TIDMCCC
RNS Number : 8609U
Computacenter PLC
31 March 2023
Computacenter plc
Incorporated in England
Registration number: 03110569
LEI: 549300XSXUZ1I19DB105
ISIN: GB00BV9FP302
Computacenter plc
Final results for the year ended 31 December 2022
Computacenter plc ("Computacenter" or the "Group"), a leading
independent technology partner trusted by large corporate and
public sector organisations, today announces unaudited results for
the year ended 31 December 2022.
Financial highlights 2022 2021
(restated) Percentage Change Increase / (Decrease)
Financial Performance
Technology Sourcing gross invoiced income (GBP million) 7,481.6 5,472.6 36.7
Services revenue (GBP million) 1,570.6 1,450.9 8.3
Gross invoiced income (GBP million) 9,052.2 6,923.5 30.7
Technology Sourcing revenue (GBP million) 4,899.9 3,583.6 36.7
Services revenue (GBP million) 1,570.6 1,450.9 8.3
Revenue (GBP million) 6,470.5 5,034.5 28.5
Adjusted(1) profit before tax (GBP million) 263.7 255.6 3.2
Adjusted(1) diluted earnings per share (pence) 169.7 165.6 2.5
Dividend per share (pence) 67.9 66.3 2.4
Profit before tax (GBP million) 249.0 248.0 0.4
Diluted earnings per share (pence) 159.1 160.9 (1.1)
Cash Position
Cash and cash equivalents (GBP million) 264.4 273.2
Adjusted net funds(3) (GBP million) 244.3 241.4
Net funds (GBP million) 117.2 95.3
Net cash inflow from operating activities (GBP million) 242.1 224.3
Reconciliation to Adjusted(1) Measures
Adjusted(1) profit before tax (GBP million) 263.7 255.6
Exceptional and other adjusting items:
Amortisation of acquired intangibles (GBP million) (10.9) (7.6)
Unwinding of discount relating to acquisition of a
subsidiary (GBP million) (2.0) -
Costs relating to acquisition of a subsidiary (GBP
million) (1.8) -
Profit before tax (GBP million) 249.0 248.0
The comparative information is restated on account of a change
in accounting policy for Technology Sourcing revenue and cost of
sales, see note 3.
Operational highlights:
-- Eighteenth consecutive year of adjusted(1) earnings per share growth.
-- Customer accounts with gross profit of over GBP1 million per
annum increased by 10.7 per cent, showing our ability to retain and
develop long-term customer relationships.
-- Services revenue increased by 8.3 per cent, demonstrating our development of customer value.
-- Continued significant programme of investments to underpin
our long-term resilience, competitiveness and growth.
-- North American Segment continued to progress and increased
its gross profit by over 18 per cent in constant currency(2) , in
line with our plans and illustrating the long-term opportunity.
-- India offshore headcount grew to 1,100, a key source of
skills and competitive advantage in the years ahead.
-- Achieved carbon neutral status for Scope 1 and 2 emissions in
2022, making us one of the first companies in our industry to reach
this milestone.
-- Over 20,000 people employed at the end of 2022, highlighting
the remarkable scale of our skills and resources globally.
Mike Norris, Chief Executive of Computacenter plc,
commented:
At Computacenter, we are pleased to have shown adjusted(1)
earnings per share growth in 2022 over the previous year
considering the challenging headwind from the unravelling of
temporary Covid-related cost base reduction benefits. In 2023, we
do not have anywhere near the same challenge as we have faced in
2022. By the end of the first half of 2022, almost all of the Covid
benefits had disappeared from the business. Demand from most of our
largest customers remains solid, particularly for IT infrastructure
on which their businesses rely. We have seen top-line revenue
extremely buoyant so far this year and expect this trend to
continue. Our challenges for the coming year include, to a small
extent, Technology Sourcing margins, due to the fact it is the
largest customers, which are dilutive to margins, that are spending
most, and, more significantly, Services margins due to price
pressure in the market and salary inflation. Supply constraints
have eased materially and while some will always remain, we are now
operating at close to normal market conditions. Aligned with this,
our inventory levels started to fall at the start of the fourth
quarter of last year and we expect further reduction this year,
which will continue to decrease the working capital required in the
business. As previously communicated Computacenter is currently
going through a significant internal IT investment phase which we
expect to last for a further two or three years. While this has put
pressure on our profitability in the short term, we believe it is
the right thing to do so as we can take advantage of the long-term
growth opportunities in the market and enhance our competitive
position to take market share. We remain positive about the outlook
in the short, medium, and long term. While there are plenty of
challenges due to the macroeconomic environment, we continue to
expect 2023 to be a year of progress.
Following a recently approved interpretation of the revenue
accounting standard by the International Accounting Standards
Board, we, and a number of our peer value-added resellers, have
changed the way we recognise revenues for standalone software and
resold third-party services contracts and revised our accounting
policies to reflect this change. Accordingly, we have restated our
prior-year revenues down from GBP6,725.8 million as reported at 31
December 2021 to GBP5,034.5 million, as we have now determined that
we are an agent for these transactions and will recognise revenue
on a net basis, with only the gross profit on these types of deals,
being the gross invoiced income less the costs of the resold
software or third-party services, showing as revenue, with nothing
recorded in cost of goods sold. This change has been applied from
2022 and, retrospectively, we have restated our prior-year 2021
revenues. The equivalent adjustment is not available for years
prior to 2021 as it is not practicable to calculate. Further
information on this change, including the retrospective restatement
of the financial statements, and the revised accounting policy, is
available in note 3 to the summary financial information within
this announcement.
The result for the year benefited from GBP187.8 million of
revenue (2021: GBP1.3 million), and GBP5.4 million of adjusted(1)
profit before tax (2021: GBP0.4 million), resulting from all
acquisitions made since 1 January 2021. All figures reported
throughout this announcement include the results of these acquired
entities. The results of these acquisitions are excluded where
narrative discussion refers to 'organic' growth in this
announcement.
(1) Gross invoiced income, adjusted administrative expense,
adjusted operating profit or loss, adjusted profit or loss before
tax, adjusted tax, adjusted profit or loss, adjusted earnings per
share and adjusted diluted earnings per share are, as appropriate,
each stated before: exceptional and other adjusting items,
including gains or losses on business acquisitions and disposals,
amortisation of acquired intangibles, utilisation of deferred tax
assets (where initial recognition was as an exceptional item or a
fair value adjustment on acquisition), and the related tax effect
of these exceptional and other adjusting items, as Management does
not consider these items when reviewing the underlying performance
of the Segment or the Group as a whole. A reconciliation to
adjusted measures is in the Group Finance Director's review, which
details the impact of exceptional and other adjusted items when
compared to the non-Generally Accepted Accounting Practice (GAAP)
financial measures, in addition to those reported in accordance
with IFRS. Further detail is provided within note 4 to the summary
financial information within this announcement.
(2) We evaluate the long-term performance and trends within our
strategic priorities on a constant-currency basis. The performance
of the Group and its overseas Segments are also shown, where
indicated, in constant currency. The constant currency
presentation, which is a non-GAAP measure, excludes the impact of
fluctuations in foreign currency exchange rates. We believe
providing constant currency information gives valuable supplemental
detail regarding our results of operations, consistent with how we
evaluate our performance.
We calculate constant currency percentages by converting our
prior-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, or equivalent local currency amounts, the equivalent
prior-year measure is also presented in the reported pound sterling
equivalent, using the exchange rates prevailing at the time. 2022
highlights, as shown above, are provided in the reported pound
sterling equivalent.
(3) Adjusted net funds or adjusted net debt includes cash and
cash equivalents, other short- or long-term borrowings and current
asset investments. Following the adoption of IFRS 16, this measure
excludes all lease liabilities. A table reconciling this measure,
including the impact of lease liabilities, is provided within note
9 to the summary financial information within this
announcement.
(4) Gross invoiced income is based on the value of invoices
raised to customers, net of the impact of credit notes and
excluding VAT and other sales taxes. This reflects the cash
movements to assist Management and the users of this announcement
in understanding revenue growth on a 'principal' basis and to
assist in their assessment of working capital movements in the
Consolidated Balance Sheet and Consolidated Cash Flow Statement.
This measure allows an alternative view of growth in adjusted gross
profit, based on the product mix differences and the accounting
treatment thereon. Gross invoiced income includes all items
recognised on an 'agency' basis within revenue, on a gross income
billed to customers basis, as adjusted for deferred and accrued
revenue. A reconciliation of revenue to gross invoiced income is
provided within note 4 to the summary financial information within
this announcement.
The term Group refers to Computacenter plc and its
subsidiaries.
Enquiries:
Computacenter plc
Mike Norris, Chief Executive 01707 631601
Tony Conophy, Finance
Director 01707 631515
Teneo
James Macey White 020 7353 4200
Matt Low
DISCLAIMER - FORWARD LOOKING STATEMENTS
This announcement includes statements that are, or may be deemed
to be, 'forward-looking statements'. These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms 'anticipates', 'believes',
'estimates', 'expects', 'intends', 'may', 'plans', 'projects',
'should' or 'will', or, in each case, their negative or other
variations or comparable terminology, or by discussions of
strategy, plans, objectives, goals, future events or intentions.
These forward-looking statements include all matters that are not
historical facts. They appear in a number of places throughout this
announcement and include, but are not limited to, statements
regarding the Group's intentions, beliefs or current expectations
concerning, amongst other things, results of operations, prospects,
growth, strategies and expectations of its respective
businesses.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward-looking statements are not guarantees of future performance
and the actual results of the Group's operations and the
development of the markets and the industry in which they operate
or are likely to operate and their respective operations may differ
materially from those described in, or suggested by, the
forward-looking statements contained in this announcement. In
addition, even if the results of operations and the development of
the markets and the industry in which the Group operates are
consistent with the forward-looking statements contained in this
announcement, those results or developments may not be indicative
of results or developments in subsequent periods. A number of
factors could cause results and developments to differ materially
from those expressed or implied by the forward-looking statements,
including, without limitation, those risks in the risk factor
section of the 2021 Computacenter Annual Report and Accounts, as
well as general economic and business conditions, industry trends,
competition, changes in regulation, currency fluctuations or
advancements in research and development.
Forward-looking statements speak only as of the date of this
announcement and may, and often do, differ materially from actual
results. Any forward-looking statements in this announcement
reflect the Group's current view with respect to future events and
are subject to risks relating to future events and other risks,
uncertainties and assumptions relating to the Group's operations,
results of operations and growth strategy.
Neither Computacenter plc nor any of its subsidiaries undertakes
any obligation to update the forward-looking statements to reflect
actual results or any change in events, conditions or assumptions
or other factors unless otherwise required by applicable law or
regulation.
Chair's statement
During 2022, we announced one particularly significant piece of
news - the planned retirement of our long-term Group Finance
Director, Tony Conophy. Tony has been instrumental in establishing
Computacenter as a successful listed company. His passion,
commitment and expertise have made a lasting contribution to
Computacenter's performance and culture. We thank him for his
incredible service and wish him a long and happy retirement when he
leaves the business early in the second half of 2023.
2022 was another year of good progress for Computacenter. This
was achieved without the additional Covid-related volume and
associated cost reductions that we saw in 2021 and, in the context
of unpredictable economic conditions in our major markets, this
made the performance of our team even more commendable.
Rising interest rates, rising inflation and significant supply
chain shortages have placed the emphasis on strong, pragmatic
execution to deliver our results. We are particularly pleased with
the performance of our business in Germany and the continued
progress of our enlarged United States presence.
Financial performance and dividend
Revenue for the full year increased by 28.5 per cent to
GBP6,470.5 million (2021: GBP5,034.5 million). Gross invoiced
income grew by 30.7 per cent to GBP9,052.2 million (2021:
GBP6,923.5 million). The Group generated adjusted(1) profit before
tax of GBP263.7 million (2021: GBP255.6 million), and adjusted(1)
diluted EPS of 169.7 pence (2021: 165.6 pence). On a reported
basis, the Group saw profit before tax of GBP249.0 million (2021:
GBP248.0 million) and diluted EPS of 159.1 pence (2021: 160.9
pence).
We are proposing a final dividend of 45.8 pence per share. If
approved by shareholders at Computacenter's 2023 Annual General
Meeting, this will bring the full-year dividend for 2022 to 67.9
pence per share. This represents an increase of 2.4 per cent over
that paid for 2021, and remains in line with our stated long-term
dividend policy of paying a dividend that is covered between 2.0
and 2.5 times by adjusted(1) diluted EPS.
The Group's cash position finished strongly at the end of the
year, with adjusted net funds(3) of GBP244.3 million as at 31
December 2022 (2021: GBP241.4 million). The Board continues to
review our approach to capital allocation, so that it ensures
balance sheet efficiency and appropriate returns for shareholders.
Our use of cash continues to prioritise organic growth, the
development of our business, and merger and acquisitions activity
which aligns with our strategy, such as the acquisition of Business
IT Source in the United States. Where available opportunities to
invest in this way are limited, the Board will consider returning
value to shareholders.
The Board in 2022
During 2022, there was one change to the Board, as Rene Haas
decided to step down. We thank him for his commitment and
contribution during his tenure.
We announced as his successor René Carayol, who brings a wealth
of relevant experience and will be a valuable addition to our
team.
As previously mentioned, we also announced the planned
retirement of Tony Conophy, during 2023, as Group Finance Director.
We followed a robust process to identify his successor, assisted by
an external search firm. This produced an impressive and diverse
list of internal and external candidates, and we were delighted to
announce that Christian Jehle will be appointed as Chief Financial
Officer (CFO) when he joins the Company in June 2023.
Following René's appointment, half of the Board (excluding the
Chair) remain as Independent Non-Executive Directors. We have just
over 33 per cent female representation on the Board. New Listing
Rules have now been introduced relating to Board diversity, which
will be effective for our reporting in 2023. The Nominations
Committee will consider these as part of its Board succession
planning discussions during the year.
Environmental, Social and Governance
The Board has continued its focus on sustainability, diversity
and inclusion, and ensuring our governance practices evolve. These
subjects are regarded as very important by both the Board and the
people across Computacenter. Our approach to Environmental, Social
and Governance (ESG) matters reflects our Winning Together Values
and supports the achievement of Our Purpose, in helping our
customers change the world.
In terms of concrete commitments and results, we were carbon
neutral in 2022 for Scope 1 and 2 emissions, which include all our
direct emissions, such as our facilities, and some of our indirect
emissions, such as electricity purchased. We remain committed to
our target to be Net Zero for Scope 1, 2 and 3 by 2040. Scope 3
emissions include all other indirect emissions, including our
business travel and transportation, as well as those from sources
that we do not own or directly control, including our supply
chain.
The year ahead
We are resolute in our focus on continuing to strengthen and
grow Computacenter, to enable the success of all our stakeholders.
I thank them all for their continued trust and support.
The impact of the global Covid pandemic now appears to be
broadly under control and should not impact our business in
2023.
The fundamental demand drivers for our business continue to look
strong as we enter 2023. We do recognise, however, that the
prevailing economic conditions in our main markets mean that we
will need to continue to execute strongly, as corporate and public
sector organisations focus on controlling costs. However, they
continue to invest in their digital transformations and this,
alongside the confidence we have in our people and investments,
makes us believe that 2023 will be another year of continued
progress.
Peter Ryan
Chair
30 March 2023
Chief Executive's strategic review
Following a very strong fourth quarter, 2022 has proven to be a
good year for Computacenter. The Group achieved an 18th consecutive
year of adjusted(1) diluted earnings per share growth. Whilst the
in-year performance was helped by the currency impact of a strong
US dollar, and a small acquisition in the United States in the
second half of the year, this assistance was far outweighed by
significant headwinds faced by the business, as the Group and its
stakeholders started to move towards business as usual and away
from practices adopted to reflect Covid-related restrictions.
The headwinds faced were as a result of two main factors, which
were both Covid-related. During the pandemic, Computacenter
experienced high availability and high utilisation of our Services
personnel, creating unsustainably high Services margins. By the
fourth quarter of 2022, Services margins were broadly in line with
pre-Covid levels. However, the ongoing impact of inflation, which
looks set to continue in the short term within a number of our core
countries, and particularly in Europe, will make it challenging to
maintain these at their current level through this year.
Additionally, we saw costs return which had declined during the
pandemic, such as those related to travel. Given these factors, we
are satisfied with the performance in 2022, which represented
continued progress after two outstanding years in 2020 and
2021.
We continue to operate in accordance with our values, and
therefore remain focused on our long-term success. In 2023, we will
embark on incremental investment in two areas which have already
seen sustained and consistent investment by the Group. Staying
ahead of the increasingly challenging cyber security threat
landscape remains a key focus. We will continue and step up our
investment in the scaling and sophistication of our global security
capabilities to protect our customers, systems and services. The
Group also has an ambitious investment programme to enhance our
competitive position and sustain our long-term performance. We have
started a programme of significant IT upgrades and enhancements to
our customer-facing systems, our core processes, and our sales
enablement. Whilst the programme started in the middle of 2022,
this investment will be made over a multi-year period and should
help to provide a platform for future growth. We also continue to
invest to spread our business geographically, increase our
productivity and broaden the range and quality of offering we
deliver for our customers.
Whilst we place our customers at the heart of everything we do,
Computacenter is a people business. We are a highly commercial,
performance-driven company. A hallmark of our progress over the
last 40 years has been our ability to deal with the unexpected, and
to turn challenge into opportunity. You cannot do this without
great people. I take this opportunity to thank them, not just for
their continued hard work in 2022, but for the way that they dealt
with all the challenges that Covid-19 brought, and especially the
way in which they continued to deliver for our customers during
that time.
The Group continues to invest in growing its employee base,
particularly in technical skills, and our attrition rate remains
comparatively low within our sector. Across the Group,
Computacenter recruited approximately 4,500 new people in 2022,
bringing our total number of employees at the end of the year to
just over 20,000. A particular focus in this area has been growing
our offshore operations in India where, encouragingly, we have
found significant availability of high-end skills to meet our
customers' demands around Services delivery. At the end of 2022,
the number of our employees in India had grown to over 1,100
people.
Indeed, across Managed Services, regardless of geographical
location, size or type of business, our customers continue to
demand innovation that reduces their cost base and enhances the
experience of their users. We remain convinced that this challenge
must be addressed through the development and increasing
sophistication of our systems and automation, and also through
offshoring.
We have also seen demand for technology from large corporate and
public sector organisations remain buoyant. This has delivered
significant growth in our Technology Sourcing business. Whilst
margins remain robust in all other geographies, the outstanding
growth in volumes with a certain North American hyperscaler, at
lower-than-average Group margins, has lowered the North American,
and Group, Technology Sourcing margin rates overall. The IT
industry supply chain shortages experienced in 2021 continued
through the first three quarters of the year, impacting the Group's
levels of inventory, use of working capital, and cash position.
Whilst significant delays remain with networking products, the
shortages eased materially as the year has unfolded. The amount of
inventory that we are carrying for our customers remains
significant but has started to reduce as supply becomes more
plentiful.
This issue has meant that we have not generated the level of
cash we have come to expect. However, the improvement made in the
last three months of the year is clear evidence that we are now
trending in the right direction again, and we are expecting a
significant strengthening of our balance sheet in the months
ahead.
You will find as you read about our Financial and Operating
Performance that this varied somewhat across our core countries.
Our German business had another year of excellent growth, and
remains the most profitable in the Group, with a particularly
successful Professional Services business. The UK business had a
challenging year, which was slightly disappointing, albeit
understandable given that it had benefited most from
pandemic-related business practices, when compared with the rest of
the Group. UK Government spend was particularly low during 2022. In
France, performance was again held back by the integration of our
acquisition made in late 2020. However, the performance of our
traditional core business was encouraging, and we hope to see
continued improvement there in 2023. Our Belgian business had
another successful year, and we continued to make progress in the
Netherlands. Our Swiss business had a difficult 12 months.
Our North American business continued to make significant
progress in 2022, building on that in recent years. We continue to
focus on organic growth and integrating the acquisitions we have
made. We will continue to look for further opportunities to grow
and, in the event that we identify acquisition targets which are
strategically and culturally aligned to our business, we will
consider these.
As many of you will already know, during the year we undertook a
search to replace Tony Conophy, our long-term Group Finance
Director, who will be retiring in 2023. This search has now
completed successfully, and I am pleased that Christian Jehle will
join the Company in June 2023 as Chief Financial Officer. Let me
take this opportunity to thank Tony for his commitment to
Computacenter, and his unwavering support for me personally, over
the past 28 years. We wish him all the very best for his upcoming
retirement.
We have made a number of other executive management changes
throughout 2022 and into the early part of 2023. These include new
country leadership in North America, France and the United Kingdom,
as we strengthen our team to maximise our ability to capitalise on
the investments we are making in our customer service
offerings.
At Computacenter, we are fortunate to have a customer base which
includes some of the most highly regarded corporate and public
sector organisations in the world. We thank them for their faith in
our Group. Our Purpose is helping our customers to change the
world. We look forward to the rest of 2023 with confidence that our
culture, people and investments will enable us to do so.
Mike Norris
Chief Executive Officer
30 March 2023
Our Performance in 2022
Group
Financial performance
Our business model is built on the three primary service lines
of Technology Sourcing, Professional Services and Managed Services,
and reinforces our position as having the largest services business
of any value-added reseller, as well as the largest value-added
reseller capability of any services business worldwide. Executing
this business model supports Our Purpose of helping our customers
change the world.
Our strong trading performance over the year to 31 December 2022
continues to demonstrate the resilience of our business model.
There were a number of challenges ahead of us when we reported our
Interim Results on 9 September 2022 and we are pleased that we have
overcome each of these challenges. Ensuring another year of
adjusted(1) diluted earnings per share (EPS) growth, achieving
full-year gross invoiced income growth in the United Kingdom
Segment, arresting the growth in our inventory to improve our cash
position and stabilising our Services margins were all key to our
success in the second half of the year and the full year as a
whole.
Results 2022 2021 Percentage change 2021 Percentage change
GBPm GBPm GBPm
constant currency(2)
Professional Services revenue 636.6 552.4 15.2% 560.1 13.7%
Managed Services revenue 934.0 898.5 4.0% 897.6 4.1%
Services revenue 1,570.6 1,450.9 8.3% 1,457.7 7.7%
Technology Sourcing gross invoiced
income 7,481.6 5,472.6 36.7% 5,665.7 32.1%
Total gross invoiced income 9,052.2 6,923.5 30.7% 7,123.4 27.1%
Professional Services revenue 636.6 552.4 15.2% 560.1 13.7%
Managed Services revenue 934.0 898.5 4.0% 897.6 4.1%
Services revenue 1,570.6 1,450.9 8.3% 1,457.7 7.7%
Technology Sourcing revenue 4,899.9 3,583.6 36.7% 3,712.3 32.0%
Total revenue 6,470.5 5,034.5 28.5% 5,170.0 25.2%
Gross profit 947.1 867.8 9.1% 885.3 7.0%
Adjusted(1) total administrative
expenses (678.0) (605.0) 12.1% (619.5) 9.4%
Adjusted(1) operating profit 269.1 262.8 2.4% 265.8 1.2%
Net adjusted(1) finance costs (5.4) (7.2) (25.0%) (7.5) (28.0%)
Adjusted(1) profit before tax 263.7 255.6 3.2% 258.3 2.1%
Gross profit 947.1 867.8 9.1%
Total administrative expenses (690.7) (612.6) 1 2.7 %
Operating profit 256.4 255.2 0.5%
Net finance costs (7.4) (7.2) 2 .8 %
Profit before tax 249.0 248.0 0.4%
Adjusted(1) diluted EPS
Historically, revenues have been higher in the second half of
the year than in the first six months, principally due to customer
buying behaviour. This typically leads to a more pronounced effect
on operating profit.
