Annual Report • Dec 31, 2013
Annual Report
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Annual Report and Accounts 2013
Enabling IT Users
54.2
* Adjusted profit before tax and diluted earnings per share are stated prior to exceptional items and amortisation of acquired intangibles. Adjusted operating profit is also stated after charging interest on customer specific financing. Exceptional items for 2012 have been restated to take account of the reclassification of trading losses and provisions in respect of the three onerous German contracts.
Who we are
Our ambition is to be Europe's preferred IT provider.
Our mission is to enable Enterprise and Corporate organisations to maximise the value of IT.
In doing so, we deliver best-in-class services to our customers, strong returns for our shareholders and enrich our employees' careers.
Mike Norris Chief Executive Officer
Annual Report and Accounts 2013
Delivering a set of predictable, proven solutions that optimise customers' technology, enabling effective change and achievement of business goals.
Determining and providing appropriate products and commercials to address customers' technology requirements, providing a complete service and support throughout the lifecycle.
Providing maintenance, support, transformation and management of customers' IT infrastructures and operations to improve quality and flexibility of service, while significantly reducing costs.
Time
We aim to provide our Services to large and medium-sized enterprise and corporate organisations headquartered in Western Europe.
Through investment in our own capabilities and the development of our strategic partner network, we are able to provide our Services to our customers wherever they do business around the world.
We allow our customers to focus their attention on what is important to them: their business.
Dear Shareholder,
I am pleased to report a positive year for our Company with good progress on many fronts for Computacenter.
Revenue grew 5.4 per cent to a record high of £3.072 billion, our adjusted* profit before tax was a solid £81.7 million and our strong consistent cash generation enabled us to make a special return of approximately £75 million to our shareholders, in addition to regular dividends.
We did not, however, meet our plan in France and were disappointed with our performance there. While business conditions in that country were challenging, most of the problems were of our own making. We took too long to implement the Group ERP system and this resulted in logistics issues that have depressed our profit and temporarily increased our working capital requirements which have, in turn, negatively impacted our cash position in the short term.
We managed to stabilise our problem contracts in Germany and reengineered our processes and organisation there. As a result, our German business has performed well in 2013, and it is now better positioned for the future. In the UK, the business was strong in both product sales and Services revenues and profit, and we were pleased with our progress across all fronts.
All of this added up to healthy revenue growth and solid profit for the Group as a whole.
The implementation of our Group Operating Model in the UK and Germany is substantially complete and we expect solid progress from our businesses in each of these countries during 2014. The changes in management and organisation we are making in France will not deliver much profit improvement in the coming year, but we are determined to focus on the long term.
We have no borrowings, strong cash flow and healthy customer relationships in all aspects of our business and we face the future with confidence in our strategy and in our operational capability. Where we have stumbled we have reacted vigorously to improve our performance and our long-term prospects.
I take this opportunity to thank our customers for their confidence in us and the business they have given us, and our employees for their skills, development and performance.
I trust you will find the above summary and the details which follow to be fair, balanced and understandable.
Greg Lock Chairman 10 March 2014
Earnings per share To lead with and grow our Services business To improve our Services productivity and enhance our competitiveness To retain and maximise the relationship with our customers over the long term To innovate our Services offerings to build future growth opportunities Generation of operating prot and cash Facilitating our Business Model Our strategic objectives Our platform for growth and profitability
* Adjusted profit before tax and diluted earnings per share are stated prior to exceptional items and amortisation of acquired intangibles. Adjusted operating profit is also stated after charging interest on customer specific financing. Exceptional items for 2012 have been restated to take account of the reclassification of trading losses and provisions in respect of the three onerous German contracts.
Strategic report
For the Executive Management at Computacenter, 2013 has been about three main priorities. All of them relate to our aim of building a strong platform for our business.
It is a strong platform that will allow us to deliver consistently for our customers and ensure that we remain in a position to respond to the current and future needs of their businesses.
Firstly, we have taken action to ensure that we have in place appropriate governance processes and procedures, so that the Services we provide to our customers adhere to our Group standards of quality and reliability no matter where from, or by whom within the Group, those Services are delivered. With this in mind, you will see reference within the following pages to the implementation of our Group Operating Model. We believe that this is fundamental to the development of our business and the achievement of our strategic objectives as we look to pursue medium term Services growth. The background to, and operation of, this model is explained in more detail on pages 10 and 11 of this strategy review by our Chief Operating Officer, Chris Webb.
I am pleased to inform you that the impact of the model on our German business, since its implementation in January 2013, has been very positive. We look forward to its full implementation within our French business over the coming few months.
We have additionally carried out an extensive strategy review process, and our current shareholders that received our 2012 Annual Report and Accounts will notice that the Group's strategic objectives have been modified as a result. As is explained on page 19, we will continue to invest in our technical capability and scale to allow us to achieve these updated objectives.
Finally, although 2013 has been a year of good underlying business performance by the Group, it has also required some tough decisions to be made by the Group that have impacted our short-term profitability. However, we are confident that these decisions will allow us to provide additional value for our shareholders over the medium term.
We hope to receive your support at the Company's 2014 Annual General Meeting. The following pages describe the elements that are helping us to build a strong platform for our business.
Delivering for and retaining our customers will allow us to grow our Services business and maximise the return for our shareholders over the long term.
Puts the needs and satisfaction of our customers at the heart of our business.
Enhancing and driving efficiencies within our operational capability through investment in our people and industrialisation of our processes will allow us to compete in our markets through both quality and cost of our Services.
Our risk management approach – page 12 Robust risk mitigation underpins everything we do.
Our key performance indicators – page 16
Measurable performance is key to future growth and achieving our aims.
To retain and maximise the relationship with our customers over the long term
To innovate our Services offerings to build future growth opportunities
To lead with and grow our Services business
In 2013, we saw a 6.3 per cent Services revenue growth across the Group on an as reported basis, and 3.7 per cent Services revenue growth in constant currency. Our two lead indicators in this area are our Contractual Services base growth and our project pipeline. In respect of the former, the UK business continues to grow well in excess of overall market growth, in part due to our ability to win second generation or third generation outsourcing contracts. Whilst the rate of Contractual Services growth in 2013 has not matched the levels seen in 2011 and
2012, we have nonetheless been pleased with our performance. In Germany, in 2012 and the first half of 2013, we curtailed our business marketing activities and restricted our bidding efforts to those opportunities which we perceived to have an attractive risk profile. However, following the success we have seen with new contracts onboarded in 2013 by our German business in accordance with our Group Operating Model, we have now started to increase our efforts to win new business again. The Services offering of our French business is not as mature as that in the UK or Germany, but in 2013 we have managed to secure the largest Services contract ever entered into by the Group, for a customer with its head office located in France. The bidding process for this contract was carried out in accordance with our Group governance procedures, and we will use our Group subsidiaries and our global partners to deliver the relevant Services to the customer.
We have continued to invest in the footprint and capability offered by our Services business, opening new Services Desks in Hungary and Malaysia, and increasing our capacity in Berlin, Milton Keynes and Barcelona.
Our remote management capability of our customers' assets has been enhanced with increased capacity and advanced tooling.
We believe that we are seeing the early signs of recovery within the macroeconomies of our two principal operating countries, the UK and Germany. Whilst it remains to be seen whether this can be sustained, with our Group Operating Model now firmly embedded within both businesses, we are in a position to capitalise on any IT Services investment growth within our target markets. In France, the most important task is on-boarding the large contract won in 2013, not least because it provides us with a referencing opportunity, which will be key to the generation of new customers as we transition our French business to be more Services-focused in the medium term. Whilst this will be no easy task given the current market positioning of our French subsidiary, it is a task that Group Executive Management is wholly committed to completing. As part of this transition, we are planning to offer another major Service Desk location this year to enhance our IT Services French language capability.
Risk KPIs
2 3 4 To improve our Services productivity and enhance our competitiveness
As a result of our three-year UK industrialisation programme, we were able to bring and develop our productivity model and measures across our scale-shared Services engines. This resulted not only in a constant and hugely successful Service delivery into our customers, but also a series of competitive price points which underpinned our Services renewals and wins during the year.
We believe that 2013 has seen a significant improvement in our processes for bidding and on-boarding our Services business within our German subsidiary, following the implementation of our Group Operating Model early in the year. We have been pleased with the results we have seen so far in respect of those contracts on-boarded in Germany in accordance with the model during the year.
The same measures and models that have been used successfully within our UK business will be applied within our German and French operating subsidiaries. This will be facilitated by the continuing refinement of the use of our Group Operating Model in Germany and the introduction of the model to our French business early in 2014. The presence and input of our senior management team, along with the implementation of our revised bidding process, should drive and increase our win ratios in each country, whilst ensuring that we are fully capable of delivering the Service that we agree to provide to our customers.
Computacenter remains focused on large and medium-sized enterprise and corporate customers headquartered in Western Europe, supporting their needs in their local markets, and globally, where appropriate. The key to our development as a business is being able to attract these customers through our best-in-class Services capabilities, and then delivering a portfolio of Services and Solutions to them. We recognise that whilst it is vital to generate new Services business, it is just as important to us to ensure that we maintain our existing relationships to reduce our average cost expended to generate Services engagements, which is lower when through repeat business. Nowhere has our commitment to deliver on the promises that we make to our customers been more evident than in 2013 within our German Managed Services business. On our three onerous contracts we have prioritised our relationship with the customer and the delivery of customer satisfaction, both of which are key to the sustainability of our business model, over the short-term profitability of the business.
Our achievement of this objective, or otherwise, can be measured in a number of different ways. However, the simple metric that the Group uses is the number of customers where the Group generates more than £1 million of contribution from across our portfolio.
The retention by our UK business of its number one ranking within KPMG's UK Outsourcing Service Provider Performance and Satisfaction Survey was an important achievement within the context of this strategic objective. The uncompromising approach of our UK business to the achievement of customer satisfaction was also evidenced by its joint top ranking within a study, carried out by the Whitelane Research Group, measuring the performance of 24 outsourcing providers in the UK and 700 UK IT outsourcing contracts worth £15 billion in total.
Whilst it is always our ambition to retain our clients over the long term, we recognise that the spending patterns of our customers can go up and down on projects that they deploy within their organisations. Our target in 2014 is to increase the number of customers that are found within our target markets where contribution is greater than £1 million, by adding both new clients, as well as increasing the range of Services and Solutions that we sell to our existing customers.
In 2013, we carried out a comprehensive review of our strategy. This included a review of our current Services offerings and how our capabilities will need to develop in order to meet the future needs of our customers. This also included analysis of how these will be impacted by new technologies and in particular developments in social media, mobility, analytics and cloud. We believe that these areas, amongst others, present incremental growth opportunities for Computacenter. Our customers, the IT departments of enterprise and corporate organisations across Western Europe, are under increasing pressure from their IT user communities to enhance and consumerise their experience, and we will continue to develop our offerings to ensure that we remain relevant to, and can respond appropriately to, the needs of these departments that arise as a result.
Broadly speaking, our priorities during 2014 will be three-fold. Firstly, to enhance our Service desk experience, enabling our customers to self-serve and automate their request and support environment. We will also attempt to enable and enhance the mobile experience of IT users within our customers. Finally, we will extend our offerings into additional Western European countries.
Who we provide our Services to on page 2 The Services we provide on page 2 The investments we have made in our processes on page 19
more about...
Group Operating Model
Risk
KPIs
Strategic report
pages 17 to 33
Annual Report and Accounts 2013
Every customer has an assigned account manager and will often have a Service manager. These customer management teams are run in-country in order to achieve the greatest level of customer proximity possible. Our aim is to partner with the customer's Information Services Department in enabling the overall business objectives of the company they work for.
Group Services are those Services which we have industrialised to provide cost effective and repeatable outcomes. They range from (i) Supply Chain Services, such as Product Supply and Configuration, through to (ii) Professional Services, such as Project Management and additionally Engineering, Installation and Maintenance, and (iii) Managed Services, such as Service Desk, Remote Infrastructure Management and Outsourcing.
For all large contracts, Group Legal provide a contracting and legal Service. This overall sign-off process allows us to apply a highly-effective formal governance procedure to deal with the challenge of meeting our customers' varied needs.
The industrialised Service 'engines' provide the Service to the customer These engines are operated as shared teams generally, but customers will on occasion request to have a dedicated team.
1 2 3
The customer is able to access all of Computacenter's resources, offers, best practices and experience through their account teams and Service management teams
The account team manage overall relationship and commercial arrangements with the customer, and the Service management team manage the overall Service delivery.
The customer receives industry-leading, cost-effective, reference-able IS support.
All of Computacenter's teams combine to work together to deliver the industry's number one customer satisfaction Service.
Group Chief Operating Officer
Following a successful industrialisation programme run in the UK from 2009 to 2012, the Group Operating Model was officially created in September 2012 in readiness to be rolled out into Computacenter in Germany during 2013. It is being introduced to Computacenter in France in 2014.
By combining, centralising and standardising as much Service provision into our shared Group Services engines as possible, we are able to drive attractive economies of scale and apply formal governance. We also create the opportunity to improve and drive best practices, as well as lessons learnt.
A practical example of the Group Operating Model is our business take-on process. We have a five-stage gateway controlled process which ensures that at each stage we, and the customer, are in control and ahead of the dependencies a successful take-on requires. Using this process, we have been able to complete 25 successful take-ons in the UK and arrest the take-on issues we suffered in Germany in 2012.
As most of our customer service is provisioned out of our centralised Group Service teams, the in-country teams are able to focus on staying informed and often ahead of our customers' changing business IS priorities. They are also able to spend time and focus on attracting new customers.
The Board of Directors is responsible for reviewing and monitoring the Company's risk management process and internal control systems. The Board has considered the nature and extent of the risks it is willing to take in pursuit of the Group's strategic objectives.
We have a healthy risk appetite where we understand the risks based on our experience in, and knowledge of, our business. Conversely, we have a low appetite for risk where we have less knowledge, experience and understanding of the accompanying exposures.
We balance risk appetite with opportunities for further business development, and long-term customer satisfaction. Our risk appetite is managed through the Matters Reserved for the Board and related operational governance documents. This is an intrinsic part of our risk management approach.
Our overall aim is to embed and evolve risk management to support the achievement of our strategic objectives.
The annual risk identification and assessment process is integrated with the strategic planning process. The process starts with the Board setting the strategic objectives for the Group. The Board and the Group Executive Committee then consider the barriers to achieving the strategic objectives and, in turn, assess the level of risk in the context of our defined risk appetite. This top-down key risk assessment process is linked through the Group Risk Committee to a Group-wide, bottom-up business risk assessment process. There is clear linkage between the two approaches, with the bottom-up risks mapping to a risk appearing on the top-down Group Risk Log. The risk management framework is shown on the page opposite.
The principal risks are subject to robust challenge on the effectiveness of the mitigations and safeguards. This challenge is delivered at the highest level through the Group Risk Committee which is comprised of senior management and Country Heads. On a cyclical basis, a selection of principal risks is considered at each meeting of the Group Risk Committee to ensure complete
coverage annually. For each principal risk under consideration, the risk owner presents on the risk, the potential customer and internal impacts, the mitigations, what has changed and is changing, triggers, and key metrics. The Group Risk Committee challenges what has been presented and collectively agrees an assessment of the status of the risk and the mitigations.
The minutes from the Group Risk Committee, along with the current status of each principal risk, are reported to the Audit Committee and to the Board. From 2014 going forward, at each Board meeting following a quarterly Group Risk Committee meeting, there is a Board agenda item to discuss, for each principal risk covered, the effectiveness of the mitigations and safeguards, the level of challenge applied, and whether the management assessment of the current status remains appropriate.
We will grow the level of our Services offerings, which we provide to large and medium-sized international enterprises which are headquartered in Western Europe, and will serve these enterprises in their home markets and globally.
We will continue to reduce our costs and increase the efficiency of our Services operations through the industrialisation of our processes and the development of our tools to increase productivity.
While we will lead with our Services offerings, we will develop: (i) the relationships we have with our Vendor Partners and, (ii) the ability of our people to ensure that our customers are aware of, and have access to, the full range of capabilities that we can provide them with. We will also aim to develop our referenceability and repeat business through the achievement of high levels of customer satisfaction.
The risk identification and assessment process gave rise to 13 principal risks this year, which make up our formal Group Risk Log. This is set out on pages 14 and 15 of this report. Our principal risks continue to be concentrated around the availability and resilience of systems, our people, our cost base, technology change, and in the design, take-on, and running of large Services contracts.
The likelihood and impact of our principal risks are shown on the heat map below, with the highest likelihood and highest impact risks sitting in the upper right section, and the lowest likelihood and lowest impact risks sitting in the lower left section.
Alert status down Alert status up Alert status holding
| Principal risks |
Principal impacts |
Impacts strategic objective |
Primary mitigations |
|
|---|---|---|---|---|
| A Failure(s) leading to unacceptably long outages or regular short outages of our customer-facing systems. |
• Customer dissatisfaction • Financial penalties • Contract cancellations • Reputational damage |
1 & 2 | • All centrally-hosted systems are built and operated on High Availability infrastructure. • Enhanced Group IS support models, with key Operations and Applications staff on call 24x7 to respond quickly in the event of failures or issues. |
|
| B Not recruiting and retaining the right calibre of staff across any of our customer-facing functions. |
• Customer dissatisfaction • Financial penalties • Contract cancellations • Reputational damage |
1, 2, 3 & 4 | • We perform regular remuneration benchmarking to ensure we remain competitive. • We invest in management development programmes. • There is an annual staff survey to understand employee views. • We have implemented a series of staff retention initiatives. |
|
| C We fail to implement appropriate designs and pricing structures for Managed Services or outcome based project management contracts. |
• Reduced margin • Loss-making contracts • Customer dissatisfaction • Financial penalties • Contract cancellations • Reputational damage |
1 & 4 | • The Group Operating Model is in place in the UK and Germany, and is in the process of being deployed in France. This incorporates mandatory gateway governance products and processes, as well as the Group signing policy. • There is Board oversight of significant bids. |
|
| D | Inadequate succession planning and not enough management depth within key senior management areas of the business. |
• Lack of leadership | 1 & 4 | • Board consideration of succession plans. • Management development programmes to develop talent. |
| E Letting our direct costs run out of control and not taking advantage of productivity and cost reduction opportunities. |
• Reduced margin | 1 & 2 | • We employ a range of metrics on a monthly and quarterly basis to ensure that we properly manage our direct costs and monitor productivity. • We have a programme of activities to deliver cost reduction opportunities, through the reduction of manual effort. |
|
| F | Technology change dramatically reduces customer need and demand for our Service offerings. |
• Reduced margin • Excess operational staff • Contracts not renewed |
1, 3 & 4 | • We mitigate this through a range of measures including win/loss reviews, senior management forums and strategy reviews where we consider our offerings alongside where the market is going. |
| G | Failure to deliver and manage effectively our international business strategies. By association the risk around take-on and management of our international partners. |
• Reduced margin • Customer dissatisfaction • Financial penalties • Contract cancellations • Reputational damage |
1 & 3 | • Annual senior management review of our international business and team. • In relation to our partner network we have upgraded our contracts and have increased the level of monitoring activity. |
Risk
KPIs
| Principal risks |
Principal impacts |
Impacts strategic objective |
Primary mitigations |
|---|---|---|---|
| H Failure to develop a Group culture. |
• Loss of synergies • Loss of brand identity |
1 & 2 | • Deployment of Group Operating Model resulting in consistent ways of working. • Initiatives to reduce in-country barriers. |
| I Letting our inventory and/or receivables get out of control. |
• Financial impact through obsolete stock and/or bad debts |
2 | • We mitigate these risks through a range of measures including: monthly and quarterly metrics, credit scoring and credit limits for customers, and utilisation of direct delivery where possible. |
| J A security hacking or virus problem at a customer that is due to Computacenter's negligence, mismanagement or employee rogue behaviour leading to a breach and/or loss of data. |
• Customer dissatisfaction • Financial penalties • Contract cancellations • Reputational damage |
1, 2 and 4 | • We have well-communicated Group policies for information security and virus prevention. • There is specific induction and training for staff working on customer sites/systems, as well as specific policies and procedures for anyone working behind a customer firewall. |
| K Not fully understanding employment terms and conditions and the obligations on Computacenter resulting from transferring staff into the Company. |
• Reduced margin | 2 | • Our Group Legal team review all bids that involve staff transfer. • We build the effects of transferring staff into our cost and pricing models, and seek to build commercial terms into new contracts to minimise impact. |
| L Failure to deliver against contract during transformation and committed Service productivity improvements and Service levels in contract life leading to penalty clauses or financial underachievement and a lack of Service or technical innovation. |
• Customer dissatisfaction • Financial penalties • Contract cancellations • Reputational damage • Reduced margin |
1, 2 & 4 | • The Group Operating Model is in place in the UK and Germany, and is in the process of being deployed in France. This incorporates mandatory gateway governance products and processes, as well as the Group signing policy and Service management best practice. • We have an increasingly mature root cause analysis and lessons learnt process for complex transformations. • We perform regular commercial and contract 'deep dives' to manage Service productivity improvements. |
| M Not investing appropriately or over investing in the wrong automation, self-service and remote tools when compared to our competition. |
• Reduced margin • Win less new business • Contracts not renewed |
1, 2 & 4 | • This is linked to Risk F – we mitigate this through a range of measures including win/loss reviews, senior management forums and strategy reviews where we consider our offerings alongside our competitors and where the market is going. |
Strategic priorities
To lead with and grow our Services business
We want to grow the level of our Services offerings that we provide to large and mediumsized enterprises which are headquartered in Western Europe, and where they require us to do so, to serve those customers on a global basis.
To improve our Services productivity and enhance our competitiveness
We will reduce our costs and increase the efficiency of our Services operations through the industrialisation of our processes and the development of our tools to increase productivity.
To retain and maximise the relationship with our customers over the long term
Whilst we will lead with our Services offerings, we will develop: (i) the relationships we have with our Vendor Partners and (ii) the ability of our people to ensure that our customers are aware of, and have access to, the full range of capabilities that we can provide them with. We will also aim to develop our reference-ability and repeat business through the achievement of high levels of customer satisfaction.
To innovate our Services offerings to build future growth opportunities
The share of our overall Services revenue against the Group's total revenue
We will continue to adapt our Services offerings to meet the requirements of our customers as they are driven by changes in the deployment and use of technology.
| 1. UK – £1,286.1m |
|---|
| 2. Germany – £1,271.4m |
| 3. France – £466.3m |
Group revenue by business type (%)
| 1. Workplace – 26% |
|---|
| 2. Datacenter & Networking – 26% |
| 3. Software – 11% |
| 4. Third Party Services – 5% |
| 5. Professional Services – 8% |
| 6. Contractual Services – 24% |
2013 was a year of good progress for the Group, notwithstanding our disappointing business performance in France. The results outlined in this section include only one very small acquisition by our Belgian business at the end of 2012, and thus comparatives excluding acquisitions are not shown.
Total revenue increased by 5.4 per cent on a reported basis, to £3.072 billion, and by 2.5 per cent in constant currency. This was our fourth successive year of turnover growth and represented the first time that the Group has broken through the £3 billion revenue barrier.
The Group continued to consolidate on its significant Services growth seen in 2012. Group Services revenue increased by 6.3 per cent to £965.9 million on an as reported basis, and by 3.7 per cent in constant currency. This reflects our strategic focus on growing our Services business, which now represents 31.4 per cent of the Group's total revenue.
Our Supply Chain businesses in the UK and Germany also performed well, especially during the second half of the year. We believe this is a testament to the strength of our customer relationships within these markets, which themselves appear to be showing the signs of a sustained economic recovery. These performances fuelled Supply Chain revenue growth across the Group of 5.0 per cent on an as reported basis, and by 2.0 per cent in constant currency.
Group profitability was mixed within our main operating units, with adjusted* profit growth in the UK and Germany being substantially offset by our issues in France which became apparent during the course of the year. As a result, the Group's adjusted* profit before tax increased by 3.0 per cent to £81.7 million.
As a result of the overall increase in profitability and the Return of Value to shareholders, the Group's adjusted* diluted earnings per share has increased by 6.1 per cent to 43.3 pence in 2013.
The Group incurred £28.8 million of exceptional items in the period. On a statutory basis, taking account of exceptional items and amortisation of acquired intangibles, the Group made a profit before tax of £50.5 million.
As announced by the Group on 16 July 2013, a number of Managed Services contracts entered into by our German business in 2011 have failed to achieve the margins anticipated. Following a thorough review of these contracts in the first half of the year, it was established that three of these were forecast to be loss-making over the course of their lifetime, and we continue to forecast that this will be the case. The operational and financial performance of these contracts has been stabilised over the second half of the year, and they have continued to perform as forecast and in line with the provision within our 2013 Interim Accounts. As we move further into 2014, Management remain committed to both maintaining our relationship with these very important customers for the Group, whilst attempting to minimise the actual level of losses incurred regardless of the relevant provision made.
A number of cost-saving activities have been driven across the Group during the course of 2013. As a result of implementing our Group Operating Model in Germany, and simplifying the management structure across the Group, we have incurred restructuring charges of approximately £4.3 million during the course of 2013, in addition to the £1.5 million taken in 2012. Whilst the underlying trend of overall adjusted operating expenses ('SG&A') in France increased by 1.2 per cent in constant currency as a result of the cost of implementing our Group ERP system, we have no doubt that there will be a need to take action in 2014 to increase the competitiveness of our French business. As a result of the activity undertaken, we have already seen an SG&A reduction of 3.0 per cent in Germany in 2013.
As reflected previously in our 2013 Interim Results, the disappointing financial performance of our French business in 2013 has resulted in the requirement for a non-cash impairment to non-current assets in its cash-generating unit, relating to goodwill and acquired intangibles, of £12.2 million.
As part of our normal audit processes at the end of the financial year, we have carried out a detailed evaluation of our other long-term Services contracts across the Group. This has resulted in a one-off gain of £4.0 million which, due to its nature and size, has been classified by the Group as exceptional.
| From adjusted to statutory (2012 restated1 ) |
FY 2013 £m |
Restated FY 2012 £m |
|---|---|---|
| Adjusted* operating profit | 81.4 | 78.0 |
| Adjusted net interest | 0.3 | 1.3 |
| Adjusted* profit before tax | 81.7 | 79.3 |
| Onerous German Contracts | ||
| – trading losses | (8.2) | (5.9) |
| – provisions remaining for future losses | (7.5) | (2.1) |
| (15.7) | (8.0) | |
| Non-cash impairment – France | (12.2) | – |
| Redundancy and other restructuring costs | (4.4) | (1.5) |
| Impairment of investment in associate | (0.5) | – |
| Services contracts re-evaluation | 4.0 | – |
| Costs in relation to relocation of premises | – | (2.4) |
| Total exceptional items | (28.8) | (11.9) |
| Amortisation of acquired intangibles | (2.4) | (2.6) |
| Statutory profit before tax | 50.5 | 64.8 |
| Diluted earnings per share measures | ||
| Adjusted* diluted EPS – as restated in 2013 | 43.3p | 40.8p |
| Adjusted* diluted EPS – as reported in 2012 | n/a | 36.1p |
| Statutory diluted EPS | 23.0p | 32.4p |
Note
1 FY 2012 has been restated for the impact of the three onerous German contracts.
* Adjusted profit before tax and diluted EPS are stated prior to exceptional items and amortisation of acquired intangibles. Adjusted operating profit is also stated after charging interest on CSF. Exceptional items for 2012 have been restated to take account of the reclassification of trading losses and provisions in respect of the three onerous German contracts.
changes are implemented successfully. In the UK, recent business wins and improving margins in our Services business, combined with positive momentum in the Supply Chain business, gives us scope for further improvement.
Our UK business has performed well during the year, further building on the significant levels of Services growth that it achieved in 2012. The continuing ability of the UK Services business to deliver operational excellence to large customers has resulted in it being awarded the number one ranking within UK customer satisfaction surveys, carried out in 2013, by each of KPMG and the Whitelane Research Group. In addition, this has helped the UK Professional Services business to have a significant forward order book, which is now at a record high level.
Computacenter in Germany saw a year of stable performance, which was pleasing given the significant operational change which took place in 2013 due to the implementation of our Group Operating Model. This change was implemented due to the need to leverage the Group's systems and processes consistently across its operating geographies and has helped to resolve operational problems on the three onerous contracts, as well as ensure robust contract governance on new bids. It has been encouraging to see this action now begin to take effect, with a gradual increase in Services margins throughout the year from our existing Services business, excluding our three onerous contracts.
We have been extremely disappointed by the Group's performance in France. Whilst this has no doubt been impacted by the ongoing and prolonged poor market conditions, it was also impacted by a number of operational issues arising in part from the implementation of our Group ERP system. Whilst these operational issues are now substantially behind us, we are taking robust action in order to improve the performance of the business in the medium term. This includes the extension of our Group Operating Model into France, alongside a strategic shift towards a more Services-based business model, similar to those currently seen in the UK and Germany. There remains significant work ahead over the next 18 months to ensure that these
Cash flow generation remained strong during the period and, at the end of 2013, net cash prior to customer specific financing ('CSF') was £90.3 million (2012: £72.3 million). Including CSF, net funds were £71.4 million (2012: £53.6 million). It should again be noted that this position continues to benefit by approximately £41 million (2012: £34 million) from the extended credit facility provided by one of our major suppliers. These extended terms have been in place for over four years, and while they can be withdrawn at any time, they have now been in place for such a significant period that, moving forwards, it is our intention to only report on these within our Annual Report and Accounts document, and no longer within each external announcement released by the Company.
The 2012 cash positions noted above exclude the £75 million of value returned to shareholders during 2013, in order to show a like-for-like comparison against the cash position as at the end of 2013. Our year-end cash position clearly demonstrates once again Computacenter's ability to turn operating profit into free cash, notwithstanding the impact of our 2013 challenges in France, which have temporarily tied up cash in working capital.
An additional Return of Value to shareholders totalling £75 million, or 48.7 pence for every existing ordinary share held at the close of trading on 11 June 2013, was successfully completed at the beginning of July 2013. As part of the Return of Value, an associated share capital reorganisation took place on 12 June 2013, whereby every ten Ordinary Shares of 6 pence each in the Company were effectively consolidated into nine Ordinary Shares of 6⅔ pence each. The Return of Value has reduced our interest income by approximately £0.8 million annually, with adjusted* diluted EPS augmented, as a result of the share consolidation, by approximately 9 per cent over the course of a full year. As the share capital reorganisation associated with the Return of Value took place in June 2013, the Company's adjusted* diluted EPS was augmented by approximately 4.5 per cent during the second half of 2013.
The Board will continue to evaluate the requirement to maintain an efficient balance sheet, and will endeavour to use our ability to generate free cash in order to continue to deliver incremental value for our shareholders.
The Board has decided to propose a final dividend of 12.3 pence, bringing the total ordinary dividend paid for 2013 to 17.5 pence, representing a 12.9 per cent increase on the 2012 dividend paid of 15.5 pence. This regular dividend is consistent with our stated policy of maintaining dividend cover within our target range of 2 to 2.5 times our annual adjusted* diluted EPS. Subject to the approval of shareholders at our Annual General Meeting on 15 May 2014, the proposed dividend will be paid on Friday 20 June 2014. The dividend record date is set on Friday 23 May 2014, and the shares will be marked ex-dividend on Wednesday 21 May 2014.
During the course of the year, we have undertaken a rigorous strategy review process, which has resulted in some refinement to the Group's strategic objectives, which are now as follows:
To enhance and implement the result of the strategy review process, the Group has appointed a Head of Strategy recruited from within our German business and, additionally, a Service Innovation Director who joined with a significant track record for Services innovation development.
We have continued to invest appropriately to ensure that we have the technical and operational capability to meet our customers' needs. To support the ongoing demand for our Service desk offerings, we have invested in new supporting tool-sets to ensure high-level resilience and enable the ongoing development of our Service desk capability. In 2014, we will complete the upgrade of our entire global Service desk estate to this platform.
In accordance with our strategic objectives, we will continue to keep abreast of industry developments, particularly around the use of knowledge management to help drive self-service, first contact resolution and workplace efficiencies. This is facilitated by a substantial investment in the upgrade of our BMC Remedy platform involving the migration of all customers, where we manage incident and request activities.
In addition to capability, we have also developed our capacity to satisfy customer demand for low-cost European language service desk operations. In February 2014, the first of our customers, having recently renewed with us for a third term, transferred its service to our new facility in Budapest, Hungary. We have additionally increased the capacity of our Barcelona facilities and now have additional capacity to increase our offshore remote management facility in Cape Town.
The Board expects Computacenter to make further progress in 2014. At such an early stage of the year it is difficult to be very specific about the outcome, but we believe all of our major geographies will move in the right direction.
In the UK, recent business wins and improving margins in our Services business, combined with positive momentum in the Supply Chain business gives us scope for further improvement.
In Germany, we do not expect a significant improvement in Services revenues until the second half of the year at the earliest but, nevertheless, there is some progress to be gained through Services margin improvement. The onerous contracts in Germany should continue to perform in line with the provisions.
After a highly disappointing 2013 for our French business, we expect the French loss to reduce, but for the French business to remain loss-making as we take steps to position business for its longer-term success.
In 2014, we will continue to build on Computacenter's strong platform by increasing its number of customers, broadening our customer relationships, increasing our service productivity and innovating our offerings. This should enable us to continue our track record of cash generation and earnings per share growth.
19
* Adjusted profit before tax and diluted EPS are stated prior to exceptional items and amortisation of acquired intangibles. Adjusted operating profit is also stated after charging interest on CSF. Exceptional items for 2012 have been restated to take account of the reclassification of trading losses and provisions in respect of the three onerous German contracts.
Group revenue by business type (%)
Adjusted* operating profit
Contract base
Our UK business has performed well in 2013, and we are encouraged by what has now been a sustained period of growth in both revenue and profitability.
Overall, total revenue for the year increased by 7.6 per cent to £1,286.1 million (2012: £1,195.6 million). This was fuelled by a Supply Chain revenue growth increase of 8.4 per cent, which was primarily due to an increase in the size of our customer base, following significant Contractual Services growth in the prior year, and continued demand for our Windows 7 roll-outs.
