Computacenter Regulatory News (CCC)

13 Jan 2009 07:00

Pre-Close Trading Update

Computacenter is today holding an investor and analyst meeting to provide an update on trading for the year ended 31st December 2008 and an overview of the Group's strategic developments. Group adjusted profit before tax* for 2008 is expected to be materially ahead of consensus market expectation of £38.1million, with group adjusted operating profit* marginally ahead of 2007. The Group's EPS is expected to be substantially ahead of consensus expectation, as a result of higher than expected profits, the reduced number of shares in issue and a lower tax rate. 

The lower tax rate is due to improved profit performance in Germany and France and some 'one off' tax benefits in the UK, in addition to a review of the level of the deferred tax asset in Germany.

At the period end, net cash was £6.0million [net borrowing of £16.2million at 31st December 2007] before customer specific financing ("CSF"). Including CSF, net debt was £84.5million [£79.8million at 31st December 2007]. In the UK, for the year as whole, sales grew by 2.5% to £1.39billion. Services grew by 6% over 2007, but more significant was the number of long term services contracts won, renewed and/or extended, as customers turned to our service offerings to reduce their operating costs. These new contracts made little impact on 2008, but will begin their positive impact during the first half of 2009. This success results from previous investments in our shared service offerings. UK product sales grew by 1.7%, with growth in excess of 5% in end user business, off set by a 14% reduction in trade distribution. The weakness of Sterling has meant that product prices have not had their historical reductions and there have been some small price rises in some product areas, in recent months.

After an encouraging 2007, 2008 has been another year of good progress for Computacenter in Germany, in particular Services margin improvement has been the major success of the year, with the second half at levels we believe are sustainable. We have, throughout the year, continued to trade ahead of 2007, both in revenue and profit. Revenue for the year was €1.05billion, a growth of 1%, which translates to an 18% growth in Sterling terms. Services business wins were strong, as customers in Germany, as in the UK, look to Computacenter to reduce their operating costs.

While Computacenter France has performed better in 2008, with a reduction in operating loss and an operating profit in the second half, we are concerned that we have not made the strategic change needed to deliver a long term, acceptable level of profit and much remains to be done.

At a group level, our annual services contract base stands at £480million on 31st December 2008, representing a growth in excess of 6% over 31st December 2007, based on constant currency.

In our interim management statement ("IMS") on 17th October 2008, we stated that we had incurred a bad debt of £1.2million, following the bankruptcy of a major financial services client.

This loss has subsequently been reduced to £850k and we are also able to confirm the release of a provision held in relation to an empty property, alluded to in the IMS, which more that offsets the bad debt.

During the latter half of 2008, we conducted an in-depth review of our capabilities, organisation, competitive position and profitability. As a result of this work, we took the decision (inter alia) to stop the trade distribution of personal computers and printers, choosing to focus our distribution business on server, storage and associated products, with higher margins. This is likely to reduce our 2009 revenue by approximately £70million without reducing our operating profits, while freeing approximately £15million of working capital. In addition, we will increasingly focus our full infrastructure services offerings on those companies and sectors where we offer considerable competitive advantage. These initiatives are part of a major program to improve Computacenter's margin mix and use of capital. While pleased with the results for 2008, we are far from satisfied. We will be implementing structural changes in our UK operations, aimed at significantly improving our effectiveness and competitive position. These changes will result in fewer layers of management, increased spans of control and have the not inconsiderable subsidiary benefit of reducing our ongoing expense base by more than £15million per annum, by the end of 2009. 

We have also embarked upon a major group-wide systems upgrade which will start to deliver benefits in the second half of 2010 and be fully operational by 2011. This single group-wide ERP system will deliver cost savings and greater flexibility to our Company and represents a capital investment of c.£25 million over the next 3 years, of which c.£8 million was paid by the year end .

While Computacenter is not immune from a major reduction in capital expenditure amongst its clients, we are encouraged by the performance of the Company in the last three quarters, particularly the success of our service offerings, which is continuing to see major growth. While we are pleased with performance in these uncertain and challenging times we are not satisfied, and that is why we have chosen to focus on making the investments and changes in our systems, organisation and use of capital necessary to make us more competitive. The combination of current performance and these enhancements to the Company, gives us cause for optimism for 2009 and beyond. 

Computacenter will announce preliminary results for the year ended 31st December 2008 on Tuesday 10th March 2009.

*adjusted operating profit is stated after charging interest costs on customer specific financing and excludes amortisation of acquired intangibles.