However, the impact of Covid-19 and the more recent supply
shortages for IT equipment materially altered customer buying
behaviours in 2020 and 2021. In 2021 an abnormally high percentage
of our full-year profits came in the first half of the year, which
means we had a more challenging comparison for the first half of
2022 than for the second half.
During 2022, we saw these unusual buying patterns reversing and
the re-emergence of seasonality that is closer to our historical
norms. Adjusted(1) profit before tax for the first half of 2022 was
therefore behind that in the first half of 2021.
In line with our expectations, adjusted(1) profit before tax was
down in the first half of the year against the first half of 2021
by nearly six per cent, which created a material headwind for the
second half of 2022. We are therefore very pleased with the profit
growth which we subsequently achieved for the year as a whole, and
the significant momentum that we will carry into 2023, including in
our previous and in-year North American acquisitions, which have
continued to make good progress, both in terms of profit growth and
cash generation.
The result for the year benefited from GBP187.8 million of
revenue (2021: GBP1.3 million), and GBP5.4 million of adjusted(1)
profit before tax (2021: GBP0.4 million), resulting from all
acquisitions made since 1 January 2021. All figures reported
throughout this announcement include the results of these acquired
entities.
Computacenter finished the year with a record fourth quarter,
which resulted in an 18th consecutive year of adjusted(1) diluted
EPS growth. Whilst our performance in 2022 was helped by a strong
US dollar, and a small acquisition in the second half of the year,
this assistance was far outweighed by the headwinds faced by the
business as the Covid-related benefits it experienced in 2020 and
2021 unwound, particularly impacting our Services margins.
Adjusted(1) diluted EPS, the Group's primary EPS measure, increased
by 2.5 per cent in 2022 to 169.7 pence (2021: 165.6 pence). Diluted
EPS decreased by 1.1 per cent to 159.1 pence (2021: 160.9
pence).
United Kingdom revenues
The United Kingdom saw 12.6 per cent growth in gross invoiced
income following an astonishingly strong finish to the year. This
top-line growth occurred even as the product mix changed
significantly from hardware, which decreased, towards software and
resold services where, with software in particular, longer-term
framework contracts are becoming prevalent and drove the United
Kingdom result in the second half of the year.
Inventory
Supply chain constraints remain in the forefront of our
customers' minds and their planning. Whilst product availability
varies by vendor and product line, product shortages materially
affected the supply of key networking equipment for our customers
throughout 2021 into 2022, with some orders being substantially
delayed or only partly fulfilled. We saw this situation materially
reverse throughout the last quarter of 2022 where supply returned
to much more stable levels, with the exception of certain
networking products.
The Group continues to carry more inventory than normal. When
customers realised that even their size of order would not
guarantee supply, they switched to ordering much further in advance
of their requirement than normal. This spiked our product order
backlogs and, as we placed orders, manufacturers delivered as soon
as product was available and even when only partly available. This
led to inventory levels increasing rapidly. Earlier in the year we
were holding stock for orders that we could not deliver without a
critical part or where customers had ordered early and subsequently
delayed delivery, as their data center facilities or other project
requirements, were not ready. We continue to work to return and
vendors, to reflect the improved supply of hardware products.
The Group had GBP417.7 million of inventory as at 31 December
2022, an increase of 22.4 per cent during the year (31 December
2021: GBP341.3 million), and an increase of 12.3 per cent in
constant currency(2) . Total inventory across the Group was
therefore GBP76.4 million higher at 31 December 2022 than at 31
December 2021, and higher by GBP18.4 million since 30 June 2022.
Inventory was, however, lower by GBP115.0 million since 30
September 2022, which was the high point for inventory during the
year.
Whilst we have already been paid for some of this inventory,
customers are committed to taking nearly all of the rest of the
holding, so it is a largely risk-free position.
Further commentary on progress and initiatives in reducing our
inventory and improving our cash generation is available in the
Group Finance Directors' Review.
Services margins
Computacenter, like most companies, is affected by wage
inflation associated with the macroeconomic disruption, and supply
chain shortages, but these will offer us opportunities to
differentiate from our competition with superior execution.
Services margins are broadly in line with pre-Covid-19 levels,
matching the Services margin percentage achieved in 2018, but 373
basis points down from the all-time high achieved in 2021. During
2020 and 2021, the Group benefited from cost savings within its
Services margins that have now unwound, proving themselves
temporary in nature. These temporary benefits included
significantly increased utilisation of our engineers, working
remotely through the pandemic, who no longer had to spend otherwise
billable time travelling to customer sites and had improved
availability due to lower sickness, a substantial reduction in the
use of external contractors and lower travel costs. These trends
reversed in 2022 and have led to a significant Covid-19 headwind of
approximately GBP58 million of gross profit, calculated by applying
2021 margin rates against 2022 Services volumes. The Group absorbed
this in 2022 through superior execution in other areas of the
business. Services margins, more than any other aspect of the
business performance, was the area that most improved the Group's
performance during Covid-19, much more so than Technology Sourcing
volumes. We believe that these Covid-19 factors have now washed
through our results and will not impact comparative numbers moving
forward, allowing the continued robustness of the Services top-line
growth to flow through to gross profit unhindered by this one-time
reversal in margins due to the Covid-19 effect.
Enhanced bid governance processes have resulted in better
underlying margins on new contracts, although inflationary
pressures will make it challenging to maintain these levels in the
short term. It is important to note that less than 20 per cent of
our employees now reside in the United Kingdom, so the impact of
these inflationary pressures should be considered on a more global
basis than simply on the macroeconomic performance within the
United Kingdom itself. Further, we have continued to invest ahead
of demand in the Professional Services business with an impact on
recruitment, training and initial start-up utilisation impact,
especially in the United Kingdom and Germany, which is also
reflected in the margin performance for 2022.
Technology Sourcing trading performance
Our Technology Sourcing product sales remained extremely strong
through the second half of the year and into the early months of
2023, with strong demand in all of the countries in which we
operate. Trading across all of our major geographies was pleasing
throughout the year, with double-digit growth in gross invoiced
income in each Segment.
Group gross invoiced income grew by 30.7 per cent including the
effects of acquisitions made in the middle of 2022, and by 27.1 per
cent in constant currency(2) . As discussed further in the Group
Finance Directors' Review, we changed our revenue recognition
accounting policies during the year, including retrospectively.
The United Kingdom has seen a further shift in product mix away
from hardware into software and resold Services, which experienced
strong growth in the second half of the year.
German Technology Sourcing sales continued to grow strongly,
with a growing workplace business now complementing the other areas
of Technology Sourcing that are more of a traditional source of
strength for the German business.
We remain extremely pleased by the scale of our growth in North
America which, after removing the very strong growth in our largest
North American customer, and the impact of the BITS acquisition,
still saw nearly nine per cent growth in Technology Sourcing gross
invoiced income. Whilst gross profits grew significantly, margins
were lower due to the aforementioned growth from one North American
hyperscaler customer which saw lower margins than the average
margins achieved across the rest of the business.
French Technology Sourcing gross invoiced income saw excellent
growth, made even more pleasing by a product mix shift away from
workplace to higher margin data center and networking products, to
address a customer set with increasing demand.
The Technology Sourcing performance in the International Segment
saw strong growth, with astonishing progress in the Netherlands
business.
As demand has remained high, with order books continuing to
build, the driver of customers' IT purchasing has focused on the
short- to medium-term impacts of the economic downturn, as they
look to re-engineer IT structures and employ digital transformation
to cope with the ever-evolving technology landscape, the need to
reduce non-IT operating costs and increasing cyber threats. We
believe that IT spend remains strategic to our customers rather
than discretionary and will be amongst the last expenditure
categories to be retrenched if the forecast global economic
recession becomes a reality. The strength of the overall Technology
Sourcing result is driven by the spread of the customer base across
multiple market Segments, technology lines and geographies, which
create durability and sustainability within the business model
through diversification.
Our product order backlogs, which are the total value of
outstanding orders with our vendors, across all geographies, are at
all-time highs and considerably larger than at the end of 2021. The
committed order backlog at the year-end was GBP2,913.9 million of
confirmed purchase orders for delivery within 12 months, on a gross
invoiced income basis, a 76.2 per cent increase since 31 December
2021 (GBP1,654.1 million) in constant currency(2) . We have
modified this measure since that presented within the 2022 Interim
Report and Accounts to exclude committed purchase orders for
delivery beyond 12 months. Whilst the Managed Services Contract
Base and the Professional Services forward order book have always
given us better visibility of future revenues in these areas, the
increasing Technology Sourcing backlogs, partly due to the
increasing trend for customers to order in advance, mean that we
now have much greater visibility of future revenues than ever
before. This gives us a high degree of confidence that the
Technology Sourcing business will be well placed in the year
ahead.
Overall Group Technology Sourcing margins, based on gross profit
as a percentage of revenue, decreased by 167 basis points during
the year, mainly due to customer and product mix changes.
Services trading performance
Our Services revenue performance was strong during the year and
we are confident of continued Services revenue growth fuelled by
the continuing success story that is our Professional Services
business and the strength of recent wins within Managed
Services.
Professional Services in Germany has continued its excellent
recent track record, with another year of rapid growth across all
solutions lines. The United Kingdom saw a Professional Services
decline due to the change in product mix in Technology Sourcing,
particularly the reduction in workplace, that meant a follow-on
reduction in deployment programmes. French Professional Services
saw good growth, rebounding from the performance in 2021 with a
return of projects in both public sector and within our Managed
Services contracts. Professional Services in North America saw a
large expansion through a number of very significant projects in
2022, increasingly demonstrating the scale of the business which is
now approaching the size of the UK business, furthering our
geographical diversification.
Professional Services is an essential part of our integrated
business model - to help us create significant value for our
customers and to be a volume-revenue and profit-growth driver for
our business. We now have a Professional Services business with
more than 6,000 people who completed over 1,900 projects in 2022,
with more than 1.4 million billed consultancy hours in that time.
We are committed to growing and enhancing our Professional Services
business even further by having a broader and scalable portfolio
across all countries, based on a common operating framework and a
strong sales approach.
Managed Services saw robust revenue increases in all
geographies, apart from the United Kingdom which was impacted by
2021 contract losses and a delay in the commencement of new
contract revenue streams. Germany saw increased revenues due to
wins from 2021 as the contracts come on stream. France was impacted
by the expected cessation of legacy Computacenter NS contracts,
although this was more than offset by new business. The North
American Segment saw substantial growth, albeit from a low base,
but will enjoy further growth from wins in 2022.
Whilst the recent EPS performance of peer services businesses
remains suppressed when compared to those of our VAR competitors,
we continue to focus on the importance of our Services businesses
within the context of our overall business model offering to our
customers. Managed Services in particular is important to the
longevity of customer relationships with us. The ability to
cross-sell and upsell Professional Services and Technology Sourcing
to our Managed Services customers increases our share of the
overall IT wallet in those customers and makes those customers
stick with Computacenter. More than three-quarters of our major
European headquartered customers have at least GBP0.5 million of
Managed Services spend per annum.
Our Services margin performance was impacted in 2022 by the
unwinding of Covid-19-related benefits during the year, and
inflationary pressures which we expect to continue into 2023 as
noted above.
Outlook
At Computacenter, we are pleased to have shown adjusted(1)
earnings per share growth in 2022 over the previous year
considering the challenging headwind from the unravelling of
temporary Covid-related cost base reduction benefits. In 2023, we
do not have anywhere near the same challenge as we have faced in
2022. By the end of the first half of 2022, almost all of the Covid
benefits had disappeared from the business.
Demand from most of our largest customers remains solid,
particularly for IT infrastructure on which their businesses rely.
We have seen top-line revenue extremely buoyant so far this year
and expect this trend to continue. Our challenges for the coming
year include, to a small extent, Technology Sourcing margins, due
to the fact it is the largest customers, which are dilutive to
margins, that are spending most, and, more significantly, Services
margins due to price pressure in the market and salary
inflation.
Supply constraints have eased materially and while some will
always remain, we are now operating at close to normal market
conditions. Aligned with this, our inventory levels started to fall
at the start of the fourth quarter of last year and we expect
further reduction this year, which will continue to decrease the
working capital required in the business.
As previously communicated Computacenter is currently going
through a significant internal IT investment phase which we expect
to last for a further two or three years. While this has put
pressure on our profitability in the short term, we believe it is
the right thing to do so as we can take advantage of the long-term
growth opportunities in the market and enhance our competitive
position to take market share. We remain positive about the outlook
in the short, medium, and long term. While there are plenty of
challenges due to the macroeconomic environment, we continue to
expect 2023 to be a year of progress.
United Kingdom
Financial performance
We have continued to invest to broaden our customer base and
have been successful in growing the number of target-market
customers. This will bear fruit in future years, as we work with
those customers and increase the range and value of our sales to
them.
Our people costs have increased as inflation has pushed salaries
up and we intend to pass most of this on to our customers, through
higher prices. During the year, our people increasingly came back
to the office and met our customers face to face. We opened new
collaboration spaces in our United Kingdom head office in
Hatfield.
Higher administrative costs reflected the impact of inflation on
people costs, the expansion of our sales force in the previous year
to grow our customer base, and the return of domestic and
international travel. We are carefully managing travel by using
technology, while applying a carbon travel levy to ensure that we
make carbon-efficient choices. Travel overall remains below
pre-pandemic levels.
Demand from public sector customers has diminished since the
pandemic, and there were a small number of non-renewals within
public sector contracts in 2021 which impacted 2022. Political
uncertainty also delayed spending decisions in the second half of
the year. However, the corporate sector performed better as more
employees returned to their offices. We also benefited from
customers who value our international capabilities, as we can serve
their operations in the United Kingdom, Europe, North America and
Asia-Pacific.
With economic conditions becoming more difficult, some customers
are slowing down their investments, particularly for hardware
upgrade projects. However, we believe this is creating pent-up
demand and that we will benefit as they resume investing in their
businesses.
Overall gross margins in the United Kingdom increased by 160
basis points, with total adjusted(1) gross profit at 20.4 per cent
of revenues (2021: 18.8 per cent). This result was impacted by the
significant swing from hardware to software and resold services
within Technology Sourcing. This gross margin ratio increase was
assisted by a higher proportion of software and resold services
during the year, where the margins are recorded directly as net
revenue as a result of our recent change in revenue recognition
accounting policies.
Results 2022 2021 Percentage change
GBPm GBPm
Professional Services revenue 147.5 154.6 (4.6%)
Managed Services revenue 312.8 327.6 (4.5%)
Services revenue 460.3 482.2 (4.5%)
Technology Sourcing gross invoiced income 1,864.2 1,581.5 17.9%
Total gross invoiced income 2,324.5 2,063.7 12.6%
Professional Services revenue 147.5 154.6 (4.6%)
Managed Services revenue 312.8 327.6 (4.5%)
Services revenue 460.3 482.2 (4.5%)
Technology Sourcing revenue 809.1 943.2 (14.2%)
Total revenue 1,269.4 1,425.4 (10.9%)
Gross profit 259.2 268.2 (3.4%)
Adjusted(1) administrative expenses (178.7) (165.3) 8.1%
Adjusted(1) operating profit 80.5 102.9 (21.8%)
Technology Sourcing performance
The reduction in Technology Sourcing revenues reflected a shift
in product mix towards software and resold services, which improved
margins but had less impact on reported revenue as they are booked
on an agency or net basis. Our gross invoiced income increased by
17.9 per cent year on year. Technology Sourcing margins, based on
gross profit as a percentage of revenue, increased by 450 basis
points compared to 2021, due to the change in product mix described
above.
We saw lower demand for hardware during the year, primarily in
workplace, as some customers completed their Windows 10 rollouts.
The reduced workplace activity affected utilisation and cost
absorption of our Integration Centers, where we add value for
customers, for example by configuring their devices.
Our software business grew rapidly, in particular through
longer-term framework contracts, and we also expanded our resold
services. Neither of these areas had the supply chain issues that
affected hardware sales, allowing us to rapidly fulfil customer
demand. In the enterprise solution areas, we are seeing good growth
in our data center and cloud business, again driven by software
sales.
We have seen improved availability of hardware components for
workplace and data center but this remains an issue for networking.
The committed order backlog at the year-end was GBP331.0 million of
confirmed purchase orders for delivery within 12 months, on a gross
invoiced income basis, a 70.1 per cent increase since 31 December
2021 (GBP194.6 million).
Services performance
The lower workplace demand in Technology Sourcing also affected
Professional Services, which rolls out technology we have sold to
our customers. We also saw a slight decline in the number of large
programmes of work that are on an outcome-based commercial model.
However, we benefited from increased demand for adopting public
cloud and for expanding and securing customer networks. We also
grew our resources on demand business, where we provide specialist
resources to support our customers' operations. Profitability in
Services was held back by additional costs to improve performance
on a small number of Professional Services contracts, which we
addressed during the year. The pipeline for Professional Services
is strong, giving us confidence that growth opportunities are
realisable.
Revenue in Managed Services was lower, reflecting the full-year
impact of contract losses in 2021 and delays to some contract
awards we had anticipated in 2022. However, we had a good year for
renewals and won a significant contract that will benefit revenues
going forwards. In 2021, we won a significant Managed Services
contract with a large multinational investment bank and financial
services company, to provide a device as a service model with
worldwide support coverage and Technology Sourcing embedded in the
contract. We have continued to roll the model out globally for the
customer and our pipeline for device as a service is growing, with
a second contract with a large pharmaceutical company being signed
since the year end.
Services margins decreased by 434 basis points when compared to
the prior year. This was primarily due to costs returning to the
business following the end of the Covid-19 pandemic and resumption
of normal working practices.
Germany
Financial performance
After a strong fourth quarter, we are very pleased with the
full-year result. We exceeded our revenue growth expectations and
despite somewhat weaker margins, the bottom-line result was above
plan and the previous year's. This was an excellent performance
given the positive cost and capacity utilisation effects in
Services in 2021, which we had expected to reverse in 2022.
Despite market uncertainties resulting from the war in Ukraine,
ongoing Covid-related restrictions, and continued supply chain
issues, we recorded good double-digit overall growth in revenues
and gross invoiced income.
It was challenging to recruit skilled people during the year,
but our targeted recruitment initiative significantly strengthened
the skills base for consulting and project Services and recruitment
was a little easier by the end of the year. We had planned to
expand our sales force but this proved more difficult than
expected, and this is a challenge we will take into 2023. The
pressure on salaries, triggered by high inflation, had only a
modest effect on costs in 2022 and is more likely to affect the
cost base in 2023, especially for our Services businesses.
Throughout the year, our biggest challenge was handling our
supply chain business. Customers had switched to a high stocking
strategy to ensure availability and we therefore had to manage
three times the usual operating levels of inventory on occasions,
for which our Integration Center in Kerpen had insufficient storage
and logistics space. However, we reacted quickly to reactivate our
former Integration Center, doubling our capacity within three
months. This enabled us to clear the entire backlog before the year
end, and we are now back to normal operating levels. We can now act
much more flexibly and provide additional capacity, which should
give us a boost for 2023.
The ongoing macroeconomic difficulties - in particular the
energy shortage and high energy prices caused by the war in Ukraine
- had very different effects on our customers. Companies that are
heavily dependent on energy, especially large chemical companies,
are reducing their IT expenditure or postponing investments.
Nevertheless, we see the overall effects being less severe,
especially in our customer base, and many companies are going into
the coming year stronger. Our public sector business remains one of
our strengths. Demand here is still high and the pipeline promises
good potential. We have started to develop a new customer sector in
education and are significantly expanding our sales capacities in
almost all federal and state authorities.
In addition to large framework successes discussed in the
half-year report, we have extended the network support agreement
with an international car manufacturer for the next five years and
also integrated additional services. We also extended the network
and procurement contract for a major public sector customer and won
the associated cloud contract. At the start of 2023, we were the
first Cisco partner in Germany to conclude a worldwide 'Whole
Portfolio Agreement' with a large German industrial and technology
company.
While the geopolitical and economic situation in Germany remains
unpredictable, it has become more positive in recent months due to
lower energy prices and inflation levelling off. We are convinced
that companies, and particularly public sector customers, will
continue to invest in IT infrastructure and digitisation projects.
Their requirements are becoming increasingly global, which should
also benefit us. We expect good overall growth again in 2023,
underpinned by our pipeline. Nevertheless, 2023 will be challenging
on the cost side, due to inflation-driven cost increases and salary
adjustments. Overall, we are assuming slight growth in adjusted(1)
operating profitability.
Margins in Germany decreased by 230 basis points, with
adjusted(1) gross profit decreasing from 19.9 per cent to 17.6 per
cent of revenues, as explained below.
Results 2022 2021 Percentage change 2022 2021 Percentage change
GBPm GBPm EURm EURm
Professional Services revenue 315.7 273.8 15.3% 370.1 318.4 16.2%
Managed Services revenue 374.7 348.6 7.5% 439.5 405.2 8.5%
Services Revenue 690.4 622.4 10.9% 809.6 723.6 11.9%
Technology Sourcing gross invoiced income 1,704.7 1,427.7 19.4% 1,994.7 1,662.8 20.0%
Total gross invoiced income 2,395.1 2,050.1 16.8% 2,804.3 2,386.4 17.5%
Professional Services revenue 315.7 273.8 15.3% 370.1 318.4 16.2%
Managed Services revenue 374.7 348.6 7.5% 439.5 405.2 8.5%
Services revenue 690.4 622.4 10.9% 809.6 723.6 11.9%
Technology Sourcing revenue 1,153.1 942.6 22.3% 1,349.7 1,097.4 23.0%
Total revenue 1,843.5 1,565.0 17.8% 2,159.3 1,821.0 18.6%
Gross profit 325.1 312.0 4.2% 380.8 363.2 4.8%
Adjusted(1) administrative expenses (184.2) (174.2) 5.7% (216.0) (202.5) 6.7%
Adjusted(1) operating profit 140.9 137.8 2.2% 164.8 160.7 2.6%
Technology Sourcing performance
Revenue increased significantly compared to 2021. The margin
erosion in the first half of the year reversed in the second half
and the overall margin situation is stable. Technology Sourcing
margins, based on gross profit as a percentage of revenue, remained
strong but slipped by 89 basis points over the year. The revenue
growth driver is once again the network and security business,
followed by a very good workplace business. We also saw strong
growth in software licence reselling.
Given the capacity problems in our Integration Center through
much of the year, the result was excellent. We solved these
challenges through the commitment of our teams and investments in
the infrastructure and are now very well positioned for future
growth. Inventory also significantly reduced towards the end of the
year and is now close to the normal level.
Looking ahead, we are targeting continued strong growth in 2023.
Even if customer requirements decrease, as many customers have
invested in their workplace infrastructure in particular in the
last two years and are now reaching saturation, we have won new
customers and contracts with the potential to ensure sufficient
growth. We won a framework agreement which can be leveraged by all
European Union central banks. The committed order backlog at the
year-end was EUR362.9 million of confirmed purchase orders for
delivery within 12 months, on a gross invoiced income basis, a 20.6
per cent decrease since 31 December 2021 (EUR457.0 million).
