RNS Number:9629E
Computerland UK PLC
22 June 2006
ComputerLand UK PLC
Preliminary results for the year ended 30th April 2006
(ComputerLand provides essential IT services to medium and large organisations)
KEY POINTS
* Turnover #59.3m (2005: #59.5m)
* Pre-tax profits* up 5% to #2.23m (2005: #2.13m)
* Earnings per share* up to 15.1p (2005: 15.0p)
* Contracted services revenues up 10% to #14.2m (2005: #12.9m)
* Significant new services contracts expected to drive future growth
* Total annual dividend up 20% to 6.0p (2005: 5.0p)
* Special dividend of 20.0p per share
* Strong cash generation - net cash up #1.1m to #9.0m (2005: #7.9m)
*before goodwill amortisation
Graham Gilbert, Chairman and CEO commented:-
"I am delighted to report a strong set of results which, in line with strategy,
have been driven by an improved sales mix focused on achieving a higher
proportion of recurring revenues from contracted services. This trend will
continue and is underpinned by significant contract wins as well as substantial
market opportunities for our services."
"The new year has started well...we expect our contracted services revenues to
show a further significant increase during the course of the current year."
Press enquiries:-
ComputerLand UK PLC Tel: 0115 931 8000
Graham Gilbert, Chairman & CEO
Mike Kent, Finance Director
Biddicks Tel: 0207 448 1000
Shane Dolan
Chairman's Statement
I am pleased to report record pre-tax profits and earnings per share for the
year ended 30 April 2006. We have now grown profits for six consecutive years.
These record results have been achieved through an improvement in our sales mix,
with a higher proportion of our revenues being derived from contracted services.
Results
During the year, pre-tax profits* increased 4.7% to #2.23m (2005: #2.13m) on
sales of #59.3m (2005: #59.5m). Contracted services revenues increased 10.1%
year on year whilst price deflation and a very competitive market place led to a
reduction of 3.2% in product sales. Earnings per share* were 15.1p (2005: 15.0p)
and operating profit margins* improved to 3.4% (2005: 3.3%). Net cash at the
year end stood at a record #9.0m.
*before goodwill amortisation
Dividend
The business has enjoyed strong cash inflows for a number of years and we have
now reached a position where our cash balances exceed the foreseeable
requirements of the business. Your board has resolved to return #2m to
shareholders by way of a 20.0p special dividend. This special dividend together
with an increased final dividend of 4.2p (2005: 3.3p) will, subject to
shareholder approval, be paid on the 5 September 2006 to shareholders on the
register on 28 July 2006.
Contract news
During the course of the past year we have won significant new services
contracts with Comet, Focus DIY, Nottinghamshire County Council and Warwickshire
County Council. In addition new managed services contracts have been secured
with Burberry and HJ Heinz and our existing contracts with Egg and Manchester
City Council have been extended for a further three and two years respectively.
Since the end of our financial year we have been selected, subject to contract,
by O2 and British Sugar to supply desktop and server managed services under new
multi year agreements. These contracts are expected to start producing revenues
from September and October of this year respectively. O2 will, assuming
contracts are agreed as anticipated, become our largest managed services client
with contracted service revenues expected to exceed #15m over a five year term.
Operating overview
Our business is organised into four main operating units. These are managed
services, hardware maintenance, project services and managed product supply.
Within managed services we offer clients a turnkey solution for their desktop
and server support requirements. Our efficient service delivery model enables us
to provide customers with a service of the highest quality at an attractive
price. This business enjoyed a good year with new contracts and a strong
performance from existing clients contributing to a 10% increase in sales. We
believe that our compelling business model, and our recent sales successes, will
lead to another strong performance in the current year.
Our hardware maintenance business offers clients a support service delivered by
a team of field engineers based throughout the United Kingdom. These engineers
are backed up by a highly efficient parts logistics operation. Over the past
year this business has enjoyed strong growth with significant new business wins
within the local government and retail sectors. During the coming year we will
be investing approximately #0.25m in new systems to ensure that our already
efficient model is further enhanced and that we are able to deliver our clients
an industry leading quality of service.
