Computacenter plcAnnual Report and Accounts 2009Pleased,but notsatisfied.
Key metRiCsRevenue Adjusted diluted earnings per share£ 2.50bn 27.7pAdjusted profit before tax total dividend per share£ 54.2m 11.0pWho we areComputacenter is a leading it infrastructure servicesprovider. We add value to our customers by advisingon it strategy, deploying appropriate technologies,and managing elements of their infrastructures ontheir behalf.Our missionto deliver it services and solutions that enable ourcustomers to achieve their goals.Our strategyOur strategy is to achieve long-term earnings growth.to help measure our success, we have five key strategicinitiatives against which to benchmark our performance.see over page for performance against strategic objectives.
PerFOrmance hiGhliGhts OverviewRevenue £bn Adjusted* operating proﬁt £m 02 International operations at a glance 04 Chairman’s statement 2006 2.26 2006 33.3 2007 2.38 2007 41.7 2008 2.56 2008 42.1 2009 2.50 2009 53.9-2.2% +27.9% Overview Business reviewAdjusted* diluted earnings per share p Total dividend per share p 05 Operating review 17 Market overview 2006 13.8 2006 7.5 18 Finance Director’s review 22 Risk management 2007 8.0 24 Corporate sustainable development 2007 18.5 2008 21.0 2008 8.2 2009 27.7 2009 11.0 Business review+31.9% +34.1%Financial performance Governance 28 Board of Directors• Group revenues decreased 2.2 per cent to £2.50 billion (2008: £2.56 billion) 29 Corporate governance statement 34 Directors’ remuneration report• Adjusted* profit before tax increased 25.8 per cent to £54.2 million 40 Directors’ report (2008: £43.1 million)• Adjusted* diluted earnings per share increased 31.9 per cent to 27.7 pence (2008: 21.0 pence)• Additional interim dividend of 8.0 pence, in lieu of final dividend, bringing the total dividend for the year to 11.0 pence (2008: 8.2 pence)• Net cash prior to customer specific financing (CSF) was £86.4 million Governance (2008: £4.6 million)statutory performance• Profit before tax increased 22.4 per cent to £48.4 million (2008: £39.5 million)• Diluted EPS increased 2.9 per cent to 24.9 pence (2008: 24.2 pence)• Net funds after CSF was £37.3 million (2008: net debt of £84.6 million)Operating highlights Financial statements 45 Independent auditors’ report• Group annual services contract base grew over 9 per cent to £503.6 million, 46 Consolidated income statement at constant currency 47 Consolidated statement of• Contract wins and extensions included Produban (Santander Group IT Business), comprehensive income 48 Consolidated balance sheet Threadneedle, BP, Schroders and Severn Trent Water 49 Consolidated statement of changes• Operating expenses reduced by over £30 million, in constant currency in equity Financial statements• Successful exit of trade distribution business which freed circa £20 million 50 Consolidated cash flow statement 51 Notes to the consolidated financial of working capital statements• Two acquisitions made during the year; Thesaurus Computer Services in UK 87 Statement of Directors’ responsibilities 88 Independent auditors’ report and becom in Germany 89 Company balance sheet• Group-wide ERP project remains on track 90 Notes to the Company financial statements 94 Group five year financial review 94 Group summary balance sheet 95 Financial calendar* Adjusted for exceptional items and amortisation of acquired intangibles. Adjusted operating profit is also stated after 96 Corporate information charging finance costs on CSF, and prior to the transfer of internal ERP implementation costs between segments. Computacenter plc Annual Report and Accounts 2009 1
stRAtegy And peRfORmAnCe2009 strategic Accelerating improving theobjectives the growth of efficiency of our our contractual service operations services businessesprogress against In 2009 our Group contract base grew by 9 per cent in constant currency; Our investment in common solutions and approaches continues to help us2009 strategic in a difficult economic environment, customers continued to turn to improve service efficiency and lower costs for customers. In the UK, the Sharedobjectives Computacenter for contracted services. Services Factory (SSF) helped us further standardise customer engagement in 2009 and ensure we deliver value to our customers beyond simply meeting defined service levels. Progress is being made with similar shared resource initiatives across the Group. In addition, we are making investments in our off-shore delivery capability to take advantage of lower costs available, such as in South Africa.Key performance Increase contract base in constant currency £m Increase services revenue per service head (£’000/head)indicators 2006 347 2006 534.7 84 2007 418 2007 605.0 87 2008 462 2008 684.3 88 2009 504 2009 740.087 +9.0% -1.2%2010 strategic Accelerating Reducing costobjectives the growth of through increased our contractual efficiency and services industrialisation businesses of our services operations