Services revenue grew during the reporting period by 6.2 per cent, consolidating and building on the 15.3 per cent growth in 2012. This incorporated a growth of 5.4 per cent within our Contractual Services business and 8.4 per cent within our Professional Services operations.
As expected, the significant level of profitability achieved in 2012 as a result of business take-on transition and transformation work, which has not been repeated in 2013, has made profitability growth more challenging than revenue growth to achieve during the reporting period. Notwithstanding this, adjusted* operating profit in the UK grew by 7.5 per cent.
Overall Supply Chain margin in the UK grew broadly in line with its growth in revenue, but the trend of customers
purchasing a higher volume, but lower margin mix of product, has been seen throughout the course of 2013. We were pleased with our Supply Chain performance, especially during the second half of the year, which we see as a reflection of the strength of our customer and vendor relationships in the UK, and gradually improving market conditions. However, as we have previously explained, our Supply Chain business is impacted significantly by the short and medium-term buying patterns of our customers, and is therefore difficult to forecast in the medium term and is reliant on macro-economic factors.
As a result, our primary focus will remain on the growth of our Services business which, for a second successive year, has underpinned our profitability growth in the UK. We have continued to develop our Contractual Services governance and bidding processes alongside the execution of Service delivery to our customers, whilst operating efficiently through the high utilisation of our Services staff.
The consistent achievement of Services operational excellence has resulted in our retention of the number one ranking for customer satisfaction and reference-ability within a survey carried out by KPMG, for the second year running. We have additionally been awarded the top-ranking position within a study by the Whitelane Research Group, measuring the performance of 24 outsourcing providers in the UK, and 700 UK IT outsourcing contracts worth £15 billion in total.
We anticipate that the demand for our Professional Services offerings will continue, given that our forward order book finished the year at a record level.
Our UK Services business is benefiting from its increasingly strong Services delivery reputation. 2013 saw a breakthrough deal for the Company with the UK Central Government. We have signed a Desktop Infrastructure Services Agreement with a UK Central Government department, which includes the management and support of their workplace, datacenter and networking environments, allowing the department to improve its end-user experience and safeguard service continuity.
Additionally, a multi-million pound Managed Services contract with Computacenter will help RWEIT improve the user experience and reduce operational costs for parent company, RWE Group. The five-year contract includes end-user support for 13,000 UK employees, major incident management for workplace IT and a Windows 7 transformation project.
We anticipate that the demand for our Professional Services offerings will remain strong, given that our forward order book finished the year at a record level. We additionally believe that this will be sustained in the short and medium term as customers need to upgrade their operating systems, due to user support coming to an end for soon-to-be obsolete versions. As such, they will continue to modernise their end-user workplace environments, for example through Windows 7 and Microsoft Office 2010 upgrades. Our approach to Professional Services business development will not be solely reliant upon these upgrades and, in terms of a longerterm outlook, we believe that demand will continue and be based around Windows Server, mobility, datacenter and networking upgrades.
We remain aware of the critical role that our governance processes and procedures have played in the maintenance of our Services margins in 2013. Given their importance to our business, we will
The consistent achievement of Services operational excellence has resulted in our retention of the number one ranking for customer satisfaction and reference-ability within a survey carried out by KPMG, for the second year running.
continue to invest in and refine these on an ongoing basis. The increasing focus on our target market throughout the bidding process, which is well supported and monitored by our established Group Operating Model governance procedures, has indeed resulted in us withdrawing from one significant bid during the year where we deemed the level of risk to be unacceptable. However, we believe that this approach reflects our prioritisation of long-term delivery of value to our customers, and ultimately shareholders, over short-term financial targets of the business.
In its second year at its new premises, 2013 was a year of consolidation for our IT redeployment and recycling subsidiary RDC, as the business absorbed the main impact of its ERP system implementation. In 2013, adjusted* operating profit for the year grew by 0.7 per cent, during a period in which all sales, service delivery and operational staff migrated fully to its new Microsoft AX software.
The RDC business enters 2014 with a stable IT system, and without the significant burden of running two systems in parallel, as was the case in 2013, and having trained its staff fully on the new system now in place. In 2014, we anticipate that RDC will begin to reap the benefits, through the improvement of operational productivity, and the roll-out of more automation within its sales and reporting processes.
Overall SG&A in the UK have increased by 9.3 per cent during the year. This reflects our increased bid costs, increased bonus and commission payments to our staff and further investment in our governance processes. Despite our recent success in the UK, we are mindful of the need to invest in a controlled and careful manner and, as such, we will be monitoring our level of SG&A closely during the course of 2014.
To support the evolution of its business, Yorkshire Building Society Group needed a scalable and robust infrastructure. The Group partnered with Computacenter to design, source and configure a new messaging platform for more than 4,300 colleagues. With a consistent, reliable and scalable email platform, the Group has been able to enhance cost control, collaboration and mobility.
"The success of the email upgrade project has cemented Computacenter as a strategic IT partner for the Group. The project, along with our wider IT transformation initiatives, has put us in a better position for continued future growth."
Head of IT Service Management Yorkshire Building Society Group
Services provided
Configuring a new messaging platform for more than 4,300 colleagues.
Adjusted* operating profit
Contract base
24 Computacenter plc Enabling IT Users Annual Report and Accounts 2013
The reporting period saw our German business continue to stabilise. Both revenue and adjusted* profitability grew during the year, against a backdrop of significant change within the business, including the implementation of our Group Operating Model and the restructuring of its sales force.
Total revenue grew in 2013 by 6.5 per cent on an as reported basis to €1,497.8 million, and 1.7 per cent in constant currency. This growth came from our Supply Chain business, which enjoyed a particularly strong second half of the year. Supply Chain revenues grew by 7.2 per cent during 2013 on a reported basis, and by 2.4 per cent in constant currency.
Whilst this Supply Chain performance is pleasing and appears to reflect a growing recovery within the German IT market which has now been sustained for the best part of a year, it is clearly not as predictable as our Services business. It is for this reason that, in line with our updated strategic objectives, our primary focus during 2014 will be in relation to the growth of our Services business.
During 2013, Services revenue was broadly flat at €485.4 million. This was impacted by the significant reduction in size of one customer contract, which affected the fourth quarter of the year. However, it also illustrates the anticipated slow-down in our Services business, as a result of our decision to only bid for selective Managed Services opportunities during the year. This enabled us to dedicate more resource to successfully resolving the issues which had arisen from the substantial growth of our Services business in the fourth quarter of 2011, and importantly addressing the underlying causes of those issues.
These issues related primarily to the adequacy of contractual governance procedures, and therefore during the year we have taken decisive action to improve these through the implementation of our Group Operating Model. This has already started to take effect, and has enabled us to stabilise and improve the operational and financial performance of a number of our difficult Managed Services contracts. As a result, excluding our three onerous contracts, we have seen a gradual improvement in our Services margins through the year.
Our Professional Services business generated significant momentum during the year, with its total revenue growing by 11.3 per cent in constant currency. This performance was largely driven by our Workplace Solutions business delivering significant volumes of Windows 7 and 8 roll-outs, and our network security offering.
In addition to our strong Supply Chain performance, and other improvements in the business, adjusted* operating profit for the German segment has increased by 48.8 per cent to €36.1 million. Notwithstanding that this performance was against the backdrop of a weak comparator in 2012, we are encouraged that the governance changes we have implemented appear to be having their intended impact.
This has been further evidenced by the new material transition and transformation projects that have been executed in accordance with new Group processes, albeit that these have been relatively few in number during 2013. These have been completed in accordance with agreed contractual Services levels and projected financial outcomes. We are now in a better position to ensure that new Services wins in 2014 will be contracted appropriately and implemented successfully as a result of the new operating model, and therefore have built a strong platform on which we can look to pursue medium term Services growth.
Turning specifically to our three loss-making, or onerous, contracts, we are pleased to report that the operational and financial performance of these has been stable during the second half of the year. We have resolved our operational issues and are now delivering to contractually agreed levels of performance. As explained within
Our Professional Services business generated significant momentum during the year. Its total revenue grew by 11.3 per cent in constant currency.
the Group overview, the contracts have performed in line with the forecast set out in our 2013 Interim Results during the second half of the year.
In addition to the governance changes outlined above, we have also carried out a full review, restructuring and realignment of our sales force. We are confident that, as a result of this, we are now better prepared to take advantage of significant Services growth opportunities within the German IT market. This review process has included significant knowledge transfer between our UK and German businesses, particularly within Managed Services, which we anticipate will accelerate the learning progression of our sales force in Germany to sell and interact with our customers in accordance with Group strategy and business principles. Primarily as a result of the action detailed above, which has additionally resulted in a general de-layering of German management across the business, SG&A has reduced by 3.0 per cent in 2013. Due to the nature of these actions, redundancy and restructuring costs totalling €3.7 million have been included within the Group financials as exceptional costs.
Although 2013 Services revenue has broadly been flat, our Services business has achieved a number of notable wins. Going forward, Computacenter will be providing Dataport with operational assistance for its IT workstations, Datacenter and Networking. Dataport is the service provider for information and communications technology of the public administration for the German Federal States of Hamburg, Schleswig-Holstein and Bremen, as well as for the tax administrations in Mecklenburg-Western Pomerania and Lower Saxony. Additionally, a Computacenter overflow help desk in Berlin will ensure that Dataport's user-help desk is provided with additional capacity where required during peak times. The duration of the contract is for three years.
Whilst we would clearly want to have avoided the Managed Service contract issues that we have faced over the last two years, they have forced us to re-evaluate ourselves internally, and we are confident that our business prospects in the medium term have emerged stronger as a result.
Group revenue by business type (%) 1. Workplace – 49% 2. Datacenter & Networking – 13% 3. Software – 20% 4. Third Party Services – 2% 5. Professional Services – 4% 6. Contractual Services – 12% 49% 13% 20% 2% 4% 12%
€-8.6m
Contract base
€66.9m
Clearly, 2013 was a disappointing year for our French business. Total revenue for the reporting period reduced by 7.1 per cent in constant currency. Overall, the result reduced from an adjusted* operating profit of €5.3 million in 2012 to an adjusted* operating loss of €8.6 million in 2013.
The majority of this decline was attributable to a significant reduction in our Supply Chain revenues, which decreased by 8.3 per cent in constant currency. This reduction was in itself due to two primary factors. Firstly, our Supply Chain business was impacted by the prolonged and continuing difficult market conditions in France, which has caused customers to reduce their IT investment spend.
We do not expect market conditions in France to improve materially in 2014, which has brought into sharp focus a requirement for our business model in France to be aligned more closely with our UK and German businesses. In the UK and Germany, we are less reliant on commodity Supply Chain business, and are thus more likely to be able to withstand the impact of negative external market conditions.
Secondly, the implementation of our Group ERP system in France was expected to be a more significant challenge than was the case in either the UK or Germany, as the extent of system and process change was greater. However, the difficulties experienced were more pronounced than expected and, as a result, a number of operational issues arose within the business affecting its ability to manage the delivery of product and parts through its logistics operation and therefore to ship on time.
While it is clear that these issues impacted the performance of our Supply Chain business materially during the second half of the year, they have now been resolved and the relevant order backlogs have been cleared. This is evident in the strong recovery of Supply Chain sales during Q4 2013 with orders being delivered in accordance with agreed service levels. Whilst we are aware that we have lost Supply Chain orders as a result of these issues, we do not believe that we have lost any of our material Supply Chain customers.
Overall gross margin contribution within our Supply Chain business has declined as a direct result of the reduction in revenue outlined above, an increased proportion of low margin software business and temporary increased warehouse operating costs due to our Group ERP system implementation.
Services revenue in 2013 reduced by 0.8 per cent to €90.5 million, mainly due to a 16.9 per cent decline in Professional Services revenue compared to 2012. This was as a result of weak demand for our offerings throughout the year, which itself was primarily due to weak market conditions. In addition, the impact of the Group ERP system implementation on our maintenance and logistics functions temporarily impacted our service levels. Whilst this has now improved significantly, it has led to a reduction in our Services contract base.
Overall Services gross margin generation has reduced materially due to the decline in revenue and lower Professional Services utilisation, resulting in spare capacity in the workforce with associated margin dilution. Given our disappointing Services performance in 2013, our strategic shift to become more Services-focused in the medium term will be no easy task, and considerable work remains to be done in 2014 and beyond to achieve this goal.
However, we are encouraged by the fact that our French and International teams have worked very well together during the year to secure the Group's largest-ever Managed Services contract, for which the relevant bid had been made in accordance with Group processes.
In line with our Group Operating Model strategy and following its successful implementation in Germany, we started the process of implementing our Group Operating Model into our French business in early 2014. The Group ERP implementation was essential in order to enable this to happen and will allow us to drive efficiencies within the business, for example within the utilisation of our resources and the implementation of the Group's best practices.
Given the issues experienced in France in 2013 and as a result of the implementation of the Group Operating Model, there have been some senior management changes in France. Moving forward, we will strengthen the management team in key areas to help facilitate the implementation of the Group Operating Model. Whilst the underlying trend of SG&A increased by 1.2 per cent in constant currency during the course of 2013 as a result of the cost of implementing our ERP system, we have no doubt that there will be a need to take actions in 2014 to increase the competitiveness of our French business.
As outlined in the Group overview and as previously highlighted within our 2013 Interim Results, as a result of the continuing disappointing performance in France during the year, and our continued medium-term expectations for the business, we have incurred a non-cash impairment in the French cash-generating unit of £12.2 million, relating to goodwill and acquired intangibles.
€2.2m
Contract base
€19.3m
Overall, our Belgian business has performed well in 2013. In 2011 and 2012 we enjoyed large, one-off, Supply Chain revenues with a particular customer which, as we expected and as noted in our 2012 Annual report, would impact comparators in 2013. Unless specifically stated, the results below include the contribution from the acquisition of Informatic Services ('IS') in December 2012.
Total revenue grew by 6.0 per cent on an as reported basis, and by 1.2 per cent in constant currency. Adjusted* operating profit reduced by 6.8 per cent to €2.2 million, which given the expected decline in Product revenue noted above, was still encouraging, albeit materially assisted by the acquisition of IS. Belgian SG&A has increased by 34.4 per cent however, on a like-for-like basis excluding the acquisition, in constant currency SG&A increased by 0.5 per cent.
Clearly, Supply Chain revenue growth was materially impacted by one-off deals noted above. As a result, during the year Supply Chain revenue in constant currency reduced by 19.2 per cent. However, in the fourth quarter Supply Chain revenue was only down by 3.2 per cent in constant currency, reflecting the one-off deals in the first half of 2012 outlined above, and a strengthening Supply Chain demand environment towards the end of 2013.
Our total Services revenue grew by 65.2 per cent to €22.4 million. Excluding the effect of the acquisition, Services revenue has still grown organically by over 18.4 per cent during the period, which has been assisted by our ability to extend a number of our Managed Services contracts during the year.
We have been pleased with the performance of IS in 2013, which has exceeded our initial expectations and, although much remains to be done, we have made significant progress towards integrating IS into our business. We have also managed to retain a significant majority of all major Managed Services contracts through the integration process.
We were also able to renew our Managed Services contract with Mercedes-Benz Belgium and Luxembourg for another three years. Activities include an SLA-driven local service desk and onsite support activities.
In 2012, Services represented 24.1 per cent of our overall revenues and, assisted by the acquisition of IS, which is 100 per cent Services focused, Services now represent 39.4 per cent of our revenues. This will provide us with increased revenue visibility as we move forward in 2014.
Mike Norris Chief Executive Officer 10 March 2014
Tony Conophy, Finance Director
In 2013, Computacenter Group delivered its fourth successive year of turnover growth and achieved adjusted* profitability growth in the face of significant headwind in our French business.
At a headline level, turnover grew by 5.4 per cent and broke through the £3 billion barrier for the first time to reach £3,072.1 million. On a constant currency basis turnover growth was 2.5 per cent. Adjusted* profit before tax increased by 3.0 per cent from £79.3 million to £81.7 million, with the impact of exchange rates accounting for half of this increase.
After taking account of exceptional items primarily relating to the German onerous contracts and the non-cash impairment in France, statutory profit before tax decreased by 22.0 per cent from £64.8 million to £50.5 million.
The Group profitability performance was mixed across our main geographies. The German business has stabilised and returned a 48.8 per cent increase in adjusted* operating profit in constant currency, whilst the UK segment generated a 7.5 per cent increase. These improvements were largely offset by problems in France noted below which has fallen from a reported £4.3 million adjusted* operating profit in 2012 to a loss of £7.3 million in 2013.
Management measure the Group's operating performance using adjusted operating profit, which is stated prior to amortisation of acquired intangibles, exceptional items, and after charging finance costs on customer specific financing ('CSF') for which the Group receives regular rental income. Gross profit is also adjusted to take account of CSF finance costs. The reconciliation of statutory to adjusted results is further explained in the segmental reporting note (Note 4) to the financial statements. For the purposes of this statement, all subsequent references are to adjusted measures.
UK revenues grew in 2013 by 7.6 per cent, increasing to £1,286.1 million. Supply Chain revenues increased by 8.4 per cent, driven by a larger customer base following the Contractual Services wins and further demand for workplace and Windows 7 roll-outs. Services revenues overall grew a further 6.2 per cent following a strong 15.3 per cent growth in 2012. Within this, Contractual Services revenue grew 5.4 per cent despite the one-off impact of large transition billing in 2012. Professional Services in turn generated 8.4 per cent growth in revenues mainly due to migrations to Windows 7.
Margin in the Supply Chain business was broadly flat, following the decline in 2012, due to increasing work place product sales and continually evolving vendor partner terms of trade. However, Services margin increased due to improved execution, maturity of contracts and high utilisation of staff. This resulted in a UK total adjusted* gross profit increase from 15.4 per cent to 15.6 per cent of sales. SG&A rose by 9.3 per cent, reflecting increased bid costs, increased commission and bonus for staff due to the UK performance and increased investment in improved governance required by the Group Operating Model, net of recharges to other Group Segments.
Overall this has resulted in a 7.5 per cent increase in adjusted* operating profit from £52.2 million to £56.2 million.
German revenue growth recovered in 2013 as the business continued to stabilise after a disappointing 2012. Revenue, as reported, grew in 2013 by 6.5 per cent to £1,271.4 million (2012: £1,193.8 million), albeit in local currency revenue increased by 1.7 per cent.
Supply Chain revenues grew by 2.4 per cent in 2013, increasing the rate of growth over 2012 (2.0 per cent). Services revenues were flat with 0.3 per cent growth in 2013. We expected low Service revenue growth as the focus was on ensuring that business is conducted in accordance with increased governance in line with the Group Operating Model and the effort on resolving the onerous contracts. As the business grows more confident operating within the enhanced Group governance procedures we expect Services revenue growth to return.
| Half 1 £m |
Half 2 £m |
Total £m |
|
|---|---|---|---|
| 2011 | 1,365.3 | 1,487.0 | 2,852.3 |
| 2012 | 1,422.3 | 1,491.9 | 2,914.2 |
| 2013 | 1,426.3 | 1,645.8 | 3,072.1 |
| 2013/12 | 0.3% | 10.3% | 5.4% |
| Half 1 | Half 2 | Total | |||||
|---|---|---|---|---|---|---|---|
| £m | % | £m | % | £m | % | ||
| 2011 | 26.6 | 1.9% | 47.6 | 3.2% | 74.2 | 2.3% | |
| 2012 | 25.8 | 1.8% | 53.5 | 3.6% | 79.3 | 2.7% | |
| 2013 | 26.2 | 1.8% | 55.5 | 3.4% | 81.7 | 2.7% | |
| 2013/12 | 1.6% | 3.7% | 3.0% |
| 2013 | 2012 | ||||||
|---|---|---|---|---|---|---|---|
| Half 1 | Half 2 | Total | Half 1 | Half 2 | Total | ||
| UK | 592.1 | 694.0 | 1,286.1 | 578.2 | 617.4 | 1,195.6 | |
| Germany | 603.4 | 668.0 | 1,271.4 | 591.0 | 602.8 | 1,193.8 | |
| France | 207.8 | 258.6 | 466.4 | 226.8 | 252.5 | 479.3 | |
| Benelux | 23.0 | 25.2 | 48.2 | 26.3 | 19.2 | 45.5 | |
| Total | 1,426.3 | 1,645.8 | 3,072.1 | 1,422.3 | 1,491.9 | 2,914.2 |
Gross margin return of the German business has increased from the restated 12.1 per cent in 2012 to 12.4 per cent in 2013. Supply Chain gross margin increased mainly due to a favourable product mix and, excluding the three onerous contracts highlighted in exceptional costs, Service margins increased due to improvement in other difficult contracts.
SG&A has continued to reduce following the reduction in the latter part of 2012 with a real focus on cost base reduction driven by the new German leadership team. One-off charges related to the restructuring of the German business have been incurred and disclosed as an exceptional item.
Overall, the German segment adjusted* operating profit increased by 55.9 per cent from £19.7 million to £30.6 million as reported, an increase of 48.8 per cent in constant currency.
The revenue in the French segment decreased by 7.1 per cent in the year. Supply Chain revenue fell by 8.3 per cent due to continuing weakness in French macro-economic conditions and the impact of the unsatisfactory implementation of our Group ERP system on 1 June 2013 which affected our ability to ship orders on time resulting in an order backlog and a drop in customer service levels.
Services revenues contracted by 0.8 per cent when compared to 2012 which featured a number of new contract wins. The impact of the Group ERP implementation on the logistics function and specifically the maintenance parts business has adversely affected service levels leading to a decline in contract value. Gross profit in 2013 has been impacted throughout the year by the weak demand for our Professional Services business which declined by 16.9 per cent, resulting in spare capacity which has had a significant impact on gross margins achieved. In addition, Services gross margins have been reduced by increased costs arising from the difficult Group ERP implementation from 1 June 2013.
In addition, gross margins in the Supply Chain business reduced mainly due to mix factors, in particular an increased proportion of low margin software business which has had a positive effect on revenue but generated little incremental contribution.
The result of these two issues is that overall gross margin reduced from 9.9 per cent to 8.2 per cent.
SG&A expenses have increased by 1.2 per cent, largely reflecting the increased cost of the implementation of the Group ERP system in France and the increased time from Group resources cross-charged into the business as part of the efforts to realign local procedures with the Group Operating Model.
Overall, adjusted* operating profit as reported in France has therefore fallen from a profit of £4.3 million in 2012 to a loss of £7.3 million in 2013.
Reported revenue increased by 6.0 per cent to £48.2 million (2012: £45.5 million) equating to an increase of 1.2 per cent in local currency. Excluding the results of IS which was acquired in December 2012, revenue decreased by 10.4 per cent. Supply Chain revenue fell by 19.2 per cent (19.6 per cent excluding IS) mainly due to a very significant one-off Supply Chain order from one customer in the first half of 2012. However in the second half of 2013 Supply Chain revenues were 2.6 per cent higher than in the second half of 2012.
Services revenue, including the results of IS, grew 65.2 per cent. Excluding the results of the acquisition, organic Services revenue growth was 18.4 per cent.
As the service mix of the business has increased, gross profit return on sales for Belgium overall has also lifted from 11.0 per cent in 2012 to 12.5 per cent
in 2013. Excluding the results of the acquisition, which has a services focus, gross profit margin has fallen to 10.5 per cent.
SG&A, excluding the acquisition has increased 0.5 per cent and has increased by 28.3 per cent including the acquisition. Overall there has been a 2.4 per cent decrease in reported adjusted* operating profit from £1.9 million in 2012 to £1.8 million in 2013. This is a 6.8 per cent decrease in local currency and without the acquisition would have been a 39.0 per cent decrease.
As described in our Group Interim Results in August 2013, the rapid growth of our Services business in Germany during the fourth quarter of 2011, coupled with insufficient contractual governance procedures in place within our German business at that time, has resulted in a number of Managed Services contracts failing to achieve the margins anticipated at the time that they were agreed. Three of these contracts were deemed likely to be loss-making over the course of their lifetime. Detailed analysis and customer re-negotiation was conducted and an exceptional one-off provision of £10.7 million representing our best estimate of the losses expected to be incurred until the end of the contracts was made as outlined in our 2013 Group Interim Results.
The three onerous contracts in Germany have continued to perform in line with our forecasts. Contractual performance has remained stable with improving service levels. We continue to forecast that these three contracts will be loss-making over the course of their lifetime and are comfortable with the level of further provisioning, £10.7 million, made in the results disclosed in the Group Interim report. Whilst any further movement away from our forecasts would also be deemed to be an exceptional item, local management will continue to be measured on the absolute performance of these contracts before the provision. It should be noted that, notwithstanding these specific contractual losses, the total business accruing from these three customers still makes an important contribution to the Group's overall profitability.
As part of our normal processes, we have carried out a detailed evaluation of other long-term Services contracts across the Group. As a result of this on-going evaluation, management have calculated that a positive change in certain estimates has resulted in a one-off gain of £4.0 million. Due to the nature of the change in the estimates, and the size of the gain, it has been decided to highlight this as an exceptional item. This is consistent with the treatment of the previously identified onerous contracts and will provide a fairer and more balanced understanding of our underlying growth in profitability.
| 2013 | |||||||
|---|---|---|---|---|---|---|---|
| Half 1 | Half 2 | Total | |||||
| £m | % | £m | % | £m | % | ||
| UK | 20.0 | 3.4 | 36.2 | 5.2 | 56.2 | 4.4 | |
| Germany | 9.7 | 1.6 | 20.9 | 3.1 | 30.6 | 2.4 | |
| France | (4.6) | (2.2) | (2.6) | (1.0) | (7.2) | (1.5) | |
| Benelux | 0.6 | 2.6 | 1.2 | 4.8 | 1.8 | 3.7 | |
| Total | 25.7 | 1.8 | 55.7 | 3.4 | 81.4 | 2.6 | |
| 2012 | |||||||
| Half 1 | Half 2 | Total | |||||
| £m | % | £m | % | £m | % | ||
| UK | 17.6 | 3.0 | 34.6 | 5.6 | 52.2 | 4.4 | |
| Germany | 7.2 | 1.2 | 12.5 | 2.1 | 19.7 | 1.7 | |
| France | (0.8) | (0.4) | 5.0 | 2.0 | 4.2 | 0.9 | |
| Benelux | 1.0 | 3.8 | 0.9 | 4.7 | 1.9 | 4.2 | |
| Total | 25.0 | 1.8 | 53.0 | 3.6 | 78.0 | 2.7 |
Strategic report
As a result of the continued management restructure in Germany following the stabilisation of the contracts previously described,we have recognised related redundancy expenses of £3.1 million in the year. Due to the transformational nature of the restructuring and the events which preceded it, we have continued to classify these as exceptional costs.
Similarly, Computacenter in France has begun a programme to also reduce its SG&A and restructure its business and senior management in line with the Group Operating Model. Redundancy related expenses of £1.2 million have been included in the 2013 result.
Our French business transferred onto the Group ERP system on 1 June 2013 and has gone live in our Group Operating Model effective as of 1 January 2014. These milestones, along with the changes in business focus and governance that underpin them will be the drivers of change to transform our French business in the coming years.
The combination of the decline in the French economy leading to a reduction in demand for our Services, operational problems arising from the Group ERP implementation and the resulting financial impact has led to the requirement for a £12.2 million impairment of non-current assets as detailed in our Interim Results in August 2013. There arose a further requirement to fully write-off a £2.2 million deferred tax asset as at 31 December 2013.
Due to the continued adverse performance of our equity accounted associate ICS Solutions Limited we have decided to fully impair the £0.5 million recorded value of our investment.
As reported in the 2013 Interim report, the 2012 accounts have been restated, where necessary, to reclassify trading losses and provisions relating to the three onerous German contracts to provide a clearer picture of the performance of the business. The impact of the reclassification is summarised in the following table:
| Restated FY 2012 £m |
|
|---|---|
| As restated in 2013 accounts |
19.7 |
| Onerous Contracts – trading losses |
(5.9) |
| Onerous Contracts – provisions for future losses |
(2.1) |
| As reported in 2012 accounts |
11.6 |
Net finance costs of £0.5 million were incurred on a statutory basis in 2013 (2012: net finance income of £0.2 million). This takes account of finance costs on CSF of £0.8 million (2012: £1.1 million). On an adjusted basis, prior to the interest on CSF, net finance income decreased from £1.3 million in 2012 to £0.3 million in 2013. The decrease is primarily due to the reduced cash holdings impacting interest received as a result of our Return of Value to our shareholders and lower deposit rates.
The effective adjusted tax rate for 2013 was 23.7 per cent (2012 restated: 22.0 per cent). The deterioration was due to a lower mix of overseas earnings in 2013 compared to 2012. However, the Group's tax rate continues to benefit from losses utilised on earnings in Germany and further benefits from the reducing corporation tax rate in the UK.
Deferred tax assets of £13.5 million (2012: £15.7 million) have been recognised in respect of losses carried forward. During the year, an asset of £2.2 million relating to losses carried forward in France has been written off. At 31 December 2013, there were unused tax losses across the Group of £125.4 million (2012: £115.5 million) for which no deferred tax asset has been recognised. Of these losses, £54.5 million (2012: £61.6 million) arise in Germany and £67.6 million (2012: £50.6 million) arise in France. A significant proportion of the losses arising in Germany have been generated in statutory entities that no longer have significant levels of trade. The remaining unrecognised tax losses relate to other loss-making overseas subsidiaries.
The Group considers all movement in the recoverable amount of deferred tax assets relating to the recognition, de-recognition or utilisation of previously recognised losses, to be outside our adjusted results. Management's view is that, due to their material nature and irregular timing, the inclusion of these movements within our adjusted tax charge distorts the underlying cash tax base and annual performance of the Group as a whole.
This has no impact on the adjusted or statutory results for this year. However, we expect net movements to be charged to exceptional tax in future periods as the utilisation of the previously recognised deferred tax assets in Germany exceeds the recognition of further tax losses.
The adjusted* diluted earnings per share has increased in line with profit performance by 6.1 per cent from 40.8 pence in 2012 to 43.3 pence in 2013. Due to the impact of exceptional charges in 2013, the statutory diluted earnings per share has reduced from 32.4 pence in 2012 to 23.0 pence in 2013.
The Board is recommending a final dividend of 12.3 pence per share, bringing the total dividend for the year to 17.5 pence (2012: 15.5 pence). Subject to the approval of shareholders at the Annual General Meeting ('AGM') on 15 May 2014, the proposed dividend will be paid on 20 June 2014. The dividend record date is set as 23 May 2014, and the shares will be marked ex-dividend on 21 May 2014.
On 28 December 2012 the Group acquired 100 per cent of the voting shares of NEWIS SA and its subsidiary, Informatic Services IS SA.
The book and provisional fair values of the net assets acquired that were disclosed in note 16 of the 2012 Annual Report and Accounts, are now final and are unchanged.
Annual Report and Accounts 2013
31
Financial statements
While the Group intends to continue to maintain a robust and prudent balance sheet, we decided that it was appropriate to undertake a Return of Value to shareholders, in addition to the normal dividend. We announced on 24 May 2013 a one-off Return of Value to shareholders of approximately £75 million, or 48.7 pence for every existing ordinary share held at the close of trading on 11 June 2013. Computacenter will continue to monitor its balance sheet to ensure that it is efficient. Computacenter also returned £74.4 million to shareholders by way of a one-off capital return via a B Share structure in 2006 equating to 39 pence per share.
The Group's trading net funds position excludes customer specific financing. There is an adjusted cash flow statement provided in note 31 that restates the statutory cash flow to take account of this definition.
Net funds excluding CSF decreased from £147.3 million to £90.3 million by the end of the year. However, this reduced figure is after the circa £75.0 million Return of Value to shareholders which masked an underlying net funds improvement of £18.0 million on a like-for-like basis compared to the position at 31 December 2012. The Group continued to deliver strong cash generation from its operations in 2013, with adjusted operating cash flow of £70.5 million (2012: £85.2 million).
In the year we spent over £25 million on capital expenditure primarily investments in IT equipment in our business and software tools to enable us to deliver improved service to our customers.
Challenges within working capital have built up in our French business due to backlogs within our ERP system preventing the timely processing of transactions impacting cash collection and payment of invoices. We estimate that this has impacted our cash flow by circa £10 million. We are confident of improving this position in 2014 and as this occurs, working capital should be released into cash.
Whilst the cash position remains robust, the Group continued to benefit from the extension of an improvement in credit terms with a significant vendor, equivalent to £41 million at 31 December 2013, an increase of £7 million from December 2012. This improvement in credit terms has been in operation since 2009 and, whilst the continuation of these terms is not guaranteed and can be withdrawn at any time, the terms are generally available to all material partners of that significant vendor. We no longer feel it is necessary to continue to highlight these terms in the operating review. However we will continue to reference this item in our Finance Director's report, but we will not routinely report the number in Interim Management Statements and similar external updates or within the accounts themselves.
Customer Specific Financing ('CSF') increased in the year from £18.7 million to £18.9 million. CSF remains low against our historical standards due to a decision to restrict this form of financing in light of the current credit environment and reduced customer demand.
Taking CSF into account, net funds at the end of the year were £71.4 million, compared to £128.6 million at the start of the year but after the circa £75.0 million Return of Value to shareholders.
In certain circumstances, the Group enters into customer contracts that are financed by leases or loans. The leases are secured only on the assets that they finance. Whilst the outstanding balance of CSF is included within the net funds for statutory reporting purposes, the Group excludes CSF when managing the net funds of the business, as this CSF is matched by contracted future receipts from customers.
Whilst CSF is repaid through future customer receipts, Computacenter retains the credit risk on these customers and ensures that credit risk is only taken on customers with a strong credit rating.
The committed CSF financing facilities, are thus outside of the normal working capital requirements of the Group's product resale and service activities.
The Group does not expect a material increase in the level of CSF financing facilities, partly as the Group applies a higher cost of finance to these transactions than customer's marginal cost of finance. In addition, some of these requirements have been satisfied through utilising a sale of receivables process.
Details of the Group's capital management policies are included within Note 27 to the financial statements.
