be affected by both the revenue growth
and the increased inventory levels, in particular within our North American
and German businesses. Due to the significant product shortages seen during
the last 18 months, a number of hyperscale customers continue to place advance
orders of product with delayed delivery, to ensure continuity of supply.
Finally, the transition of the FusionStorm business to the Group ERP, whilst
now complete, did result in short-term operational issues that impacted
working capital, as the picking and shipping of complex inventory items,
invoicing and cash collection in particular experienced significant delays
late in 2021. Whilst the position has improved, as the FusionStorm entity
continues to gain experience in using the system and tools and learns how to
leverage their advantages, progress remains slower than desired and
considerable improvement is still required. Volume challenges due to the
spectacular recent growth of the business have also impacted other areas of
working capital. However the Group is working through a remediation plan to
improve processes, systems and resourcing levels, in order to accommodate the
increasing demands of the business.
The Group had £399.3 million of inventory as at 30 June 2022, a 17.0 per cent
increase on the balance as at 31 December 2021 of £341.3 million. North
American inventories fell by 3.9 per cent to £204.2 million, and by 13.5 per
cent in constant currency(2), as year-end positions were closed out and a
significant balance of inventory present at the cutover to the Group ERP
system in September 2021 was successfully shipped to customers. German
inventories increased by 67.2 per cent to £147.1 million, and by 62.7 per
cent in constant currency(2) as inventory built up in the Integration Center,
waiting for configuration to complete before shipping to customers. We expect
this German position to materially improve by the end of the year. An
additional Integration Center facility has been added near to the existing
facility in Kerpen, which is running at record levels of capacity and
utilisation, to provide additional inventory storage space and processing
capacity.
Capital expenditure in the period was £15.5 million (H1 2021: £17.5 million,
FY 2021: £30.3 million), primarily representing 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 £34.4 million (H1 2021 £20.3 million, FY 2021:
£25.5 million) to satisfy maturing PSP awards and Sharesave schemes and to
re-provision the EBT in advance of future maturities. During the period, the
Company received savings from employees of £1.6 million to purchase options
within the Sharesave schemes (H1 2021: £1.5 million, FY 2021: £6.2 million).
During the period the Group made one acquisition, Emerge, as described above,
for £2.3 million, net of cash acquired.
The Group reduced loans and credit facilities during the period by £1.3
million (H1 2021: £82.9 million, FY2021: £89.0 million). We made regular
repayments towards the loan related to the construction of the German
headquarters in Kerpen and continued to restrict the amount drawn under the
Pivot credit facility, as detailed below.
The Group continued to manage its cash and working capital positions
appropriately, using standard mechanisms, to ensure that cash levels remained
within expectations throughout the year. From time to time, some customers
request credit terms longer than our standard of 30-60 days. In certain
instances, we will arrange for the sale of the receivables on a true sale
basis to a finance institution on the customers' behalf. We would typically
receive funds on 45-day terms from the finance institution, who will then
recover payment from the customer on terms agreed with them. The cost of such
an arrangement is borne by the customer, either directly or indirectly,
enabling us to receive the full amount of payment in line with our standard
terms. The benefit to the cash and cash equivalents position of such
arrangements as at 30 June 2022 was £46.3 million (30 June 2021: £41.1
million, 31 December 2021: £53.7 million).
Towards the end of June 2022, the Group elected to factor an additional €26
million of trade receivables within the German business. The Group had no
other debt factoring at the end of the year, outside this normal course of
business.
Also in June 2022, the Group used a prearranged vendor finance facility to
delay payment of c£15 million of trade payables. This balance has been paid
after the period end. There were no other interest-bearing trade payables as
at 30 June 2022 (30 June 2021: nil, 31 December 2021: nil).
Cash and cash equivalents and net funds/(debt)
Cash and cash equivalents as at 30 June 2022 were £193.5 million, compared to
£158.5 million at 30 June 2021. Cash and cash equivalents have decreased by
£79.7 million from £273.2 million as at 31 December 2021 (H1 2021: decrease
of £151.3 million from £309.8 million as at 31 December 2020).
Net funds as at 30 June 2022 was £12.1 million, compared to net debt of
£29.4 million as at 30 June 2021 and net funds of £95.3 million as at 31
December 2021.
Adjusted net funds(3) as at 30 June 2022 was £159.3 million, compared to
adjusted net funds(3) of £121.8 million as at 30 June 2021 and adjusted net
funds(3) of £241.4 million as at 31 December 2021. The Group excludes £147.2
million, as at 30 June 2022 (30 June 2021: £151.2 million), of lease
liabilities from its non-GAAP adjusted net funds(3) measure, due to the
distorting effect of the capitalised lease liabilities on the Group's overall
liquidity position under the IFRS 16 accounting standard. Net funds as at 30
June 2022, 30 June 2021 and 31 December 2021 were as follows:
30 June 30 June 31 December 2021
2022 2021 £m
£m £m
Cash and short-term deposits 199.0 164.2 285.2
Bank overdraft (5.5) (5.7) (12.0)
Cash and cash equivalents 193.5 158.5 273.2
Bank loans/Credit facility (34.2) (36.7) (31.8)
Adjusted net funds(3) (excluding lease liabilities) 159.3 121.8 241.4
Lease liabilities (147.2) (151.2) (146.1)
Net funds/(debt) 12.1 (29.4) 95.3
For a full reconciliation of net funds and adjusted net funds(3), see note 12
to the summary financial information included within this announcement, net
funds.
The Group drew down a £100 million term loan on 1 October 2018 to complete
the acquisition of FusionStorm. This loan was on a seven-year repayment cycle,
with a renewal of the loan facility due on 30 September 2021. The Group repaid
the remaining balance of £41.6 million in full during the first half of 2021
and retired the credit facility.
The Group had three other residual specific credit facilities in place during
the current period and no other material borrowings.
