RNS Number:7402Y
Computerland UK PLC
21 June 2007
CPU.L
ComputerLand UK PLC
Preliminary results for the year ended 30 April 2007
(ComputerLand provides essential IT services to medium and large organisations)
KEY POINTS
* Turnover up 13% to #67.0m (2006: #59.3m)
* Pre-tax profits* up 26% to #2.80m (2006: #2.23m)
* Earnings per share* up 25% to 18.9p (2006: 15.1p)
* Managed services revenues up 49% to #10.3m (2006: #6.9m)
* Total annual dividend up 25% to 7.5p (2006: 6.0p)
* Net cash at year end of #8.4m (2006: #9.0m) after payment of special and
annual dividends of #2.7m
*before share-based payments and goodwill amortisation
Graham Gilbert, Chairman and CEO commented:
"The year to 30 April 2007 was our best ever with sales, pre-tax profits and
earnings per share all reaching record levels. These results have been driven by
an excellent performance in our managed services division where we had new
contract wins with O2 and British Sugar. Since the end of the year we have been
selected as the preferred bidder for two more managed services contracts."
For details of analyst and press briefings this morning, please contact Biddicks
on 020 7448 1000.
Enquiries:
ComputerLand UK PLC Tel: 0115 931 8000
Graham Gilbert, Chairman & CEO
Mike Kent, Finance Director
Charles Stanley Securities Tel: 0207 149 6000
Mark Taylor
Biddicks Tel: 0207 448 1000
Shane Dolan
Chairman's Statement
Introduction
I am delighted to report that the year to 30 April 2007 was our best ever.
Sales, pre-tax profits and earnings per share all reached record levels. These
results have been driven by an excellent performance in our managed services
division where, as a result of new contract wins and a strong performance from
existing clients, sales grew by 49%. Overall our three services divisions
increased revenues by 26% to #21.5m. During the course of the current year we
will be increasing investment in sales and marketing to ensure that we maximise
the growth potential of our service offerings.
Results
During the year pre-tax profits* increased by 26% to #2.80m (2006: #2.23m) on
sales up by 13% to #67.0m (2006: #59.3m). Earnings per share* rose 25% to 18.9p
(2006: 15.1p) and operating profit margins improved by 0.4% to 3.8%.
During the course of the year we paid shareholders a total of #2.7m in special
and ordinary dividends. Despite payment of these dividends, strong operating
cash flow resulted in a year end net cash position of #8.4m (2006: #9.0m).
* Before share-based payments and goodwill amortisation of #0.33m or 2.3p per
share (2006: #0.24m or 1.7p per share)
Dividend
Our strong performance over the past year has enabled your board to recommend an
increased final dividend of 5.0p (2006: 4.2p) making a total of 7.5p for the
year, an increase of 25% over the preceding year. The final dividend will,
subject to shareholder approval at the forthcoming Annual General Meeting, be
paid on 4 September 2007 to shareholders on the register on 3 August 2007.
Contract news
During the course of the year we successfully implemented our largest ever
managed services contract with O2. By the end of our financial year this
contract had been live for eight months and we were achieving all our operating
targets. In addition to O2 a significant new contract was won with British Sugar
and existing contracts with Experian and Heinz were extended.
Since the end of the year we have been selected as preferred bidder for two more
managed services contracts which we expect will become revenue generating
towards the end of our first half.
Operating overview
Our business is organised into four main operating units. These are managed
services, project services, hardware maintenance and managed product supply.
Our managed services business, which provides turnkey solutions for our clients'
desktop and server support requirements, enjoyed an exceptional year. New
contract wins with O2 and British Sugar, combined with growth from our existing
customer base, led to sales increasing by 49%. A highly efficient service
delivery model and a total commitment to customer satisfaction enable us to
offer clients a compelling solution at an attractive price. In order to maximise
the market potential of our managed services business, we are increasing our
investment in sales resources who focus on identifying and bidding for new
opportunities. Although this increased investment will result in higher sales
expenses we are confident that it will provide excellent returns in the medium
and longer term.