The Group's financial instruments comprise borrowings, cash and liquid resources, and various items that arise directly from its operations. The Group enters into hedging transactions, principally forward exchange contracts or currency swaps. The purpose of these transactions is 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 certain geographies, such as South Africa, it has entered into Forward Exchange contracts to protect any further currency risk. The Group's policy remains that no speculative trading in financial instruments shall be undertaken.
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 financial results of the Group. The policies for managing each of these risks are set out below. Further disclosures in line with the requirements of IFRS 7 are included in the financial statements.
The Group finances its operations through a mixture of retained profits, bank borrowings and finance leases and loans for certain customer contracts. The Group's bank borrowings, other facilities and deposits are at floating rates. No interest rate derivative contracts have been entered into.
The Group's policy is to ensure that it has sufficient funding and facilities in place to meet any foreseeable peak in borrowing requirements. The Group's positive net funds position was maintained throughout 2013, and at the year-end was £90.3 million excluding CSF, and £71.4 million including CSF.
Due to strong cash generation over the past three years, the Group is currently in a position where it can finance its requirements from its cash balance, and the Group operates a cash pooling arrangement for the majority of Group entities.
During the year the Group entered into a specific committed facility of £40.0 million for a three-year term which expires in May 2016.
The Group has a Board monitored policy in place to manage its counterparty risk that places cash on deposit across a range of reputable banking institutions.
Customer-specific financing facilities are committed.
The Group operates primarily in the UK, Germany and France, with smaller operations in Belgium, Hungary, India, Malaysia, Luxembourg, Spain, South Africa, Switzerland and the United States of America. The Group uses a cash pooling facility to ensure that its operations outside of the UK are adequately funded, where principal receipts and payments are denominated in Euros. For those countries within the Euro zone, the level of non-Euro denominated sales is very small and, if material, the Group's policy is to seek to eliminate currency exposure through forward currency contracts. For the UK, the majority of sales and purchases are
denominated in Sterling and any material trading exposures are eliminated through forward currency contracts.
The Group has been increasingly successful in winning international Services contracts where services are provided in multiple countries. The Group aims to minimise this 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, the Group seeks to eliminate currency exposure for a foreseeable future period on these future cash flows through forward currency contracts. In 2013, the Group recognised a loss of £1.4 million (2012: gain of £0.5 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 principally manages credit risk through management of customer credit limits. The credit limits are set for each customer based on the creditworthiness of the customer and the anticipated levels of business activity. These limits are initially 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 financial statements, consists of entities under the control of the UK Government. The maximum credit risk exposure relating to financial assets is represented by carrying value as at the balance sheet date.
As disclosed in the Directors' report, the Directors have a reasonable expectation that the Group has adequate resources to continue its operations for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.
The UK Corporate Governance Code has a new requirement for the Board to state whether the Company's Annual Report and Accounts are 'fair, balanced and understandable' and 'provides the information necessary for shareholders to assess the company's performance, business model and strategy'.
We have continued to formalise the process through which we can provide comfort to the Board to make the relevant assertions within the Annual Report and Accounts.
Tony Conophy Finance Director 10 March 2014
Mike Norris, Chief Executive Officer
For Computacenter in 2013, the year has been about building a strong platform for the Group to enjoy sustained success. However, we recognise that the people that carry out business on our behalf, the people we do business with and the societies and environment in which we operate are vital contributors to delivering value and achieving our strategic objectives. Whilst we pride ourselves on the provision of technologicallyadvanced information solutions, we recognise that our business occurs within a wider community including employees, contractors, shareholders, customers, suppliers and business partners.
Since 2007, the Group has been committed to the 10 core principles of the United Nations Global Compact ('UNGC'), aimed at demonstrating ethical, environmental and social responsibility towards our own workforce and in our business interaction within each community and country in which we operate. In 2009, the Group published its first Communication on Progress ('CoP') on the UNGC website, and we have been doing so on an annual basis ever since that time. We believe that the UNGC provides us with an appropriate framework through which to measure our development and progress in this area. Additionally, the Group retains its membership of the FTSE4Good Index Series.
The Group's Corporate Sustainable Development ('CSD') Policy is annually reviewed by the Computacenter plc Board of Directors, and is implemented and monitored through the Group's Corporate Sustainable Development Committee, constituted out of representatives from across the Group as a whole.
Integral to our commitment, we strive to incorporate the UNGC and its principles into our strategy, culture and day-to-day operations. We do this through the development, communication and implementation of relevant policies to manage and monitor our progress towards these principles. Since our commitment to the core principles, we have adopted and revised a number of policies and procedures across the Group, and will continue to do so on an ongoing basis.
We are communicating our sustainability efforts and achievements with all our shareholders in our Annual Report and Accounts, as well as on our Company website. We continue to believe that what is not measured is not effectively managed and in line with this, following the implementation of our Group ERP system across our main operating geographies, we are endeavouring to identify at least one standard indicator ('SI'), as recognised by the Global Reporting Initiative ('GRI'), per core principle. Much work remains to be done over the coming years, in relation to the measurement indicators we elect to demonstrate our progress.
We actively seek to collaborate with and encourage our suppliers, contractors and customers to operate in a similar socially responsible manner, as guided by the UNGC 10 core principles. We have already secured support from the majority of our suppliers and contractors, but we acknowledge that this remains an ongoing task.
Mike Norris Chief Executive Officer 10 March 2014
Governance
Maintain current status and reassess vendor conformance, through the review of questionnaire responses.
Continue to track customer demand for 'Green IT' offerings.
To complete the implementation of recommendations arising from the external audit of the Group's Anti-bribery policy and procedures.
As outlined within our Strategic Report, during the reporting period, Computacenter has completed the implementation of its Group ERP system within its UK, German and French business subsidiaries. We look forward to using this standardised tool to measure progress in the area of CSD consistently across the Group. In alignment with our move towards a Group operating structure, this will also be the case for our approach on CSD, where new initiatives will be launched in 2014 to replicate the best progress being made in-country across the Group, and to discuss innovative ideas in this area more closely. Through a drive towards the efficiencies gained by working together more closely, we will continue to improve our CSD standards alongside the Group's growth in revenue and profitability. We are committed to ensuring that we do business in the right way, and additionally to giving something back to the community which continues to allow our business to flourish. The UNGC is a wholly appropriate tool and framework to guide us towards achieving these aspirations and, as such, we will remain wholly committed to it during 2014.
Simon Pereira Company Secretary 10 March 2014
Financial statements
Non-Executive Chairman and Chairman of the Nomination Committee
Mike Norris Chief Executive
Committee Membership:
Board Member Attendance:
Greg is the Chairman of Kofax plc and a Non-Executive Director of United Business Media. He has more than 38 years' experience in the software and computer services industry, including four years as Chairman of SurfControl plc and from 1998 to 2000, as General Manager of IBM's Global Industrial sector. Greg also served as a member of IBM's Worldwide Management Council and as a governor of the IBM Academy of Technology. Age 66.
Mike Norris graduated with a degree in Computer Science and Mathematics from East Anglia University in 1983. He joined Computacenter in 1984 as a salesman in the City office. In 1986, he was Computacenter's top account manager. Following appointments as Regional Manager for London Operations in 1988 and General Manager of the Systems Division in 1992 with full sales and marketing responsibilities, he became Chief Executive in December 1994, with responsibility for all day-to-day activities and reporting channels across Computacenter. Mike also led the Company through flotation on the London Stock Exchange in 1998. Mike was awarded an Honorary Doctorate of Science from Hertfordshire University in 2010. Age 52.
Tony Conophy Finance Director Committee Membership:
Board Member Attendance:
Tony has been a member of the Institute of Chartered Management Accountants since 1982. He qualified with Semperit (Ireland) Ltd and then worked for five years at Cape Industries plc. He joined Computacenter in 1987 as Financial Controller, rising in 1991 to General Manager of Finance. In 1996, he was appointed Finance and Commercial Director of Computacenter (UK) Limited with responsibility for all financial, purchasing and vendor relations activities. In March 1998 he was appointed Group Finance Director. Age 56.
Peter founded Computacenter with Philip Hulme in 1981 and was Chairman of the Company until 1998, when he became a Non-Executive Director. He is Chairman of Dealogic (Holdings) plc and prior to founding Computacenter, he was a Managing Director of Morgan Stanley and Co. Age 66.
Key: A – Audit Committee N – Nomination Committee R – Remuneration Committee
Philip Hulme Non-Executive Director Committee Membership:
Board Member Attendance:
John Ormerod Non-Executive Director and Audit Committee Chairman
Committee Membership: A, N, R
Board Member Attendance: 9/9
Philip founded Computacenter with Peter Ogden in 1981 and worked for the Company on a full-time basis until stepping down as Executive Chairman in 2001. He is a Director of Dealogic (Holdings) plc and was previously a Vice President and Director of the Boston Consulting Group. Age 65.
John is a Non-Executive Director and Chairman of the Audit Committee of Gemalto NV, a Non-Executive Director and Chairman of the Audit Committee of ITV plc and Chairman of Tribal Group plc. John is a chartered accountant and has held senior positions with Arthur Andersen and with Deloitte. His former non-executive board appointments include Transport for London and Misys plc. Age 65.
Brian is the Chairman of ASOS plc and Non-Executive Director on the Board of the BBC. He is a member of the Advisory Board of Huawei UK, as well as a member of the UK Government's Digital Advisory Board, established in April 2012 to help steer the digital delivery of Government services to citizens in the UK. Brian is also a member of the Court (Governing Body) of the University of Glasgow, Senior Adviser at Scottish Equity Partners and a Non-Executive Director of AO World plc.
Brian is the former Managing Director of Amazon.co.uk. He began his career with Xerox and subsequently worked in senior roles at IBM, Crosfield Electronics Ltd, Madge Networks, Dell Computers and as Managing Director of T-Mobile (UK). Age 58.
Regine Stachelhaus Non-Executive Director
Regine Stachelhaus has been a Member of the Board of Management at E.ON, based in Germany, where she had a broad range of operational responsibilities including for Legal & Compliance, Group Procurement, Group Human Resources and IT.
From 2009 – 2010, Regine was Executive Secretary for the German Committee of UNICEF. From 1984 – 2008, she worked for Hewlett Packard in Germany across a wide number of management roles, including Head of Legal and Sales Director of its Consumer Business Organisation. From 2000 – 2008, Regine was a Geschäftsführer of Hewlett Packard GmbH, Hewlett Packard's German subsidiary. She originally qualified as a lawyer specialising in employment law and software licensing. Age 58.
The Board of Computacenter believes that long-term shareholder value creation is supported by high-quality governance. It is therefore committed to the principles of good governance and supports the best practice guidelines contained within the UK Corporate Governance Code, as amended in September 2012 (the 'Code'). The Code is published by the Financial Reporting Council and can be found at www.frc.gov.uk.
This Corporate Governance report outlines and explains the Company's governance policies and practices, and sets out how the principles of the Code have been applied during the year ended 31 December 2013. I am able to confirm to you that, except where indicated and fully explained within this report, the Company has complied with each of the provisions of the Code throughout the year.
We have additionally, for ease of reference, prepared a separate report by reference to each of the Main Principles and separate provisions of the Code explaining how the Company has complied with each of these. This report can be found at www.computacenter.com/investors.
The changes made to the Board during 2013 have been referred to within the Nomination Committee report on page 55. As previously announced by the Company during the period, we were pleased to welcome Regine Stachelhaus onto the Board as a Non-Executive Director in July 2013. In line with the Company's procedure for new Directors, Ms. Stachelhaus received a full induction, which included meetings with the Chairman of the Board and its Committees, the CEO and CFO. Additionally, Ian Lewis stepped down from his position as a Non-Executive Director in September 2013, following eight years of valuable service in that role.
"The Board believes that long-term shareholder value creation is supported by high-quality governance."
Since the publication of the 2012 Annual Report and Accounts, an evaluation of the Board, its key Committees and each of the Directors has been carried out by an external and independent provider, NJMD Corporate Services Limited ('NJMD'). Details of the full process carried out and the findings of the evaluation can be found on page 43 of this report. Following this evaluation, I am satisfied that the Board is functioning effectively and that its current constitution and range of skills are appropriate to ensure that the long-term interests of the Company and our shareholders are protected. I also remain satisfied that the members of the Board, in particular the Non-Executive Directors, have sufficient time to undertake their roles at Board and Committee level as currently required by the Company. However, I can assure you that in my role as Chairman of the Board, I will continue to assess both of these judgements to ensure that they remain the case on an ongoing basis.
As in previous years, the Board held a meeting at one of the Company's overseas operations. In 2013, this was held in Berlin, Germany. During the visit the Board discussed, with senior members of the in-country German management team, the progress made by the business following the implementation of Group Operating Model policies and procedures, and the associated strengthening of governance and internal controls within our German business at the beginning of the year. Board members were additionally given a tour of the Group Service Desk in Berlin.
The Board continues to recognise the benefits that diverse skills, experience and points of view can bring to an organisation, and how it may assist the decision-making ability of the Board, thereby increasing its effectiveness. Whilst the Board continues to recognise the continuing debate around requirements for diversity, including that which has taken place within European Union legislating bodies during 2013, and the associated principles involved, appointments to the Board will continue to remain primarily based on merit. As at 31 December 2013, the Computacenter Board had one female Non-Executive Director, Regine Stachelhaus, representing 12.5 per cent of total Board membership.
The Board remains committed to communicating with our shareholders and, where appropriate, submitting its views and considerations for consultation and feedback. Further details regarding this engagement with our shareholders can be found on page 43 of this report.
In accordance with the Code, all of the Directors will stand for re-election at the 2014 Annual General Meeting ('AGM'), with the exception of Regine Stachelhaus, who will be standing for election by shareholders for the first time, following her appointment to the Board in July 2013.
Greg Lock Non-Executive Chairman 10 March 2014
The membership of the Board as at 31 December 2013 is set out on pages 38 and 39, and on that date included six Non-Executive Directors and two Executive Directors. With the appointment of Regine Stachelhaus in July 2013, and the resignation of Ian Lewis from the Board in September 2013, there have been four different independent Non-Executive Directors, excluding the Chairman, on the Board during the course of the year. The attendance of the Directors at Board and Committee meetings is additionally set out on pages 38, 51, 55 and 63 of this report.
During the period, the Board has considered the independence of each Director, taking into account the guidance provided by the Code. The Chairman, Greg Lock, was considered by the Board to be independent on appointment, and each of Brian McBride, John Ormerod and Regine Stachelhaus are considered by the Board to be independent in their character and judgement. Brian McBride remains the Senior Independent Director, following his appointment to the Board in 2011. In this role, Mr McBride acts as an intermediary between the Chairman and the other Directors. The Chairman and Non-Executive Directors met twice throughout the year without the Executive Directors being present.
The Board acknowledges that the Company is not in compliance with paragraph B.1.2 of the Code, which requires at least half of the Board, excluding the Chairman, to be independent Non-Executive Directors. The founders of the Company, Philip Hulme and Peter Ogden, are Non-Executive Directors, but are not considered independent under the Code, due to their long tenure, substantial shareholding in the Company and their previously held executive positions with the Company. The Board continues to review this matter and, as a result of the external Board evaluation recently carried out, it remains clear that the contribution being made by these two Directors to the Board, not least due to their continuity of service and knowledge of the Company, is highly valued by its other members.
The Board is responsible for the management and performance of the Group. It plays a key role in discussing, reviewing and approving the strategic objectives of the Group, and through the review of business plans and budgets submitted by the Executive Directors and senior management, is additionally responsible for ensuring that adequate resources are in place to meet these aims. The Board reviews the performance of the Executive Directors and senior management against the targets set for the delivery of these agreed objectives, including a monthly review of the financial performance of each of the Group's in-country units. Additionally, the Board has the powers and duties conferred upon it by the relevant laws of England and Wales and the Computacenter plc Articles of Association. There is also a documented schedule of Matters Reserved for the Board which additionally include, amongst
other things, the approval of acquisitions, major capital expenditure and Group strategy and budgets. This schedule is reviewed at least annually, or more frequently where required and, during the year, was updated once. This schedule can be found on our website at www.computacenter.com/investors.
The Board held eight scheduled meetings during the year to deal with the standing items on its agenda, including reviewing and discussing any information provided to it by senior management. Additionally, the Board held a special meeting during the year to, amongst other matters, discuss and approve the return of approximately £75 million to the Company's shareholders, which was successfully completed in July 2013. Day-to-day management and operational activities are delegated to a duly authorised Group Executive Committee including, amongst others, the Executive Directors, Group Chief Operating Officer and Group Chief Commercial Officer. Other Board level matters are delegated to each of the Audit, Nomination and Remuneration Committees, details of which can be found at pages 51 to 70 of this Annual Report and Accounts. The Terms of Reference for each Committee can be obtained from the Company's website, www.computacenter.com/investors, or from the Company Secretary, upon request. The composition of each Committee appears on pages 51, 55 and 63 following this report, as do reports from the Chairman of each Committee setting out the main responsibilities of their respective Committee and its main activities during the year.
The roles of the Chairman and Chief Executive are separate and their responsibilities are clearly defined in writing, reviewed annually and approved by the Board. In summary, the Chairman's role is to lead and manage the Board, and to play a role in facilitating the discussion of the Company's strategy by the Board. The Chairman actively encourages contribution from all Directors and is responsible for ensuring that constructive interaction is ongoing between the individual members of the Board. Externally, there have been no changes to the other significant commitments of the Chairman during the year which would impact the time he has to fulfil his role as Chairman of the Company.
The Chief Executive, in turn, is responsible for the day-to-day management of the Group's operational activities and for the proper execution of strategy, as set by the Board. There is no dominant individual or group of individuals on the Board influencing its collective decision-making ability and the Board is comfortable that each of the Directors makes a valuable contribution to the Board.
Upon joining the Board, all Directors receive a comprehensive induction programme, tailored to their specific background and requirements. New Directors receive an induction pack which contains information on the Group's business, its structure and operations, Board procedures, corporate governance related matters and details regarding Directors' duties and responsibilities. All new Directors are introduced to the Group's senior management team.
All Directors receive appropriate documentation in advance of each Board and Committee meeting, including detailed briefings on all matters, in order to discharge their duties effectively in considering a matter and reaching a decision on it.
A performance review of the Board, its Committees and Directors has been undertaken using an external facilitator, Nigel Davies, of NJMD. NJMD has no connection with the Company beyond this evaluation. The process this year involved each Director completing a detailed questionnaire, tailored to reflect the activities of the Board and its Committees during the year. Following this, a further follow-up interview was conducted with each Director, and the information from each questionnaire and interview was then analysed and included in a report for discussion and consideration by the Board as a whole. The review indicates that the Board is effectively run and administered, and is functioning well as a cohesive unit. It additionally found that there is appropriate opportunity for all Directors to participate in open and constructive debate, and did not find any major areas of concern or identify any matters which were of particular concern to individual Directors. It was noted that significant strategy review work had been carried out by the Board in 2013, and that the development of appropriate objectives against which to measure the Company's future performance was work in progress. It was recommended that the role of the Senior Independent Director be formalised in writing, and plans are now in place to address this recommendation.
The Company arranges insurance cover in respect of legal action against the Directors and, to the extent allowed by legislation, the Company has issued an indemnity to each Director against claims brought by third parties.
While the Company's Articles of Association require a Director to be subject to election at the first AGM following his or her appointment and thereafter every third year, the Board has decided that, in accordance with the Code, with the exception of Regine Stachelhaus who will be standing for election for the first time, all Directors should be subject to re-election at the next AGM on 15 May 2014. All Directors will then be subject to re-election at each AGM thereafter.
The Company Secretary is responsible for advising the Board on all corporate governance matters and for ensuring that all Board procedures are followed, applicable rules and regulations are complied with and the Board is continually updated on regulatory and governance matters. All Directors have access to the advice and services of the Company Secretary.
A procedure is in place to enable individual Directors to obtain independent professional advice, at the Company's expense, where they believe it is important to the furtherance of their duties.
The Board recognises and values the importance of meeting the Company's shareholders to obtain their views and has established a programme to communicate with shareholders, based on its financial reporting calendar.
The Board is informed of any substantial changes in the ownership of the Company's shares by the Company's corporate brokers who provide monthly reports on that ownership. In addition, meetings are held with major shareholders following both the full-year and half-year results. Normally, these meetings are with the Chief Executive and Finance Director. The whole Board is briefed on the outcome of these meetings and any issues raised are discussed.
In addition, once a year, the Company's top 15 shareholders are invited to meet individually with the Chairman and the Company Secretary to provide feedback on the Company's management and raise other comments, albeit only a few shareholders take up this opportunity. Specifically, at these meetings, the Company Secretary discusses the Company's corporate governance arrangements and invites feedback on any areas of particular interest from the relevant shareholder.
The Chairman and the Senior Independent Director are contactable at the Company's registered office to answer any queries that both institutional and individual shareholders may have. All of the Directors aim to attend the AGM and value the opportunity of welcoming individual shareholders and other investors to communicate directly and address their questions. In addition to mandatory information, a full, fair and balanced explanation of the business of all general meetings is sent in advance to shareholders. Resolutions at the Company's general meetings have been passed on a show of hands and proxies for and against each resolution (together with any abstentions) are announced at such meetings, noted in the minutes, available on the Company's website and notified to the market.
The Board has overall responsibility for maintaining and reviewing the Group's systems of internal control and ensuring that the controls are robust and effective in enabling risks to be appropriately assessed and managed. The Group's systems and controls are designed to manage risks, safeguard the Group's assets and ensure the reliability of information used both within the business and for publication. This system of control is designed to reduce to a level consistent with the Board's risk appetite, rather than eliminate, the risk of failure to achieve business objectives and can provide reasonable, but not absolute, assurance against material misstatement or loss.
The Board conducts an annual review of the effectiveness of the systems of internal control including financial, operational and compliance controls and risk management systems. It is of the opinion that the Company has complied with the internal control requirements of the Code throughout the year. Where weaknesses or opportunities for improvement are identified, changes are implemented and monitored.
All systems of internal control are designed to identify, evaluate and manage significant risks faced by the Group continuously. The key elements of the Group's controls are as follows:
The primary responsibility for identifying and managing the risks faced by the Group lies with executive and operational management. A comprehensive risk management programme is developed and monitored by the Group Risk Committee, the members of which include senior operational managers across the Group, the Finance Director and the Group Head of Internal Audit and Risk. The Group Risk Committee is chaired by the Group's Chief Operating Officer.
The Board sets the Group's risk appetite and, through the Audit Committee, reviews the operation and effectiveness of the Group's risk management activities. The Board receives regular reports from the Group Risk Committee and periodically reviews the strategic risks faced by the Group and key mitigation plans.
Further information on the key risks facing the Company and the work of the Group Risk Committee can be found within the Risk report on pages 12 to 15. Through a programme of assessment, appropriate measures and systems of control are maintained and, where necessary, developed and implemented. Detailed business interruption contingency plans are in place for all key sites and these are regularly tested, in accordance with an agreed schedule.
The Board has overall responsibility for making strategic decisions and there is a written schedule of Matters Reserved for the Board. The Group Executive Committee meets on a monthly basis to discuss day-to-day operational matters and, with the implementation of the Group Operating Model within the UK and Germany thus far, ultimate authority and responsibility for operational governance sits at Group level. The decision has been made to implement the model additionally within the Group's French business, and we anticipate that this will have been completed by the end of the first half of 2014.
The Group operates defined authorisation and approval processes throughout all of its operations. Access controls exist where processes have been automated to ensure the security of data. Management information systems have been developed to identify risks and to enable assessment of the effectiveness of the systems of internal control. Accountability is reinforced and further scrutiny of costs and revenues encouraged, by the linking of staff incentives to customer satisfaction and profitability.
A three-year strategic plan is prepared or updated by senior management annually and reviewed by the Board. A comprehensive budgetary process is completed annually and is subject to the approval of the Board. Performance is monitored through a rigorous and detailed financial and management reporting system, by which monthly results are reviewed against budgets and agreed targets for the period which, additionally, are compared to historic data as deemed appropriate, such as for the previous year. The results and explanations for variances are regularly reported to the Board. Appropriate action is taken where variances arise.
Management and specialists within the Finance Department are responsible for ensuring the appropriate maintenance of financial records and processes that ensure financial information is relevant, reliable, in accordance with applicable laws and regulations and distributed both internally and externally in a timely manner. A review of the consolidated financial statements is completed by management to ensure that the financial position and results of the Group are appropriately reflected. All financial information published by the Group is subject to review by the Audit Committee.
Procedures exist and authority levels are documented to ensure that proposals for capital expenditure are properly reviewed and authorised. Cases for all investment projects are reviewed and approved at divisional level. Major investment projects are subject to approval by the Board, and Board input and approval is sought for all merger and acquisition proposals.
45
The Board has established and reviews regularly key treasury policies over matters such as counterparty exposure, borrowing arrangements, and foreign exchange exposure management. All cash payments and receipts are managed by centralised finance functions within each of the Group operating companies. During 2013, consistent with the ongoing implementation of the Group Operating Model, a coordinated Group treasury function has been established. The management of liquidity and borrowing facilities for customer specific requirements, ongoing capital expenditure and working capital of the business are all undertaken by the Group treasury function which reports to the Finance Director, with regular reporting to the Board.
Rigorous recruitment procedures are in place to ensure that new employees are of a suitable calibre. Management continuously monitors training requirements, and ongoing appraisal procedures are in place, to ensure that required standards are maintained across the Group. Resource requirements are identified by managers and reviewed by the relevant Executive Committee.
The Company has in place a number of compliance policies which are applied, including those relating to Business Ethics and Anti-bribery. Any breach of these policies by an employee is considered a disciplinary matter and is dealt with accordingly. The Company's Business Ethics policy outlines a procedure for 'Whistleblowing,' where concerns of wrongdoing can be reported to the Group Head of Internal Audit and Risk or the Chairman of the Audit Committee.
The Group has an internal audit function led by the Group Head of Internal Audit and Risk who reports to the Chairman of the Audit Committee.
The Board, acting through the Audit Committee, has directed the work of the Internal Audit Department towards those areas of the business that are considered to be of the highest risk. The Audit Committee approves a rolling audit programme, ensuring that all significant areas of the business are independently reviewed over, approximately, a three-year period. The programme and the findings of the reviews are continually assessed to ensure that they take account of the latest information and in particular, the results of the annual review of internal control and any shifts in the focus areas of the various businesses. The effectiveness of the Internal Audit department and the Group's risk management programme are reviewed annually by the Audit Committee.
The AGM of the Company will be held on 15 May 2014 at Computacenter House, 93-101 Blackfriars Road, SE1 8HL. The AGM notice of meeting sets out each of the resolutions being proposed. This notice will shortly be available for download from www.computacenter.com, and has been mailed to shareholders if they have elected to receive hard copies.
The information that is required by DTR 7.2.6, relating to the share capital of the Company, can be found within the Directors' report from page 46.
By order of the Board
Simon Pereira Company Secretary 10 March 2014
Computacenter plc is incorporated as a public limited company and is registered in England with the registered number 3110569. Computacenter plc's registered office address is Hatfield Avenue, Hatfield, Hertfordshire, AL10 9TW.
The Directors present their report and the audited financial statements of Computacenter plc and its subsidiary companies ('the Group') for the year ended 31 December 2013.
The Companies Act 2006 requires the Group to prepare a Strategic report, which commences at the start of this Annual Report and Accounts up to page 37. The Strategic report includes information about the Group's operations and business model, financial performance throughout the year and likely developments, key performance indicators, principal risks and information regarding the Group's sustainable development plan.
| Computacenter plc mandatory greenhouse gas ('GHG') emissions reporting |
How this was calculated We have used the main requirements of |
Our action to reduce carbon emissions in the UK |
||
|---|---|---|---|---|
| Global GHG emissions data for period: 1 January to 31 December 2013 |
the GHG Protocol Corporate Accounting and Reporting Standard (revised edition). |
Installation of 4 Voltage Optimisation Units saving 7-10 per cent of electricity usage per year. |
||
| Emissions 28,239 metric tonnes of CO2e Scope 1: Combustion of fuel and operation: 3,290 tonnes Scope 2: Electricity, heat, steam and cooling purchased for own use: 24,949 tonnes Total footprint: 28,239 tonnes Company's chosen intensity measurement: Total footprint equals 9.19 tonnes of emissions per £m value of Group revenue |
Emission factors used are from the UK Government's Conversion Factors supplied by the Department of Environment, Food and Rural Affairs. This activity has been conducted as part of our UK Environment Management System registered to ISO 14001:2004 (EMS 71255). Group properties included in this report are all current locations in the UK, Germany, France, Belgium, Spain, South Africa, Luxembourg, Switzerland, Malaysia and Hungary. We have reported on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013. |
£4.5m of renewable electricity has been purchased for the UK sufficient for two years usage over the period 2013-2014. Installation of eight new efficient gas heating systems across the UK. £250,000 of investment in new technology helping to reduce emissions produced by our datacenters. The volume of electricity required for our datacenters is 45 per cent of the total required for the UK. They host customers' Information Technology in the form of servers, thus reducing their carbon footprint. However, this increases the level of emissions that Computacenter produces. Investment was made in the replacement of nine new gas boiler |
||
| Total footprint equals 2.22 tonnes of emissions per Group employee |
Limitations to data collection Less than 5 per cent of emissions were estimated or based on an average usage per square foot. |
systems, located at Hatfield and the London office, in order to increase efficiency. |
||
| Scope 1/2/3 | This data is available for the UK, and is reported annually in our Carbon Discloser Project reports. |
|||
| Energy Efficiency Scheme (CRC) | The UK continues to fully comply with this scheme, and is registered as a participant in it. |
|||
| ISO 14001:2004 | The EMS of the UK has been registered to this standard since 2002. |
Under Disclosure and Transparency Rule 7.2, the Company is required to include a Corporate Governance report within the Directors' report. Information on our corporate governance practices can be found in the Corporate Governance report on pages 40 to 45, and the reports of the Audit, Remuneration and Nomination Committees on pages 51 to 70, which are incorporated into the Directors' report by reference.
This Directors' report, together with the other reports, forms the Management Report for the purposes of Disclosure and Transparency Rule 4.1.8.
The Group's activities resulted in a profit before tax of £50.5 million (2012: £64.8 million). The Group profit for the year, attributable to shareholders, amounted to £33.2 million (2012: £49.1 million). The Directors recommend a final dividend of 12.3 pence per share totalling £16.7 million (2012: £15.8 million). Dividends are recognised in the accounts in the year in which they are paid, or in the case of a final dividend, when approved by the shareholders. As such, the amount recognised in the 2013 accounts, as described in note 12, is made up of last year's final dividend (10.5 pence per share) and the interim dividend (5.2 pence per share).
The final ordinary dividend for 2013, if approved at the forthcoming AGM, will be paid on Friday 20 June 2014. The dividend record date is set on Friday 23 May 2014 and the shares will be marked ex-dividend on Wednesday 21 May 2014. The Company paid an interim dividend of £7.0 million in October 2013.
The Company's Articles of Association set out the procedures for governing the Company. A copy of the Articles of Association, which were amended once during the year in order to facilitate the return of approximately £75 million to shareholders, is available on the Company's website (www.computacenter.com/investors).
The Directors who served throughout the year ended 31 December 2013 were Tony Conophy, Philip Hulme, Greg Lock, Brian McBride, Mike Norris, John Ormerod and Peter Ogden. Additionally, Regine Stachelhaus was appointed to the Board as a Non-Executive Director in July 2013, and Ian Lewis stepped down from his position as a Non-Executive Director in September 2013. Biographical details of each director, as at the date of this report, are given on pages 38 and 39. The Company's Articles of Association require at each AGM that those Directors who were appointed since the last AGM retire, as well as one-third of the Directors who have been the longest serving. The Board has decided, in accordance with the Code, that all Directors, with the exception of Regine Stachelhaus, will retire at each forthcoming AGM and offer themselves for re-election. The Nomination Committee has considered the re-election of each Director and recommends their re-election. Further details on the Committee's recommendations for the re-election of the Directors are set out
in the Notice of AGM, as is the brief Curriculum Vitae of each Director, which collectively illustrate the skills and experience that the Directors bring to the Board. At the 2014 AGM, Ms Stachelhaus will offer herself for election to the Board for the first time following her appointment in July 2013.
The Company's Articles of Association provide for a Board of Directors consisting of not fewer than three, but not more than 20 Directors, who manage the business and affairs of the Company. The Directors may appoint additional or replacement Directors, who shall serve until the following AGM of the Company, at which point they will be required to stand for election by the members. A Director may be removed from office at a general meeting of the Company, by the passing of an Ordinary Resolution (provided special notice has been given in accordance with the UK Companies Act 2006).
Members have previously approved a resolution to give the Directors authority to allot shares, and a renewal of this authority is proposed at the 2014 AGM. This authority allows the Directors to allot shares up to the maximum amount stated in the Notice of AGM (approximately one-third of the issued share capital) and this authority would generally expire at the following AGM. In addition, the Company may not allot shares for cash (unless pursuant to an employee share scheme) without first making an offer to existing shareholders in proportion to their existing holdings. This is known as rights of pre-emption. A resolution to allow a limited waiver of these rights was passed by the members at last year's AGM. It is proposed at the forthcoming AGM that a similar waiver should be granted, which will represent approximately five per cent of the issued share capital. Full details of the proposed waiver are in the Notice of AGM. The current waiver expires at the conclusion of the 2014 AGM.
The Company has executed deeds of indemnity with each of the Directors. These deeds contain qualifying third party indemnity provisions, indemnify the Directors to the extent permitted by law and remain in force at the date of this report. The indemnities are uncapped and cover all costs, charges, losses and liabilities the Directors may incur to third parties, in the course of acting as Directors of the Company or its subsidiaries.
The Board has put in place a process whereby the Directors are required to notify the Company Secretary of any situations (appointments, holdings or otherwise), or any changes to such, which may give rise to an actual or potential conflict of interest with the Company. These notifications are then reviewed by the Board and recorded in a register maintained by the Company Secretary and, if appropriate, are considered further by the Directors who are not conflicted in the matter, to (if deemed appropriate) authorise the situation. The register of notifications and authorisations is reviewed by the Board twice a year. Where the Board has approved an actual or potential conflict, it has imposed the condition that the conflicted Director abstains from participating in any discussion or decision affected by the conflicted matter.