Pivot has a substantially unutilised $100.0 million senior secured asset-based
revolving credit facility, from a lending group represented by JPMorgan Chase
Bank, N.A. The residual facility can be used for revolving loans, letters of
credit, protective advances, over advances, and swing line loans. During the
period, the Group has continued to maintain limited amounts drawn on the
facility, with £11.9 million remaining drawn as at 30 June 2022 (30 June
2021: £8.3 million, 31 December 2021 £7.0 million). In addition, Pivot has
£9.0 million financed with a major technology partner for hardware, software
and resold technology partner maintenance contracts, which the Company has
purchased as part of a contract to lease these items to a key North American
customer (30 June 2021: £10.5 million, 31 December 2021: £9.4 million).
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 £12.7 million as at 30 June 2022 (30 June 2021: £17.5
million, 31 December 2021: £14.7 million).
The Group has a committed facility of £60.0 million, which expires on 7
September 2023. The Group has never drawn on this facility.
The Group's adjusted net funds(3) position contains no current asset
investments as at 30 June 2022 (30 June 2021: nil, 31 December 2021: nil).
Currency
The Group reports its results in pounds sterling. The weakness in the value of
sterling against most currencies during the first half of 2022, in particular
the US Dollar, has begun to impact our revenues and profitability, as a result
of the conversion of our foreign earnings. However, the exchange rates seen
during the period, in aggregate effect, were not materially dissimilar to
those seen in the first half of 2021.
Restating the first half of 2021 at 2022 exchange rates would increase H1 2021
revenue by approximately £12.6 million, whilst H1 2021 adjusted(1) profit
before tax would be unchanged.
If the 30 June 2022 spot rates were to continue through the remainder of 2022,
the impact of restating 2021 at 2022 exchange rates would be to increase 2021
revenue by approximately £102.7 million and 2021 adjusted(1) profit before
tax by approximately £1.3 million.
The Group benefited from circa £5 million of net mark-to-market gains on
forward currency contracts over the period (H1 2021: £3 million of gains).
These gains are on contracts taken out to hedge currency movement on
significant foreign exchange flows across the Group and are expected to
reverse during the second half of the year.
Principal risks and uncertainties
The Group's activities expose it to a variety of economic, financial,
operational and regulatory risks. Our principal risks continue to be
concentrated in the availability and resilience of systems, our people, our
cost base, technology change, and in the design, entry into service and
running of large Services contracts. The principal risks and uncertainties
facing the Group are set out on pages 80 to 85 of the 2021 Annual Report and
Accounts, a copy of which is available on the Group's website.
The Group's risk management approach and the principal risks, potential
impacts and primary mitigating activities are unchanged from those set out in
the 2021 Annual Report and Accounts. Our risk management approach operated
effectively in the six months to 30 June 2022, with systems and controls
functioning as designed. Whilst we have not identified any new principal risks
during the period, we acknowledge the heightened level of overall risk across
several risk categories, due to the ongoing pandemic, the war in Ukraine, and
the subsequent and other macroeconomic uncertainty and its impact on our
operating environment in general, particularly in relation to our identified
Strategic,
Infrastructure and Financial Risks.
This Strategic Report was approved by the Board on 8 September 2022 and signed
on its behalf by:
MJ Norris
Chief Executive Officer
FA Conophy
Group Finance Director
Directors' Responsibilities
Responsibility statement of the directors in respect of the half-yearly
financial report.
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for use in the
UK the interim management report includes a fair review of the information
required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
MJ Norris
Chief Executive Officer
FA Conophy
Group Finance Director
Consolidated Income Statement
For the six months ended 30 June 2022
Note H1 2022 H1 2021 Year 2021
£m £m £m
(restated) (restated)
Revenue 5 2,826.7 2,425.1 5,034.5
Cost of sales (2,401.8) (1,999.8) (4,166.7)
Gross profit 424.9 425.3 867.8
Administrative expenses (315.3) (305.5) (612.0)
Impairment loss on trade receivables and contract assets 0.5 (1.0) (0.6)
Operating profit 110.1 118.8 255.2
Finance income 1.0 0.2 0.3
Finance costs (3.3) (3.8) (7.5)
Profit before tax 107.8 115.2 248.0
Income tax expense (30.0) (33.1) (61.5)
Profit for the period/year 77.8 82.1 186.5
Attributable to:
Equity holders of the Parent 77.2 81.9 185.3
Non-controlling interests 0.6 0.2 1.2
Profit for the period/year 77.8 82.1 186.5
Earnings per share:
- basic for profit for the period/year 9 68.4p 72.5p 164.0p
- diluted for profit for the period/year 9 67.3p 70.7p 160.9p
Refer note 3 for the restatement of Technology Sourcing revenue for H1 2021
and Year 2021. Gross profit, operating profit, and profit before and after
taxes has remained unchanged. There was no impact on basic and diluted
earnings per share.