maximising the extending our Reducing thereturn on working presence in cost of sale incapital and freeing markets that offer our supply chainworking capital greatest growth activitieswhere not opportunityoptimally usedIn 2009, following the partial exit of trade Following the decision to refocus our In light of the challenges presenteddistribution in the UK in late 2008, we efforts on the sale of our full service by the economic environment, wetook the decision to complete our exit proposition and higher end product sales increased our focus on overlay costfrom the trade distribution activity with the to organisations of more than 500 seats, reduction across our geographies,sale of the remaining server and storage we have seen a revenue reduction of 2.2 particularly in the UK where SG&ACCD business. This is expected to per cent, against a challenging economic reduced by £22 million (13.3 per cent).generate cash of circa £20 million, backdrop. However this is ahead of the This was achieved through: the exit fromwhich can be invested in the Group’s overall market position; the total IT market CCD; the withdrawal from our focus oncore business. for Western Europe declined by 4% in product sales to mid-market customers; constant currency.* streamlining of the UK managementDuring the year we’ve placed significant structure and de-layering process.focus on all the key areas of workingcapital management which collectively We also continued to benefit fromacross the Group have resulted, prior previous e-commerce investments into CSF, in a net cash improvement from our supply chain activities to reduce£4.6 million to net cash of £86.4 million. the unit cost of processing product sales transactions.Increase adjusted operating Increase services revenue Decrease net operating expensescashﬂow £m in constant currency £m in constant currency £m 2006 24 534.7 2006 534.7 614 2006 298 2007 38 605.0 2007 605.0 693 2007 318 2008 79 684.3 2008 684.3 728 2008 684.3 326 2009 740.0 142 2009 740 740.0 2009 740.0 292+79.6% +1.7% +10.5%maximising the growing our profit ensuring thereturn on working margin through successfulcapital and freeing increased services implementationworking capital and high-end of the group-widewhere not product sales eRp systemoptimally used*Adapted from Gartner IT Market Databook, December 2009 and IT Services Europe Forecast Database, December 2009.
internatiOnal OPeratiOns at a GlanceComputacenter operates in 5 Group revenue by business typethe UK, Germany, France, 1 1. Personal systems 23% Desktop, laptop, monitor,and the Benelux countries, printers, peripherals, consumables.as well as providing 4 2. Datacentre & networking 26%transnational services across Intel and Unix servers, storage, networking and security.the globe. Its activities are 3. software product 14%supported by service centres 4. services 31%in the UK, Germany, France, 2 Professional, support and managedSpain, South Africa and 3 services delivered by Computacenter.Malaysia. 5. third party services 6% Third party resold services.United Kingdom % of Group revenue Financial highlights 49% revenue £1,226.9m adjusted* operating profit £37.8mGermany % of Group revenue Financial highlights 37% revenue £930.7m adjusted* operating profit £19.6mFrance % of Group revenue Financial highlights 13% revenue £319.4m adjusted* operating loss -£2.7mBenelux % of Group revenue Financial highlights 1% revenue £26.2m adjusted* operating loss -£0.8m2 Computacenter plc Annual Report and Accounts 2009
computacenter coverage • computacenter service centres Hatfield, UK Leeds, UK Manchester, UK Milton Keynes, UK Nottingham, UK Romford, UK Warrington, UK Erfurt, Germany Kerpen, Germany Overview Paris, France Barcelona, Spain Cape Town, South Africa Kuala Lumpur, Malaysiahighlights contract wins revenue by business type• Adjusted* operating profit increased by 27.8 • New managed service contracts with: a retail 5 1. Personal systems 18% per cent to £37.8 million (2008: £29.6 million) bank; Schroders; Threadneedle; NHS Oldham; 1 2. Datacentre &• Ongoing revenue fell by 7.3 per cent in 2009 Produban (Santander Group IT business) Networking 30% 3. Software product 17% to £1.14 billion (2008: £1.23 billion) and BT 4 4. Services 29%• Long-term contractual revenue grew by • Professional services wins include: a leading 5. Third