Project services, a business unit that specialises in delivering technology
solutions to our clients, performed well during the year with both profits and
margins increasing from their previous levels. Our teams of project managers,
technical consultants and engineers specialise in delivering solutions based on
Microsoft, Citrix and storage technologies.
Hardware maintenance, a business unit that provides field-based break/fix
services to clients throughout the UK on a 7 x 24 basis, has had a mixed year. A
strong sales performance in the first half of the year was followed by a more
challenging second half as we encountered difficulties with the implementation
of a new software system used to track spare parts and manage the scheduling of
engineers. These issues had been resolved by the year end and we are now looking
forward to using the system's enhanced capabilities to enable the delivery of an
even higher quality, more efficient, service to our customers.
Our managed product supply business provides clients with specialist tools and
expertise to help them acquire IT products in the most efficient manner
possible. This business had a good year with the value of products we resold
increasing by 8% despite continuing price deflation. Margins were slightly lower
as a higher proportion of our sales were made to larger clients. Continued
investment in our on-line quotation and order management toolset will provide
our clients with an ever improving experience and set of capabilities.
People
I would like to extend a special thanks to all of our staff for their hard work,
dedication and achievements over the past year.
Shortly after the year end one of our longest serving directors, Simon Lawless,
left the company. Simon joined the business back in 1992 and he has been a key
contributor to our development since then. I would like to warmly thank Simon
for his contribution to the business and wish him all the best for the future.
We have recently announced the appointment of Keith Wilson to our board. Keith
will join the company on 25 June 2007 and will be responsible for leading our
managed services sales organisation. Keith brings with him a wealth of
experience built up over a 30 year career in IT with EDS, Siemens Business
Systems and most recently Unisys.
Current trading and outlook
During the first few weeks of the new financial year our managed services
business has performed strongly, however, this has been balanced by weaker than
expected trading in our hardware maintenance and product businesses. Overall it
is not possible, at this early stage, to predict the outcome for the year,
however, we are optimistic that the strength of our services offerings and
increased investment in our sales organisation will enable us to continue our
record of profitable growth for the current and future years.
Graham Gilbert
Chairman
20 June 2007
Financial Review
Key performance indicators
The board uses the following key performance indicators (KPIs):
KPI 2007 2006
------------------------------- ------- --------
Contracted services revenues #18.6m #14.2m
Contracted services revenues year-on-year growth 31.0% 10.1%
Operating margin* 3.8% 3.4%
Operating cash flow conversion rate (operating cash
flow/EBITDA**) 118.6% 100.1%
------------------------------- ------- --------
* before share-based payments and goodwill amortisation.
** earnings before interest, taxation, depreciation, goodwill amortisation
and share-based payments.
Turnover
Turnover showed an increase of 13.1% compared to the prior year, advancing to
#67.0m from #59.3m.
Growth in contracted revenues was particularly strong with managed services
revenues increasing 49.3% to #10.3m from #6.9m, due to new contract wins with O2
and British Sugar and increased activity within the existing contract base.
Hardware maintenance revenues grew from #7.3m to #8.3m, an increase of 13.7%
reflecting the full year effect of contracts won in the second half of last
year.
Project services revenues were broadly flat at #2.9m, however, an increased
proportion of professional services revenue improved the sales mix. Product
sales increased 7.8% to #45.5m (2006: #42.2m).
Pre-tax profit
Operating profit before share-based payments and goodwill amortisation increased
27.8% to #2.6m (2006: #2.0m), giving an operating margin of 3.8% (2006: 3.4%).
The increase in operating profit particularly reflects the growth in managed
services activities. Profits in hardware maintenance were impacted by
difficulties encountered in the implementation of new field services software.
Within project services, professional services profitability increased through a
combination of higher revenues and a flexible cost base. Higher product sales
improved profits year-on-year, however, the gross margin declined slightly,
reflecting market pressure and a higher proportion of sales to larger clients.
