TIDMCCC
RNS Number : 5244S
Computacenter PLC
12 March 2019
Computacenter plc
Final results for the year ended 31 December 2018
Computacenter plc ("Computacenter" or the "Group"), the
independent provider of IT infrastructure and services that enables
users and their business, today announces audited results for the
year ended 31 December 2018.
Financial Highlights 2018 2017 Percentage
Change
Increase/
(Decrease)
Financial Performance
Revenue (GBP million) 4,352.6 3,793.4 14.7
Adjusted(1) profit before tax
(GBP million) 118.2 106.2 11.3
Adjusted(1) diluted earnings
per share (pence) 75.7 65.1 16.3
Dividend per share (pence) 30.3 26.1 16.1
Statutory profit before tax (GBP
million) 108.1 111.7 (3.2)
Statutory diluted earnings per
share (pence) 70.1 66.5 5.4
Cash Position
Cash and cash equivalents 200.4 206.6 (3.0)
Net Fund(3) (GBP million) 57.3 191.2 (70.0)
Net cash flow from operating
activities (GBP million) 115.2 106.1 8.6
Revenue Performance by Sector
Services revenue (GBP million) 1,175.0 1,157.2 1.5
Supply Chain revenue (GBP million) 3,177.6 2,636.2 20.5
Reconciliation between Adjusted(1) and Statutory
Performance
Adjusted(1) profit before tax (GBP
million) 118.2 106.2
Exceptional and other adjusting items:
Costs related to acquisition (GBP (5.7) -
million)
Release of provision for onerous German
contracts (GBP million) - 1.4
Gain on disposal of an investment
property (GBP million) - 4.3
Amortisation of acquired intangibles
(GBP million) (4.4) (0.2)
Statutory profit before tax (GBP million) 108.1 111.7
Operational Highlights:
-- The Group's total revenues grew GBP559 million during the
year, GBP540 million in constant currency(2) , to exceed GBP4
billion for the first time. FusionStorm joined the Group,
contributing GBP3.0 million of adjusted(1) operating profit to the
Group through the last three months of 2018;
-- Germany delivered another record performance with revenue
growth of 8.3 per cent leading to a 14.5 per cent increase in
adjusted(1) operating profit, both on a constant currency(2) basis.
The German business opened a new Integration Center to address the
growth in the Technology Sourcing;
-- The UK saw excellent revenue growth of 9.7 per cent, leading
to an increase in adjusted(1) operating profit of 12.0 per cent;
and
-- Adjusted(1) operating profit in France rose 27.0 per cent on
a constant currency(2) basis due to strong Technology Sourcing
margins. Revenues were down by 4.1 per cent on a constant
currency(2) basis due to the loss of a low margin Managed Services
contract.
Mike Norris, Chief Executive of Computacenter plc,
commented:
'2018 was a record year in revenue, adjusted(1) operating profit
and adjusted(1) diluted earnings per share for the Group. We have
also laid foundations for further growth in the years ahead.
We have invested in the physical infrastructure that enables our
Technology Sourcing, increased our Services capability and expanded
our geographical footprint through acquisitions. In addition, we
reduced the number of shares in circulation by 6.97 per cent,
through a Return of Value Tender Offer of GBP100 million. Even
after these substantial investments, Computacenter finished the
year with a strong balance sheet and a cash surplus, which
underpins our confidence in the future.
Specifically, while the Technology Sourcing success of last year
creates a difficult comparison in 2019, particularly in the first
half, lower Services margins in 2018 give us a significant
opportunity to improve. We also expect a profit contribution from
our acquired business in the USA.
As we look out further into the future, we remain enthusiastic
about our customers' desire to enhance the digital experience, grow
their network capacity, modernise their infrastructure and enhance
their competitiveness, by investing in technology.
(1) 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
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, gains or losses
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 do not consider these
items when reviewing the underlying performance of the Segment or
the Group as a whole. Additionally, adjusted gross profit or loss
and adjusted operating profit or loss includes the interest paid on
customer-specific financing (CSF) which Management considers to be
a cost of sale. A reconciliation between key adjusted and statutory
measures is provided within the Group Finance Director's review
included within this announcement. Further detail is provided
within note 4 to the summary financial information included within
this announcement.
(2) We evaluate the long-term performance and trends within our
strategic key performance indicators (KPIs) on a constant currency
basis. Further, the performance of the Group and its overseas
segments are 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-year local
currency financial results using the current year average exchange
rates and comparing these recalculated amounts to our current year
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, the
equivalent prior-year measure is also presented in actual currency
using the exchange rates prevailing at the time. Financial
Highlights, as shown at the beginning of this announcement, and
statutory measures, are provided in actual currency.
(3) Net funds includes cash and cash equivalents, CSF, other
short or other long-term borrowings and current asset
investments.
Enquiries:
Computacenter plc
Mike Norris, Chief
Executive 01707 631601
Tony Conophy, Finance
Director 01707 631515
Tulchan Communications
020 7353
James Macey White 4200
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 2017 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.
Chairman's statement
2018 was a record year for Computacenter but we are far from
realising our full potential. Revenues, adjusted(1) profits and
operating cash flow were very strong, but more importantly we
continued to invest in our customer relationships, employees and
offerings.
We were pleased to return GBP100 million of cash to shareholders
and were given the ultimate accolade of the 'Boring Award' by trade
publication TechMarketView, in recognition of 10 consecutive years
of growth in adjusted(1) earnings per share.
Of great significance was our acquisition activity during the
year. Two years ago we launched direct operations in the United
States of America, with the intention of proving our capability to
support customers before committing more investment. 2019 will see
the integration of FusionStorm, enabling us to deliver our full
range of customer offerings: Source, Transform and Manage. This is
a significant move for us and we welcome our new colleagues and
customers to Computacenter.
On a personal note I say goodbye to you all, after 11 years as
Chairman - the best job I have ever had! It is time for me to hand
over to Peter Ryan, who has been on our Board for a year. I am
confident in his personality, experience and expertise, and I look
forward to watching how our investments deliver continuous
improvement in results.
I am pleased with our progress in the years I have been here,
but I cannot say that I am completely satisfied. Whilst there is
still much to be done, I am confident that our people's commitment
to helping our customers be more efficient and competitive will
reflect in our future progress. I thank them for all they have
achieved and for making my time with the Company so enjoyable.
I wish all of our employees, customers, partners and
shareholders fulfilment in their future plans and relationships
with Computacenter.
Greg Lock
Chairman
11 March 2019
Our performance in 2018
Financial performance
A record year saw the Group surpass GBP4 billion of revenue for
the first time, having only passed the GBP3 billion mark in 2013.
The Group's revenues increased by 14.7 per cent, or GBP559.2
million, to GBP4,352.6 million (2017: GBP3,793.4 million) and were
14.2 per cent higher in constant currency(2) .
The Group made a statutory profit before tax of GBP108.1
million, a decrease of 3.2 per cent (2017: GBP111.7 million). The
Group's adjusted(1) profit before tax increased by 11.3 per cent to
GBP118.2 million (2017: GBP106.2 million) and by 11.3 per cent in
constant currency(2) .
The difference between statutory profit before tax and
adjusted(1) profit before tax relates to the Group's reported net
loss of GBP10.1 million (2017: net gain of GBP5.5 million primarily
from disposal of investment property) from exceptional and other
adjusting items principally related to the acquisition of
FusionStorm.
Notwithstanding the decrease in the Group's statutory
profitability, statutory diluted earnings per share increased by
5.4 per cent to 70.1 pence for the period (2017: 66.5 pence),
influenced, in part by the Return of Value Tender Offer.
Adjusted(1) diluted earnings per share, the Group's primary
measure, increased by 16.3 per cent to 75.7 pence (2017: 65.1
pence) during the year.
The full year of trading to 31 December 2018 showed considerable
progress in Computacenter's adjusted(1) profitability and even
further progress in adjusted(1) earnings per share, following the
Return of Value Tender Offer completed in February 2018.
The result has benefited from GBP270.9 million of revenues, and
GBP2.7 million of adjusted(1) profit before tax, resulting from the
acquisitions made in the second half of the year. All figures
reported throughout this announcement include the results of the
acquired entities.
Following a record breaking first half of the year, the second
half improved on it, and the challenging prior year comparative, in
both revenue and adjusted(1) profitability. The improvement for the
year as a whole was driven by the Technology Sourcing business,
with strong top line growth in both the UK and Germany and improved
margins in France and Germany.
As noted in our Pre-Close Trading Update on 23 January 2019, the
results were marginally ahead of the Board's expectation, as
upgraded within the 12 July 2018 Trading Update and confirmed both
in the Interim Results and the Q3 Trading Update on 31 October
2018. The results are therefore materially above the Board's
expectations held at the start of 2018.
Technology Sourcing performance
Technology Sourcing is the new name for the Business Line
previously referred to as Supply Chain. Our Technology Sourcing and
lifecycle management services are fundamental parts of our offering
for our customers. Reselling leading manufacturers' hardware and
software products enables us to 'Source' technology solutions for
customers and underpins our Professional Services transformation
solutions. Most customers require a comprehensive solution,
combining our services with the systems they need to meet their IT
and business objectives. Our ability to integrate vendor technology
seamlessly into our solutions for customers is therefore
critical.
The Group's Technology Sourcing revenue increased by 20.5 per
cent to GBP3,177.6 million (2017: GBP2,636.2 million) and by 19.9
per cent in constant currency(2) .
A strong performance in the first half set the platform for a
pleasing full year result in the UK Technology Sourcing business.
The UK business has seen increased Software volumes which have
diluted the Technology Sourcing margin performance, resulting in
overall flat margins and contribution growth that is significantly
lagging the strong increase in revenue within the UK.
The Technology Sourcing business in Germany saw significant
growth during the year, following on from two years of
extraordinary growth. Technology Sourcing underpinned the Group's
performance for the year, with continued success in the Public
Sector and from a hyper-scale Data Center customer. With growth
across other sectors and portfolios more in line with expectations,
overall growth could reduce if the Public Sector business returns
to more normal patterns of growth or if volumes reduce for this
Data Center customer. Late in the year, we opened a new Integration
Center in Kerpen, near Cologne, which will increase our capacity to
grow the business and meet customer demand. The transition to this
new facility was seamless, with the old facility, which was at
maximum capacity, now decommissioned.
French Technology Sourcing revenues declined by 3.6 per cent in
constant currency(2) but achieved better margins through a
favourable product mix with less software. French Technology
Sourcing margins improved further from the already Group-leading
position in the prior period, driven by this change in product mix
towards Data Center products. One key Public Sector account saw
reduced volumes, due to an extensive rebid process that resulted in
us retaining the account once again. We expect volumes on this key
account to return to a normal pattern throughout 2019, albeit at
reduced margins initially.
Overall, Group Technology Sourcing margins grew by 29 basis
points during the year, when compared to the prior year.
Services performance
The Group's Services revenue increased by 1.5 per cent to
GBP1,175.0 million (2017: GBP1,157.2 million) and by 1.1 per cent
in constant currency(2) . Within this, Group Professional Services
revenue increased by 0.8 per cent to GBP321.9 million (2017:
GBP319.2 million), and by 0.3 per cent in constant currency(2) ,
whilst Group Managed Services revenue increased by 1.8 per cent to
GBP853.1 million (2017: GBP838.0 million), and by 1.5 per cent in
constant currency(2) .
UK Services revenue reduced during 2018, with a flat Managed
Services result and materially lower Professional Services
revenues. Professional Services faced a difficult comparative
against 2017, with the prior period including one engagement that
provided significant revenue and most of the growth in that year.
This contract was completed successfully in 2017 and the
extraordinary volumes achieved were not replaced in 2018. The
forward order book for 2019 is starting to rebuild and we expect an
improved performance in this area, building in the second half of
2019, from what was a challenging result that has reduced UK and,
consequentially, overall Group Services revenue. Several
Transformation projects during the year experienced material cost
overspends, which constrained Services margins. These projects are
now complete and behind us, again setting up 2019 for an improved
performance in this area. The Managed Services business saw the
Contract Base decline despite renewing and extending key contracts.
Whilst renewals are always pleasing, as they validate the long-term
commitment to customer value and satisfaction, in order to grow,
the focus remains on winning tenders for new business. Managed
Services margin performance was pleasing, with improvements across
the portfolio apart from significant overspend on one new Public
Sector contract, which has weighed on the overall result. A
significant adjustment for estimated losses over the remaining
lifetime of this difficult contract was booked in the year, within
cost of sales.
The German Services business continued to drive the Group's
Services performance. Demand for our Professional Services business
remained strong throughout the year, after a weak first quarter.
Professional Services resources continue to be deployed to assist
with technical challenges on difficult Managed Services contracts.
This, along with the now critical shortage of appropriately skilled
resource in the marketplace, has constrained Professional Services
growth somewhat. In light of these challenges, the growth is
pleasing. The Managed Services business saw steady growth from
prior period contract wins which were implemented in 2018. Germany
has a number of contracts, including more recent wins, that
continue to underperform against expectations, which is the lone
source of disappointment in an otherwise fantastic year for the
business. Services margins have reduced, as cost overruns and
further adjustments for loss provisions on these difficult
contracts offset the Professional Services performance and the rest
of the Managed Services portfolio, which continues to perform
well.
Our French Services business successfully negotiated a year made
difficult by the loss of a significant Services contract at the end
of 2017 and the renewal, at reduced revenues and margins, of three
other significant Managed Services contracts. This important, but
low margin contract loss, and margin reduction were anticipated
heading into 2018 and overall, given the uncertainty, the business
is pleased to have come through this period of change. We will
continue to focus on service improvements, automation and
pre-agreed cost optimisations, to lift margins over the lifetime of
the contract extensions. The focus for 2019 is to continue to
broaden the customer base and to renew the Group's largest Managed
Services contract.
Overall, Group Services margins declined by 104 basis points
during the year, when compared to the prior year.
Outlook
2018 was a record year in revenue, adjusted(1) operating profit
and adjusted(1) diluted earnings per share for the Group. We have
also laid foundations for further growth in the years ahead.
We have invested in the physical infrastructure that enables our
Technology Sourcing, increased our Services capability and expanded
our geographical footprint through acquisitions. In addition, we
reduced the number of shares in circulation by 6.97 per cent,
through a Return of Value Tender Offer of GBP100 million. Even
after these substantial investments, Computacenter finished the
year with a strong balance sheet and a cash surplus, which
underpins our confidence in the future.
Specifically, while the Technology Sourcing success of last year
creates a difficult comparison in 2019, particularly in the first
half, lower Services margins in 2018 give us a significant
opportunity to improve. We also expect a profit contribution from
our acquired business in the USA.
As we look out further into the future, we remain enthusiastic
about our customers' desire to enhance the digital experience, grow
their network capacity, modernise their infrastructure and enhance
their competitiveness, by investing in technology.
United Kingdom
Financial performance
Revenues in the UK business increased by 9.7 per cent to
GBP1,605.8 million (2017: GBP1,463.4 million).
The UK performance was driven by Technology Sourcing, with
strong revenue growth remaining ahead of the market.
Our Managed Services revenue was flat in the face of continual
customer pressure to reduce costs, meaning any additional work
contracted in 2018 ensured we prevented any decline in this annuity
orientated service line.
Professional Services revenues were down along with isolated
profitability challenges on a small number of engagements also
impacting the return. Whilst it was a very difficult comparison
against the prior year, the result in this area was still
disappointing.
Margins in the UK declined 73 basis points with total
adjusted(1) gross profit falling from 13.4 per cent to 12.7 per
cent of revenues. The change in product mix towards Software
suppressed Technology Sourcing margins which were flat compared to
2017. Professional Services margins suffered due to three
significantly challenged Professional Services engagements coupled
with utilisation challenges. This more than offset strong margin
gains, excluding one difficult contract, within Managed Services
which resulted from a mix of contract service extensions, better
execution and additional project activity.
Adjusted(1) gross profit grew by 3.7 per cent to GBP203.5
million (2017: GBP196.2 million). Administrative expenses increased
by 0.8 per cent to GBP145.8 million (2017: GBP144.7 million), with
a continued focus on cost control offsetting increasing variable
remuneration. This resulted in adjusted(1) operating profit growing
by 12.0 per cent to GBP57.7 million (2017: GBP51.5 million).
With some notable new customers, a continued momentum in our
Technology Sourcing business and a more favourable comparative in
our Services business we are on course to deliver in line with our
expectations for 2019.
Technology Sourcing performance
Technology Sourcing revenue increased by 17.1 per cent to
GBP1,155.6 million (2017: GBP986.7 million).
The Technology Sourcing business had an extremely strong
performance in the first half of 2018 across all industry sectors
and a second half where growth declined against a difficult
comparison. We continued to benefit from significant investment by
our customers, as they continue to digitise their operations and
modernise their infrastructure and seek to enhance their employee
engagement.
We also experienced increasing utilisation of our financing
solutions, enabling our customers to continue their investment in
line with their budget plans. We expect this trend to continue
which gives us confidence for the full year and beyond.
The UK business has a higher percentage of lower margin sales,
particularly in Software and Workplace, than our German and French
businesses and continues to lag these other segments in Technology
Sourcing margins. Overall Software revenues grew by 139 per cent in
the year and increased the share from 18 per cent to 24 per cent of
Technology Sourcing revenue in 2018. Technology Sourcing margins
were flat with an increase of 3 basis points compared to the prior
year, with the move towards lower margin Software continuing to
supress this metric. The opportunity to increase underlying margin
return remains the focus of Management in the UK with small basis
point increases translating to significant increases in overall
adjusted(1) profitability.
Services performance
Services revenue declined by 5.6 per cent to GBP450.2 million
(2017: GBP476.7 million). This resulted from a decline in
Professional Services of 17.8 per cent to GBP116.4 million (2017:
GBP141.6 million) and a flat performance from Managed Services
which declined by 0.4 per cent to GBP333.8 million (2017: GBP335.1
million). Services margins declined by 41 basis points.
The overall Services performance was disappointing but the
contrast in performance between the two components of Services was
stark.
Professional Services had a challenging year. The comparison
against 2017 was difficult where one contract in the prior year
ensured high levels of utilisation and was largely responsible for
the increase in revenues of 21.2 per cent seen against 2016. With
this contract completed in 2017, the business was unsuccessful in
replacing the volume of work during 2018 leading to utilisation
impacts, particularly in the Workplace Service Line. Compounding
this has been several other material customer engagements, that
have now been delivered, that underperformed in terms of margin
achieved as costs incurred to complete the engagements were in
excess of what was originally envisaged. Our focus, once again, was
to support and deliver the engagements for our customers even in
the face of individual engagement cost pressures.
During 2018, we did not see the Professional Services growth
that we were expecting and the challenged engagements significantly
impacted Services profitability. We do expect improvement later in
2019 in Professional Services both in year and in the pipeline
forward order book, with a greater focus on our transformation
services, particularly driven by the need for our customers to
migrate their workplace environments to the latest Windows
platform.
Managed Services saw another busy year for successful contract
extensions and renewals. This reflects the quality of service and
long-term commitment to our customers. As reported last year,
customers continue to bring renewal discussions forward, prior to
the end of their initial term. Renewing contracts can put pressure
on both revenue and margins within those contracts. During 2018, a
multinational customer that had decided to insource, as reported
last year, removed the service desk element of the contract, but we
retained the end user support resulting in no material contribution
change.
The continued focus on the successful initiatives undertaken
over the past two years to drive operational efficiency in the
Managed Services business has ensured that margins have been
enhanced and we continue to focus on our end-to-end delivery
leveraging Group capability and geographic global coverage.
Whilst new customers continued to be added to our customer base
during the year, the high Managed Services renewals rate reflected
our strong capabilities and offerings. Whilst the contract wins
were pleasing, we are yet to be satisfied with our growth rate in
this area and as a result we continue to review and adapt our
approach and organisational structure across the business to align
end-to-end sales and services management and delivery.
In Managed Services we will continue to focus on innovation in
design and delivery and to ensure we deliver best practices to our
customers to drive their IT strategy and cost management.
Germany
Financial performance
Total revenue increased by 8.3 per cent to EUR2,115.7 million
(2017: EUR1,954.2 million) and by 9.2 per cent in reported pound
sterling equivalents(2) .
The German business performed well in 2018 and ended the year
ahead of our expectations. Top line growth was strong and, for the
first time, the German business exceeded EUR2 billion of revenue.
Ongoing demand for infrastructure replacements, refreshes and
implementing new technologies drove Computacenter's growth in
Germany, based on the investments required by customers'
digitisation efforts. We are pleased with the increase in the
number of customers who contribute more than GBP1 million of margin
and the performance of the existing customer base.
The good performance in 2018 was again driven by a strong
Technology Sourcing business, where we achieved strong growth and
improved margins. In our target market of large and international
companies, Computacenter is very well positioned as the number one
provider for Cloud, Networking and Security infrastructure. We have
also seen good performance in our Workplace business, benefiting
from Windows 10 projects and ongoing demand for collaboration
infrastructure.
Services growth was satisfactory but could have been stronger.
The lack of available resources across the German employment market
remains a growth inhibitor, especially in our Professional Services
business. Nevertheless, we achieved strong growth in this area. We
saw a different picture in our Managed Services business, where we
experienced limited top-line growth and a decline in margins. These
challenges will drive us to implement more nearshore and offshore
activities in the future.