The interests of the Directors in the share capital of the Company at the beginning and end of the year are set out below:
| As at 1 January 2013 or date of appointment |
+/- after taking account of Return | ||||||
|---|---|---|---|---|---|---|---|
| As at 31 December 2013 | of Value share consolidation | ||||||
| Number of | Number of | Number of | Number of | Number of | Number of | ||
| ordinary shares | ordinary shares | ordinary shares | ordinary shares | ordinary shares | ordinary shares | ||
| Beneficial | Non-Beneficial | Beneficial | Non-Beneficial | Beneficial | Non-Beneficial | ||
| Executive Directors | |||||||
| Mike Norris | 1,288,939 | – | 1,385,658 | – | +46,497 | – | |
| Tony Conophy | 2,025,177 | – | 2,194,659 | – | +55,538 | – | |
| Non-Executive Directors | ||||||
|---|---|---|---|---|---|---|
| Greg Lock | 400,000 | 25,885 | 430,000 | 50,984 | +13,000 | -20,000 |
| Philip Hulme | 13,846,593 | 9,891,526 | 17,051,770 | 9,073,921 | -1,600,000 | +1,600,000 |
| Brian McBride | – | – | – | – | – | – |
| Peter Ogden | 31,802,071 | 881,249 | 35,335,636 | 979,166 | – | – |
| John Ormerod | 22,500 | – | 25,000 | – | – | – |
| Regine Stachelhaus | – | – | – | – | – | – |
Between 31 December 2013 and 10 March 2014, there have been no changes to the interests detailed above. Save as disclosed in this report and the Remuneration Committee report, no Director has any interest (beneficial or non-beneficial) in any share or loan capital of the Company or any of its subsidiaries.
As at 12 February 2014, the Company was aware of the following major interests in its shares:
| % of issued share | |
|---|---|
| Name of Major Shareholder | capital held |
| Peter Ogden | 22.88 |
| Philip Hulme | 9.96 |
| Standard Life Investments Ltd | 6.72 |
| Schroder Investment Management Ltd | 5.54 |
| Investec Asset Management Ltd | 5.40 |
| The Hadley Trust (of which Philip Hulme, Non-Executive Director of the Company, is a trustee) | 4.64 |
| Artemis Investment Management Ltd | 4.37 |
As at 28 February 2014, there were 138,965,137 fully paid ordinary shares in issue, all of which have full voting rights and there were no restrictions on the transfer of these shares. Additionally, there were 153,931,830 deferred shares in issue. Pursuant to the Company's share schemes, there are two employee trusts which, as at the year-end, held a total of 3,107,098 ordinary shares of 6⅔ pence each, representing approximately 2.2 per cent of the issued share capital.
During the year, the trusts purchased a total of 338,000 shares in order to ensure that the maturities occurring pursuant to these share option schemes could be satisfied. In the event that shares are held by these trusts before being transferred to employee participants pursuant to the schemes then, in line with good practice, the Trustees do not exercise the voting rights attaching to such shares. In the event that another entity or individual takes control of the Company, the employee share schemes operated by the Company have change of control provisions contained within them that would be triggered. Participants may, in certain circumstances, be allowed to exchange their options for options of an equivalent value over shares in the acquiring company. Alternatively, the options may vest early, in which case, early vesting under the executive schemes will generally be on a time-apportioned basis and under the Sharesave scheme, employees will only be able to exercise their options to the extent that their accumulated savings allow at that time. The Company was granted authority at the 2013 AGM, to make market purchases of up to 15,393,182 ordinary shares of 6⅔ pence each. This authority will expire at the 2014 AGM, where approval from shareholders will be sought to renew the authority. During the period no shares were purchased for cancellation.
Details regarding the status of the various borrowing facilities used by the Group are provided in the Finance Director's review on pages 28 to 33. These agreements each include a change of control provision, which may result in the facility being withdrawn or amended upon a change of control of the Group. It is also not extraordinary within our business sector for our longer term Services contracts to contain change of control clauses that allow a counterparty to terminate the relevant contract in the event of a change of control of the Company.
Financial statements
The Group's financial risk management objectives and policies are discussed in the Finance Director's review on pages 28 to 33.
The Company operates executive share option schemes and a performance-related option scheme for the benefit of employees. During the year, no options were granted under the executive share option schemes.
At the year-end, the options remaining outstanding under these schemes were in respect of a total of 592,000 ordinary shares of 6⅔ pence each (2012: 1,033,000 shares). During the year options over 441,000 shares were exercised and options over nil shares lapsed. The Company also operates a Performance Share Plan ('PSP') to incentivise employees. During the year, 1,049,579 ordinary shares of 6⅔ pence each were conditionally awarded (2012: 1,179,689 shares). At the year-end, awards over 3,066,742 shares remained outstanding under this scheme (2012: 3,207,545 shares). During the year, awards over 571,821 shares were transferred to participants and awards over 618,561 shares lapsed. In addition, the Company operates a Sharesave scheme for the benefit of employees. At the year-end, 3,292,614 options granted under the Sharesave scheme remained outstanding (2012: 2,971,058).
The Board recognises that acting in a socially responsible way benefits the community, our customers, shareholders, the environment and employees alike. Further information can be found in the report on pages 34 to 37 and covers matters regarding health and safety, the environment, equal opportunities, employee involvement, employee development and charitable donations. During the year, the Group did not make any political donations to any political party or organisation and it did not incur any political expenditure within the meaning of Sections 362 to 379 of the Companies Act 2006.
The Group acknowledges the importance of equality and diversity and is committed to equal opportunities throughout the workplace. The Group's policies for recruitment, training, career development and promotion of employees, are based purely on the suitability of the employee and give those who may be disabled equal treatment to their able bodied colleagues. Where an employee becomes disabled, subsequent to joining the Group, all efforts are made to enable that employee to continue in their current job. However if, due to the specific circumstances, it is not possible for an employee to continue in their current job, they will be given suitable training for alternative employment within the Group or elsewhere.
The Group monitors and regularly reviews its policies and practices to ensure that it meets current legislative requirements, as well as its own internal standards. The Group is committed to making full use of the talents and resources of all its employees and to provide a healthy environment that encourages productive and mutually respectful working relationships within the organisation. Policies dealing with equal opportunities are in place in all parts of the Group,
which take account of the Group's overall commitment and also address local regulatory requirements.
| Male | Female | |
|---|---|---|
| Percentage of persons who are | ||
| senior managers of the Group | 84.9% | 15.1% |
| Percentage of employees in the Group | 78.4% | 21.6% |
The Group is committed to involving all employees in significant business issues, especially matters which affect their work and working environment. A variety of methods are used to engage with employees, including team briefings, intranet, email and in-house publications. The Group will use one or more of these channels to brief employees on the Group's performance and the financial and economic factors affecting the Group's performance. In particular, the Group operates a Save As You Earn ('SAYE') share scheme, which is open to eligible employees, where employees are encouraged to save a fixed monthly sum for a period of either three or five years. Upon maturity of the scheme at the end of the relevant saving period, participants can purchase shares in the Company at a price set at the commencement of the saving period. The primary method used to engage and consult with employees is through team briefings, where managers are tasked with ensuring that information sharing, discussion and feedback happen on a regular basis.
The development of employee skills and careers, as well as the communication of Company goals, are driven by our e-FACE tool. Annual assessments via our e-FACE tool are a formal requirement of all managers.
Employee consultative forums exist in each country to consult staff on major issues affecting employment and matters of policy, and to enable management to seek the views and opinions of employees on a wide range of business matters. Should there be cross-jurisdictional issues to discuss, a facility exists to engage a European forum made up of representatives from each country forum. The Group regularly reviews the performance of its employees through a formal review process, in order to identify areas for development. Managers are responsible for setting and reviewing personal objectives, aligned to corporate and functional goals. The Board closely oversees and monitors management skills and the development of talent to meet the current and future needs of the Group. The Board directly monitors and reviews closely, succession and plans for developing identified key senior managers.
An ethics policy is operated by the Group, which commits Computacenter employees to the highest standards of ethical behaviour in respect of customers, suppliers, colleagues and other stakeholders in the business. The policy includes a requirement for all employees to report abuses or nonconformance with the policy ('Whistle blowing') and sets out the procedures to be followed. The Group has additionally adopted a Code of Ethics specifically aimed at the prevention of bribery.
Computacenter's business activities, business model, its strategic goals and its performance are set out within the Strategic report on pages 2 to 37. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are set out within the Finance Director's review on pages 28 to 33. In addition, notes 26 and 27 to the financial statements include Computacenter's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to credit and liquidity risk. Computacenter's balance sheet strength, its long-term contracts with customers and suppliers, as well as the different geographies within which it operates, provide the Directors with confidence that Computacenter is well placed to manage its business risks even during a prolonged period of economic uncertainty.
The Directors have, after due consideration and investigation, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
Ernst & Young LLP has expressed its willingness to continue in office as auditor and a resolution approving the reappointment of Ernst & Young LLP as the Company's auditor will be proposed at the forthcoming AGM.
Pages 1 to 71, inclusive, of this Annual Report comprise the Directors' report that has been drawn up and presented in accordance with English company law, and the liabilities of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law.
Mike Norris Chief Executive
Tony Conophy Finance Director 10 March 2014
| Member | Role | Attendance record |
|---|---|---|
| 1. John Ormerod (Chairman) |
Non-Executive Director | 4/4 |
| 2. Ian Lewis | Non-Executive Director | 3/3 |
| 3. Brian McBride | Non-Executive Director | 4/4 |
| 4. Regine Stachelhaus |
Non-Executive Director | 1/1 |
Set out from pages 51 to 54 is the Audit Committee report.
In reporting to you, we have sought to respond to stakeholders' changing requirements and expectations of audit committees. In particular we have:
This is no doubt the start of improved communication between audit committees and shareholders, and we welcome feedback.
John Ormerod Chairman of the Audit Committee 10 March 2014
The key responsibilities of the Audit Committee include the review of financial information released by the Company, including its annual and half-year statements and results. The Committee is required to review, challenge, and report to the Board on the appropriateness of the Company's accounting policies and the key judgements made in the preparation of financial information. The full responsibilities of the Committee can be found within its Terms of Reference on our website, at www.computacenter.com/investors
All members of the Audit Committee are Independent Non-Executive Directors of the Company, and are considered by the Board to have a wide range of business and financial experience to enable the Committee to perform effectively. The Board considers the Chairman of the Audit Committee to have recent and relevant financial experience for the purposes of the Code. The Committee met four times during the course of 2013. Meetings are attended by members and, at the Committee's invitation, the Chairman of the Board, Chief Executive Officer, Finance Director, Group Head of Internal Audit and Risk and representatives of the external auditor. Others are invited to the Committee's meetings to participate in topics relevant to their responsibilities or experience. The Committee also meets privately, at least on an annual basis, with the external auditor and the Group Head of Internal Audit and Risk. The Chairman of the Committee has regular informal discussions with the Finance Director, Group Head of Internal Audit and Risk and our external auditor. He also receives the reports of the Internal Audit department as they are issued, and additionally receives feedback on the preparation and audit of accounts as that work progresses and as any significant judgements arise.
The Committee reviewed the primary areas of judgement made in the preparation of the Company's financial information in 2013, and these included the following:
The complexity of the contractual arrangements with several large customers requires significant consideration to be given to the most appropriate accounting treatment, and judgements made by management in particular around the recognition of revenue accruing from separate component parts of these contracts. During 2013, Management was able to reassess the expected outturn on certain long-term contracts. As the contracts progressed and uncertainties were resolved, the overall contract profitability was reassessed and a one-off gain of £4.0 million recognised. The Committee has reviewed the judgements made in this area by management and, after due challenge and debate, was content with the assumptions made and the judgements applied.
Financial statements
Following the Managed Services contract issues which arose within the Group's German business in 2012, the Audit Committee directed that a full review of the current and forecasted financial performance for each problem contract within that business be undertaken by Management and reviewed by the Group's auditors. The completion of this work established that three of these contracts were likely to be loss-making over the course of their lifetime. Following robust challenge and questioning around the work carried out, including the assumptions used and judgements made by Management in calculating the level of future losses on the contracts, the Committee agreed with the recommendation of Management that a provision of £10.7 million be taken within the Group's 2013 Interim Accounts for forecasted losses on these three contracts both during the second half of 2013 and over the remainder of their lifetime.
Exceptional items, such as for contract losses and reorganisation costs, have been disclosed within the Group financial statements in each of the past two years, and Management has now reclassified prior year numbers, specifically in relation to the contract losses in Germany outlined above, to ensure that corresponding numbers are consistently presented. Given the size of these losses and the desire to enable readers of the Company's accounts to understand the underlying trading performance of the business in 2012 and 2013, it was considered necessary to treat these as exceptional in 2013, and to restate the 2012 results accordingly. The Committee received input from the external auditors in considering carefully all matters identified as 'exceptional' in the Group's financial results, to confirm that such accounting treatment is consistent with appropriate accounting standards and practice. The Committee concluded that the classification of items detailed as 'exceptional' within the Group financial results was appropriate.
The Committee considered whether the non-current and intangible assets within the Group's French business should be impaired following the poor financial performance by the Group's French business in the first half of 2013. The judgements in relation to asset impairment largely relate to the assumptions underlying the future performance of the business. As such, the Committee received relevant financial reports from Management, from which, it challenged and debated the assumptions underlying the forecasted information provided and Management's recommendation as to the quantum of the impairment charge that should be taken. As a result the Committee agreed with the recommendation of Management that a non-cash impairment of £12.2 million be made to goodwill and acquired intangibles within the French business.
The application of the going concern basis was discussed by the Committee, in the context of the Group having returned approximately £75 million to its shareholders during the course of 2013 and suffered a statutory loss in the first half of the year. The review by the Committee of analysis prepared by Management supported the Board's decision to seek an additional committed facility of £40 million for the Group to provide significant financial headroom to meet unexpected cash requirements if required, prior to it approving the return of capital transaction. The financial projections and review were updated at the end of the year and on that basis the Committee agreed that the 2013 financial statements were appropriately prepared on a going concern basis.
In 2012, the Company recognised certain deferred tax assets, stemming from accumulated tax losses within its French and German subsidiaries. The level of deferred tax asset recognition in relation to accumulated tax losses is underpinned by a range of judgements, and is substantially based on the future forecast profitability of these entities. The performance of the French business in 2013 has resulted in the need to write off £2.2 million of deferred tax assets as an exceptional item in 2013. The Committee has therefore received and challenged appropriately the financial information relating to future profitability, and the assumption made within that information such as to the likelihood of their recoverability.
The Group successfully implemented its ERP system into its UK and German businesses in 2011. However, in 2013, the implementation of this system within its French business was less successful for a number of reasons. This resulted in a number of operational problems affecting, for a short period, the ability of the French business to manage the delivery of product and parts through its logistics system. This, in turn, had a resultant negative impact on the visibility and transparency of management reporting during the second half of 2013. Whilst it is clear that the financial performance of the French business has been impacted by these issues, they have now been resolved and the relevant order backlogs have been cleared. As difficulties with the ERP system are overcome, it will facilitate the implementation of the Group Operating Model, which will be used, amongst other things, as the engine to drive an improved business performance in the Group's French business over the medium term. The Committee monitored the response of management to these issues and, in particular, received reports from management and the Group's auditors that assured the Committee that they did not impact the reliability of the Group's reported results.
At the request of the Board, the Committee assisted with oversight of the procedures performed to provide the formal assurance now required from the Board that the Annual Report and Accounts is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company's performance, business model and strategy. The new procedures are largely the formalisation of prior practice. The Committee advised the Board that appropriate procedures had been applied.
The Board accepts and acknowledges its overall responsibility for the Group's systems of Internal Control and Risk Management, and to ensure that these work appropriately and effectively. On behalf of the Board, during the year, the Committee monitored the Group's risk management and reviewed the effectiveness of its internal control procedures. A number of detailed areas for improvement are routinely identified and actions implemented as a result of the review of internal controls by Management and the internal audit function. The Committee monitors implementation of agreed improvements. In 2012, there were serious control failures in relation to the bidding and take-on of Managed Services contracts in Germany where much work has been done and improvements are ongoing. With the exception of those issues outlined above concerning the implementation of the Group ERP system into France, no other material control failures were identified in 2013.
The Committee continues to oversee the Internal Audit function, and carried out a review of the department's resources. The Committee received an update from the Group Head of Internal Audit and Risk at each meeting during the year on current audit activities, and any associated issues resulting from the completion of such work. The Chairman of the Committee additionally meets with the Group Head of Internal Audit and Risk on a number of occasions throughout the year, through which he is continually updated on the activities of the internal audit function, and receives a frequent assessment as to whether the function is adequately resourced.
Following the contractual services issues which arose within the Group's German subsidiary in 2012, the Committee gave direction to the Group's internal audit function to focus on the large contract lifecycle. This has resulted in work and reports being reviewed by the Committee around the end-to-end contract bid, take-on and in life-service governance processes. Additionally, work has been carried out to review adherence across the Group to newly implemented industrialisation processes and authorisation structures, as part of the new Group Operating Model in place within the UK and Germany, and currently being rolled out across our French business. The Committee has also received reports and updates on the effect of the implementation of the now Group-wide ERP system in France, and carried out its periodic review of certain controls including treasury, foreign exchange, tax compliance and tax risk.
The Audit Committee is required to oversee the Company's relationship with its external auditor, and to make recommendations in relation to the Board concerning the appointment, reappointment and remuneration of the external auditor.
The Committee considers the appointment or reappointment of the external auditor, including the timing of rotation of the incumbent audit partner, on an annual basis. Ernst & Young LLP have served as the Company's auditors since it listed in 1998. The Committee recommended that Ernst & Young LLP be appointed for the 2014 audit. In accordance with good governance practice, the Committee agreed to carry out an audit tender in 2014, with its recommendation to be put before shareholders for approval at the Company's AGM in 2015.
The Committee reviews the effectiveness and quality of the external audit process by:
The Committee receives and reviews the annual audit plan from Ernst & Young LLP identifying the key risks to the business which will be subject to their audit process. In 2013, these risks included contract accounting and revenue recognition, presentation of exceptional items, impairment, the going concern basis of accounting, deferred tax assets and the effect of the Group ERP system implementation in France on the visibility and transparency of management reporting, due to the inherent Management judgements required in, or as a result of, these issues. At this planning stage, the Committee agrees with the auditors their assessment of materiality and overall scope of work and approves the audit fee arrangements. The Committee additionally assesses the quality of the audit process through the audit reporting from Ernst & Young LLP in relation to such issues.
The Committee assessed the effectiveness of the external audit process by means of a detailed questionnaire which is completed by key stakeholders and relevant internal management. The results of the questionnaire were then discussed as a specific agenda item at the Committee meeting immediately following the completion of the questionnaire process, and any actions requested by the Company to enhance effectiveness were followed-up and appropriately monitored thereafter. The Committee additionally receives and reviews reports from Ernst & Young on their quality controls and independence policies.
The Committee places considerable importance on ensuring the continuing independence of the Group's auditors. This topic is reviewed at least annually with the auditors, who also have procedures in place, to ensure they bring to bear appropriate scepticism and avoid conflicts of interest.
In support of maintaining the auditor's independence, the Committee has established a policy in relation to the scope and extent of provision of non-audit services by the Group's auditors which is summarised on this page. During the year, the Committee monitored compliance with this policy by approving the audit fee and monitoring the level of non-audit work provided by the external auditor, resulting in non-audit fees being 22 per cent of the Ernst & Young LLP overall audit fee during 2013. This related primarily to additional tax, compliance and consulting work done on the Return of Value to shareholders. The Committee deemed appropriate to use the Company's auditors for this work due to their existing and detailed prior knowledge and understanding of the business.
The external auditor is appointed primarily to report on the annual and interim financial statements. The Committee places a high priority on ensuring that this independent role of reporting to shareholders is not compromised. The Committee recognises, however, that there are occasions when the auditors are best placed to undertake other accounting, advisory and consultancy work in view of their knowledge of the Company's business, confidentiality and cost considerations. The Committee has therefore established procedures to ensure that any non-audit work is only undertaken by auditors where there is no risk of compromise to their independence.
To this end, the Committee has formally defined areas of work for which the auditors will be prohibited from engagement and areas where, subject to following the stipulated processes of authorisation and where appropriate, competitive tendering, the auditors may be engaged. The former areas of work include the preparation of accounting records and financial statements which will ultimately be subject to audit. Currently, the latter areas of potential engagement may include acquisition due diligence and tax compliance and advice. In all cases significant non-audit engagements are subject to prior approval by the Audit Committee or if approval is required between meetings, by the Chairman of the Audit Committee. Other than in exceptional circumstances, the Committee does not expect the value of non-audit services to exceed the aggregate value of audit and audit related services in any financial year.
| Members | Role | Attendance record |
|---|---|---|
| 1. Greg Lock (Chairman) |
Chairman | 3/3 |
| 2. Ian Lewis | Non-Executive Director | 2/2 |
| 3. John Ormerod | Non-Executive Director | 3/3 |
| 4. Brian McBride | Non-Executive Director | 3/3 |
The key responsibilities of the Nomination Committee are to assist the Board with:
The full terms of reference for the Nomination Committee are available on our website, www.computacenter.com/investors.
The members of the Nomination Committee are the independent Non-Executive Directors and the Chairman of the Board. However, input from all the Directors is sought by the Committee and it involves the Board as a whole when performing its key responsibilities. Details of the membership and attendance at Committee meetings during the year are provided opposite.
The Company Secretary is the secretary to the Committee.
The Nomination Committee met on three occasions during 2013 and its work included:
John Ormerod, currently the Company's Audit Committee Chairman and a Non-Executive Director of the Board, was appointed to these roles on 31 October 2006. Under the terms of the Code, after nine years of service as a member of the Board, he will no longer be considered independent. As such, Mr Ormerod has notified the Company of his intention to step down as a Non-Executive Director of the Company and Chairman of the Company's Audit Committee by no later than the date of the Company's Annual General Meeting in May 2015. The Company will now take steps to facilitate this change and, as part of this process, in 2014 the Nomination Committee will commence a process to recruit a new Non-Executive Director to chair the Company's Audit Committee.
Greg Lock Chairman of the Nomination Committee 10 March 2014
| Annual Statement | Page 56 | |
|---|---|---|
| Remuneration Policy report | Page 57 | |
| Annual Remuneration report | Page 63 | |
I am pleased to present our Remuneration Committee report for the financial year ended 31 December 2013. It is our first such report to be prepared in accordance with the new reporting regulations introduced in the UK during the course of 2013.
In accordance with the new requirements, the remainder of this report is split into two sections. The first of these reports, from pages 57 to 62, sets out the Directors' Remuneration Policy report, which will be offered for a binding shareholder vote at the Company's Annual General Meeting in 2014 ('AGM').
There is additionally, from pages 63 to 70, our Annual Remuneration report. This discloses how the Group's current remuneration policy has been implemented in 2013, and includes information concerning the amount paid to the Executive and Non-Executive Directors of the Board during 2013. In addition to this Annual Statement, it will be subject to an advisory vote of shareholders at the AGM.
As a principle underlying its decision-making in 2013, the Committee has sought to ensure that the amount paid to Computacenter's Executive Directors is clearly linked with their performance and, most importantly, to the value that they have delivered to our shareholders during that time. The Committee did not believe it necessary to change the overall structure of Computacenter's remuneration policy during the year in order to achieve this objective.
Our performance is explained in more detail within the Strategic report on pages 2 to 37. However, broadly speaking 2013 was a year of good progress for the Group. Turnover and adjusted profitability grew for the fourth consecutive year, the Group carried out a return of cash of approximately £75 million to its shareholders, and increased its proposed ordinary dividend per share for the year to 17.5 pence.
However, the Board has been disappointed with the performance of the Group's French business. It is also aware of the impact that the overall performance of our three onerous contracts in Germany has had on shareholder value at certain times during the reporting period, notwithstanding that the Group had made significant progress in stabilising the operational and financial performance of these contracts by the end of the year.
The basic salaries of the Executive Directors were not increased at the beginning of the reporting period, and will remain at their current level during the course of 2014.
The level of variable remuneration paid out to the Directors in respect of 2013 was affected by the result of our performance in France and the isolated issues within our German business referred to above. As a result, 61.2% of total potential bonus was paid out to the CEO, whilst the Group's Finance Director ('CFO') received 61.9% of his total potential bonus for the year.
The Performance Share Plan ('PSP') awards granted in March 2011, which were due to vest in March 2014, will not be paid out for the Executive Directors or the top levels of senior management in the Group as relevant financial performance conditions were not met.
You will find more detail on these outcomes at pages 63 to 70 of this report.
It has been the role of the Committee to ensure that the performance of the Group is reflected in the remuneration paid out to its Executive Directors. It hopes that, having read this report, shareholders are of the opinion that we have performed this role appropriately and in line with their interests.
Further detail on how our Directors' Remuneration Policy will be applied in practice for the 2014 financial year, conditional on its proposed approval at our forthcoming AGM, is set out from pages 63 to 70 of this report.
During the year, I provided the Committee with general feedback from our major shareholders in respect of executive remuneration, particularly as a result of the consultation we carried out in respect of the most recent vesting of our PSP scheme, as is outlined in more detail on page 62.
Where we have engaged with shareholders, we are grateful for the feedback that we have received. We continue to be committed to regular dialogue with them and hope to receive their support at our AGM in May 2014.
Brian McBride Chairman of the Remuneration Committee 10 March 2014
57
This section is the Group's Remuneration Policy ('Policy'), as reviewed and approved by its Remuneration Committee. As required, it complies with Schedule 8 of The Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.
It is intended that the Policy will be put before shareholders for approval by way of a binding vote at the Company's AGM on 15 May 2014. If approved by shareholders, the Policy will have effect immediately thereafter. Prior to that date, the Company's existing remuneration policy will continue to apply.
In implementing the Policy, it should be noted that the Remuneration Committee considers pay and working conditions in the wider group, as is further outlined on page 62.
| Purpose and link to strategy | Operation | Performance Targets |
|---|---|---|
| Fixed pay | ||
| Base Salary | ||
| Supports the recruitment and retention of executives of the calibre required to deliver |
Will reflect an individual's responsibilities, performance, skills and experience. |
n/a |
| the Group's strategy. | Reviewed annually on 1 January taking into account the level of pay settlements across the Group, the performance of the business and general market conditions. |
|
| Salary levels at other organisations of a similar size, complexity and business orientation will be reviewed for guidance. |
||
| An exceptional review may take place to reflect a change in the scale or scope of a Director's role, for example: a major acquisition. |
||
| Salary levels for the current Executive Directors for the 2014 financial year are: |
||
| Chief Executive: £500,000 | ||
| Chief Financial Officer: £325,000 | ||
| Benefits | ||
| To provide a competitive level | No special arrangements are generally made for Executive Directors. | n/a |
| of employment benefits | Benefits currently include a car benefit appropriate for the role performed, participation in the Company's private health and long-term sickness schemes, life insurance and income continuance schemes, and participation in all-employee share plans on the same basis as other eligible employees. |
|
| All of the Group's UK and German tax-resident employees are eligible to participate in the Company's SAYE Scheme. |
||
| If new benefits are introduced for a wider employee group, the Executive Directors shall be entitled to participate. |
||
| If, in the opinion of the Committee, a Director must relocate to undertake and properly fulfil his/her executive duties, a one-off cash payment may be made to cover reasonable expenses. |
||
| While there is no maximum amount as the cost of benefits is dependent upon costs in the relevant market, benefits will be set at levels which are competitive, but not excessive. |
||
| Pension | ||
| To provide an income for retirement | No special arrangements are made for Executive Directors. They are entitled to become members of the Group's defined contribution pension scheme, which is open to all UK employees. |
n/a |
| If the Executive Director so chooses, he/she may take the pension contribution as a cash alternative, which will be the same percentage of salary as the pension contribution foregone. |
||
| Pension contributions or allowances will not exceed 15 per cent of base salary. |
||
| Purpose and link to strategy | Operation | Performance Targets |
|---|---|---|
| Performance Related Pay | ||
| Annual Bonus | ||
| To incentivise the delivery of annual, short-term, stretching financial and non-financial objectives. |
The total sum due is paid in cash after completion of the relevant performance period. |
Financial measures will normally be used to calculate at least a |
| To align pay costs to affordability and the value delivered to shareholders. |
The maximum annual bonus achievement will be 200 per cent of Base Salary. |
majority of bonus achievement and the remainder of annual bonus will normally be attributed |
| The Committee has discretion to vary bonus payments downwards or upwards if it considers the outcome would not be a fair and complete reflection of the performance achieved by the Group and/or the Executive Director. To the extent that this discretion is exercised, this will be disclosed in the relevant Remuneration Committee report and may be the subject of shareholder consultation if deemed appropriate. |
to non-financial measures. Financial measures will normally include profitability, cost management, cash management and other appropriate measures. Non-financial targets will be stretching targets set by the Committee. |
|
| The current bonus opportunities in 2014 are 130 per cent of Base Salary for the CEO and 100 per cent of Base Salary for the CFO. Increases above the current opportunities, up to the maximum limit may be made to take account of individual circumstances, which may include an increase in the size or scope of role or responsibility. |
Targets are reviewed and approved annually by the Committee to ensure that they are stretching and adequately reflect the strategic aims of the Group. |
|
| Performance Share Plan | ||
| To align the interests of Executive Directors and shareholders. |
An annual grant of shares, or options to acquire shares, will be made subject to performance criteria. Awards normally vest after a three-year period. |
Earnings per share is the primary measure for our Performance Share Plans, and the Committee may |
| To incentivise the achievement of longer-term profitability and returns to shareholders, and growth of earnings in a stable and sustainable manner. |
The current maximum face value of annual awards granted in 2014 is 200 per cent of salary for the CEO and 175 per cent of salary for the CFO. |
exercise its discretion to introduce additional or alternative measures. In the event of serious misconduct |
| Details of the performance conditions applied to awards granted in the year under review and to be granted in the forthcoming year are set out on pages 65 and 66. |
of an Executive Director, or the misstatement of financial results, these awards may be subject to malus or clawback provisions at |
|
| The Committee will review performance criteria in line with business priorities to ensure they are challenging and fair. |
the discretion of the Committee. | |
| The maximum opportunity contained within the plan rules is: | ||
| Ordinarily 200 per cent of annual Base Salary or 400 per cent of annual Base Salary in exceptional circumstances. |
||
| The Committee has discretion to vary the percentage of awards vesting downwards or upwards if it considers that the outcome would otherwise not be a fair and complete reflection of performance over the plan cycle. |
| Purpose and link to strategy | Operation | Performance Targets |
|---|---|---|
| Other | ||
| Chairman and Non-Executive Director Fees | ||
| To ensure that the Group is able to attract and retain experienced and skilled Non-Executive Directors. |
Fee levels are determined with reference to those paid by other companies of similar size and complexity and taking into account the scope of responsibilities and the amount of time that is expected to be devoted during the year. No individual is involved in the process of setting his/her remuneration. |
Non-Executive Directors do not participate in any of the Group's incentive arrangements or share schemes and are not eligible for pension or other benefits. |
| Fee levels are normally reviewed bi-annually. They may also be increased on an ongoing or temporary basis to take into account changes in the working of the Board. |
||
| The Chairman of the Board receives a fixed fee. Other Non Executive Directors receive a basic fee and additional fees are payable for the Chairmanship of the Board Committees and for the additional responsibility of being the Senior Independent Director. |
||
| Travel expenses and hotel costs are also paid where necessary. | ||
| 2014 fee levels for the incumbents are as follows: | ||
| Non-Executive Chairman: £170,000 Non-Executive Director Base Fee: £45,000 Supplementary Fee for Senior Independent Director: £6,000 |
||
| Fee for: | ||
| Audit Committee Chair: £14,000 Remuneration Committee Chair: £8,000 |
||
| Share Ownership Guidelines | ||
| To strengthen alignment between Executives and shareholders. |
Levels are set in relation to annual base salary, and are normally required to be built over a three-year period. The Committee retains discretion to extend this on an individual basis, if it believes that it is fair and reasonable to do so. |
n/a |
| Options which have vested unconditionally, but are as yet unexercised, will be included on a net basis, for the purposes of calculating shareholdings, as will shares held by an Executive's spouse or dependants. |
||
| The Committee will regularly review the minimum shareholding guidelines. |
||
| There is no maximum, but minimum levels have been set at 200 per cent of Base Salary for the CEO and 100 per cent of Base Salary for other Executive Directors. Non-Executive Directors are not required to hold shares in the Company. |
There have been no changes to the policy for salary, annual bonus, pension or other benefits included in the Executive Directors' remuneration package since the release of our 2012 Annual Report and Accounts.
However, within the Policy it is proposed that a change be made to the long-term incentive plan, which will include an arrangement to claw-back awards which have previously vested in Executive Directors, in certain circumstances.
Additionally, as from April 2013, and as referred to in our 2012 Annual Report and Accounts, the period granted for compliance with the minimum shareholding requirements has been reduced from five to three years.
The performance measures in respect of variable remuneration outlined within the Policy are heavily weighted towards the financial performance of the Group, and therefore to the value that the business delivers to its shareholders.
In the period following our 2012 Annual Report and Accounts, the Committee has carried out a full review of potential performance criteria for the PSP scheme. This has taken place with the assistance of the Group's remuneration consultants, Mercer, and has resulted in the performance criteria structure outlined in the Policy, and the measures for 2014 as outlined on page 65.
It should be noted that no performance targets are set for the Group's SAYE scheme, in which the Executive Directors can participate. This plan is open to all eligible Group employees, and is designed to incentivise them to build a shareholding in the Company, thus aligning their interests with those of the Group's shareholders.