Services performance
Services growth in 2022 was driven by Professional Services,
although Managed Services also developed well. We benefited from
contracts won in 2021 and the expansion of existing business. In
Professional Services, we grew all solution areas and benefited
from the nearshore and offshore capacities we had created. We are
seeing a notable increase in international revenues in both the
Professional Services and Managed Services businesses. Our
international presence and the opportunities created by leveraging
nearshore and offshore capabilities should give us additional
impetus for 2023.
Services gross profits benefited from volume growth but cost and
efficiency had a negative impact on margins. Compared to 2021, we
recorded increased travel, training and event costs. However, we
are still well below the pre-Covid level and within the expected
range. We also planned for a slight underutilisation of service
resources due to the significant expansion of capacity, primarily
due to new business entrants. However, we did not foresee the cold
and flu wave that swept over Germany, particularly from October to
December. As a result, sick leave increased substantially, leading
to lower availability of resources. These three effects have put
the Services margins under pressure, with a decrease of 403 basis
points over the year.
In summary, we are satisfied with performance in the service
area and we have the potential to address even more business with
our customers.
We are targeting double-digit revenue growth in 2023, especially
in Professional Services, and the persistently high demand from
public sector customers assists with this objective. However, we
also assume that Services gross profit will be affected by
increased salary costs, which we can only recover over time due to
long-term contracts that do not allow all price adjustments to be
passed on to the customer, and due to the general increase in
costs, especially for energy, which will affect our Managed
Services contracts. Overall, we assume that we can achieve a small
growth in Services gross profit.
France
Financial performance
Our French business made good progress in 2022, mainly thanks to
a very strong last quarter in our Technology Sourcing business. Our
Integration Center in Gonesse was busy throughout the year and
handled record product volumes in December.
Towards the end of 2020, we acquired BT's domestic services
operations in France and renamed the subsidiary Computacenter NS
(CCNS). CCNS significantly improved our capabilities around
networking and security in France. Simultaneously, we have
developed our competencies in data center solution design and
software licensing solutions. We made good progress in 2022 with
leveraging these new capabilities, as evidenced by the shift in our
business mix from workplace to data center and networking.
Another notable development in 2022 was the growth of our
software licensing business. We grew the traditional reselling of
licences and also saw good progress with closing some high-volume,
long-term software consumption-based agreements.
The further integration of CCNS progressed according to plan and
since 1 January 2023, all CCNS maintenance and data center
operations teams have been fully integrated within our Group
delivery teams. This means we have integrated 100 per cent of CCNS
activities within the Computacenter operating model. At the time of
acquisition, we knew that certain CCNS contracts would not be
renewed and the total Managed Services Contract Base declined in
line with our expectations. It is encouraging that we won a few
large network maintenance contracts towards the end of the year and
we are determined to further grow our CCNS business.
Computacenter continues to develop its capabilities worldwide.
That enables us to propose compelling solutions to our
internationally-based French customers in the corporate sector.
Moreover, local French customers from both the corporate and public
sectors benefit from our worldwide capabilities, as they can use
our global, scalable systems and benefit from worldwide vendor
relationships and corresponding terms and conditions.
In the second half of the year, Anne Merinville was appointed as
the new Country Unit Director for France, allowing her to fully
focus on the development of the sales team in France. Together with
the country management team, we have defined a future-ready sales
structure and believe that we can now fully focus to establish
further growth in the French market.
From an economic perspective, while inflation will influence our
Technology Sourcing and Services costs and market pricing in 2023,
the inflation rate in France is lower than in most European
countries, largely because the Government has capped energy price
increases. Although there is the prospect of an economic slowdown,
we remain confident that customers will continue to invest
significantly in their IT, reflecting the importance of technology
to delivering their change programmes. This is reflected in our
database of identified customer opportunities, which is double the
size of a year ago. Margins in France increased by 23 basis points,
with adjusted(1) gross profit increasing from 12.3 per cent to 12.5
per cent of revenues.
Results 2022 2021 Percentage change 2022 2021 Percentage change
GBPm GBPm EURm EURm
Professional Services revenue 41.7 38.0 9.7% 48.9 44.1 10.9%
Managed Services revenue 136.4 134.0 1.8% 160.0 155.9 2.6%
Services revenue 178.1 172.0 3.5% 208.9 200.0 4.5%
Technology Sourcing gross invoiced income 606.7 481.4 26.0% 709.2 560.0 26.6%
Total gross invoiced income 784.8 653.4 20.1% 918.1 760.0 20.8%
Professional Services revenue 41.7 38.0 9.7% 48.9 44.1 10.9%
Managed Services revenue 136.4 134.0 1.8% 160.0 155.9 2.6%
Services revenue 178.1 172.0 3.5% 208.9 200.0 4.5%
Technology Sourcing revenue 435.8 383.2 13.7% 509.5 445.5 14.4%
Total revenue 613.9 555.2 10.6% 718.4 645.5 11.3%
Gross profit 76.7 68.1 12.6% 89.5 79.2 13.0%
Adjusted(1) administrative expenses (69.6) (64.6) 7.7% (81.5) (75.0) 8.7%
Adjusted(1) operating profit 7.1 3.5 102.9% 8.0 4.2 90.5%
Technology Sourcing performance
Our Technology Sourcing business had a very strong year, despite
continued challenges around product shortages worldwide. Towards
the end of the year, we saw an improvement in product availability
and are hopeful that we can return to normal during 2023.
Due to these shortages and continued high demand, we faced high
inventory levels throughout the year. However, inventory reduced
towards the end of 2022, evidencing the improvement of product
availability at the year end. Technology Sourcing margins increased
by 47 basis points, based on gross profit as a percentage of
revenue.
The global product shortages in 2020 and 2021 meant that we
started 2022 with a very high backlog position. With record revenue
in Technology Sourcing in 2022 and improved product availability,
we expected that the backlog would decline towards the end of the
year. This was not the case, proving the effectiveness of our sales
force throughout the year in identifying and closing new
opportunities with our customers. The committed order backlog at
the year-end was EUR132.2 million of confirmed purchase orders for
delivery within 12 months, on a gross invoiced income basis, a 5.2
per cent increase since 31 December 2021 (EUR125.7 million).
Services performance
The Services business was challenged in 2022, as it was across
the Group. During the pandemic in 2021, our Professional Services
consultants worked mainly from home, resulting in optimised
utilisation of their time, with less travel and lower sickness
levels, and very low travel expenses. With the return to work,
these advantages have disappeared. Services margins decreased by 78
basis points.
The continued competitiveness in the labour market for talent
throughout 2022 also affected our ability to respond to all the
project opportunities. We have increased our efforts to improve our
reputation as an employer of choice in France and are hopeful this
will pay off in 2023 and beyond.
Our Managed Services base declined as expected, with the CCNS
contracts referred to above coming to an end. Following the win of
a few significant Managed Services opportunities in 2021, we have
been finalising the take-on of these contracts and worked hard to
optimise our service, in order to deliver all the contracts to the
agreed service level and within the designed cost model. A great
deal of effort also went into renewing and extending a few large
existing contracts.
North America
Performance in the year was assisted by the acquisition of
Business IT Source (BITS) on 1 July 2022. BITS is one of the
fastest growing value-added resellers in the United States and
presents good opportunities to expand our coverage of the Mid-West
region from its base in Illinois.
We are delighted to have welcomed our new colleagues to
Computacenter, who bring strong selling and customer service skills
and are an excellent cultural fit.
BITS outperformed our expectations in the first six months of
ownership, with revenues of $216.1 million and adjusted(1)
operating profit of $8.4 million.
North America continues to manage its system conversions to the
Group ERP system. We are preparing to migrate the Pivot and BITS
businesses in 2024.
Financial performance
Excluding the BITS acquisition, our organic North American
revenue growth was 57.3 per cent on a constant currency(2) basis.
This was due to continued growth of hyperscale customers, as well
as new customer wins, with growth in both Technology Sourcing and
Services. The Technology Sourcing business saw significant revenue
growth, although this was concentrated in a small number of
hyperscale customers where account margins are materially lower
than average. Global supply chain challenges continue to affect the
Technology Sourcing business, although the impact materially
reduced over the second half of 2022.
Our growth is reflected in the number of customer accounts that
exceed GBP1 million of gross profit per year, which increased from
37 to 44 during the year. We have also expanded the business that
we do with other customers and grown the average gross profit per
customer.
Margins in North America decreased by 412 basis points, with
adjusted(1) gross profit decreasing from 13.6 per cent to 9.5 per
cent of revenues. The acquisition of BITS did not significantly
impact the overall margin percentage.
The increase in adjusted(1) administrative expenses was the
result of higher variable remuneration due to the increase in gross
profit, investments in additional capabilities to support customers
and higher than historical average increases in compensation, due
to wage inflation. Travel and living expenses rose as Covid-19
restrictions loosened. These were partly offset by lower facility
costs and foreign currency exchange gains.
Facility costs were lower as we reduced the size of certain
offices or combined office locations in similar regions. North
America is expanding its Integration Center capability overall,
with a larger facility in Washington State and a new facility in
Indiana to better manage capacity across our expanding geographical
footprint in the United States. The acquisition of BITS also
increases our Integration Center capacity, with a facility in
Illinois. In the medium term we will look to further integrate and
align the capacity once supply chains have normalised and the Group
ERP systems are implemented throughout the operational units.
Excluding BITS, North America's adjusted(1) operating profit was
up by 33.6 per cent to $56.9 million. The year-on-year increase in
adjusted(1) operating profit was achieved while investing in new
capabilities and expanding the portfolio, largely focused on adding
workplace capabilities and continued hyperscale capability which
more than offset short-term declines in our rack business. Whilst
higher volumes drove the growth, a less favourable customer mix
meant adjusted(1) operating profit lagged the increase in
revenue.
We continue to leverage the synergies of our North American and
European businesses, for example by increasing our focus on the
financial services market in the United States North-East for
existing European customers.
While we are anticipating a downturn in the North American
economy, we have less than one per cent share of the market, giving
us significant potential to grow as we invest to take market
share.
Results 2022 2021 Percentage change 2022 2021 Percentage change
GBPm GBPm $m $m
Professional Services revenue 122.5 77.5 58.1% 150.3 106.5 41.1%
Managed Services revenue 26.9 18.6 44.6% 33.2 25.8 28.7%
Services revenue 149.4 96.1 55.5% 183.5 132.3 38.7%
Technology Sourcing gross invoiced income 3,131.7 1,869.2 67.5% 3,836.2 2,562.8 49.7%
Total gross invoiced income 3,281.1 1,965.3 67.0% 4,019.7 2,695.1 49.1%
Professional Services revenue 122.5 77.5 58.1% 150.3 106.5 41.1%
Managed Services revenue 26.9 18.6 44.6% 33.2 25.8 28.7%
Services revenue 149.4 96.1 55.5% 183.5 132.3 38.7%
Technology Sourcing revenue 2,357.9 1,226.3 92.3% 2,887.1 1,682.8 71.6%
Total revenue 2,507.3 1,322.4 89.6% 3,070.6 1,815.1 69.2%
Gross profit 238.3 180.2 32.2% 292.4 247.6 18.1%
Adjusted(1) administrative expenses (185.3) (149.2) 24.2% (227.1) (205.0) 10.8%
Adjusted(1) operating profit 53.0 31.0 71.0% 65.3 42.6 53.3%
Technology Sourcing performance
Excluding BITS, Technology Sourcing gross invoiced income
increased by 40.9 per cent on an organic basis. The organic growth
was driven by increased spending by hyperscale customers and growth
in sales to international customers with operations in the United
States. Technology Sourcing has grown in 'drop-ship' revenue, where
products are delivered directly from the vendor, and experienced a
decline in integration-driven revenue. This leads to fewer
opportunities to add value to the transaction and decreases the
utilisation of our facilities and personnel, leading to lower cost
absorption. We continue to see significant activity and opportunity
for our Integration Centers, including complex distributed branch
rollouts, as well as global data center build-out projects for our
hyperscale customers. However, the probability and timing of these
opportunities are difficult to predict.
The Technology Sourcing margin decreased by 422 basis points,
based on gross profit as a percentage of revenue, as a result of
significant revenue growth with hyperscale customers that command a
lower-margin profile, combined with the investment growth in
Integration Center capacity and a reduction in our higher-margin
rack fabrication volumes. The acquisition of BITS was beneficial to
gross profit while resulting in no change in overall margins as
BITS has a similar margin profile to the rest of the business.
Compared to 2021, we saw a similar technology spending mix among
major partners and technologies, particularly in the data center
and networking solution areas.
We benefited from significant continuing investments by our
customers, as they digitise their operations and modernise their
infrastructure. We continue to see customers seeking to simplify
their operations by consolidating to fewer suppliers, resulting in
long-term commitments and larger transactions.
The committed order backlog at the year-end was $2,557.4 million
of confirmed purchase orders for delivery within 12 months, on a
gross invoiced income basis, a 130.5 per cent increase since 31
December 2021 ($1,109.5 million). This was driven by a single major
hyperscale customer, whose backlog almost doubled over the prior
year. Excluding this customer, the backlog increased by 9 per cent,
with growth in the backlog slowing due in part to reduced lead
times as supply chain performance improves.
Services performance
The acquisition of BITS did not have a significant impact on
Services revenue.
North American Services revenue growth was primarily due to
significant deployment projects, with several large ongoing
projects with countrywide retail customers. Project activity
continued to recover during 2022 after customers delayed expected
projects while they responded to Covid-19 in 2020 and 2021. Our
pipeline in Professional Services is encouraging and we have
secured two new Managed Services contracts, which will ensure this
part of this business grows again in 2023 and will allow us to
leverage some of our Group investments.
Professional Services margins were down compared to the prior
year despite higher volume, as a result of a less favourable
customer mix and the impact of wage inflation rising faster than
our ability to pass these costs on to our customers. The Managed
Services business also reported lower margins year-on-year, due to
a combination of customer mix and lower margins on transition
projects in their early stages. Overall, Services margins were down
by 274 basis points.
International
The International Segment comprises a number of trading
entities, nearshore and offshore Service Center locations and
countries in which we have other support operations.
The trading entities include Computacenter Switzerland,
Computacenter Belgium and Computacenter Netherlands. In addition to
their operational delivery capabilities, these entities have
in-country sales organisations, which enable us to engage with
local customers. The newly acquired Emerge 360 Japan k.k (Emerge)
business has joined the International Segment, with Services
delivery locations in Japan, Australia, Singapore and Hong
Kong.
These trading entities are joined in the Segment by the offshore
Group Service Center entities in Spain, Malaysia, India, South
Africa, Hungary, Poland, China and Mexico, and the Professional
Services Delivery Center in Romania, which have limited external
revenues as they charge the relevant Group subsidiaries for the
Services provided.
Financial performance
Performance varied in each of our international trading
entities.
The Belgian business had a very strong year across all areas.
Our investments of the last few years to increase our capabilities
in data center and networking solutions have resulted in good
growth in these areas and were rewarded by the prestigious 'Partner
of the Year' award from Cisco, as well as the 'Rising Star' award
from HPE.
Our Dutch entity also delivered a strong performance for the
year, due to an international Technology Sourcing and Services
framework contract in the corporate sector and continued good
performance in the public sector. Meanwhile we have completed a
reorganisation project and our location strategy, with a full
refurbishment of our Amstelveen offices and the start of a project
to move our logistics capabilities to a new Integration Center in
Moordrecht, with completion targeted for the second quarter of
2023.
Our Swiss operations had a challenging year, as customers
reviewed the scope of our main Services contracts after the
pandemic. These contracts were large contributors to the Swiss
business and to compensate for their reduction, we have further
intensified our cooperation with the rest of the Computacenter
Group and focused on international clients with a decision-making
entity in Switzerland. We have also made good progress in
completing our services and solutions portfolio, increased our
sales capacity and acquired important certifications to win new
customers, such as the ISO 27001 information security
certification.
Overall, margins in the International Segment decreased by 338
basis points, with adjusted(1) gross profit decreasing from 23.6
per cent to 20.2 per cent of revenues.
Results 2022 2021 Percentage change 2021 Percentage change
GBPm GBPm GBPm
constant
currency(2)
Professional Services revenue 9.2 8.5 8.2% 8.8 4.5%
Managed Services revenue 83.2 69.7 19.4% 70.9 17.3%
Services revenue 92.4 78.2 18.2% 79.7 15.9%
Technology Sourcing gross invoiced income 174.3 112.8 54.5% 112.9 54.4%
Total gross invoiced income 266.7 191.0 39.6% 192.6 38.5%
Professional Services revenue 9.2 8.5 8.2% 8.8 4.5%
Managed Services revenue 83.2 69.7 19.4% 70.9 17.3%
Services revenue 92.4 78.2 18.2% 79.7 15.9%
Technology Sourcing revenue 144.0 88.3 63.1% 88.8 62.2%
Total revenue 236.4 166.5 42.0% 168.5 40.3%
Gross profit 47.8 39.3 21.6% 40.0 19.5%
Adjusted(1) administrative expenses (36.5) (28.0) 30.4% (28.1) 29.9%
Adjusted(1) operating profit 11.3 11.3 - 11.9 (5.0%)
Technology Sourcing performance
Reductions in supply chain delays towards the end of the year
gave a boost to the product volumes we could ship to our customers
and helped to expedite networking and data center infrastructure
projects. Our international product business in workplace remains
strong and together with our strategic partners, we identified and
onboarded new target customers.
Compared to their local competition, the trading entities in our
International Segment can gain an advantage from the Group's
Centres of Excellence, which advise, design, build, transition and
ensure compliance for large, complex and international hardware and
software opportunities. We have seen good examples in Belgium, the
Netherlands and Switzerland from international contract wins,
thanks to our international capabilities.
We expect that the global component shortages will reduce in
severity during the course of 2023, mainly in the data center and
networking areas. The committed order backlog at the year-end was
GBP24.2 million of confirmed purchase orders for delivery within 12
months, on a gross invoiced income basis, a 1.5 per cent increase
since 31 December 2021 (GBP23.9 million) in constant currency(2)
.
Technology Sourcing margins have decreased by 194 basis points,
based on gross profit as a percentage of revenue.
Services performance
In comparison with the Group's larger Segments, the Services
business in the International Segment produced a good performance
in 2022.
Our Belgian Managed Services business again had a very strong
year, with growth and the renewal of two key international
accounts. One of these customers, in financial services, has
already trusted Computacenter for 22 years to deliver global
end-user Managed Services.
Our Dutch business had a stable year in Services. We grew both
revenues and gross profit in our main contracts and have created a
good pipeline to establish further growth in 2023.
As mentioned above, our Swiss business saw a significant decline
in its two largest Services contracts. The team has therefore
focused throughout the year on reviewing the size and structure of
our delivery teams. We now have a more flexible and optimised
delivery model to meet future needs and we are pleased that we were
able to start some projects in the public and corporate
sectors.
Group Finance Director's review
During 2022, the Group generated continued strong revenue growth
in both Technology Sourcing and Services. Growth across all
Segments was excellent, apart from the United Kingdom where,
despite strong growth in gross invoiced income, we saw a decline in
reported Technology Sourcing revenues as the product mix changed
and both Professional Services and Managed Services declined, due
to lower workplace projects and contract losses in 2021
respectively.
Whilst the United Kingdom saw significant gross invoiced income
growth through increasing software and resold Services activity,
only the margins on this business, which are naturally low, are
reported as revenue, following the change to our accounting policy
for agent versus principal recognition. See below and notes 3 to 5
of the summary financial information within this announcement for
more information on the impact of our change in accounting
policy.
A small number of very high-volume customers continue to
recognise and value our capability to source and deliver product
for their needs, in a very competitive marketplace, through our
close relationships with our vendor technology partners. As this
hyperscale business grows in relation to the rest of the business,
the margin in North America will continue to decline relative to
our other key geographies over the longer term.
The Group has seen significant currency translation movements,
as the pound sterling has fluctuated against other currencies,
particularly the US dollar and the euro, which impacts us the
most.
Investments
Computacenter resells, deploys and manages vendor technology for
customers. This means we are fundamentally a people-centric
business. Customers remain loyal to Computacenter because of the
quality of our people and service and this will always be the case.
However there are a number of other assets that we employ to
deliver to our customers such as our Service and Integration Center
facilities, methodologies, best practices, a track record of
performance, and in particular, great systems. We invest many
millions of pounds every year in improving and supporting these
systems, which give us a competitive advantage in a business which
is about scale, repeatability and agility.
Our systems need to be robust, secure and able to handle large
volumes. They also have to be simple to use and adaptable to most
customer eventualities. The vast quantities of product that we
transact for customers puts massive pressure on our operations and
systems, as customers call off stored technology piecemeal and at
short notice, often to thousands of different users' home
addresses. We prioritise our plans for systems development, and
other investments in time and capital, in response to the
ever-changing environment in which we operate.
We have continued to refine our systems investment roadmap
through to the end of 2026, with a multi-million pound programme to
replace legacy systems that enable our Technology Sourcing and
Services businesses. Investing in best-of-breed tools will lower
cost to serve, improve the quality of our offerings and enhance our
relevance to customers in the marketplace.
We continue to invest in our nearshore and offshore
capabilities, with over 100 professionals now based in our
specialist application development consultancy within our Romanian
business that started in 2021. We have grown our workforce in India
from 15 employees in 2019 to approximately 1,100 at the end of
2022. This business now serves a range of our biggest customers
and, with an ability to continue to scale whilst increasing the
complexity of offering, we expect to have a business of up to 5,000
employees in the medium term.
In Germany, our focus on growing the workplace business has
absorbed significant capacity in our Integration Center facility,
leading to its expansion through the addition of a second,
co-located, facility in Kerpen. The very strong growth in workplace
in Germany has stretched our onsite handling and configuration
capacities. Germany already had a higher percentage of workplace
product delivered via our Integration Centers, versus direct
delivery from the vendors, than our other geographies. The larger
volumes fully utilised our existing facilities. This led to higher
handling costs for these inventories, as they are moved around
increasingly scarce space in our Integration Centers. We
implemented a mitigation strategy towards the end of the first half
of 2022, with this additional Integration Center capacity being
added near to our existing facility. The new facility has
alleviated the pressure on the German business, and improved
efficiencies and customer satisfaction.
On 13 July 2022, the Group announced that it had acquired one of
the fastest-growing value-added resellers in the United States,
Business IT Source (BITS) effective from July 2022. The Group has
paid an initial $32.0 million, with two additional payments
contingent on the future performance of the acquired business
through to 31 December 2024.
BITS employs around 100 people and has a headquarters and
Integration Center in Buffalo Grove, United States, approximately
45 minutes from downtown Chicago. BITS recorded gross invoiced
income in 2021 of approximately $245 million with adjusted(1)
operating profit of approximately $8.9 million for the full year.
Since we acquired the business in July 2022, BITS has achieved
gross invoiced income of $221 million and adjusted(1) operating
profit of $8.4 million in six months of ownership.
The existing BITS leadership team will stay to run the business
as a separate operating unit within Computacenter North America, to
maximise the growth opportunity. The business and the team will be
fully integrated into Computacenter's North American operations
over time.
Whilst our North American business continues to see substantial
organic growth, we will continue to review additional inorganic
opportunities to improve our positioning in this important market.
BITS gives us a much stronger presence in the Mid-West of the
United States and brings some great people, customers and
leadership to our business. The Buffalo Grove Integration Center
will allow us to serve more of our Mid-West regional customers
locally over time, helping us to meet our sustainability goals. We
are optimistic that the BITS leadership team will seize the
opportunity to continue their current growth momentum.