Margins in Germany decreased by 18 basis points, with
adjusted(1) gross profit decreasing from 12.5 per cent to 12.3 per
cent of revenues. Adjusted(1) gross profit grew by 6.9 per cent to
EUR261.4 million (2017: EUR244.6 million) and by 7.6 per cent in
reported pound sterling equivalents(2) .
Administrative expenses increased by 4.0 per cent to EUR185.8
million (2017: EUR178.6 million), and by 5.0 per cent in reported
pound sterling equivalents(2) . The cost increase was in line with
our expectations. We have invested in areas where we need new
talent and special skills to support future growth. Indirect cost
growth remains tightly controlled. We have improved operational
processes and controls around cash management and achieved good
results, especially at the year-end.
Adjusted(1) operating profit for the German business increased
by 14.5 per cent to EUR75.6 million (2017: EUR66.0 million) and by
14.6 per cent in reported pound sterling equivalents(2) . 2018 was
pleasing from a financial performance perspective. Bottom-line
results benefited from strong top-line growth in Technology
Sourcing and Professional Services. The outcome for the year could
have been stronger if we had been able to perform better on a
handful of difficult contracts in our Managed Services
portfolio.
Although market conditions are weakening and there are some
uncertainties related to the German economy and the political
environment in the European Union, there is still a good chance for
further growth in the upcoming year. Computacenter's Technology
Sourcing business in Germany might be affected by declining demand
for new Cloud infrastructure from one of our major customers.
Technology Sourcing growth may therefore be more difficult in 2019.
We expect to have strong Professional Services growth and should
see significant improvements on Services margins in our Managed
Services business as we turnaround the performance of our difficult
contracts. Whilst renewal activities will be our focus, we have
identified some strategic opportunities in our existing customer
base, to create Contract Base growth.
Technology Sourcing performance
Technology Sourcing revenue grew by 9.9 per cent to EUR1,502.9
million (2017: EUR1,367.7 million) and by 10.8 per cent in reported
pound sterling equivalents(2) .
After an excellent Technology Sourcing performance in both 2016
and 2017, the business again performed well in 2018 and was the
major driver of the strong overall performance.
Cloud, Security and Networking are still the areas of strong
customer demand. We saw exceptional growth in the Data Center
market, with broad customer investments in private and hybrid cloud
infrastructures. We also benefited from one hyperscale customer,
where we expanded the cloud infrastructure for their software
platform. From a vertical perspective, we have seen ongoing demand
and strong investments from Public Sector customers, especially to
renew, build and extend government-owned cloud and networking
infrastructures. After a delay to approving the Federal Government
budgets, we saw a much stronger second half of the year in the
Public Sector. Other industries such as automotive and production
also significantly invested in additional infrastructure, to
support new business models and digitisation efforts. We also
achieved good growth in our Workplace business. After two years of
lower growth rates, we saw the first impact of Windows 10
migrations and the related infrastructure refreshes. Our Industrie
4.0 initiative delivered good results, generating new business in
the production areas of customers we already do business with in
the traditional office environment.
We successfully opened our new Integration Center based in
Kerpen. The facility is approximately 30,000m2, giving us more
space and flexibility for the future, especially in the area of
complex Data Center integration projects with 'Rack and Roll'
requirements. The move into the new facility in November went well,
without any impact on the important year-end business. The
associated office building on the same site for 650 people is still
on schedule and will be officially opened on 4 April 2019.
Technology Sourcing margins continued to strengthen as the
product mix moved to high value elements and increased by 74 basis
points over last year.
Services performance
Services revenue grew by 4.5 per cent to EUR612.8 million (2017:
EUR586.5 million) and by 5.5 per cent in reported pound sterling
equivalents(2) . This included Professional Services growth of 8.9
per cent to EUR188.2 million (2017: EUR172.8 million), an increase
of 10.0 per cent in reported pound sterling equivalents(2) , and
Managed Services growth of 2.6 per cent to EUR424.6 million (2017:
EUR413.7 million), an increase of 3.6 per cent in reported pound
sterling equivalents(2) .
Whilst Services revenue growth was in line with expectations for
the year, bottom line performance was impacted by additional costs
in Managed Services, to stabilise and resolve technical challenges
in new contracts. In addition, we suffered from the overall
resource shortage in the German employment market. Higher attrition
rates resulted in additional recruiting efforts and larger salary
increases which has impacted the overall Services cost base. Some
of these additional costs have been covered by price increases,
however, it will take some time to recover the cost base,
especially in our Managed Services business where we have long-term
commitments.
In our Professional Services business, the year started a little
weaker than planned but we saw increasing demands from customers in
nearly all technology areas, over the rest of the year. The outcome
for the year was strong, with near double-digit top-line growth and
improved margins. We have seen increasing demand for Windows 10
proof of concepts, migrations and rollouts. This should drive
further business throughout 2019. In addition, cloud infrastructure
builds and network refreshes continue to generate strong
Professional Services demand. Public Sector investment continues to
produce good opportunities for the future and some great new wins
of long-term framework contracts. We are still benefiting from our
infrastructure consultancy practice, where we get excellent
feedback from customers regarding skills and capabilities.
Our Managed Services business is the larger part of our Services
portfolio but it is not growing as quickly as the Professional
Services business. We have successfully renewed some of our
existing major contracts but we also lost two contracts. However,
we also won two new material contracts and, with a relatively
stable maintenance business, we were able to grow our Contract Base
by 6.1 per cent. Managed Services margins were materially impacted
by Entry Into Service and Transformation cost overruns for two
deals won in 2017 and implemented this year. During 2018, we
undertook some initiatives across our Managed Services business to
stabilise operations and drive effectiveness. This has generated
some additional costs we had not expected at the beginning of the
year. Overall, the Managed Services margin is still below the level
we should achieve, due to the financial underperformance of these
challenging contracts. We should see major improvements in the
upcoming years, given the investments we have made in 2018.
Overall, the Services margin was 214 basis points lower than last
year.
France
Financial performance
Total revenue decreased by 4.1 per cent to EUR557.4 million
(2017: EUR581.3 million). In reported pound sterling equivalents(2)
, total revenue was down 3.3 per cent.
The French business completed the restructuring of its customer
portfolio during 2018, which leaves it with a stable base of large
customers within its target customer set. Total revenue decreased
because of the loss of a very large software contract in the Public
Sector, which generated very low margins. Whilst the loss of the
contract is disappointing, it is not that impactful in terms of
adjusted(1) profitability. We are pleased with the other highlights
in Technology Sourcing in 2018, having developed our business
offerings and signed new customers who are sourcing higher-margin
products. The Services business was challenged by a quiet first
half in Professional Services, the loss of a large contract with a
utility customer, noted last year and year-on-year price reductions
on our three largest Managed Services contracts, as a result of
renewal negotiations. New Managed Services contracts signed in 2018
did not contribute for a full 12 months and therefore did not
offset the overall revenue reduction on the renewed contracts. The
number of Managed Services contract wins gives us confidence that
we can continue to develop our footprint in the French market.
After a very good 2017, we expected that our 2018 performance
would be challenging, primarily because of renewals of several of
our largest customer contracts. We are proud to have renewed them
all in 2018. At the same time, our strategy of focusing on large
accounts is performing well, with many new customer wins in the
Private Sector. We completely reorganised our sales force by
industry within the Private Sector and focused on the execution of
very large framework contracts within the Public Sector. As a
result, we refreshed 30 per cent of our Sales Specialist positions,
to fit with our revised go-to-market propositions.
We will continue to focus on large organisations, helping their
IT decision makers to enable users with advanced support and
guidance and supporting their businesses by delivering outstanding
infrastructure services and solutions. In this context, our
alignment with our Group propositions and service capabilities
remains key. To enforce this alignment and support further growth,
we have signed off an investment plan for 2019 to increase
significantly our resources in operations. To support talent
development and attraction, we launched the Computacenter
University to recruit, train and certify new resources, ready to
support our growth in the Workplace and Data Center spaces. We are
extending our Managed Services capabilities by opening a new
Service Center location in France, in mid-2019, to increase our
capacity and resilience for Service Desk operations.
The transition to Arnaud Lepinois as the new Managing Director
has been completed and the new management team is now in place to
execute the plan.
Margins in France increased by 80 basis points, with adjusted(1)
gross profit increasing from 10.5 per cent to 11.3 per cent of
revenues.
Overall adjusted(1) gross profit grew by 3.3 per cent to EUR62.9
million (2017: EUR60.9 million) and by 4.1 per cent in reported
pound sterling equivalents(2) .
Management has continued to focus on cost control within the
French business, which has seen an increase in administrative
expenses of only 0.5 per cent to EUR54.9 million (2017: EUR54.6
million), and of 1.5 per cent in reported pound sterling
equivalents(2) .
Adjusted(1) operating profit for the French business increased
by 27.0 per cent to EUR8.0 million (2017: EUR6.3 million), and by
26.8 per cent in reported pound sterling equivalents(2) .
Technology Sourcing performance
Technology Sourcing revenue decreased by 3.6 per cent to
EUR444.9 million (2017: EUR461.6 million) and by 2.8 per cent in
reported pound sterling equivalents(2) .
In 2018, we lost a very high revenue and low-margin software
contract in the Public Sector. Private Sector revenue grew strongly
and included new wins in our target customer set, which is a
pleasing affirmation of our strategy to broaden the customer base.
We will continue to drive growth by securing our market share in
the Public Sector and striving for ambitious growth in strategic
Private Sector accounts. During the year, we renewed our most
important Technology Sourcing framework contract. Revenues declined
whilst the contract was being renewed, as volumes naturally fell,
but margins were not impacted. As we head into 2019, we see the
volumes once again increasing, albeit on tighter margins in the
short term.
Having achieved a real improvement in Technology Sourcing margin
during 2017, to lead the Group, we were pleased to again see an
increase in our margin. This was mainly due to a reduction in
low-margin contracts and a change in the business mix towards
higher value, higher margin products. Improving our business mix
towards Data Center, Networking and Security was our priority and
we made good progress in 2018, with revenue growth in Data Center
and Security, compared to a decrease in Workplace. Overall,
Technology Sourcing margins increased by 102 basis points.
Services performance
Services revenue declined by 6.0 per cent to EUR112.5 million
(2017: EUR119.7 million) and by 5.1 per cent in reported pound
sterling equivalents(2) . Professional Services increased by 3.4
per cent to EUR21.4 million (2017: EUR20.7 million), which was an
increase of 4.4 per cent in reported pound sterling equivalents(2)
. Managed Services declined by 8.0 per cent to EUR91.1 million
(2017: EUR99.0 million), a decrease of 7.0 per cent in reported
pound sterling equivalents(2) .
The Managed Services performance was as expected given the loss
of a contract with a utility customer at the end of 2017 and the
price reductions on our three largest Managed Services contracts,
due to anticipated service improvements, automation, volume
reduction and pre-agreed cost optimisations.
We implemented two new contracts in 2018 and recently won two
others that are currently in the Entry Into Service phase.
This has helped maintain stability within our Managed Services
Contract Base, which was up 4.7 per cent at the end of the year
compared to the previous year. We will again have to deal with
large renewals in 2019 but the mid-term pipeline is encouraging,
and we believe our Contract Base will continue the growth seen this
year.
Although activity remains relatively low, our Professional
Services business made pleasing progress and has strong growth
ambitions for 2019. We are confident we can achieve this, as we
have further refined our target customer base, improved vendor
partnerships and defined a clear portfolio of solutions around End
User, Data & Analytics, Cloud & Data Center, Networking and
Security. Several projects signed at the end of 2018 will support
the growth in 2019.
Services margins were flat, increasing by one basis point over
last year. Services margins were under significant pressure in our
Managed Services business, due to the contract renewals.
Professional Services margins were constrained by a difficult
international project that ended in December.
International
The International segment comprises a number of trading entities
and offshore Global Service Desk delivery locations. The trading
entities include: Computacenter USA, which provides local services
to the American subsidiaries of a number of large Western European
Group customers; FusionStorm, the US-based IT solutions provider
acquired on 30 September 2018; Computacenter Switzerland, which
mainly provides services to the Swiss subsidiaries of our global
customers as well as some local customers; Computacenter Belgium;
and Computacenter Netherlands, which was formerly known as Misco
Solutions B.V. and was acquired by the Group on 1 September
2018.
These trading entities are complemented by the offshore Global
Service Desk entities in Spain, Malaysia, India, South Africa,
Hungary, Poland, China and Mexico, which have limited external
revenues.
FusionStorm and the Swiss, Belgian and Dutch entities have
in-country sales organisations, which enable us to sell to local
customers.
Financial performance
Revenues in the International business increased by 261.3 per
cent to GBP380.8 million (2017: GBP105.4 million) and by 264.8 per
cent in constant currency(2) .
Adjusted(1) gross profit increased by 83.2 per cent to GBP57.9
million (2017: GBP31.6 million), and by 85.0 per cent in constant
currency(2) .
Administrative expenses increased by 102.2 per cent to GBP45.5
million (2017: GBP22.5 million) and by 104.0 per cent in constant
currency(2) .
Overall adjusted(1) operating profit increased by 36.3 per cent
to GBP12.4 million (2017: GBP9.1 million) and by 37.8 per cent in
constant currency(2) .
The result has been driven by GBP270.9 million of revenues, and
GBP2.7 million of adjusted(1) profit before tax, resulting from the
acquisitions made in the second half of the year. All figures
reported throughout this announcement include the results of the
acquired entities.
Technology Sourcing Performance
Technology Sourcing revenue increased by 584.1 per cent to
GBP297.6 million (2017: GBP43.5 million) and by 579.5 per cent in
constant currency(2) .
Following the acquisitions, FusionStorm added GBP237.8 million
and Computacenter Netherlands added GBP16.8 million to Technology
Sourcing revenues in 2018.
Services performance
Services revenue increased by 34.4 per cent to GBP83.2 million
(2017: GBP61.9 million) and by 37.3 per cent in constant
currency(2) .
Professional Services revenue increased by 145.1 per cent in
both actual and constant currency(2) , to GBP20.1 million (2017:
GBP8.2million). Managed Services revenue increased by 17.5 per cent
to GBP63.1 million (2017: GBP53.7 million), an increase of 20.4 per
cent in constant currency(2) .
Following the acquisitions, FusionStorm added GBP8.2 million of
Professional Services revenues during 2018, whilst Computacenter
Netherlands added GBP8.1 million of Managed Services revenues.
Rest of Europe
The European trading entities within International operate under
an internal management structure called Rest of Europe.
Our Swiss operations continue to perform well and saw pleasing
growth in both revenues and adjusted(1) operating profitability in
2018, with increases of 16.0 per cent and 22.3 per cent
respectively, both in constant currency(2) . The acquisition of
cITius in January 2017 has expanded the range of services that the
Swiss business can offer and increased our ability to bid for
opportunities within our customer base. Additionally, the take-on
of a large international Managed Services contract across the Group
has increased local revenue.
Our Belgian operations experienced a slight fall in revenue of
1.6 per cent in constant currency(2) , and an increase in
adjusted(1) operating profit of 13.7 per cent in constant
currency(2) . Our Services business revenues were down slightly.
Expanding the Managed Services Contract Base remains a key focus
for Management, to drive Services revenue growth in line with our
plans. Our Technology Sourcing business was flat and the Intel chip
shortage had a negative effect on end of year revenues within our
Workplace line of business. In the second half, we were able to
build an improved pipeline for more complex infrastructure and
networking opportunities. We successfully closed some of these
towards the end of 2018 and we hope to identify further
opportunities in 2019.
On 1 September 2018, we acquired Misco Solutions B.V. The
business is a value-added reseller and solutions provider to the
Public and Private sectors, based in Amstelveen and Bodegraven, the
Netherlands. We are excited to enter this new territory, as the
Netherlands is an adjacent European market for us and we look
forward to building long-term relationships with local customers.
Our direct local presence in the Netherlands will also enhance our
support to a number of Computacenter's largest international
clients, for whom this is a key location.
We have rebranded the business to Computacenter Netherlands and
focused on integration into the Group. Whilst the business made a
small loss during the first four months of operation, we are
confident that we will improve the performance to be more like our
similar Belgian operation over time.
Our 2019 challenges for the Rest of Europe grouping are focused
on further integration of tools and processes in the Netherlands.
We also look forward to expanding both our customer base and
capabilities in Switzerland. The focus in Belgium will be to grow
our sales capacity and Managed Services pipeline.
We continue to review opportunities to extend our Western
European footprint, by entering into adjacent territories or by
increasing our capabilities in existing locations by adding
complementary activities within either our Services or Technology
Sourcing businesses.
Computacenter USA & FusionStorm
Computacenter USA provides local services to the American
subsidiaries of a number of large Western European Group customers.
FusionStorm is a value-added reseller of hardware and software
solutions, which we acquired on 1 October 2018. These trading
entities are complemented by the Service Center entity in Mexico,
which has limited external revenues. On top of their operational
delivery capabilities, the US and FusionStorm entities have
in-country sales organisations, which enable us to engage with
local customers, and we have begun the integration of these teams
with effect from 1 January 2019, as part of our larger integration
efforts.
Computacenter USA is a services business which provides Managed
Services to the US subsidiaries of our Western European
headquartered customers. For the third consecutive year, a large
Group customer extended its services scope into the Americas region
which reflects the increasing demand for global service support. In
addition, we continued to invest in our nearshore Service Center
location in Mexico City which, since going live in 2016, has
exceeded service level and financial performance targets.
The FusionStorm business exceeded the Services and Technology
Sourcing growth targets we set as part of the acquisition process.
The Services growth was driven primarily by hyperscale customer
rollouts of data center and networking infrastructure projects plus
an increase in its expert services business. Following the
acquisition, the fourth quarter saw the two highest revenue months
of configured solution shipments from our Integration Center in
Newark, CA, in the heart of Silicon Valley. December was
particularly notable, as it was a record month which more than
doubled the monthly average Integration Center volumes seen in the
prior 12 months.
As we move into 2019, we see a number of opportunities to
enhance the acquired business and to leverage revenue synergies
between the new and existing American operations. We will open a
new Integration Center in California, tripling the capacity of the
existing facility and leveraging Group knowledge on logistics, most
recently employed on the new Kerpen Integration Center. We will
also begin to pursue opportunities to deliver Technology Sourcing
solutions into existing US Services customers, a number of whom
have already enquired about this capability. We will look to
provide Technology Sourcing solutions to other Western European
customers for whom we do not currently transact any business in the
USA. Early in 2019, we closed our first deal of this nature with
one of the world's leading betting and gaming companies which is
expanding its US operations.
Group Finance Director's review
The strength of Technology Sourcing continues to drive the
Group's performance. The Group result was underpinned by an
improving performance in France, another strong result in Germany
and recovering UK revenues.
Germany again significantly exceeded our expectations from what
was a very good comparative in 2017. This was well supported by
strong Technology Sourcing growth in both the UK and France as
customers invest in new technology, in particular in Security,
Networking and Digitalisation. Overall, Professional Services
revenue across the Group was weaker than expected, mainly due to a
decline in the UK, following strong growth in 2017. Demand for our
Professional Services resources in Germany has continued to
outstrip our capacity to service new customers and assist with
difficult Managed Services business take-ons. Managed Services
growth was flat overall, although a significant reduction in France
offset pleasing growth in Germany and a flat performance in the UK.
Several difficult contracts in the UK and Germany reduced the
expected margin.
Across all Segments and revenue lines, growth has been driven by
the continued performance of key existing customer accounts, rather
than the addition of material new customers.
A reconciliation between key adjusted(1) and statutory measures
is provided within this Group Finance Director's review. Further
details are provided in note 4 to the summary financial information
within this announcement, segment information.
Profit before tax
The Group's statutory profit before tax decreased by 3.2 per
cent to GBP108.1 million (2017: GBP111.7 million). Adjusted(1)
profit before tax increased by 11.3 per cent to GBP118.2 million
(2017: GBP106.2 million) and by the same amount in constant
currency(2) .
The difference between statutory profit before tax and
adjusted(1) profit before tax primarily relates to the Group's
reported net loss of GBP10.1 million (2017: net gain of GBP5.5
million) from exceptional and other adjusting items, primarily as a
result of the acquisition of FusionStorm on 30 September 2018.