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2022
H1 2022 H1 2021 Year 2021
£m £m £m
Profit for the period/year 77.8 82.1 186.5
Items that may be reclassified to the Consolidated Income Statement:
Gain/(loss) arising on cash flow hedge 5.6 0.2 (0.9)
Income tax effect (1.4) (0.1) 0.2
4.2 0.1 (0.7)
Exchange differences on translation of foreign operations 36.8 (10.2) (9.6)
41.0 (10.1) (10.3)
Items not to be reclassified to the Consolidated Income Statement:
Remeasurement of defined benefit plan 5.6 - 1.2
Other comprehensive (expense)/income for the period/year, net of tax 46.6 (10.1) (9.1)
Total comprehensive income for the period/year 124.4 72.0 177.4
Attributable to:
Equity holders of the Parent 123.3 71.8 176.2
Non-controlling interests 1.1 0.2 1.2
Total comprehensive income for the period/year 124.4 72.0 177.4
Consolidated Balance Sheet
As at 30 June 2022
Note H1 2022 H1 2021 Year 2021
£m £m £m
Non-current assets
Property, plant and equipment 88.3 101.2 90.0
Right-of-use assets 138.5 141.9 138.1
Intangible assets 296.5 272.8 273.7
Investment in associate 0.1 0.1 0.1
Deferred income tax assets 22.2 18.9 30.2
Prepayments 16.5 16.6 16.6
562.1 551.5 548.7
Current assets
Inventories 399.3 254.4 341.3
Trade and other receivables 1,368.6 1,069.6 1,275.2
Income tax receivable 8.5 9.6 8.8
Prepayments 136.2 112.6 103.0
Accrued income 162.0 142.8 148.1
Derivative financial instruments 11 15.1 3.2 3.6
Cash and short-term deposits 12 199.0 164.2 285.2
2,288.7 1,756.4 2,165.2
Total assets 2,850.8 2,307.9 2,713.9
Current liabilities
Bank overdraft 12 5.5 5.7 12.0
Trade and other payables 1,411.3 1,076.7 1,410.4
Deferred income 308.4 224.1 249.3
Financial liabilities 12 19.0 15.8 15.1
Lease liabilities 12 43.6 44.1 43.0
Derivative financial instruments 11 3.5 1.6 2.5
Income tax payable 42.7 49.6 47.9
Provisions 13 4.3 3.2 3.5
1,838.3 1,420.8 1,783.7
Non-current liabilities
Financial liabilities 12 15.2 20.9 16.7
Lease liabilities 12 103.6 107.1 103.1
Deferred income 8.6 11.7 8.3
Retirement benefit obligation* 14 17.4 23.0 21.8
Provisions* 13 6.5 9.7 9.7
Deferred tax liabilities 20.9 23.9 25.8
172.2 196.3 185.4
Total liabilities 2,010.5 1,617.1 1,969.1
Net assets 840.3 690.8 744.8
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 75.0
Own shares held (141.3) (125.3) (115.5)
Translation and hedging reserve 45.9 5.5 5.4
Retained earnings 842.0 719.0 762.3
Shareholders' equity 834.9 687.5 740.5
Non-controlling interests 5.4 3.3 4.3
Total equity 840.3 690.8 744.8
*Retirement benefit obligation of £23.0 million was included as part of
'Provisions' in H1 2021. The H1 2021 comparative has been re-presented for
this amount. There is no impact on reported 'Non-current liabilities' and 'Net
assets' from this change.
Approved by the Board on 8 September 2022.
MJ Norris FA Conophy
Chief Executive Officer Group Finance Director
Consolidated Statement of Changes in Equity
For the six months ended 30 June 2022
Attributable to equity holders of the Parent Share-holders' equity Non- controlling interests Total
£m £m equity
£m
Issued share capital Share Capital Own Translation and hedging Retained earnings
£m premium redemption shares reserves £m
£m reserve held £m
£m £m
At 1 January 2021 9.3 4.0 75.0 (111.7) 15.7 635.5 627.8 3.1 630.9
Profit for the period - - - - - 81.9 81.9 0.2 82.1
Other comprehensive income/(expense) - - - - (10.2) - (10.2) - (10.2)
Total comprehensive income/(expense) - - - - (10.2) 81.9 71.7 0.2 71.9
Cost of share-based payments - - - - - 4.5 4.5 - 4.5
Tax on share-based payments - - - - - 2.2 2.2 - 2.2
Exercise of options - - - 6.6 - (5.1) 1.5 - 1.5
Purchase of own shares - - - (20.2) - - (20.2) - (20.2)
At 30 June 2021 9.3 4.0 75.0 (125.3) 5.5 719.0 687.5 3.3 690.8
Profit for the period - - - - - 103.4 103.4 1.0 104.4
Other comprehensive income/(expense) - - - - (0.1) 1.2 1.1 - 1.1
Total comprehensive income/(expense) - - - - (0.1) 104.6 104.5 1.0 105.5
Cost of share-based payments - - - - - 6.1 6.1 - 6.1
Tax on share-based payments - - - - - 5.4 5.4 - 5.4
Exercise of options - - - 15.1 - (10.4) 4.7 - 4.7
Purchase of own shares - - - (5.3) - - (5.3) - (5.3)
Equity Dividend - - - - - (62.4) (62.4) - (62.4)
At 31 December 2021 9.3 4.0 75.0 (115.5) 5.4 762.3 740.5 4.3 744.8
Profit for the period - - - - - 77.2 77.2 0.6 77.8
Other comprehensive income/(expense) - - - - 40.5 5.6 46.1 0.5 46.6
Total comprehensive income - - - - 40.5 82.8 123.3 1.1 124.4
Cost of share-based payments - - - - - 5.2 5.2 - 5.2
Tax on share-based payments - - - - - (1.3) (1.3) - (1.3)
Exercise of options - - - 8.6 - (7.0) 1.6 - 1.6
Purchase of own shares - - - (34.4) - - (34.4) - (34.4)
At 30 June 2022 9.3 4.0 75.0 (141.3) 45.9 842.0 834.9 5.4 840.3
Consolidated Cash Flow Statement
For the six months ended 30 June 2022
H1 2022 H1 2021 Year 2021
£m £m £m
Operating activities
Profit before tax 107.8 115.2 248.0
Net finance cost 2.3 3.6 7.2
Depreciation of property, plant and equipment 10.3 12.7 24.8
Depreciation of right-of-use assets 26.2 26.3 50.6
Amortisation of intangible assets 8.0 7.0 15.3
Share-based payments 5.2 4.5 10.6
Loss on disposal of intangibles - - 0.5
Loss/(Gain) on disposal of property, plant and equipment 0.4 0.1 (1.3)
Net cash flow from inventories (33.0) (47.0) (131.5)
Net cash flow from trade and other receivables (including contract assets) (67.6) (27.9) (238.5)
Net cash flow from trade and other payables (including contract liabilities) (19.9) (68.8) 292.2
Net cash flow from provisions and employee benefits (1.9) (2.6) (1.7)
Other adjustments 0.1 0.7 1.3
Cash generated from operations 37.9 23.8 277.5
Income taxes paid (29.8) (22.3) (53.2)
Net cash flow from operating activities 8.1 1.5 224.3
Investing activities
Interest received 1.0 0.2 0.3
Acquisition of subsidiaries, net of cash acquired (2.3) (1.1) (2.5)
Purchases of property, plant and equipment (8.7) (9.6) (18.8)
Purchases of intangible assets (6.8) (7.9) (11.5)
Proceeds from disposal of property, plant and equipment 1.0 0.2 7.5