BITS will have the opportunity to provide a much broader range
of capabilities to our customers and growth opportunities for its
people. Operating as a separate business unit, over the short term,
will allow us to continue our personalised service while leveraging
Computacenter's capabilities and balance sheet to best serve
customers and partners.
On 25 May 2022, the Group acquired 100 per cent of the share
capital in Emerge and the associated Asia Pacific (APAC) operations
from Emerge 360, Inc., for consideration of $3.5 million. The
acquired APAC business has a presence in Japan, Singapore,
Australia and Hong Kong.
This continues our strategy of building the best international
capability of any value-added reseller in the world. Emerge was
already a valued partner in the region, working to extend our reach
and capability for our international customers. Following the
acquisition, over 230 engineers and service managers have joined
Computacenter in Singapore, Hong Kong, Australia, Japan and India.
This brings our total number of people in APAC to nearly 300 and in
India to over 1,100. Our strategy in APAC is to build better
operational capability and coverage to support our international
customers headquartered in Europe and North America. We will
enhance the credibility of our offering to our existing customer
base by employing our own service leadership in the region, who
will have local interaction with customers and manage delivery,
whether it is by Computacenter or our partners. In India, although
our strategy is centred on building our offshore Service Center
capability, our 80 new people from Emerge join an existing and
growing engineering team who work on key customer sites. This
acquisition enhances our Services offerings within the region and,
in both APAC and India, this will continue to be complemented by
the great Technology Sourcing experience provided by our local and
regional partners.
Migrating our recently acquired material entities onto our
leading ERP platform technologies and toolsets will help to unlock
their potential for growth and efficiencies. The integration of
Pivot and BITS onto Group systems is planned for 2023 and 2024
respectively, and will benefit from the recent migration of
FusionStorm and the legacy North American business, which
transitioned to the Group ERP in September 2021. This is by no
means an easy task and operational issues will no doubt arise as
these businesses adapt to Group processes. Further, a number of
next-generation upgrades to the customer relationship management
and configure price quote systems were implemented within the North
American rollout. These are being progressively introduced through
the rest of the Group, and will continue to evolve the way we do
business with our customers, ensuring that ordering capability and
cost-to-serve efficiencies are improved.
Combined, these acquisitions, and the ITL logistics acquisition
made during 2021, added GBP187.8 million of revenue (2021: GBP1.3
million) and GBP5.4 million of adjusted(1) profit before tax (2021:
GBP0.4 million) to the Group's reported results.
Revenue accounting policy change
Following a recently approved interpretation of the revenue
accounting standard by the International Accounting Standards
Board, we, and a number of our peer value-added resellers, have
changed the way we recognise revenues for standalone software and
resold third-party service contracts and revised our accounting
policies to reflect this change. Historically, we had considered
ourselves the principal in the arrangement and largely recognised
these transactions on a principal or gross basis, with the gross
invoiced income, represented by the invoiced amount to customers,
reported as revenue and the cost of the resold software or services
reported as cost of goods sold. Subsequent to the approval of the
interpretation of the revenue accounting standard by the
International Accounting Standards Board, we have now determined
that we are an agent for these transactions and will recognise
revenue on a net basis, with only the gross profit on these types
of deals, being the gross invoiced income less the costs of the
resold software or third-party services, showing as revenue,
with nothing recorded in cost of goods sold. Further information on
this change, including the retrospective restatement of the
financial statements, and the revised accounting policy, is
available in note 3 to the summary financial information within
this announcement.
We will continue to show our gross invoiced income as an
alternative performance measure. Gross invoiced income includes all
items recognised on an 'agency' basis within revenue, on a gross
income billed to customers basis, as adjusted for deferred and
accrued revenue and net of the impact of credit notes and excluding
VAT or other sales taxes. This reflects the cash movements to
assist Management and the users of the Reports and Accounts in
understanding revenue growth on a 'principal' basis and to assist
their assessment of working capital movements in the Consolidated
Balance Sheet and Consolidated Cash Flow Statement. This
alternative performance measure also allows an alternative view of
growth in adjusted(1) gross profit, based on the product mix
differences and the accounting treatment thereon. A reconciliation
of revenue to gross invoiced income is provided within note 5 to
the summary financial information within this announcement. A
reconciliation to adjusted(1) measures is provided below. Further
details are provided in note 2.5 to the summary financial
information within this announcement, adjusted(1) measures.
Reconciliation to adjusted(1) measures for the year ended
2022
Adjustments
Reported Adjusted(1)
full-year Principal element on Amortisation Exceptionals full-year
results agency contracts of acquired intangibles and others results
GBPm GBPm GBPm GBPm GBPm
Revenue 6,470.5 2,581.7 - - 9,052.2
Cost of sales (5,523.4) (2,581.7) - - (8,105.1)
Gross profit 947.1 - - - 947.1
Administrative expenses (691.8) - 10.9 1.8 (679.1)
Impairment loss on trade
receivables and contract
assets 1.1 - - - 1.1
Operating profit 256.4 - 10.9 1.8 269.1
Finance income 2.4 - - - 2.4
Finance costs (9.8) - - 2.0 (7.8)
Profit before tax 249.0 - 10.9 3.8 263.7
Income tax expense (64.8) - (2.3) (0.2) (67.3)
Profit for the year 184.2 - 8.6 3.6 196.4
Reconciliation to adjusted(1) measures for the year ended
2021
Adjustments
Reported Adjusted(1)
full-year Principal element on Amortisation Exceptionals full-year
results agency contracts of acquired intangibles and others results
GBPm GBPm GBPm GBPm GBPm
Revenue 5,034.5 1,889.0 - - 6,923.5
Cost of sales (4,166.7) (1,889.0) - - (6,055.7)
Gross profit 867.8 - - - 867.8
Administrative expenses (612.0) - 7.6 - (604.4)
Impairment loss on trade
receivables and contract
assets (0.6) - - - (0.6)
Operating profit 255.2 - 7.6 - 262.8
Finance income 0.3 - - - 0.3
Finance costs (7.5) - - - (7.5)
Profit before tax 248.0 - 7.6 - 255.6
Income tax expense (61.5) - (2.1) - (63.6)
Profit for the year 186.5 - 5.5 - 192.0
Operating profit
Overall, gross profit growth lagged behind the excellent revenue
growth due to Technology Sourcing customer and product mix. Surging
levels of business with a small number of North American
hyperscalers during the year have negatively impacted gross margins
for the Group due to the generally tighter margins on these
high-volume accounts. Lower Services margins occurred due to cost
inflation and lower utilisations and returning costs within our
Services business, following the unwinding of the impact of the
Covid-19 pandemic as described earlier. Overall, Group gross
margins, expressed as gross profits as a percentage of revenue,
fell to 14.6 per cent (2021: 17.2 per cent).
Administrative expenses increased by 12.7 per cent to GBP690.7
million (2021: GBP612.6 million). We continue to apply the
cost-management lessons from the Covid-19 crisis, to ensure that as
costs inevitably return due to factors such as increased travel,
they remain lower than before, resulting in a more efficient
business. In addition, we have reviewed our office footprint across
our major geographies and will look to rationalise the estate where
locations are no longer necessary, or could be reduced in size, due
to our people and our customers' workforces adopting hybrid
working. Adjusted(1) administrative expenses increased by 12.1 per
cent to GBP678.0 million (2021: GBP605.0 million), and by 9.4 per
cent in constant currency(2) .
Profit before tax
The Group's profit before tax for the year increased by 0.4 per
cent to GBP249.0 million (2021: GBP248.0 million). Adjusted(1)
profit before tax increased by 3.2 per cent to GBP263.7 million
(2021: GBP255.6 million) and by 2.1 per cent in constant
currency(2) .
The difference between profit before tax and adjusted(1) profit
before tax relates to the Group's net costs of GBP14.7 million
(2021: net costs of GBP7.6 million) from exceptional and other
adjusting items, which relates wholly to costs associated with the
acquisition of BITS and the amortisation of acquired intangibles as
a result of recent North American acquisitions. Further information
on these items can be found below.
Net finance charge
Net finance charge in the year amounted to GBP7.4 million (2021:
GBP7.2 million). The main items included within the net charge for
the year were GBP4.9 million of interest charged on lease
liabilities recognised under IFRS 16 (2021: GBP5.2 million) and
exceptional interest costs of GBP2.0 million relating to the
unwinding of the discount on the contingent consideration for the
purchase of BITS, which was excluded on an adjusted(1) basis.
Outside of the specific items above, net finance charges of GBP0.5
million were recorded (2021: GBP2.0 million).
On an adjusted(1) basis, the net finance cost was GBP5.4 million
during the year (2021: GBP7.2 million).
Taxation
The tax charge was GBP64.8 million (2021: GBP61.5 million) on
profit before tax of GBP249.0 million (2021: GBP248.0 million).
This represented a tax rate of 26.0 per cent (2021: 24.8 per cent).
This includes the recognition of a EUR2.4 million deferred tax
asset representing the probable benefit of future utilisation of
losses within the French business due to a forecast improvement in
the short- to medium-term profitability in this geography.
The tax credit related to the amortisation of acquired
intangibles was GBP2.3 million (2021: GBP2.1 million). The GBP10.9
million of amortisation of intangible assets was almost entirely a
result of the recent North American acquisitions (2021: GBP7.6
million). As the amortisation is recognised outside of our
adjusted(1) profitability, the tax benefit on the amortisation is
also reported outside of our adjusted(1) tax charge.
During 2022, a tax credit of GBP0.2 million (2021: nil) was
recorded on expenses related to the acquisition of BITS. As this
credit was related to the acquisition and not operational activity
within BITS, and is a one-off, we have classified this as an
exceptional tax item, outside of our adjusted(1) tax charge,
consistent with similar treatments in prior years.
The adjusted(1) tax charge for the year was GBP67.3 million
(2021: GBP63.6 million), on an adjusted(1) profit before tax for
the year of GBP263.7 million (2021: GBP255.6 million). The
effective tax rate (ETR) was therefore 25.5 per cent (2021: 24.9
per cent) on an adjusted(1) basis.
During the second half of 2022 a number of one-off tax items
were processed that substantially reduced the tax charge, and
therefore the adjusted(1) ETR, for the year as a whole. Recognising
deferred tax assets for the future utilisation of carry forward
losses in the Netherlands and France, as noted above, resulted in a
one-time credit to the tax expense of GBP3.1 million. Several other
one-off items were incurred in the year in North America and
reduced the tax expense by a further GBP1.4 million in aggregate.
These include the closure of a number of historical tax positions,
some of which relate to events preceding the acquisition of the
Pivot subsidiary.
Together, these combined items resulted in a one-time credit
benefit to the tax expense of GBP4.5 million (2021: GBP5.5
million). Excluding these items, the underlying adjusted(1) tax
expense would be GBP71.8 million (2021: GBP69.1 million), resulting
in an adjusted(1) ETR of 27.2 per cent (2021: 27.0 per cent).
Had the one-off items not impacted during the year, and the
Group result reflected an adjusted(1) ETR of 27.2 per cent, the
adjusted(1) diluted EPS would have been 165.8 pence per share
(2021: 160.9 pence per share). Assuming an unchanged dividend
payment policy, the proposed final dividend, and the total dividend
for the year, would have been 44.3 pence per share and 66.4 pence
per share respectively.
The adjusted(1) ETR is therefore outside the full-year range
that we indicated in our 2022 Interim Results, which showed an ETR
of 27.9 per cent (H1 2021: 28.6 per cent), due to the unforecasted
positive impacts described above.
We expect that the ETR in 2023 will be subject to upwards
pressure, due to an increasing reweighting of the geographic split
of adjusted(1) profit before tax away from the United Kingdom to
Germany and the United States, where tax rates are higher, and also
as governments across our primary jurisdictions come under fiscal
and political pressure to increase corporation tax rates.
Substantially enacted tax increases will take effect in the United
Kingdom from 1 April 2023, with a rise from 19 per cent to 25 per
cent.
The Group Tax Policy was reviewed during the year and approved
by the Audit Committee and the Board, with no material changes from
the prior year. We make every effort to pay all the tax
attributable to profits earned in each jurisdiction that we
operate. We do not artificially inflate or reduce profits in one
jurisdiction to provide a beneficial tax result in another and
maintain approved transfer pricing policies and programmes, to meet
local compliance requirements. Virtually all of the tax charge in
2022 was incurred in either the United Kingdom, Germany or United
States tax jurisdictions, as it was in 2021. Computacenter France,
which includes the Computacenter NS acquisition within a tax group,
has returned to a broadly break-even position, reducing the amount
of tax paid locally.
There are no material tax risks across the Group. Computacenter
will recognise provisions and accruals in respect of tax where
there is a degree of estimation and uncertainty, including where it
relates to transfer pricing, such that a balance cannot fully be
determined until accepted by the relevant tax authorities. For
2022, the Group Transfer Pricing policy implemented in 2013
resulted in a licence fee of GBP38.7 million (2021: GBP30.3
million), charged by Computacenter UK to Computacenter Germany,
Computacenter France and Computacenter Belgium. The licence fee is
equivalent to 1.0 per cent of revenue and reflects the value of the
best practice and know-how that is owned by Computacenter UK and
used by the Group. It is consistent with the requirements of the
Organisation for Economic Co-operation and Development (OECD) base
erosion and profit shifting. The licence fee is recorded outside
the Segmental results found in note 4 to the summary financial
information within this announcement, which analyses Segmental
results down to adjusted(1) operating profit.
The table below reconciles the tax charge to the adjusted(1) tax
charge for the years ended 31 December 2022 and 31 December
2021.
2022 2021
GBPm GBPm
Tax charge 64.8 61.5
Adjustments to exclude:
Tax on amortisation of acquired intangibles 2.3 2.1
Tax on exceptional items 0.2 -
Adjusted 1 tax charge 67.3 63.6
Effective tax rate 26.0% 24.8%
Adjusted 1 effective tax rate 25.5% 24.9%
Profit for the year
The profit for the year decreased by 1.2 per cent to GBP184.2
million (2021: GBP186.5 million). The adjusted(1) profit for the
year increased by 2.3 per cent to GBP196.4 million (2021: GBP192.0
million) and by 1.4 per cent in constant currency(2) .
Exceptional and other adjusting items
The net loss from exceptional and other adjusting items in the
year was GBP12.2 million (2021: loss of GBP5.5 million). Excluding
the tax items noted above, which resulted in a gain of GBP2.5
million (2021: gain of GBP2.1 million), the profit before tax
impact was a net loss from exceptional and other adjusting items of
GBP14.7 million (2021: gain of GBP7.6 million).
An exceptional loss during the year of GBP1.8 million resulted
from costs directly relating to the acquisitions made during the
year of BITS and Emerge. These costs include professional advisor
fees and seller's fees that were paid on completion of the
transaction. These costs are non-operational in nature, material in
size and unlikely to recur and have therefore been classified as
outside our adjusted(1) results. A further GBP2.0 million relating
to the unwinding of the discount on the contingent consideration
for the purchase of BITS has been removed from the adjusted(1) net
finance expense and classified as exceptional interest costs.
There were no exceptional items in 2021.
We have continued to exclude, as an 'other adjusting item', the
amortisation of acquired intangible assets in calculating our
adjusted(1) results. Amortisation of intangible assets is non-cash,
does not relate to the operational performance of the business, and
is significantly affected by the timing and size of our
acquisitions, which distorts the understanding of our Group and
Segmental operating results.
The amortisation of acquired intangible assets was GBP10.9
million (2021: GBP7.6 million), primarily relating to the
amortisation of the intangibles acquired as part of the recent
North American acquisitions. This includes the amortisation of a
number of short-term acquired intangibles relating to the valuation
of BITS order backlogs, due to the expiration of the valued
assets.
Gross invoiced income (GII)
Half 1 Half 2 Total
GBPm GBPm GBPm
2020 2,462.2 2,979.1 5,441.3
2021 3,287.6 3,635.9 6,923.5
2022 3,971.9 5,080.3 9,052.2
2022/21 20.8% 39.7% 30.7%
Adjusted(1) profit before tax
Half 1 Half 2 Total
GBPm % GII GBPm % GII GBPm % GII
2020 74.6 3.0 125.9 4.2 200.5 3.7
2021 118.9 3.6 136.7 3.8 255.6 3.7
2022 111.9 2.8 151.8 3.0 263.7 2.9
2022/21 (5.9%) 11.1% 3.2%
Gross invoiced income by Segment
2022 2021
Half 1 Half 2 Total Half 1 Half 2 Total
GBPm GBPm GBPm GBPm GBPm GBPm
UK 1,169.7 1,154.8 2,324.5 1,031.5 1,032.2 2,063.7
Germany 996.1 1,399.0 2,395.1 929.7 1,120.4 2,050.1
France 341.1 443.7 784.8 313.1 340.3 653.4
North America 1,344.2 1,936.9 3,281.1 922.4 1,042.9 1,965.3
International 120.8 145.9 266.7 90.9 100.1 191.0
Total 3,971.9 5,080.3 9,052.2 3,287.6 3,635.9 6,923.5
Adjusted(1) operating profit by Segment
2022
Half 1 Half 2 Total
GBPm % GII GBPm % GII GBPm % GII
UK 45.0 3.8 35.5 3.1 80.5 3.5
Germany 55.4 5.6 85.5 6.1 140.9 5.9
France 0.5 0.1 6.6 1.5 7.1 0.9
North America 20.3 1.5 32.7 1.7 53.0 1.6
International 4.6 3.8 6.7 4.6 11.3 4.2
Central corporate costs (11.6) (12.1) (23.7)
Total 114.2 2.9 154.9 3.0 269.1 3.0
2021
Half 1 Half 2 Total
GBPm % GII GBPm % GII GBPm % GII
UK 51.7 5.0 51.2 5.0 102.9 5.0
Germany 61.1 6.6 76.7 6.8 137.8 6.7
France (2.0) (0.6) 5.5 1.6 3.5 0.5
North America 18.7 2.0 12.3 1.2 31.0 1.6
International 4.1 4.5 7.2 7.2 11.3 5.9
Central corporate costs (11.1) (12.6) (23.7)
Total 122.5 3.7 140.3 3.9 262.8 3.8
Earnings per share
Diluted EPS decreased by 1.1 per cent to 159.1 pence per share
(2021: 160.9 pence per share). Adjusted(1) diluted EPS increased by
2.5 per cent to 169.7 pence per share (2021: 165.6 pence per
share).
2022 2021
Basic weighted average number of shares (excluding own shares held) (m) 112.8 113.0
Effect of dilution:
Share options 2.1 2.2
Diluted weighted average number of shares 114.9 115.2
Profit for the year attributable to equity holders of the Parent (GBPm) 182.8 185.3
Basic earnings per share (pence) 162.1 164.0
Diluted earnings per share (pence) 159.1 160.9
Adjusted 1 profit for the year attributable to equity holders of the Parent (GBPm) 195.0 190.8
Adjusted1 basic earnings per share (pence) 172.9 168.6
Adjusted1 diluted earnings per share (pence) 169.7 165.6
Dividend
The Board recognises the importance of dividends to shareholders
and the Group prides itself on a long track record of paying
dividends and other special one-off cash returns.
Computacenter's approach to capital management is to ensure that
the Group has a robust capital base and maintains a strong credit
rating, whilst aiming to maximise shareholder value. The Group
remains highly cash generative and adjusted net funds(3) continues
to increase on the Consolidated Balance Sheet, which allowed
acquisitions such as FusionStorm in 2018, Pivot in 2020 and BITS in
2022, alongside a number of other small acquisitions.
If further funds are not required for investment within the
business, either for fixed assets, working capital support or
acquisitions, and the distributable reserves are available in the
Parent Company, we will aim to return the additional cash to
shareholders through one-off returns of value, as we did in
February 2018. As a business that has returned GBP885 million
through a combination of dividends and share buybacks since
flotation, with no additional investment required from shareholders
over that time, we are committed to managing the cash position for
shareholders and would look to return up to 10 per cent of the
market capitalisation of the Company as soon as cash reserves have
replenished to enable us to do so and, assuming no further
acquisitions, we would aim to do this by the end of 2024 at the
latest.
Dividends are paid from the standalone balance sheet of the
Parent Company and, as at 31 December 2022, the distributable
reserves were GBP246.3 million (31 December 2021: GBP199.3
million).
The Board is pleased to propose a final dividend for 2022 of
45.8 pence per share (2021: 49.4 pence per share). Together with
the interim dividend, this brings the total ordinary dividend for
2022 to 67.9 pence per share, representing a 2.4 per cent increase
on the 2021 total dividend per share of 66.3 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 EPS.
In 2022, the cover was 2.5 times (2021: 2.5 times).
Subject to the approval of shareholders at our 2023 Annual
General Meeting, the date of which will be confirmed by way of
separate announcement by the Company, the proposed dividend will be
paid on Friday 14 July 2023. The dividend record date is set as
Friday 16 June 2023, and the shares will be marked ex-dividend on
Thursday 15 June 2023.
Central corporate costs
Certain expenses are not specifically allocated to individual
Segments because they are not directly attributable to any single
Segment. These include the costs of the Board itself, related
public company costs, Group Executive members not aligned to a
specific geographic trading entity and the cost of centrally funded
strategic initiatives that benefit the whole Group.
Accordingly, these expenses are disclosed as a separate column,
central corporate costs, within the Segmental note. These costs are
borne within the Computacenter (UK) Limited legal entity and have
been removed for Segmental reporting and performance analysis but
form part of the overall Group adjusted(1) administrative
expenses.
Total central corporate costs were flat on last year at GBP23.7
million (2021: GBP23.7 million). Within this:
-- Board expenses, related public company costs and costs
associated with Group Executive members not aligned to a specific
geographic trading entity, decreased to GBP7.2 million (2021:
GBP9.1 million). This level is comparable to that of 2020 with 2021
containing certain one-off costs in relation to the cancellation of
Group-wide central meetings;
-- share-based payment charges associated with Group Executive
members as identified above, including the Group Executive
Directors, decreased from GBP3.8 million in 2021 to GBP1.7 million
in 2022, due primarily to the decreased value of Computacenter plc
ordinary shares and the overall outlook for the vesting of
in-flight PSP awards; and
-- strategic corporate initiatives are designed to increase
capability and therefore competitive position, enhance productivity
or strengthen systems which underpin the Group. During the year
this spend was GBP14.8 million (2021: GBP10.8 million), in line
with forecasts, as the Group increases the pace at which it
replaces legacy systems and consolidates around modern
toolsets.
Cash flow
The Group delivered an operating cash inflow of GBP242.1 million
for 2022 (2021: GBP224.3 million inflow).
During the year, net operating cash outflows from working
capital, including inventories, trade and other receivables and
trade and other payables, were GBP60.8 million (2021: GBP77.8
million outflow).
The Group had GBP417.7 million of inventory as at 31 December
2022, an increase of 22.4 per cent on the balance as at 31 December
2021 of GBP341.3 million. Whilst the closing balance was higher
than the year before, it was materially lower than the high point
of GBP532.6 million seen at the end of the third quarter.
Working capital cash flows during 2022 continued to be affected
by both the revenue growth and the elevated inventory levels, in
particular within our North American and German businesses.
Throughout the year, a number of hyperscale customers continued to
place advance orders of product with delayed delivery, due to the
significant product shortages seen during the 18 months to 31
December 2022, to ensure continuity of supply. Additionally,
inventory increased as we deliberately invested in working capital
by pre-ordering inventory, once a committed purchase order had been
received from the customer, thereby using the strength of our
balance sheet to support our customers during product shortages.