As described above, during the second half of the year new field service
software was implemented in hardware maintenance. This software provides an
integrated solution for the hardware maintenance operations and although
integration difficulties were encountered, the software will provide benefits in
the forthcoming year. Other system and efficiency enhancements have been made
throughout the group during the year and these combined with tight cost control
enable the group to maintain a competitive cost base.
The group has adopted FRS 20 Share-based Payment. Under FRS 20 an expense is
recognised in the profit and loss account when the group receives goods or
services in exchange for shares or where the valuation of those goods or
services incorporates the performance of the company's share price. The results
reflect a charge of #121,000 (2006: #25,000) for share-based payments. A prior
year adjustment has been made for the adoption of FRS 20 as set out in note 1a
and comparatives have been restated accordingly. The charge for goodwill
amortisation remains unchanged at #211,000.
Net interest receivable increased to #236,000 (2006: #222,000) after having paid
a #2.0m special dividend on 5 September 2006. The average cash balance during
the year was #5.1m (2006: #5.0m).
Overall pre-tax profit increased 23.9% to #2.5m (2006: #2.0m). Excluding
share-based payments and goodwill amortisation, pre-tax profits were #2.8m
(2006: #2.2m), an increase of 25.7%.
Tax
The effective rate of tax increased marginally to 32.3% from 31.8%.
Earnings per share and dividends
Earnings per share before share-based payments and goodwill amortisation
increased 25.2% to 18.9p from 15.1p, reflecting the growth in profits. After
deducting share-based payments and goodwill amortisation, basic earnings per
share increased 23.9% to 16.6p (2006: 13.4p).
The board proposes a final dividend of 5.0p per share, which when taken with the
interim dividend of 2.5p paid on 1 March 2007, gives a total of 7.5p, an
increase of 25% on the previous year. The dividend is covered 2.5 times based on
earnings per share before share-based payments and goodwill amortisation of
18.9p.
Cash flow
Operating cash inflow was #3.6m (2006: #2.5m) and represents a 119% (2006: 100%)
conversion rate of EBITDA* to cash. This conversion rate reflects continued
tight working capital management, with trade debtors representing 35 days of
sales (2006: 35 days) and trade creditors 59 days of purchases (2006: 56 days).
Tax paid was #0.8m (2006: #0.6m) reflecting profit growth. Transactions in own
shares, which relate to share option exercises, gave a net outflow of #0.1m
(2006: #0.1m). Capital expenditure at #0.9m (2006: #0.4m) nearly doubled,
reflecting the spend for the new managed services contracts and the new software
system for hardware maintenance. Dividends paid totalled #2.7m (2006: #0.5m)
including a #2.0m special dividend.
The net cash outflow after the special dividend was #0.6m (2006: cash inflow
#1.1m), giving a year end cash balance of #8.4m (2006: #9.0m).
* earnings before interest, taxation, depreciation, amortisation and share-
based payments
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:
Competitive product market - 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, trade debtors
and creditors.
The main risks arising from these financial instruments are interest rate risk,
liquidity risk and foreign currency exchange rate risk. 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 #5.4m at 30 April
2007.
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
20 June 2007
Consolidated profit and loss account
for the year ended 30 April 2007
2007 2006
(restated)
Note #'000 #'000
------ ------- -------
Turnover 67,034 59,262
Operating costs (64,804) (57,494)
--------------------------------- ------ ------- -------
Operating profit before share-based payments and
goodwill amortisation 2,562 2,004
Share-based payments (121) (25)
Goodwill amortisation (211) (211)
--------------------------------- ------ ------- -------
Operating profit 2,230 1,768
Net interest receivable 236 222
--------------------------------- ------ ------- -------
Profit on ordinary activities before taxation 2,466 1,990
Taxation on profit on ordinary activities 2 (797) (633)
--------------------------------- ------ ------- -------
Profit for the year 1,669 1,357
--------------------------------- ------ ------- -------
Earnings per share - pence
- Basic 4 16.6 13.4
- Diluted 4 16.5 13.4
--------------------------------- ------ ------- -------
All operations are continuing in both the current and previous year.