Net cash flow from investing activities (15.8) (18.2) (25.0)
Financing activities
Interest paid (0.7) (1.1) (2.3)
Interest paid on lease liabilities (2.5) (2.7) (5.2)
Dividends paid to equity shareholders of the Parent - - (62.4)
Proceeds from share issues 1.6 1.5 6.2
Purchase of own shares (34.4) (20.3) (25.5)
Repayment of loans and credit facility (5.8) (93.3) (99.7)
Payment of capital element of lease liabilities (25.9) (24.6) (50.2)
New borrowings - bank loan 4.5 10.4 10.7
Net cash flow from financing activities (63.2) (130.1) (228.4)
Decrease in cash and cash equivalents (70.9) (146.8) (29.1)
Effect of exchange rates on cash and cash equivalents (8.8) (4.5) (7.5)
Cash and cash equivalents at the beginning of the period/year 273.2 309.8 309.8
Cash and cash equivalents at the end of the period/year 193.5 158.5 273.2
1 Corporate information
The Interim Condensed Consolidated Financial Statements (Financial Statements)
of the Group for the six months ended 30 June 2022 contained in this
announcement were authorised for issue in accordance with a resolution of the
Directors on 8 September 2022. The Consolidated Balance Sheet was signed on
behalf of the Board by MJ Norris and FA Conophy.
Computacenter plc is a limited company incorporated and domiciled in England
whose shares are publicly traded.
2 Basis of preparation
The Financial Statements for the six months ended 30 June 2022 have been
prepared in accordance with International Accounting Standard 34 'Interim
Financial Reporting', as adopted by the United Kingdom. They do not include
all of the information and disclosures required in the annual financial
statements, and should be read in conjunction with the Group's 2021 Annual
Report and Accounts which have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the United Kingdom. The
Financial Statements contained in this announcement are unaudited.
The Financial Statements are presented in pound sterling (£) and all values
are rounded to the nearest hundred thousand, except when otherwise indicated.
As described in note 4, in accordance with IAS 8, a retrospective restatement
of the relevant prior period reported financial statements for the period to
30 June 2021 and the year to 31 December 2021 has taken place due to a change
in revenue recognition policies relating to software licences and third-party
services agreements resold on a standalone basis following the finalisation of
an agenda decision by the IFRS Interpretation Committee (the 'Committee').
For our trading businesses which operate on our Group Enterprise Resource
Planning (ERP) system we were able to quickly determine the adjustments
required under the new accounting policy to restate the comparative
information through readily available high quality data. For one of our North
American business units, an entity operated on a legacy ERP system following
its acquisition in October 2018, prior to its migration to the Group ERP
system on 1 September 2021, this has proved more difficult. The legacy ERP
system used at the time was not designed to produce the analysis to identify
software and resold services product sales that are now recognised on an agent
basis to the degree of precision required. Further, data migration issues have
been identified that also impact this analysis post-migration and during the
first six months of 2022.
Significant data interrogation has been performed by the Group to produce the
adjustment for this business unit both for the 8 month time period concerned,
in 2021, where it continued to operate on the legacy system, and subsequently
where it now operates on our Group ERP system.
The detailed work to date has produced the comparative adjustment required for
this business unit which forms part of the overall Group, and North American
Segment, restatement, and for the impact on the current period revenue and
cost of goods sold.
For the comparative period to 30 June 2021, the business unit recorded £414.7
million of gross invoiced income with an estimated netting adjustment to
revenue and cost of sales of £122.7 million and therefore revenue of £292.0
million compared to Group gross invoiced income of £3,287.6 million, an
adjustment of £862.5 million and revenue of £2,425.1 million.
For the year to 31 December 2021, the business unit recorded £917.3 million
of gross invoiced income with an estimated netting adjustment to revenue and
cost of sales of £294.9 million and therefore revenue of £622.4 million
compared to Group gross invoiced income of £6,923.5 million, an adjustment of
£1,889.0 million and revenue of £5,034.5 million.
For the current period to 30 June 2022, the business unit recorded £756.3
million of gross invoiced income with an estimated netting adjustment to
revenue and cost of sales of £169.3 million and therefore revenue of £587.0
million compared to Group gross invoiced income of £3,971.9 million, an
adjustment of £1,145.2 million and revenue of £2,826.7 million.
We continue to cleanse and address residual data migration issues, and
consider that any differences that may be identified as a result of this, will
be immaterial. The issues identified affect only the quantification of revenue
and cost of goods sold, by equal amounts, for this impacted business unit.
Gross profit, operating profit, profit before and after taxes, and cash, are
not changed by the new accounting policy.
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
first year of the Plan is subject to reforecasting during the year, the most
recent of which occurred during July 2022. This reforecast of the first year
of the Plan has been updated into the Plan alongside a revision of cashflow
assumptions for the year and a review of the second and third years of the
Plan. 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 as the
appropriate period for the going concern assessment and have based their
assessment on the relevant forecasts from the Plan for that period.