Project services enjoyed a satisfactory year. Our teams of highly skilled
project managers and technical specialists have successfully delivered a wide
range of projects in areas such as server virtualisation, storage, messaging
systems and thin client computing.
The performance of our product reselling business has always been difficult to
predict and last year proved to be no exception. The first half of the year was
impacted by difficult market conditions and severe price deflation which
inevitably led to results that were below our initial expectations. The second
half of the year saw an improvement in our product sales as market conditions
eased. Taking the year as a whole, product sales and margins declined by 3.2%
and 60 basis points respectively. Although visibility remains limited we expect
product sales and margins for the current year to be similar to those achieved
last year.
People
Our success over the past year has been made possible by the hard work and
professionalism of our staff. I would like to thank all of our employees for
their personal contribution to our achievements.
Current trading and outlook
The new year has started well with trading during May being in line with our
expectations. During the current year we will benefit from a full year's
contribution as a result of contracts won during the course of last year, as
well as a maiden contribution from contracts expected to start generating
revenues over the coming months. As a result we expect our contracted services
revenues to show a further significant increase during the course of the current
year. Although it is too early to predict the outcome for the year as a whole,
your board is encouraged by the recent strength of our business and we are
optimistic about our future prospects.
Graham Gilbert
Chairman
21 June 2006
Financial Review
Key performance indicators
The board uses the following key performance indicators (KPIs):
KPI 2006 2005
Contracted services revenues #14.2m #12.9m
Contracted services revenues year on year growth 10.1% 13.2%
Operating margin* 3.4% 3.3%
Operating cash flow conversion rate (operating cash 100.1% 89.0%
flow/EBITDA**)
* before goodwill amortisation
** earnings before interest, taxation, depreciation and amortisation
Turnover
Total turnover of #59.3m was marginally below the prior year total of #59.5m.
Service revenues increased to #17.1m (2005: #15.9m) and were 7.5% ahead of the
previous year. Product turnover declined 3.2% year on year to #42.2m (2005:
#43.6m).
Contracted services, a combination of managed services and hardware maintenance,
increased 10.1% year on year to #14.2m (2005: #12.9m). These services provide
high value income streams and in the year managed services showed a strong
performance, increasing revenues 11.3% to #6.9m (2005: #6.2m) through a
combination of enhanced scope on existing contracts and new contract wins.
Hardware maintenance revenues increased 9.0% year on year to #7.3m (2005:
#6.7m). Significant contract wins in the second half will provide a full annual
benefit in the forthcoming year.
Project service revenues were flat year on year at #2.9m (2005: #3.0m).
Pre-tax profit
Operating profit before goodwill amortisation increased by 2.0% year on year to
#2.00m (2005: #1.96m). Profits from contracted services increased, particularly
reflecting the advance in managed services activity. Project services profits
were flat year on year reflecting the revenue trend. The gross profit generated
by product sales reduced year on year as a result of margin pressure. Product
sales and consequently profits were particularly weak in the first half,
however, the second half showed an improvement in activity and profit levels.
During the year systems enhancements have yielded cost benefits, particularly in
regard to the processing of product transactions. These enhancements have helped
to offset some of the product margin pressures.
The charge for goodwill amortisation of #0.21m was the same as the prior year.
Net interest receivable increased by 29.4% year on year to #0.22m (2005:
#0.17m), reflecting an average cash balance during the year of #5.0m compared to
#3.8m in the prior year.
Overall the pre-tax profit increased 5.2% to #2.02m (2005: #1.92m).
Tax
The effective rate of tax has increased year on year to 31.8% (2005: 28.9%) due
primarily to a lower benefit from relief on share option gains.
Earnings per share and dividends
Earnings per share before goodwill amortisation increased to 15.1p from 15.0p.