Financial statements
59
Governance
The remuneration of employees more generally across the Group is based on three fundamental principles. Firstly, that it allows the Group to retain the level of talent necessary to implement the strategy as set by the CEO and Board. Additionally, that levels of remuneration should be sufficient to achieve this aim, but should never be higher than is necessary to do so. Finally, with limited exceptions, the more significant the ability of an employee to influence the Company's financial results through their individual performance, the higher the proportion of their remuneration should be performance-based.
The level and design of variable pay takes into account the need to avoid incentivising the Group's employees to act in a manner that is inconsistent with the Group's risk appetite, as set by the Board.
The remuneration package awarded to a newly-recruited Executive Director will be determined by the Remuneration Committee in accordance with the terms of the Policy. Each component will be subject to the same limits as specified in the Policy. Additionally, to facilitate recruitment, the Committee will normally offer shares to any newly-appointed Executive Director up to the value of, and subject to similar performance and timing criteria as, shares and cash bonuses given up as a result of terminating prior employment to join the Company. Any such award made will be subject to clawback and malus provisions that the Remuneration Committee deems to be appropriate.
Where a newly appointed Executive Director is required to relocate internationally, the Group may pay the costs of relocation including housing, travel, taxation advice, shipping costs and education for dependants. Additionally, any Executive Director based outside of the UK will be eligible to participate in insurance and other benefits in line with local practice.
Non-Executive Directors will be appointed in accordance with the terms set out in the Policy by way of an appointment letter. The level of fee for a newly-appointed Chairman would take into account fee levels in the market, the nature of the commitment required and the experience of the individual concerned.
The Directors' service contracts and letters of appointment are kept for inspection by shareholders at the Company's registered office.
The Executive Directors each have a service contract with the Company, which provides for a 12-month notice period from each party.
If an Executive Director's employment is terminated, any compensation arrangements will not normally be beyond those set out in their service contract. In the normal course of events, an Executive Director will work their contractual notice period and receive usual salary payments and benefits during this time. In the event of a termination where Computacenter requests that the Executive Director ceases work immediately, a payment in lieu of notice may be made that is equal to fixed pay, pension entitlements and other benefits.
Whilst outstanding awards under the performance-linked elements of an Executive Director's package will normally lapse if he or she leaves the Company before the payment or vesting date, the Company may still make a pro-rated performance-related payment of annual bonus or unvested long-term incentives. This will be based on the period of time served from the start of the performance period to the date of termination. Such a payment may be made if the individual concerned is deemed by the Committee to leave the Company as 'a good leaver'. The circumstances under which a departing Executive Director will be a 'good leaver' include death, disability, injury, ill-health, redundancy, retirement, the award holder's employing company or business being transferred out of the Group, or any other reason the Committee deems appropriate.
Any such payment will normally be delayed until the applicable performance conditions have been determined for the relevant period, but may be paid out immediately at the discretion of the Committee. Other than in these 'good leaver' scenarios, no pay-outs will be made for performance-linked elements of remuneration.
Where the Executive Director participates in one or more of the Company's all-employee share schemes, his awards may vest upon termination in accordance with applicable scheme rules.
In the event of a takeover or winding-up of Computacenter (which is not part of an internal re-organisation of the Group), PSP awards may also vest to the extent determined by the Committee taking into account the period that has elapsed since the awards were granted, and the performance achieved by the Executive Director against any applicable performance targets.
In any event, the Committee shall not sanction rewards for failure and will seek to mitigate any termination payments where possible.
In the event that a Director's employment is terminated for any reason other than gross misconduct, reasonable outplacement, legal fees and, where applicable, repatriation costs for the exiting Director may be paid by the Company, at the discretion of the Committee.
In respect of Non-Executive Directors, the Company's policy is that all Non-Executive Directors shall be appointed pursuant to a letter of appointment. These provide for an initial period of three years, subject to renewal by the Company thereafter. The appointment may be terminated, by either the Company or the Non-Executive Director on three months' written notice. There is no obligation on the Company to pay compensation for loss of office. All Non-Executive Directors are currently subject to annual re-election by shareholders at the Company's AGM, in accordance with the Code.
There are no agreements currently in place between the Company and any of its Directors providing for additional compensation for loss of office or employment, other than as disclosed in this report.
The Policy, as set out in this report, comprises the full suite of possible components for the remuneration of Directors at Computacenter.
Notwithstanding the restrictions laid out in the Policy, where the Company has made a commitment to a Director which:
then the Company will continue to give effect to it, even if it is inconsistent with the remuneration policy of the Company which is in effect at that time. Accordingly, earlier remuneration policies of the Company will continue to apply in relation to such awards granted under any company long-term incentive plan and options granted under the Company's all-employee Sharesave Scheme, prior to the approval of the Policy, as these may be granted under one policy and vest or be exercised under a later one. Details of these previous commitments are included within previous Computacenter Annual Reports at www.computacenter.com/investors.
Group CEO – Mike Norris
Total Remuneration (£)
The charts above show the level of remuneration that is projected to be received by the Directors above in accordance with the Directors' remuneration in the year 2014, which will be the first financial year in which it applies. The charts above show three outcome scenarios: (a) Minimum Threshold, (b) In line with performance expectations, and (c) Maximum Remuneration Achievable.
In developing the scenarios, the following assumptions have been made:
| Base | Benefits | Pension | Total Fixed | |
|---|---|---|---|---|
| Group CEO | £500,000 | 63,863 | 25,000 | 588,863 |
| Group CFO | £325,000 | 16,866 | 16,250 | 358,116 |
This is based on what an Executive Director would receive if performance was in line with the Company's expectations, which would result in the following scenario:
This is based on what an Executive Director would receive if performance was in line with the following scenario:
It should be noted that, as required by the regulations, performance share plan awards are set out at face value, with no share price growth assumptions.
The Executive Directors are permitted to serve as Non-Executive Directors of other companies provided that their appointment has first been approved by the Chairman of the Board. The Board will review the time commitment of all outside appointments and ensure that it is satisfied that this will not negatively impact upon the executive's time commitment to Computacenter. The Executive Directors are allowed to retain their fees for such appointments.
When setting executive remuneration, consideration is given to pay and employment conditions of employees of the Company and policies elsewhere in the Group. The average annual salary increase of Computacenter Executive Directors in 2013 was 0 per cent, compared to a possible increase of 5 per cent for full-time employees achieving a very high level of performance.
Whilst only Executive Directors and senior executives participate in the PSP plan, other full time employees in the UK and Germany can participate in the Group's All Employee SAYE scheme. This plan is not subject to performance conditions, but requires the employee to remain employed at the end of the term of the scheme which they have joined. This plan has been extremely successful, and is increasing in popularity amongst our employees, with take-up increased by 87 per cent in 2013.
There has additionally been a rise of 7.1 per cent in the base fee for Non-Executive Directors in 2014, which took place following a benchmarking exercise carried out by the Company's remuneration consultant, Mercer. Fees were previously increased in January 2012.
Whilst the Company has not formally consulted with employees when drawing up the Directors' Remuneration Policy, the Committee has considered any informal feedback received via employee staff surveys or other channels and updates provided to it by the Group HR Director, Barry Hoffman.
The Remuneration Committee takes very seriously the view of shareholders when making any changes to executive remuneration arrangements. It continues to welcome shareholders' views on executive remuneration packages.
The Group consulted with its major shareholders during the second half of the year around its decision to include exceptional losses arising from the three onerous contracts in Germany, within the calculation for the vesting of PSP awards granted in 2011, which were due to vest in March 2014. As a result, there has been no PSP related vesting payout for the Executive Directors or the top levels of senior management in respect of that scheme.
The Chairman of the Board also met with a number of the Company's largest shareholders in December 2013, following which remuneration based feedback in respect of the Executive Directors was fed back to each of the Board and the Remuneration Committee.
The key responsibilities of the Remuneration Committee are to determine on behalf of the Board:
The fees of the Non-Executive Directors are determined by the Chairman and the Executive Directors. All Directors are subject to the overriding principle that no person shall be involved in the process of determining his or her own remuneration.
The full responsibilities of the Committee are contained within its terms of reference, which are available on our website at www.computacenter.com/investors.
The Remuneration Committee is made up of the Independent Non-Executive Directors and the Chairman of the Board, who was considered to be independent on appointment. Details of the membership of the Committee and attendance of the members at Committee meetings during the year, is provided below.
| Member | Role | Attendance record |
|---|---|---|
| 1. Brian McBride (Chairman) |
Senior Independent Director |
4/4 |
| 2. Ian Lewis | Non-Executive Director | 2/2 |
| 3. Greg Lock | Non-Executive Director | 4/4 |
| 4. John Ormerod | Non-Executive Director | 4/4 |
| 5. Regine Stachelhaus | Non-Executive Director | 2/2 |
The Chief Executive Officer attends meetings by invitation, as does the Group's Human Resources Director and Group Head of Financial Planning where financial information provided requires additional background or explanation to facilitate the considerations of the Committee. The Group Company Secretary is the secretary to the Committee.
The principal adviser to the Committee is Mercer, who was first selected by the Committee in 2010 by way of a tender process. During the year, Mercer provided advice to the Company in respect of the benchmarking of Director and Senior Management remuneration, and the contents of the Directors' Remuneration Committee report as set out on pages 56 to 70. The total fees paid by the Company to Mercer in 2013 in respect of this advice was £43,000. The Committee considers the advice that it receives from Mercer to be independent considering, amongst other things, that Mercer provided no other services to the Company during the year other than those outlined above. Mercer is a founder member of the Remuneration Committee Group, and adheres to its code.
The Committee considers comparative practice in the European technology sector, FTSE techmark 100 companies and FTSE 250 companies. However, such market data is used by the Committee to inform rather than drive policy and decision making.
The audited tables and related notes are identified within this report, using an A key.
A
The total amount paid by the Company to each of the Directors, in respect of the financial years ending 31 December 2012 and 2013, is set out in the table below:
| Salary or fees £'000 |
Benefits £'000 |
Annual Bonus £'000 |
PSP Awards £'000 |
Pension £'000 |
Total £'000 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||
| Executive | |||||||||||||
| Mike Norris | 500.0 | 500.0 | 63.93 | 29.43 | 367.2 | 161.0 | 04 | 385.35 | 6.2 | 9.6 | 937.3 | 1,085.3 | |
| Tony Conophy | 325.0 | 325.0 | 16.9 | 16.9 | 185.7 | 93.0 | 04 | 243.45 | 6.2 | 13.2 | 533.8 | 691.5 | |
| Non-Executive | |||||||||||||
| Greg Lock | 160.0 | 160.0 | – | – | – | – | – | – | – | – | 160.0 | 160.0 | |
| Philip Hulme | 42.0 | 42.0 | – | – | – | – | – | – | – | – | 42.0 | 42.0 | |
| Ian Lewis1 | 41.2 | 47.5 | – | – | – | – | – | – | – | – | 41.2 | 47.5 | |
| Brian McBride | 56.0 | 56.0 | – | – | – | – | – | – | – | – | 56.0 | 56.0 | |
| Peter Ogden | 42.0 | 42.0 | – | – | – | – | – | – | – | – | 42.0 | 42.0 | |
| John Ormerod | 56.0 | 56.0 | – | – | – | – | – | – | – | – | 56.0 | 56.0 | |
| Regine Stachelhaus2 | 23.5 | – | – | – | – | – | – | – | – | – | 23.5 | – | |
| Total (£'000) | 1,245.7 | 1,228.5 | 80.8 | 46.3 | 552.9 | 254.0 | 0 | 628.7 | 12.4 | 22.8 | 1,891.8 | 2,180.3 |
Ian Lewis stepped down from the Board effective as of 2 September 2013.
Regine Stachelhaus was appointed to the Board on 1 July 2013.
Included within this benefits figure is the cost to the Company of providing a driver service for Mike Norris which he uses for business and personal use.
This relates to the 2011 LTIP awards, which were due to vest in March 2014 and had a performance period of 1 January 2011 to 31 December 2013.
The relevant performance criteria was not achieved and therefore 0% of this award vested in each of the Executive Directors.
The annual salaries of the Executive Directors were unchanged in 2013.
The bonus criteria applied for each of the Executive Directors during 2013, were as follows:
| As a percentage of Maximum Bonus |
Performance Required | Actual % | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Measure | Opportunity | Threshold | On-Target | Maximum | achieved | Payout (£) | ||||||
| CEO | CFO | CEO | CFO | CEO | CFO | CEO | CFO | CEO | CFO | CEO | CFO | |
| Financial Criteria | ||||||||||||
| Group Profit | ||||||||||||
| Before Tax (£m) | 50% | 50% | 15% | 15% | 32.5% | 32.5% | 50% | 50% | 18.2% | 18.2% 109,200 | 54,600 | |
| Services | ||||||||||||
| Contribution | ||||||||||||
| Growth (£m) | 15% | 10% | 7.5% | 5% | 15% | 10% | 15% | 10% | 13% | 8.7% | 78,000 | 26,100 |
| Cash Balance | ||||||||||||
| (£m) | 15% | 10% | 7.5% | 5% | 15% | 10% | 15% | 10% | 15% | 10% | 90,000 | 30,000 |
| Cost Savings | ||||||||||||
| (£m) | – | 10% | – | 10% | – | 10% | – | 10% | – | 10% | – | 30,000 |
| Non-Financial Criteria | ||||||||||||
| Personal | ||||||||||||
| Objectives | 20% | 20% | 1% | 1% | 15% | 15% | 20% | 20% | 15% | 15% | 90,000 | 45,000 |
| Total | 100% | 100% | 31% | 36% | 77.5% | 77.5% | 100% | 100% | 61.2% | 61.9% 367,200 185,700 |
As a result, 61.2 per cent of maximum bonus was paid to the CEO, and 61.9 per cent was paid to the CFO. The actual performance targets set at the beginning of the performance period are not disclosed as they are considered to remain commercially sensitive at this time. We will generally disclose these targets retrospectively at a time that the Committee considers that they are no longer commercially sensitive.
There were no pay-outs pursuant to the 2011 PSP Scheme as the relevant performance criteria threshold was not reached due to an exceptional item being included within the calculation of performance. The performance criteria for these awards are set out in more detail within the table on page 66 of this report.
The table below details awards of conditional shares made during 2013 under the PSP scheme. The face value of the awards has been calculated based on the closing share price for the trading day immediately prior to the award date. The performance conditions for these awards are set out in more detail directly below.
| Amount Vesting related to Threshold of Performance |
||||||||
|---|---|---|---|---|---|---|---|---|
| Scheme/Type of Award |
Number of Shares |
Face Value at time of grant |
Performance Conditions Applied |
Threshold Performance (% of face value) |
Maximum Performance (% of face value) |
Performance Period Set |
||
| Group CEO | PSP – nil | 227,273 | £1,000,000 Compound growth of | 25% | 100% | 3 financial | ||
| cost option | Company Earnings Per Share |
years from 1 January 2013 |
||||||
| Group CFO | PSP – nil | 129,261 | £568,750 Compound growth of | 25% | 100% | 3 financial | ||
| cost option | Company Earnings | years from | ||||||
| Per Share | 1 January 2013 |
Vesting of these awards to each Executive Director will be dependent upon the achievement of the performance measures over the performance period, as follows:
| The compound annual growth rate of the Group's adjusted fully diluted earnings per share ('EPS') | |
|---|---|
| Performance level | Company EPS |
| Maximum | 20% |
| In line with expectations | 10% |
| Threshold | 7.5% |
| Scheme | Note | Exercise/ share price |
Exercise period/ Vesting period |
At 1 January 2013 |
Granted during the year |
Exercised during the year |
Lapsed | At 31 December 2013 |
|
|---|---|---|---|---|---|---|---|---|---|
| Mike Norris | Sharesave* | 1 | 320.0p | 01/12/14-31/05/15 | 4,859 | – | – | – | 4,859 |
| PSP | 2 | Nil | 15/03/13-15/09/13 | 150,316 | – | 87,935 | 62,381 | – | |
| PSP | 3 | Nil | 17/03/14-16/03/21 | 224,586 | – | – | – | 224,586 | |
| PSP | 4 | Nil | 23/03/15-22/03/23 | 230,947 | – | – | – | 230,947 | |
| PSP | 5 | Nil | 03/05/16-02/05/24 | – | 227,273 | – | – | 227,273 | |
| Tony Conophy | Sharesave* | 1 | 343.0p | 01/12/17-31/05/17 | 4,373 | – | – | – | 4,373 |
| PSP | 2 | Nil | 15/03/13-15/09/13 | 94,937 | – | 55,538 | 39,399 | – | |
| PSP | 3 | Nil | 17/03/14-16/03/21 | 124,113 | – | – | – | 124,113 | |
| PSP | 4 | Nil | 23/03/15-22/03/23 | 127,309 | – | – | – | 127,309 | |
| PSP | 5 | Nil | 03/05/16–02/05/24 | – | 129,261 | – | – | 129,261 |
Issued under the terms of the Computacenter Sharesave Plus Scheme, which is available to employees and full-time Executive Directors of the Computacenter Group. Eligible employees can save between £5 and £250 a month to purchase options in shares in Computacenter plc at a price fixed at the beginning of the scheme term. There are no conditions relating to the performance of the Company for this scheme.
Issued under the terms of the Computacenter Performance Share Plan 2005. One-quarter of the shares will vest if cumulative annual EPS growth equals RPI plus 3 per cent per annum over the three consecutive financial years, starting on 1 January 2010 and ended on 31 December 2012, compared to the base year. Awarded shares will vest in full if cumulative annual EPS growth equals or exceeds RPI plus 7.5 per cent per annum. If cumulative annual growth in EPS is between 3 per cent and 7.5 per cent per annum above RPI, shares awarded will vest on a straight-line basis.
| Director | Date of vesting | Scheme | Number of shares | Exercise price | Market value at exercise |
Gain on exercise |
|---|---|---|---|---|---|---|
| Mike Norris | 03/05/2013 | PSP | 87,935 | n/a | 438.2p | £385,349 |
| Tony Conophy | 03/05/2013 | PSP | 55,538 | n/a | 438.2p | £243,378 |
The closing market price of an ordinary share at 31 December 2013 (being the last trading day of 2013) was 638.0 pence.
The highest price during the year was 674.5 pence and the lowest was 398.0 pence.
In accordance with the Group's minimum shareholding guidelines, the Chief Executive Officer is required to build up a shareholding that is equal to 200 per cent of his/her gross salary. In respect of the Chief Financial Offer, the threshold that is expected to be achieved is 100 per cent of his/her gross salary. It is additionally expected that the Executive Director will achieve these levels within three years of appointment. For the purposes of these requirements, options which have vested unconditionally, but are as yet unexercised, will be included on a net basis, for the purposes of calculating shareholdings, as will shares held by an Executive's spouse or dependants. There is no requirement for the Non-Executive Directors of the Company to hold shares.
The beneficial interest of each of the Directors in the shares of the Company, as at 31 December 2013, is as follows:
| Number of shares | % of | Interests In Shares | |||
|---|---|---|---|---|---|
| Current Directors | in the Company as at 31 December 2013 |
requirement achieved |
SAYE | PSP | TOTAL |
| Mike Norris | 1,288,939 | 1,6443 | 4,8591 | 682,8062 | 1,976,604 |
| Tony Conophy | 2,025,177 | 3,9753 | 4,3731 | 380,6832 | 2,410,233 |
| Greg Lock | 400,000 | n/a | – | – | 400,000 |
| Philip Hulme | 13,846,593 | n/a | – | – | 13,846,593 |
| Ian Lewis | 40,500 | n/a | – | – | 40,500 |
| Brian McBride | – | n/a | – | – | – |
| Peter Ogden | 31,802,071 | n/a | – | – | 31,802,071 |
| John Ormerod | 22,500 | n/a | – | – | 22,500 |
| Regine Stachelhaus | – | n/a | – | – | – |
Note: There have been no changes to this position as at 28 February 2014.
There are no conditions relating to the performance of the Company or individual for the vesting of this scheme.
There are performance conditions for this scheme as set out below the table on page 66.
Based on the Company's closing share price as at 28 February 2014.
Executive Directors are deemed to be interested in the unvested shares held by the Computacenter Employee Benefit Trust (3,065,133 ordinary shares held as at 31 December 2013) and the Computacenter Quest Trust (41,965 ordinary shares held as at 31 December 2013).
Computacenter uses a mixture of both new issue and market purchase shares to satisfy the vesting of awards made under its Option, PSP and Sharesave plans. In line with best practice, the use of new or treasury shares to satisfy awards made under all share schemes, is restricted to 10 per cent in any 10-year rolling period, with a further restriction for discretionary schemes of 5 per cent in the same period. As at the year-end, the potential dilution from awards under all share plans during that 10 year period was approximately 3.79 per cent and the potential dilution from awards under the discretionary schemes was approximately 1.38 per cent.
There have been no payments made to past Directors. Ian Lewis stood down as a Non-Executive Director of the Board during the year, but did not receive any payment for loss of office.
A summary of the Executive Directors' contracts of employment is given in the table below:
| Director | Start Date | Expiry Date | Unexpired Term | Notice Period (months) |
|---|---|---|---|---|
| Mike Norris | 23/04/1998 | n/a | None specified | 12 |
| Tony Conophy | 23/04/1998 | n/a | None specified | 12 |
All Executive Directors have a rolling 12-month service contract with the Company, which is subject to 12 months' written notice by either the Company or the Director.
As is set out in the Remuneration Policy report from page 57, Executive Directors are permitted to hold outside directorships, subject to approval by the Chairman of the Board, and any such Executive Director is permitted to retain any fees paid for such services. During the year, Mike Norris served as a Non-Executive Director of Triage Holdings Limited and received a fee of £24,000.
The Non-Executive Directors have not entered into service contracts with the Company. They each operate under a letter of appointment which sets out their terms, duties and responsibilities. Non-Executive Directors are appointed for an initial term, which runs to the conclusion of the third Annual General Meeting following their appointment, which may be renewed at that point for a further three-year term. The letters of appointment provide that should a Non-Executive Director not be re-elected at an AGM before he is due to retire, then his or her appointment will terminate. The Board has agreed that all Directors will be subject to re-election at the AGM on 15 May 2014, with the exception of Ms Regine Stachelhaus, who will be subject to election for the first time at that meeting.
The terms and conditions of appointment of the Non-Executive Directors are available for inspection by shareholders at the Company's registered office. The appointments continue until the expiry dates set out below, unless terminated for cause or on the period of notice stated below:
| Date of latest | |||
|---|---|---|---|
| Director | letter of appointment | Expiry Date | Notice Period |
| Greg Lock | 13 May 2011 | 13 May 2014 | 3 months |
| Philip Hulme | 2 May 2013 | 2 May 2016 | 3 months |
| Brian McBride | 28 February 2014 | 28 February 2017 | 3 months |
| Peter Ogden | 10 May 2013 | 10 May 2016 | 3 months |
| John Ormerod | 13 May 2013 | 13 May 2016 | 3 months |
| Regine Stachelhaus | 1 July 2013 | 1 July 2016 | 3 months |
In 2014, the Chairman will be paid a single consolidated fee of £170,000. The Non-Executive Directors are paid a basic fee, plus additional fees for Chairmanship of Board Committees.
The annual rates of Non-Executive Directors' fees are shown in the table below. These are generally reviewed every two years and, therefore, the next scheduled review will be in January 2016:
| Position | Annual Fees (£) |
|---|---|
| Non-Executive Director | 45,000 |
| Additional fee for the Chairmanship of the Audit Committee | 14,000 |
| Additional fee for the Chairmanship of the Remuneration Committee | 8,000 |
| Additional fee for the position of Senior Independent Director | 6,000 |
The table below shows the total remuneration figure for the CEO over the previous five financial years. The total remuneration figure includes the annual bonus and LTIP awards which vested based on performance in those years. The annual bonus and LTIP percentages show the pay-out for each year as a percentage of the maximum.
| 2009 | 2010 | 2011 | 2012 | 2013 | |
|---|---|---|---|---|---|
| CEO single figure of remuneration | 1,407,034 | 1,910,675 | 1,878,675 | 1,085,300 | 937,300 |
| Annual bonus pay-out (as % of maximum opportunity) | 87% | 98.5% | 63.7% | 26.8% | 61.2% |
| Annual Bonus (£) | 413,250 | 467,875 | 350,350 | 161,000 | 367,200 |
| PSP vesting (as a % of maximum opportunity) | 100% | 100% | 100% | 58.5% | 0% |
| PSP vesting (£) | 489,235 | 938,201 | 997,351 | 385,355 | 0 |
The table below sets out the percentage change in the salary, benefits and annual bonus of the Group CEO compared to the average amount paid to Computacenter employees in the UK, between the year ended 31 December 2012 and 31 December 2013.
| Salary | Benefits | Annual Bonus potential |
|
|---|---|---|---|
| Group CEO | 0% | +117%1 | 0% |
| Computacenter UK based employees | -1.8% | +1.6% | -8.6% |
1 This relates to the increased cost of providing a driver service for Mike Norris, which he uses for both business and personal use. Mr Norris currently receives no other benefits from the Company.
The charts below show the relative expenditure of the Group on the pay of its employees, against certain other key financial indicators of the Group:
Year ended 31 December 2013 Year ended 31 December 2012
As well as information prescribed by the new remuneration reporting regulations, Group Adjusted Profit Before Tax has also been included as this is deemed to be a key performance indicator of the Company which is linked to the delivery of value to our shareholders.
Executive Director Remuneration for 2014 will be in accordance with the terms of our Directors' Remuneration Policy, as set out on pages 57 to 62 of this report.
The base salaries of the CEO and CFO are not increasing in 2014.
The performance measures and weightings for the 2014 Annual Bonus Scheme will be as follows:
The proposed levels for 2014 have been set to be challenging relative to our 2014 business plan. The targets themselves, as they relate to the 2014 financial year, are deemed by the Committee to be commercially sensitive and therefore have not been disclosed. To the extent that they are deemed to no longer be commercially sensitive, these targets will be included within our 2014 Annual Report on Remuneration.
The award levels of Performance Shares for the Executive Directors in the 2014 financial year are 200 per cent of salary for the Chief Executive and 150 per cent of salary for the Chief Financial Officer. The 2014 financial year LTIP awards will be subject to the following performance conditions:
| Below Threshold | Threshold Vesting | On-target | Maximum | |
|---|---|---|---|---|
| (0% vesting) | (25% vesting) | (50% vesting) | (100% vesting) | |
| Absolute Growth of Company Earnings per Share | < than 7.5% | 7.5% | 10% | 20% |
In respect of the growth of Earnings per Share, awards will vest on a straight line between these points. These targets will require management to deliver a strong, sustainable performance over the period.
The results of voting on the Directors' Remuneration report at the Company's 2013 AGM are outlined in the table below:
| Votes cast in favour/discretionary Votes cast against |
Total votes cast | Votes Withheld | |||||
|---|---|---|---|---|---|---|---|
| 122,995,677 | 99.33% | 825,575 | 0.66% | 123,821,252 | 80.4% | 944 | 0.01% |
The Committee is grateful for the continuing support of shareholders, and in order to ensure that this continues, the Committee will ensure that it consults with shareholders on major issues on which it feels it is appropriate to do so. It will also continue to adhere to its underlying principle of decision-making that Executive Director pay must be linked to performance and the sustainable delivery of value to our shareholders.
This Annual Remuneration report has been approved by the Board of Directors and signed on its behalf by:
Brian McBride Chairman of the Remuneration Committee 10 March 2014
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable company law and regulations and those International Financial Reporting Standards as adopted by the European Union. Under Company law, the Directors must not approve the Group financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. The Directors are required to prepare financial statements for each financial year which present fairly the financial position of the Company and of the Group and the results and cash flows of the Group for that period. In preparing the financial statements, the Directors are required to:
The Directors are responsible for keeping proper and adequate accounting records, which disclose with reasonable accuracy, at any time, the financial position of the Group and enable them to ensure that the accounts and the Directors' Remuneration report comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence, taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the financial and corporate governance information as provided on the Computacenter plc website (www.computacenter.com).
In accordance with Section 418 of the Companies Act 2006, each of the persons who is a Director at the date of approval of this report confirms that:
The Annual Report from pages 1 to 71 was approved by the Board of Directors and authorised for issue on 10 March 2014 and signed for on behalf of the Board by:
Mike Norris Chief Executive
Tony Conophy Finance Director 10 March 2014
We have audited the Group financial statements of Computacenter plc for the year ended 31 December 2013 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and the related notes 1 to 34. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ('IFRSs') as adopted by the European Union.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Directors' Responsibilities Statement set out on page 71, the Directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion the Group financial statements:
We identified the following risks that we believe to have the greatest impact on our audit strategy and scope; the allocation of resources in the audit; and directing the efforts of the engagement team:
73
We applied the concept of materiality both in planning and performing our audit, and in evaluating the effects of misstatements on our audit and the financial statements. For the purposes of determining whether the financial statements are free from material misstatement we define materiality as the magnitude of misstatement that makes it probable that the economic decisions of a reasonably knowledgeable person relying on the financial statements, would be changed or influenced. We also determine a level of performance materiality which we use to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
When establishing our overall audit strategy, we determined a magnitude of uncorrected misstatements that we judged would be material for the financial statements as a whole. We determined materiality for the Group to be £3.5 million, which is approximately 5% of profit before taxation and non-recurring exceptional items. On the basis of our risk assessment, together with our assessment of the Group's overall control environment, our judgement is that overall performance materiality for the Group should be 75% of materiality, namely approximately £2.6 million. Our objective in adopting this approach is to ensure that total detected and undetected audit differences do not exceed our materiality of £3.5 million for the financial statements as a whole.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.2 million, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
Our Group audit focused on three operating locations which were subject to full scope audit for the year ended 31 December 2013. Together with the Group functions, which were also subject to a full scope audit for the year ending 31 December 2013, these locations represent the principal business units of the Group and account for 98 per cent of the Group's total assets, 96 per cent of the Group's revenue and 93 per cent of the Group's operating profit. Audits of these locations are performed at a materiality level calculated by reference to a proportion of Group materiality appropriate to the relative scale of the business concerned.
The Group audit team follows a programme of planned site visits, either meeting with the teams in the component locations or in which the component team attends meetings in the UK. This is designed to ensure that the Senior Statutory Auditor has direct contact with the full scope location teams on a regular basis.
The way in which we scoped our response to the risks identified above was as follows:
In our opinion the information given in the Strategic Report and the Directors' Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors' statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
We have reported separately on the Parent Company financial statements of Computacenter plc for the year ended 31 December 2013 and on the information in the Directors' Remuneration Report that is described as having been audited.