Further, a number of rack build orders took longer than expected to
complete, sometimes due to shortages of smaller components required
to complete the rack build. Finally, the transition of the
FusionStorm business to the Group ERP, whilst now complete, did
result in short-term operational issues that impacted working
capital, as the picking and shipping of complex inventory items,
invoicing and cash collection in particular experienced significant
delays late in 2021. Whilst there is still scope for further
efficiencies and process optimisation, this position has now
significantly improved, as the FusionStorm entity has gained
experience in using the system and tools and learnt how to leverage
their advantages.
Reductions in inventory during the year were seen across the
business, apart from in Germany where the workplace business has
increased substantially, and North America. North American
inventories, excluding the BITS business acquired during the year,
increased by 16.8 per cent to GBP248.1 million, and increased by
4.5 per cent in constant currency(2) . The increase lagged revenue
growth as year-end positions were closed out and a significant
balance of inventory present at the cutover to the Group ERP system
in September 2021 was successfully shipped to customers. German
inventories increased by 41.8 per cent to GBP107.5 million, and by
34.4 per cent in constant currency(2) as inventory built up in the
Integration Center, waiting for additional components and confirmed
customer delivery dates before shipping to customers. We expect
this German position to continue to improve during 2023. An
additional Integration Center facility has been added near to the
existing facility in Kerpen, which was running at record levels of
capacity and utilisation, to provide additional inventory storage
space and processing capacity which will, in turn, increase the
throughput overall.
The implementation of additional inventory holding approval
controls in the final quarter of the year, the continued focus from
the Group Technology Sourcing and Finance teams, and the pending
re-implementation of internal inventory holding charges across the
sales teams from April 2023 has all contributed to this
improvement. The sales teams are working with customers to realign
inventory support expectations, now that the supply situation has
materially improved across the industry. We expect that levels of
inventory will continue to reduce towards historical operational
norms during H1 2023.
At the end of 2022, as in 2021, the Group again saw significant
levels of early payments from customers. Once again, we elected to
retain the cash on the Group's balance sheet rather than make early
payments to suppliers, to offset the extraordinary investments in
working capital throughout 2022, as reflected in the closing
inventory levels.
Capital expenditure in the year was GBP35.5 million (2021:
GBP30.3 million) representing, primarily, investments in IT
equipment and software tools, to enable us to deliver improved
service to our customers.
The Group's Employee Benefit Trust (EBT) made market purchases
of the Company's ordinary shares of GBP34.4 million (2021: GBP25.5
million) to satisfy maturing PSP awards and Sharesave schemes and
to reprovision the EBT in advance of future maturities. During the
year the Company received savings from employees of GBP6.2 million
to purchase options within the Sharesave schemes (2021: GBP6.2
million).
During the year the Group made two acquisitions. The first was
BITS, as described above, with the initial consideration paid of
GBP26.6 million and net cash acquired of GBP0.6 million. The second
was for Emerge for GBP3.0 million with net cash acquired of GBP0.7
million.
The Group reduced loans and credit facilities during the year by
GBP16.6 million (2021: GBP89.0 million). We made regular repayments
towards the loan related to the construction of the German
headquarters in Kerpen and fully repaid the amount drawn under the
Pivot credit facility and retired the arrangement, as detailed
below.
The Group continued to manage its cash and working capital
positions appropriately, using standard mechanisms, to ensure that
cash levels remained within expectations throughout the year. From
time to time, some customers request credit terms longer than our
standard of 30-60 days. In certain instances, we will arrange for
the sale of the receivables on a true sale basis to a finance
institution on the customers' behalf. We would typically receive
funds on 45-day terms from the finance institution, which will then
recover payment from the customer on terms agreed with them. The
cost of such an arrangement is borne by the customer, either
directly or indirectly, enabling us to receive the full amount of
payment in line with our standard terms. The benefit to the cash
and cash equivalents position of such arrangements as at 31
December 2022 was GBP45.1 million (31 December 2021: GBP53.7
million). During December 2022, the Group engaged in a limited
factoring programme of trade receivables within the German
business, on a non-recourse basis, to provide assurance against
unforeseen liquidity issues which did not, in the event, arise due
to the continued aforementioned strength of cash receipts in the
final weeks of the year. This factoring was for GBP46.1 million or
2.7 per cent of the trade receivables before provisions balance as
at 31 December 2022. The Group had no other debt factoring at the
end of the year, outside this normal course of business. There was
no debt factoring activity in December 2021 outside the normal
course of business described above.
Cash and cash equivalents and net funds
Cash and cash equivalents as at 31 December 2022 were GBP264.4
million, compared to GBP273.2 million at 31 December 2021. Net
funds as at 31 December 2022 were GBP117.2 million (31 December
2021: GBP95.3 million).
The Group excluded GBP127.1 million, as at 31 December 2022 (31
December 2021: GBP146.1 million), of lease liabilities from its
non-GAAP adjusted net funds(3) measure, due to the distorting
effect of the capitalised lease liabilities on the Group's overall
liquidity position under the IFRS 16 accounting standard.
Adjusted net funds(3) as at 31 December 2022 were GBP244.3
million, compared to adjusted net funds(3) of GBP241.4 million as
at 31 December 2021.
Net funds as at 31 December 2022 and 31 December 2021 were as
follows:
31 December 2022 31 December 2021
GBPm GBPm
Cash and short-term deposits 275.1 285.2
Bank overdraft (10.7) (12.0)
Cash and cash equivalents 264.4 273.2
Bank loans (20.1) (31.8)
Adjusted net funds 3 (excluding lease liabilities) 244.3 241.4
Lease liabilities (127.1) (146.1)
Net funds 117.2 95.3
For a full reconciliation of net funds and adjusted net funds(3)
, see note 9 to the summary financial information within this
announcement.
The Group had five specific credit facilities in place during
the year and no other material borrowings.
At the start of the year, Pivot had a substantially unutilised
$100 million senior secured asset-based revolving credit facility,
from a lending group represented by JPMorgan Chase Bank, N.A. This
was repaid in full during 2022 and all security was released on
termination of the arrangement.
In addition, Pivot had GBP9.7 million (31 December 2021: GBP9.4
million) financed with a major technology partner for hardware,
software and resold technology partner maintenance contracts that
the Company had purchased as part of a contract to lease these
items to a key North American customer.
The recently acquired BITS subsidiary maintains a ringfenced
'accounts receivable and inventory flooring arrangement' facility
with Wells Fargo of up to $100 million, secured on the assets of
that subsidiary. The facility is provided on a rolling basis and
the latest amendment was signed on 5 July 2022. There was $2.5
million interest-bearing debt relating to supplier invoices as at
31 December 2022, with an interest rate of 6.08 per cent.
On 9 December 2022, the Group entered into a multicurrency
revolving loan committed facility of GBP200 million. This replaced
the previous committed facility of GBP60 million which was
terminated and all security was released. This new facility has a
term of five years plus two one-year extension options exercisable
on the first and second anniversary of the facility. The Group is
subject to certain key financial covenants under this syndicated
facility with Barclays, Lloyds, HSBC, BNP Paribas, JPMorgan Chase
and PNC Bank. These covenants, as defined in the agreement, are
monitored regularly to ensure compliance. As at 31 December 2022,
the Group was in compliance with all covenants.
The Group also has a specific term loan for the build and
purchase of our German office headquarters and fit out of the
Integration Center in Kerpen, which stood at GBP10.4 million at 31
December 2022 (31 December 2021: GBP14.7 million).
There were no interest-bearing trade payables as at 31 December
2022 (31 December 2021: nil).
The Group's adjusted net funds(3) position contains no current
asset investments (31 December 2021: nil).
Trade creditor arrangements
Computacenter has a strong covenant and enjoys a favourable
credit rating from technology vendors and other suppliers. Some
suppliers provide standard credit directly on their own credit
risk, whereas other suppliers decide to sell the debt to banks,
which offer to purchase the receivables and manage collection. The
standard credit terms offered by suppliers are typically between 30
and 60 days, whether provided directly or when sold to a
third-party finance provider. In the latter case, the cost of the
free-trade credit period is paid by the relevant supplier, as part
of the overall package of terms provided by suppliers to
Computacenter and our competitors. 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 use these facilities.
Financial instruments
The Group's financial instruments comprise borrowings, cash and
liquid resources, and various items that arise directly from its
operations. The Group's policy is not to undertake speculative
trading in financial instruments.
The Group enters into hedging transactions, principally forward
exchange contracts or currency swaps, to manage currency risks
arising from the Group's operations and its sources of finance. As
the Group continues to expand its global reach and benefit from
lower-cost operations in geographies such as South Africa, Poland,
Mexico and India, it has entered into forward exchange contracts to
help manage cost increases due to currency movements.
The main risks arising from the Group's financial instruments
are interest rate, liquidity and foreign currency risks. The
overall financial instruments strategy is to manage these risks in
order to minimise their impact on the Group's financial results.
The policies for managing each of these risks are set out
below.
Interest rate risk
The Group finances its operations through a mixture of retained
profits, bank borrowings, leases and loans for certain customer
contracts. The Group's general bank borrowings, other facilities
and deposits are at floating rates. No interest rate derivative
contracts have been entered into. The undrawn committed facility of
GBP200 million is at floating rates. However, the borrowing
facility for the operational headquarters in Germany is at a fixed
rate.
Liquidity risk
The Group's policy is to ensure that it has sufficient funding
and facilities to meet any foreseeable peak in borrowing
requirements. The Group's positive net cash was maintained
throughout 2022 and at the year end was GBP264.4 million, with net
funds of GBP117.2 million after including the Group's two specific
borrowing facilities and lease liabilities recognised under IFRS
16. Excluding lease liabilities, adjusted net funds(3) was GBP244.3
million at the year end.
During the year, as the working capital of the Group increased,
partly in order to support customers with longer lead times on
hardware orders, that resulted in significantly higher inventory,
the Group activated its uncommitted revolving credit facility and
drew down GBP30 million to assure additional liquidity in the face
of the working capital challenges, which the Group worked through
towards the end of the third quarter of the year. This was fully
repaid, and the facility was subsequently retired, before year
end.
Due to strong cash generation over many years, the Group can
currently finance its operational requirements from its cash
balance, and it operates an informal cash pooling arrangement for
the majority of Group entities. The Group has a committed facility
of GBP200 million, which replaced previous facilities, that has an
expiry date of 8 December 2027.
The Group has a Board-monitored policy to manage its
counterparty risk. This ensures that cash is placed on deposit
across a range of reputable banking institutions.
Foreign currency risk
The Group operates primarily in the United Kingdom, Germany,
France and the United States of America, with smaller operations in
Australia, Belgium, Canada, China, Hong Kong, Hungary, India,
Ireland, Japan, Malaysia, Mexico, the Netherlands, Poland, Romania,
South Africa, Singapore, 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 countries
within the Eurozone, the level of non-euro denominated sales is
small and, if material, the Group's policy is to eliminate currency
exposure through forward currency contracts. For our North American
operations, most transactions are denominated in US dollars.
For the UK, the majority of sales and purchases are denominated
in pounds sterling and any material trading exposures are
eliminated through forward currency contracts.
The Group has been successful in winning international Services
contracts, where Services are provided in multiple countries. We
aim to minimise currency exposure by invoicing the customer in the
same currency in which the costs are incurred. For certain
contracts, the Group's committed contract costs are not denominated
in the same currency as its sales. In such circumstances, for
example where contract costs are denominated in South African rand,
we eliminate currency exposure for a foreseeable period on these
future cash flows, through forward currency contracts.
In 2022, the Group recognised a loss of GBP2.5 million (2021:
loss of GBP0.9 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 weakness
of sterling against most currencies during 2022, in particular the
US dollar, positively impacted our revenues and profitability as a
result of the conversion of our foreign earnings. The euro exchange
rates during the year were not materially dissimilar to those seen
in 2021.
The impact of restating 2021 results at 2022 exchange rates
would be an increase of GBP135.4 million in 2021 revenue and an
increase of GBP2.8 million in 2021 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, using credit rating agencies as a guide, and
the anticipated levels of business activity. These limits are
determined when the customer account is first set up and are
regularly monitored thereafter. There are no significant
concentrations of credit risk within the Group. The Group's major
customer, disclosed in note 4 to the summary financial information
within this announcement, is a hyperscale North American technology
company who typically settles outstanding amounts on shorter than
average payment terms. The maximum credit risk exposure relating to
financial assets is represented by their carrying value as at the
balance sheet date.
Going Concern
Computacenter's business activities, business model, strategic
priorities and performance are set out within the Group Finance
Director's review.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are set out within the Group
Finance Director's review.
The Directors have, after due consideration, and as set out in
note 2 to the summary financial information within this
announcement, 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.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance
Code, the Directors have assessed the Group's prospects over a
longer period than the 12 months required by the Going Concern
Statement.
Viability timeframe
The Directors have assessed the Group's viability over a period
of three years from 31 December 2022. This period was selected as
an appropriate timeframe for the following reasons, based on the
Group's business model:
-- the Group's rolling strategic review, as considered by the Board, covers a three-year period;
-- the period is aligned to the length of the Group's Managed
Services contracts, which are typically three to five years
long;
-- the short lifecycle and constantly evolving nature of the
technology industry lends itself to a period not materially longer
than three years; and
-- Technology Sourcing has seen greater recent growth than the
Group's Services business, increasing the revenue mix towards the
part of the business that has less medium-term visibility and is
therefore more difficult to forecast.
Further, the Directors monitor conditions in the environment
external to the Group and have concluded that the following factors
continue to support the timeframe selected:
-- the continuing macroeconomic, diplomatic and trade
environment, following the departure of the UK from the European
Union, introduces greater uncertainty into a forecasting period
longer than three years;
-- the prolonged macroeconomic impact of Covid-19, and in
particular the effect on certain of our customers from the
worsening global economic outlook, and the current increasing pace
of change of technology adoption as a result;
-- continuing short-term product shortages, resulting primarily
from the Covid-19 impact on supply chains; and
-- the likely short- to medium-term impact of the Russian
invasion of Ukraine on the global macroeconomic environment, and
the current economic crisis, including an exacerbation of supply
chain issues currently being experienced and higher inflation.
Whilst the Directors have no reason to believe the Group will
not be viable over a longer period than three years, we believe
that a three-year period presents shareholders with a reasonable
degree of confidence, while providing a longer-term
perspective.
With regard to the principal risks, the Directors remain assured
that the business model will be valid beyond the period of this
Viability Statement. There will continue to be demand for both our
Professional Services and Managed Services businesses, and
Management is responsible for ensuring that the Group remains able
to meet that demand at an appropriate cost to our customers. The
Group's value-added, product reselling Technology Sourcing business
only appears vulnerable to disintermediation at the low-end of the
product range, as the Group continues to provide a valuable service
to customers and technology vendors alike. The Group has seen
significant business growth due to the end-to-end Technology
Sourcing and Professional Services capability that it can deliver
from its Integration Centers, which is a significant
differentiating factor in this market.
Prospects of the Group assessment process and key
assumptions
The assessment of the Group's prospects derives from the annual
strategic planning and review process. This begins with an annual
away day for the Board, where Management presents the strategic
review for discussion against the Group's current and future
operating environments.
High-level expectations for the following year are set with the
Board's full involvement and are delivered to Management, which
prepares the detailed bottom-up financial target for the following
year. This financial target is reviewed and agreed by Management
before presentation to the Board for approval at the December Board
meeting.
On a rolling annual basis, the Board considers a three-year
business plan (the Plan) consisting of the detailed bottom-up
financial target for the following year (2023) and forecast
information for two further years (2024 and 2025), which is driven
by top-down assumptions overlaid on the detailed target year
(2023). Key assumptions used in formulating the forecast
information include organic revenue growth, margin impacts and cost
control, continued strategic investments through the Consolidated
Income Statement, and forecast Group effective tax rates, with no
changes to dividend policy or capital structure beyond what is
known at the time of the forecast. The financial target for 2023
was considered and approved by the Board on 8 December 2022, with
amendments and enhancements to the target as part of the full Plan
considered and approved by the Board on 16 March 2023.
Impact of risks and assessment of viability
The Plan is subject to rigorous downside sensitivity analysis,
which involves flexing a number of the main assumptions underlying
the forecasts within the Plan. The forecast cash flows from the
Plan are aggregated with the current position, to provide a total
three-year cash position against which the impact of potential
risks and uncertainties can be assessed. In the absence of
significant external debt, the analysis considers access to
available committed and uncommitted finance facilities, the ability
to raise new finance in most foreseeable market conditions and the
ability to restrict dividend payments.
The potential impact of the principal risks and uncertainties is
then applied to the Plan. This assessment includes only those risks
and uncertainties that, individually or in plausible combination,
would threaten the Group's business model, future performance,
solvency or liquidity over the assessment period and which are
considered to be severe but reasonable scenarios. It also takes
into account an assessment of how the risks are managed and the
effectiveness of any mitigating actions.
The combined effect of the potential occurrence of several of
the most impactful risks and uncertainties is then compared to the
cash position generated throughout the sensitised Plan, to assess
whether the business will be able to continue in operation.
For the current period, the primary downside sensitivity relates
to a modelled, but not predicted, severe downturn in Group
revenues, beginning in 2023, simulating a continued impact for some
of our customers from the Covid-19 crisis, a reduction in customer
demand due to the current economic crisis, and ongoing impact on
the Group's revenues from supply shortages. This sensitivity
analysis models a continued market downturn scenario, with slower
than predicted recovery estimates, for some of our customers whose
businesses have been affected by Covid-19 and a similar downturn
occurring for the remainder of our customer base as a result of the
emerging negative global macroeconomic environment due to the
current economic crisis. A further impact on the Group's Technology
Sourcing revenues through the second half of 2023 from possible
ongoing vendor-related supply shortage issues has also been
included in the sensitivity analysis.
Conclusion
Based on the period and assessment above, the Directors have a
reasonable expectation that the Group will be able to continue in
operation and meet its liabilities, as they fall due, over the
three-year period to 31 December 2025.
This Strategic Report was approved by the Board on 30 March 2023
and was signed on its behalf by:
MJ Norris FA Conophy
Chief Executive Officer Group Finance Director
Consolidated Income Statement
For the year ended 31 December 2022 (unaudited)
2022 2021
GBPm GBPm
Note unaudited (restated)
Revenue 4,5 6,470.5 5,034.5
Cost of sales (5,523.4) (4,166.7)
Gross profit 4 947.1 867.8
Administrative expenses (691.8) (612.0)
Impairment reversal/(loss) on trade receivables and contract assets 1.1 (0.6)
Operating profit 256.4 255.2
Finance income 2.4 0.3
Finance costs (9.8) (7.5)
Profit before tax 249.0 248.0
Income tax expense 7 (64.8) (61.5)
Profit for the year 184.2 186.5
Attributable to:
Equity holders of the Parent 182.8 185.3
Non-controlling interests 1.4 1.2
Profit for the year 184.2 186.5
Earnings per share:
- basic 8 162.1p 164.0p
- diluted 8 159.1p 160.9p
The comparative information is restated on account of a change
in accounting policy for Technology Sourcing revenue and cost of
sales, see note 3.
All of the activities of the Group relate to continuing
operations.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022 (unaudited)
2022 2021
GBPm GBPm
unaudited audited
Profit for the year 184.2 186.5
Items that may be reclassified to the Consolidated Income Statement:
Loss arising on cash flow hedge (2.5) (0.9)
Income tax effect 1.0 0.2
(1.5) (0.7)
Exchange differences on translation of foreign operations 47.5 (9.6)
46.0 (10.3)
Items not to be reclassified to the Consolidated Income Statement:
Remeasurement of defined benefit plan 1.7 1.2
Other comprehensive expense for the year, net of tax 47.7 (9.1)
Total comprehensive income for the year 231.9 177.4
Attributable to:
Equity holders of the Parent 229.9 176.2
Non-controlling interests 2.0 1.2
Total comprehensive income for the year 231.9 177.4
Consolidated Balance Sheet
As at 31 December 2022 (unaudited)
2022 2021
GBPm GBPm
Note unaudited audited
Non-current assets
Property, plant and equipment 94.1 90.0
Right-of-use assets 119.4 138.1
Intangible assets 342.1 273.7
Investment in associate 0.1 0.1
Deferred income tax assets 11.3 30.2
Prepayments 5 19.4 16.6
586.4 548.7
Current assets
Inventories 417.7 341.3
Trade and other receivables 1,713.2 1,275.2
Income tax receivable 14.6 8.8
Prepayments 5 130.5 103.0
Accrued income 5 135.2 148.1
Derivative financial instruments 7.5 3.6
Cash and short-term deposits 9 275.1 285.2
2,693.8 2,165.2
Total assets 3,280.2 2,713.9
Current liabilities
Bank overdraft 9 10.7 12.0
Trade and other payables 1,857.5 1,410.4
Deferred income 5 265.3 249.3
Financial liabilities 7.5 15.1
Lease liabilities 36.9 43.0
Derivative financial instruments 8.7 2.5
Income tax payable 56.4 47.9
Provisions 3.8 3.5
2,246.8 1,783.7
Non-current liabilities
Financial liabilities 12.6 16.7
Lease liabilities 90.2 103.1
Deferred income 5 7.9 8.3
Retirement benefit obligation 23.0 21.8
Provisions 7.0 9.7
Deferred income tax liabilities 20.7 25.8
161.4 185.4
Total liabilities 2,408.2 1,969.1
Net assets 872.0 744.8
Capital and reserves
Issued share capital 9.3 9.3
Share premium 4.0 4.0
Capital redemption reserve 75.0 75.0
Own shares held (127.7) (115.5)
Translation and hedging reserve 50.7 5.4
Retained earnings 854.4 762.3
Shareholders' equity 865.7 740.5
Non-controlling interests 6.3 4.3
Total equity 872.0 744.8
Approved by the Board on 30 March 2023.