Pre-tax profits excluding goodwill amortisation advanced 4.7%, however, the
charge for tax increased 14.5%, leaving only a marginal advance in earnings per
share. After deducting goodwill amortisation, basic earnings per share were
13.6p (2005: 13.5p).
The board proposes a final dividend of 4.2p per share, which taken with the
interim dividend of 1.8p paid on 1 March 2006, gives a total of 6.0p, an
increase of 20% on the previous year. Additionally, following a funding review,
the board proposes a special dividend of 20.0p per share, which will return
#2.0m of cash to shareholders. Both dividends are to be proposed at the Annual
General Meeting on 4 September 2006 and, subject to shareholder approval, will
be paid on 5 September 2006 to shareholders on the register on 28 July 2006. In
accordance with FRS21 these dividends have not been accrued in the financial
statements.
Cash flow
The group generated a net cash inflow during the year of #1.1m (2005: #0.4m),
giving a year end cash balance of #9.0m (2005: #7.9m).
Operating cash inflow was #2.5m (2005: #2.2m) and represents a 100.1% (2005:
89.0%) conversion rate of EBITDA to cash. This conversion rate reflects
continued tight working capital management with trade debtors representing 35
days of sales (2005: 32 days) and trade creditors 56 days of purchases (2005: 60
days). The year on year movement in trade debtors and creditors reflects higher
trading activity in the last two months of the year compared to the same period
for 2005.
Tax paid of #0.6m was lower than the prior year sum of #0.8m which reflected tax
on one and a half year's profits. Transactions in own shares, which relate to
share option exercises, gave a net outflow of #0.1m (2005: #0.4m). Capital
expenditure was #0.4m (2005: #0.4m) and dividends paid were #0.5m (2005: #0.5m).
Transition to International Financial Reporting Standards (IFRS)
The first results to be reported under IFRS will be the interim results in
respect of the year ended 30 April 2008. A project team is identifying the
differences between UK GAAP and IFRS.
Principal risks and uncertainties
The board considers the following to be the principal risks and uncertainties.
Reduced product sales and margins - the group resells third party manufactured
IT equipment and considers this to be an important component of its service
offering to clients. The market is highly competitive, with manufacturers
adopting both channel and direct approaches. Risk is mitigated by providing
clients an added value advice and fulfilment service. In addition, the use of
e-commerce tools enables highly efficient processing of transactions.
Shortage of appropriately skilled employees - this risk is mitigated by
innovative recruitment and development programmes and the provision of an
excellent working environment with good rewards and opportunities.
Damage to reputation as a result of a service failure - a strong focus on
service delivery and innovation is used to manage this risk.
Financial instruments
The group's financial instruments comprise cash, liquid resources and trade
debtors and creditors.
The main risks arising from these financial instruments are interest rate risk,
liquidity risk and foreign currency exchange rate risks. The policies for
managing each of these risks are as follows.
Interest rate risk - the group is cash positive, using the cash from its
business operations. The level of cash varies significantly during the year,
reflecting operating activities. Cash balances are placed on short term deposits
with financial institutions which have been approved by the board. The use of
derivative instruments is not appropriate due to the variable nature of the cash
balances.
Liquidity risk - the group's policy is to ensure that cash balances are
available for operating activities and that appropriate funding is in place
should the group have a borrowing requirement. Given that the group is cash
positive, committed borrowing facilities are not considered appropriate, thus
the group retains on demand borrowing facilities totalling #5.5m at 30 April
2006.
Foreign currency exchange risk - the group is not exposed to any significant
foreign currency risks as the majority of its cash flows are in sterling.
Transactions of an immaterial nature are settled at spot rates, however, forward
currency contracts are used for transactions of a material nature.