Nick Powell (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 10 March 2014
For the year ended 31 December 2013
| Restated* | |||
|---|---|---|---|
| Note | 2013 £'000 |
2012 £'000 |
|
| Revenue | 4 | 3,072,075 | 2,914,214 |
| Cost of sales | (2,668,814) | (2,531,926) | |
| Gross profit | 403,261 | 382,288 | |
| Administrative expenses | (321,096) | (303,172) | |
| Operating profit: | |||
| Before amortisation of acquired intangibles and exceptional items | 82,165 | 79,116 | |
| Amortisation of acquired intangibles | (2,375) | (2,608) | |
| Onerous contracts | (15,739) | (8,029) | |
| Non-cash impairment | (12,195) | – | |
| Other exceptional items | (830) | (3,874) | |
| Exceptional items | 6 | (28,764) | (11,903) |
| Operating profit | 51,026 | 64,605 | |
| Finance revenue | 8 | 1,351 | 1,971 |
| Finance costs | 9 | (1,852) | (1,778) |
| Profit before tax: Before amortisation of acquired intangibles and exceptional items |
81,664 | 79,309 | |
| Amortisation of acquired intangibles | (2,375) | (2,608) | |
| Onerous contracts | (15,739) | (8,029) | |
| Non-cash impairment | (12,195) | – | |
| Other exceptional items | (830) | (3,874) | |
| Exceptional items | 6 | (28,764) | (11,903) |
| Profit before tax | 50,525 | 64,798 | |
| Income tax expense: | |||
| Before amortisation of acquired intangibles and exceptional items | (19,325) | (17,461) | |
| Tax on amortisation of intangibles | 244 | 538 | |
| Tax on onerous contracts | 1,889 | 883 | |
| Tax on non-cash impairment | 1,014 | – | |
| Tax on other exceptional items | (700) | 362 | |
| Tax on exceptional items | 6 | 2,203 | 1,245 |
| Exceptional tax items | (489) | – | |
| Income tax expense | 10 | (17,367) | (15,678) |
| Profit for the year | 33,158 | 49,120 | |
| Attributable to: | |||
| Equity holders of the parent | 33,160 | 49,121 | |
| Non-controlling interests | (2) | (1) | |
| Profit for the year | 33,158 | 49,120 | |
| Earnings per share | |||
| – basic | 11 | 23.2p | 32.9p |
| – diluted | 11 | 23.0p | 32.4p |
* Certain amounts here do not correspond to the annual consolidated financial statements as at 31 December 2012, and reflect reclassifications which restate prior financial information in respect of three onerous contracts as detailed further in notes 3 and 6.
| Note | 2013 £'000 |
2012 £'000 |
|
|---|---|---|---|
| Profit for the year: | 33,158 | 49,120 | |
| Items that may be reclassified to profit or loss: | |||
| (Loss)/gain arising on cash flow hedge | 23 | (1,403) | 494 |
| Income tax effect | 326 | (120) | |
| (1,077) | 374 | ||
| Exchange differences on translation of foreign operations | 4,326 | (5,311) | |
| Other comprehensive income for the year, net of tax | 3,249 | (4,937) | |
| Total comprehensive income for the period | 36,407 | 44,183 | |
| Attributable to: | |||
| Equity holders of the parent | 36,407 | 44,182 | |
| Non-controlling interests | – | 1 | |
| 36,407 | 44,183 | ||
As at 31 December 2013
| Note | 2013 £'000 |
2012 £'000 |
|
|---|---|---|---|
| Non-current assets | |||
| Property, plant and equipment | 13 | 89,044 | 100,696 |
| Intangible assets | 14 | 98,870 | 104,612 |
| Investment in associate | 16 | 45 | 575 |
| Deferred income tax asset | 10 | 15,172 | 14,385 |
| 203,131 | 220,268 | ||
| Current assets | |||
| Inventories | 18 | 58,618 | 67,782 |
| Trade and other receivables | 19 | 667,722 | 573,661 |
| Prepayments | 61,579 | 46,250 | |
| Accrued income | 53,140 | 58,029 | |
| Forward currency contracts | 23 | – | 30 |
| Current asset investment | – | 10,000 | |
| Cash and short-term deposits | 20 | 91,098 | 138,149 |
| 932,157 | 893,901 | ||
| Total assets | 1,135,288 | 1,114,169 | |
| Current liabilities | |||
| Trade and other payables | 21 | 604,945 | 527,539 |
| Deferred income | 115,986 | 128,540 | |
| Financial liabilities | 22 | 8,147 | 9,117 |
| Forward currency contracts | 23 | 2,360 | 584 |
| Income tax payable | 10,239 | 3,778 | |
| Provisions | 25 | 6,005 | 4,373 |
| 747,682 | 673,931 | ||
| Non-current liabilities | |||
| Financial liabilities | 22 | 11,540 | 10,406 |
| Provisions | 25 | 10,449 | 6,455 |
| Other non-current liabilities | – | – | |
| Deferred income tax liabilities | 10 | 947 | 1,034 |
| 22,936 | 17,895 | ||
| Total liabilities | 770,618 | 691,826 | |
| Net assets | 364,670 | 422,343 | |
| Capital and reserves | |||
| Issued capital | 28 | 9,271 | 9,234 |
| Share premium | 28 | 4,362 | 3,769 |
| Capital redemption reserve | 28 | 74,963 | 74,957 |
| Own shares held | 28 | (11,976) | (13,848) |
| Foreign currency translation reserve | 28 | 6,649 | 2,325 |
| Retained earnings | 281,388 | 345,893 | |
| Shareholders' equity | 364,657 | 422,330 | |
| Non-controlling interests | 13 | 13 | |
| Total equity | 364,670 | 422,343 |
Approved by the Board on 10 March 2014
MJ Norris FA Conophy Chief Executive Finance Director
| Attributable to equity holders of the parent | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Issued | Share | Capital redemption |
Own shares |
Foreign currency translation |
Retained | Non controlling |
Total | ||
| capital £'000 |
premium £'000 |
reserve £'000 |
held £'000 |
reserve £'000 |
earnings £'000 |
Total £'000 |
interests £'000 |
equity £'000 |
|
| At 1 January 2013 | 9,234 | 3,769 | 74,957 | (13,848) | 2,325 | 345,893 | 422,330 | 13 | 422,343 |
| Profit for the year | – | – | – | – | – | 33,160 | 33,160 | (2) | 33,158 |
| Other comprehensive income | – | – | – | – | 4,324 | (1,077) | 3,247 | 2 | 3,249 |
| Total comprehensive income | – | – | – | – | 4,324 | 32,083 | 36,407 | – | 36,407 |
| Cost of share-based payments | – | – | – | – | – | 1,070 | 1,070 | – | 1,070 |
| Tax on share-based payment | |||||||||
| transactions | – | – | – | – | – | 126 | 126 | – | 126 |
| Exercise of options | 28 | 1,194 | – | 1,872 | – | (1,872) | 1,222 | – | 1,222 |
| Bonus issue | 15 | (15) | – | – | – | – | – | – | – |
| Expenses on bonus issue | – | (586) | – | – | – | – | (586) | – | (586) |
| Redemption of shares | (6) | – | 6 | – | – | – | – | – | – |
| Return of Value | – | – | – | – | – | (73,115) | (73,115) | – | (73,115) |
| Equity dividends | – | – | – | – | – | (22,797) | (22,797) | – | (22,797) |
| At 31 December 2013 | 9,271 | 4,362 | 74,963 | (11,976) | 6,649 | 281,388 | 364,657 | 13 | 364,670 |
| At 1 January 2012 | 9,233 | 3,717 | 74,957 | (10,962) | 7,638 | 319,152 | 403,735 | 12 | 403,747 |
| Profit for the year | – | – | – | – | – | 49,121 | 49,121 | (1) | 49,120 |
| Other comprehensive income | – | – | – | – | (5,313) | 374 | (4,939) | 2 | (4,937) |
| Total comprehensive income | – | – | – | – | (5,313) | 49,495 | 44,182 | 1 | 44,183 |
| Cost of share-based payments | – | – | – | – | – | 2,176 | 2,176 | – | 2,176 |
| Tax on share-based payment | |||||||||
| transactions | – | – | – | – | – | 216 | 216 | – | 216 |
| Exercise of options | 1 | 52 | – | 1,933 | – | (1,933) | 53 | – | 53 |
| Purchase of own shares | – | – | – | (4,819) | – | – | (4,819) | – | (4,819) |
| Equity dividends | – | – | – | – | – | (23,213) | (23,213) | – | (23,213) |
| At 31 December 2012 | 9,234 | 3,769 | 74,957 | (13,848) | 2,325 | 345,893 | 422,330 | 13 | 422,343 |
For the year ended 31 December 2013
| Note £'000 £'000 Operating activities Profit before taxation 50,525 64,798 Net finance income 501 (193) Depreciation 13 22,735 24,337 Amortisation 14 9,676 9,573 Impairment of intangible assets 12,195 – Share-based payments 1,070 2,176 (Profit)/loss on disposal of property, plant and equipment (215) 363 Loss on disposal of intangibles 642 184 Decrease in inventories 10,596 27,477 Increase in trade and other receivables (94,982) (49,061) Increase in trade and other payables 52,997 14,647 Increase in customer contract provisions 7,443 2,108 Other adjustments (456) 74 Cash generated from operations 72,727 96,483 Income taxes paid (13,111) (9,624) Net cash flow from operating activities 63,103 83,372 Investing activities Interest received 1,741 1,926 Decrease in current asset investment 10,000 – Acquisition of subsidiaries, net of cash acquired 17 – (1,754) Increase investment in associate 16 – (100) Proceeds from sale of property, plant and equipment 921 1,074 Purchases of property, plant and equipment (9,609) (22,906) Purchases of intangible assets (15,544) (8,981) Net cash flow from investing activities (12,491) (30,741) Financing activities Interest paid (2,663) (1,929) Dividends paid to equity shareholders of the parent 12 (22,797) (23,213) Return of Value (73,115) – Expenses on Return of Value (586) – Proceeds from share issues 1,222 53 Purchase of own shares – (4,819) Repayment of capital element of finance leases (8,066) (9,201) Repayment of loans (2,766) (2,353) New borrowings 9,267 1,577 Net cash flow from financing activities (99,504) (39,885) (Decrease)/increase in cash and cash equivalents (48,892) 12,746 Effect of exchange rates on cash and cash equivalents (2,059) 1,755 Cash and cash equivalents at the beginning of the year 20 137,471 126,784 Cash and cash equivalents at the year-end 20 90,334 137,471 |
2013 | 2012 | |
|---|---|---|---|
The consolidated financial statements of Computacenter plc for the year ended 31 December 2013 were authorised for issue in accordance with a resolution of the Directors on 10 March 2014. The balance sheet was signed on behalf of the Board by MJ Norris and FA Conophy. Computacenter plc is a limited company incorporated and domiciled in England whose shares are publicly traded.
The Group's financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'), as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December 2013 and applied in accordance with the Companies Act 2006.
The consolidated financial statements are presented in Sterling and all values are rounded to the nearest thousand (£'000) except when otherwise indicated.
The consolidated financial statements comprise the financial statements of Computacenter plc and its subsidiaries as at 31 December each year. The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using existing GAAP in each country of operation. Adjustments are made on consolidation for differences that may exist between the respective local GAAPs and IFRS.
All intra-group balances, transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.
Subsidiaries are consolidated from the date on which the Group obtains control and cease to be consolidated from the date on which the Group no longer retains control.
Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries that is not held by the Group and is presented separately within equity in the consolidated balance sheet, separately from parent shareholders' equity.
The accounting policies adopted are consistent with those of the previous financial year except as follows:
The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Except as noted below, adoption of these standards did not have any effect on the financial performance or position of the Group. They may however give rise to additional disclosures. The other pronouncements which came into force during the year were not relevant to the Group:
IFRS 12 sets out the requirements for disclosures relating to an entity's interests in subsidiaries, joint arrangements, associates and structured entities. The requirements in IFRS 12 are more comprehensive than the previously existing disclosure requirements for subsidiaries. This amendment has had no effect on the Group's financial position, performance or its disclosures.
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS. IFRS 13 defines fair value as an exit price. As a result of the guidance in IFRS 13, the Group re-assessed its policies for measuring fair values, in particular, its valuation inputs such as non-performance risk for fair value measurement of liabilities. IFRS 13 also requires additional disclosures.
Application of IFRS 13 has not materially impacted the fair value measurements of the Group. Additional disclosures where required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined.
The amendments to IAS 1 introduce a grouping of items presented in OCI. Items that will be reclassified ('recycled') to profit or loss at a future point in time (e.g., net loss or gain on cash flow hedges) have to be presented separately from items that will not be reclassified (e.g., revaluation of land and buildings). The amendments affect presentation only and have no impact on the Group's financial position or performance.
These amendments clarify the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The amendments clarify that the opening statement of financial position (as at 1 January 2012 in the case of the Group), presented as a result of retrospective restatement or reclassification of items in financial statements does not have to be accompanied by comparative information in the related notes. As a result, the Group has not included comparative information in respect of the opening statement of financial position as at 1 January 2012. The amendments affect presentation only and have no impact on the Group's financial position or performance.
The preparation of the Group's financial statements requires management to make judgements on how to apply the Group's accounting policies and make estimates about the future. Due to the inherent uncertainty in making these critical judgements and estimates, actual outcomes could be different.
The more significant judgements and estimates, where a risk exists that a material adjustment to the carrying value of assets and liabilities in the next financial year could occur, relate to:
Further information is provided within this note summarising significant accounting policies, and notes 10 and 15 to the financial statements.
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 7 years and period to expiry of lease |
| Fixtures and fittings | |
| – Head office | 5–15 years |
| – Other | shorter of 7 years and period to expiry of lease |
| Office machinery, computer hardware | 2–15 years |
| Motor vehicles | 3 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 income statement in the year the item is derecognised.
Assets held under finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.
Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.
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 straight-line basis over the estimated useful life. 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.
Costs that are incurred and that can be specifically attributed to the development phase of management information systems for internal use are capitalised and amortised over their useful life, once the asset becomes available for use.
Intangible assets acquired as part of a business are carried initially at fair value. Following initial recognition intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. 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:
| Existing customer contracts | 5 years | |
|---|---|---|
| Existing customer relationships | 10 years | |
| Tools and technology | 7 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.
Business combinations are accounted for under IFRS 3 (Revised) using the purchase 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 balance sheet as goodwill and is not amortised. Any goodwill asset 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 cash-generating units monitored by management, usually at business segment level or statutory company level as the case may be. Where the recoverable amount of the cashgenerating unit is less than its carrying amount, including goodwill, an impairment loss is recognised in the income statement.
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 to which it belongs. The recoverable amount is the higher of the fair value less costs to sell and the value in use of the asset or cash-generating unit. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the 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 assets or cash-generating unit'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 income statement.
The Group's interests in its associates, being those entities over which it has significant influence and which are neither subsidiaries nor joint ventures, are accounted for using the equity method.
Under the equity method, the investment in an associate is carried in the balance sheet at cost plus post-acquisition changes in the Group's share of net assets of the associate, less distributions received and less any impairment in value of individual investments. The Group income statement reflects the share of the associate's results after tax. Where there has been a change recognised in other comprehensive income of the associate, the Group recognises its share of any such change in the Group statement of other comprehensive income.
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.
Financial assets are recognised at their fair value which initially equates to the consideration given plus directly attributable transaction costs associated with the investment.
The subsequent measurement of financial assets depends on their classification as described in each category below.
Trade receivables, which generally have 30–90 day terms, are recognised and carried at their original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Balances are written off when the probability of recovery is assessed as being remote.
Current asset investments comprise deposits held for a term of greater than three months from the date of deposit and which is not available to the Group on demand. Subsequent to initial measurement, current asset investments are measured at fair value.
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.
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.
Financial liabilities are initially recognised at their fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.
The subsequent measurement of financial liabilities depends on their classification as described in each category below.
All borrowings are initially recognised at fair value less directly attributable transaction costs. Borrowing costs are recognised as an expense when incurred.
After initial recognition, interest-bearing borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:
Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Cash flow hedges that meet the strict 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 income statement in other operating expenses. The Group uses forward currency contracts as hedges of its exposure to foreign currency risk in forecasted transactions and firm commitments. The ineffective portion is recognised in other operating income.
Amounts recognised as other comprehensive income are transferred to the income statement, within other operating expenses, when the hedged transaction affects profit or loss, such as when the hedged financial expense is recognised.
The Group uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuations. 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 or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
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 the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument's fair value in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are addressed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they are designated.
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 income statement within other operating expenses. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until after the forecast transaction or firm commitment affects profit or loss.
Any other gains or losses arising from changes in fair value on forward contracts are taken directly to other operating expenses in the income statement.
The Group's presentation currency is Pounds Sterling (£). Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated income statement.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of initial transaction.
The functional currencies of the overseas subsidiaries are Euro (€), US dollar (US\$), South African rand (ZAR) and Swiss franc (CHF). As at the reporting date, the assets and liabilities of these overseas subsidiaries are translated into the presentation currency of the Group at the rate of exchange ruling at the balance sheet date and their 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 income statement.
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.
85
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.
Current tax assets and liabilities for the current and prior periods 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.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions:
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Income tax is charged or credited directly to the statement of comprehensive income if it relates to items that are credited or charged to the statement of comprehensive income. Otherwise income tax is recognised in the income statement.
Revenues, expenses and assets are recognised net of the amount of sales tax except:
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, excluding discounts and rebates given to customers, VAT and other sales tax or duty. The following specific recognition criteria must also be met before revenue is recognised:
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch of goods.
Revenue is recognised when receivable under a contract following delivery of a service or in line with the stage of work completed. The stage of completion is determined by reference to the costs incurred as a proportion of the total estimated costs of the contract and unbilled revenue is recognised within accrued income. 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. A provision is made as soon as a loss is foreseen.
Contractual Services revenue includes revenue from Support Services and Managed Services contracts, and is recognised as services are delivered. Unrecognised contracted revenue is included as deferred income in the balance sheet. Amounts invoiced relating to more than one period are deferred and recognised over their relevant life.
On a limited number of Contractual Services contracts 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. Unbilled revenue is recognised within accrued income. If a contract cannot be reliably estimated, revenue is restricted to the extent that costs have been incurred.
If the performance of one of these limited number of contracts results in a margin that was less than anticipated at the time that it was agreed then the future financial performance of that contract will be reviewed in detail. If, after further customer negotiation and financial analysis the full financial consequence of the contract can be reliably estimated, and it is determined that the contract is loss-making, then the best estimate of the losses expected to be incurred until the end of the contract will be provided for.
Where a contract contains several elements, the individual elements are accounted for separately where appropriate and revenue thereon is measured at the fair value of the consideration received.
Income is recognised as interest accrues.
Dividend income is recognised when the Group's right to receive payment is established.
Rental income arising from operating leases is accounted for on a straight-line basis over the lease term.
The Group operates a defined contribution scheme available to all UK employees. Contributions are recognised as an expense in the 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 presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.
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, further details of which are given in note 29. In valuing equity-settled transactions, no account is taken of any performance conditions as none of the conditions set are market-related ones.
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 income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. As the schemes do not include any market-related performance conditions, no expense is recognised for awards that do not ultimately vest.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (see note 11).
The Group has an employee share trust for the granting of non-transferable options to executives and senior employees. 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 (see note 28).
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 revenue reserves. No gain or loss is recognised in the performance statements on the purchase, sale, issue or cancellation of equity shares.
The rapid growth of our Services business in Germany during the fourth quarter of 2011, coupled with insufficient contractual governance procedures in place within our German business at that time has resulted in a number of Managed Services contracts failing to achieve the margins anticipated at the time they were agreed.
Actions taken in response to these issues, including a full review of our governance procedures, have had a positive effect, helping to stabilise the business and turnaround a number of operational issues. However, the Group has determined that three of these contracts, following further customer negotiation and extensive financial analysis, will be loss-making over the course of their remaining life.
The Group has therefore held an exceptional one-off provision of £7.5 million representing our best estimate of the losses expected to be incurred between 2013 and the end of the three contracts.
In order to give investors a clearer picture of the past performance of the business, the Group has reclassified trading losses and provisions previously incurred on these three onerous contracts in 2012 as exceptional items, and has accordingly restated its 2012 results for the German segment and the Group as a whole results, as follows:
| As reported in 2012 | Restated in 2013 | ||||||
|---|---|---|---|---|---|---|---|
| Onerous German Contracts | |||||||
| Total Group in £'000 | Trading losses |
Provision for future losses |
Total | Rest of Group |
Group | Reclass ification |
Group |
| Turnover | 15,427 | – | 15,427 | 2,898,787 | 2,914,214 | – | 2,914,214 |
| Cost of Sales | (21,348) | (2,108) | (23,456) | (2,517,571) | (2,541,027) | 8,029 | (2,532,998) |
| Adjusted Gross Profit | (5,921) | (2,108) | (8,029) | 381,216 | 373,187 | 8,029 | 381,216 |
| Administrative expenses | – | – | – | (303,172) | (303,172) | – | (303,172) |
| Adjusted Operating Profit | (5,921) | (2,108) | (8,029) | 78,044 | 70,015 | 8,029 | 78,044 |
| Adjusted net interest | – | – | – | 1,265 | 1,265 | – | 1,265 |
| Adjusted Profit before tax | (5,921) | (2,108) | (8,029) | 79,309 | 71,280 | 8,029 | 79,309 |
| Exceptional Items | – | – | – | (3,874) | (3,874) | (8,029) | (11,903) |
| Intangibles amortisation | – | – | – | (2,608) | (2,608) | – | (2,608) |
| Statutory Profit before tax | (5,921) | (2,108) | (8,029) | 72,827 | 64,798 | – | 64,798 |
Adjusted gross profit and adjusted operating profit for the Group that is shown in the segment information note includes interest on CSF of £1,072,000 that is reported in finance costs on the consolidated income statement.
| As reported in 2012 | Restated in 2013 | ||||||
|---|---|---|---|---|---|---|---|
| Onerous German Contracts | |||||||
| Germany segment in £'000 | Trading losses |
Provision for future losses |
Total | Rest of Germany Segment |
Germany Segment |
Reclass ification |
Germany Segment |
| Turnover | 15,427 | – | 15,427 | 1,178,369 | 1,193,796 | – | 1,193,796 |
| Cost of Sales | (21,348) | (2,108) | (23,456) | (1,033,348) | (1,056,804) | 8,029 | (1,048,775) |
| Adjusted Gross Profit | (5,921) | (2,108) | (8,029) | 145,021 | 136,992 | 8,029 | 145,021 |
| Administrative expenses | – | – | – | (125,356) | (125,356) | – | (125,356) |
| Adjusted Operating Profit | (5,921) | (2,108) | (8,029) | 19,665 | 11,636 | 8,029 | 19,665 |
| Adjusted net interest | – | – | – | 228 | 228 | – | 228 |
| Adjusted Profit before tax | (5,921) | (2,108) | (8,029) | 19,893 | 11,864 | 8,029 | 19,893 |
| Exceptional Items | – | – | – | (1,484) | (1,484) | (8,029) | (9,513) |
| Intangibles amortisation | – | – | – | (1,194) | (1,194) | – | (1,194) |
| Statutory Profit before tax | (5,921) | (2,108) | (8,029) | 17,215 | 9,186 | – | 9,186 |
For management purposes, the Group is organised into geographical segments, with each segment determined by the location of the Group's assets and operations. The Group's business in each geography is managed separately and held in separate statutory entities.
No operating segments have been aggregated to form the below reportable operating segments.
Management monitors the operating results of its geographical segments separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on adjusted operating profit or loss which is measured differently from operating profit or loss in the consolidated financial statements. Adjusted operating profit or loss takes account of the interest paid on customer-specific financing ('CSF') which management consider to be a cost of sale. Excluded from adjusted operating profit is the amortisation of acquired intangibles and exceptional items as management do not consider these items when reviewing the underlying performance of a segment.
Included within exceptional items in the German segment results in 2012 are losses and provisions incurred in relation to three onerous contracts that were previously classified within operating profit. Further details of the restatement have been provided within note 3.
Segmental performance for the years ended 31 December 2013 and 2012 was as follows:
| UK £'000 |
Germany £'000 |
France £'000 |
Belgium £'000 |
Total £'000 |
|
|---|---|---|---|---|---|
| Year ended 31 December 2013 | |||||
| Revenue | |||||
| Supply Chain revenue | 828,097 | 859,404 | 389,517 | 29,195 | 2,106,213 |
| Services revenue | |||||
| Professional Services | 113,102 | 104,446 | 20,794 | 3,716 | 242,058 |
| Contractual Services | 344,930 | 307,592 | 56,008 | 15,274 | 723,804 |
| Total Services revenue | 458,032 | 412,038 | 76,802 | 18,990 | 965,862 |
| Total revenue | 1,286,129 | 1,271,442 | 466,319 | 48,185 | 3,072,075 |
| Results | |||||
| Adjusted gross profit | 200,097 | 158,051 | 38,320 | 6,006 | 402,474 |
| Administrative expenses | (143,926) | (127,403) | (45,603) | (4,164) | (321,096) |
| Adjusted operating profit/(loss) | 56,171 | 30,648 | (7,283) | 1,842 | 81,378 |
| Adjusted net interest | 791 | 173 | (561) | (117) | 286 |
| Adjusted profit/(loss) before tax | 56,962 | 30,821 | (7,844) | 1,725 | 81,664 |
| Exceptional items: | |||||
| – onerous contracts | – | (15,739) | – | – | (15,739) |
| – impairment of intangibles | – | – | (12,195) | – | (12,195) |
| – exceptional items | 3,466 | (3,105) | (1,191) | – | (830) |
| 3,466 | (18,844) | (13,386) | – | (28,764) | |
| Amortisation of acquired intangibles | (792) | (1,225) | (242) | (116) | (2,375) |
| Statutory profit/(loss) before tax | 59,636 | 10,752 | (21,472) | 1,609 | 50,525 |
| Other segment information | |||||
| Capital expenditure: | |||||
| Property, plant and equipment | 5,556 | 3,927 | 1,275 | 85 | 10,843 |
| Software | 14,883 | 597 | 64 | – | 15,544 |
| Depreciation | 11,658 | 8,850 | 2,111 | 116 | 22,735 |
| Amortisation of software | 6,516 | 816 | 132 | 1 | 7,464 |
| Share-based payments | 838 | (2) | 234 | – | 1,070 |
| UK £'000 |
Germany £'000 |
France £'000 |
Belgium £'000 |
Total £'000 |
|
|---|---|---|---|---|---|
| Year ended 31 December 2012 (restated) | |||||
| Revenue | |||||
| Supply Chain revenue | 764,215 | 801,447 | 405,432 | 34,490 | 2,005,584 |
| Services revenue | |||||
| Professional Services | 104,308 | 89,602 | 23,897 | 2,447 | 220,254 |
| Contractual Services | 327,124 | 302,747 | 49,977 | 8,528 | 688,376 |
| Total Services revenue | 431,432 | 392,349 | 73,874 | 10,975 | 908,630 |
| Total revenue | 1,195,647 | 1,193,796 | 479,306 | 45,465 | 2,914,214 |
| Results | |||||
| Adjusted gross profit | 183,915 | 145,020 | 47,297 | 4,984 | 381,216 |
| Administrative expenses | (131,686) | (125,356) | (43,033) | (3,097) | (303,172) |
| Adjusted operating profit | 52,229 | 19,664 | 4,264 | 1,887 | 78,044 |
| Adjusted net interest | 1,439 | 228 | (327) | (75) | 1,265 |
| Adjusted profit before tax | 53,668 | 19,892 | 3,937 | 1,812 | 79,309 |
| Exceptional items: | |||||
| – onerous contracts | – | (8,029) | – | – | (8,029) |
| – exceptional costs | (364) | (1,484) | (2,026) | – | (3,874) |
| (364) | (9,513) | (2,026) | – | (11,903) | |
| Amortisation of acquired intangibles | (481) | (1,194) | (933) | – | (2,608) |
| Statutory profit before tax | 52,823 | 9,185 | 978 | 1,812 | 64,798 |
| Other segment information | |||||
| Capital expenditure: | 11,311 | 6,992 | 10,622 | 12 | 28,937 |
| Property, plant and equipment | – | – | – | 1,930 | 1,930 |
| Software | 7,803 | 1,022 | 156 | – | 8,981 |
| Depreciation | 14,258 | 8,601 | 1,418 | 60 | 24,337 |
| Amortisation of software | 5,838 | 1,024 | 103 | – | 6,965 |
| Share-based payments | 1,613 | 522 | 41 | – | 2,176 |
Included in revenues arising from the UK segment are revenues of approximately £280 million (2012: £279 million) which arose from sales to the Group's largest customer. For the purposes of this disclosure a single customer is considered to be a group of entities known to be under common control. This customer consists of entities under control of the UK Government, and includes the Group's revenues with central government, local government and certain government-controlled banking institutions.
This is stated after charging/(crediting):
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Auditor's remuneration: | ||
| Audit of the financial statements | 437 | 380 |
| Audit of subsidiaries | 64 | 43 |
| Total audit fees | 501 | 423 |
| Audit related assurance services | 41 | 40 |
| Taxation compliance services | 34 | 33 |
| Taxation advisory services | 67 | 49 |
| Total non-audit services | 142 | 122 |
| Total fees | 643 | 545 |
| Depreciation of property, plant and equipment | 22,735 | 24,337 |
| Loss on disposal of property, plant and equipment | (238) | 363 |
| Loss on disposal of intangible assets | 745 | 184 |
| Impairment of acquired intangibles | 12,195 | – |
| Amortisation of software | 7,464 | 6,965 |
| Amortisation of other intangible assets | 2,212 | 2,608 |
| Net foreign currency differences | 271 | (114) |
| Costs of inventories recognised as an expense | 1,878,999 | 1,787,006 |
| Operating lease payments – minimum lease payments | 32,768 | 33,432 |
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Operating profit | ||
| Onerous contracts | (15,739) | (8,029) |
| Impairment of acquired intangible assets | (12,195) | – |
| Redundancy and other restructuring costs | (4,291) | (1,484) |
| Impairment of investment in associate | (539) | – |
| Services contracts re-valuation | 4,000 | – |
| Costs in relation to relocation of premises | – | (2,390) |
| (28,764) | (11,903) | |
| Income tax | ||
| Tax on onerous contracts included in operating profit | 1,889 | 883 |
| Tax on impairment of acquired intangible assets | 1,014 | – |
| Tax on exceptional items included in operating profit | (700) | 362 |
| Total tax on exceptional items | 2,203 | 1,245 |
| Exceptional tax items | ||
| – Deferred tax asset in respect of France | (2,184) | – |
| – Tax credit in relation to prior year R&D claim | 1,695 | – |
| 1,714 | 1,245 | |
| Exceptional items after taxation | (27,050) | (10,658) |
91
Included within the current year are the following exceptional items:
In Germany three managed service contracts have been identified as onerous. A £2.1 million provision was made in December 2012 for these contracts. A provision for estimated future losses of £7.5 million was held as at December 2013. This further provision has been classified as an exceptional item due to its size and nature and the 2012 result has been restated to be consistent.
Included within the German segment results in 2012 and 2013 are losses incurred in relation to these onerous contracts. In order to provide a clearer understanding of the performance of the remainder of the business, losses previously recognised within the German operating result for these contracts have now been reclassified within exceptional items. In 2012 trading losses of £5.9 million were incurred on revenues of £15.4 million. In 2013 trading losses of £8.2 million have been incurred on turnover of £23.0 million.
The deterioration in the performance of Computacenter France has led to an assessment of their non-current assets. It has been concluded that the forecasted cash flows for the French cash-generating unit do not fully support the value of non-current assets in the business. This has resulted in an impairment of £12.2 million of intangible assets in the French cash-generating unit.
During 2013 Computacenter Germany continued its programme, from late 2012, to reduce its net operating expenses. As a result, redundancy costs of £3.1 million were incurred during the year which, due to their size and nature, have been included within exceptional items.
Similarly, Computacenter France has begun a programme to also reduce its SG&A and restructure its business and senior management in line with the Group Operating Model. Redundancy related expenses of £1.2 million have been included in the 2013 result.
Due to the continued adverse performance of our equity accounted associate, ICS Solutions Limited, we have decided to fully impair the £0.5 million recorded value of our investment.
As part of our normal processes, we have carried out a detailed evaluation of other long-term Services contracts across the Group. As a result of this on-going evaluation, management have calculated that a positive change in certain estimates has resulted in a one-off gain of £4.0 million. Due to the nature of the change in the estimates, and the size of the gain, it has been decided to highlight this as an exceptional item. This is consistent with the treatment of the previously identified onerous contacts and will provide a fairer and more balanced understanding of our underlying growth in profitability.
During the year a deferred tax asset relating to losses carried forward in France has been written off for £2.2 million.
Tax relief from prior period Research and Development project spend on the Group ERP platforms has resulted in prior year adjustment credited in the statutory tax charge for year. Due to the timing, materiality and one-off nature of this relief, it has been decided to classify it an exceptional tax item.
Included within the prior year are the following exceptional items:
During the year, Computacenter France consolidated its operations in a new office and began the move to a new warehouse. In January 2013, RDC relocated to new premises in Braintree. The one-off costs in relation to the relocation of these premises of £2.4 million that have been disclosed as an exceptional item relate principally to:
In the second half of 2012, Computacenter Germany undertook a programme to reduce its net operating expenses by approximately £1.2 million annually. The related redundancy expenses of £1.5 million, due to their size and nature, have been included within exceptional items.
The income statement impact of both items has been shown as an exceptional tax item.
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Wages and salaries | 544,954 | 510,349 |
| Social security costs | 85,908 | 80,607 |
| Share-based payments | 1,070 | 2,176 |
| Pension costs | 20,069 | 19,256 |
| 652,001 | 612,388 |
Share-based payments arise from transactions accounted for as equity-settled share-based payment transactions.
The average monthly number of employees during the year was made up as follows:
| 2013 | 2012 | |
|---|---|---|
| No. | No. | |
| UK | 5,385 | 5,286 |
| Germany | 5,093 | 5,126 |
| France | 1,856 | 1,752 |
| Belgium | 257 | 178 |
| 12,591 | 12,342 |
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Bank interest receivable | 1,340 | 1,504 |
| Other interest received | 11 | 467 |
| 1,351 | 1,971 |
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Bank loans and overdrafts | 627 | 318 |
| Finance charges payable on customer specific financing | 787 | 1,072 |
| Other interest | 438 | 388 |
| 1,852 | 1,778 |
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Tax charged in the income statement | ||
| Current income tax | ||
| UK corporation tax | ||
| – operating result | 14,395 | 14,914 |
| – exceptional items | (891) | (94) |
| Total UK corporation tax | 13,504 | 14,820 |
| Foreign tax | ||
| – operating result | 5,031 | 3,988 |
| – exceptional items | (1,994) | (651) |
| Total foreign tax | 3,037 | 3,337 |
| Adjustments in respect of prior periods | (509) | (2,952) |
| Total current income tax | 16,032 | 15,205 |
| Deferred tax | ||
| Operating result | ||
| – origination and reversal of temporary differences | 139 | (1,466) |
| – adjustments in respect of prior periods | 25 | 2,171 |
| Exceptional items | 1,171 | (232) |
| Total deferred tax | 1,335 | 473 |
Tax charge in the income statement 17,367 15,678
| 2013 £'000 |
2012 £'000 |
|---|---|
| Accounting profit before income tax 50,525 |
64,798 |
| At the UK standard rate of corporation tax of 23.25 per cent (2012: 24.5 per cent) 11,747 |
15,876 |
| Expenses not deductible for tax purposes 802 |
1,885 |
| Non-deductible element of share-based payment charge 54 |
211 |
| Adjustments in respect of current income tax of previous periods (485) |
(1,274) |
| Higher tax on overseas earnings 1,511 |
276 |
| Other differences 766 |
(549) |
| Effect of changes in tax rate on deferred tax (262) |
(140) |
| Utilisation of previously unrecognised deferred tax assets (3,169) |
(2,098) |
| Exceptional changes in recoverable amounts of deferred tax assets 2,185 |
– |
| Tax on impairment of acquired intangible assets (1,014) |
– |
| Overseas tax not based on earnings 1,554 |
1,491 |
| Tax credit in relation to prior year R&D claim (1,695) |
– |
| Deferred tax not recognised on current year losses 5,373 |
– |
| At effective income tax rate of 34.4 per cent (2012: 24.2 per cent) 17,367 |
15,678 |
Deferred tax assets of £13.5 million (2012: £15.7 million) have been recognised in respect of losses carried forward.
In addition, at 31 December 2013, there were unused tax losses across the Group of £125.4 million (2012: £115.5 million) for which no deferred tax asset has been recognised. Of these losses, £54.5 million (2012: £61.6 million) arise in Germany and £67.6 million (2012: £50.6 million) arise in France. A significant proportion of the losses arising in Germany have been generated in statutory entities that no longer have significant levels of trade. The remaining unrecognised tax losses relate to other loss-making overseas subsidiaries.