The potential impact of the principal risks and uncertainties, as set out on
pages 80 to 85 of the of the 2021 Annual Report and Accounts, is then applied
to the Plan. This assessment includes only those risks and uncertainties that,
individually or in plausible combination, would threaten the Group's business
model, future performance, solvency or liquidity over the assessment period
and which are considered to be severe but reasonable scenarios. It also takes
into account an assessment of how the risks are managed and the effectiveness
of any mitigating actions.
For the current period, the primary downside sensitivity relates to a
modelled, but not predicted, severe downturn in Group revenues, beginning in
the second half of 2022, simulating a continued impact for some of our
customers from the Covid-19 crisis, together with the Group's revenues being
impacted by supply shortages. 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 Covid-19 and a
similar downturn occurring for the remainder of our customer base as a result
of the emerging negative global macroeconomic environment. A further impact on
the Group's Technology Sourcing revenues through the second half of 2022 from
possible ongoing vendor-related supply shortage issues has also been included
in the sensitivity analysis.
Our cash and borrowing capacity provides sufficient funds to meet the
foreseeable needs of the Group. At 30 June 2022, the Group had cash and cash
equivalents of £193.5 million and bank loans and credit facility, primarily
related to the recent North American acquisitions and the headquarters in
Germany, of £34.2 million. In addition, the Group has a committed facility of
£60.0 million, which was extended in September 2020 and has an expiry date of
7 September 2023. The Group has never drawn on this committed facility. The
Group is currently engaged in discussions for a revised committed facility
arrangement to replace the current agreement.
The Group has a resilient balance sheet position, with net assets of £840.3
million as at 30 June 2022. The Group made a profit after tax of £77.8
million and delivered net cash flows from operating activities of £8.1
million, for the period ended 30 June 2022. As the analysis continues to show
a strong forecast cash position, even under the severe economic conditions
modelled in the sensitivity scenarios, the Directors continue to consider that
the Group is well placed to manage business and financial risks in the current
economic environment. Based on this assessment, the Directors confirm that
they have a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of not
less than 12 months from the date of signing the Financial Statements and
therefore have prepared the Financial Statements on a going concern basis.
3 Significant Accounting Policies
The accounting policies adopted are consistent with those of the previous
financial year as disclosed in the Computacenter plc 2021 Annual Report and
Accounts except for the change in revenue recognition policies relating to
software licences and third-party services agreements resold on a standalone
basis following the finalisation of an agenda decision by the IFRS
Interpretation Committee (the 'Committee').
Following its meeting that concluded on 1 December 2021, the Committee
published a tentative 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).
The Committee did not reach a definitive conclusion on the submission
received, as it maintained that an entity should apply judgement in making its
assessment under the principles contained within IFRS 15, using the specific
facts and circumstances relevant to the entity and the transactions or
contracts entered into. However, the Committee did provide a number of
discrete guidance points on the application of various control criteria or
indicators that entities should consider under their IFRS 15 agent and
principal recognition criteria processes that specifically relate to the
resale of standalone software and have an impact on those valued added
resellers within the industry. Computacenter plc included a preliminary
assessment of the impact of the tentative agenda decision within Note 3.2.1 of
the 2021 Annual Report and Accounts.
At its 20 April 2022 meeting, the Committee finalised and approved its agenda
decision. The International Accounting Standards Board, at its May 2022
meeting, did not object to the agenda decision.
The discussion and guidance within the approved agenda decision provides
direction for the implementation of the principal or agent elements of IFRS 15
Revenue from Contracts with Customers for value added resellers where standard
standalone software and implicitly, due to the similarity in the transactional
fact pattern, resold services such as maintenance contracts, extended
warranties or support contracts, that are sourced from a third party vendor
and resold to a customer. As noted in our 2021 Annual Report and Accounts the
approved agenda decision has impacted our existing treatment for the principal
or agent recognition of these revenue streams, and whether they are recorded
on a gross or net basis within revenue. Previously such sales were recognised
on a principal or gross basis, apart from in certain limited instances as
described in Note 3.2.1 of the 2021 Annual Report and Accounts, with gross
invoiced income reported as revenue, and costs of the resold software or
services presented as part of cost of goods sold.
The Group has now completed its assessment of the impacts of the agenda
decision and revised its accounting policies accordingly. Standalone revenue
from standard software sales is now recognised on an Agency or 'net' basis
where the margin earned on the contract is recognised as revenue with zero
cost of goods sold. Other software revenues, particularly where the Group has
performed configuration or customisation services, as part of the software
sales agreement, or where the software is included alongside hardware elements
within a pre-configured bundle from the vendor and resold within the pre-set
bundle, continue to be recognised on a principal basis. Similarly, the Group
has determined that third-party services agreements resold on a standalone
basis are also recognised on an agent basis due to the similar fact pattern of
the transaction to that of software sales unless these are also included
alongside hardware elements within a pre-configured bundle from the vendor and
resold within the pre-set bundle.
Management continues to assess the classification of other revenue contracts
for Technology Sourcing revenue recognition on either an agent or a principal
basis. Because the identification of the principal in a contract is, on
occasion, not always clear and the level of judgement required can, in small
number of instances, be high with the outcomes of assessments finely balanced,
Management makes a determination by evaluating the nature of our promise to
our customer as to whether it is a performance obligation to provide the
specified goods or services ourselves, in that 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:
· evaluating who controls each specified good or service before that good
or service is transferred 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.
Resultingly, the Group continues to report all hardware elements of its
Technology Sourcing business, along with its internally provided Managed
Services and Professional Services revenues, on a principal basis.
The Group will continue to report Technology Sourcing Gross Invoiced Income
and aggregated with our Services revenues as Total Group Gross Invoiced Income
as an Alternative Performance Measure.
The changes in the Group's revenue accounting policies to reflect the agenda
decision of the Committee have resulted in the following impact on the current
period Financial Statements and, in accordance with IAS8, a retrospective
restatement of the relevant prior period reported financial statements:
Revenue and cost of sales decreased by the value of revenue assessed as being
recognised on an agency basis by £1,142.8 million in H1 2022 (H1 2021:
£862.5 million; FY 2021: £1,889.0 million).