MJ Norris FA Conophy
Chief Executive Officer Group Finance Director
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022 (unaudited)
Attributable to equity holders of the Parent
Issued Capital Own Translation Non-
share Share redemption shares and hedging Retained Share-holders' controlling Total
capital premium reserve held reserves earnings equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2022 9.3 4.0 75.0 (115.5) 5.4 762.3 740.5 4.3 744.8
Profit for the
year - - - - - 182.8 182.8 1.4 184.2
Other
comprehensive
income/(expense) - - - - 45.3 1.8 47.1 0.6 47.7
Total
comprehensive
income/(expense) - - - - 45.3 184.6 229.9 2.0 231.9
Cost of
share-based
payments - - - - - 8.6 8.6 - 8.6
Tax on
share-based
payments - - - - - (4.6) (4.6) - (4.6)
Exercise of
options - - - 22.2 - (16.0) 6.2 - 6.2
Purchase of own
shares - - - (34.4) - - (34.4) - (34.4)
Equity dividends - - - - - (80.5) (80.5) - (80.5)
At 31 December
2022 9.3 4.0 75.0 (127.7) 50.7 854.4 865.7 6.3 872.0
At 1 January 2021 9.3 4.0 75.0 (111.7) 15.7 635.5 627.8 3.1 630.9
Profit for the
year - - - - - 185.3 185.3 1.2 186.5
Other
comprehensive
income/(expense) - - - - (10.3) 1.2 (9.1) - (9.1)
Total
comprehensive
income/(expense) - - - - (10.3) 186.5 176.2 1.2 177.4
Cost of
share-based
payments - - - - - 10.6 10.6 - 10.6
Tax on
share-based
payments - - - - - 7.6 7.6 - 7.6
Exercise of
options - - - 21.7 - (15.5) 6.2 - 6.2
Purchase of own
shares - - - (25.5) - - (25.5) - (25.5)
Equity dividends - - - - - (62.4) (62.4) - (62.4)
At 31 December
2021 9.3 4.0 75.0 (115.5) 5.4 762.3 740.5 4.3 744.8
Consolidated Cash Flow Statement
For the year ended 31 December 2022 (unaudited)
2022 2021
GBPm GBPm
Note unaudited audited
Operating activities
Profit before taxation 249.0 248.0
Net finance cost 7.4 7.2
Depreciation of property, plant and equipment 21.5 24.8
Depreciation of right-of-use assets 50.5 50.6
Amortisation of intangible assets 18.9 15.3
Share-based payments 8.6 10.6
Loss on disposal of intangibles - 0.5
Loss/(Gain) on disposal of property, plant and equipment 0.5 (1.3)
Net cash flow from inventories (7.0) (131.5)
Net cash flow from trade and other receivables (including contract assets) (317.2) (238.5)
Net cash flow from trade and other payables (including contract liabilities) 263.4 292.2
Net cash flow from provisions and employee benefits (0.7) (1.7)
Other adjustments (0.1) 1.3
Cash generated from operations 294.8 277.5
Income taxes paid (52.7) (53.2)
Net cash flow from operating activities 242.1 224.3
Investing activities
Interest received 2.4 0.3
Acquisition of subsidiaries, net of cash acquired (28.3) (2.5)
Purchases of property, plant and equipment (23.7) (18.8)
Purchases of intangible assets (11.8) (11.5)
Proceeds from disposal of property, plant and equipment 1.1 7.5
Net cash flow from investing activities (60.3) (25.0)
Financing activities
Interest paid (2.9) (2.3)
Interest paid on lease liabilities (4.9) (5.2)
Dividends paid to equity shareholders of the Parent (80.5) (62.4)
Proceeds from exercise of share options 6.2 6.2
Purchase of own shares (34.4) (25.5)
Repayment of loans and credit facility (20.6) (99.7)
Payment of capital element of lease liabilities (50.3) (50.2)
Borrowings 4.0 10.7
Net cash flow from financing activities (183.4) (228.4)
(Decrease)/increase in cash and cash equivalents (1.6) (29.1)
Effect of exchange rates on cash and cash equivalents (7.2) (7.5)
Cash and cash equivalents at the beginning of the year 9 273.2 309.8
Cash and cash equivalents at the year end 9 264.4 273.2
1 General information
Computacenter plc is a limited company incorporated and
domiciled in England whose shares are publicly traded. Its
registered address is Hatfield Business Park, Hatfield Avenue,
Hatfield, AL10 9TW.
2 Summary of significant accounting policies
The accounting policies adopted are consistent with those of the
previous financial year as applied in the 2021 Annual Report and
Accounts, except for the change in revenue recognition policies
relating to software licences and third-party services agreements
resold on a standalone basis following the finalisation of an
agenda decision by the IFRS Interpretation Committee (the
'Committee') explained in note 3.2.1.
Effective for the year ending 31 December 2022
Apart from the changes discussed within note 3.2.1, no new
standards, interpretations or amendments not yet effective are
expected to have a material effect on the Group's financial
statements.
2.1 Basis of preparation
These condensed Financial Statements have not been audited.
Computacenter has completed its preparation of the Group's 2022
Annual Report and Accounts. The Group has, however, been advised by
its auditor, KPMG, that their audit procedures are not yet fully
complete and that they are therefore not yet in a position to sign
their audit report on the Group's Statutory Consolidated Financial
Statements for the year to 31 December 2022 and the Group's 2022
Annual Report and Accounts.
The Group is planning for the 2022 Statutory Consolidated
Financial Statements to be signed by the Directors on 06 April 2023
to allow sufficient time for documentation to be sent to
shareholders prior to the Annual General Meeting of the Company.
However, based on the latest guidance from KPMG, the audit remains
open, subject primarily to address KPMG's administrative and
documentation procedures, and a further delay is possible. KPMG has
confirmed to Computacenter that at the present time KPMG are not
aware of any matters that may give rise to a modification to their
audit report.
The summary financial information set out above does not
constitute the Group's Statutory Consolidated Financial Statements
for the years ended 31 December 2022 or 2021. The summary financial
information set out above is derived from the Statutory
Consolidated Financial Statements for the Group for the year ended
31 December 2021, prepared in accordance with adopted IFRS, which
have been delivered to the Registrar of Companies. The auditor has
reported on those accounts; their report was (i) unqualified, (ii)
did not include a reference to any matters to which the auditors
drew attention by way of any emphasis without qualifying their
opinion and (iii) did not contain a statement under Section 498 (2)
or (3) of the Companies Act 2006. The Statutory Consolidated
Financial Statements for the Group for the year ended 31 December
2022 will be finalised on the basis of the financial information
presented by the Directors in this preliminary announcement and
will be delivered to the registrar of companies in due course.
This preliminary announcement does not constitute the Group's
full financial statements for 2022. This report is based on
accounts which are in the process of being audited and will be
approved by the Board and subsequently filed with the Registrar of
Companies in the United Kingdom. Accordingly, the financial
information for 2022 is unaudited and does not constitute statutory
accounts within the meaning of Section 434 of the United Kingdom
Companies Act 2006.
The Consolidated Financial Statements are prepared on the
historical cost basis, other than derivative financial instruments,
which are stated at fair value.
The Consolidated Financial Statements are presented in pound
sterling (GBP) and all values are rounded to the nearest hundred
thousand, except when otherwise indicated.
As described in note 3.2.1 and in accordance with IAS 8, a
retrospective restatement of the prior year reported Financial
Statements for the year to 31 December 2021 has taken place due to
a change in revenue recognition policies relating to software
licences and third-party services agreements resold on a standalone
basis.
In determining whether it is appropriate to prepare the
Financial Statements on a going concern basis, the Group prepares a
three-year Plan (the 'Plan') annually by aggregating top-down
expectations of business performance across the Group in the second
and third year of the Plan with a detailed 12-month bottom-up
budget for the first year, which was approved by the Board. The
Plan is subject to rigorous downside sensitivity analysis which
involves flexing a number of the main assumptions underlying the
forecasts within the Plan. The forecast cash flows from the Plan
are aggregated with the current position to provide a total
three-year cash position against which the impact of potential
risks and uncertainties can be assessed. In the absence of
significant external debt, the analysis also considers access to
available committed and uncommitted finance facilities, the ability
to raise new finance in most foreseeable market conditions and the
ability to restrict dividend payments.
The Directors have identified a period of not less than 12
months as the appropriate period for the going concern assessment
and have based their assessment on the relevant forecasts from the
Plan for that period.
The potential impact of the principal risks and uncertainties is
then applied to the Plan. This assessment includes only those risks
and uncertainties that, individually or in plausible combination,
would threaten the Group's business model, future performance,
solvency or liquidity over the assessment period and which are
considered to be severe but reasonable scenarios. It also takes
into account an assessment of how the risks are managed and the
effectiveness of any mitigating actions.
For the current year, the primary downside sensitivity relates
to a modelled, but not predicted, severe downturn in the Group's
revenues, beginning in 2023, the primary downside sensitivity
relates to a modelled, but not predicted, severe downturn in Group
revenues, beginning in 2023, simulating a continued impact for some
of our customers from the Covid-19 crisis, a reduction in customer
demand due to the current economic crisis, and ongoing impacts on
the Group's revenues from supply shortages. This sensitivity
analysis models a continued market downturn scenario, with
slower-than-predicted recovery estimates, for some of our customers
whose businesses have been affected by Covid-19 and a similar
downturn occurring for the remainder of our customer base as a
result of the emerging negative global macroeconomic environment
due to the current economic crisis. A further impact on the Group's
Technology Sourcing revenues through the second half of 2023 from
possible ongoing vendor-related supply shortage issues has also
been included in the sensitivity analysis.
Our cash and borrowing capacity provides sufficient funds to
meet the foreseeable needs of the Parent and Group. At 31 December
2022, the Group had cash and short-term deposits of GBP275.1
million and bank debt, primarily related to the recently built
headquarters in Germany and operations in North America, of GBP20.1
million. On 9 December 2022, the Group entered into a new unsecured
multicurrency revolving loan facility of GBP200.0 million in order
to rationalise its treasury operations. The new facility has a term
of five years plus two one-year extension options exercisable on
the first and second anniversary of the facility. The
Group-specific committed facility of GBP60.0 million that was due
to expire on 8 September 2023 was terminated and all security was
released. The revolving credit facility which its subsidiary,
Pivot, had with JPMorgan Chase Bank, N.A. (JPMC) of $100.0 million
that was due to expire on 14 May 2024 was also repaid in full and
all security was released.
The Group has a resilient balance sheet position, with net
assets of GBP872.0 million as at 31 December 2022. The Group made a
profit after tax of GBP184.2 million, and delivered net cash flows
from operating activities of GBP242.1 million, for the year ended
31 December 2022.
As the analysis continues to show a strong forecast cash
position, even under the severe economic conditions modelled in the
sensitivity scenarios, the Directors continue to consider that the
Parent and Group are well placed to manage business and financial
risks in the current economic environment. Based on this
assessment, the Directors confirm that they have a reasonable
expectation that the Parent and Group will be able to continue in
operation and meet their liabilities as they fall due over the
period of not less than 12 months from the date of signing the
Consolidated Financial Statements and therefore have prepared the
Consolidated Financial Statements on a going concern basis.
2.2 Basis of consolidation
The Consolidated Financial Statements comprise the Financial
Statements of the Parent Company and its subsidiaries as at 31
December each year. The Financial Statements of subsidiaries are
prepared for the same reporting year as the Parent Company, using
existing GAAP in each country of operation. Adjustments are made on
consolidation for differences that may exist between the respective
local GAAPs and IFRS.
All intra-Group balances, transactions, income and expenses and
profit and losses resulting from intra-Group transactions have been
eliminated in full.
Subsidiaries are consolidated from the date on which the Group
obtains control and cease to be consolidated from the date on which
the Group no longer retains control. Non-controlling interests
represent the portion of profit or loss and net assets in
subsidiaries that is not held by the Group and is presented
separately from Parent shareholders' equity in the Consolidated
Balance Sheet.
2.2.1 Foreign currency translation
Each entity in the Group determines its own functional currency
and items included in the Financial Statements of each entity are
measured using that functional currency. Transactions in foreign
currencies are initially recorded in the functional currency at the
exchange rate ruling at the date of the transaction or where
relevant the rate of a specific forward exchange contract. Monetary
assets and liabilities denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling at
the Consolidated Balance Sheet date. All differences are taken to
the Consolidated Income Statement except foreign currency
differences arising from the translation of qualifying cash flow
hedges, which are recognised in the Consolidated Statement of
Comprehensive Income, to the extent that the hedges are
effective.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rate as at
the date of initial transaction.
The functional currencies of the main overseas subsidiaries are
euro (EUR), US dollar ($), Canadian dollar (CAD) and Swiss franc
(CHF). The Group's presentation currency is pound sterling (GBP).
As at the reporting date, the assets and liabilities of overseas
subsidiaries are translated into the presentation currency of the
Group at the rate of exchange ruling at the 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 when the Group's performance obligations
are fulfilled to the extent of the amount which is expected to be
received from customers as consideration for the transfer of goods
and services to the customer.
In multi-element contracts with customers where more than one
good (Technology Sourcing) or service (Professional Services and
Managed Services) is provided to the customer, analysis is
performed to determine whether the separate promises are distinct
performance obligations within the context of the contract. To the
extent that this is the case, the transaction price is allocated
between the distinct performance obligations based upon relative
standalone selling prices. The revenue is then assessed for
recognition purposes based upon the nature of the activity and the
terms and conditions of the associated customer contract relating
to that specific distinct performance obligation.
The following specific recognition criteria must also be met
before revenue is recognised:
2.3.1 Technology Sourcing
The Group supplies hardware, software and resold third-party
services (together as 'goods') to customers that are sourced from
and delivered by a number of suppliers.
Technology Sourcing revenue is recognised when the Group's
performance obligations are fulfilled at a point in time when
control of the goods has been transferred to the customer.
Typically, customers obtain control of the goods when they are
delivered to and have been accepted at their premises, depending on
individual customer arrangements. Invoices are routinely generated
at despatch from our Integration Centers or, in the case of direct
delivery by supplier, upon receipt at customer locations. At each
reporting date, a process is undertaken to ensure revenue is not
recognised for goods that have not been received by customers at
that reporting date. Payment for the goods is generally received
on, or before, industry-standard payment terms, ordinarily within
30 days. Refer to note 3.2.2 for 'bill and hold' transactions.
Revenue is recorded based on the price specified in sales
invoices, net of any agreed discounts and rebates, and exclusive of
value added tax on goods supplied to customers during the year.
There are a variety of discounts and rebates provided to
customers, which are assessed on a case-by-case basis as to whether
the resulting payment to customers is for a distinct good or
service (such as marketing) or for a promotional discount.
Technology Sourcing principal versus agent recognition
Management assesses the classification of certain revenue
contracts for Technology Sourcing revenue recognition on either an
agent or principal basis. Because the identification of the
principal in a contract is not always clear, Management makes a
determination by evaluating the nature of our promise to our
customer as to whether it is a performance obligation to pass
control of the specified goods or services ourselves, in 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. See note 3.2.1
Technology Sourcing principal versus agent recognition for further
information on this critical judgement. We determine whether we are
a principal or an agent for each specified good or service promised
to the customer by evaluating the nature of our promise to the
customer against a non-exhaustive list of indicators that a
performance obligation could involve an agency relationship:
-- we do not control each specified good or service before that
good or service is delivered to the customer;
-- the vendor retains primary responsibility for fulfilling the sale;
-- we take no inventory risk before or after the goods have been
ordered, during shipping or on return;
-- we do not have discretion to establish pricing for the
vendor's goods, limiting the benefit we can receive from the sale
of those goods; and
-- our consideration is in the form of a, usually predetermined, commission.
2.3.2 Professional Services
The Group provides skilled professionals to customers either
operating within a project framework or on a 'resource on demand'
basis.
For contracts operating within a project framework, revenue is
recognised based on the transaction price with reference to the
costs incurred as a proportion of the total estimated costs
(percentage of completion basis) of the contract.
For those contracts which are 'resource on demand', revenue is
billed on a timesheet basis. The Group elects to use the practical
expedient in IFRS 15.B16, as we have a right to consideration from
our 'resource on demand' Professional Services customers in an
amount that corresponds directly with the value to our customer of
the Group's performance completed to date. The practical expedient
applied permits the Group to recognise these 'resource on demand'
Professional Services revenues in the amount to which the entity
has a right to invoice. Professional Services revenue is therefore
recognised throughout the term of the contract, as services are
delivered, with amounts recognised based on monthly invoiced
amounts, as this corresponds to the service delivered to the
customer and the satisfaction of the Group's performance
obligations.
Under either basis, Professional Services revenue is recognised
over time. The majority of the Group's Professional Services
revenue is constituted by 'expert-leasing' arrangements and
recognised in this manner and represents the primary area of growth
in this business line. As the majority of Professional Services
revenue is recognised as 'resource on demand', the overall balance
of risks to recognition for this business is decreased as compared
to the scenario where the majority of Professional Services revenue
would be recognised on a percentage of completion basis. This is
due to the monthly timesheet nature of the billing which is agreed
regularly with the customer as the service is delivered.
If the total estimated costs and revenues of a contract cannot
be reliably estimated, revenue is recognised only to the extent
that costs have been incurred and where the Group has an
enforceable right to payment as work is being performed.
A provision for forecast excess costs over forecasted revenue is
made as soon as a loss is foreseen (see note 2.12.1 for further
detail).
Payment for the Services, which are invoiced monthly, is
generally on industry standard payment terms.
2.3.3 Managed Services
The Group sells maintenance, support and management of
customers' IT infrastructures and operations.
The specific performance obligations and invoicing conditions in
our Managed Services contracts are typically related to the number
of calls, interventions or users that we manage and therefore the
customer simultaneously receives and consumes the benefits of the
services as they are performed. The Group elects to use the
practical expedient in IFRS 15.B16, as we have a right to
consideration from our Managed Services customers in an amount that
corresponds directly with the value to our customer of the Group's
performance completed to date. The practical expedient applied
permits the Group to recognise Managed Services revenue in the
amount to which the entity has a right to invoice. Managed Services
revenue is therefore recognised throughout the term of the
contract, as services are delivered, with amounts recognised based
on monthly invoiced amounts, as this corresponds to the service
delivered to the customer and the satisfaction of the Group's
performance obligations.
Amounts invoiced relating to more than one 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 2.12.1 for further detail).
On occasion, the Group may have a limited number of Managed
Services contracts where revenue is recognised on a percentage of
completion basis, which is determined by reference to the costs
incurred as a proportion of the total estimated costs of the
contract.
Costs of obtaining and fulfilling revenue contracts
The Group operates in a highly competitive environment and is
frequently involved in contract bids with multiple competitors,
with the outcome usually unknown until the contract is awarded and
signed.
When accounting for costs associated with obtaining and
fulfilling customer contracts, the Group first considers whether
these costs fit within a specific IFRS standard or policy. Any
costs associated with obtaining or fulfilling revenue contracts
which do not fall into the scope of other IFRS standards or
policies are considered under IFRS 15. All such costs are expensed
as incurred other than the two types of costs noted below:
1. Win fees - The Group pays 'win fees' to certain employees as
bonuses for successfully obtaining customer contracts. As these are
incremental costs of obtaining a customer contract, they are
deferred along with any associated payroll tax expense to the
extent they are expected to be recovered. These balances are
presented within prepayments in the Consolidated Balance Sheet. The
win fee balance that will be realised after more than 12 months is
disclosed as non-current.
2. Fulfilment costs - The Group often incurs costs upfront
relating to the initial set-up phase of an outsourcing contract,
which the Group refers to as Entry Into Service. These costs do not
relate to a distinct performance obligation in the contract, but
rather are accounted for as fulfilment costs under IFRS 15 as they
are directly related to the future performance on the contract.
They are therefore capitalised to the extent that they are expected
to be recovered. These balances are presented within prepayments in
the Consolidated Balance Sheet.
Both win fees and Entry Into Service costs are amortised on a
straight-line basis over the contract term, as this is 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 teams work across multiple bids at any one
time.
2.3.4 Contract assets and liabilities
A contract asset is recognised when the Group has a right to
consideration for goods or services which have been transferred to
the customer but have not been billed, therefore excluding
receivable balances. Contract assets typically relate to longer
term Professional and Managed services contracts where work has
been performed but has not been invoiced to the customer, and are
included within either prepayments or accrued income on the
Consolidated Balance Sheet.
A contract liability is recognised when a customer pays the
Group, or the Group has a right to consideration that is
unconditional, before the transfer of the goods or services to
which it relates. Contract liabilities typically relate to
longer-term Professional and Managed services contracts where
consideration has been received under agreed billing timelines for
which work has yet to be performed, and are included within
deferred income on the Consolidated Balance Sheet.
2.3.5 Finance income
Income is recognised as interest accrues.
2.4 Exceptional items
The Group presents those 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 the elements of
financial performance in the year, so as to facilitate comparison
with prior years and to assess trends in financial performance.
2.5 Adjusted(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, set out below, assist in providing additional
useful information on the underlying trends, performance and
position of the Group. The non-GAAP measures are also used to
enhance the comparability of information between reporting periods
by adjusting for non-recurring or uncontrollable factors which
affect IFRS measures, to aid the user in understanding the Group's
performance.
Consequently, non-GAAP measures are used by the Directors and
Management for performance analysis, planning, reporting and
incentive-setting purposes. Adjusted measures have remained
consistent with the prior year except for the addition of gross
invoiced income, as an alternative performance measure, due to the
change in Technology Sourcing revenue accounting policy for
principal versus agent recognition. Refer to note 3.2.1 for further
information on the change in accounting policy.
Gross invoiced income is based on the value of invoices raised
to customers, net of the impact of credit notes and excluding VAT
and other sales taxes. This reflects the cash movements from
revenue, to assist Management and the users of the announcement in
understanding revenue growth on a 'Principal' basis and to assist
in their assessment of working capital movements in the
Consolidated Balance Sheet and Consolidated Cash Flow Statement.
This measure allows an alternative view of growth in adjusted gross
profit, based on the product mix differences and the accounting
treatment thereon. Gross invoiced income includes all items
recognised on an agency basis within revenue, on a gross income
billed to customers basis, as adjusted for deferred and accrued
revenue.
These non-GAAP measures comprise: gross invoiced income,
adjusted administrative expenses, adjusted operating profit or
loss, adjusted profit or loss before tax, adjusted tax, adjusted
profit or loss for the year, adjusted earnings per share and
adjusted diluted earnings per share. They are, as appropriate, each
stated before: exceptional and other adjusting items including gain
or loss on acquisitions, expenses related to material acquisitions,
amortisation of acquired intangibles, utilisation of deferred tax
assets (where initial recognition was as an exceptional item or a
fair value adjustment on acquisition), and the related tax effect
of these exceptional and other adjusting items, as Management does
not consider these items when reviewing the underlying performance
of the Segment or the Group as a whole.
A reconciliation to adjusted measures is provided in the Group
Finance Director's review which details the impact of exceptional
and other adjusting items when comparing to the non-GAAP financial
measures, in addition to those reported in accordance with IFRS.
Further detail is also provided within note 4, Segment
information.
2.6 Impairment of assets
The Group assesses at each reporting date whether there is an
indication that an asset may be impaired. If any such indication
exists, or when annual impairment testing for an asset is required,
the Group makes an estimate of the asset's recoverable amount.
Where an asset does not have independent cash flows, the
recoverable amount is assessed for the cash-generating unit (CGU)
to which it belongs. These assets are tested across an aggregation
of CGUs that utilise the asset. The recoverable amount is the
higher of the fair value less costs to sell and the value-in-use of
the asset or CGU. Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value-in-use, the
estimated future cash flows are discounted to their present value
using a post-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. Impairment losses of continuing operations are
recognised in the Consolidated Income Statement in those expense
categories consistent with the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each
reporting date whether there is any indication that previously
recognised impairment losses may no longer exist or may have
decreased. If such indication exists, the Group estimates the
asset's or CGU's recoverable amount. A previously recognised
impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset's recoverable amount since
the last impairment was recognised. The reversal is limited so that
the carrying amount of the asset does not exceed its recoverable
amount, nor exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been
recognised for the asset in prior years. As the Group has no assets
carried at revalued amounts, such reversal is recognised in the
Consolidated Income Statement.
2.7 Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any accumulated impairment losses.
Depreciation, down to residual value, is calculated on a
straight-line basis over the estimated useful life of the asset as
follows:
-- freehold buildings: 25-50 years
-- short leasehold improvements: shorter of seven years and period to expiry of lease
-- fixtures and fittings:
- head office: 5-15 years
- other: shorter of seven years and period to expiry of lease
-- office machinery and computer hardware: 2-15 years
-- motor vehicles: three years
Freehold land is not depreciated. An item of property, plant and
equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset.
Any gain or loss arising on derecognition of the asset (calculated
as the difference between the net disposal proceeds and the
carrying amount of the item) is included in the Consolidated Income
Statement in the year the item is derecognised.