party services 6% 6 per cent whilst professional services revenue financial services group; a major supermarket 2 declined by 6.8 per cent chain and Severn Trent Water Business review• Reduction in operating expenses by £22 million • Product win for: BP 3• Acquired IBM mainframe specialist, Thesaurus Computer Services Limited (TCS)highlights contract wins revenue by business type• Adjusted* operating profit growth of 21.9 • Managed services contracts with EADS Astrium 5 1. Personal systems 22% per cent to €22.0 million (2008: €18.0 million) • Onsite services and logistics support for BASF 1 2. Datacentre &• Managed services contract base grew by IT services Networking 27% 3. Software product 9% 8.4 per cent to €266.8 million • Datacentre optimisation win for a leading 4 4. Services 36%• Acquired systems provider becom manufacturer of brake parts 5. Third party services 6% Informationssysteme GmbH (‘becom’) 2 3highlights contract wins revenue by business type• Adjusted* operating loss of €3.1 million (2008: €2.1 million) • Desktop support contract with Conseil Regional Midi-Pyrénées 5 1. Personal systems 47% 2. Datacentre & Governance 4• Revenue declined by 7.6 per cent to • Managed services contract with Electricité Networking 12% 3. Software product 19% €358.7 million (2008: €388.0 million) Réseau Distribution France 4. Services 18%• Services revenues grew by 10.2 per cent in local • Datacentre maintenance win for SPEIG 1 5. Third party services 4% currency, now representing 18.4 per cent of the • Software licensing contract with: Airbus France 3 total business and a Global contract with GDF-SUEZ• Simplified management structure resulted 2 in an 11.6 per cent reduction in operating expenses in local currencyhighlights contract wins revenue by business type Financial statements• Adjusted* operating loss of €851,000 in 2009 • International contract with leading 5 1. Personal systems 34% (2008: €120,000) biotechnology firm covering the supply 2. Datacentre & of hardware and software Networking 13%• Overall revenues declined by 22.1 per cent in 1 3. Software product 11% local currency 4 4. Services 40% 5. Third party services 2% 2 3* Adjusted operating profit is stated after charging finance costs on CSF, and prior to the transfer of internal ERP implementation costs between segments. Computacenter plc Annual Report and Accounts 2009 3
chairman’s statement“at computacenter we provide services to our customers that save them money and help them be more productive. in pursuit of this we made good progress in 2009.”At Computacenter we provide services to Results for the year are pleasing. to please our customers and improveour customers that save them money and Adjusted* profit before tax increased profitability, maximise the use of workinghelp them be more productive. In pursuit by 25.8 per cent to £54.2 million. Net capital and fulfil our people’s talentof this we made good progress in 2009. funds before customer specific financing and ambition.We set out to enhance our profitability, increased by £81.8 million to £86.4 I thank the people of Computacenter foroptimise the use of working capital and million. The ERP implementation is on their hard work and commitment to ourimprove our cash flow. We invested in our plan and budget. Our customers gave us Company and our customers for theirpeople, processes and systems, whilst high and improved satisfaction ratings in support and, above all, their business.significantly reducing the overall cost base independent surveys and an increasing We are pleased with our progress butwithin the Group. Our organisation was share of their business. We invested some not satisfied that we have exploited oursimplified, we exited our trade distribution £20 million in our business in 2009, a potential to the full.businesses, and bought Thesaurus in the sum which includes the ERP project andUK and becom in Germany. Our services at the same time reduced the cost basecontribution saw improvement in all three by more than £30 million on a constantmajor geographic markets, focus on our currency basis.target markets was sharpened and we We face the future encouraged by thiscontinued to invest in the implementation progress and optimistic for our prospectsof our Group-wide ERP system. Greg lock ahead, in particular with an annualised chairman service contract base of over £500 million. We have won a number of major new contracts and have a solid retention of existing customers. Competition is fierce and we must continuously improve our performance in order to win in the market place; the economic environment remains uncertain and our job is to help our customers address this, while improving our own business. We are seeing a continued shift in our market to ‘multi sourcing’ of service offerings and ‘single sourcing’ of product offerings, independent of the hardware and software makers. We are well positioned to address these shifts as we strive*Adjusted profit before tax is stated prior to amortisation of acquired intangibles and exceptional items.4 Computacenter plc Annual Report and Accounts 2009