Gross profit, operating profit, and profit before and after taxes has remained
unchanged in all periods. As a result, there is no impact on basic and diluted
earnings per share.
Previous Accounting Policy Revised Accounting Policy
Gross Invoiced Income Principal element on agency contracts £m Revenue Gross Invoiced Income Principal element on agency contracts £m Revenue
£m
£m
£m
£m
Six months to 30 June 2021 3,287.6 107.6 3,180.0 3,287.6 862.5 2,425.1
Year to 31 December 2021 6,923.5 197.7 6,725.8 6,923.5 1,889.0 5,034.5
Apart from changes discussed above, the Critical accounting estimates and
judgements reported in the Group's 2021 Annual Report and Accounts are
unchanged.
4 Adjusted measures
The Group uses a number of non-Generally Accepted Accounting Practice
(non-GAAP) financial measures in addition to those reported in accordance with
IFRS. The Directors believe that these non-GAAP measures, listed below, assist
in providing additional useful information on the underlying trends,
performance and position of the Group. The non-GAAP measures also used to
enhance the comparability of information between reporting periods by
adjusting for non-recurring or uncontrollable factors which affect IFRS
measures, to aid the user in understanding the Group's performance.
Consequently, non-GAAP measures are used by the Directors and management for
performance analysis, planning, reporting and incentive setting purposes.
Adjusted measures have remained consistent with the prior period except for
the addition of gross invoiced income, as an alternative performance measure,
due to the change in Technology Sourcing revenue accounting policy for
principal versus agent recognition. Refer to note 3 for further information on
the change in accounting policy.
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 the Financial Statements in understanding revenue growth on a
'Principal' basis and to assist in their assessment of working capital
movements in the Consolidated Statement of Financial Position 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.
These non-GAAP measures comprise of:
Gross invoiced income, adjusted administrative expenses, adjusted operating
profit or loss, adjusted profit or loss before tax, adjusted tax, adjusted
profit or loss for the year, adjusted earnings per share and adjusted diluted
earnings per share. They are, as appropriate, each stated before: exceptional
and other adjusting items including gain or loss on business disposals, gain
or loss on disposal of investment properties, expenses related to material
acquisitions, amortisation of acquired intangibles, utilisation of deferred
tax assets (where initial recognition was as an exceptional item or a fair
value adjustment on acquisition), and the related tax effect of these
exceptional and other adjusting items, as Management does not consider these
items when reviewing the underlying performance of the Segment or the Group as
a whole.
A reconciliation to key adjusted measures is provided within the Group Finance
Director 's Review contained in this announcement which details the impact of
exceptional and other adjusting items when comparing to the non-GAAP financial
measures, in addition to those reported in accordance with IFRS. Further
detail is also provided within note 5, Segment information.
5 Segment information
The operating Segments remain unchanged from those reported at 31 December
2021. Central Corporate Costs continue to be disclosed as a separate column
within the Segmental note.
Segmental performance for the periods to H1 2022, H1 2021 and Full Year 2021
were as follows:
Six months ended 30 June 2022
UK Germany France North International Central Corporate Total
America
£m £m £m
£m Costs £m
£m
£m
Revenue
Technology Sourcing revenue
Gross invoiced income 937.8 668.1 255.6 1,277.9 80.0 - 3,219.4
Principal element on agency contracts (515.9) (204.0) (72.5) (339.5) (13.3) - (1,145.2)
Total Technology Sourcing revenue 421.9 464.1 183.1 938.4 66.7 - 2,074.2
Services revenue
Professional Services 72.5 149.0 19.1 53.1 4.7 - 298.4
Managed Services 159.4 179.0 66.4 13.2 36.1 - 454.1
Total Services revenue 231.9 328.0 85.5 66.3 40.8 - 752.5
Total revenue 653.8 792.1 268.6 1,004.7 107.5 - 2,826.7
Results
Gross profit 130.3 140.0 32.1 101.4 21.1 - 424.9
Adjusted1 administrative expenses (85.3) (84.6) (31.6) (81.1) (16.5) (11.6) (310.7)
Adjusted1 operating profit/(loss) 45.0 55.4 0.5 20.3 4.6 (11.6) 114.2
Net interest 1.2 (1.2) (0.3) (1.5) (0.5) - (2.3)
Adjusted1 profit/(loss) before tax 46.2 54.2 0.2 18.8 4.1 (11.6) 111.9
Amortisation of acquired intangibles - - - - - - (4.1)
Profit before tax - - - - - - 107.8
The reconciliation of adjusted(1) operating profit to operating profit as
disclosed in the Consolidated Income Statement is as follows:
Total
£m
Adjusted1 operating profit 114.2
Amortisation of acquired intangibles (4.1)
Operating profit 110.1
Six months ended 30 June 2021
UK Germany France North International Central Corporate Total
America
£m £m £m
£m Costs £m
£m
£m
Revenue (restated*)
Technology Sourcing revenue
Gross invoiced income 799.3 618.7 226.7 883.2 53.6 - 2,581.5
Principal element on agency contracts (328.1) (188.3) (42.7) (290.3) (13.1) - (862.5)
Total Technology Sourcing revenue 471.2 430.4 184.0 592.9 40.5 - 1,719.0
Services revenue
Professional Services 75.0 135.6 20.5 30.5 4.0 - 265.6
Managed Services 157.2 175.4 65.9 8.7 33.3 - 440.5
Total Services revenue 232.2 311.0 86.4 39.2 37.3 - 706.1
Total revenue 703.4 741.4 270.4 632.1 77.8 - 2,425.1
Results
Gross profit 133.1 147.5 32.8 94.3 17.6 - 425.3
Adjusted1 administrative expenses (81.4) (86.4) (34.8) (75.6) (13.5) (11.1) (302.8)
Adjusted1 operating profit/(loss) 51.7 61.1 (2.0) 18.7 4.1 (11.1) 122.5
Net interest (0.3) (1.2) (0.3) (1.2) (0.6) - (3.6)
Adjusted1 profit/(loss) before tax 51.4 59.9 (2.3) 17.5 3.5 (11.1) 118.9
Amortisation of acquired intangibles (3.7)
Profit before tax 115.2
* Technology Sourcing revenue for the six months ended 30 June 2021 has been
restated to reflect the change in revenue recognition policies relating to
software licences and third-party services agreements resold on a standalone
basis following the finalisation of an agenda decision by the IFRS
Interpretation Committee (the 'Committee'). Gross profit, operating profit,
and profit before and after taxes has remained unchanged. Refer note 3.