Reconciliation from statutory to adjusted(1) measures for the
year ended 2018
Adjustments
=========== =================================================== ===========
Amortisation Utilisation
Statutory CSF of acquired of deferred Exceptionals Adjusted(1)
results interest intangibles tax and others results
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========== ========= ============ ============ ============ ===========
Revenue 4,352,570 - - - - 4,352,570
======================== =========== ========= ============ ============ ============ ===========
Cost of sales (3,804,019) (293) - - - (3,804,312)
======================== =========== ========= ============ ============ ============ ===========
Gross profit 548,551 (293) - - - 548,258
======================== =========== ========= ============ ============ ============ ===========
Administrative expenses (439,183) - 4,451 - 5,240 (429,492)
======================== =========== ========= ============ ============ ============ ===========
Operating profit 109,368 (293) 4,451 - 5,240 118,766
======================== =========== ========= ============ ============ ============ ===========
Finance income 1,250 - - - - 1,250
======================== =========== ========= ============ ============ ============ ===========
Finance costs (2,490) 293 - - 417 (1,780)
======================== =========== ========= ============ ============ ============ ===========
Profit before tax 108,128 - 4,451 - 5,657 118,236
======================== =========== ========= ============ ============ ============ ===========
Income tax expense (27,199) - (1,169) 1,933 (4,444) (30,879)
======================== =========== ========= ============ ============ ============ ===========
Profit for the year 80,929 - 3,282 1,933 1,213 87,357
======================== =========== ========= ============ ============ ============ ===========
Reconciliation from statutory to adjusted(1) measures for the
year ended 2017
Adjustments
=========== =================================================== ===========
Amortisation Utilisation
Statutory CSF of acquired of deferred Exceptionals Adjusted(1)
results interest intangibles tax and others results
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========== ========= ============ ============ ============ ===========
Revenue 3,793,371 - - - - 3,793,371
================================== =========== ========= ============ ============ ============ ===========
Cost of sales (3,297,142) (159) - - - (3,297,301)
================================== =========== ========= ============ ============ ============ ===========
Gross profit 496,229 (159) - - - 496,070
================================== =========== ========= ============ ============ ============ ===========
Administrative expenses (389,437) - 225 - (1,371) (390,583)
================================== =========== ========= ============ ============ ============ ===========
Operating profit 106,792 (159) 225 - (1,371) 105,487
================================== =========== ========= ============ ============ ============ ===========
Gain on disposal of an investment
property 4,320 - - - (4,320) -
================================== =========== ========= ============ ============ ============ ===========
Finance income 1,521 - - - - 1,521
================================== =========== ========= ============ ============ ============ ===========
Finance costs (938) 159 - - - (779)
================================== =========== ========= ============ ============ ============ ===========
Profit before tax 111,695 - 225 - (5,691) 106,229
================================== =========== ========= ============ ============ ============ ===========
Income tax expense (30,381) - (31) 3,457 351 (26,604)
================================== =========== ========= ============ ============ ============ ===========
Profit for the year 81,314 - 194 3,457 (5,340) 79,625
================================== =========== ========= ============ ============ ============ ===========
Revenue
Half 1 Half 2 Total
GBPm GBPm GBPm
======= ======= =======
2016 1,478.2 1,767.2 3,245.4
======== ======= ======= =======
2017 1,700.3 2,093.1 3,793.4
======== ======= ======= =======
2018 2,008.9 2,343.7 4,352.6
======== ======= ======= =======
2018/17 18.1% 12.0% 14.7%
======== ======= ======= =======
Adjusted(1) profit before tax
Half 1 Half 2 Total
================ =============== ================
GBPm % Revenue GBPm % Revenue GBPm % Revenue
===== ========= ==== ========= ===== =========
2016 25.3 1.7% 61.1 3.5% 86.4 2.7%
======== ===== ========= ==== ========= ===== =========
2017 41.9 2.5% 64.3 3.1% 106.2 2.8%
======== ===== ========= ==== ========= ===== =========
2018 52.1 2.6% 66.1 2.8% 118.2 2.7%
======== ===== ========= ==== ========= ===== =========
2018/17 24.3% 2.8% 11.3%
======== ===== ========= ==== ========= ===== =========
Revenue by Segment
2018 2017
========================= =========================
Half 1 Half 2 Total Half 1 Half 2 Total
GBPm GBPm GBPm GBPm GBPm GBPm
======= ======= ======= ======= ======= =======
UK 858.1 747.7 1,605.8 662.8 800.7 1,463.4
============== ======= ======= ======= ======= ======= =======
Germany 866.0 1,006.7 1,872.7 760.3 954.4 1,714.7
============== ======= ======= ======= ======= ======= =======
France 230.7 262.6 493.3 228.6 281.3 509.9
============== ======= ======= ======= ======= ======= =======
International 54.1 326.7 380.8 48.6 56.8 105.4
============== ======= ======= ======= ======= ======= =======
Total 2,008.9 2,343.7 4,352.6 1,700.3 2,093.1 3,793.4
============== ======= ======= ======= ======= ======= =======
Adjusted(1) operating profit by Segment
2018
=======================================================
Half 1 Half 2 Total
================= ================= =================
GBPm % Revenue GBPm % Revenue GBPm % Revenue
====== ========= ====== ========= ====== =========
UK 25.8 3.0% 31.9 4.3% 57.7 3.6%
======================== ====== ========= ====== ========= ====== =========
Germany 32.2 3.7% 34.7 3.4% 66.8 3.6%
======================== ====== ========= ====== ========= ====== =========
France 2.1 0.9% 5.0 1.9% 7.1 1.4%
======================== ====== ========= ====== ========= ====== =========
International 3.4 6.3% 9.0 2.8% 12.4 3.3%
======================== ====== ========= ====== ========= ====== =========
Central Corporate Costs (11.4) (13.8) (25.2)
======================== ====== ========= ====== ========= ====== =========
Total 52.1 2.6% 66.7 2.8% 118.8 2.7%
======================== ====== ========= ====== ========= ====== =========
2017
======================================================
Half 1 Half 2 Total
================ ================= =================
GBPm % Revenue GBPm % Revenue GBPm % Revenue
===== ========= ====== ========= ====== =========
UK 21.4 3.2% 30.1 3.8% 51.5 3.5%
======================== ===== ========= ====== ========= ====== =========
Germany 20.7 2.7% 37.6 3.9% 58.3 3.4%
======================== ===== ========= ====== ========= ====== =========
France 1.5 0.7% 4.1 1.5% 5.6 1.1%
======================== ===== ========= ====== ========= ====== =========
International 5.0 10.3% 4.1 7.2% 9.1 8.6%
======================== ===== ========= ====== ========= ====== =========
Central Corporate Costs (7.2) (11.8) (19.0)
======================== ===== ========= ====== ========= ====== =========
Total 41.4 2.4% 64.1 3.1% 105.5 2.8%
======================== ===== ========= ====== ========= ====== =========
Profit for the year
The statutory profit for the year decreased by 0.5 per cent to
GBP80.9 million (2017: GBP81.3 million). The adjusted(1) profit for
the year increased by 9.8 per cent to GBP87.4 million (2017:
GBP79.6 million) and by 9.9 per cent in constant currency(2) .
Net finance income
Net finance cost in the year amounted to GBP1.2 million on a
statutory basis (2017: income of GBP0.6 million). The charge
includes GBP0.5 million relating to interest on the GBP100 million
facility drawn down for the FusionStorm acquisition and GBP0.3
million for the unwind of the discount on the deferred
consideration for the purchase of TeamUltra (2017: cost of GBP0.1
million). It also includes exceptional interest costs relating to
the unwind of the discount on the deferred consideration for the
purchase of FusionStorm of GBP0.4 million and CSF interest of
GBP0.3 million (2017: GBP0.2 million), both of which are excluded
on an adjusted(1) basis.
On an adjusted(1) basis, the net finance cost was GBP0.5 million
in 2018 (2017: income of GBP0.7 million).
Taxation
The statutory tax charge was GBP27.2 million (2017: GBP30.4
million) on statutory profit before tax of GBP108.1 million (2017:
GBP111.7 million). This represents a statutory tax rate of 25.2 per
cent (2017: 27.2 per cent). The Group's adjusted(1) tax rate has
benefited from the historical tax losses in Germany, which were
fully utilised during the year. The utilisation of the asset of
GBP1.9 million (2017: GBP3.5 million) has impacted the statutory
tax rate but is considered to be outside of our adjusted(1) tax
measure. In 2018, this impact increased the statutory tax rate by
1.8 per cent (2017: 3.1 per cent).
In 2018, a credit of GBP1.4 million arising from the tax benefit
on the FusionStorm exceptional acquisition costs has been
recognised as tax on exceptional items. In 2017, a tax charge of
GBP0.4 million was recorded as tax on exceptional items, relating
to the release of the remaining German onerous contract provisions.
A further tax credit of GBP3.1 million was recorded due to
post-acquisition activity in FusionStorm, related to the
transaction, which has resulted in a material in-year tax benefit.
This activity included settlement of phantom stock awards, deal
bonus and change of control payments which were settled by the
vendor, out of the consideration paid, via post-acquisition capital
contributions to FusionStorm. As this credit was related to the
acquisition and not operational activity within FusionStorm, is of
a one-off nature and material to the overall tax result, we have
classified this as an exceptional tax item. Further, this tax
benefit is larger than the adjusted(1) profit before tax of GBP2.9
million achieved by FusionStorm since the acquisition.
The tax credit related to the amortisation of acquired
intangibles was GBP1.2 million (2017: GBP0.03 million). The
significant increase relates to the GBP4.2 million of amortisation
of acquired intangible assets charged against the assets recognised
as a result of the FusionStorm acquisition. As the amortisation is
recognised outside of our adjusted(1) profitability, the tax
benefit on the amortisation is also only recognised in the
statutory tax charge.
The adjusted(1) tax charge on ordinary activities was GBP30.9
million (2017: GBP26.6 million), on an adjusted(1) profit before
tax of GBP118.2 million (2017: GBP106.2 million). The effective tax
rate (ETR) was therefore 26.1 per cent (2017: 25.0 per cent) on an
adjusted(1) basis. The 2018 ETR was higher than the previous year
primarily due to the increasing cash tax in Germany, as the
historical tax losses readily available for use have now been fully
utilised. The ETR, excluding the impact of FusionStorm, is within
the range that we indicated during the year at 26.5 per cent (H1
2018: 27.1 per cent).
The increasing adjusted(1) tax rate in 2018 in Germany, as the
last of the readily available losses have been utilised, has had a
direct effect on the Group adjusted(1) ETR. At 2018 levels of
profitability, the increase in German cash tax would raise the
Group adjusted(1) ETR from 26.1 per cent in 2018 to 27.8 per cent
in 2019, without regard to other factors that could influence the
Group's adjusted(1) ETR. Factors that could also increase the
Group's adjusted(1) ETR in 2019 include the increasing reweighting
of the geographic split of adjusted(1) profit before tax from the
UK to Germany, where tax rates are substantially higher.
The Group Tax Policy was reviewed during the year and approved
by the Audit Committee and the Board, with no material changes from
the prior year. We make every effort to pay all the tax
attributable to profits earned in each jurisdiction that we operate
in. We do not artificially inflate or reduce profits in one
jurisdiction to provide a beneficial tax result in another and
maintain approved transfer pricing policies and programmes, to meet
local compliance requirements. Virtually all of the statutory tax
charge in 2018 was incurred in either the UK or German tax
jurisdictions. Computacenter will recognise provisions and accruals
in respect of tax where there is a degree of estimation and
uncertainty, including where it relates to transfer pricing, such
that a balance cannot fully be determined until accepted by the
relevant tax authorities. There are no material tax risks across
the Group. For 2018, the revised Group Transfer Pricing policy,
implemented in 2016, resulted in a royalty payment charged by
Computacenter UK to Computacenter Germany equivalent to one per
cent of revenue or GBP19.5 million (2017: GBP17.4 million). This
royalty charge was driven by our tax advisors' interpretation of
the Organisation for Economic Co-operation and Development (OECD)
base erosion and profit shifting requirements. The royalty charge
is recorded outside the Segmental results found in note 4 to the
summary financial information within this announcement, segment
information, which analyses Segmental results down to adjusted(1)
operating profit.
The table below reconciles the statutory tax charge to the
adjusted(1) tax charge for the year ended 31 December 2018.
2018 2017
GBP'000 GBP'000
======== ========
Statutory tax charge 27,199 30,381
============================================ ======== ========
Adjustments to exclude:
============================================ ======== ========
Utilisation of German deferred tax assets (1,933) (3,457)
============================================ ======== ========
Exceptional tax items 3,091 -
============================================ ======== ========
Tax on amortisation of acquired intangibles 1,169 31
============================================ ======== ========
Tax on exceptional items 1,353 (351)
============================================ ======== ========
Adjusted1 tax charge 30,879 26,604
============================================ ======== ========
Statutory ETR 25.2% 27.2%
============================================ ======== ========
Adjusted1 ETR 26.1% 25.0%
============================================ ======== ========
Exceptional and other adjusting items
The net loss from exceptional and other adjusting items in the
year was GBP6.4 million (2017: gain of GBP1.7 million). Excluding
the tax items noted above which resulted in a statutory gain of
GBP3.7 million (2017: loss of GBP3.8 million), the profit before
tax impact was a net loss from exceptional and other adjusting
items of GBP10.1 million (2017: gain of GBP5.5 million).
An exceptional loss during the year of GBP5.2 million resulted
from costs directly relating to the acquisition of FusionStorm.
These costs include a severance payment for the FusionStorm Chief
Executive Officer, agreed as part of the acquisition, advisor fees
and a finder's fee that was paid on completion of the transaction.
These costs are non-operational in nature, material in size and
unlikely to recur and have therefore been classified as outside our
adjusted(1) results. A further GBP0.4 million relating to the
unwinding of the discount on the deferred consideration for the
purchase of FusionStorm has been removed from the adjusted(1) net
finance expense and classified as exceptional interest costs. The
amortisation of acquired intangible assets was GBP4.5 million
(2017: GBP0.2 million), with the increase due to the amortisation
of the intangibles acquired as part of the FusionStorm acquisition.
We have continued to exclude the effect of amortisation of acquired
intangible assets in calculating our adjusted(1) results.
Amortisation of intangible assets is non-cash, and is significantly
affected by the timing and size of our acquisitions, which distorts
the understanding of our Group and Segmental operating results.
The gain in 2017 resulted from the disposal of an investment
property in Braintree, Essex, and the release of the remaining
provisions for the last two onerous contracts in Germany. The
GBP4.3 million gain on disposal, net of disposal costs, was
classified as exceptional due to the size and non-operational
nature of the transaction. The release of the remaining onerous
contract provisions resulted in an exceptional gain of GBP1.4
million, as these provisions, originally booked as exceptional
items, were no longer required.
Earnings per share
Adjusted(1) diluted earnings per share increased from 65.1 pence
in 2017 to 75.7 pence in 2018, due to the increased earnings
generated by the business and a lower diluted weighted average
number of shares, as a result of the Tender Offer buyback of
ordinary shares completed in February 2018. The statutory diluted
earnings per share increased from 66.5 pence in 2017 to 70.1 pence
in 2018.
2018 2017
======= =======
Basic weighted average number of shares (excluding own
shares held) (no.'000) 113,409 120,766
============================================================= ======= =======
Effect of dilution:
============================================================= ======= =======
Share options 1,984 1,471
============================================================= ======= =======
Diluted weighted average number of shares 115,393 122,237
============================================================= ======= =======
Statutory profit for the year attributable to equity holders
of the parent (GBP'000) 80,929 81,314
============================================================= ======= =======
Basic earnings per share (pence) 71.4 67.3
============================================================= ======= =======
Diluted earnings per share (pence) 70.1 66.5
============================================================= ======= =======
Adjusted(1) profit for the year attributable to equity
holders of the parent (GBP'000) 87,357 79,625
============================================================= ======= =======
Adjusted(1) basic earnings per share (pence) 77.0 65.9
============================================================= ======= =======
Adjusted(1) diluted earnings per share (pence) 75.7 65.1
============================================================= ======= =======
Net funds
Cash and cash equivalents decreased from GBP206.6 million at the
end of 2017 to GBP204.4 million as at 31 December 2018. During the
year the Company completed a buyback of ordinary shares, by way of
Tender Offer, for GBP100 million.
The Group saw an increase in its overall cash generation from
operations in 2018, with record net cash flow from operating
activities of GBP115.2 million (2017: GBP106.1 million). This
continues our story of cash generation seen over recent years, with
the year-end cash position again very strong. Working capital
trends continued to affect cash volatility at the year-end. Higher
fourth-quarter product sales and an increase in early customer
payments, ahead of the associated payment for product. The Group
days payables outstanding are marginally higher than the Group days
sales outstanding and therefore when sales are high we tend to have
a lower working capital requirement overall.
Net funds(3) decreased from GBP191.2 million at the end of 2017
to GBP57.3 million as at 31 December 2018.
The Group had two specific facilities at the end of the year and
no other material borrowings. The Group drew down a GBP100 million
facility on 1 October 2018 to complete the acquisition of
FusionStorm. This facility is over a three-year term. The Group
also had the specific facility for the build and purchase of our
new German headquarters and Integration Center in Kerpen which was
GBP31.4 million (2017: GBP10.7 million) as at 31 December 2018. The
Integration Center opened in November 2018 and is fully
operational. The office facility is due to open in March 2019,
which will conclude the project.
Capital expenditure in the year was GBP51.4 million (2017:
GBP40.1 million) and was primarily the investment in our German
headquarters, additional SAP licence spend and other investments in
IT equipment and software tools, to enable us to deliver improved
service to our customers.
The Group continued to appropriately manage its cash and working
capital positions using standard mechanisms, to ensure that cash
levels remained within expectations throughout 2018. The Group had
no debt factoring at the end of the year outside the normal course
of business.
In certain circumstances, the Group enters into customer
contracts that are financed by leases or loans. The leases are
secured only on the assets that they finance. Whilst the
outstanding balance of CSF is included within net funds(3) for
statutory reporting purposes, this balance is offset by contracted
future receipts from customers. Computacenter retains the credit
risk on these customers and ensures that credit risk is only taken
on customers with a strong credit rating. CSF increased in the year
from GBP4.7 million to GBP8.9 million, all within Germany. CSF
remains low compared to historical levels, due to reduced customer
demand in light of the current credit environment. However, we are
seeing increasing use on a deal-by-deal basis. Currently we apply a
higher cost of finance to these transactions than customers'
marginal cost of finance to discourage this activity.
There were no interest-bearing trade payables as at 31 December
2018 (2017: nil). The Group's net funds(3) position contains no
current asset investments (2017: nil).
Trade Creditor arrangements
Computacenter has a strong covenant and enjoys a favourable
credit rating from IT vendors and suppliers. Some suppliers provide
credit directly on their own credit risk, whereas some suppliers
decide to sell the debt to banks which offer to purchase the
receivables and manage collection. The credit terms offered by
suppliers are typically between 30 and 60 days, whether provided
directly or when sold to a third party finance provider. In the
latter case the cost of the free trade credit period is paid by the
relevant supplier as part of the overall package of terms provided
by suppliers to Computacenter and our competitors. The finance
providers offer extended credit terms at relatively low interest
rates, however, these rates are always higher than the rate at
which we deposit and therefore we do not currently avail of this
facility.
Dividends
The Group remains highly cash generative and net funds(3)
continue to regenerate on the Consolidated Balance Sheet, following
the share buyback and the acquisition of FusionStorm.
Computacenter's approach to capital management is to ensure that
the Group has a robust capital base and maintains a strong credit
rating, whilst aiming to maximise shareholder value. If further
funds are not required for investment within the business, either
for fixed assets or working capital support, and the distributable
reserves are available in the Parent Company, we will aim to return
the additional cash to investors through one-off returns of value,
as we did in February 2018. Dividends are paid from the standalone
Balance Sheet of the Parent Company and, as at 31 December 2018,
the distributable reserves were approximately GBP184.4 million
(2017: GBP298.9 million).
The Board is pleased to propose a final dividend of 21.6 pence
per share. The interim dividend paid on 12 October 2018 was 8.7
pence per share. Together with the final dividend, this brings the
total ordinary dividend for 2018 to 30.3 pence per share,
representing a 16.1 per cent increase on the 2017 total dividend
per share of 26.1 pence. The Board has consistently applied the
Company's dividend policy, which states that the total dividend
paid will result in a dividend cover of 2 to 2.5 times based on
adjusted(1) diluted earnings per share. In 2018, the cover was 2.5
times (2017: 2.5 times).
Subject to the approval of shareholders at our Annual General
Meeting on 16 May 2019, the proposed dividend will be paid on
Friday 28 June 2019. The dividend record date is set as Friday 31
May 2019 and the shares will be marked ex-dividend on Thursday 30
May 2019.
Implementation of, and transition to, IFRS 15 Revenue
Recognition
Basis of preparation
The Group has adopted IFRS 15 from 1 January 2018, which has
resulted in changes in accounting policies and adjustments to the
amounts recognised in the financial statements. The standard
provides a single model for measuring and recognising revenue
arising from contracts with customers. It supersedes all existing
revenue requirements in IFRS. Under IFRS 15, revenue is recognised
when customers obtain control of goods or services and so are able
to direct the use, and obtain the benefits, of those goods or
services.
Importantly, and in accordance with the modified retrospective
transition approach, the comparative results for the year ended 31
December 2017 have not been restated under the accounting policies
adopted as a result of transition to IFRS 15. Under the transition
approach adopted, the retrospective cumulative impact of IFRS 15
has been recognised within the opening balance of retained earnings
as at 1 January 2018. The overall net impact of all adjustments was
a credit to retained earnings of GBP6.5 million as at 1 January
2018.
An analysis of the impact of transition is presented in note 2
to the summary financial information within this announcement and
is summarised below:
Implementation journey
Beginning in 2016, we performed a detailed analysis of the
impact of IFRS 15 on our business. The preliminary analysis
identified various areas in which adjustments may be required to
revenue and cost recognition and in the related procedures and
processes. As we moved through the project our conclusions on the
implementation of IFRS 15 evolved, which we documented in our
Annual and Interim Report and Accounts over the period from 31
December 2016 to 31 December 2017.