Group statement of total recognised gains and losses
for the year ended 30 April 2007
2007 2006
Note #'000 #'000
------ ------- -------
Profit for the period 1,669 1,357
Prior year adjustment 1 28 -
--------------------------------- ------ ------- -------
Total recognised gains for the period since the last
annual report 1,697 1,357
--------------------------------- ------ ------- -------
Balance sheets
as at 30 April 2007
2007 2006 2007 2006
Group Group Company Company
(restated) (restated)
Note #'000 #'000 #'000 #'000
------ -------- ------- ------- -------
Fixed assets
Intangible assets 832 1,048 832 1,048
Tangible assets 1,564 1,174 1,564 1,174
Investments - - 965 965
---------------------- ------ -------- ------- ------- -------
2,396 2,222 3,361 3,187
---------------------- ------ -------- ------- ------- -------
Current assets
Stocks 1,639 1,336 1,639 1,336
Debtors 8,974 8,054 8,974 8,054
Cash at bank and in hand 8,377 9,006 8,377 9,006
---------------------- ------ -------- ------- ------- -------
18,990 18,396 18,990 18,396
Creditors: amounts falling
due within one year (16,526) (14,694) (17,491) (15,659)
---------------------- ------ -------- ------- ------- -------
Net current assets 2,464 3,702 1,499 2,737
---------------------- ------ -------- ------- ------- -------
Provision for liabilities
and charges (7) (5) (7) (5)
---------------------- ------ -------- ------- ------- -------
Net assets 4,853 5,919 4,853 5,919
---------------------- ------ -------- ------- ------- -------
Capital and reserves
Called up share capital 5 204 204 204 204
Share premium 5 1,114 1,114 1,114 1,114
Investment in own shares 5 (289) (188) (289) (188)
Profit and loss account 5 3,824 4,789 3,824 4,789
---------------------- ------ -------- ------- ------- -------
Equity shareholders' funds 5 4,853 5,919 4,853 5,919
---------------------- ------ -------- ------- ------- -------
Approved by the board on 20 June 2007 and signed on its behalf
G M Gilbert M W B Kent
Chairman and Chief Executive Finance Director
Consolidated cash flow statement
for the year ended 30 April 2007
2007 2007 2006 2006
Note #'000 #'000 #'000 #'000
------ ------- -------- ------ ------
Net cash inflow from operating
activities 6 3,614 2,471
Returns on investments and servicing
of finance
Interest received 238 222
Interest paid (2) 236 - 222
------- ------
Taxation paid (770) (561)
Capital expenditure
Purchase of own shares (224) (114)
Sale of own shares 105 56
Purchase of tangible fixed assets (894) (1,013) (422) (480)
------- ------
Equity dividends paid 3 (2,696) (514)
------------------------ ------ ------- -------- ------ ------
(Decrease)/increase in cash (629) 1,138
------------------------ ------ ------- -------- ------ ------
Reconciliation of net cash flow to movements in net funds
for the year ended 30 April 2007
2007 2006
#'000 #'000
------------- ------
(Decrease)/increase in cash (629) 1,138
Net funds at 1 May 9,006 7,868
--------------------------------- ------------- ------
Net funds at 30 April 8,377 9,006
--------------------------------- ------------- ------
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
2007. FRS 20 'Share-based payment' has been adopted for the first time. Under
this standard, an expense is recognised in the profit and loss account when the
group receives goods or services in exchange for shares or where the valuation
of those goods or services incorporates the performance of the company's share
price. The profit and loss account includes a charge for share-based payments of
#121,000 (2006: #25,000). The implementation of FRS 20 has resulted in a prior
year adjustment and amounts for 30 April 2006 have been restated, giving rise to
a decrease in profit for the year of #17,000 and an increase in net assets of
#28,000.