The reconciliation of adjusted1 operating profit to operating profit as
disclosed in the Consolidated Income Statement is as follows:
Six months ended 30 June 2021
Total
£m
Adjusted1 operating profit 122.5
Amortisation of acquired intangibles (3.7)
Operating profit 118.8
Year ended 31 December 2021
UK Germany France North International Central Corporate Total
America
£m £m £m
£m Costs £m
£m
£m
Revenue (restated*)
Technology Sourcing revenue
Gross invoiced income 1,581.5 1,427.7 481.4 1,869.2 112.8 - 5,472.6
Principal element on agency contracts (638.3) (485.1) (98.2) (642.9) (24.5) - (1,889.0)
Total Technology Sourcing revenue 943.2 942.6 383.2 1,226.3 88.3 - 3,583.6
Services revenue
Professional Services 154.6 273.8 38.0 77.5 8.5 - 552.4
Managed Services 327.6 348.6 134.0 18.6 69.7 - 898.5
Total Services revenue 482.2 622.4 172.0 96.1 78.2 - 1,450.9
Total revenue 1,425.4 1,565.0 555.2 1,322.4 166.5 - 5,034.5
Results
Gross profit 268.2 312.0 68.1 180.2 39.3 - 867.8
Adjusted1 administrative expenses (165.3) (174.2) (64.6) (149.2) (28.0) (23.7) (605.0)
Adjusted1 operating profit/(loss) 102.9 137.8 3.5 31.0 11.3 (23.7) 262.8
Net interest - (2.7) (0.8) (2.7) (1.0) - (7.2)
Adjusted1 profit/(loss) before tax 102.9 135.1 2.7 28.3 10.3 (23.7) 255.6
Amortisation of acquired intangibles (7.6)
Profit before tax 248.0
* Technology Sourcing revenue for the year ended 31 December 2021 has been
restated to reflect the change in revenue recognition policies relating to
software licences and third-party services agreements resold on a standalone
basis following the finalisation of an agenda decision by the IFRS
Interpretation Committee (the 'Committee'). Gross profit, operating profit,
and profit before and after taxes has remained unchanged. Refer note 3.
The reconciliation of adjusted1 operating profit to operating profit as
disclosed in the Consolidated Income Statement is as follows:
Year ended 31 December 2021
Total
£m
Adjusted1 operating profit 262.8
Amortisation of acquired intangibles (7.6)
Operating profit 255.2
6 Seasonality of operations
Historically, revenues have been higher in the second half of the year than in
the first six months. This is principally driven by customer buying behaviour
in the markets in which we operate. Typically, this leads to a more pronounced
effect on operating profit.
The Company saw the historical patterns of seasonality change due to the
unpredictability created first by the impact of COVID-19, beginning in 2020,
and then the more recent impact of supply shortages. Certain customers
pulled orders of information technology equipment forward into the first half
of 2021 that would otherwise have naturally occurred in the second half of
2021. Both of these events have materially impacted customer buying behaviours
impacting the timing of sales volumes between the first and second halves of
the year for 2020 and 2021 and therefore our historical seasonality of
operations patterns.
During 2022 we have seen these unusual buying patterns reversing and the
re-emergence of seasonality that is closer to our historical norms. Whilst
still somewhat affected by supply shortages in networking IT equipment, we
expect customer buying to be more weighted towards the second half of the year
leading, once again, to a more pronounced effect on operating profit in the
second half which we expect to have a higher proportion of the full year
operating profit than we have seen in the previous two years.
7 Dividends paid and proposed
A final dividend for 2021 of 49.4 pence per ordinary share was paid on 8 July
2022. An interim dividend in respect of 2022 of 22.1 pence per ordinary share,
amounting to a total dividend of £25.2 million, was declared by the Directors
at their meeting on 7 September 2022. The expected payment date of the
dividend declared is 28 October 2022. This announcement does not reflect this
dividend payable.
8 Income tax
Tax for the six-month period is charged at 27.8 per cent (six months ended 30
June 2021: 28.7 per cent; year ended 31 December 2021: 24.8 per cent),
representing the best estimate of the average annual effective tax rate
expected for the full year, applied to the pre-tax income of the six-month
period.
9 Earnings per share
Earnings per share amounts are calculated by dividing profit attributable to
ordinary equity holders by the weighted average number of ordinary shares
outstanding during the year (excluding own shares held).
To calculate diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all dilutive
potential shares. Share options granted to employees where the exercise price
is less than the average market price of the Company's ordinary shares during
the year are considered to be dilutive potential shares.
H1 2022 H1 2021 Year 2021
£m £m £m
Profit attributable to equity holders of the Parent 77.2 81.9 185.3
H1 2022 H1 2021 Year 2021
No. '000 No. '000 No. '000
Basic weighted average number of shares (excluding own shares held) 112.9 113.0 113.0
Effect of dilution:
Share options 1.8 2.8 2.2
Diluted weighted average number of shares 114.7 115.8 115.2
H1 2022 H1 2021 Year 2021
pence pence pence
Basic earnings per share 68.4 72.5 164.0
Diluted earnings per share 67.3 70.7 160.9
10 Investments
On 25th May 2022, the Group acquired 100 per cent of the share capital in
Emerge 360 Japan k.k (Emerge Japan) from Emerge 360, Inc., for a consideration
of USD $3.5 million cash. Emerge Japan is an IT Outsourcing Services
provider based in Tokyo, Japan. The business has presence in Japan,
Singapore, Australia and Hong Kong. The acquisition has been accounted for
using the purchase method of accounting.