The most significant of these was expected to be that some of
our Technology Sourcing revenue, which has previously been
presented gross, will be presented net under IFRS 15 as 'agency'
revenue due to the change in the primary indicators used to assess
the 'agent/principal' presentation of revenue, from the previous
standard to IFRS 15. We thought at the time, after assessing the
changes in the standard against our general contractual terms and
conditions, that this change was likely to impact our Software
sales and certain Resold Services, which contributed GBP337 million
and GBP298 million to the Group's gross revenue in 2016
respectively. Our preliminary assessment made in 2016 was based
upon our general contractual terms and conditions. Following this
process, we concluded that there was a finely balanced judgement
which would result in a change in presentation of our Technology
Sourcing Software revenues and, potentially, certain Resold Service
revenues to 'agency' revenue on a net basis compared to the current
presentation as gross 'principal' revenue.
As our IFRS 15 project continued through 2017, the judgements
held under the previous standard were reviewed again. Following
further evaluation, including detailed analysis of how terms and
conditions are applied in practice, the weighting applied to the
agent/principal indicators and evaluation of emerging practice, we
updated our findings and concluded that, whilst this remains a
finely balanced judgement, no change to the presentation of those
revenue streams is required on transition to IFRS 15. Revenue for
these items have continued to be presented gross from 1 January
2018, when this assessment will form part of the critical
judgements for the Group.
Under IAS 11, certain costs, such as allocated overheads, were
allowed to be taken into account when considering what constitutes
'unavoidable' costs of a contract, affecting whether the contract
is considered to be onerous. From 1 January 2018 onwards, IAS 11
was no longer applicable and onerous contracts need to be
considered under IAS 37, 'Provisions, Contingent Liabilities and
Contingent Assets'. At the date of publication of our 2017 Interim
Report, we believed that IAS 37 did not allow for the inclusion of
overheads as 'unavoidable' costs when considering if a contract is
onerous. We thus concluded that our approach would need to change
from 1 January 2018. Subsequent to the publication of our 2017
Interim Report, we became aware of an agenda decision published by
the IFRS Interpretations Committee outlining that the current
wording of IAS 37 allows for two interpretations of what can
constitute 'unavoidable' costs when determining whether a contract
is onerous. One of the acceptable interpretations noted by the
Committee is in line with our current practice, which is to
consider costs such as overhead allocations as 'unavoidable'. The
matter has been put on the agenda for future discussion at the IFRS
Interpretations Committee, with a view to drafting clarifications
to IAS 37. Until there is clarity on this matter, we have concluded
that our current approach remains acceptable. As a result, we did
not change our method for the assessment of onerous contracts upon
transition to IFRS 15.
Impact of transition
Following the implementation project, where we reviewed all
revenue streams as part of our IFRS 15 impact assessment, we
identified the following principal areas which have been affected
on adoption of IFRS 15.
Adjustments were required in relation to:
-- Certain costs, such as win fees (a form of commission) and
fulfilment cost (referred to by the Group as Entry into Service),
which are capitalised and spread over the life of the contract, as
opposed to being expensed as incurred, as was the case under the
previous policy. This resulted in an increase to retained earnings
of GBP7.6 million as at 1 January 2018, with the corresponding
entry to Prepayments. The tax impact of this adjustment is a debit
to equity of GBP1.4 million and a corresponding increase in
deferred tax liabilities as at 1 January 2018. The net impact on
retained earnings as at 1 January 2018 is GBP6.2 million.
-- Certain elements of Managed Services contracts, for example
those relating to Entry into Service, are not treated as separate
performance obligations under the new policy. Under the new policy,
these services are treated as part of the ongoing performance
obligations in the contract. This means the revenues and costs
associated with Entry into Service are recognised over the life of
the contracts with customers, rather than being recognised as
incurred as was the case historically. This resulted in an increase
to retained earnings of GBP0.5 million as at 1 January 2018, with
the corresponding entry to Prepayment. The tax impact of this
adjustment is a debit to equity of GBP0.1 million and a
corresponding increase in deferred tax liabilities as at 1 January
2018. The net impact on retained earnings as at 1 January 2018 is
GBP0.4 million.
The specific performance obligations and invoicing conditions in
our Managed Services contracts are typically related to the number
of calls, interventions or users that we manage and therefore these
contracts typically generate variable revenues over time and have
not been impacted by the implementation of IFRS 15.
As noted above, IFRS 15 has been adopted using the modified
retrospective approach, therefore comparative amounts have not been
restated. For comparability purposes, tables giving the impact of
the adoption of the new standard on the Consolidated Balance Sheet
and Consolidated Income Statement for the year ended 31 December
2018 show what the results would have been had they been prepared
under the previous accounting policies. These tables are within
note 2 to the summary financial information included within this
announcement.
Agent vs Principal
Since the finalisation of the revised Group revenue recognition
accounting policies and adoption of IFRS 15 on 1 January 2018, a
new line of business has emerged within our Technology Sourcing
business. Typically, vendors and customers approach us with an
opportunity where the vendor is taking the contract and performance
risks, sets the selling price and uses Computacenter as a
pass-through agent in the channel, to transact the deal for a set
fee. To date these have been primarily large software deals where
there is no ongoing obligation of service on us following the
transaction. We have no say in the pricing or selection of the
product and are merely standing in the sales channel between the
vendor and customer, for the pre-determined fee. Based on the facts
and circumstances of each deal, we assess how the terms and
conditions of the deal are applied in practice against our revenue
recognition policies, by reviewing the weighting applied to the
agent/principal indicators. As a result, we have classified several
of these deals as agency, concluding that the fee received should
be booked as net revenue. The total value of these deals during the
year, on an agency basis, was GBP3.1 million.
Segmental reporting structure changes
During the first half of the year, Management reviewed the way
it reported segmental performance to the Board and the Chief
Executive Officer, who is the Group's Chief Operating Decision
Maker ('CODM'), to determine whether it could improve the
transparency and understandability of the trading performance of
its core Group Operating Model geographies. As a result of this
analysis, the Board has adopted a new segmental reporting structure
from the period ended 30 June 2018 and year ended 31 December
2018.
In accordance with IFRS 8 Operating Segments, the Group has
identified four revised operating Segments:
-- UK;
-- Germany;
-- France; and
-- International.
As the location of the Group's headquarters, the UK entity has
also borne an increasing share of corporate costs since the rollout
of the Group Operating Model from 2013.
Certain expenses such as those for the Board itself and related
public company costs, Group Executive members not aligned to a
specific geographic trading entity and the cost of centrally funded
strategic corporate initiatives that benefit the whole Group, are
not allocated to individual segments because they are not directly
attributable to any single segment. Accordingly, these expenses are
disclosed as a separate column, 'Central Corporate Costs', within
the segmental note.
Under the previous segmental reporting structure, the UK Segment
included a number of other operating entities, primarily
international Global Service Desk locations. Whilst these entities
have limited external revenues, and a cost recovery model that
suggests better than breakeven margins to ensure compliance with
transfer pricing regulations, this generated unnecessary complexity
when presenting the UK results to the Board and the CODM, with the
growth in the number and scale of these other operating entities
blurring the underlying performance of the core geography over
time. The revised UK Segment now only comprises the trading
performance of Computacenter UK. The German Segment has been
revised to remove the independently run Computacenter Switzerland
operation, including cITius, which has been transferred to the
International Segment, leaving the German country trading
operations standing alone.
The new International Segment replaces the Belgian Segment and
includes the Belgium, Switzerland, FusionStorm, Computacenter USA
and TeamUltra trading operations, along with the international
Global Service Desk locations in South Africa, Spain, Hungary,
Mexico, Malaysia, Poland, India and China. The International
Segment has been created to reflect the Group's ambitions to
continue to expand its worldwide footprint. This includes expanding
trading operations into new geographic locations, both within our
Western European heartland and beyond, and the need to continue to
identify talent-rich offshore locations, to ensure that we can
remain both cost and resource competitive in the Services
marketplace.
The French Segment remains unchanged from that reported at 31
December 2017.
This new segmental reporting structure is the basis on which
internal reports are provided to the Chief Executive Officer, as
the CODM, for assessing performance and determining the allocation
of resources within the Group.
Segmental performance is measured based on external revenues,
adjusted(1) gross profit, adjusted(1) operating profit and
adjusted(1) profit before tax.
The change in segmental reporting has no impact on reported
Group numbers.
Further information on this segmental restatement can be found
in note 4 to the summary financial information within this
announcement where, to enable comparisons with prior period
performance, historical segment information for the year ended 31
December 2017 has been restated in accordance with the revised
segmental reporting structure. All discussion within this
announcement on segmental results reflects this revised structure,
the reclassification of Central Corporate Costs and the resultant
prior period restatements.
Central corporate costs
As noted above within Segmental Reporting Structure Changes,
certain expenses such as those for the Board itself, and related
public company costs, Group Executive members not aligned to a
specific geographic trading entity, and the cost of centrally
funded strategic corporate initiatives that benefit the whole
Group, are not specifically allocated to individual segments
because they are not directly attributable to any single
segment.
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 administrative expenses.
During the period, total Central Corporate Costs were GBP25.2
million, an increase of 32.6 per cent (2017: GBP19.0 million).
Within this:
-- Board expenses and related public company costs were GBP3.2 million (2017: GBP3.7 million);
-- costs associated with Group Executive members not aligned to
a specific geographic trading entity were GBP4.3 million (2017:
GBP4.3 million);
-- share-based payment charges associated with the Group
Executive members identified above, including the Group Executive
Directors, were GBP2.7 million (2017: GBP2.6 million); and
-- strategic corporate initiatives increased from GBP8.4 million
in 2017 to GBP15.0 million in 2018, primarily due to increased
spend on projects designed to increase capability, enhance
productivity or strengthen systems which underpin the Group.
Financial instruments
The Group's financial instruments comprise borrowings, cash and
liquid resources, and various items that arise directly from its
operations.
The Group enters into hedging transactions, principally forward
exchange contracts or currency swaps, to manage currency risks
arising from the Group's operations and its sources of finance. As
the Group continues to expand its global reach and benefit from
lower cost operations in geographies such as South Africa, it has
entered into forward exchange contracts to help manage cost
increases due to currency movements. The Group's policy is not to
undertake speculative trading in financial instruments. The main
risks arising from the Group's financial instruments are interest
rate, liquidity and foreign currency risks. The overall financial
instruments strategy is to manage these risks in order to minimise
their impact on the Group's financial results. The policies for
managing each of these risks are set out below. Further disclosures
in line with the requirements of IFRS 7 are included in the
Consolidated Financial Statements.
Interest rate risk
The Group finances its operations through a mixture of retained
profits, bank borrowings, finance leases and loans for certain
customer contracts. The Group's general bank borrowings, other
facilities and deposits are at floating rates. No interest rate
derivative contracts have been entered into. The Group's specific
borrowing facility for the purchase of FusionStorm,and the undrawn
committed facility of GBP60 million, are at floating rates, however
the borrowing facility for the new operational headquarters in
Germany is at a fixed rate.
Liquidity risk
The Group's policy is to ensure that it has sufficient funding
and facilities in place to meet any foreseeable peak in borrowing
requirements. The Group's positive net cash and cash equivalents
position was maintained throughout 2018, and at the year end was
GBP200.4 million, with net funds(3) of GBP57.3 million after
including the Group's two specific borrowing facilities and CSF.
Due to strong cash generation over the past three years, the Group
can currently finance its operational requirements from its cash
balance, and it operates an informal cash pooling arrangement for
the majority of Group entities. During 2015, we extended an
existing specific committed facility of GBP40.0 million for a
three-year term through to February 2018. In January 2018, we
extended the facility to GBP60.0 million for a further three years.
The Group has never had to draw on this committed facility.
The Group has a Board-monitored policy to manage its
counterparty risk. This ensures that cash is placed on deposit
across a range of reputable banking institutions. CSF facilities
are committed.
Foreign currency risk
The Group operates primarily in the United Kingdom, Germany,
France and the United States of America, with smaller operations in
Belgium, China, Hungary, India, Malaysia, Mexico, the Netherlands,
Poland, South Africa, Spain and Switzerland.
The Group uses an informal cash pooling facility to ensure that
its operations outside the UK are adequately funded, where
principal receipts and payments are denominated in euros and US
dollars. For those countries within the Eurozone, the level of
non-euro denominated sales is small and, if material, the Group's
policy is to eliminate currency exposure through forward currency
contracts. For our US operations, most transactions are denominated
in US dollars. For the UK, the majority of sales and purchases are
denominated in sterling and any material trading exposures are
eliminated through forward currency contracts.
The Group has been successful in winning international Services
contracts, where Services are provided in multiple countries.
We aim to minimise currency exposure by invoicing the customer
in the same currency in which the costs are incurred. For certain
contracts, the Group's committed contract costs are not denominated
in the same currency as its sales. In such circumstances, for
example where contract costs are denominated in South African rand,
we eliminate currency exposure for a foreseeable period on these
future cash flows, through forward currency contracts.
In 2018, the Group recognised a loss of GBP3.2 million (2017:
gain of GBP0.2 million) through other comprehensive income in
relation to the changes in fair value of related forward currency
contracts, where the cash flow hedges relating to firm commitments
were assessed to be highly effective.
The Group reports its results in pounds sterling. The ongoing
weakness in the value of sterling against most currencies during
2018, in particular the euro, continued to benefit our revenues and
profitability as a result of the conversion of our foreign
earnings. However, the exchange rates seen in 2018 are not
materially dissimilar to those seen in 2017. The impact of
restating 2018 at 2017 exchange rates would be an increase of
approximately GBP18.8 million in 2017 revenue and no change in 2017
adjusted(1) profit before tax.
Credit risk
The Group principally manages credit risk through customer
credit limits. The credit limit is set for each customer based on
its creditworthiness, assessed by using credit rating agencies, and
the anticipated levels of business activity. These limits are
determined when the customer account is first setup and are
regularly monitored thereafter.
There are no significant concentrations of credit risk within
the Group. The Group's major customer, disclosed in note 4 to the
summary financial information within this announcement, consists of
entities under the control of the UK Government. The maximum credit
risk exposure relating to financial assets is represented by their
carrying value as at the balance sheet date.
Results of the Tender Offer
On 23 January 2018, the Company published details of the timing
and structure of a Return of Value by way of a shareholder circular
(the 'Circular'). On 13 February 2018, the Company announced the
results of the Tender Offer set out in the Circular, which closed
on 9 February 2018.
A total of 8,546,861 ordinary shares were purchased at a price
per Ordinary Share of 1,170 pence, for a total cost of
GBP99,998,273.70. The Company holds the ordinary shares purchased
pursuant to the Tender Offer in treasury. This represented
approximately 6.97 per cent of the issued share capital of the
Company as at 31 December 2017. Proceeds payable to the Company's
shareholders for the certificated ordinary shares purchased under
the Tender Offer were despatched by 19 February 2018 in the form of
a cheque. CREST account holders had their CREST accounts credited
on 14 February 2018.
Further details are available at the Company's website,
investors.computacenter.com, and in the 2017 Annual Report and
Accounts. Capitalised terms used in this section have the same
meaning as ascribed to them in the Circular.
Planning for the United Kingdom exiting the European Union
Computacenter's target clients are large corporate customers and
large government departments. We operate in four principal
geographies, the UK, Germany, France and the USA. This allows us to
manage European Union (EU) requirements from our EU locations and
we have a long history of trading with the subsidiaries of large
global Western European headquartered organisations, in many
diverse locations across the world. Therefore, the concept of
exporting to and importing from multiple countries with the related
systems requirements is already functioning across the
business.
There remains, even at this late stage, considerable uncertainty
around the exact nature and timing of the UK's exit from the EU,
which makes it difficult to develop specific plans for the various
potential outcomes. However, we established a Committee for
Planning for the United Kingdom exiting the European Union (the
'Committee') in 2017, to consider the key risks and changes that
may be required.
This Committee is led by the Group Finance Director and includes
senior staff from the key areas that may be affected including:
-- Finance, including Group Tax & Treasury and Group Commercial Finance;
-- Group Human Resources, for employment and related matters;
-- Group Legal & Contracting, including intellectual
property, data protection and supplier contracting;
-- Group Information Services, including IT systems, location of
IT infrastructure and location of data; and
-- Group Technology Sourcing, including Export/Import, Supply
Chain Services, Commercial Operations, Vendor Relations and the
potential impact of Waste Electrical and Electronic Equipment
(WEEE).
The Committee meets regularly to review papers submitted by the
subject matter experts and monitors an action list, to identify
ways to minimise the impact of this change. The Committee monitors
negotiation developments, actively considers the possible impacts
of the United Kingdom's departure from the EU on our business and
plans for changes to our processes and procedures that may be
required. The Committee, through its members, liaises with our
customers and our IT product and service partners, and is supported
in its work by specialist external advisors. The Committee has
issued a series of briefing notes and FAQs to customer-facing
employees, so they can respond to customer queries. The minutes of
the meetings and the subject-matter papers are reviewed at the
Group Risk Committee and updates have been provided to both the
Audit Committee and the Board.
Initial position and preparation
We are committed to operating our business and serving our
customers in a way that properly manages and mitigates the effects
of the UK leaving the EU. We will continue to work with our
customers and partners to deliver leading IT infrastructure
products and services before, during and after the UK's departure
from the EU, including any period of transition.
While Computacenter advocates barrier-free trade in products,
services and data between the UK and the EU, there remains
considerable uncertainty about what form the UK's departure from
the EU will take and, therefore, the changes to trade arrangements
that will occur. This makes it difficult to take specific action
and communicate specific plans. Computacenter believes however,
that it is well placed to deal effectively with any likely
eventuality. The Company, led by the Committee, has taken a number
of preparatory steps and assessed what we currently consider could
be the main impacts on the Company of exiting the EU and our
initial views on managing those impacts, so as to cause minimal
disruption to our customers.
Due to the already global nature of Computacenter's business,
its in-house logistics and service capabilities in the UK, Germany,
France, Belgium and the Netherlands, and its placement in the IT
infrastructure industry, the Committee does not currently consider
that we will be materially impacted by the UK's departure from the
EU. All the same, the Committee is paying particular attention to
our IT product supply business, where products routinely cross
between continental Europe and the UK, and our IT services
business, where data can flow across borders, especially within the
EU.
Technology Sourcing
Computacenter does not manufacture products, and instead sources
and resells products manufactured by leading information technology
companies worldwide. We have over 30 years of IT product supply
experience and routinely trade with manufacturers, distributors and
customers located both inside and outside the EU.
Any trade barriers created as a result of the UK's departure
from the EU have the potential to increase cross-border supply
complexity and cause delivery delays. We have been in regular
dialogue with our suppliers to understand their strategies to deal
with these, and to put in place appropriate mitigation strategies
to reduce the risk to us and our customers. Additionally, we have
been closely examining the countries of origin and destination of
the deliveries we make to customers from each Integration Center.
The vast majority of current customer Technology Sourcing product
supply is transacted on a country to country basis. There are some
instances where our UK business ships to Germany and our German
business ships to the UK. This is primarily due to local customer
ordering requirements. We have established a process where EU27
requirements of our UK customers will be shipped from Germany and
vice versa.
While the precise outcome of the UK's departure from the EU is
not yet clear, we are confident the imposition of new trade
barriers will not require Computacenter to develop fundamentally
new Technology Sourcing systems and processes. We are confident
that adapting existing systems and processes to cope with an
additional non-EU trading country, along with our multi-national
logistics facilities and our experience of international trade,
will mean that we are well positioned in this regard. In
anticipation of a new customs regime following the UK's departure
from the EU, and to mitigate the risk of delays from a potential EU
hard border, we have applied for the Authorised Economic Operator
(AEO) certification that should facilitate smoother customs
clearance.
Data transfer regulation
By incorporating the EU Commission approved Standard Contractual
Clauses, the Group has built data transfer adequacy into its
intra-Group agreements, to which all of its relevant UK and EU
legal entities are party. In this regard, the Company establishes
appropriate safeguards for the purposes of General Data Protection
Regulation Article 46, when transferring personal data to third
countries not considered adequate by EU data protection standards.
Computacenter has a strong desire for both the UK and EU
governments to agree an adequacy agreement on data protection, to
ensure the continued smooth transfer of data post the UK's
departure from the EU.
People
Whilst we do not employ a significant number of EU27 citizens in
the UK or UK citizens in the EU, and all indications suggest that
the UK government and the EU have agreed that EU citizens living
and working in the UK will be able to carry on doing so with
undiminished rights after the UK's departure from the EU, there is
still uncertainty. We will continue to closely support employees
throughout the process of the UK's departure from the EU, including
helping them to be fully aware of the applicable
status/registration processes as they become known.
Opportunities
We are not alone in our sector in facing these challenges. A
number of our European competitors have strong presences within the
EU and sell from this base into the UK. Equally, a number of our
global competitors have their European headquarters in the UK and
address the EU market from there. Once the details of the UK's
departure from EU are known, we will work with our major vendors to
address any concerns they may have about end-customers currently
serviced by other resellers with single country operations or those
stranded on either side of the UK-EU border.