2.8 Leases
2.8.1 Group as lessee
Recognition of a lease
The contracts are assessed by the Group, to determine whether a
contract is, or contains a lease. In general, arrangements are a
lease when all of the following apply:
-- it conveys the right to control the use of an identified
asset for a certain period, in exchange for consideration;
-- the Group obtains substantially all economic benefits from the use of the asset; and
-- the Group can direct the use of the identified asset.
The Group elects to separate the non-lease components.
Measurement of a right-of-use asset and lease liability
Right-of-use asset
The Group measures the right-of-use asset at cost, which
includes the following:
-- the initial amount of the lease liability, adjusted for any
lease payments made at or before the lease commencement date;
-- any lease incentives received; and
-- any initial direct costs incurred by the Group as well as an
estimate of costs to be incurred by the Group in dismantling and
removing the underlying asset, restoring the site on which it is
located or restoring the underlying asset to the condition required
by the lease contract. Cost for dismantling, removing or restoring
the site on which it is located and/or the underlying asset is only
recognised when the Group incurs an obligation to do so.
The right-of-use asset is depreciated over the lease term, using
the straight-line method.
Lease liability
The lease liability is initially measured at the present value
of the unpaid lease payments, discounted using the interest rate
implicit in the lease, or if the rate cannot be readily determined,
the Group's incremental borrowing rate. Lease payments included in
the measurement comprise fixed payments, variable lease payments
that depend on an index or a rate, amounts to be paid under a
residual value guarantee and lease payments in an optional renewal
period, if the Group is reasonably certain to exercise an extension
option, as well as penalties for early termination of a lease, if
the Group is reasonably certain to terminate early. If there is a
purchase option present, this will be included if the Group is
reasonably certain to exercise the option.
Leases of low-value assets and short term
Leases of low-value assets (<GBP5,000) and short term with a
term of 12 months or less are not required to be recognised on the
Consolidated Balance Sheet and payments made in relation to these
leases are recognised on a straight-line basis in the Consolidated
Income Statement.
2.8.2 Group as a lessor
The Group entered in to lease agreements as a lessor on certain
items of machinery and software. Leases for which the Group is a
lessor are classified as operating leases. Rental income arising
from operating leases is accounted for on a straight-line basis
over the lease term.
In cases where the Group acts as an intermediate lessor, it
accounts for its interests in the head-lease and the sub-lease
separately.
2.9 Intangible assets
2.9.1 Software and software licences
Software and software licences include computer software that is
not integral to a related item of hardware. These assets are stated
at cost less accumulated amortisation and any impairment in value.
Amortisation is calculated on a straight-line basis over the
estimated useful life of the asset. Currently software is amortised
over four years.
The carrying values of software and software licences are
reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable. If any
such indication exists and where the carrying values exceed the
estimated recoverable amount, the assets are written down to their
recoverable amount.
2.9.2 Software under development
Costs that are incurred and that can be specifically attributed
to the development phase of management information systems for
internal use are capitalised only if the expenditure can be
measured reliably, the management information system is technically
and commercially feasible, future economic benefits are probable,
and the Group intends to and has sufficient resources to complete
development and to use.
Research expenditure and development expenditure that do not
meet the criteria above are recognised as an expense as incurred.
Development costs previously recognised as an expense are not
recognised as an asset in a subsequent period.
Directly attributable costs that are capitalised typically
include professional fees and cost of material/services
consumed.
Capitalised development costs are recorded as intangible assets
and amortised over their useful life from the point at which the
management information system is ready for use.
Costs associated with maintaining in-use software programmes are
recognised as an expense as incurred.
2.9.3 Other intangible assets
Intangible assets acquired as part of a business combination are
carried initially at fair value. Following initial recognition
intangible assets are carried at cost less accumulated amortisation
and any impairment in value. Intangible assets with a finite life
have no residual value and are amortised on a straight-line basis
over their expected useful lives, with charges included in
administrative expenses as follows:
-- order back log: within three months
-- existing customer relationships: 10-15 years
-- tools and technology: seven years.
The carrying value of intangible assets is reviewed for
impairment whenever events or changes in circumstances indicate the
carrying value may not be recoverable and expected useful lives are
reviewed on a yearly basis.
2.9.4 Goodwill
Business combinations are accounted for under IFRS 3 Business
Combinations using the acquisition method. Any excess of the cost
of the business combination over the Group's interest in the net
fair value of the identifiable assets, liabilities and contingent
liabilities is recognised in the Consolidated Balance Sheet as
goodwill and is not amortised. Any goodwill arising on the
acquisition of equity-accounted entities is included within the
cost of those entities.
After initial recognition, goodwill is stated at cost less any
accumulated impairment losses, with the carrying value being
reviewed for impairment at least annually and whenever events or
changes in circumstances indicate that the carrying value may be
impaired.
For the purpose of impairment testing, goodwill is allocated to
the related CGU monitored by Management, usually at business
Segment level or statutory Company level as the case may be. Where
the recoverable amount of the CGU is less than its carrying amount,
including goodwill, an impairment loss is recognised in the
Consolidated Income Statement.
2.10 Inventories
Inventories are carried at the lower of weighted average cost
and net realisable value after making allowance for any obsolete or
slow-moving items. Costs include those incurred in bringing each
product to its present location and condition, on a first-in,
first-out basis.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs necessary to
make the sale.
2.11 Financial assets
Financial assets are recognised at their fair value, which
initially equates to the sum of the consideration given and the
directly attributable transaction costs associated with the
investment. Subsequently, the financial assets are measured at
either amortised cost or fair value, depending on their
classification under IFRS 9. The Group currently holds only debt
instruments. The classification of these debt instruments depends
on the Group's business model for managing the financial assets and
the contractual terms of the cash flows.
2.11.1 Trade 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
business model for trade receivables is that they are held for the
collection of contractual cash flows, therefore they are
subsequently measured at amortised cost. The trade receivables are
derecognised on receipt of cash from the customer. The Group
sometimes uses debt factoring, without recourse, to manage
liquidity and, as a result, the business model for factored trade
receivables is that they are not held for the collection of
contractual cash flows. As a result, subsequent to initial
recognition, they are measured at fair value through other
comprehensive income (except for the recognition of impairment
gains and losses and foreign exchange gains and losses, which are
recognised in profit or loss).
Factored trade receivables are derecognised on receipt of cash
from the factoring party. Given the short lives of the trade
receivables, there are generally no material fair value movements
between initial recognition and the derecognition of the
receivable.
The Group assesses for doubtful debts (impairment) using the
expected credit losses model as required by IFRS 9. For trade
receivables, the Group applies the simplified approach, which
requires expected lifetime losses to be recognised from the initial
recognition of the receivables. Material or high-risk balances are
reviewed and provided for individually based on a number of factors
including:
-- the financial strength of the customer;
-- the level of default that the Group has suffered in the past;
-- the age of the receivable outstanding; and
-- the Group's trading experience with that customer.
2.11.2 Cash and cash equivalents
Cash and short-term deposits in the Consolidated Balance Sheet
comprise cash at bank and in hand, and short-term deposits with an
original maturity of three months or less. Cash is held for the
collection of contractual cash flows which are solely payments of
principal and interest and therefore is measured at amortised cost
subsequent to initial recognition.
For the purpose of the Consolidated Cash Flow Statement, cash
and cash equivalents consist of cash and short-term deposits as
defined above, net of outstanding bank overdrafts, where the
overdrafts are repayable on demand and are part of the Group's cash
management.
2.12 Financial liabilities
Financial liabilities are initially recognised at their fair
value and, in the case of loans and borrowings (including credit
facility), net of directly attributable transaction costs.
The subsequent measurement of financial liabilities is at
amortised cost, unless otherwise described below:
2.12.1 Provisions (excluding restructuring provision)
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions
are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision
due to the passage of time is recognised as a borrowing cost.
Customer contract provisions
Management monitors continually the financial performance of
contracts, and where there are indicators that a contract could
result in a negative margin, the future financial performance of
that contract will be reviewed in detail. If, after further
financial analysis, the full financial consequence of the contract
can be reliably estimated, and it is determined that the contract
is potentially loss-making, then the best estimate of the losses
expected to be incurred until the end of the contract will be
provided for.
In establishing if future costs are forecast to exceed the
future revenue, Management will take into account the anticipated
inflationary impact on the cost base, offset by any rights to
increase pricing under Cost of Living Adjustment (COLA) clauses
that have been incorporated in the customer contract.
The Group applies IAS 37 - 'Provisions, Contingent Liabilities
and Contingent Assets' in its assessment of whether contracts are
considered onerous and in subsequently estimating the provision.
The Group's approach is to apply the Full cost approach which
considers total estimated costs (i.e. directly attributable
variable costs and fixed allocated costs) as included in the
assessment of whether the contract is onerous or not and in the
measurement of the provision.
A provision for onerous contracts is made as soon as a loss is
foreseen and is measured at the present value of the lower of the
expected cost of terminating the contract and the expected net cost
of continuing with the contract, which is determined based on
incremental costs necessary to fulfil the obligation under the
contract. Before a provision is established, the Group recognises
any impairment loss on the assets associated with that
contract.
2.12.2 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 those
affected have a valid expectation that the Group will carry out the
restructuring created by either the commencement of the
restructuring implementation plan or the announcement of 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 employees that are redeployed within the
business and costs for employees who continue to be employed in
ongoing operations, regardless of the status of these operations
post-restructure.
2.12.3 Pensions and other post-employment benefits
The Group operates a defined contribution pension scheme
available to all UK employees and similar schemes are operating, as
appropriate for the jurisdiction, for North America and Germany.
Contributions are recognised as an expense in the Consolidated
Income Statement as they become payable in accordance with the
rules of the scheme. There are no material pension schemes within
the Group's overseas operations.
The Group has an obligation to make a one-off payment to French
employees upon retirement, the Indemnités de Fin de Carrière
(IFC).
French employment law requires that a company pays employees a
one-time contribution when, and only when, the employee leaves the
company on retirement at the mandatory age. This is a legal
requirement for all businesses which incur the obligation upon
departure, due to retirement, of an employee.
Typically, the retirement benefit is based on length of service
of the employee and his or her salary at retirement. The amount is
set via a legal minimum, but the retirement premiums can be
improved by the collective agreement or employment contract in some
cases. For Computacenter's French employees, the payment is based
on accrued service and ranges from one month of salary after five
years of service to 9.4 months of salary after 47 years of
service.
If the employee leaves voluntarily at any point before
retirement, all liability is extinguished, and any accrued service
is not transferred to any new employment.
Management continues to account for this obligation according to
IAS 19 (revised).
2.13 Derecognition of financial assets and liabilities
2.13.1 Financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where:
-- the rights to receive cash flows from the asset have expired; or
-- the Group retains the right to receive cash flows from the
asset, but has assumed an obligation to pay them in full without
material delay to a third party under a pass-through arrangement;
or
-- the Group has transferred its rights to receive cash flows
from the asset and either (a) has transferred substantially all the
risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset but
has transferred control of the asset.
2.13.2 Financial liabilities
A financial liability is derecognised when the obligation under
the liability is discharged, cancelled or expired.
2.14 Derivative financial instruments and hedge accounting
The Group uses foreign currency forward contracts to hedge its
foreign currency risks associated with foreign currency
fluctuations affecting cash flows from forecast transactions and
unrecognised firm commitments.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which the Group
wishes to apply hedge accounting and the risk management objective
and strategy for undertaking the hedge. The documentation includes
identification of both the hedging instrument and the hedged item
or transaction and then the economic relationship between the two,
including whether the hedging instrument is expected to offset
changes in cash flow of the hedged item. Such hedges are expected
to be highly effective in achieving offsetting changes in cash
flows. The Group designates the full change in the fair value of
the forward contract (including forward points) as the hedging
instrument. Forward contracts are initially recognised at fair
value on the date that the contract is entered into and are
subsequently remeasured at fair value at each reporting date. The
fair value of forward currency contracts is calculated by reference
to current forward exchange rates for contracts with similar
maturity profiles. Forward contracts are recorded as assets when
the fair value is positive and as liabilities when the fair value
is negative.
For the purposes of hedge accounting, hedges are classified as
cash flow hedges when hedging the exposure to variability in cash
flows that is either attributable to a particular risk associated
with a recognised asset or liability, a highly probable forecast
transaction, or the foreign currency risk in an unrecognised firm
commitment.
Cash flow hedges that meet the criteria for hedge accounting are
accounted for as follows: the effective portion of the gain or loss
on the hedging instrument is recognised directly in other
comprehensive income in the cash flow hedge reserve, while any
ineffective portion is recognised immediately in the Consolidated
Income Statement in administrative expenses.
Amounts recognised within the Consolidated Statement of
Comprehensive Income are transferred to the Consolidated Income
Statement, within administrative expenses, when the hedged
transaction affects the Consolidated Income Statement, such as when
the hedged financial expense is recognised.
If the forecast transaction or firm commitment is no longer
expected to occur, the cumulative gain or loss previously
recognised in equity is transferred to the Consolidated Income
Statement within administrative expenses. If the hedging instrument
matures or is sold, terminated or exercised without replacement or
rollover, any cumulative gain or loss previously recognised within
the Consolidated Statement of Comprehensive Income remains within
the Consolidated Statement of Comprehensive Income until after the
forecast transaction or firm commitment affects the Consolidated
Income Statement.
Any other gains or losses arising from changes in fair value on
forward contracts are taken directly to administrative expenses in
the Consolidated Income Statement.
2.15 Taxation
2.15.1 Current tax
Current tax assets and liabilities for the current and prior
years are measured at the amount expected to be recovered from or
paid to the tax authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively
enacted by the balance sheet date.
2.15.2 Deferred income tax
Deferred income tax is recognised on all temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the Consolidated Financial Statements, with the
following exceptions:
-- where the temporary difference arises from the initial
recognition of goodwill or from an asset or liability in a
transaction that is not a business combination that at the time of
the transaction affects neither accounting nor taxable profit or
loss;
-- in respect of taxable temporary differences associated with
investments in subsidiaries, associates and joint ventures, where
the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will
not reverse in the foreseeable future; and
-- deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available in the
future against which the deductible temporary differences, carried
forward tax credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an
undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax
rates and laws enacted, or substantively enacted, at the balance
sheet date.
Income tax is charged or credited directly to the Consolidated
Statement of Comprehensive Income if it relates to items that are
credited or charged to the Consolidated Statement of Comprehensive
Income. Otherwise, income tax is recognised in the Consolidated
Income Statement.
2.16 Share-based payment transactions
Employees (including Executive Directors) of the Group can
receive remuneration in the form of share-based payment
transactions, whereby employees render services in exchange for
shares or rights over shares (equity-settled transactions).
The cost of equity-settled transactions with employees is
measured by reference to the fair value of the award at the date at
which they are granted. The fair value is determined by utilising
an appropriate valuation model. In valuing equity-settled
transactions, no account is taken of any performance conditions, as
none of the conditions set are market-related.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, over the period in which
the performance and/or service conditions are fulfilled, ending on
the date on which the relevant employees become fully entitled to
the award (vesting date).
The cumulative expense recognised for equity-settled
transactions at each reporting date, until the vesting date,
reflects the extent to which the vesting period has expired and the
Directors' best estimate of the number of equity instruments that
will ultimately vest. The Consolidated Income Statement charge or
credit for a period represents the movement in cumulative expense
recognised as at the beginning and end of that period. As the
schemes do not include any market-related performance conditions,
no expense is recognised for awards that do not ultimately
vest.
Movements in the estimated employer's National Insurance
liability related to the awards, carried on the Consolidated
Balance Sheet, are recognised in the Consolidated Income
Statement.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of earnings per share
(see note 8).
The Group has an employee share trust for the granting of
non-transferable options to Executive Directors and senior
Management. Shares in the Group held by the employee share trust
are treated as investment in own shares and are recorded at cost as
a deduction from equity.
2.17 Own shares held
Computacenter plc shares held by the Group are classified in
shareholders' equity as 'own shares held' and are recognised at
cost. Consideration received for the sale of such shares is also
recognised in equity, with any difference between the proceeds from
sale and the original cost being taken to reserves. No gain or loss
is recognised in the performance statements on the purchase, sale,
issue or cancellation of equity shares.
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 IAS 20 - Accounting for government grants and disclosure of
government assistance
IAS 20 defines government grants as assistance by government in
the form of transfers of resources to an entity, in return for past
or future compliance with certain conditions relating to the
operating activities of the entity. If the conditions are met, then
a company recognises government grants in profit or loss within
administration expenses, in line with its recognition of the
expenses that the grants are intended to compensate.
The Group has recognised unconditional government grants
relating to short-term schemes introduced by governments within
Europe and the United States as a result of Covid-19 crisis for the
purpose of protecting employment. These grants compensate the Group
for expenses incurred and are recognised in the Consolidated Income
Statement on a systematic basis in the periods in which the
expenses are recognised.
3 Critical accounting estimates and judgements
The preparation of the Consolidated Financial Statements
requires Management to exercise judgement in applying the Group's
accounting policies. It also requires the use of estimates and
assumptions that affect the reported amounts of assets,
liabilities, income and expenses.
Due to the inherent uncertainty in making these critical
judgements and estimates, actual outcomes could be different.
During the year, Management reconsidered the critical accounting
estimates and judgements for the Group. This process included
reviewing the last reporting period's disclosures, the key
judgements required on the implementation of forthcoming standards
and the current period's challenging accounting issues. Where
Management deemed an area of accounting to be no longer a critical
estimate or judgement, an explanation for this decision is found in
note 3.3 to the summary financial information within this
announcement.
3.1 Critical estimates
Estimates and underlying assumptions are reviewed on an ongoing
basis, with revisions recognised in the year in which the estimates
are revised and in any future years affected. The are no areas
involving significant risk resulting in a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year.
3.2 Critical judgements
Judgements made by Management in the process of applying the
Group's accounting policies, which have the most significant effect
on the amounts recognised in the Consolidated Financial Statements,
are as follows:
3.2.1 Technology Sourcing principal versus 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 pass control of 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.
Following its meeting that concluded on 1 December 2021, the
IFRS Interpretation Committee (the Committee) published a tentative
agenda decision in response to a submission from a valued added
reseller to determine whether an entity should treat revenue from
the resale of standard software licences on a principal or agent
recognition basis under IFRS 15 Revenue from Contracts with
Customers (IFRS 15).
The Committee did not reach a definitive conclusion on the
submission received, as it maintained that an entity should apply
judgement in making its assessment under the principles contained
within IFRS 15, using the specific facts and circumstances relevant
to the entity and the transactions or contracts entered into.
However, the Committee did provide a number of discrete guidance
points on the application of various control criteria or indicators
that entities should consider under their IFRS 15 agent and
principal recognition criteria processes that specifically relate
to the resale of standard software and have an impact on those
resellers within the industry. Computacenter plc included a
preliminary assessment of the impact of the tentative agenda
decision within note 3.2.1 of the 2021 Annual Report and
Accounts.
At its 20 April 2022 meeting, the Committee finalised and
approved its agenda decision. The International Accounting
Standards Board, at its May 2022 meeting, did not object to the
agenda decision.
The discussion and guidance within the approved agenda decision
provides direction for the implementation of the principal or agent
elements of IFRS 15 Revenue from Contracts with Customers for
value-added resellers where standard standalone software and
implicitly, due to the similarity in the transactional fact
pattern, resold services such as maintenance contracts, extended
warranties or support contracts, that are sourced from a
third-party vendor and resold to a customer. As noted in our 2021
Annual Report and Accounts the approved agenda decision has
impacted our existing treatment for the principal or agent
recognition of these revenue streams, and whether they are recorded
on a gross or net basis within revenue. Previously such sales were
recognised on a principal or gross basis, apart from in certain
limited instances as described in note 3.2.1 of the 2021 Annual
Report and Accounts, with gross invoiced income reported as
revenue, and costs of the resold software or services presented as
part of cost of goods sold.
The Group has now completed its assessment of the impacts of the
agenda decision and revised its accounting policies accordingly.
Standalone revenue from standard software sales is now recognised
on an agency or net basis where the margin earned on the contract
is recognised as revenue with zero cost of goods sold. Other
software revenues, particularly where the Group has performed
configuration or customisation services, as part of the software
sales agreement, or where the software is included alongside
hardware elements within a pre-configured bundle from the vendor
and resold within the pre-set bundle, continue to be recognised on
a principal basis. Similarly, the Group has determined that
third-party services agreements resold on a standalone basis are
also recognised on an agent basis due to the similar fact pattern
of the transaction to that of software sales unless these are also
included alongside hardware elements within a pre-configured bundle
from the vendor and resold within the pre-set bundle.
Management continues to assess the classification of other
revenue contracts for Technology Sourcing revenue recognition on
either an agent or a principal basis. Because the identification of
the principal in a contract is, on occasion, not always clear and
the level of judgement required can, in small number of instances,
be high with the outcomes of assessments finely balanced,
Management makes a determination by evaluating the nature of our
promise to our customer as to whether it is a performance
obligation to provide the specified goods or services ourselves, in
that we are the principal, or to arrange for those goods or
services to be provided by the other party, where we are the
agent.
We determine whether we are a principal or an agent for each
specified good or service promised to the customer by evaluating
the nature of our promise to the customer against the following
non-exhaustive list of indicators that a performance obligation
could involve an agency relationship:
-- we do not control each specified good or service before that
good or service is delivered to the customer;
-- the vendor retains primary responsibility for fulfilling the sale;
-- we take no inventory risk before or after the goods have been
ordered, during shipping or on return;
-- we do not have discretion to establish pricing for the
vendor's goods, limiting the benefit we can receive from the sale
of those goods; and
-- our consideration is in the form of a, usually predetermined, commission.
As a result, the Group continues to report all hardware elements
of its Technology Sourcing business, along with its internally
provided Managed Services and Professional Services revenues, on a
principal basis.
The Group will continue to report Technology Sourcing Gross
Invoiced Income and aggregated with our Services revenues as Total
Group Gross Invoiced Income as an Alternative Performance
Measure.
The changes in the Group's revenue accounting policies to
reflect the agenda decision of the Committee have resulted in the
following impact on the current year Financial Statements and, in
accordance with IAS8, a retrospective restatement of the relevant
prior year reported Financial Statements:
-- Revenue and cost of sales decreased by the value of revenue
assessed as being recognised on an agency basis by GBP2,581.7
million in 2022 (2021: GBP1,889.0 million). The retrospective
application of the agenda decision resulted in a reduction of
previously reported revenue and cost of sales for 2021 by
GBP1,691.3 million.
-- Gross profit, operating profit, and profit before and after
taxes have remained unchanged in all periods. As a result, there is
no impact on basic and diluted earnings per share.
Previous Accounting Policy Revised Accounting Policy
Adjustment to Adjustment to
gross invoiced gross invoiced
Gross invoiced income for income Gross invoiced income for income
income recognised as Revenue income recognised as Revenue
GBPm agent GBPm GBPm GBPm agent GBPm GBPm
Year to 31 December
2021 6,923.5 197.7 6,725.8 6,923.5 1,889.0 5,034.5
3.2.2 Bill and hold
The Group generates some of its revenue through its bill and
hold arrangements with its customers. These arise when the customer
is invoiced but the product is not shipped to the customer until a
later date, in accordance with the customer's request in a written
agreement. In order to determine the appropriate timing of revenue
recognition, it is assessed whether control has transferred to the
customer.