11 Fair value measurements recognised in the consolidated Balance Sheet
Financial instruments which are recognised at fair value subsequent to initial
recognition are grouped into Levels 1 to 3 based on the degree to which the
fair value is observable. The three levels are defined as follows:
1. Level 1 fair value measurements are those derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities;
2. Level 2 fair value measurements are those derived from inputs other than
quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices); and
3. Level 3 fair value measurements are those derived from valuation techniques
that include inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
At 30 June 2022 the Group had forward currency contracts, which were measured
at Level 2 fair value subsequent to initial recognition, to the value of an
asset of £15.1 million and a liability of £3.5 million (30 June 2021: asset
of £3.2 million and liability of £1.6 million; 31 December 2021: asset of
£3.6 million and liability of £2.5 million). The net realised losses from
forward currency contracts, designated as cashflow hedges, in the period to 30
June 2022 of £0.5 million (30 June 2021: gains of £0.4 million; 31 December
2021: gains of £0.4 million) are offset by broadly equivalent realised
losses/gains on the related underlying transactions.
The foreign currency forward contracts are measured based on observable spot
exchange rates, the yield curves of the respective currencies as well as the
currency basis spreads between the respective currencies. All contracts are
fully cash collateralised, thereby eliminating both counterparty and the
Group's own credit risk.
The carrying value of the Group's short-term receivables and payables is a
reasonable approximation of their fair values. The fair value of all other
financial instruments carried within the Financial Statements is not
materially different from their carrying amount.
12 Net funds
H1 2022 H1 2021 Year 2021
£m £m £m
Cash and short-term deposits 199.0 164.2 285.2
Bank overdrafts (5.5) (5.7) (12.0)
Cash and cash equivalents 193.5 158.5 273.2
Bank loans and credit facility (34.2) (36.7) (31.8)
Adjusted net funds3 (excluding lease liabilities) 159.3 121.8 241.4
Lease liabilities (147.2) (151.2) (146.1)
Net funds 12.1 (29.4) 95.3
Bank loans /Credit facility (19.0) (15.8) (15.1)
Lease liability (43.6) (44.1) (43.0)
Financial liabilities - Current (62.6) (59.9) (58.1)
Bank loans (15.2) (20.9) (16.7)
Lease liability (103.6) (107.1) (103.1)
Financial liabilities - Non-current (118.8) (128.0) (119.8)
13 Provisions
Customer Property provisions Other Total
contract provisions £m provisions provisions
£m £m £m
At 1 January 2022 5.9 5.6 1.7 13.2
Amount unused reversed (1.6) - (0.6) (2.2)
Arising during the period 1.0 - - 1.0
Utilisation (0.5) (0.6) (0.2) (1.3)
Exchange adjustment 0.1 - - 0.1
At 30 June 2022 4.9 5.0 0.9 10.8
Current 2.6 1.0 0.7 4.3
Non-current 2.3 4.0 0.2 6.5
4.9 5.0 0.9 10.8
Customer contract provision
During the period £0.5 million of customer contract provisions had been
utilised in line with individual contract forecasts.
14 Retirement benefit obligation
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 who incur the obligation upon
departure, due to retirement, of an employee. 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. The Group
continues to make a provision for this obligation according to IAS19
(revised).
The actuarial assumptions applied for the estimation of the retirement benefit
obligation are disclosed in the annual financial statements for the year ended
31 December 2021 and continue to be applied in H1 2022, except for the
discount rate applied to future cash flows which is discussed below.
Against the backdrop of high global inflation and rising interest rates which
resulted in a significant increase in AA-rated corporate bonds yields,
Management has revised the discount rate assumption to 3.2 per cent (31
December 2021: 1.0 per cent). This change has resulted in an unrealised
actuarial gain of £5.6 million which has been recognised in the Consolidated
Statement of Comprehensive Income for the period ended 30 June 2022. The level
of unrealised actuarial gains or losses is sensitive to further changes in the
discount rate, which is affected by market conditions and therefore subject to
variation.
An updated estimation of the retirement benefit obligation for IAS 19
financial reporting purposes will be completed for the annual financial
statements for the year ending 31 December 2022, making use of an independent
actuarial valuation. At that time any actuarial gains/losses arising
throughout the year will be recognised, including those arising from a change
in all key assumptions applied for the estimation.
The Group made £0.3 million of payments during H1 2022 under this obligation
(H1 2021: £nil).
The net retirement benefit charge to the Consolidated Income Statement for H1
2022 of £0.8 million (H1 2021: £0.8 million) represents the relevant
proportion of the annual amounts expected to be recognised for the year ending
31 December 2022.
15 Post balance sheet event
Acquisition of Business IT Source Holdings, Inc.
On 13 July 2022 the Group announced that it acquired one of the
fastest-growing value-added resellers in the United States of America,
Business IT Source Holdings, Inc. ("BITS") for an initial cash consideration
of approximately USD 35.1 million effective from 1 July 2022. Two further
earn-out payments in April 2023 and April 2024 are contingent on the future
performance of the acquired business through to 31 December 2023. The value of
these contingent payments will be determined in accordance with the share
purchase agreement.
16 Publication of non-statutory accounts
The financial information contained in this announcement does not constitute
statutory accounts as defined in section 435 of the Companies Act 2006.
The comparative figures for the financial year ended 31 December 2021 are not
the company's statutory accounts for that financial year. Those accounts have
been reported on by the company's auditor and delivered to the registrar of
companies. The report of the auditor was (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
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