It is likely that there will be additional investment required
in IT systems to manage the transition. Whilst this will be a cost
to us, it will also be an opportunity, as our customers, in some
cases, may need to increase investment in a similar manner.
Wider economic impact
There is significant uncertainty in relation to the UK's
departure from the EU and the impact that this can have on business
confidence and investment plans and therefore the marketplaces in
which we operate. Whilst the UK's departure from the EU is
frequently seen as only a risk or a negative event, it may also
create new opportunities and we remain well positioned to support
our customers whatever the outcome.
Going Concern
The Directors have, after due consideration, a reasonable
expectation that the Group has adequate resources to continue in
operational existence for a period of 12 months from the date of
approval of the Consolidated Financial Statements. Thus, they
continue to adopt the going concern basis of accounting in
preparing the Consolidated Financial Statements.
Fair, balanced and understandable
The UK Corporate Governance Code requires the Board to consider
whether the Annual Report and Accounts, taken as a whole, are
'fair, balanced and understandable' and 'provide the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.'
Management undertakes a formal process through which it can
provide comfort to the Board in making this statement.
MJ Norris
Chief Executive Officer
FA Conophy
Group Finance Director
Consolidated Income Statement
For the year ended 31 December 2018
2018 2017
Note GBP'000 GBP'000
==== =========== ===========
Revenue 4 4,352,570 3,793,371
=========================================== ==== =========== ===========
Cost of sales (3,804,019) (3,297,142)
=========================================== ==== =========== ===========
Gross profit 548,551 496,229
=========================================== ==== =========== ===========
Administrative expenses (439,183) (389,437)
=========================================== ==== =========== ===========
Operating profit 109,368 106,792
=========================================== ==== =========== ===========
Gain on disposal of an investment property 5 - 4,320
=========================================== ==== =========== ===========
Finance revenue 1,250 1,521
=========================================== ==== =========== ===========
Finance costs (2,490) (938)
=========================================== ==== =========== ===========
Profit before tax 108,128 111,695
=========================================== ==== =========== ===========
Income tax expense 6 (27,199) (30,381)
=========================================== ==== =========== ===========
Profit for the year 80,929 81,314
=========================================== ==== =========== ===========
Attributable to:
=========================================== ==== =========== ===========
Equity holders of the Parent 80,931 81,314
=========================================== ==== =========== ===========
Non-controlling interests (2) -
=========================================== ==== =========== ===========
Profit for the year 80,929 81,314
=========================================== ==== =========== ===========
Earnings per share:
=========================================== ==== =========== ===========
- basic 7 71.4p 67.3p
=========================================== ==== =========== ===========
- diluted 7 70.1p 66.5p
=========================================== ==== =========== ===========
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
GBP'000 GBP'000
======== ========
Profit for the year 80,929 81,314
===================================================== ======== ========
Items that may be reclassified to Consolidated
Income Statement:
==================================================== ======== ========
(Loss)/gain arising on cash flow hedge (3,231) 217
===================================================== ======== ========
Income tax effect 490 (37)
===================================================== ======== ========
(2,741) 180
==================================================== ======== ========
Exchange differences on translation of foreign
operations 7,828 4,994
===================================================== ======== ========
5,087 5,174
==================================================== ======== ========
Items not to be reclassified to Consolidated Income
Statement:
==================================================== ======== ========
Remeasurement of defined benefit plan (1,000) (668)
===================================================== ======== ========
Other comprehensive income for the year, net of
tax 4,087 4,506
===================================================== ======== ========
Total comprehensive income for the year 85,016 85,820
===================================================== ======== ========
Attributable to:
==================================================== ======== ========
Equity holders of the Parent 85,013 85,820
===================================================== ======== ========
Non-controlling interests 3 -
===================================================== ======== ========
85,016 85,820
==================================================== ======== ========
Consolidated Balance Sheet
As at 31 December 2018
2018 2017
Note GBP'000 GBP'000
==== ========= =========
Non-current assets
================================= ==== ========= =========
Property, plant and equipment 106,267 77,904
================================= ==== ========= =========
Intangible assets 184,613 80,335
================================= ==== ========= =========
Investment in associate 57 56
================================= ==== ========= =========
Deferred income tax asset 6d 9,587 9,063
================================= ==== ========= =========
Prepayments 3,524 -
================================= ==== ========= =========
304,048 167,358
================================= ==== ========= =========
Current assets
================================= ==== ========= =========
Inventories 99,524 69,289
================================= ==== ========= =========
Trade and other receivables 1,180,394 835,446
================================= ==== ========= =========
Prepayments 69,320 59,679
================================= ==== ========= =========
Accrued income 101,899 102,922
================================= ==== ========= =========
Forward currency contracts 3,851 8,209
================================= ==== ========= =========
Cash and short-term deposits 200,442 206,605
================================= ==== ========= =========
1,655,430 1,282,150
================================= ==== ========= =========
Total assets 1,959,478 1,449,508
================================= ==== ========= =========
Current liabilities
================================= ==== ========= =========
Trade and other payables 1,142,628 791,980
================================= ==== ========= =========
Deferred income 143,080 113,875
================================= ==== ========= =========
Financial liabilities 10,640 3,755
================================= ==== ========= =========
Forward currency contracts 612 1,196
================================= ==== ========= =========
Income tax payable 42,184 28,422
================================= ==== ========= =========
Provisions 11,990 1,681
================================= ==== ========= =========
1,351,134 940,909
================================= ==== ========= =========
Non-current liabilities
================================= ==== ========= =========
Financial liabilities 132,522 11,663
================================= ==== ========= =========
Provisions 15,041 7,599
================================= ==== ========= =========
Deferred income tax liabilities 6d 13,009 477
================================= ==== ========= =========
160,572 19,739
================================= ==== ========= =========
Total liabilities 1,511,706 960,648
================================= ==== ========= =========
Net assets 447,772 488,860
================================= ==== ========= =========
Capital and reserves
================================= ==== ========= =========
Issued capital 9,270 9,299
================================= ==== ========= =========
Share premium 3,942 3,913
================================= ==== ========= =========
Capital redemption reserve 74,957 74,957
================================= ==== ========= =========
Own shares held (113,474) (11,360)
================================= ==== ========= =========
Translation and hedging reserves 32,941 27,859
================================= ==== ========= =========
Retained earnings 440,119 384,178
================================= ==== ========= =========
Shareholders' equity 447,755 488,846
================================= ==== ========= =========
Non-controlling interests 17 14
================================= ==== ========= =========
Total equity 447,772 488,860
================================= ==== ========= =========
Approved by the Board on 11 March 2019.
MJ Norris FA Conophy
Chief Executive Officer Group Finance Director
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Attributable to equity holders
of the Parent
================================================================== ========= ============ ========
Translation
Issued Capital Own and Non-
share Share redemption shares hedging Retained controlling Total
capital premium reserve held reserves earnings Total interests equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======== ======== =========== ========= =========== ========= ========= ============ ========
At 1 January
2018 9,299 3,913 74,957 (11,360) 27,859 384,178 488,846 14 488,860
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Restatement -
Implementation
of IFRS 15 - - - - - 6,547 6,547 - 6,547
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
At 1 January
2018 -
restated 9,299 3,913 74,957 (11,360) 27,859 390,725 495,393 14 495,407
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Profit for the
year - - - - - 80,931 80,931 (2) 80,929
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Other
comprehensive
income - - - - 5,082 (1,000) 4,082 5 4,087
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Total
comprehensive
income - - - - 5,082 79,931 85,013 3 85,016
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Cost of
share-based
payments - - - - - 6,425 6,425 - 6,425
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Tax on
share-based
payments - - - - - 2,706 2,706 - 2,706
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Exercise of
options - - - 11,158 - (7,592) 3,566 - 3,566
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Purchase of own
shares - - - (13,274) - - (13,274) - (13,274)
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Return of Value
(RoV) - - - (99,998) - - (99,998) - (99,998)
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Expenses
relating to
RoV - - - - - (1,196) (1,196) - (1,196)
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Cancellation of
deferred
shares (29) 29 - - - - - - -
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Equity
dividends - - - - - (30,880) (30,880) - (30,880)
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
At 31 December
2018 9,270 3,942 74,957 (113,474) 32,941 440,119 447,755 17 447,772
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
At 1 January
2017 9,299 3,913 74,957 (12,115) 22,685 329,214 427,953 14 427,967
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Profit for the
year - - - - - 81,314 81,314 - 81,314
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Other
comprehensive
income - - - - 5,174 (668) 4,506 - 4,506
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Total
comprehensive
income - - - - 5,174 80,646 85,820 - 85,820
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Cost of
share-based
payments - - - - - 6,200 6,200 - 6,200
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Tax on
share-based
payments - - - - - 1,619 1,619 - 1,619
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Exercise of
options - - - 9,613 - (6,389) 3,224 - 3,224
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Purchase of own
shares - - - (8,858) - - (8,858) - (8,858)
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Equity
dividends - - - - - (27,112) (27,112) - (27,112)
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
At 31 December
2017 9,299 3,913 74,957 (11,360) 27,859 384,178 488,846 14 488,860
=============== ======== ======== =========== ========= =========== ========= ========= ============ ========
Consolidated Cash Flow Statement
For the year ended 31 December 2018
2018 2017
Note GBP'000 GBP'000
==== =============== ========
Operating activities
======================================================== ==== =============== ========
Profit before taxation 108,128 111,695
======================================================== ==== =============== ========
Net finance cost/(income) 1,240 (583)
======================================================== ==== =============== ========
Depreciation of property, plant and equipment 19,380 16,384
======================================================== ==== =============== ========
Amortisation of intangible assets 15,428 12,237
======================================================== ==== =============== ========
Depreciation of investment property - 91
======================================================== ==== =============== ========
Share-based payments 6,425 6,200
======================================================== ==== =============== ========
Gain on disposal of an investment property - (4,320)
======================================================== ==== =============== ========
Loss/(gain) on disposal of intangibles 164 (688)
======================================================== ==== =============== ========
Loss/(gain) on disposal of property, plant and
equipment 177 (535)
======================================================== ==== =============== ========
Net cash flow from inventories (28,887) (23,583)
======================================================== ==== =============== ========
Net cash flow from trade and other receivables
(including contract assets) (274,968) (94,718)
======================================================== ==== =============== ========
Net cash flow from trade and other payables (including
contract liabilities) 285,361 99,004
======================================================== ==== =============== ========
Net cash flow from provisions 5,865 281
======================================================== ==== =============== ========
Other adjustments 726 (477)
======================================================== ==== =============== ========
Cash generated from operations 139,039 120,988
======================================================== ==== =============== ========
Income taxes paid (23,821) (14,881)
======================================================== ==== =============== ========
Net cash flow from operating activities 115,218 106,107
======================================================== ==== =============== ========
Investing activities
======================================================== ==== =============== ========
Interest received 1,250 1,521
======================================================== ==== =============== ========
Acquisition of subsidiaries, net of cash acquired (55,970) (7,376)
======================================================== ==== =============== ========
Purchases of property, plant and equipment (45,442) (30,439)
======================================================== ==== =============== ========
Purchases of intangible assets (5,935) (9,618)
======================================================== ==== =============== ========
Proceeds from disposal of property, plant and equipment 146 915
======================================================== ==== =============== ========
Decrease in current asset investments - 30,000
======================================================== ==== =============== ========
Proceeds from disposal of an investment property - 14,450
======================================================== ==== =============== ========
Proceeds from disposal of intangible assets - 1,381
======================================================== ==== =============== ========
Net cash flow from investing activities (105,951) 834
======================================================== ==== =============== ========
Financing activities
======================================================== ==== =============== ========
Interest paid (2,490) (938)
======================================================== ==== =============== ========
Dividends paid to equity shareholders of the Parent (30,880) (27,112)
======================================================== ==== =============== ========
Return of Value (RoV) (99,998) -
======================================================== ==== =============== ========
Expenses on RoV (1,196) -
======================================================== ==== =============== ========
Proceeds from share issues 3,566 3,224
======================================================== ==== =============== ========
Purchase of own shares (13,274) (8,858)
======================================================== ==== =============== ========
Repayment of capital element of finance leases (803) (1,676)
======================================================== ==== =============== ========
Repayment of loans (1,119) (632)
======================================================== ==== =============== ========
New borrowings - finance leases 5,125 3,162
======================================================== ==== =============== ========
New borrowings - bank loan 124,065 10,591
======================================================== ==== =============== ========
Net cash flow from financing activities (17,004) (22,239)
======================================================== ==== =============== ========
(Decrease)/increase in cash and cash equivalents (7,737) 84,702
======================================================== ==== =============== ========
Effect of exchange rates on cash and cash equivalents 1,580 3,221
======================================================== ==== =============== ========
Cash and cash equivalents at the beginning of the
year 8 206,599 118,676
======================================================== ==== =============== ========
Cash and cash equivalents at the year end 8 200,442 206,599
======================================================== ==== =============== ========
1 Authorisation of Consolidated Financial Statements and
statement of compliance with IFRS
The Consolidated Financial Statements of Computacenter plc
(Parent Company or the Company) and its subsidiaries (the Group)
for the year ended 31 December 2018 were authorised for issue in
accordance with a resolution of the Directors on 11 March 2019. The
Consolidated Balance Sheet was signed on behalf of the Board by MJ
Norris and FA Conophy. Computacenter plc is a limited company
incorporated and domiciled in England whose shares are publicly
traded.
The Group's Consolidated Financial Statements have been prepared
in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union as they apply to the
Consolidated Financial Statements of the Group for the year ended
31 December 2018 and applied in accordance with the Companies Act
2006.
2 Summary of significant accounting policies
The accounting policies adopted are consistent with those of the
previous financial year as disclosed in the 2017 Annual Report and
Accounts except that the Group has had to change its accounting
policies and make material retrospective adjustments as a result of
adopting IFRS 15 'Revenue from Contracts with Customers' ('IFRS
15'). The impact of the adoption of IFRS 15 are disclosed
below.
The Group has adopted IFRS 15 from 1 January 2018 which has
resulted in changes in accounting policies and adjustments to the
amounts recognised in the Financial Statements. In accordance with
the transition provisions in IFRS 15, the Group has adopted the new
rules using the modified retrospective approach, meaning that the
cumulative effect of applying the new accounting policies has been
recognised as an adjustment in equity as at 1 January 2018. The
overall net impact of all adjustments was a credit to retained
earnings of GBP6.5 million as at 1 January 2018.
Adjustments were required in relation to:
-- Certain costs, such as win fees (a form of commission) and
fulfilment cost are capitalised and spread over the life of the
contract, as opposed to being expensed as incurred as was the case
under the previous policy. This resulted in an increase to retained
earnings of GBP7.6 million as at 1 January 2018, with the
corresponding entry to Prepayment. The tax impact of this
adjustment is a debit to equity of GBP1.4 million and a
corresponding increase in deferred tax liabilities as at 1 January
2018. The net impact on retained earnings as at 1 January 2018 is
GBP6.2 million. This change in accounting policy resulted in a
recognition of a net cost in FY2018 of GBP1.2 million with a
corresponding credit to tax for the year, as presented in the table
below. As at 31 December 2018, the win fee balance was GBP6.2
million.
-- Certain elements of Managed Services contracts, for example
those relating to Entry into Service, are not treated as separate
performance obligations under the new policy. Under the new policy,
these services are treated as part of the ongoing performance
obligations in the contract. This means the revenues and costs
associated with Entry into Service are recognised over the life of
the contracts with customers rather than being recognised as
incurred as was the case historically. This resulted in an increase
to retained earnings of GBP0.5 million as at 1 January 2018, with
the corresponding entry to Prepayment. The tax impact of this
adjustment is a debit to equity of GBP0.1 million and a
corresponding increase in deferred tax liabilities as at 1 January
2018. The net impact on retained earnings as at 1 January 2018 is
GBP0.4 million. This change in accounting policy resulted in a
reduction in revenue of GBP4.5 million and cost of sales of GBP4.8
million and in a recognition of a net cost in FY2018 of GBP0.3
million with a corresponding credit to tax for the year, as
presented in the table below. As at 31 December 2018, the
fulfilment cost balance was GBP0.3 million.
IFRS 15 has been adopted using the modified retrospective
approach, therefore comparative amounts have not been restated. For
comparability purposes, the following table gives the impact of the
adoption of the new standard on the Consolidated Balance Sheet and
Consolidated Income Statement for the year ended 31 December 2018
by showing what the results would have been had they been prepared
under the previous accounting policies.
Consolidated Income Statement
Results
without
adoption
of
2018 as IFRS
reported Adjustments 15
GBP'000 GBP'000 GBP'000
=========== =========== ===========
Revenue 4,352,570 (4,454) 4,348,116
=========================================== =========== =========== ===========
Cost of sales (3,804,019) 4,756 (3,799,263)
=========================================== =========== =========== ===========
Gross profit 548,551 302 548,853
=========================================== =========== =========== ===========
Administrative expenses (439,183) 1,216 (437,967)
=========================================== =========== =========== ===========
Operating profit 109,368 1,518 110,886
=========================================== =========== =========== ===========
Gain on disposal of an investment property - - -
=========================================== =========== =========== ===========
Finance revenue 1,250 - 1,250
=========================================== =========== =========== ===========
Finance costs (2,490) - (2,490)
=========================================== =========== =========== ===========
Profit before tax 108,128 1,518 109,646
=========================================== =========== =========== ===========
Income tax expense (27,199) (424) (27,623)
=========================================== =========== =========== ===========
Profit for the year 80,929 1,094 82,023
=========================================== =========== =========== ===========
Earnings per share:
=========================================== =========== =========== ===========
- basic 71.4 0.9 72.3
=========================================== =========== =========== ===========
- diluted 70.1 0.9 71.0
=========================================== =========== =========== ===========
Total comprehensive income for the year 85,016 1,094 86,110
=========================================== =========== =========== ===========
Consolidated Balance Sheet
Results
without
adoption
of
2018 as IFRS
reported Adjustments 15
GBP'000 GBP'000 GBP'000
===================== ==================== =================
Non-current assets
================================================ ===================== ==================== =================
Prepayments 3,524 (3,524) -
================================================= ===================== ==================== =================
Others 300,524 - 300,524
================================================= ===================== ==================== =================
304,048 (3,524) 300,524
================================================ ===================== ==================== =================
Current assets
================================================ ===================== ==================== =================
Prepayments 69,320 (2,720) 66,600
================================================= ===================== ==================== =================
Others 1,586,110 - 1,586,110
================================================= ===================== ==================== =================
1,655,430 (2,720) 1,652,710
================================================ ===================== ==================== =================
Total assets 1,959,478 (6,244) 1,953,234
================================================= ===================== ==================== =================
Current liabilities
================================================ ===================== ==================== =================
Others 1,351,134 - 1,351,134
================================================= ===================== ==================== =================
1,351,134 - 1,351,134
================================================ ===================== ==================== =================
Non-current liabilities
================================================ ===================== ==================== =================
Deferred income tax liabilities 13,009 (791) 12,218
================================================= ===================== ==================== =================
Others 147,563 - 147,563
================================================= ===================== ==================== =================
160,572 (791) 159,781
================================================ ===================== ==================== =================
Total liabilities 1,511,706 (791) 1,510,915
================================================= ===================== ==================== =================
Net assets 447,772 (5,453) 442,319
================================================= ===================== ==================== =================
Capital and reserves
================================================ ===================== ==================== =================
Retained earnings 433,572 1,094 434,666
================================================= ===================== ==================== =================
Opening balance adjustment to retained earnings 6,547 (6,547) -
================================================= ===================== ==================== =================
Others 7,653 - 7,653
================================================= ===================== ==================== =================
Total equity 447,772 (5,453) 442,319
================================================= ===================== ==================== =================
Consolidated Cash Flow Statement
Results
without
adoption
of
2018 as IFRS
reported Adjustments 15
GBP'000 GBP'000 GBP'000
========= =========== =========
Profit before taxation 108,128 1,518 109,646
================================================== ========= =========== =========
Adjustments for non-cash operating items 42,617 (424) 42,193
================================================== ========= =========== =========
Net cash flow from trade and other receivables (274,968) (1,094) (276,062)
================================================== ========= =========== =========
Others 239,441 - 239,441
================================================== ========= =========== =========
Net cash flow from operating activities 115,218 - 115,218
================================================== ========= =========== =========
Net cash flow from investing activities (105,951) - (105,951)
================================================== ========= =========== =========
Net cash flow from financing activities (17,004) - (17,004)
================================================== ========= =========== =========
(Decrease)/increase in cash and cash equivalents (7,737) - (7,737)
================================================== ========= =========== =========
Effect of exchange rates on cash and cash
equivalents 1,580 - 1,580
================================================== ========= =========== =========
Cash and cash equivalents at the beginning
of the year 206,599 - 206,599
================================================== ========= =========== =========
Cash and cash equivalents at the year end 200,442 - 200,442
================================================== ========= =========== =========
IFRS 9 - Financial Instruments ('IFRS 9')
IFRS 9 is effective for accounting periods beginning on or after
1 January 2018. IFRS 9 replaces the classification and measurement
models for financial instruments in IAS 39. The Group has assessed
its balance sheet assets in accordance with the new classification
requirements. There has been no change in the measurement for any
of the Group's financial assets or liabilities.