Mike Kent
Finance Director
21 June 2006
Consolidated profit and loss account
For the year ended 30 April 2006
Note 2006 2005
#'000 #'000
Turnover 59,262 59,456
Operating costs (57,469) (57,711)
Operating profit before goodwill amortisation 2,004 1,956
Goodwill amortisation (211) (211)
Operating profit 1,793 1,745
Net interest receivable 222 171
Profit on ordinary activities before taxation 2,015 1,916
Taxation on profit on ordinary activities 2 (641) (553)
Profit for the year 1,374 1,363
Earnings per share - pence
- Basic 4 13.6 13.5
- Diluted 4 13.6 13.4
The group has no recognised gains or losses in the year other than those passing
through the profit and loss account.
All operations are continuing in both the current and previous year.
Balance sheets
As at 30 April 2006
Note 2006 2005 2006 2005
Group Group Company Company
(restated) (restated)
#'000 #'000 #'000 #'000
Fixed assets
Intangible assets 1,048 1,264 1,048 1,264
Tangible assets 1,174 1,208 1,174 1,208
Investments - - 965 965
2,222 2,472 3,187 3,437
Current assets
Stocks 1,336 1,475 1,336 1,475
Debtors 8,054 5,811 8,054 5,811
Cash at bank and in hand 9,006 7,868 9,006 7,868
18,396 15,154 18,396 15,154
Creditors: amounts falling due (14,694) (12,508) (15,659) (13,473)
within one year
Net current assets 3,702 2,646 2,737 1,681
Provision for liabilities and (33) (29) (33) (29)
charges
Net assets 5,891 5,089 5,891 5,089
Capital and reserves
Called up share capital 204 204 204 204
Share premium 1,114 1,114 1,114 1,114
Investment in own shares (188) (232) (188) (232)
Profit and loss account 4,761 4,003 4,761 4,003
Equity shareholders' funds 5 5,891 5,089 5,891 5,089
Approved by the board on 21 June 2006 and signed on its behalf
G M Gilbert M W B Kent
Chief Executive Finance Director
Consolidated cash flow statement
For the year ended 30 April 2006
Note 2006 2006 2005 2005
#'000 #'000 #'000 #'000
Net cash inflow from operating 6 2,471 2,175
activities
Returns on investments and servicing of
finance
Interest received 222 174
Interest paid - 222 (3) 171
Taxation paid (561) (790)
Capital expenditure
Purchase of own shares (114) (417)
Sale of own shares 56 55
Purchase of tangible fixed assets (422) (480) (360) (722)
Equity dividends paid 3 (514) (476)
Net cash inflow before financing 1,138 358
Financing
Issue of shares - 35
Increase in cash 1,138 393
Reconciliation of net cash flow to movements in net funds
2006 2005
#'000 #'000
Increase in cash 1,138 393
Net funds at 1 May 7,868 7,475
Net funds at 30 April 9,006 7,868
Notes to the financial statements
1. Accounting policies
The preliminary financial information has been prepared using accounting
policies set out in the group's statutory accounts for the year ended 30 April
2006. FRS21 'Events after the balance sheet date' has been adopted for the first
time. Under this standard, dividends payable are recognised only in the period
in which they are approved in the annual general meeting. This has resulted in a
prior year adjustment in respect of the proposed final dividend for the year
ended 30 April 2005, which has given rise to an increase of #334,000 in opening
shareholders' funds for the current year.
2. Taxation on profit on ordinary activities
The charge based on the profit for the year comprises:
2006 2006 2005 2005
#'000 #'000 #'000 #'000
Current tax
UK corporation tax charge 636 557
Adjustments in respect of prior 1 637 (10) 547
periods
Deferred Tax
Origination and reversal of timing 4 6
differences
Taxation on profit on ordinary 641 553
activities
3. Dividend
2006 2005
#'000 (restated)
#'000
Dividends paid - ordinary shares - equity
Final 2005 - 3.3p per share (final 2004: 3.0p per 334 305
share)
Interim 2006 - 1.8p per share (interim 2005: 1.7p 180 171
per share)
514 476
The following proposed final and special dividends are subject to
approval by shareholders at the Annual General Meeting and have not
been included as a liability in these financial statements.