Deferred income tax at 31 December relates to the following:
| Consolidated balance sheet | Consolidated income statement | |||
|---|---|---|---|---|
| 2013 £'000 |
2012 £'000 |
2013 £'000 |
2012 £'000 |
|
| Deferred income tax liabilities | ||||
| Accelerated capital allowances | 1,970 | 2,486 | 258 | (680) |
| Effect of changes in tax rate on opening liability | – | – | 267 | (219) |
| Amortisation of intangibles | 1,354 | 2,334 | 1,277 | (440) |
| Arising on acquisition | – | 255 | – | – |
| Gross deferred income tax liabilities | 3,324 | 5,075 | ||
| Deferred income tax assets | ||||
| Relief on share option gains | 1,142 | 1,100 | (55) | (42) |
| Other temporary differences | 2,501 | 1,605 | 1,562 | 1,911 |
| Effect of changes in tax rate on opening asset | – | – | (109) | – |
| Revaluations of foreign exchange contracts to fair value | 326 | 6 | 320 | 59 |
| Losses available for offset against future taxable income | 13,580 | 15,715 | (2,185) | (116) |
| Gross deferred income tax assets | 17,549 | 18,426 | ||
| Deferred income tax charge | 1,335 | 473 | ||
| Net deferred income tax asset | 14,225 | 13,351 | ||
| Disclosed on the balance sheet | ||||
| Deferred income tax asset | 15,172 | 14,385 | ||
| Deferred income tax liability | (947) | (1,034) |
Net deferred income tax asset 14,225 13,351
At 31 December 2013, there was no recognised or unrecognised deferred income tax liability (2012: £nil) for taxes that would be payable on the unremitted earnings of the Group's subsidiaries as the Group expects that future remittances of earnings from its overseas subsidiaries will be covered by the UK dividend exemption.
The main rate of UK Corporation will be reduced to 21 per cent from 1 April 2014 and to 20 per cent from 1 April 2015, as enacted in the Finance Act 2013. Deferred tax has been restated accordingly in these financial statements.
Earnings per share ('EPS') 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).
Diluted EPS 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) adjusted for the effect of dilutive options.
Adjusted basic and adjusted diluted EPS are presented to provide more comparable and representative information. Accordingly, the adjusted basic and adjusted diluted EPS figures exclude amortisation of acquired intangibles and exceptional items.
| 2013 £'000 |
Restated 2012 £'000 |
|
|---|---|---|
| Profit attributable to equity holders of the parent | 33,160 | 49,121 |
| Amortisation of acquired intangibles | 2,375 | 2,608 |
| Tax on amortisation of acquired intangibles | (244) | (538) |
| Exceptional items within operating profit | 28,764 | 11,903 |
| Tax on exceptional items included in operating profit | (2,203) | (1,245) |
| Exceptional tax items | 489 | – |
| Profit before amortisation of acquired intangibles and exceptional items | 62,341 | 61,849 |
| 2013 000's |
2012 000's |
|
|---|---|---|
| Basic weighted average number of shares (excluding own shares held) | 142,665 | 149,387 |
| Effect of dilution: | ||
| Share options | 1,428 | 2,179 |
| Diluted weighted average number of shares | 144,093 | 151,566 |
| Restated | ||
|---|---|---|
| 2013 | 2012 | |
| pence | pence | |
| Basic EPS | 23.2 | 32.9 |
| Diluted EPS | 23.0 | 32.4 |
| Adjusted basic EPS | 43.7 | 41.4 |
| Adjusted diluted EPS | 43.3 | 40.8 |
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Declared and paid during the year: | ||
| Equity dividends on Ordinary Shares: | ||
| Final dividend for 2012: 10.5 pence (2011: 10.5 pence) | 15,759 | 15,725 |
| Interim dividend for 2013: 5.2 pence (2012: 5.0 pence) | 7,038 | 7,488 |
| 22,797 | 23,213 | |
| Proposed (not recognised as a liability as at 31 December) | ||
| Equity dividends on Ordinary Shares: |
| Freehold land | Short leasehold | Fixtures, fittings, equipment and |
||
|---|---|---|---|---|
| and buildings £'000 |
improvements £'000 |
vehicles £'000 |
Total £'000 |
|
| Cost | ||||
| At 1 January 2012 | 78,034 | 21,279 | 154,063 | 253,376 |
| Additions | – | 2,990 | 25,947 | 28,937 |
| Acquisition of subsidiary undertaking | – | 2 | 94 | 96 |
| Disposals | – | (351) | (15,017) | (15,368) |
| Foreign currency adjustment | (30) | (515) | (1,817) | (2,362) |
| At 31 December 2012 | 78,004 | 23,405 | 163,270 | 264,679 |
| Additions | – | 2,786 | 8,057 | 10,843 |
| Disposals | – | (865) | (12,907) | (13,772) |
| Foreign currency adjustment | (5) | (92) | (503) | (600) |
| At 31 December 2013 | 77,999 | 25,234 | 157,917 | 261,150 |
| Accumulated depreciation and impairment | ||||
| At 1 January 2012 | 30,966 | 10,695 | 113,454 | 155,115 |
| Provided during the year | 2,224 | 3,017 | 19,096 | 24,337 |
| Disposals | – | (327) | (13,604) | (13,931) |
| Foreign currency adjustment | (3) | (462) | (1,073) | (1,538) |
| At 31 December 2012 | 33,187 | 12,923 | 117,873 | 163,983 |
| Provided during the year | 2,241 | 3,175 | 17,319 | 22,735 |
| Disposals | (400) | (776) | (11,890) | (13,066) |
| Foreign currency adjustment | (1) | (1,709) | 164 | (1,546) |
| At 31 December 2013 | 35,027 | 13,613 | 123,466 | 172,106 |
| Net book value | ||||
| At 31 December 2013 | 42,972 | 11,621 | 34,451 | 89,044 |
| At 31 December 2012 | 44,817 | 10,842 | 45,397 | 100,696 |
| At 1 January 2012 | 47,068 | 10,584 | 40,609 | 98,261 |
Included in the figures above are the following amounts relating to leased assets which are used to satisfy specific customer contracts:
| Fixtures, fittings, equipment and vehicles |
|||
|---|---|---|---|
| 2013 £'000 |
2012 £'000 |
||
| Cost | |||
| At 1 January | 76,097 | 78,271 | |
| Additions | 1,235 | 6,732 | |
| Disposals | (2,922) | (8,205) | |
| Foreign currency adjustment | 561 | (701) | |
| At 31 December | 74,971 | 76,097 | |
| Accumulated depreciation and impairment | |||
| At 1 January | 60,003 | 57,356 | |
| Charge for year | 6,647 | 9,782 | |
| Disposals | (3,036) | (6,879) | |
| Foreign currency adjustment | 171 | (256) | |
| At 31 December | 63,785 | 60,003 | |
| Net book value | 11,186 | 16,094 |
| Acquired intangible |
||||
|---|---|---|---|---|
| Goodwill £'000 |
Software £'000 |
assets £'000 |
Total £'000 |
|
| Cost | ||||
| At 1 January 2012 | 56,227 | 64,218 | 18,253 | 138,698 |
| Additions | 1,080 | 8,981 | 850 | 10,911 |
| Acquired via subsidiary | – | 3 | – | 3 |
| Disposals | – | (364) | (333) | (697) |
| Foreign currency adjustment | (532) | (334) | (326) | (1,192) |
| At 31 December 2012 | 56,775 | 72,504 | 18,444 | 147,723 |
| Additions | – | 15,544 | – | 15,544 |
| Acquired via subsidiary | – | – | – | – |
| Disposals | – | (4,583) | – | (4,583) |
| Foreign currency adjustment | 640 | 123 | 598 | 1,361 |
| At 31 December 2013 | 57,415 | 83,588 | 19,042 | 160,045 |
| Amortisation and impairment | ||||
| At 1 January 2012 | – | 28,124 | 6,332 | 34,456 |
| Charged during the year | – | 6,965 | 2,608 | 9,573 |
| Disposals | – | (180) | (333) | (513) |
| Foreign currency adjustment | – | (326) | (79) | (405) |
| At 31 December 2012 | – | 34,583 | 8,528 | 43,111 |
| Charged during the year | – | 7,464 | 2,212 | 9,676 |
| Impairment | 9,271 | – | 2,924 | 12,195 |
| Disposals | – | (3,941) | – | (3,941) |
| Foreign currency adjustment | (208) | 55 | 287 | 134 |
| At 31 December 2013 | 9,063 | 38,161 | 13,951 | 61,175 |
| Net book value | ||||
| At 31 December 2013 | 48,352 | 45,427 | 5,091 | 98,870 |
| At 31 December 2012 | 56,775 | 37,921 | 9,916 | 104,612 |
| At 1 January 2012 | 56,227 | 36,094 | 11,921 | 104,242 |
Management have considered that the deterioration in the performance of Computacenter France during 2013 provides sufficient evidence to test the non-financial assets in the business for impairment as at 31 December 2013. Computacenter France, which is equivalent to the France segment, is the cash-generating unit ('CGU') at which impairment is assessed. The recoverable amount of the Computacenter France CGU has been determined based on a value-in-use calculation. The discount rate used is 12 per cent (2012: 12 per cent). As a result of the deterioration in performance, an impairment of £12.2 million has been recognised in this CGU, which has resulted in an impairment to goodwill and acquired customer relationships. In France, adverse changes to the assumptions, such as a 0.5 per cent increase in the discount rate, a 0.5 per cent reduction in the market growth rate or a 5 per cent fall in long-term operating profit, would cause the carrying value of the remaining non-current assets in the French cash-generating unit to exceed the carrying amount.
Goodwill acquired through business combinations have been allocated to the following CGUs:
These represent the lowest level within the Group at which goodwill is monitored for internal management purposes.
| Computacenter | |||||||
|---|---|---|---|---|---|---|---|
| (UK) | Computacenter | Computacenter | |||||
| Limited £'000 |
RD Trading £'000 |
Germany £'000 |
France £'000 |
Damax AG £'000 |
Belgium IS £'000 |
Total £'000 |
|
| 1 January 2012 | 30,429 | 835 | 14,946 | 9,096 | 921 | – | 56,227 |
| Additions | – | – | – | – | – | 1,080 | 1,080 |
| Foreign currency adjustment | – | – | (318) | (193) | (21) | – | (532) |
| 31 December 2012 | 30,429 | 835 | 14,628 | 8,903 | 900 | 1,080 | 56,775 |
| Impairment | – | – | – | (9,271) | – | – | (9,271) |
| Foreign currency adjustment | – | – | 259 | 368 | 7 | 214 | 848 |
| 31 December 2013 | 30,429 | 835 | 14,887 | – | 907 | 1,294 | 48,352 |
| Market growth rate | 2.5% | 2.5% | 2.5% | 1.5% | 1.5% | 1.5% | |
| Discount rate | 11.0% | 11.0% | 11.0% | 12.0% | 12.0% | 15.0% | |
Additions to goodwill in 2012 arose from the acquisition of Belgium IS. Belgium IS is managed and therefore reported as part of the Belgium segment, however as it retains its own identifiable cash flows, it is considered as a CGU itself.
The recoverable amounts of all six CGUs have been determined based on a value-in-use calculation. To calculate this, cash flow projections are based on financial budgets approved by senior management covering a three-year period and on long-term market growth rates of between 1.5 and 2.5 per cent (2012: between 1.5 and 2.5 per cent) thereafter.
Key assumptions used in the value-in-use calculation for all CGUs for 31 December 2013 and 31 December 2012 are:
Except in France, each CGU generates value substantially in excess of the carrying value of goodwill attributed to each of them. Management therefore believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount. In France, adverse changes in the assumptions, such as a 0.5 per cent reduction in market growth rate or an increase in the discount rate of 0.5 per cent would cause the carrying value to exceed its recoverable amount.
Other intangible assets consist of customer contracts, customer relationships and tools and technology. The expected useful lives are shown in note 2.
The following table illustrates summarised information of the investment in associates:
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Cost | ||
| At 1 January | 585 | 507 |
| Increase in investment | – | 100 |
| Share of associates profit/(losses) | 10 | (21) |
| Exchange rate movement | (1) | (1) |
| At 31 December | 594 | 585 |
| Impairment | ||
|---|---|---|
| At 1 January | (10) | (10) |
| Charge for year | (539) | – |
| At 31 December | (549) | (10) |
| Carrying value | 45 | 575 |
The Group has a 20 per cent (2012: 20 per cent) interest in Gonicus GmbH, whose principal activity is the provision of Open Source Software. Gonicus is a private entity, incorporated in Germany, that is not listed on any public exchange and therefore there is no published quotation price for the fair value of this investment. The reporting date of Gonicus is 31 December.
The Group has a 25 per cent (2012: 25 per cent) interest in ICS Solutions Limited ('ICS') whose principal activity is the delivering of both on-premise and cloud-based services and solutions across the Microsoft technology stack. ICS is a private entity, incorporated in the United Kingdom, that is not listed on any public exchange and therefore there is no published quotation price for the fair value of the investment. The reporting date of ICS is 30 June.
Due to the continued adverse performance of ICS the Group's investment in ICS has been fully impaired as at 31 December 2013.
The Group's principal subsidiary undertakings are as follows:
| Proportion of voting rights and shares held |
||||
|---|---|---|---|---|
| Name | Country of incorporation |
Nature of business | 2013 | 2012 |
| Computacenter (UK) Limited | England | IT Infrastructure services | 100% | 100% |
| Computacenter France SAS | France | IT Infrastructure services | 100% | 100% |
| Computacenter Holding GmbH | Germany | IT Infrastructure services | 100% | 100% |
| Computacenter GmbH | Germany | IT Infrastructure services | 100% | 100% |
| CC Managed Services GmbH | Germany | IT Infrastructure services | 100% | 100% |
| Computacenter NV/SA | Belgium | IT Infrastructure services | 100% | 100% |
| RD Trading Limited | England | IT Asset Management | 100%* | 100%* |
| Computacenter PSF SA | Luxembourg | IT Infrastructure services | 100% | 100% |
| Computacenter USA | USA | IT Infrastructure services | 100%* | 100%* |
| Computacenter Services (Iberia) SLU | Spain | International Call Centre Services | 100%* | 100%* |
| Digica Group Holdings Limited | England | IT infrastructure and application services | 100% | 100% |
| Computacenter Services and Solutions | ||||
| (Pty) Ltd | South Africa | IT Infrastructure services | 100%* | 100%* |
| becom Informationssysteme GmbH | Germany | IT Infrastructure services | 100%** | 100%** |
| Top Info SAS | France | IT Infrastructure services | 100%*** | 100%*** |
| Computacenter AG | Switzerland | IT Infrastructure services | 80% | 80% |
| HSD Consult GmbH | Germany | IT Infrastructure services | 100%** | 100%** |
| NEWIS SA | Belgium | IT Infrastructure services | 100%**** | 100%**** |
| Informatic Services IS SA | Belgium | IT Infrastructure services | 100%**** | 100%**** |
| Computacenter Services (Malaysia) | ||||
| Sdn Bhd | Malaysia | International Call Centre Services | 100%* | – |
| Computacenter Services Kft | Hungary | International Call Centre Services | 100%* | – |
* Includes indirect holdings of 100 per cent via Computacenter (UK) Limited.
** Includes indirect holdings of 100 per cent via Computacenter Holding GmbH.
*** Includes indirect holdings of 100 per cent via Computacenter France SAS.
**** Includes indirect holdings of 100 per cent via Computacenter NV/SA.
Computacenter plc is the ultimate parent entity of the Group.
On 28 December 2012 the Group acquired 100 per cent of the voting shares of NEWIS SA and its subsidiary, Informatic Services IS SA. The book and provisional fair values of the net assets acquired that were disclosed in note 16 of the 31 December 2012 Annual Report and Accounts are now final and are unchanged.
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Inventories for re-sale | 58,618 | 67,782 |
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Trade receivables | 657,893 | 569,178 |
| Other receivables | 9,829 | 4,483 |
| 667,722 | 573,661 |
For terms and conditions relating to related party receivables, refer to note 34.
Trade receivables are non-interest bearing and are generally on 30–90 day terms.
Note 26 sets out the Group's strategy towards credit risk.
The movements in the provision for impairment of receivables were as follows:
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| At 1 January | 14,076 | 13,204 |
| Charge for the year | 10,696 | 9,896 |
| Utilised | (5,220) | (4,611) |
| Unused amounts reversed | (4,791) | (4,101) |
| Foreign currency adjustment | 203 | (312) |
| At 31 December | 14,964 | 14,076 |
As at 31 December, the ageing analysis of trade receivables is as follows:
| Neither past | Past due but not impaired | ||||||
|---|---|---|---|---|---|---|---|
| Total £'000 |
due nor impaired £'000 |
<30 days £'000 |
30–60 days £'000 |
60–90 days £'000 |
90–120 days £'000 |
>120 days £'000 |
|
| 2013 | 657,893 | 548,629 | 68,627 | 16,679 | 6,065 | 6,522 | 11,371 |
| 2012 | 569,178 | 475,011 | 61,098 | 20,733 | 4,636 | 2,266 | 5,434 |
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Cash at bank and in hand | 43,098 | 109,443 |
| Short-term deposits | 48,000 | 28,706 |
| 91,098 | 138,149 |
Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of cash and cash equivalents is £91,098,000 (2012: 138,149,000).
Due to strong cash generation over the past three years, the Group is now in a position where it can finance its requirements from its cash balance. The Group does, however, retain overdraft facilities where required. The uncommitted overdraft facilities available to the Group are £17.3 million at 31 December 2013 (2012: £20.3 million). During the year the Group entered into a new committed facility of £40.0 million for a three-year term which expires in May 2016. At 31 December 2013 the facility was not utilised.
For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise the following at 31 December:
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Cash at bank and in hand | 43,098 | 109,443 |
| Short-term deposits | 48,000 | 28,706 |
| Bank overdrafts (note 22) | (764) | (678) |
| 90,334 | 137,471 |
The Group operates a notional cash pooling facility whereby Group companies have instant access to a facility into which excess funds can be deposited or withdrawn to meet funding requirements. Due to the nature of this facility, all balances related to this arrangement are disclosed within cash at bank and in hand.
| 2013 £'000 |
2012 £'000 |
|---|---|
| Trade payables 409,746 |
342,991 |
| Other payables 195,199 |
184,548 |
| 604,945 | 527,539 |
Terms and conditions of the above financial liabilities:
For terms and conditions relating to related parties, refer to note 34.
Trade payables are non-interest bearing and are normally settled on net monthly terms.
Other payables, which principally relate to other taxes, social security costs and accruals, are non-interest bearing and have an average term of three months.
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Current | ||
| Bank overdrafts | 764 | 678 |
| Other loans – 'CSF' | 1,194 | 702 |
| Bank loan | 37 | 79 |
| Current obligations under finance leases – 'CSF' (note 24) | 6,152 | 7,658 |
| 8,147 | 9,117 | |
| Non-current | ||
| Bank loan | 29 | 65 |
| Other loans – 'CSF' | 6,087 | – |
| Non-current obligations under finance leases – 'CSF' (note 24) | 5,424 | 10,341 |
| 11,540 | 10,406 |
There are no material differences between the fair value of financial liabilities and their book value.
The bank overdrafts are unsecured and are subject to annual review.
The finance leases are only secured on the assets that they finance. These assets are in the main used to satisfy specific customer contracts. There are a small number of assets that are utilised internally.
The bank loans are unsecured and comprise the following:
| Maturity date | Interest rate | £'000 | |
|---|---|---|---|
| 31 December 2013 | |||
| 2015 | 3.02%–3.89% | 51 | |
| 2016 | 2.23% | 15 | |
| 66 | |||
| Less: current instalments due on bank loans | (37) | ||
| Non-current instalments | 29 |
| Maturity date | Interest rate | £'000 | |
|---|---|---|---|
| 31 December 2012 | |||
| 2013 | 2.04% | 79 | |
| 2015 | 3.02%–3.89% | 45 | |
| 2016 | 2.23% | 20 | |
| 144 | |||
| Less: current instalments due on bank loans | (79) | ||
| Non-current instalments | 65 | ||
The other loans are unsecured borrowings to finance equipment sold to customers on specific contracts or for equipment for own use.
Other loans comprise the following:
| Maturity date | Interest rate | £'000 |
|---|---|---|
| 2014 | 0%–2.76% | 602 |
| 2015 | 1.75%–6.67% | 6,679 |
| 7,281 | ||
| (1,194) | ||
| 6,087 | ||
| Maturity date | Interest rate | £'000 | |
|---|---|---|---|
| 31 December 2012 | |||
| 2013 | 0%–2.76% | 702 | |
| Less: current instalments due on other loans | (702) | ||
| – |
The table below summarises the maturity profile of these loans:
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Not later than one year | 602 | 702 |
| After one year but not more than five years | 6,679 | – |
| 7,281 | 702 |
The finance lease and loan facilities are committed.
At 31 December 2013, the Group had available £17.3 million of uncommitted overdraft facilities (2012: £20.3 million).
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Financial instruments at fair value through profit and loss | ||
| Foreign exchange forward contracts | (957) | (584) |
| Financial instruments at fair value through other comprehensive income | ||
| Cash flow hedges | ||
| Foreign exchange forward contracts | (1,403) | 30 |
| (2,360) | (554) | |
Financial assets and liabilities at fair value through other comprehensive income reflect the change in fair value of foreign exchange forward contracts, designated as cash flow hedges to hedge the expected contract costs in South African Rand where sales on those contracts are in Sterling, based on highly probable forecast transactions. Financial assets and liabilities through profit or loss are those foreign exchange contracts that are not designated in hedge relationships as they are intended to reduce the level of foreign currency risk for expected sales and purchases.
The Group also enters into other foreign exchange forward contracts with the intention to reduce the foreign exchange risk of expected sales and purchases. When these other contracts are not designated in hedge relationships they are measured at fair value through profit and loss within other operating expenses.
The foreign exchange forward contract balances vary with the level of expected foreign currency costs and changes in the foreign exchange forward rates.
103
The terms of the foreign currency forward contracts have been negotiated for the expected highly probable forecast transactions to which hedge accounting has been applied. No significant element of hedge ineffectiveness required recognition in the income statement.
The cash flow hedges of the forecasted costs were assessed to be highly effective and a net unrealised loss of £1,403,000 (2012: gain of £494,000) with a deferred tax asset of £326,000 (2012: £120,000 deferred tax liability) relating to the hedging instruments is included in the other comprehensive income. The amounts retained in the other comprehensive income of £1,403,000 are expected to mature and affect the income statement in 2014 and 2015.
The Group has finance leases for various items of plant and machinery; these leases have no terms of renewal or purchase options and escalation clauses. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Minimum | Present value | Minimum | Present value of | |
| payments | of payments | payments | payments | |
| £'000 | £'000 | £'000 | £'000 | |
| Within one year | 6,545 | 6,152 | 8,418 | 7,658 |
| After one year but not more than five years | 5,783 | 5,424 | 10,928 | 10,341 |
| 12,328 | 11,576 | 19,346 | 17,999 | |
| Future finance charges | (752) | (1,347) | ||
| Present value of finance lease obligation | 11,576 | 17,999 |
The Group has entered into commercial leases on certain properties, motor vehicles and items of small machinery. There are no restrictions placed upon the Group by entering into these leases.
Future commitments payable under non-cancellable operating leases as at 31 December are as follows:
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Within one year | 45,120 | 42,354 |
| After one year but not more than five years | 66,921 | 71,012 |
| More than five years | 14,276 | 14,243 |
| 126,317 | 127,609 |
The Group entered into commercial leases with customers on certain items of machinery. These leases have remaining terms of between one and five years.
Future amounts receivable by the Group under the non-cancellable operating leases as at 31 December are as follows:
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Within one year | 4,967 | 6,435 |
| After one year but not more than five years | 5,878 | 8,847 |
| 10,845 | 15,282 |
The amounts receivable are directly related to the finance lease obligations detailed in note 24a.
| Customer | |||
|---|---|---|---|
| contract | Property | Total | |
| provisions | provisions | provisions | |
| £'000 | £'000 | £'000 | |
| At 1 January 2013 | 2,108 | 8,720 | 10,828 |
| Arising during the year | 10,672 | 130 | 10,802 |
| Utilised | (3,107) | (1,196) | (4,303) |
| Provisions unused reversed | – | (732) | (732) |
| Exchange adjustment | (122) | (19) | (141) |
| At 31 December 2013 | 9,551 | 6,903 | 16,454 |
| Current 2013 | 4,268 | 1,737 | 6,005 |
| Non-current 2013 | 5,283 | 5,166 | 10,449 |
| 9,551 | 6,903 | 16,454 | |
| Current 2012 | 2,108 | 2,265 | 4,373 |
| Non-current 2012 | – | 6,455 | 6,455 |
| 2,108 | 8,720 | 10,828 |
Customer contract provisions are based on the Directors' best estimate of the amount of future losses to completion on certain contractual services contracts. Whilst there is uncertainty around the future performance of these contracts and the exact timing of cashflows, Management remains comfortable with the level of the provision.
Assumptions used to calculate the property provisions are based on the market value of the rental charges plus any contractual dilapidation expenses on empty properties and the Directors' best estimates of the likely time before the relevant leases can be reassigned or sublet, which ranges between one and 10 years. The provisions in relation to the UK properties are discounted at a rate based upon the Bank of England base rate. Those in respect of the European operations are discounted at a rate based on Euribor.
An explanation of the Group's financial instrument risk management objectives, policies and strategies are set out in the Finance Director's Review on pages 28 to 33.
The Group principally manages credit risk through management of customer credit limits. The credit limits are set for each customer based on the creditworthiness of the customer and the anticipated levels of business activity. These limits are initially determined when the customer account is first set up and are regularly monitored thereafter. The balance of trade receivables relates to customers for whom there is no recent history of default. In determining the recoverability of the trade receivables, the Group considers any change in the credit quality of the trade receivables from the date the credit was initially granted up to the reporting date. The maximum exposure on trade receivables, as at the reporting date, is their carrying value.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, current asset investment and forward currency contracts, the Group's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of cash and cash equivalents. The Group manages its counterparty credit risk by placing cash on deposit across a panel of reputable banking institutions, with no more than £50.0 million deposited at any one time except for UK Government backed counterparties where the limit is £70.0 million.
There are no significant concentrations of credit risk within the Group.
The Group finances its operations through a mixture of retained profits, bank borrowings, cash and short-term deposits, invoice factoring in the UK and finance leases and loans for certain customer contracts. The Group's bank borrowings, other facilities and deposits are at floating rates. No interest rate derivative contracts have been entered into. When long-term borrowings are utilised, the Group's policy is to maintain these borrowings at fixed rates to limit the Group's exposure to interest rate fluctuations.
105
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group's profit before tax (through the impact on floating rate borrowings). There is no impact on the Group's equity.
| Change in basis points |
Effect on profit before tax £'000 |
|
|---|---|---|
| 2013 | ||
| Sterling | +25 | 38 |
| Euro | +25 | 45 |
| 2012 | ||
| Sterling | +25 | 203 |
|---|---|---|
| Euro | +25 | 13 |
The impact of a reasonably possible decrease to the same range shown in the table would result in an opposite impact on the profit before tax of the same magnitude.
The carrying value of the Group's short-term receivables and payables is a reasonable approximation of their fair values. The fair value of all other financial instruments carried within the Group's financial statements is not materially different from their carrying amount.
At 31 December 2013 the Group held foreign exchange contracts as hedges of an inter-company loan and future expected payments to suppliers. The exchange contracts are being used to reduce the exposure to foreign exchange risk. The terms of these contracts are detailed below:
| Buy currency |
Sell currency |
Value of contracts |
Maturity dates |
Contract rates |
|
|---|---|---|---|---|---|
| UK | Euros | Sterling | € 2,715,853 | Jan 14 | 1.1820-1.1871 |
| Sterling | Dollars | £9,240,524 | Jan 14 | 1.5713-1.6489 | |
| Sterling | Swiss Francs | £353,590 | Apr 14 | 1.4141 | |
| Sterling | Euros | £3,089,003 | Jan-Feb 14 | 1.1722-1.2093 | |
| Dollars | Sterling | \$39,894,698 | Jan-Apr 14 | 1.5458-1.6478 | |
| Danish Kroner | Sterling | DKK43,695 | Jan 14 | 8.9164 | |
| Hungarian Forint | Sterling | HUF135,000,000 | Feb 14 | 350.9973-358.3415 | |
| SA Rand | Sterling | ZAR223,996,644 | Jan 14-Dec 15 | 14.9234-18.2271 | |
| Germany | US Dollar | Euro | \$48,975,000 | Jan-May 14 | 1.3107-1.3863 |
| Buy currency |
Sell currency |
Value of contracts |
Maturity dates |
Contract rates |
|
|---|---|---|---|---|---|
| UK | Euro | Sterling | €4,506,533 | Jan-Mar 13 | 1.2255-1.2325 |
| Sterling | Swiss Franc | £342,505 | Apr 13 | 1.4598 | |
| Sterling | Euro | £1,707,911 | Jan 13 | 1.2255-1.2327 | |
| Sterling | Norwegian Kroner | £21,214 | Jan 13 | 9.0034 | |
| US Dollar | Sterling | \$14,360,237 | Jan-Apr 13 | 1.5838-1.6206 | |
| Danish Kroner | Sterling | DKK304,922 | Jan 13 | 9.1066 | |
| SA Rand | Sterling | ZAR148,641,912 | Jan 13-Jun 14 | 13.6104-15.1952 | |
| Germany | US Dollar | Euro | \$49,625,000 | Jan-May 13 | 1.2623-1.3310 |
The gains or losses arising from changes in the fair value of the above contracts are detailed in note 23.
The majority of the transactions in each of the Group's geographical segments are denominated in the functional currency of that segment. There are, however, a limited number of transactions where foreign currency exchange risk exists. In these instances the Group enters into forward currency contracts, as shown in the above table, in order to mitigate such risk. At the end of the year the fair value of the outstanding contracts was a liability of £2,360,000 (2012: £554,000).
Other than differences arising from the translation of results of operations outside of the Group's functional currency, reasonably foreseeable movements in the exchange rates of +10 per cent or -10 per cent would not have a material impact on the Group's profit before tax or equity.
The table below summarises the maturity profile of the Group's financial liabilities as at 31 December based on contractual undiscounted payments:
| On demand £'000 |
<3 months £'000 |
3–12 months £'000 |
1–5 years £'000 |
>5 years £'000 |
Total £'000 |
|
|---|---|---|---|---|---|---|
| Year ended 31 December 2013 | ||||||
| Financial liabilities | 1,224 | 3,135 | 7,546 | 8,431 | – | 20,336 |
| Derivative financial liabilities | – | 1,148 | 842 | 370 | – | 2,360 |
| Trade and other payables | – | 604,316 | – | – | – | 604,316 |
| 1,224 | 608,599 | 8,388 | 8,801 | – | 627,012 | |
| On demand £'000 |
<3 months £'000 |
3–12 months £'000 |
1–5 years £'000 |
>5 years £'000 |
Total £'000 |
|
| Year ended 31 December 2012 | ||||||
| Financial liabilities | 1,135 | 2,676 | 5,737 | 11,033 | – | 20,581 |
| Derivative financial liabilities | – | 764 | (181) | 1 | – | 584 |
| Trade and other payables | – | 527,539 | – | – | – | 527,539 |
| 1,135 | 530,979 | 5,556 | 11,034 | – | 548,704 | |
Financial instruments which are recognised at fair value subsequent to initial recognition are grouped into Levels 1 to 3 based on the degree to which the fair value is observable. The three levels are defined as follows:
At 31 December 2013 the Group had a current asset investment, which was measured at Level 2 fair value subsequent to initial recognition, to the value of £nil (31 December 2012: £10.0 million).
At 31 December 2013 the Group had forward currency contracts, which were measured at Level 2 fair value subsequent to initial recognition, to the value of a liability of £2,360,000 (31 December 2012: £554,000).
The realised losses from forward currency contracts in the period to 31 December 2013 of £1,806,000 (2012: £386,000), are offset by broadly equivalent realised gains on the related underlying transactions.
Computacenter's approach to capital management is to ensure that the Group has a strong capital base to support the development of the business and to maintain a strong credit rating, whilst aiming to maximise shareholder value.
Consistent with the Group's aim to maximise return to shareholders, the dividend policy is to maintain a dividend cover of between 2–2.5 times. In 2013 the cover was 2.5 times, on a pre-exceptional basis (2012: 2.3 times).
The Group's capital base is primarily utilised to finance its fixed assets and working capital requirements. The Group seeks to optimise the use of working capital and improve its cash flow. As a consequence, the UK has sourced an increasing proportion of its product business via distributors in order to reduce the working capital requirements of the business.
Capital is allocated across the Group in order to minimise the Group's exposure to exchange rates. Each country finances its own working capital requirements, typically resulting in borrowings in France with cash on deposit in the UK and Germany. During 2013, a notional cash pooling arrangement was introduced, which Group companies can access and allows the Group to pool its funds.
In certain circumstances, the Group enters into customer contracts that are financed by leases, which are secured only on the assets that they finance, or loans. Whilst the outstanding amounts of this 'customer specific financing' ('CSF') are included within net funds for statutory reporting purposes, the Group excludes this 'customer specific financing' when managing the net funds of the business as this outstanding financing is matched by committed future revenues. These financing facilities, which are committed, are thus outside of the normal working capital requirements of the Group's product resale and services activities.
In certain circumstances, the Group deposits its funds in short-term investments that do not fulfil the criteria to be classified as cash and cash equivalents. The Group considers these deposits when managing the net funds of the business, and accordingly includes these deposits within net funds excluding CSF.
Capital, defined as net funds, that the Group monitors is:
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Net funds excluding CSF | 90,271 | 147,327 |
| Customer specific financing | (18,857) | (18,701) |
| Net funds | 71,414 | 128,626 |
The Group continued to benefit from the extension of an improvement in credit terms with a significant vendor, equivalent to £41 million at 31 December 2013, an increase of approximately £7 million over the course of the year.
Each operating country manages working capital in line with Group policies. The key components of working capital, i.e. trade receivables, inventory and trade payables, are managed in accordance with an agreed number of days targeted in the budget process, in order to ensure efficient capital usage.
An important element of the process of managing capital efficiently is to ensure that each operating country rewards behaviour at an Account Manager and Account Director level to minimise working capital, at a transactional level. This is achieved by increasing commission payments for early payment by customers and reduced commission payments for late payment by customers, which encourages appropriate behaviour.
The Group regularly reviews the adequacy of its facilities against any foreseeable peak borrowing requirement. At 31 December 2013, the Group had available £17.3 million of uncommitted overdraft facilities (2012: £20.3 million of uncommitted overdraft and factoring facilities).