In addition, IFRS 9 introduces an 'expected loss' model for the
assessment of impairment of financial assets. The 'incurred loss'
model under IAS 39 required the Group to recognise impairment
losses when there was objective evidence that an asset was
impaired. Under the expected loss model, impairment losses are
recorded if there is an expectation of credit losses, even in the
absence of a default event. However, as permitted by IFRS 9, the
Group applies the 'simplified approach' to trade receivable
balances. Due to general quality and short-term nature of the trade
receivables, there is no significant impact on introduction of the
'simplified approach'.
The Group applies the hedge accounting requirements under IFRS 9
and its hedging activities are discussed in note 23 of the 2017
Annual Report and Accounts with movements on hedging reserves
disclosed on Consolidated Statement of Changes in Equity. The
Group's existing hedging arrangements have been assessed as
compliant with IFRS 9. The adoption of IFRS 9 from 1 January 2018
does not have a material impact on the Group's reported
results.
The following table presents the Group's financial instruments,
showing their original measurement category under IAS 39 and new
measurement categories under IFRS 9, as at 1 January 2018. There
has been no measurement change to any of the financial instruments
upon adoption of IFRS 9.
Financial instrument IAS 39 classification IFRS 9 classification
=============================== ===============================
Financial assets
=============================== =============================== ===============================
Cash and cash equivalents Loan and receivable Amortised cost
=============================== =============================== ===============================
Fair value through Consolidated Fair value through Consolidated
Current asset investments Income Statement Income Statement
=============================== =============================== ===============================
Fair value through Consolidated
Statement of Comprehensive
Trade receivables Loan and receivable Income - debt instrument
=============================== =============================== ===============================
Other receivables Loan and receivable Amortised cost
=============================== =============================== ===============================
Derivatives used in
designated hedge relationships Fair value - hedging instrument Fair value - hedging instrument
=============================== =============================== ===============================
Derivatives not in Fair value through Consolidated Fair value through Consolidated
designated hedge relationships Income Statement Income Statement
=============================== =============================== ===============================
Financial liabilities
=============================== =============================== ===============================
Trade and other payables Amortised cost Amortised cost
=============================== =============================== ===============================
Borrowings Amortised cost Amortised cost
=============================== =============================== ===============================
Derivatives used in
designated hedge relationships Fair value - hedging instrument Fair value - hedging instrument
=============================== =============================== ===============================
Derivatives not in Fair value through Consolidated Fair value through Consolidated
designated hedge relationships Income Statement Income Statement
=============================== =============================== ===============================
Impairment
There has been no material adjustment required on transition to
IFRS 9 to the loss allowance against financial assets.
Effective for the year ending 31 December 2019
IFRS 16 Leases (IFRS 16)
IFRS 16 will be effective for the accounting period beginning 1
January 2019. The new standard will require that the Group's leased
assets are recorded as 'right of use assets' in the balance sheet
within Property, plant and equipment with a corresponding lease
liability which is based on the present value of the future
payments required under each lease.
The Group intends to use the simplified approach to transition,
and to utilise various practical expedients in the standard, such
as not recognising lease liabilities for leases under 12 months in
duration or for leases on assets with a value of under GBP5,000. In
addition, the Group intends to use the practical expedient
available and, within its transition adjustment, only consider
contracts previously identified as including leases.
The Group intends to take the option to measure the right of use
asset at transition at the value of the lease liability, therefore
there was no impact on the net asset position of the Group at
transition date. The Group's leases primarily relate to office
buildings, warehouses and vehicles. As previously noted, the impact
of IFRS 16 on the Consolidated Financial Statements will be
material.
The existing operating lease expense currently recorded in cost
of sales and administrative expenses will be replaced by a
depreciation charge which will be presented in cost of sales and
administrative expenses and a separate financing expense, which
will be recorded in interest expense. For leases previously
classified as operating leases, the profile of total expenses
recognised over the course of a lease will change and will no
longer be on a straight-line basis but rather will be front-loaded
to the earlier periods of the lease. This is because the finance
expense element will be higher in the earlier periods and reduce as
the lease liability is paid down over time.
Net cash flows will not be impacted by the new standard,
however, the lease payments will no longer all be presented as
operating cash outflows in the Consolidated Cash Flow Statement but
rather will be presented as financing cash outflows, split between
interest payments and repayment of lease liabilities. This means
that cash flows from operating activities will increase but cash
flows from financing activities will decrease.
The Group does not currently intend to alter its approach as to
whether assets should be leased or bought going forward.
The substantial majority of the Group's operating lease
commitments (some GBP146.5 million on an undiscounted basis) will
be brought onto the Consolidated Balance Sheet and amortised and
depreciated separately.
2.1. Basis of preparation
The summary financial information set out above does not
constitute the Group's statutory Consolidated Financial Statements
for the years ended 31 December 2018 or 2017. Statutory
Consolidated Financial Statements for the Group for the year ended
31 December 2017, prepared in accordance with adopted IFRS, have
been delivered to the Registrar of Companies and those for 2018
will be delivered in due course. The auditors have reported on
those accounts; their report was (i) unqualified, (ii) did not
include a reference to any matters to which the auditors drew
attention by way of any emphasis without qualifying their opinion
and (iii) did not contain a statement under Section 498 (2) or (3)
of the Companies Act 2006.
The summary financial information for the year ended 31 December
2018 has been prepared by the directors based upon the results and
position that are reflected in the Consolidated Financial
Statements of the Group.
The Consolidated Financial Statements are prepared on the
historical cost basis other than derivative financial instruments,
which are stated at fair value.
The Consolidated Financial Statements are presented in pounds
sterling (GBP) and all values are rounded to the nearest thousand
(GBP'000) except when otherwise indicated.
2.2. Basis of consolidation
The Consolidated Financial Statements comprise the Financial
Statements of the Parent Company and its subsidiaries as at 31
December each year. The Financial Statements of subsidiaries are
prepared for the same reporting year as the Parent Company, using
existing GAAP in each country of operation. Adjustments are made on
consolidation for differences that may exist between the respective
local GAAPs and IFRS.
All intra-group balances, transactions, income and expenses and
profit and losses resulting from intra-group transactions have been
eliminated in full.
Subsidiaries are consolidated from the date on which the Group
obtains control and cease to be consolidated from the date on which
the Group no longer retains control. Non-controlling interests
represent the portion of profit or loss and net assets in
subsidiaries that is not held by the Group and is presented
separately within equity in the Consolidated Balance Sheet,
separately from Parent shareholders equity.
2.2.1. Foreign currency translation
The Group's presentation currency is pounds sterling. Each
entity in the Group determines its own functional currency and
items included in the Financial Statements of each entity are
measured using that functional currency. Transactions in foreign
currencies are initially recorded in the functional currency at the
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling at
the Consolidated Balance Sheet date. All differences are taken to
the Consolidated Income Statement.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rate as at
the date of initial transaction.
The functional currencies of the material overseas subsidiaries
are euro (EUR), US dollar (US$), South African rand (ZAR) and Swiss
franc (CHF). As at the reporting date, the assets and liabilities
of these overseas subsidiaries are translated into the presentation
currency of the Group at the rate of exchange ruling at the balance
sheet date and their Consolidated Income Statements are translated
at the average exchange rates for the year. Exchange differences
arising on the retranslation are recognised in the Consolidated
Statement of Comprehensive Income. On disposal of a foreign entity,
the deferred cumulative amount recognised in the Consolidated
Statement of Comprehensive Income relating to that particular
foreign operation is recognised in the Consolidated Income
Statement.
2.3. Revenue
Revenue is recognised to the extent of the amount which is
expected to be received from customers as consideration for the
transfer of goods and services to the customer.
In multi-element contracts with customers where more than one
good (Technology Sourcing) or service (Professional Services and
Managed Services) is provided to the customer, analysis is
performed to determine whether the separate promises are distinct
performance obligations within the context of the contract. To the
extent that this is the case, the transaction price is allocated
between the distinct performance obligations based upon relative
standalone selling prices. The revenue is then assessed for
recognition purposes based upon the nature of the activity and the
terms and conditions of the associated customer contract relating
to that specific distinct performance obligation.
The following specific recognition criteria must also be met
before revenue is recognised:
2.3.1. Technology Sourcing
The Group supplies hardware and software (together as 'goods')
to customers that is sourced from and delivered by a number of
suppliers.
Technology Sourcing revenue is recognised at a point in time,
when control of the goods have passed to the customer, usually on
dispatch. Payment for the goods is generally received on industry
standard payment terms.
2.3.2 Professional Services
The Group provides skilled professionals to customers either on
a 'resource on demand' basis or operating within a project
framework.
For those contracts which are 'resource on demand', where the
revenue is billed on a timesheet basis, revenue is recognised based
on monthly invoiced amounts as this corresponds to the service
delivered to the customer and the satisfaction of the company's
performance obligations. For contracts operating within a project
framework, revenue is recognised based on the transaction price
with reference to the costs incurred as a proportion of the total
estimated costs (percentage of completion basis) of the contract.
Under either basis, Professional Services revenue is recognised
over time.
If the total estimated costs and revenues of a contract cannot
be reliably estimated, revenue is recognised only to the extent
that costs have been incurred and where the Group has an
enforceable right to payment as work is being performed.
A provision for forecast excess costs over forecasted revenue is
made as soon as a loss is foreseen (see note 2.13.1 to the summary
financial information within this announcement for further
detail).
Unbilled Professional Services revenue is classified as a
contract asset and is included within accrued income in the
Consolidated Balance Sheet. Unearned Professional Services revenue
is classified as a contract liability and is included within
deferred income in the Consolidated Balance Sheet. Payment for the
services, which are invoiced monthly, are generally on industry
standard payment terms.
2.3.3 Managed Services
The Group sells maintenance, support and management of
customers' IT infrastructures and operations.
Managed Services revenue is recognised over time, throughout the
term of the contract, as services are delivered. The specific
performance obligations and invoicing conditions in our Managed
Services contracts are typically related to the number of calls,
interventions or users that we manage and therefore the customer
simultaneously receives and consumes the benefits of the services
as they are performed. Revenue is recognised based on monthly
invoiced amounts as this corresponds to the service delivered to
the customer and the satisfaction of the company's performance
obligations.
Unbilled Managed Services revenue is classified as a contract
asset and is included within accrued income in the Consolidated
Balance Sheet. Unearned Managed Services revenue is classified as a
contract liability and is included within deferred income in the
Consolidated Balance Sheet. Amounts invoiced relating to more than
one year are deferred and recognised over the relevant period.
Payment for the services is generally on industry standard payment
terms.
If the total estimated costs and revenues of a contract cannot
be reliably estimated, revenue is recognised only to the extent
that costs have been incurred and where the Group has an
enforceable right to payment as work is being performed. A
provision for forecast excess costs over forecasted revenue is made
as soon as a loss is foreseen (see note 2.13.1 to the summary
financial information within this announcement for further detail).
On occasion, the Group may have a limited number of Managed
Services contracts where revenue is recognised on a percentage of
completion basis, which is determined by reference to the costs
incurred as a proportion of the total estimated costs of the
contract (see note 3.1.1 to the summary financial information
within this announcement for further detail).
Costs of obtaining and fulfilling revenue contracts
The Group operates in a highly competitive environment and is
frequently involved in contract bids with multiple competitors,
with the outcome usually unknown until the contract is awarded and
signed.
When accounting for costs associated with obtaining and
fulfilling customer contracts, the Group first considers whether
these costs fit within a specific IFRS standard or policy. Any
costs associated with obtaining or fulfilling revenue contracts
which do not fall into the scope of other IFRS standards or
policies are considered under IFRS 15. All such costs are expensed
as incurred other than the two types of costs noted below:
1. Win fees - The Group pays 'win fees' to certain employees as
bonuses for successfully obtaining customer contracts. As these are
incremental costs of obtaining a customer contract, they are
capitalised along with any associated payroll tax expense to the
extent they are expected to be recovered. These balances are
presented within Prepayments in the Consolidated Balance Sheet. The
win fee balance that will be realised after more than 12 months is
disclosed as non-current.
2. Fulfilment costs - The Group often incurs costs upfront
relating to the initial set-up phase of outsourcing contract, which
the Group refers to as Entry Into Service. These costs do not
relate to a distinct performance obligation in the contract, but
rather are accounted for as fulfilment costs under IFRS 15 as they
are directly related to the future performance on the contract.
They are therefore capitalised to the extent that they are expected
to be recovered. These balances are presented within Prepayments in
the Consolidated Balance Sheet.
Both win fees and Entry Into Service costs are amortised on a
straight-line basis over the contract term, as this is materially
equivalent to the pattern of transfer of services to the customer
over the contract term. The amortisation charges on win fees and
Entry Into Service costs are recognised in the Consolidated Income
Statement within administration expenses and cost of sales,
respectively.
Any bid costs incurred by the Group's Central Bid Management
Engines are not capitalised or charged to the contract, but instead
directly charged to selling, general and administrative expenses as
they are incurred. These costs associated with bids are not
separately identifiable nor can they be measured reliably as the
Group's internal bid team's work across multiple bids at any one
time.
2.3.4. Finance income
Income is recognised as interest accrues.
2.3.5. Operating lease income
Rental income arising from operating leases is accounted for on
a straight-line basis over the lease term.
2.4. Exceptional items
The Group presents, those material items of income and expense
as exceptional items which, because of the nature and expected
infrequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better elements of
financial performance in the year, so as to facilitate comparison
with prior years and to assess better trends in financial
performance.
2.5. Adjusted(1) measures
The Group uses a number of non-Generally Accepted Accounting
Practice (non-GAAP) financial measures in addition to those
reported in accordance with IFRS. The Directors believe that these
non-GAAP measures, listed below, are important when assessing the
underlying financial and operating performance of the Group.
These non-GAAP measures comprise of:
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
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, gains or losses
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 do not consider these
items when reviewing the underlying performance of the Segment or
the Group as a whole. Additionally, adjusted gross profit or loss
and adjusted operating profit or loss includes the interest paid on
customer-specific financing (CSF) which Management considers to be
a cost of sale.
A reconciliation between key adjusted and statutory measures is
provided on within the Group Finance Director's review contained
within this announcement. which details the impact of exceptional
and other adjusted items when comparing to the non-GAAP financial
measures in addition to those reported in accordance with IFRS.
Further detail is also provided within note 4 to the summary
financial information included within this announcement.
2.6. Impairment of assets
The Group assesses at each reporting date whether there is an
indication that an asset may be impaired. If any such indication
exists, or when annual impairment testing for an asset is required,
the Group makes an estimate of the asset's recoverable amount.
Where an asset does not have independent cash flows, the
recoverable amount is assessed for the cash generating unit (CGU)
to which it belongs. Certain other corporate assets are unable to
be allocated against specific CGUs. These assets are tested across
an aggregation of CGUs that utilise the asset. The recoverable
amount is the higher of the fair value less costs to sell and the
value-in-use of the asset or CGU. Where the carrying amount of an
asset exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount. In
assessing value-in-use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset. Impairment losses of
continuing operations are recognised in the Consolidated Income
Statement in those expense categories consistent with the function
of the impaired asset.
For assets excluding goodwill, an assessment is made at each
reporting date whether there is any indication that previously
recognised impairment losses may no longer exist or may have
decreased. If such indication exists, the Group estimates the
asset's or CGU's recoverable amount. A previously recognised
impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset's recoverable amount since
the last impairment was recognised. The reversal is limited so that
the carrying amount of the asset does not exceed its recoverable
amount, nor exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been
recognised for the asset in prior years. As the Group has no assets
carried at revalued amounts, such reversal is recognised in the
Consolidated Income Statement.
2.7. Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any accumulated impairment losses.
Depreciation, down to residual value, is calculated on a
straight-line basis over the estimated useful life of the asset as
follows:
-- freehold buildings: 25-50 years
-- short leasehold improvements: shorter of seven years and period to expiry of lease
-- fixtures and fittings
o head office: 5-15 years
o other: shorter of seven years and period to expiry of
lease
-- office machinery and computer hardware: 2-15 years
-- motor vehicles: three years.
Freehold land is not depreciated. An item of property, plant and
equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset.
Any gain or loss arising on derecognition of the asset (calculated
as the difference between the net disposal proceeds and the
carrying amount of the item) is included in the Consolidated Income
Statement in the year the item is derecognised.
2.8. Leases
Assets held under finance leases, which transfer to the Group
substantially all the risks and benefits incidental to ownership of
the leased item, are capitalised at the inception of the lease at
the fair value of the leased asset or, if lower, at the present
value of the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability so
as to achieve a constant rate of interest on the remaining balance
of the liability. Finance charges are charged directly against
income.
Capitalised leased assets are depreciated over the shorter of
the estimated useful life of the asset and the lease term.
Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating
leases. Operating lease payments are recognised as an expense in
the Consolidated Income Statement on a straight-line basis over the
lease term.
2.9. Investment property
Investment property is defined as land and/or buildings held by
the Group to earn rental income or for capital appreciation or
both, rather than for sale in the ordinary course of business or
for use in the supply of goods or services or for administrative
purposes. The Group recognises any part of an owned (or leased
under a finance lease) property that is leased to third parties as
investment property, unless it represents an insignificant portion
of the property.
Investment property is measured initially at cost including
transaction costs. Subsequent to initial recognition, the Group
elects to measure investment property at cost less accumulated
depreciation and accumulated impairment losses, if any (i.e.
applying the same accounting policies (including useful lives) as
for property, plant and equipment). The fair values reflect the
market conditions as at the balance sheet date.
2.10. Intangible assets
2.10.1. Software and software licences
Software and software licences include computer software that is
not integral to a related item of hardware. These assets are stated
at cost less accumulated amortisation and any impairment in value.
Amortisation is calculated on a straight-line basis over the
estimated useful life of the asset. Currently software is amortised
over four years.
The carrying values of software and software licences are
reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable. If any
such indication exists and where the carrying values exceed the
estimated recoverable amount, the assets are written down to their
recoverable amount.
2.10.2. Software under development
Costs that are incurred and that can be specifically attributed
to the development phase of management information systems for
internal use are capitalised and amortised over their useful life,
once the asset becomes available for use.
2.10.3. Other intangible assets
Intangible assets acquired as part of a business combination are
carried initially at fair value. Following initial recognition
intangible assets are carried at cost less accumulated amortisation
and any impairment in value. Intangible assets with a finite life
have no residual value and are amortised on a straight-line basis
over their expected useful lives with charges included in
administrative expenses as follows:
-- order back log: three months
-- existing customer contracts: five years
-- existing customer relationships: 10-15 years
-- tools and technology: seven years.
The carrying value of intangible assets is reviewed for
impairment whenever events or changes in circumstances indicate the
carrying value may not be recoverable.
2.10.4. Goodwill
Business combinations are accounted for under IFRS 3 Business
Combinations using the acquisition method. Any excess of the cost
of the business combination over the Group's interest in the net
fair value of the identifiable assets, liabilities and contingent
liabilities is recognised in the Consolidated Balance Sheet as
goodwill and is not amortised. Any goodwill arising on the
acquisition of equity accounted entities is included within the
cost of those entities.
After initial recognition, goodwill is stated at cost less any
accumulated impairment losses, with the carrying value being
reviewed for impairment at least annually and whenever events or
changes in circumstances indicate that the carrying value may be
impaired.
For the purpose of impairment testing, goodwill is allocated to
the related CGU monitored by Management, usually at business
Segment level or statutory Company level as the case may be. Where
the recoverable amount of the CGU is less than its carrying amount,
including goodwill, an impairment loss is recognised in the
Consolidated Income Statement.
2.11. Inventories
Inventories are carried at the lower of weighted average cost
and net realisable value after making allowance for any obsolete or
slow-moving items. Costs include those incurred in bringing each
product to its present location and condition, on a First-In,
First-Out basis.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs necessary to
make the sale.
2.12. Financial assets
Financial assets are recognised at their fair value, which
initially equates to the sum of the consideration given and the
directly attributable transaction costs associated with the
investment. Subsequently, the financial assets are measured at
either amortised cost or fair value depending on their
classification under IFRS 9. The Group currently holds only debt
instruments. The classification of these debt instruments depends
on the Group's business model for managing the financial assets and
the contractual terms of the cash flows.
2.12.1. Trade and other receivables
Trade receivables, which generally have 30 to 90-day credit
terms, are initially recognised and carried at their original
invoice amount less an allowance for any uncollectable amounts. The
Group sometimes uses debt factoring to managing liquidity and, as a
result, the business model for Trade receivables is that they are
held for the collection of contractual cashflows, which are solely
payments of principal and interest, and for selling. As a result,
IFRS 9 requires that, subsequent to initial recognition, they are
measured at fair value through other comprehensive income (except
for the recognition of impairment gains and losses and foreign
exchange gains and losses, which are recognised in profit or loss).
Given the short lives of the trade receivables, there are generally
no material fair value movements between initial recognition and
the derecognition of the receivable.
The Group assesses for doubtful debts (impairment) using the
expected credit losses model as required by IFRS 9. For trade
receivables, the Group applies the simplified approach which
requires expected lifetime losses to be recognised from the initial
recognition of the receivables.