Dividends proposed - ordinary shares - equity
Proposed final 2006 - 4.2p per share (final 2005: 424 335
3.3p per share)
Proposed special dividend - 20.0p per share 2,020 -
(2005: nil p per share)
2,444 335
4. Earnings per share
The earnings per ordinary share is based on the profit for the year and the
weighted average number of ordinary shares in issue during the year. The
earnings and the shares used in the calculations are as follows:
2006 2006 2006 2005 2005 2005
Weighted EPS p Profit Weighted EPS p
Profit average average
shares # shares
# number number
Basic earnings
per share
1,374,000 10,101,609 13.6 1,363,000 10,104,683 13.5
Diluted
earnings per
share 1,374,000 10,113,147 13.6 1,363,000 10,193,777 13.4
Adjusted earnings per share excluding goodwill are as follows:
2006 2005
Basic 15.1p 15.0p
Diluted 15.1p 14.8p
Adjusted earnings per share are based on a profit of #1,522,000 (2005:
#1,511,000) which is before charging goodwill amortisation of #148,000 (2005:
#148,000), and on the weighted average number of shares set out in the above
table.
5. Reconciliation of movements in shareholders' funds and reserves
+---------------------+-------+-------+----------+--------+-------------+
| | | | | | Total|
+---------------------+-------+-------+----------+--------+-------------+
| | Share| Share|Investment| Profit|shareholders'|
| | | | |and loss| |
+---------------------+-------+-------+----------+--------+-------------+
| |capital|premium| in own| account| funds|
| | | | shares| | |
+---------------------+-------+-------+----------+--------+-------------+
|Group and company | #'000| #'000| #'000| #'000| #'000|
+---------------------+-------+-------+----------+--------+-------------+
|At 1 May 2005 | 204| 1,114| (232)| 3,669| 4,755|
+---------------------+-------+-------+----------+--------+-------------+
|Prior year adjustment| -| -| -| 334| 334|
+---------------------+-------+-------+----------+--------+-------------+
|At 1 May 2005 | 204| 1,114| (232)| 4,003| 5,089|
|(restated) | | | | | |
+---------------------+-------+-------+----------+--------+-------------+
|Retained profit for | -| -| -| 1,374| 1,374|
|the financial year | | | | | |
+---------------------+-------+-------+----------+--------+-------------+
|Dividends | -| -| -| (514)| (514)|
+---------------------+-------+-------+----------+--------+-------------+
|Shares held/used to | | | | | |
|satisfy exercise of | | | | | |
|share options | -| -| 44| (102)| (58)|
+---------------------+-------+-------+----------+--------+-------------+
|At 30 April 2006 | 204| 1,114| (188)| 4,761| 5,891|
+---------------------+-------+-------+----------+--------+-------------+
6. Reconciliation of operating profit to net cash inflow from operating
activities
2006 2005
#'000 #'000
Operating profit 1,793 1, 745
Amortisation and depreciation 668 697
Loss on disposal of tangible 7 3
fixed assets
Decrease in stocks 139 77
(Increase)/decrease in debtors (2,243) 1,047
Increase/(decrease) in 2,107 (1,394)
creditors
Net cash inflow from operating 2,471 2,175
activities
7. The financial information set out above for the years ended 30 April
2006 and 2005 does not constitute statutory accounts within the meaning of
Section 240 of the Companies Act 1985. Statutory accounts for 30 April 2005 have
been delivered to the Registrar of Companies and those for 30 April 2006 will be
delivered following the company's annual general meeting. The company's auditors
have reported on the full accounts for both years and have accompanied each year
with an unqualified report.
8. The annual report and accounts will be posted to shareholders and will
be available for members of the public at the company's registered office,
Discovery House, Mere Way, Ruddington Fields, Ruddington, Nottingham, NG11 6JW.
9. The Annual General Meeting will be held on 4 September 2006, at 10am at
the company's registered office.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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