A bill and hold arrangement is only put in place when a customer
lacks the physical space to store the product or the product
previously ordered is not yet needed in accordance with the
customer's schedule and the customer wants to guarantee supply of
the product. In order to determine the bill and hold arrangements,
the following criteria must be met:
a) the reason for the bill and hold arrangement must be
substantive (for example: the customer has requested the
arrangement);
b) the product must be identified separately as belonging to the
customer;
c) the product currently must be ready for physical transfer to
the customer; and
d) the entity cannot have the ability to use the product or to
direct it to another customer.
Judgement is required to determine if all of the criteria (a) to
(d) have been met, to recognise a bill and hold sale. This is
determined by segregation and readiness of inventory and the review
and approval of all customer requests, in order to assess whether
the accounting policy had been correctly applied to recognise a
bill and hold sale.
GBP386.9 million of product sold is held by the Group for bill
and hold transactions as at 31 December 2022 (2021: GBP281.9
million).
3.2.3 Exceptional items
Exceptional items remain a core focus of Management with the
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 are
favourable or unfavourable to the underlying result.
To achieve this, Management has 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 regulatory
interpretations and guidance.
In reaching its conclusions, Management considers 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 shareholders 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 6.
3.3 Change in critical estimates and critical judgements
During the year, Management reassessed the critical estimates
and critical judgements.
Exceptional items have been included as a critical judgement
since these are a core focus of Management when reporting
alternative performance measures and require consideration of
materiality, infrequency and nature of the items.
Apart from change discussed above, the critical accounting
estimates and judgements reported in the Group's 2021 Annual Report
and Accounts are unchanged.
4 Segment information
The Segment information is reported to the Board and the Chief
Executive Officer. The Chief Executive Officer is the Group's Chief
Operating Decision Maker (CODM). The operating Segments remain
unchanged from those reported at 31 December 2021.
The Segmental reporting structure is the basis on which internal
reports are provided to the Chief Executive Officer, as the CODM,
for assessing performance and determining the allocation of
resources within the Group, in accordance with IFRS 8.25. Segmental
performance is measured based on external revenues, gross profit,
adjusted(1) operating profit and adjusted(1) profit before tax.
Central Corporate Costs continue to be disclosed as a separate
column within the Segmental note.
Segmental performance for the years ended 31 December 2022 and
31 December 2021 were as follows:
Year ended 31 December 2022
North Central Corporate
UK Germany France America International Costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue
Technology Sourcing revenue
Gross invoiced income 1,864.2 1,704.7 606.7 3,131.7 174.3 - 7,481.6
Adjustment to gross invoiced
income for income recognised as
agent (1,055.1) (551.6) (170.9) (773.8) (30.3) - (2,581.7)
Total Technology Sourcing revenue 809.1 1,153.1 435.8 2,357.9 144.0 - 4,899.9
Services revenue
Professional Services 147.5 315.7 41.7 122.5 9.2 - 636.6
Managed Services 312.8 374.7 136.4 26.9 83.2 - 934.0
Total Services revenue 460.3 690.4 178.1 149.4 92.4 - 1,570.6
Total revenue 1,269.40 1,843.5 613.9 2,507.3 236.4 - 6,470.5
Results
Gross profit 259.2 325.1 76.7 238.3 47.8 - 947.1
Adjusted(1) administrative
expenses (178.7) (184.2) (69.6) (185.3) (36.5) (23.7) (678.0)
Adjusted(1) operating
profit/(loss) 80.5 140.9 7.1 53.0 11.3 (23.7) 269.1
Net interest 2.6 (2.2) (0.8) (4.2) (0.8) - (5.4)
Adjusted(1) profit/(loss) before
tax 83.1 138.7 6.3 48.8 10.5 (23.7) 263.7
Exceptional items:
- unwinding of discount relating
to acquisition of a subsidiary (2.0)
- costs relating to acquisition of
a subsidiary (1.8)
Total exceptional items (3.8)
Amortisation of acquired
intangibles (10.9)
Profit before tax 249.0
The reconciliation of adjusted(1) operating profit to operating
profit as disclosed in the Consolidated Income Statement is as
follows:
Year ended 31 December 2022
Total
GBPm
Adjusted(1) operating profit 269.1
Amortisation of acquired intangibles (10.9)
Exceptional items (1.8)
Operating profit 256.4
Year ended 31 December 2022
North Central Corporate
UK Germany France America International Costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Other Segment information
Property, plant and equipment 29.6 40.7 5.6 11.7 6.5 - 94.1
Right-of-use assets 10.3 53.8 18.2 22.5 14.6 - 119.4
Intangible assets 49.5 17.5 10.4 250.6 14.1 - 342.1
Capital expenditure:
Property, plant and equipment 7.2 7.8 2.2 3.9 2.6 - 23.7
Right-of-use assets 2.6 22.6 4.8 10.5 4.5 - 45.0
Software 10.5 0.5 0.3 0.1 0.4 - 11.8
Depreciation of property, plant and
equipment 6.9 6.8 2.2 3.3 2.3 - 21.5
Depreciation of right-of-use assets 4.6 30.2 4.9 5.5 5.3 - 50.5
Amortisation of software 5.7 0.4 0.1 1.4 0.4 - 8.0
Share-based payments 5.9 1.9 0.1 0.7 - - 8.6
Year ended 31 December 2021
North Central Corporate
UK Germany France America International Costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue (restated*)
Technology Sourcing revenue
Gross invoiced income 1,581.5 1,427.7 481.4 1,869.2 112.8 - 5,472.6
Adjustment to gross invoiced income
for income recognised as agent (638.3) (485.1) (98.2) (642.9) (24.5) - (1,889.0)
Total Technology Sourcing revenue 943.2 942.6 383.2 1,226.3 88.3 - 3,583.6
Services revenue
Professional Services 154.6 273.8 38.0 77.5 8.5 - 552.4
Managed Services 327.6 348.6 134.0 18.6 69.7 - 898.5
Total Services revenue 482.2 622.4 172.0 96.1 78.2 - 1,450.9
Total revenue 1,425.4 1,565.0 555.2 1,322.4 166.5 - 5,034.5
Results
Gross profit 268.2 312.0 68.1 180.2 39.3 - 867.8
Adjusted(1) administrative expenses (165.3) (174.2) (64.6) (149.2) (28.0) (23.7) (605.0)
Adjusted(1) operating profit/(loss) 102.9 137.8 3.5 31.0 11.3 (23.7) 262.8
Net interest - (2.7) (0.8) (2.7) (1.0) (7.2)
Adjusted(1) profit/(loss) before tax 102.9 135.1 2.7 28.3 10.3 (23.7) 255.6
Amortisation of acquired intangibles (7.6)
Profit before tax 248.0
* The comparative information is restated on account of a change
in accounting policy for Technology Sourcing revenue and cost of
sales, see note 3. Gross profit, operating profit, and profit
before and after taxes have remained unchanged.
The reconciliation of adjusted(1) operating profit to operating
profit as disclosed in the Consolidated Income Statement is as
follows:
Year ended 31 December 2021
Total
GBPm
Adjusted(1) operating profit 262.8
Amortisation of acquired intangibles (7.6)
Operating profit 255.2
North Central Corporate
UK Germany France America International Costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Other Segment information
Property, plant and equipment 30.4 37.7 5.3 9.2 7.4 - 90.0
Right-of-use assets 12.5 77.2 17.4 15.0 16.0 - 138.1
Intangible assets 44.6 16.5 10.2 191.4 11.0 - 273.7
Capital expenditure:
Property, plant and equipment 5.2 4.4 2.1 3.6 3.5 - 18.8
Right-of-use assets 3.0 52.3 8.0 4.1 2.8 - 70.2
Software 6.1 0.2 0.1 4.6 0.5 - 11.5
Depreciation of property, plant and
equipment 10.3 6.2 3.1 2.9 2.3 - 24.8
Depreciation of right-of-use assets 3.2 31.7 4.4 4.8 6.5 - 50.6
Amortisation of software 5.6 0.6 0.1 1.2 0.2 - 7.7
Share-based payments 7.4 2.1 0.3 0.7 0.1 - 10.6
Charges for the amortisation of acquired intangibles (where
initial recognition was an exceptional item or a fair value
adjustment on acquisition) are excluded from the calculation of
adjusted(1) operating profit. This is because these charges are
based on judgements about their value and economic life, are the
result of the application of acquisition accounting rather than
core operations, and whilst revenue recognised in the Consolidated
Income Statement does benefit from the underlying asset that has
been acquired, the amortisation costs bear no relation to the
Group's underlying ongoing operational performance. In addition,
amortisation of acquired intangibles is not included in the
analysis of Segment performance used by the CODM.
Information about major customers
Included in revenues arising from the North American Segment are
revenues of approximately GBP975.3 million (2021: GBP651.7 million)
which arose from sales to the Group's largest customer.
5 Revenue
Revenue recognised in the Consolidated Income Statement is
analysed as follows:
2021
2022 (Restated*)
GBPm GBPm
Revenue by type
Gross invoiced income 7,481.6 5,472.6
Adjustment to gross invoiced income for income recognised as agent (2,581.7) (1,889.0)
Technology Sourcing revenue 4,899.9 3,583.6
Services revenue
Professional Services 636.6 552.4
Managed Services 934.0 898.5
Total Services revenue 1,570.6 1,450.9
Total revenue 6,470.5 5,034.5
*The comparative information is restated on account of a change
in accounting policy for Technology Sourcing revenue and cost of
sales, see note 3.
Contract balances
The following table provides the information about contract
assets and contract liabilities from contracts with customers.
31 December 31 December
2022 2021
GBPm GBPm
Trade receivables 1,666.9 1,239.8
Contract assets, which are included in prepayments 23.7 20.2
Contract assets, which are included in accrued income 135.2 148.1
Contract liabilities, which are included in deferred income 273.2 257.6
The prepayments balance within the Consolidated Balance Sheet of
GBP149.9 million consists of GBP23.7 million contract assets and
GBP126.2 million other prepayments.
The Group has implemented an expected credit loss impairment
model with respect to contract assets using the simplified
approach. Contract assets have been grouped on the basis of their
shared risk characteristics and a provision matrix has been
developed and applied to these balances to generate the loss
allowance. The majority of these contract asset balances are with
blue chip customers and the incidence of credit loss is low. There
has therefore been no material adjustment to the loss allowance
under IFRS 9. Specific provisions are made against material or
high-risk balances based on trading experience or where doubt
exists about the counterparty's ability to pay. The expected credit
losses on contract assets which are within prepayments and accrued
income are considered to be immaterial.
Significant changes in contract assets and liabilities
Contract assets are balances due from customers under long-term
contracts as work is performed and therefore a contract asset is
recognised over the period in which the performance obligation is
fulfilled. This represents the Group's right to consideration for
the services transferred to date. Amounts are generally
reclassified to trade and other receivables when these have been
certified or invoiced to a customer. Refer to note 2.11.1 for
credit terms of trade receivables.
The increase in trade receivables mainly in the UK, Germany and
North American Segments is driven by growth in revenue, as the
Group experienced a particularly strong fourth quarter of the
year.
Win fees, deferred contract costs and fulfilment costs are
included in the prepayments balance above. The Consolidated Income
Statement impact of the win fees was a recognition of a net income
in 2022 of GBP2.7 million, with a corresponding cost to tax of
GBP0.6 million for the year. As at 31 December 2022, the win fee
balance was GBP11.4 million. The Consolidated Income Statement
impact of fulfilment costs was a recognition of a net income in
2022 of GBP3.1 million, with a corresponding tax of charge of
GBP1.1 million for the year.
As at 31 December 2022, the fulfilment costs balance was GBP4.9
million. No impairment loss was recorded for win fees or fulfilment
costs during the year.
Revenue recognised in the reporting period from accrued income
was GBP21.8 million, with a debit to foreign exchange of GBP8.9
million. No impairment loss was recorded for accrued income during
the year.
Revenue recognised in the reporting period that was included in
the contract liability balance at the beginning of the period was
GBP178.4 million. No revenue was recognised in the reporting period
from performance obligations that were satisfied or partially
satisfied in previous periods.
Remaining performance obligations (work in hand)
Contracts which have remaining performance obligations as at 31
December 2022 and 31 December 2021 are set out in the table below.
The table below discloses the aggregate transaction price relating
to those remaining performance obligations, excluding both (a)
amounts relating to contracts for which revenue is recognised as
invoiced and (b) amounts relating to contracts where the expected
duration of the ongoing performance obligation is one year or
less.
Managed Services
Less than One to Two to Three to Four years
one year two years three years four years and beyond Total
GBPm GBPm GBPm GBPm GBPm GBPm
As at 31 December 2022 729.1 513.2 374.0 266.7 226.8 2,109.8
As at 31 December 2021 720.4 466.4 315.8 209.0 226.7 1,938.3
The duration of most contracts is between one and five years.
However some contracts will vary from these typical lengths.
Revenue is typically earned over these varying timeframes. However
the majority of the revenue noted above is expected to be earned in
the short term.
6 Exceptional items
2022 2021
GBPm GBPm
Operating profit
Costs relating to acquisition of a subsidiary (1.8) -
Exceptional operating loss (1.8) -
Interest cost relating to acquisition of a subsidiary (2.0) -
Loss on exceptional items before taxation (3.8) -
Income tax
Tax credit relating to acquisition of a subsidiary 0.2 -
Loss on exceptional items after taxation (3.6) -
Included within 2022 are the following exceptional items:
-- An exceptional cost during the year of GBP1.8 million
resulted from costs directly relating to the acquisition of BITS
and Emerge. These costs primarily related to advisor's fees and
seller's costs that were paid on completion of the transaction. As
these costs are non-operational and unlikely to recur they have
been classified as exceptional items, consistent with our
prior-year treatment of acquisition costs on material
transactions.
-- A further GBP2.0 million relating to the unwinding of the
discount on the contingent payment for the purchase of BITS have
been classified as exceptional interest costs.
-- A credit of GBP0.2 million arising from the tax benefit on
the BITS exceptional acquisition costs has been recognised as tax
on the above exceptional items. As this credit is related to the
acquisition and not operational activity within BITS and is of a
one-off nature, it was classified as an exceptional tax item.
7 Income tax
a) Tax on profit from ordinary activities
2022 2021
GBPm GBPm
Tax charged in the Consolidated Income Statement
Current income tax
UK corporation tax 15.1 23.8
Foreign tax:
- operating results before exceptional items 49.0 45.1
- exceptional items (0.2) -
Total foreign tax 48.8 45.1
Adjustments in respect of prior years (5.1) 0.2
Total current income tax 58.8 69.1
Deferred income tax
Operating results before exceptional items:
- origination and reversal of temporary differences 1.0 (4.2)
- change in tax rates 0.6 (3.3)
- adjustments in respect of prior years 4.4 (0.1)
Total deferred income tax 6.0 (7.6)
Tax charge in the Consolidated Income Statement 64.8 61.5
b) Reconciliation of the total tax charge
2022 2021
GBPm GBPm
Profit before income tax 249.0 248.0
At the UK standard rate of corporation tax of 19 per cent (2021: 19 per cent) 47.3 47.1
Expenses not deductible for tax purposes 1.2 0.3
Non-deductible element of share-based payment charge 2.3 0.1
Adjustments in respect of prior years (0.7) 0.1
Effect of different tax rates of subsidiaries operating in other jurisdictions 17.6 16.2
Change in tax rate 0.6 (3.3)
Other differences 0.5 0.3
Overseas tax not based on earnings 1.1 1.6
Previously unrecognised tax losses used to reduce deferred income tax expense (3.2) -
Previously unrecognised tax losses used to reduce current tax expense (0.9) -
Tax effect of income not taxable in determining taxable profit (1.0) (0.9)
At effective income tax rate of 26.0 per cent (2021: 24.8 per cent) 64.8 61.5
Taxation for subsidiaries operating in other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions,
these being a blended rate of 32 per cent in Germany (2021: 32 per
cent) and a blended (Federal/State) rate of 25 per cent in the US
(2021: 27 per cent), which mainly drive the 'Effect of different
tax rates of subsidiaries operating in other jurisdictions'
above.
c) Tax losses
Deferred income tax assets of GBP3.9 million (2021: GBP0.6
million) have been recognised in respect of losses carried forward,
primarily in France. In considering the probable utilisation of the
carried forward tax losses, and therefore the likely recoverability
of these assets, the Group makes an assessment based upon a
reasonably foreseeable timeframe, being typically up to three
years, taking into account the future expected profit profile and
business model of each relevant company or country. The reasonably
foreseeable timeframe is derived based on the confidence the Group
has in the performance of these companies or countries and
therefore the reliability of forecasts over the timeframe in which
the asset would be recovered. If the reasonably foreseeable
timeframe is extended to five years for our French business, an
additional GBP0.9 million of deferred income tax asset would be
recognised.
As at 31 December 2022, there were further unused tax losses
across the Group of GBP293.5 million (2021: GBP295.8 million) for
which no deferred income tax asset has been recognised. Of these
losses, GBP263.5 million (2021: GBP261.3 million) arise in France,
GBP26.3 million (2021: GBP25.7 million) arise in Germany and GBP3.7
million (2021: GBP8.8 million) arise in the Netherlands. No
deferred tax has been recognised on these losses due to the
potential uncertainty around whether future taxable profits would
be available against which these tax losses can be utilised. A
significant proportion of the losses arising in Germany have been
generated in statutory entities that no longer have significant
levels of trade.
The Group has other timing differences, primarily in France, of
GBP28.7 million, for which no deferred tax asset has been
recognised. These timing differences mainly relate to the
retirement benefit obligation which is of a long-term nature. The
amount that would be recognised over our reasonably foreseeable
timeframe of up to three years would therefore be immaterial.
In addition, there are unutilised capital tax losses as at 31
December 2022 of GBP7.4 million (2021: GBP7.4 million) but no
deferred tax asset has been recognised as it is not considered
probable that these losses will be utilised in the foreseeable
future.
d) Deferred income tax
Deferred income tax as at 31 December 2022 and 31 December 2021
relates to the following:
Consolidated Consolidated Consolidated Statement
Balance Sheet Income Statement of Comprehensive Income
2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm
Deferred income tax assets/(liabilities)
Property, plant and equipment (3.2) 2.8 (5.8) (0.2) - -
Intangible assets (29.9) (26.6) (0.2) 0.5 - -
Inventories 3.9 4.4 (0.9) 3.0 - -
Derivative financial instruments 1.2 0.2 - - 1.0 0.2
Share-based payments 6.8 14.6 (0.8) 2.6 - -
Tax losses carried forward 3.9 0.6 3.2 0.1 - -
Other temporary differences 7.9 8.4 (1.5) 1.6 - -
Deferred income tax (charge)/credit (6.0) 7.6 1.0 0.2
Net deferred income tax asset/(liabilities) (9.4) 4.4
Disclosed on the Consolidated Balance Sheet
Deferred income tax assets 11.3 30.2
Deferred income tax liabilities (20.7) (25.8)
Net deferred income tax asset/(liabilities) (9.4) 4.4
Deferred tax is not recognised in respect of the Group's
investments in subsidiaries where Computacenter is able to control
the timing of remittance, or other realisation, of unremitted
earnings and where remittance or realisation is not probable in the
foreseeable future.
e) Factors affecting current and future tax charge
The main rate of UK Corporation tax for financial year 2022 is
19 per cent, as enacted in the Finance Act 2020. The March 2021
Budget announced that a rate of 25 per cent will apply with effect
from 1 April 2023, and this change was substantively enacted on 11
March 2021. The deferred income tax in the summary financial
information within this announcement reflects this.
We are closely monitoring the Organisation for Economic
Co-operation and Development's Two Pillar Solution to address the
tax challenges arising from the Digitalisation of the Economy,
which are expected to come into force on 31 December 2023. The
accounting implications under IAS 12 will be determined when the
relevant legislation is available.
8 Earnings per share
Earnings per share amounts are calculated by dividing profit
attributable to ordinary equity holders by the weighted average
number of ordinary shares outstanding during the year (excluding
own shares held).
To calculate diluted earnings per share, the weighted average
number of ordinary shares in issue is adjusted to assume conversion
of all dilutive potential shares. Share options granted to
employees where the exercise price is less than the average market
price of the Company's ordinary shares during the year are
considered to be dilutive potential shares.
2022 2021
GBPm GBPm
Profit attributable to equity holders of the Parent 182.8 185.3
2022 2021
GBPm GBPm
Basic weighted average number of shares (excluding own shares held) 112.8 113.0
Effect of dilution:
Share options 2.1 2.2
Diluted weighted average number of shares 114.9 115.2
2022 2021
pence pence
Basic earnings per share 162.1 164.0
Diluted earnings per share 159.1 160.9
9 Analysis of changes in net funds
At At
1 January Cash flows Non-cash Exchange 31 December
2022 in year flow differences 2022
GBPm GBPm GBPm GBPm GBPm
Cash and short-term deposits 285.2 (2.9) - (7.2) 275.1
Bank overdrafts (12.0) 1.3 - - (10.7)
Cash and cash equivalents 273.2 (1.6) - (7.2) 264.4
Bank loans and credit facility (31.8) 12.9 - (1.2) (20.1)
Adjusted net funds(3) (excluding lease liabilities) 241.4 11.3 - (8.4) 244.3
Lease liabilities (146.1) 55.2 (28.7) (7.5) (127.1)
Net funds 95.3 66.5 (28.7) (15.9) 117.2
At At
1 January Cash flows Non-cash Exchange 31 December
2021 in year flow differences 2021
GBPm GBPm GBPm GBPm GBPm
Cash and short-term deposits 309.8 (17.1) - (7.5) 285.2
Bank overdrafts - (12.0) - - (12.0)
Cash and cash equivalents 309.8 (29.1) - (7.5) 273.2
Bank loans and credit facility (121.2) 89.0 - 0.4 (31.8)
Adjusted net funds(3) (excluding lease liabilities) 188.6 59.9 - (7.1) 241.4
Lease liabilities (137.5) 55.4 (71.5) 7.5 (146.1)
Net funds 51.1 115.3 (71.5) 0.4 95.3
10 Related-party transactions
During the year, the Group entered into transactions, in the
ordinary course of business, with related parties. Transactions
entered into are as described below:
Biomni provides the Computacenter e-procurement system used by
many of Computacenter's major customers. An annual fee has been
agreed on a commercial basis for use of the software for each
installation. Both Peter Ogden and Philip Hulme are Directors of
and have a material interest in Biomni Limited.
The table below provides the total amount of transactions that
have been entered into with related parties for the relevant
financial year:
2022 2021
GBPm GBPm
Biomni Limited
Sales to related parties - -
Purchase from related parties 0.6 0.6
There is no outstanding balance as at 31 December 2022 (31
December 2021: nil).
Terms and conditions of transactions with related parties
Outstanding balances at the year end are unsecured and
settlement occurs in cash. There have been no guarantees provided
or received for any related-party receivables. The Group has not
recognised any allowance for expected credit losses relating to
amounts owed by related parties. This assessment is undertaken each
financial year through examining the financial position of the
related party and the market in which the related party
operates.
Compensation of key management personnel (including
Directors)
The Board of Directors is identified as the Group's key
management personnel. A summary of the compensation of key
management personnel is provided below:
2022 2021
GBPm GBPm
Short-term employee benefits 2.1 2.8
Social security costs 0.5 0.4
Share-based payment transactions 3.4 3.9
Pension costs 0.1 0.1
Total compensation paid to key management personnel 6.1 7.2
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March 31, 2023 02:00 ET (06:00 GMT)
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