2.12.2. Current asset investments
Current asset investments comprise deposits held for a term of
greater than three months from the date of deposit and which are
not available to the Group on demand. The business model for
current asset investments is that they are held for the collection
of contractual cashflows, which are not solely payments of
principal and interest. As a result, subsequent to initial
measurement, current asset investments are measured at fair value
with fair value movements recognised in profit and loss.
2.12.3. Cash and cash equivalents
Cash and short-term deposits in the Consolidated Balance Sheet
comprise cash at bank and in hand, and short-term deposits with an
original maturity of three months or less. Cash is held for the
collection of contractual cashflows which are solely payments of
principal and interest and therefore is measured at amortised cost
subsequent to initial recognition.
For the purpose of the Consolidated Cash Flow Statement, cash
and cash equivalents consist of cash and short-term deposits as
defined above, net of outstanding bank overdrafts.
2.13. Financial liabilities
Financial liabilities are initially recognised at their fair
value and, in the case of loans and borrowings, net of directly
attributable transaction costs. The subsequent measurement of
financial liabilities is at amortised cost, unless otherwise
described below:
2.13.1. Provisions (excluding Restructuring provision)
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions
are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision
due to the passage of time is recognised as a borrowing cost.
Customer contract provisions
A provision for forecast excess costs over forecasted revenue is
made as soon as a loss is foreseen.
Management continually monitor the financial performance of
contracts, and where there are indicators that a contract could
result in a negative margin, the future financial performance of
that contract will be reviewed in detail. If, after further
financial analysis, the full financial consequence of the contract
can be reliably estimated, and it is determined that the contract
is potentially loss-making, then the best estimate of the losses
expected to be incurred until the end of the contract will be
provided for (see note 3.1.1 to the summary financial information
within this announcement for further detail).
The Group applies IAS 37 in its assessment of whether contracts
are considered onerous and in subsequently estimating the
provision. An agenda decision published by the IFRS Interpretations
Committee outlined that the current wording of IAS 37 allows for
two interpretations of what can constitute 'unavoidable' costs when
determining whether a contract is onerous. One of the acceptable
interpretations noted by the Committee is in line with our current
practice, which is to consider costs such as overhead allocations
as 'unavoidable'. The matter has been put on the agenda for future
discussion at the IFRS Interpretations Committee, with a view to
drafting clarifications to IAS 37. Until there is clarity on this
matter, we have concluded that our current approach, that considers
total estimated costs (i.e. directly attributable variable costs
and fixed allocated costs) as included in the assessment of whether
the contract is onerous or not and in the measurement of the
provision, remains appropriate.
2.13.2. Restructuring provisions
The Group recognises a 'restructuring' provision when there is a
programme planned and controlled by Management that changes
materially the scope of the business or the manner in which it is
conducted.
Further to the Group's general provision recognition policy, a
restructuring provision is only considered when the Group has a
detailed formal plan for the restructuring identifying, as a
minimum; the business or part of the business concerned; the
principal locations affected; the location, function and
approximate number of employees who will be compensated for
terminating their services; the expenditures that will be
undertaken and when the plan will be implemented.
The Group will only recognise a specific restructuring provision
once a valid expectation in those affected that it will carry out
the restructuring by starting to implement that plan or announcing
its main features to those affected by it.
The Group only includes incremental costs associated directly
with the restructuring within the restructuring provisions such as
employee termination benefits and consulting fees. The Group
specifically excludes from recognition in a restructuring provision
any costs associated with ongoing activities such as the costs of
training or relocating staff that are redeployed within the
business rather than retrenched and costs for employees who
continue to be employed in ongoing operations, regardless of the
status of these operations post restructure.
2.13.3. Pensions and other post-employment benefits
The Group operates a defined contribution pension scheme
available to all UK employees. Contributions are recognised as an
expense in the Consolidated Income Statement as they become payable
in accordance with the rules of the scheme. There are no material
pension schemes within the Group's overseas operations.
The Group has an obligation to make a one-off payment to French
employees upon retirement, the Indemnités de Fin de Carrière
(IFC).
French employment law requires that a company pays employees a
one-time contribution when, and only when, the employee leaves the
Company for 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.
Typically the retirement benefit is based on length of service
of the employee and his or her salary at retirement. The amount is
set via a legal minimum but the retirement premiums can be improved
by the collective agreement or employment contract in some cases.
In Computacenter France, the payment is based on accrued service
and ranges from one month of salary after five years of service to
9.4 months of salary after 47 years of service.
If the employee leaves voluntarily at any point before
retirement, all liability is extinguished and any accrued service
is not transferred to any new employment.
Management continues to account for this obligation according to
IAS 19 (revised).
2.14. Derecognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- the rights to receive cash flows from the asset have expired; or
-- the Group retains the right to receive cash flows from the
asset, but has assumed an obligation to pay them in full without
material delay to a third party under a 'pass-through' arrangement;
or
-- the Group has transferred its rights to receive cash flows
from the asset and either (a) has transferred substantially all the
risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.
Financial liabilities
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled or expired.
2.15. Derivative financial instruments and hedge accounting
The Group uses foreign currency forward contracts to hedge its
foreign currency risks associated with foreign currency
fluctuations affecting cash flows from forecasted transactions and
unrecognised firm commitments.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which the Group
wishes to apply hedge accounting and the risk management objective
and strategy for undertaking the hedge. The documentation includes
identification of both the hedging instrument and, the hedged item
or transaction and then the economic relationship between the two,
including whether the hedging instrument is expected to offset
changes in cashflow of the hedged item. Such hedges are expected to
be highly effective in achieving offsetting changes in cash flows.
The Group designates the full change in the fair value of the
forward contract (including forward points) as the hedging
instrument. Forward contracts are initially recognised at fair
value on the date that the contract is entered into and are
subsequently remeasured at fair value at each reporting date. The
fair value of forward currency contracts is calculated by reference
to current forward exchange rates for contracts with similar
maturity profiles. Forward contracts are recorded as assets when
the fair value is positive and as liabilities when the fair value
is negative.
For the purposes of hedge accounting, hedges are classified as
cash flow hedges when hedging the exposure to variability in cash
flows that is either attributable to a particular risk associated
with a recognised asset or liability, a highly probable forecast
transaction, or the foreign currency risk in an unrecognised firm
commitment.
Cash flow hedges that meet the criteria for hedge accounting are
accounted for as follows: the effective portion of the gain or loss
on the hedging instrument is recognised directly in other
comprehensive income in the cash flow hedge reserve, while any
ineffective portion is recognised immediately in the Consolidated
Income Statement in administrative expenses.
Amounts recognised within other comprehensive income are
transferred to the Consolidated Income Statement, within
administrative expenses, when the hedged transaction affects the
Consolidated Income Statement, such as when the hedged financial
expense is recognised.
If the forecast transaction or firm commitment is no longer
expected to occur, the cumulative gain or loss previously
recognised in equity is transferred to the Consolidated Income
Statement within administrative expenses. If the hedging instrument
expires or is sold, terminated or exercised without replacement or
rollover, any cumulative gain or loss previously recognised within
Consolidated Other Comprehensive Income remains within Consolidated
Other Comprehensive Income until after the forecast transaction or
firm commitment affects the Consolidated Income Statement.
Any other gains or losses arising from changes in fair value on
forward contracts are taken directly to administrative expenses in
the Consolidated Income Statement.
2.16. Taxation
2.16.1. Current tax
Current tax assets and liabilities for the current and prior
years are measured at the amount expected to be recovered from or
paid to the tax authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively
enacted by the balance sheet date.
2.16.2. Deferred tax
Deferred income tax is recognised on all temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the Consolidated Financial Statements, with the
following exceptions:
-- where the temporary difference arises from the initial
recognition of goodwill or from an asset or liability in a
transaction that is not a business combination that at the time of
the transaction affects neither accounting nor taxable profit or
loss;
-- in respect of taxable temporary differences associated with
investments in subsidiaries, associates and joint ventures, where
the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will
not reverse in the foreseeable future; and
-- deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available in the
future against which the deductible temporary differences, carried
forward tax credits or tax losses, can be utilised.
Deferred income tax assets and liabilities are measured on an
undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax
rates and laws enacted, or substantively enacted, at the balance
sheet date.
Income tax is charged or credited directly to the statement of
comprehensive income if it relates to items that are credited or
charged to the statement of comprehensive income. Otherwise, income
tax is recognised in the Consolidated Income Statement.
2.17. Share-based payment transactions
Employees (including Executive Directors) of the Group can
receive remuneration in the form of share-based payment
transactions, whereby employees render services in exchange for
shares or rights over shares ('equity-settled transactions').
The cost of equity-settled transactions with employees is
measured by reference to the fair value of the award at the date at
which they are granted. The fair value is determined by utilising
an appropriate valuation model. In valuing equity-settled
transactions, no account is taken of any performance conditions as
none of the conditions set are market-related.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, over the period in which
the performance and/or service conditions are fulfilled, ending on
the date on which the relevant employees become fully entitled to
the award ('vesting date'). The cumulative expense recognised for
equity-settled transactions at each reporting date, until the
vesting date, reflects the extent to which the vesting period has
expired and the Directors' best estimate of the number of equity
instruments that will ultimately vest. The Consolidated Income
Statement charge or credit for a period represents the movement in
cumulative expense recognised as at the beginning and end of that
period. As the schemes do not include any market-related
performance conditions, no expense is recognised for awards that do
not ultimately vest.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of earnings per share
(see note 7 to the summary financial information within this
announcement).
The Group has an employee share trust for the granting of
non-transferable options to Executive Directors and senior
management. Shares in the Group held by the employee share trust
are treated as investment in own shares and are recorded at cost as
a deduction from equity.
2.18. Fair value measurement
The Group measures certain financial instruments at fair value
at each balance sheet date.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
2.19. Own shares held
Computacenter plc shares held by the Group are classified in
shareholders' equity as 'own shares held' and are recognised at
cost. Consideration received for the sale of such shares is also
recognised in equity, with any difference between the proceeds from
sale and the original cost being taken to reserves. No gain or loss
is recognised in the performance statements on the purchase, sale,
issue or cancellation of equity shares.
3 Critical accounting estimates and judgements
The preparation of the Consolidated Financial Statements
requires Management to exercise judgement in applying the Group's
accounting policies. It also requires the use of estimates and
assumptions that affect the reported amounts of assets,
liabilities, income and expenses. Due to the inherent uncertainty
in making these critical judgements and estimates, actual outcomes
could be different.
During the year, Management set aside time to consider the
critical accounting estimates and judgements for the Group. This
process included reviewing the last reporting period's disclosures,
the key judgements required on the implementation of forthcoming
standards such as IFRS 16 and the current period's challenging
accounting issues. Where Management deemed an area of accounting to
be no longer a critical estimate or judgement, an explanation for
this decision is found in the relevant accounting notes to the
Consolidated Financial Statements.
3.1. Critical estimates
Estimates and underlying assumptions are reviewed on an ongoing
basis, with revisions recognised in the year in which the estimates
are revised and in any future years affected. The areas involving
significant risk resulting in a material adjustment to the carrying
amounts of assets and liabilities within the next financial year
are as follows:
3.1.1. Services revenue recognition and contract provisions
Percentage of completion revenue recognition
On occasion, the Group accounts for certain Services contracts
using the percentage of completion method, recognising revenue by
reference to the stage of completion of the contract which is
determined by actual costs incurred as a proportion of total
forecast contract costs. This method places considerable importance
on accurate estimates of the extent of progress towards completion
of the contract and may involve estimates on the scope of services
required for fulfilling the contractually defined obligations.
These significant estimates include total contract costs, total
contract revenues, contract risks, including technical risks, and
other assumptions. Under the percentage of completion method, the
changes in these estimates and assumptions may lead to an increase
or decrease in revenue recognised at the balance sheet date with
the in-year revenue recognition appropriately adjusted as required.
When the outcome of the contract cannot be estimated reliably,
revenue is recognised only to the extent that expenses incurred are
eligible to be recovered. No revenue is recognised if there are
significant uncertainties regarding recovery of the
consideration.
The key judgements are the extent to which revenue should be
recognised and also, where total contract costs are not covered by
total contract revenue, the extent to which an adjustment is
required.
Additionally, where contracts are renegotiated mid-life,
Management will consider when to make a revenue adjustment.
Contract provisions
During the year, Management held a number of 'difficult'
contracts under review that were considered to be performing below
expectation. The number of contracts under review fluctuated during
the year between seven and 12 (2017: seven and 12). Each contract
was subject to a detailed review to consider the reasons behind the
lower than anticipated performance and the potential accounting
impacts related effect on revenue recognition estimates and
contract provisions.
For a limited number of these 'difficult' contracts, where there
was no immediate operational or commercial remedy for the
performance, a range of possible outcomes for the estimate of the
total contract costs and total contract revenues was considered to
determine whether a provision is required and, if so, the best
estimate of the provision.
The revenue recognised in the year from these contracts under
review was approximately GBP30.1 million (2017: GBP53.6 million).
The range of potential scenarios considered by management in
respect of these specific contracts resulted in a reduction in
margins, recognised in 2018 of GBP13.6 million (2017: GBP4.0
million), in the year. At 31 December 2018, based on Management's
best estimate, there was a provision of GBP16.4 million (2017:
GBP8.2 million) against future losses with the total costs to
complete on these contracts estimated at GBP76.9 million (2017:
GBP48.0 million).
The key judgements are determining which contracts are
considered 'difficult' and estimating the provision from the range
of possible outcomes.
3.2. Critical judgements
Judgements made by Management in the process of applying the
Group's accounting policies, that have the most significant effect
on the amounts recognised in the Consolidated Financial Statements,
are as follows:
3.2.1. Exceptional items
Exceptional items remain a core focus of Management with the
recent Alternative Performance Measure regulations providing
further guidance in this area.
Management is required to exercise its judgement in the
classification of certain items as exceptional and outside of the
Group's adjusted(1) results. The overall goal of Management is to
present the Group's underlying performance without distortion from
one-off or non-trading events regardless of whether they be
favourable or unfavourable to the underlying result.
To achieve this, Management have considered the materiality,
infrequency and nature of the various items classified as
exceptional this year against the requirements and guidance
provided by IAS 1, our Group accounting policies and the recent
regulatory interpretations and guidance.
In reaching their conclusions, Management consider not only the
effect on the overall underlying Group performance but also where
an item is critical in understanding the performance of its
component Segments which is of relevance to investors and analysts
when assessing the Group result and its future prospects as a
whole.
Further details of the individual exceptional items, and the
reasons for their disclosure treatment, are set out in note 5 to
the summary financial information within this announcement.
3.2.2. Technology Sourcing principal vs agent recognition
Management is required to exercise its judgement in the
classification of certain revenue contracts for Technology Sourcing
revenue recognition on either an agent or principal basis.
Because the identification of the principal in a contract is not
always clear, Management will make 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;
-- Our consideration is in the form of a, usually predetermined, commission.
Management continues to monitor the primary indicators used to
assess the 'agent/principal' presentation of our Software and
certain Resold Services revenue against our general contractual
terms and conditions including detailed analysis of how terms and
conditions are applied in practice, the weighting applied to the
agent/principal indicators and evaluation of emerging practice.
Management has concluded that whilst this remains a finely balanced
judgement, no change to the presentation of our Software and
certain Resold Services revenues, which contributed GBP704 million
and GBP278 million to the Group's revenue in 2018 respectively, is
required and revenue for these items will continue to be presented
gross where the underlying facts and circumstances remain the same.
Management continue to monitor the emergence of new methods of
transacting business within the traditional vendor to reseller
channel.
A new line of business has recently emerged within our
Technology Sourcing business where vendors and customers typically
approach us with an opportunity where the vendor is taking the
contract and performance risks and sets the selling price, using
Computacenter as a pass-through agent in the channel to transact
the deal for a set fee. To date, these have been primarily large
software deals where there is no ongoing obligation of service on
us following the transaction. We have no say in the pricing or
selection of the product and are merely standing in the sales
channel between the vendor and customer for the predetermined fee.
Management review the facts and circumstances of these types of
deals, case by case, with regards to its specific terms and
conditions against the Group's accounting policy to determine
whether our performance obligation is to provide the good or
service itself, where we are acting as the principal in the deal,
or to arrange for another party to provide the good or service,
where we are acting as an agent. Based on the facts and
circumstances of each deal we have classified several of these
deals as agency concluding that the fee received should be booked
as net revenue. Such agency deals contributed GBP3.1 million to
revenue during the year.
3.3. Change in critical estimates and critical judgements
During the year, Management reassessed the critical estimates
and critical judgements and resolved that no change was needed from
last year in critical estimates and critical judgements except for
the addition of 3.2.2 above.
4 Segment information
During the first half of the year, Management reviewed the way
it reported segmental performance to the Board and the Chief
Executive Officer, who is the Group's Chief Operating Decision
Maker ('CODM'), to determine whether it could improve the
transparency and understandability of the trading performance of
its core Group Operating Model geographies. As a result of this
analysis, the Board has decided to adopt a new segmental reporting
structure from the period ended 30 June 2018.
In accordance with IFRS 8 Operating Segments, the Group has
identified four revised operating Segments:
-- UK;
-- Germany;
-- France; and
-- International.
As the location of the Group's headquarters, the UK entity has
also borne an increasing share of corporate costs since the rollout
of the Group Operating Model from 2013. Certain expenses such as
those for the Board itself, and related public company costs, Group
Executive members not aligned to a specific geographic trading
entity and the cost of centrally funded strategic corporate
initiatives that benefit the whole Group, are not allocated to
individual Segments because they are not directly attributable to
any single Segment. Accordingly, these expenses are disclosed as a
separate column, 'Central Corporate Costs', within the segmental
note.
Under the previous segmental reporting structure, the UK Segment
included a number of other operating entities, primarily
international Global Service Desk locations. Whilst these entities
have limited external revenues, and a cost recovery model that
suggests better than breakeven margins to ensure compliance with
transfer pricing regulations, this generated unnecessary complexity
when presenting the UK results to the Board and the CODM, with the
growth in the number and scale of these other operating entities
blurring the underlying performance of the core geography over
time. The revised UK Segment now only comprises the trading
performance of Computacenter UK.
The German Segment has been revised to remove the independently
run Computacenter Switzerland operation, including cITius, which
has been transferred to the International Segment, leaving the
German country trading operations standing alone.
The new International Segment replaces the Belgian Segment and
includes the Belgium, Switzerland, USA, FusionStorm, Netherlands
and TeamUltra trading operations, along with the international
Global Service Desk locations in South Africa, Spain, Hungary,
Mexico, Poland, Malaysia, India and China. The International
Segment has been created to reflect the Group's ambitions to
continue to expand its worldwide footprint. This includes expanding
trading operations into new geographic locations, both within our
Western European heartland and beyond, and the need to continue to
identify talent-rich offshore locations, to ensure that we can
remain both cost and resource competitive in the Services
marketplace.
The French Segment remains unchanged from that reported at 31
December 2017.
This new segmental reporting structure is the basis on which
internal reports are provided to the Chief Executive Officer, as
the CODM, for assessing performance and determining the allocation
of resources within the Group.
Segmental performance is measured based on external revenues,
adjusted(1) gross profit, adjusted(1) operating profit and
adjusted(1) profit before tax. The change in segment reporting has
no impact on reported Group numbers.
To enable comparisons with prior year performance, historical
segment information for the year ended 31 December 2017 is restated
in accordance with the revised segmental reporting structure. All
discussion within this announcement on segmental results reflects
this revised structure, the reclassification of Central Corporate
Costs and the resultant prior year restatements.