In accordance with the Companies Act 2006, the Company no longer has an authorised share capital. The Company's Articles of Association has been amended to reflect this change.
| 6p ordinary shares |
6⅔p ordinary shares |
0.01p B shares |
Total | |
|---|---|---|---|---|
| Issued and fully paid | No. '000 | No. '000 | No. '000 | £'000 |
| At 1 January 2012 | 153,888 | – | – | 9,233 |
| Ordinary shares issued during the year for cash on exercise of share | ||||
| options | 20 | – | – | 1 |
| At 31 December 2012 | 153,908 | – | – | 9,234 |
| Ordinary shares issued during the year for cash on exercise of share | ||||
| options | 24 | 398 | – | 28 |
| Bonus issue | – | – | 153,932 | 15 |
| Share redemption | – | – | (64,500) | (6) |
| Share consolidation | (153,932) | 138,532 | – | – |
| At 31 December 2013 | – | 138,930 | 89,432 | 9,271 |
During the year, the issued share capital was increased by £28,000 by the issue of 17,000 ordinary shares of 6 pence each and 398,000 shares of 6⅔ pence each.
The Company has a number of share option schemes under which options to subscribe for the Company's shares have been granted to certain executives and senior employees (note 29).
On 12 June 2013 the Company effected a capital reorganisation under which each ordinary share of 6 pence was divided into one ordinary of 6⅔ pence and one B share of 0.01 pence (with the B shares to be redeemed and cancelled at a future date). Following this sub-division every 10 ordinary shares of 6 pence were consolidated into 9 ordinary shares of 6⅔ pence. As a result of the 9 for 10 consolidation, 153,931,830 ordinary shares of 6 pence became 138,538,647 ordinary shares of 6⅔ pence.
The holders of the B shares could elect to either sell the shares or receive a one-off dividend income. Both options to be remitted to shareholders on 5 July. The holders of B shares are then not entitled to any further profits of the Company.
The holders of A Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at the general meetings of the Company. On a winding up of the Company, holders of A Ordinary Shares may be entitled to the residual assets of the Company.
The share premium account is used to record the aggregate amount or value of premiums paid when the Company's shares are issued/redeemed at a premium.
The capital redemption reserve is used to maintain the Company's capital following the purchase and cancellation of its own shares. During the year the Company repurchased nil of its own shares for cancellation (2012: nil).
Own shares held comprise the following:
Shares in the parent undertaking comprise 3,065,133 (2012: 4,072,849 6 pence ordinary shares) 6⅔ pence ordinary shares of Computacenter plc purchased by the Computacenter Employee Share Ownership Plan ('the Plan'). The principal purpose of the Plan is to be funded with shares that will satisfy discretionary executive share plans. The number of shares held represents 2.2 per cent (2012: 3.4 per cent) of the Company's issued share capital.
None of these shares were awarded to executives of the Company under the Computacenter (UK) Limited Cash Bonus and Share Plan. Options previously awarded are to be held on behalf of employees and former employees of Computacenter (UK) Limited and their dependants, excluding Jersey residents. The distribution of these shares is dependent upon the trustee holding them on the employees' behalf for a restrictive period of three years.
Since 31 December 2002 the definition of beneficiaries under the ESOP Trust has been expanded to include employees who have been awarded options to acquire ordinary shares of 6⅔ pence each in Computacenter plc under the other employee share plans of the Computacenter Group, namely the Computacenter Services Group plc Approved Executive Share Option Plan, the Computacenter Employee Share Option Scheme 1998, the Computacenter Services Group plc Unapproved Executive Share Option Scheme, the Computacenter Performance-Related Share Option Scheme 1998, the Computacenter Sharesave Plus Scheme and any future similar share ownership schemes.
All costs incurred by the Plan are settled directly by Computacenter (UK) Limited and charged in the accounts as incurred.
The Plan Trustees have waived the dividends receivable in respect of 3,065,133 (2012: 4,072,849) shares that it owns which are all unallocated shares.
The total shares held are 41,965 (2012: 327,489), which represents 0.03 per cent (2012: 0.1 per cent) of the Company's issued share capital. All of these shares will continue to be held by the Quest until such time as the Sharesave options granted against them are exercised. The market value of these shares at 31 December 2013 was £267,737 (2012: £673,450). The Quest Trustees have waived dividends in respect of all of these shares. During the year the Quest subscribed for 374,760 (2012: 705,000 6 pence ordinary shares) 6⅔ pence ordinary shares.
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
During the year, options were exercised with respect to 124,000 (2012: 227,316) 6 pence ordinary shares at a nominal value of £7,440 (2012: £13,639) at an aggregate premium of £320,695 (2012: £636,119). Subsequent to the Return of Value options in respect of 317,000 6⅔pence ordinary shares, at a nominal value of £21,134 and at an aggregate premium of £800,946, were exercised. The total nominal value of options exercised during the year was £145,134 (2012: £13,639) and the total aggregate premium was £1,121,641 (2012: £636,119).
Under the Computacenter Employee Share Option Scheme 1998 and the Computacenter Services Group Executive Share Scheme, options in respect of nil (2012: 515,000) shares lapsed.
The numbers of shares under options outstanding at the year-end comprise:
| Date of grant | Exercisable between | Exercise price | 2013 Number outstanding |
2012 Number outstanding |
|---|---|---|---|---|
| 21/03/2003 | 21/03/2006–20/03/2013 | 266.50p | – | 15,000 |
| 02/04/2004 | 02/04/2007–01/04/2014 | 424.00p | 4,000 | 30,000 |
| 24/10/2006 | 24/10/2011–23/10/2016 | 250.00p | 558,000 | 958,000 |
| 17/04/2007 | 17/04/2012–16/04/2017 | 285.00p | 30,000 | 30,000 |
| 592,000 | 1,033,000 |
Please refer to the information given in the Directors' interest in share incentive schemes table in the Directors' Remuneration Report on page 66 for details of the vesting conditions attached to the Executive share options.
The following table illustrates the number ('No.') and weighted average exercise prices ('WAEP') of share options for the Executive Share Option Scheme.
| 2013 | 2013 | 2012 | 2012 | |
|---|---|---|---|---|
| No. | WAEP | No. | WAEP | |
| Executive share option scheme | ||||
| Outstanding at the beginning of the year1 | 1,033,000 | £2.56 | 1,775,316 | £2.95 |
| Forfeited during the year | – | – | (515,000) | £2.65 |
| Exercised during the year2 | (441,000) | £2.61 | (227,316) | £2.86 |
| Outstanding at the end of the year | 592,000 | £2.53 | 1,033,000 | £2.56 |
| Exercisable at the end of the year | 592,000 | £2.53 | 1,033,000 | £2.56 |
The weighted average remaining contractual life for the share options outstanding as at 31 December 2013 is 2.80 years (2012: 3.70 years).
Notes
1 Included within this balance are options over nil (2012: nil) shares that have not been accounted for under IFRS 2 as the options were granted on or before
7 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.
2 The weighted average share price at the date of exercise for the options exercised is £5.16 (2012: £4.17).
Financial statements
Under the Computacenter LTIP Performance Share Plan, shares granted will be subject to certain performance conditions as described in the Directors' Remuneration report.
During the year 1,049,579 (2012: 1,179,689) shares were awarded, 571,821 (2012: 1,285,860) were exercised and 618,561 (2012: 1,285,356) lapsed.
At 31 December 2013 the number of shares outstanding was as follows:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Share price at | Number | Number | ||
| Date of grant | Maturity date | date of grant | outstanding | outstanding |
| 15/03/2010 | 15/03/2013 | 315.80p | – | 971,169 |
| 17/03/2011 | 17/03/2014 | 423.00p | 379,597 | 465,554 |
| 17/03/2011 | 17/03/2014 | 423.00p | 591,133 | 591,133 |
| 23/03/2012 | 23/03/2015 | 433.00p | 1,046,433 | 1,179,689 |
| 03/05/2013 | 21/03/2016 | 440.00p | 1,049,579 | – |
| 3,066,742 | 3,207,545 |
The weighted average share price at the date of exercise for the options exercised is £4.36 (2012: £4.32).
The weighted average remaining contractual life for the options outstanding as at 31 December 2013 is 1.2 years (2012: 1.3 years).
The Company operates a Sharesave Scheme which is available to all employees and full time Executive Directors of the Company and its subsidiaries who have worked for a qualifying period. All options granted under this scheme are satisfied at exercise by way of a transfer of shares from the Computacenter Qualifying Employee Share Trust. During the year 1,206,885 (2012: 747,775) options were granted with a fair value of £2,263,764 (2012: £773,142).
Under the scheme the following options have been granted and are outstanding at the year-end:
| 2013 | 2012 | |||
|---|---|---|---|---|
| Number | Number | |||
| Date of grant | Exercisable between | Share price | outstanding | outstanding |
| October 2007 | 01/12/2012–31/05/2013 | 178.00p | – | 172,820 |
| October 2009 | 01/12/2012–31/05/2013 | 320.00p | – | 149,399 |
| October 2009 | 01/12/2014–31/05/2015 | 320.00p | 103,420 | 114,567 |
| October 2010 | 01/12/2013–31/05/2014 | 286.00p | 82,377 | 492,650 |
| October 2010 | 01/12/2015–31/05/2016 | 258.00p | 731,908 | 772,481 |
| October 2011 | 01/12/2014–31/05/2015 | 369.00p | 220,369 | 239,974 |
| October 2011 | 01/12/2016–31/05/2017 | 332.00p | 255,647 | 291,624 |
| October 2012 | 01/12/2015–31/05/2016 | 381.00p | 242,940 | 261,726 |
| October 2012 | 01/12/2017–31/05/2018 | 343.00p | 450,730 | 475,817 |
| October 2013 | 01/12/2016–31/05/2017 | 484.00p | 446,589 | – |
| October 2013 | 01/12/2018–31/05/2019 | 430.00p | 758,634 | – |
| 3,292,614 | 2,971,058 |
The following table illustrates the No. and WAEP of share options for the Sharesave scheme:
| 2013 | 2013 | 2012 | 2012 WAEP |
|---|---|---|---|
| 2,971,058 | £3.04 | 2,905,644 | £2.77 |
| 1,206,885 | £4.50 | 747,775 | £3.56 |
| (224,961) | £3.10 | (205,738) | £2.92 |
| (660,368) | £2.66 | (476,624) | £2.26 |
| 3,292,614 | £3.65 | 2,971,058 | £3.04 |
| – | – | 322,219 | £2.44 |
| No. | WAEP | No. |
Note
1 The weighted average share price at the date of exercise for the options exercised is £5.77 (2012: £3.93).
The weighted average remaining contractual life for the options outstanding as at 31 December 2013 is 3.4 years (2012: 3.1 years).
The fair value of the Executive Share Option Scheme, the Performance-Related Share Option Scheme, the LTIP Performance Share Plan and Sharesave Scheme plans are estimated as at the date of grant using the Black-Scholes valuation model. The following tables give the assumptions made during the year ended 31 December 2013 and 31 December 2012:
| LTIP | LTIP | LTIP | |||
|---|---|---|---|---|---|
| performance | performance | performance | SAYE | SAYE | |
| Nature of the arrangement | share plan | share plan | share plan | scheme | scheme |
| Date of grant | 03/05/2013 | 03/05/2013 | 03/05/2013 | 25/10/2013 | 25/10/2013 |
| Number of instruments granted | 570,681 | 418,752 | 60,146 | 447,554 | 759,331 |
| Exercise price | £nil | £nil | £nil | £4.84 | £4.40 |
| Share price at date of grant | £4.40 | £4.40 | £4.40 | £5.70 | £5.70 |
| Contractual life (years) | 3 | 3 | 2 | 3 | 5 |
| See note 5 on page 66 in the Directors' remuneration |
See note 1 | See note 1 | Three-year service period and savings |
Five-year service period and savings |
|
| Vesting conditions | report | below | below | requirement | requirement |
| Expected volatility | n/a | n/a | n/a | 37.3% | 45.0% |
| Expected option life at grant date (years) | 3 | 3 | 2 | 3 | 5 |
| Risk-free interest rate | n/a | n/a | n/a | 1.51% | 1.51% |
| Dividend yield | 3.5% | 3.5% | 3.5% | 2.75% | 2.75% |
| Fair value per granted instrument determined at grant date |
£3.97 | £3.97 | £4.11 | £1.58 | £2.05 |
2012
| LTIP | LTIP | LTIP | ||
|---|---|---|---|---|
| performance | performance | performance | SAYE | SAYE |
| scheme | ||||
| 23/03/2012 | 23/03/2012 | 23/03/2012 | 26/10/12 | 26/10/12 |
| 677,609 | 438,798 | 70,672 | 264,089 | 483,687 |
| £nil | £nil | £nil | £3.81 | £3.43 |
| £4.33 | £4.33 | £4.33 | £3.70 | £3.70 |
| 3 | 3 | 2 | 3 | 5 |
| See note 5 on page 66 in the Directors' |
Three-year service period |
Five-year service period |
||
| report | below | below | requirement | and savings requirement |
| n/a | n/a | n/a | 39.8% | 50.2% |
| 3 | 3 | 2 | 3 | 5 |
| n/a | n/a | n/a | 0.83% | 0.83% |
| 3.5% | 3.5% | 3.5% | 4.19% | 4.19% |
| £3.91 | £3.91 | £4.04 | £0.73 | £1.20 |
| share plan remuneration |
share plan See note 1 |
share plan See note 1 |
scheme and savings |
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur.
The expected volatility reflects the assumption that the recent historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
No other features of the options granted were incorporated into the measurement of fair value.
Note
1 Issued under the terms of the Computacenter Performance Share Plan 2006, as amended at the AGM held on 13 May 2011. One quarter of the shares will vest if the compound annual EPS growth over the performance period equals 5 per cent per annum. One half of the shares will vest if the compound annual EPS growth over the performance period equals 7.5 per cent and will vest in full if the compound annual EPS growth over the performance period equals 10 per cent. If the compound annual EPS growth over the performance period is between 5 and 10 per cent, shares awarded will vest on a straight-line basis. The performance period usually covers a period of three years from 1 January of the year the award is granted. A limited number of PSP awards are granted with a performance period of two years.
| At 1 January 2013 £'000 |
Cash flows in year £'000 |
Non-cash flow £'000 |
Exchange differences £'000 |
At 31 December 2013 £'000 |
|
|---|---|---|---|---|---|
| Cash and short-term deposits | 138,149 | (48,865) | – | 1,814 | 91,098 |
| Bank overdraft | (678) | (27) | – | (59) | (764) |
| Cash and cash equivalents | 137,471 | (48,892) | – | 1,755 | 90,334 |
| Current asset investment | 10,000 | (10,000) | – | – | – |
| Bank loans | (144) | 84 | – | (3) | (63) |
| Net funds excluding customer specific financing | 147,327 | (58,808) | – | 1,752 | 90,271 |
| Customer specific finance leases | (17,999) | 8,065 | (1,235) | (408) | (11,577) |
| Customer specific other loans | (702) | (6,578) | – | – | (7,280) |
| Total customer specific financing | (18,701) | 1,487 | (1,235) | (408) | (18,857) |
| Net funds | 128,626 | (57,321) | (1,235) | 1,344 | 71,414 |
| At | |||||
|---|---|---|---|---|---|
| At 1 January | Cash flows | Non-cash | Exchange | 31 December | |
| 2012 | in year | flow | differences | 2012 | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Cash and short-term deposits | 128,437 | 11,806 | – | (2,094) | 138,149 |
| Bank overdraft | (1,653) | 940 | – | 35 | (678) |
| Cash and cash equivalents | 126,784 | 12,746 | – | (2,059) | 137,471 |
| Current asset investment | 10,000 | – | – | – | 10,000 |
| Factor financing | – | (144) | – | – | (144) |
| Net funds excluding customer specific financing | 136,784 | 12,602 | – | (2,059) | 147,327 |
| Customer specific finance leases | (21,624) | 9,201 | (6,031) | 455 | (17,999) |
| Customer specific other loans | (1,524) | 776 | – | 46 | (702) |
| Total customer specific financing | (23,148) | 9,977 | (6,031) | 501 | (18,701) |
| Net funds | 113,636 | 22,579 | (6,031) | (1,558) | 128,626 |
The adjusted management cash flow has been provided to explain how management view the cash performance of the business. There are two primary differences to this presentation compared to the statutory cash flow statement, as follows:
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Adjusted profit before taxation | 81,664 | 79,309 |
| Adjusted net interest | (286) | (1,265) |
| Depreciation and amortisation | 25,764 | 24,384 |
| Share-based payments | 1,070 | 2,176 |
| Trading losses on onerous contracts | (8,201) | (5,921) |
| Working capital movements | (29,508) | (13,819) |
| Other adjustments | (47) | 377 |
| Adjusted operating cash inflow | 70,456 | 85,241 |
| Net interest received | (135) | 1,118 |
| Income taxes paid | (9,624) | (13,111) |
| Capital expenditure and investments | (24,231) | (30,813) |
| Acquisitions | – | (1,854) |
| Equity dividends paid | (22,797) | (23,213) |
| Cash inflow before financing | 13,669 | 17,368 |
| Financing | ||
| Proceeds from issue of shares | 1,222 | 53 |
| Return of value | (73,701) | – |
| Purchase of own shares | – | (4,819) |
| Increase in net funds excluding CSF in the period | (58,810) | 12,602 |
| Increase in net funds excluding CSF | (58,810) | 12,602 |
| Effect of exchange rates on net funds excluding CSF | 1,754 | (2,059) |
| Net funds excluding CSF at beginning of period | 147,327 | 136,784 |
| Net funds excluding CSF at end of period | 90,271 | 147,327 |
At 31 December 2013 and 31 December 2012 the Group held no significant commitments for capital expenditure.
The Group has a defined contribution pension plan, covering substantially all of its employees in the UK. The amount recognised as an expense for this plan is detailed in note 7.
During the year the Group entered into transactions, in the ordinary course of business, with related parties. Transactions entered into are as described below:
Biomni provides the Computacenter e-procurement system used by many of Computacenter's major customers. An annual fee has been agreed on a commercial basis for use of the software for each installation. Both PJ Ogden and PW Hulme are Directors of and have a material interest in Biomni Limited.
The table below provides the total amount of transactions that have been entered into with related parties for the relevant financial year:
| Sales to | Purchases | Amounts | Amounts | |
|---|---|---|---|---|
| related | from related | owed by | owed to | |
| parties | parties | related parties | related parties | |
| £'000 | £'000 | £'000 | £'000 | |
| Biomni Limited | 38 | 777 | 1 | 1 |
Terms and conditions of transactions with related parties
Sales to and purchases from related parties are made on terms equivalent to those that prevail in arm's length transactions. Outstanding balances at the year-end are unsecured and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables. The Group has not recognised any provision for doubtful debts relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
The Board of Directors is identified as the Group's key management personnel. Please refer to the information given in the Directors' remuneration table in the Directors' Remuneration Report on page 64 for details of compensation given to the Group's key management personnel. A summary of the compensation of key management personnel is provided below:
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Short-term employee benefits | 1,789 | 1,492 |
| Social security costs | 279 | 445 |
| Share-based payment transactions | (5) | 1,003 |
| Pension costs | 12 | 12 |
| Total compensation paid to key management personnel | 2,075 | 2,952 |
The interest of the key management personnel in the Group's share incentive schemes are disclosed in the Directors' Remuneration Report on page 66.
Financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice.
Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to:
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We have audited the Parent Company financial statements of Computacenter plc for the year ended 31 December 2013 which comprise the Company Balance Sheet and the related notes 1 to 10. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Directors' Responsibilities Statement set out on page 71, the Directors are responsible for the preparation of the Parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Parent Company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Parent Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion the Parent Company financial statements:
In our opinion:
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
We have reported separately on the Group financial statements of Computacenter plc for the year ended 31 December 2013.
Nick Powell (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 10 March 2014
| 2013 | 2012 | ||
|---|---|---|---|
| Note | £'000 | £'000 | |
| Fixed assets | |||
| Intangible assets | 2 | 84,721 | 93,221 |
| Tangible assets | 3 | 20,483 | 22,100 |
| Investments | 4 | 172,359 | 171,289 |
| 277,563 | 286,610 | ||
| Current assets | |||
| Debtors | 5 | 90,195 | 90,168 |
| Cash at bank and in hand | 119 | 42 | |
| 90,314 | 90,210 | ||
| Creditors: amounts falling due within one year | 6 | 129,783 | 45,051 |
| Net current assets/(liabilities) | (39,469) | 45,159 | |
| Total assets less current liabilities | 238,094 | 331,769 | |
| Creditors: amounts falling due after more than one year | – | – | |
| Provisions for liabilities and charges | – | – | |
| Total assets less liabilities | 238,094 | 331,769 | |
| Capital and reserves | |||
| Called up share capital | 7 | 9,271 | 9,234 |
| Share premium account | 7 | 4,362 | 3,769 |
| Capital redemption reserve | 7 | 74,963 | 74,957 |
| Merger reserve | 7 | 55,990 | 55,990 |
| Own shares held | 7 | (10,015) | (11,887) |
| Profit and loss account | 7 | 103,523 | 199,706 |
| Equity shareholders' funds | 238,094 | 331,769 |
Approved by the Board on 10 March 2014
MJ Norris FA Conophy Chief Executive Finance Director
The financial statements of Computacenter plc were approved for issue in accordance with a resolution of the Directors on 10 March 2014. The balance sheet was signed on behalf of the Board by MJ Norris and FA Conophy.
The financial statements are prepared under the historical cost convention and in accordance with the applicable UK Accounting Standards.
No profit and loss account is presented for the Company as permitted by section 408 of the Companies Act 2006. The profit after tax for the Company was £531,000 (2012: £131,792,000).
The Company has taken advantage of the exemption in paragraph 2D(b) of FRS 29 Financial Instruments: Disclosure and has not disclosed information required by that standard, as the Group's consolidated financial statements, in which the Company is included, provide equivalent disclosures for the Group under IFRS 7 Financial Instruments: Disclosures.
Licences purchased in respect of intellectual property are capitalised, classified as an intangible asset on the balance sheet and amortised on a straight-line basis over the period of the licence, normally 20 years.
Freehold land is not depreciated. Depreciation is provided on all other tangible fixed assets at rates calculated to write off the cost, less estimated residual value, of each asset evenly over its expected useful life, as follows:
| Freehold buildings | 25 years |
|---|---|
Fixed asset investments are shown at cost less provision for impairment. In addition, subsequent to the adoption of UITF Abstract 41, investments in subsidiaries also include the FRS 20 cost of share-based payments.
The carrying values of assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences are taken to the profit and loss account.
The expense for share-based payments is recognised in the subsidiary companies employing the relevant employees. The Company records a corresponding increase in its investments in subsidiaries with a credit to equity which is equivalent to the FRS 20 cost in the subsidiary undertakings.
Corporation tax payable is provided on taxable profits at the current tax rate. Where Group relief is surrendered from other subsidiaries in the Group, the Company is required to pay to the surrendering company an amount equal to the loss surrendered multiplied by the current tax rate.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date.
Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Strategic report
| Intellectual | |
|---|---|
| property £'000 |
|
| Cost | |
| At 1 January 2013 and 31 December 2013 | 169,737 |
| Amortisation | |
| At 1 January 2013 | 76,516 |
| Charge in the year | 8,500 |
| At 31 December 2013 | 85,016 |
| Net book value | |
| At 31 December 2013 | 84,721 |
| At 31 December 2012 | 93,221 |
| Freehold land and buildings £'000 |
|
|---|---|
| Cost | |
| At 1 January 2013 and 31 December 2013 | 42,350 |
| Depreciation | |
| At 1 January 2013 | 20,250 |
| Charge in the year | 1,617 |
| At 31 December 2013 | 21,867 |
| Net book value | |
| At 31 December 2013 | 20,483 |
| At 31 December 2012 | 22,100 |
| Investments | Loans to | |||
|---|---|---|---|---|
| in subsidiary undertakings £'000 |
subsidiary undertakings £'000 |
Investment £'000 |
Total £'000 |
|
| Cost | ||||
| At 1 January 2013 | 260,259 | 2,754 | 25 | 263,038 |
| Share-based payments | 1,070 | – | – | 1,070 |
| At 31 December 2013 | 261,329 | 2,754 | 25 | 264,108 |
| Amounts provided | ||||
| At 1 January 2013 | 88,970 | 2,754 | 25 | 91,749 |
| Provided during the year | – | – | – | – |
| At 31 December 2013 | 88,970 | 2,754 | 25 | 91,749 |
| Net book value | ||||
| At 31 December 2013 | 172,359 | – | – | 172,359 |
| At 31 December 2012 | 171,289 | – | – | 171,289 |
Details of the principal investments at 31 December in which the Company holds more than 20 per cent of the nominal value of ordinary share capital are given in the Group accounts in note 16.
| 2013 | 2012 | |
|---|---|---|
| £'000 | £'000 | |
| Amount owed by subsidiary undertaking | 90,000 | 90,000 |
| Other debtors | 165 | 126 |
| Deferred tax | 30 | 42 |
| 90,195 | 90,168 |
| 2013 £'000 |
2012 £'000 |
|
|---|---|---|
| Amount owed to subsidiary undertaking | 127,618 | 34,892 |
| Accruals | 1,786 | 1,122 |
| Deferred income | 31 | 8,735 |
| Corporation tax | 348 | 302 |
| 129,783 | 45,051 |
| Capital | Own | Total | |||||
|---|---|---|---|---|---|---|---|
| Share | Share | redemption | shares | Merger | Profit and | shareholders' | |
| capital | premium | reserve | held | reserve | loss account | funds | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 January 2012 | 9,233 | 3,717 | 74,957 | (9,001) | 55,990 | 90,884 | 225,780 |
| Exercise of options | 1 | 52 | – | 1,933 | – | (1,933) | 53 |
| Total recognised gains and | |||||||
| losses in the year | – | – | – | – | – | 131,792 | 131,792 |
| Purchase of own shares | – | – | – | (4,819) | – | – | (4,819) |
| Share options granted to | |||||||
| employees of subsidiary | |||||||
| companies | – | – | – | – | – | 2,176 | 2,176 |
| Equity dividends | – | – | – | – | – | (23,213) | (23,213) |
| At 31 December 2012 | 9,234 | 3,769 | 74,957 | (11,887) | 55,990 | 199,706 | 331,769 |
| Exercise of options | 28 | 1,194 | – | 1,872 | – | (1,872) | 1,222 |
| Total recognised gains and | |||||||
| losses in the year | – | – | – | – | – | 531 | 531 |
| Share options granted to | |||||||
| employees of subsidiary | |||||||
| companies | – | – | – | – | – | 1,070 | 1,070 |
| Bonus issue | 15 | (15) | – | – | – | – | – |
| Expenses on bonus issue | – | (586) | – | – | – | – | (586) |
| Redemption of shares | (6) | – | 6 | – | – | – | – |
| Return of Value | – | – | – | – | – | (73,115) | (73,115) |
| Equity dividends | – | – | – | – | – | (22,797) | (22,797) |
| At 31 December 2013 | 9,271 | 4,362 | 74,963 | (10,015) | 55,990 | 103,523 | 238,094 |
The Company has given a guarantee in the normal course of business to a supplier of a subsidiary undertaking for an amount not exceeding £2.2 million (2012: £5.1 million).
The Company has provided cross guarantees in respect of certain bank loans and overdrafts of its subsidiary undertakings. The amount outstanding at 31 December is £0.8 million (2012: £0.6 million).
The Company has taken the exemption in FRS 8 not to disclose transactions with other wholly owned Group Companies. The Company has not traded with any of the related parties disclosed in note 34 of the Group accounts.
All auditors' remuneration is borne by Computacenter (UK) Ltd, a fully-owned UK subsidiary of the Company.
Year ended 31 December
| 2009 £m |
2010 £m |
2011 £m |
2012 £m |
2013 £m |
|
|---|---|---|---|---|---|
| Revenue | 2,503.2 | 2,676.5 | 2,852.3 | 2,914.2 | 3,072.1 |
| Adjusted* operating profit | 53.9 | 64.4 | 72.5 | 79.1 | 82.2 |
| Adjusted* profit before tax | 54.2 | 66.1 | 74.2 | 79.3 | 81.7 |
| Profit for the year | 37.7 | 50.3 | 61.0 | 49.1 | 33.2 |
| Adjusted* diluted EPS | 27.7p | 33.0p | 37.4p | 40.8p | 43.3p |
| Net cash excluding CSF | 86.4 | 139.4 | 136.8 | 147.3 | 90.3 |
| Year-end headcount | 10,296 | 10,566 | 11,626 | 12,627 | 12,703 |
* Before amortisation of acquired intangibles and exceptional items. Adjusted operating profit is stated after charging finance costs on customer-specific financing. In 2011 adjusted diluted EPS also excludes the effects of exceptional items within the tax charge for the year.
| 2009 £m |
2010 £m |
2011 £m |
2012 £m |
2013 £m |
|
|---|---|---|---|---|---|
| Tangible assets | 105.3 | 88.9 | 98.3 | 100.7 | 89.0 |
| Intangible assets | 73.0 | 78.5 | 104.2 | 104.6 | 98.9 |
| Investment in associate | – | – | 0.5 | 0.6 | – |
| Deferred tax asset | 16.4 | 15.5 | 15.9 | 14.4 | 15.2 |
| Inventories | 67.1 | 81.6 | 97.4 | 67.8 | 58.6 |
| Trade and other receivables | 475.6 | 471.1 | 549.0 | 573.7 | 667.7 |
| Prepayments and accrued income | 85.3 | 84.2 | 90.1 | 104.2 | 114.8 |
| Forward currency contracts | 0.7 | 0.6 | (0.2) | (0.6) | (2.4) |
| Current asset investment | – | – | 10.0 | 10.0 | – |
| Cash | 108.0 | 159.3 | 128.4 | 138.1 | 91.1 |
| Current liabilities | (557.5) | (588.2) | (665.9) | (673.3) | (745.3) |
| Non-current liabilities | (35.5) | (22.0) | (24.0) | (17.9) | (22.9) |
| Net assets | 338.6 | 369.6 | 403.7 | 422.3 | 364.7 |
| Title | Date |
|---|---|
| AGM | 15 May 2014 |
| Dividend record date | 23 May 2014 |
| Dividend payment date | 20 June 2014 |
| Interim results announcement | 29 August 2014 |
Greg Lock (Non-Executive Chairman) Mike Norris (Chief Executive) Tony Conophy (Finance Director) Brian McBride (Senior Independent Director) Philip Hulme (Non-Executive Director) Peter Ogden (Non-Executive Director) John Ormerod (Non-Executive Director) Regine Stachelhaus (Non-Executive Director)
Barclays Bank plc PO Box 544 54 Lombard Street London EC3V 9EX United Kingdom Tel: +44 (0) 845 755 5555
One More London Place London SE1 2AF United Kingdom Tel: +44 (0) 20 7951 2000
Hatfield Avenue Hatfield Hertfordshire AL10 9TW United Kingdom Tel: +44 (0) 1707 631000
Credit Suisse One Cabot Square London E14 4QJ United Kingdom Tel: +44 (0) 20 7888 8888
2 Gresham Street London EC2V 8QP United Kingdom Tel: +44 (0) 20 7597 5120
Aspect House Spencer Road Lancing BN99 6DA United Kingdom Tel: +44 (0) 871 384 2074
(Calls to this number cost 8p per minute plus network extras).
Linklaters One Silk Street London EC2Y 8HQ United Kingdom Tel: +44 (0) 20 7456 2000
Internet Address Computacenter Group www.computacenter.com
Computacenter Hatfield Avenue Hatfield Hertfordshire AL10 9TW United Kingdom Tel: +44 (0) 1707 631000 Fax: +44 (0) 1707 639966
Computacenter NV/SA Ikaroslaan 31 B-1930 Zaventem Belgium Tel: +32 (0) 2 704 9411 Fax: +32 (0) 2 704 9595
Computacenter France SAS Agence de Roissy 229 rue de la Belle Étoile ZI Paris Nord II BP 52387 95943 Roissy CDG Cedex France Tel: +33 (0) 1 48 17 41 00 Fax: +33 (0) 1 70 73 42 22
Computacenter AG & Co. oHG Europaring 34–40 50170 Kerpen Germany Tel: +49 (0) 22 73 / 5 97 0 Fax: +49 (0) 22 73 / 5 97 1300
Computacenter Services Kft Haller Gardens, Building D. 1st Floor Soroksari u 30-34 Budapest 1095 Hungary Tel: +36 1 777 7488
Computacenter PSF SA 13–15 Parc d'activités 8308 Capellen Luxembourg Tel: +352 (0) 26 29 11 Fax: +352 (0) 26 29 1 815
Computacenter Services (Malaysia) Sdn Bhd Computacenter International Service Centre Level 9, Tower 1 Puchong Financial Corporate Centre Jalan Puteri 1/2, Bandar Puteri 47100 Puchong Selangor Darul Ehsan Malaysia Tel: +603 7724 9626 Fax: +603 2178 4703
Computacenter N.V. Beech Avenue 54–80 1119 PW, Schiphol-Rijk The Netherlands Tel: +31 (0) 20 658 6800 Fax: +31 (0) 20 658 6111
Computacenter Services and Solutions (PTY) Ltd Parc du Cap Building 1 Ground Floor Mispel Road Bellville, 7535 Cape Town South Africa
Computacenter Services (Iberia) S.L.U. C/Balmes 236 08006 Barcelona Spain Tel: +34 (0) 936 207 000 Fax: +34 (0) 936 207 025
Computacenter AG Riedstrasse 14 CH-8953 Dietikon Switzerland Tel: +41 (0) 43 322 40 80
Design and production: CarnegieOrr +44(0)20 7610 6140 www.carnegieorr.co.uk
The paper used in this Report is derived from sustainable sources
Hatfield Avenue Hatfield Hertfordshire AL10 9TW United Kingdom
Tel: +44 (0) 1707 631000 Fax: +44 (0) 1707 639966
E&OE. All trademarks acknowledged. © 2014 Computacenter. All rights reserved.
www.computacenter.com
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