2. Taxation on profit on ordinary activities
The charge based on the profit for the year comprises:
2007 2007 2006 2006
#'000 #'000 (restated) (restated)
#'000 #'000
------ ------ ------- -------
Current tax
UK corporation tax charge 792 636
Adjustments in respect of prior
periods 3 795 1 637
------ -------
Deferred Tax
Origination and reversal of timing
differences 2 (4)
------------------------ ------ ------ ------- -------
Taxation on profit on ordinary
activities 797 633
------------------------ ------ ------ ------- -------
3. Dividend
2007 2006
#'000 #'000
------ -------
Dividends paid - ordinary shares - equity
Final 2006 - 4.2p per share (final 2005: 3.3p per share) 424 334
Special dividend - 20.0p per share (2006: nil p per share) 2,020 -
Interim 2007 - 2.5p per share (interim 2006: 1.8p per share) 252 180
--------------------------------- ------ -------
2,696 514
--------------------------------- ------ -------
The following proposed final dividend is subject to approval by shareholders at
the Annual General Meeting and has not been included as a liability in these
financial statements.
Dividends proposed - ordinary shares - equity
Proposed final 2007 - 5.0p per share (final 2006: 4.2p per
share) 503 424
Proposed special dividend nil p per share (2006: 20.0p per
share) - 2,020
--------------------------------- ------ -------
503 2,444
--------------------------------- ------ -------
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:
2007 2007 2007 2006 2006 2006
Weighted (restated) Weighted (restated)
Profit average EPS p Profit average EPS p
# shares # shares
number number
---------- ------- -------- ------ ------- -------- -------
Basic earnings
per share 1,669,000 10,082,816 16.6 1,357,000 10,101,609 13.4
---------- ------- -------- ------ ------- -------- -------
Diluted earnings
per share 1,669,000 10,109,168 16.5 1,357,000 10,113,147 13.4
---------- ------- -------- ------ ------- -------- -------
Adjusted earnings per share excluding share-based payments and goodwill
amortisation are as follows:
2007 2006
(restated)
-------------------------------- ------- -------
Basic 18.9p 15.1p
Diluted 18.8p 15.1p
-------------------------------- ------- -------
Adjusted earnings per share are based on a profit of #1,901,000 (2006:
#1,522,000) which is before charging share-based payments and goodwill
amortisation of #232,000 (2006: #165,000), 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 and loss shareholders'
capital premium in own shares funds
Group and company #'000 #'000 #'000 #'000 #'000
---------------- ------ ------- -------- -------- --------
At 1 May 2005 204 1,114 (232) 4,003 5,089
Prior year adjustment - - - 20 20
---------------- ------ ------- -------- -------- --------
At 1 May 2005 (restated) 204 1,114 (232) 4,023 5,109
Profit for the year - - - 1,357 1,357
Dividends - - - (514) (514)
Share-based payments - - - 25 25
Shares held/used to
satisfy exercise of
share options - - 44 (102) (58)
---------------- ------ ------- -------- -------- --------
At 30 April 2006 204 1,114 (188) 4,789 5,919
Profit for the year - - - 1,669 1,669
Dividends - - - (2,696) (2,696)
Share-based payments - - - 80 80
Shares held/used to
satisfy exercise of
share options - - (101) (18) (119)
---------------- ------ ------- -------- -------- --------
At 30 April 2007 204 1,114 (289) 3,824 4,853
---------------- ------ ------- -------- -------- --------
6. Reconciliation of operating profit to net cash inflow from operating
activities
2007 2006
(restated)
#'000 #'000
--------------------- ------------------ -------
Operating profit 2,230 1,768
Amortisation and depreciation 693 668
Loss on disposal of tangible fixed assets 3 7
Share-based payments 121 25
(Increase)/decrease in stocks (303) 139
Increase in debtors (920) (2,243)
Increase in creditors 1,790 2,107
--------------------- ------------------ -------
Net cash inflow from operating activities 3,614 2,471
--------------------- ------------------ -------
7. The financial information set out above for the years ended 30 April 2007 and
2006 does not constitute statutory accounts within the meaning of Section 240 of
the Companies Act 1985. Statutory accounts for 30 April 2006 have been delivered
to the Registrar of Companies and those for 30 April 2007 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 3 September 2007 at 10.00 a.m., 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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