Segmental performance for the years ended 31 December 2018 and
31 December 2017 were as follows:
Year ended 31 December 2018
Central
Corporate
UK Germany France International Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========= ========= ======== ============= ========== =========
Revenue
===================================== ========= ========= ======== ============= ========== =========
Technology Sourcing revenue 1,155,608 1,330,616 393,769 297,588 - 3,177,581
===================================== ========= ========= ======== ============= ========== =========
Services revenue
===================================== ========= ========= ======== ============= ========== =========
Professional Services revenue 116,440 166,471 18,914 20,090 - 321,915
===================================== ========= ========= ======== ============= ========== =========
Managed Services revenue 333,829 375,591 80,568 63,086 - 853,074
===================================== ========= ========= ======== ============= ========== =========
Total Services revenue 450,269 542,062 99,482 83,176 - 1,174,989
===================================== ========= ========= ======== ============= ========== =========
Total revenue 1,605,877 1,872,678 493,251 380,764 - 4,352,570
===================================== ========= ========= ======== ============= ========== =========
Results
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) gross profit 203,507 231,191 55,655 57,905 - 548,258
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) administrative
expenses (145,856) (164,332) (48,601) (45,515) (25,188) (429,492)
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) operating profit/(loss) 57,651 66,859 7,054 12,390 (25,188) 118,766
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) net interest 141 45 (162) (554) - (530)
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) profit/(loss) before
tax 57,792 66,904 6,892 11,836 (25,188) 118,236
===================================== ========= ========= ======== ============= ========== =========
Exceptional items:
===================================== ========= ========= ======== ============= ========== =========
- interest cost relating to
acquisition of a subsidiary (417)
===================================== ========= ========= ======== ============= ========== =========
- costs relating to acquisition
of a subsidiary (5,240)
===================================== ========= ========= ======== ============= ========== =========
- gain on disposal of an investment
property -
===================================== ========= ========= ======== ============= ========== =========
Total exceptional items (5,657)
===================================== ========= ========= ======== ============= ========== =========
Amortisation of acquired intangibles (4,451)
===================================== ========= ========= ======== ============= ========== =========
Statutory profit before tax 108,128
===================================== ========= ========= ======== ============= ========== =========
The reconciliation for adjusted(1) operating profit to statutory
operating profit as disclosed in the Consolidated Income Statement
is as follows:
Year ended 31 December 2018
Total
GBP'000
========
Adjusted(1) operating profit 118,766
===================================== ========
Add back interest on CSF 293
===================================== ========
Amortisation of acquired intangibles (4,451)
===================================== ========
Exceptional items (5,240)
===================================== ========
Statutory operating profit 109,368
===================================== ========
Central
Corporate
UK Germany France International Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======== ======== ======== ============= ========== ========
Other segment information
================================ ======== ======== ======== ============= ========== ========
Property, plant and equipment 41,532 50,558 5,612 8,565 - 106,267
================================ ======== ======== ======== ============= ========== ========
Investment property - - - - - -
================================ ======== ======== ======== ============= ========== ========
Intangible assets 21,057 18,444 148 144,964 - 184,613
================================ ======== ======== ======== ============= ========== ========
Capital expenditure:
================================ ======== ======== ======== ============= ========== ========
Property, plant and equipment 12,079 30,408 867 2,088 - 45,442
================================ ======== ======== ======== ============= ========== ========
Software 4,870 730 166 169 - 5,935
================================ ======== ======== ======== ============= ========== ========
Depreciation of property, plant
and equipment 7,893 7,287 1,630 2,570 - 19,380
================================ ======== ======== ======== ============= ========== ========
Depreciation of investment
property - - - - - -
================================ ======== ======== ======== ============= ========== ========
Amortisation of software 9,449 1,275 50 203 - 10,977
================================ ======== ======== ======== ============= ========== ========
Share-based payments 5,035 1,334 56 - - 6,425
================================ ======== ======== ======== ============= ========== ========
Year ended 31 December 2017 - restated
Central
Corporate
UK Germany France International Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========= ========= ======== ============= ========== =========
Revenue
===================================== ========= ========= ======== ============= ========== =========
Technology Sourcing revenue 986,677 1,200,871 405,139 43,507 - 2,636,194
===================================== ========= ========= ======== ============= ========== =========
Services revenue
===================================== ========= ========= ======== ============= ========== =========
Professional Services revenue 141,507 151,306 18,120 8,223 - 319,156
===================================== ========= ========= ======== ============= ========== =========
Managed Services revenue 335,145 362,481 86,684 53,711 - 838,021
===================================== ========= ========= ======== ============= ========== =========
Total Services revenue 476,652 513,787 104,804 61,934 - 1,157,177
===================================== ========= ========= ======== ============= ========== =========
Total revenue 1,463,329 1,714,658 509,943 105,441 - 3,793,371
===================================== ========= ========= ======== ============= ========== =========
Results
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) gross profit 196,170 214,743 53,539 31,618 - 496,070
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) administrative
expenses (144,632) (156,489) (47,931) (22,530) (19,001) (390,583)
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) operating profit/(loss) 51,538 58,254 5,608 9,088 (19,001) 105,487
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) net interest 607 472 (193) (144) - 742
===================================== ========= ========= ======== ============= ========== =========
Adjusted(1) profit before tax 52,145 58,726 5,415 8,944 (19,001) 106,229
===================================== ========= ========= ======== ============= ========== =========
Exceptional items:
===================================== ========= ========= ======== ============= ========== =========
- onerous contracts provision
for future losses 1,371
===================================== ========= ========= ======== ============= ========== =========
Total exceptional items 1,371
===================================== ========= ========= ======== ============= ========== =========
Gain on disposal of an investment
property 4,320
===================================== ========= ========= ======== ============= ========== =========
Amortisation of acquired intangibles (225)
===================================== ========= ========= ======== ============= ========== =========
Statutory profit before tax 111,695
===================================== ========= ========= ======== ============= ========== =========
The reconciliation for adjusted(1) operating profit to statutory
operating profit as disclosed in the Consolidated Income Statement
is as follows:
Year ended 31 December 2017
Total
GBP'000
========
Adjusted(1) operating profit 105,487
===================================== ========
Add back interest on CSF 159
===================================== ========
Amortisation of acquired intangibles (225)
===================================== ========
Exceptional items 1,371
===================================== ========
Statutory operating profit 106,792
===================================== ========
Central
Corporate
UK Germany France International Costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======== ======== ======== ============= ========== ========
Other segment information
================================ ======== ======== ======== ============= ========== ========
Property, plant and equipment 37,404 26,849 6,262 7,389 - 77,904
================================ ======== ======== ======== ============= ========== ========
Investment property - - - - - -
================================ ======== ======== ======== ============= ========== ========
Intangible assets 25,645 18,850 28 35,812 - 80,335
================================ ======== ======== ======== ============= ========== ========
Capital expenditure:
================================ ======== ======== ======== ============= ========== ========
Property, plant and equipment 8,976 18,432 960 2,071 - 30,439
================================ ======== ======== ======== ============= ========== ========
Software 8,460 1,109 9 40 - 9,618
================================ ======== ======== ======== ============= ========== ========
Depreciation of property, plant
and equipment 6,097 6,426 1,736 2,125 - 16,384
================================ ======== ======== ======== ============= ========== ========
Depreciation of investment
property - - - 91 - 91
================================ ======== ======== ======== ============= ========== ========
Amortisation of software 10,873 1,088 21 255 - 12,237
================================ ======== ======== ======== ============= ========== ========
Share-based payments 5,068 1,211 (79) - - 6,200
================================ ======== ======== ======== ============= ========== ========
Information about major customers
Included in revenues arising from the UK Segment are revenues of
approximately GBP277 million (2017: GBP288 million) which arose
from sales to the Group's largest customer. For the purpose of this
disclosure, a single customer is considered to be a group of
entities known to be under common control. This customer consists
of entities under control of the UK Government.
Contract balances
The following table provides the information about receivables,
contract assets and contract liabilities from contracts with
customers.
31 December 1 January
2018 2018*
Note GBP'000 GBP'000
===== =========== =========
Contract assets, which are included in 'trade and
other receivables' 1,180,394 835,446
=============================================================== =========== =========
Contract assets, which are included in 'prepayments' 6,451 7,926
=============================================================== =========== =========
Contract assets, which are included in 'accrued income' 101,899 102,922
=============================================================== =========== =========
Contract liabilities, which are included in 'deferred
income' 143,080 113,875
=============================================================== =========== =========
*the balances in this column are subsequent to adjustments
recorded on implementation of IFRS 15 on 1 January 2018.
Significant changes in contract assets and liabilities
Contract assets are balances due from customers under long-term
contracts as work is performed and therefore a contract asset is
recognised over the period in which the performance obligation is
fulfilled. This represents the Group's right to consideration for
the services transferred to date. Amounts are generally
reclassified to contract receivables when these have been certified
or invoiced to a customer.
Revenue recognised in the reporting period that was included in
the contract liability balance at the beginning of the period was
GBP79.3 million. Revenue recognised in the reporting period from
performance obligations satisfied or partially satisfied in
previous periods was GBP nil. Partially satisfied performance
obligations continue to incur revenue and costs in the period.
Remaining performance obligations (Work in hand)
Contracts which have remaining performance obligations as at 31
December 2018 are set out in the table below. The table below
discloses the aggregate transaction price relating to those
unsatisfied or partially unsatisfied performance obligations,
excluding both (a) amounts relating to contracts for which revenue
is recognised as invoiced and (b) amounts relating to contracts
where the expected duration of the ongoing performance obligation
is one year or less. As permitted under the transitional provisions
in IFRS 15, the transaction price allocated to remaining
performance obligations as of 31 December 2017 is not
disclosed.
FY2023
FY2019 FY2020 FY2021 FY2022 and beyond Total
GBPm GBPm GBPm GBPm GBPm GBPm
====== ====== ====== ====== =========== =====
Managed Services 613 323 216 146 48 1,346
================= ====== ====== ====== ====== =========== =====
The average duration of contracts is between one to five years,
however some contracts will vary from these typical lengths.
Revenue is typically earned over these varying timeframes, however
more of the revenue noted above is expected to be earned in the
short term.
5 Exceptional items
2018 2017
GBP'000 GBP'000
======== ========
Operating profit
====================================================== ======== ========
Onerous contracts - 1,371
====================================================== ======== ========
Costs relating to acquisition of a subsidiary (5,240) -
====================================================== ======== ========
(5,240) 1,371
====================================================== ======== ========
Interest cost relating to acquisition of a subsidiary (417) -
====================================================== ======== ========
Gain on disposal of an investment property - 4,320
====================================================== ======== ========
(Loss)/gain on exceptional items before taxation (5,657) 5,691
====================================================== ======== ========
Income tax
====================================================== ======== ========
Tax on onerous contracts included in operating profit - (351)
====================================================== ======== ========
Tax on exceptional items 1,353 -
====================================================== ======== ========
Tax relating to acquisition of a subsidiary 3,091 -
====================================================== ======== ========
(Loss)/gain on exceptional items after taxation (1,213) 5,340
====================================================== ======== ========
2018: Included within the current year are the following
exceptional items:
-- An exceptional loss during the year of GBP5.2 million
resulted from costs directly relating to the acquisition of
FusionStorm. These costs include a severance payment for the
FusionStorm Chief Executive Officer, agreed as part of the
acquisition, advisor fees and a finder's fee that was paid on
completion of the transaction. These costs are non-operational in
nature, material in size and unlikely to recur and have therefore
been classified as outside our adjusted(1) results. A further
GBP0.4 million relating to the unwinding of the discount on the
deferred consideration for the purchase of FusionStorm has been
removed from the adjusted(1) net finance expense and classified as
exceptional interest costs.
-- A credit of GBP1.4 million arising from the tax benefit on
the FusionStorm exceptional acquisition costs has been recognised
as tax on the above exceptional items. A further tax credit of
GBP3.1 million was recorded due to post-acquisition activity in
FusionStorm, related to the transaction, which has resulted in a
material in-year tax benefit. This activity included settlement of
phantom stock awards, deal bonus and change of control payments
which were settled by the vendor, out of the consideration paid,
via post-acquisition capital contributions to FusionStorm. As this
credit was related to the acquisition and not operational activity
within FusionStorm, is of a one-off nature and material to the
overall tax result, it was classified this as an exceptional tax
item.
2017: Included within the prior year are the following
exceptional items:
-- The remaining provisions for the last two onerous contracts
in Germany were released, for an exceptional gain of GBP1.4
million. These provisions were originally booked in 2013 and the
contracts have now returned to profitability, so the provisions are
no longer required. As these provisions were booked as exceptional
items, this release has also been classified as such.
-- The disposal of an investment property in Braintree, Essex,
was completed on 26 May 2017 for GBP14.5 million. This property was
associated with a former subsidiary of the Group, R.D. Trading
Limited, which was itself sold in February 2015. Due to the size
and non-operational nature of the transaction, the GBP4.3 million
gain on disposal, net of GBP0.2 million disposal costs, has been
classified as exceptional.
6 Income tax
a) Tax on profit from ordinary activities
2018 2017
GBP'000 GBP'000
======== ========
Tax charged in the Consolidated Income Statement
==================================================== ======== ========
Current income tax
==================================================== ======== ========
UK corporation tax 12,528 11,995
==================================================== ======== ========
Foreign tax
==================================================== ======== ========
- operating results before exceptional items 20,942 14,661
==================================================== ======== ========
- exceptional items (4,444) 351
==================================================== ======== ========
Total foreign tax 16,498 15,012
==================================================== ======== ========
Adjustments in respect of prior years 148 -
==================================================== ======== ========
Total current income tax 29,174 27,007
==================================================== ======== ========
Deferred tax
==================================================== ======== ========
Operating results before exceptional items:
==================================================== ======== ========
- origination and reversal of temporary differences (1,830) 3,374
==================================================== ======== ========
- adjustments in respect of prior years (145) -
==================================================== ======== ========
Total deferred tax (1,975) 3,374
==================================================== ======== ========
Tax charge in the Consolidated Income Statement 27,199 30,381
==================================================== ======== ========
b) Reconciliation of the total tax charge
2018 2017
GBP'000 GBP'000
======== ========
Accounting profit before income tax 108,128 111,695
========================================================== ======== ========
At the UK standard rate of corporation tax of 19 per cent
(2017: 19.25 per cent) 20,544 21,501
========================================================== ======== ========
Expenses not deductible for tax purposes 987 675
========================================================== ======== ========
Non-deductible element of share-based payment charge 589 1,297
========================================================== ======== ========
Adjustments in respect of current income tax of previous
years (384) (58)
========================================================== ======== ========
Effect of different tax rates of subsidiaries operating
in other jurisdictions 6,736 7,050
========================================================== ======== ========
Other differences (334) (683)
========================================================== ======== ========
Overseas tax not based on earnings 1,390 1,526
========================================================== ======== ========
Tax effect of income not taxable in determining taxable
profit (2,427) (832)
========================================================== ======== ========
Deferred tax not recognised on current year losses 98 (95)
========================================================== ======== ========
At effective income tax rate of 25.2 per cent (2017: 27.2
per cent) 27,199 30,381
========================================================== ======== ========
c) Tax losses
Deferred tax assets of GBP4.2 million (2017: GBP2.7 million)
have been recognised in respect of losses carried forward.
In addition, at 31 December 2018, there were unused tax losses
across the Group of GBP152.6 million (2017: GBP152.0 million) for
which no deferred tax asset has been recognised. Of these losses,
GBP40.1 million (2017: GBP40.9 million) arise in Germany and
GBP112.5 million (2017: GBP111.1 million) arise in France. A
significant proportion of the losses arising in Germany have been
generated in statutory entities that no longer have significant
levels of trade. The remaining unrecognised tax losses relate to
other loss-making overseas subsidiaries.
d) Deferred tax
Deferred income tax at 31 December relates to the following:
Consolidated
Income Statement
Consolidated and other comprehensive
Balance Sheet income
================== ==========================
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
======== ======== ============ ============
Deferred income tax liabilities
============================================= ======== ======== ============ ============
Revaluations of foreign exchange contracts
to fair value 738 1,293 (555) 194
============================================= ======== ======== ============ ============
Amortisation of intangibles 16,727 506 (1,196) (49)
============================================= ======== ======== ============ ============
Gross deferred income tax liabilities 17,465 1,799
============================================= ======== ======== ============ ============
Deferred income tax assets
============================================= ======== ======== ============ ============
Relief on share option gains 4,868 2,868 (2,000) (1,072)
============================================= ======== ======== ============ ============
Other temporary differences 4,887 4,192 (277) 1,164
============================================= ======== ======== ============ ============
Revaluations of foreign exchange contracts
to fair value 121 659 119 (157)
============================================= ======== ======== ============ ============
Losses available for offset against future
taxable income 4,167 2,666 1,934 3,294
============================================= ======== ======== ============ ============
Gross deferred income tax assets 14,043 10,385
============================================= ======== ======== ============ ============
Deferred income tax charge (1,975) 3,374
============================================= ======== ======== ============ ============
Net deferred income tax assets (3,422) 8,586
============================================= ======== ======== ------------ ------------
Disclosed on the Consolidated Balance Sheet
============================================= ======== ======== ------------ ------------
Deferred income tax assets 9,587 9,063
============================================= ======== ======== ------------ ------------
Deferred income tax liabilities (13,009) (477)
============================================= ======== ======== ------------ ------------
Net deferred income tax (liabilities)/assets (3,422) 8,586
============================================= ======== ======== ------------ ------------
At 31 December 2018, there was no recognised or unrecognised
deferred income tax liability (2017: GBPnil) for taxes that would
be payable on the unremitted earnings of the Group's subsidiaries
as the Group expects that future remittances of earnings from its
overseas subsidiaries will continue to be covered by relevant
dividend exemptions. Where, following the departure of the UK from
the European Union, the Group's European subsidiaries unremitted
earnings are no longer covered by a dividend exemption, appropriate
mitigating steps are envisaged that would eliminate the incidence
of withholding tax.
e) Impact of rate change
The main rate of UK Corporation tax is 19 per cent from 1 April
2017 and will be reduced to 17 per cent from 1 April 2020, as
enacted in the Finance Act 2015. The deferred tax in these
Consolidated Financial Statements reflects this.
7 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.
2018 2017
GBP'000 GBP'000
======== ========
Profit attributable to equity holders of the Parent 80,929 81,314
==================================================== ======== ========
2018 2017
GBP'000 GBP'000
======== ========
Basic weighted average number of shares (excluding own
shares held) 113,409 120,766
======================================================= ======== ========
Effect of dilution:
======================================================= ======== ========
Share options 1,984 1,471
======================================================= ======== ========
Diluted weighted average number of shares 115,393 122,237
======================================================= ======== ========
2018 2017
pence pence
====== ======
Basic earnings per share 71.4 67.3
=========================== ====== ======
Diluted earnings per share 70.1 66.5
=========================== ====== ======
8 Analysis of changes in net funds
At At
1 January Cash flows Non-cash Exchange 31 December
2018 in year flow differences 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========== ========== ======== ============ ============
Cash and short-term deposits 206,605 (7,743) - 1,580 200,442
============================= ========== ========== ======== ============ ============
Bank overdraft (6) 6 - - -
============================= ========== ========== ======== ============ ============
Cash and cash equivalents 206,599 (7,737) - 1,580 200,442
============================= ========== ========== ======== ============ ============
Bank loans (10,667) (122,946) - (621) (134,234)
============================= ========== ========== ======== ============ ============
Net funds excluding CSF 195,932 (130,683) - 959 66,208
============================= ========== ========== ======== ============ ============
CSF leases (4,745) (4,322) 433 (294) (8,928)
============================= ========== ========== ======== ============ ============
Total CSF (4,745) (4,322) 433 (294) (8,928)
============================= ========== ========== ======== ============ ============
Net funds 191,187 (135,005) 433 665 57,280
============================= ========== ========== ======== ============ ============
At At
1 January Cash flows Non-cash Exchange 31 December
2017 in year flow differences 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========== ========== ======== ============ ============
Cash and short-term deposits 118,676 84,708 - 3,221 206,605
============================== ========== ========== ======== ============ ============
Bank overdraft - (6) - - (6)
============================== ========== ========== ======== ============ ============
Cash and cash equivalents 118,676 84,702 - 3,221 206,599
============================== ========== ========== ======== ============ ============
Current asset investments 30,000 (30,000) - - -
============================== ========== ========== ======== ============ ============
Bank loans (294) (10,297) - (76) (10,667)
============================== ========== ========== ======== ============ ============
Net funds excluding CSF 148,382 44,405 - 3,145 195,932
============================== ========== ========== ======== ============ ============
CSF leases (3,477) (1,486) 366 (148) (4,745)
============================== ========== ========== ======== ============ ============
Customer-specific other loans (413) 338 - 75 -
============================== ========== ========== ======== ============ ============
Total CSF (3,890) (1,148) 366 (73) (4,745)
============================== ========== ========== ======== ============ ============
Net funds 144,492 43,257 366 3,072 191,187
============================== ========== ========== ======== ============ ============
9 Related party transactions
During the year the Group entered into transactions, in the
ordinary course of business, with related parties. Transactions
entered into are as described below:
Biomni provides the Computacenter e-procurement system used by
many of Computacenter's major customers. An annual fee has been
agreed on a commercial basis for use of the software for each
installation. Both PJ Ogden and PW Hulme are Directors of and have
a material interest in Biomni Limited.
Triage Services Limited mainly provides IT hardware repair
services to many of Computacenter's customers. MJ Norris is a
Director of and has a material interest in Triage Services
Limited.
The table below provides the total amount of transactions that
have been entered into with related parties for the relevant
financial year:
Amounts
Sales Purchases owed to
to related from related related
parties parties parties
GBP'000 GBP'000 GBP'000
=========== ============= ========
Biomni Limited 23 838 -
=============== =========== ============= ========
Terms and conditions of transactions with related parties
Sales to and purchases from related parties are made on terms
equivalent to those that prevail in arm's-length transactions.
Outstanding balances at the year end are unsecured and settlement
occurs in cash. There have been no guarantees provided or received
for any related party receivables. The Group has not recognised any
provision for doubtful debts relating to amounts owed by related
parties. This assessment is undertaken each financial year through
examining the financial position of the related party and the
market in which the related party operates.
Compensation of key management personnel (including
Directors)
The Board of Directors is identified as the Group's key
management personnel. A summary of the compensation of key
management personnel is provided below:
2018 2017
GBP'000 GBP'000
======== ========
Short-term employee benefits 1,791 1,842
==================================================== ======== ========
Social security costs 433 383
==================================================== ======== ========
Share-based payment transactions 1,367 1,563
==================================================== ======== ========
Pension costs 65 51
==================================================== ======== ========
Total compensation paid to key management personnel 3,656 3,839
==================================================== ======== ========
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UAOURKKAOAUR
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