OPeratinG mike norrisreview chief executive Overview Business review“we enter 2010 in good shape, with a lower cost base, having secured our largest project to date. we believe that the investments we are making in our business, together with our strong balance sheet, positions the Group well to take advantage of market opportunities, which means we are well placed to capture further opportunities and market share.” Governance Computacenter has delivered a strong Group revenue declined in 2009 by profit performance in 2009. Group 2.2 per cent to £2.50 billion (2008: adjusted* profit before tax grew by 25.8 £2.56 billion). Part of this decline was per cent to £54.2 million (2008: £43.1 as a result of our strategic decision to million). Excluding the effects of a stronger exit trade distribution; however revenue Euro, Group adjusted* profit before tax benefited from a strong Euro. Excluding increased by 22.3 per cent. Primarily these two opposing effects revenue due to this increased profitability and a declined by 4.9 per cent. As reported, Financial statements reduced tax rate, the Group’s adjusted* Group services revenue increased by diluted earnings per share (EPS) grew 8.1 per cent but particularly pleasing was 31.9 per cent to 27.7 pence (2008: 21.0 the 12.2 per cent increase in long-term pence). On a statutory basis, taking contractual revenues. The Group annual into account amortisation of acquired services contract base stood at £503.6*Adjusted profit before tax, income tax expense and EPS intangibles and exceptional items, Group million at the end of the year, an increase are stated prior to amortisation of acquired intangibles profit before tax increased 22.4 per cent of 3.9 per cent over 31 December 2008 and exceptional items. Adjusted operating profit is also to £48.4 million (2008: £39.5 million) and or 9.0 per cent in constant currency. stated after charging finance costs on CSF, and prior to the transfer of internal ERP implementation costs diluted EPS increased by 2.9 per cent to between segments. 24.9 pence (2008: 24.2 pence). Computacenter plc Annual Report and Accounts 2009 5
Operating review continuedWe reduced operating expenses by over The increase in the Group’s annual£30 million in constant currency and as services contract base is cleara result the Group incurred exceptional evidence that customers are turning tocosts as it restructured its workforce and Computacenter to help them reducevacated the related property. Additionally, their operating costs. Our offeringsthe disposal of our trade distribution continue to gain momentum in the marketdivision (CCD) in November 2009, as customers choose to selectivelygenerated an exceptional profit of outsource IT infrastructure support,£1.9 million, net of goodwill written rather than opting for a comprehensiveoff. The net effect of these exceptional IT outsourcing contract or undertakeitems is a charge of £5.3 million. the work in-house.Our balance sheet has strengthened To meet this growing demand for ourconsiderably. At the end of the year net datacentre and distributed services wecash prior to customer specific financing have continued to invest in our assets(CSF) was £86.4 million (2008: net cash and people during 2009. We haveof £4.6 million). Including CSF net funds increased our service desk capacity inwere £37.3 million (2008: net debt of Milton Keynes, Hatfield, Erfurt, Barcelona£84.6 million). This material improvement and Cape Town as well as establishingin our cash position was primarily due a new helpdesk facility outside of Paris.to increased profitability, the sale of our The enhancements we have made todistribution division, prudent working our customer facing systems and tools,capital management and is largely which enable better workflow withinsustainable. However, the figures are IT departments, have caused a strongflattered by approximately £30 million due increase in use by our customers. Weto the extended credit terms of one of our now have as many customer employeesmajor vendors which have been made using our software tools as our own staff.available to all of their business partners. We have successfully transitioned aThese terms are likely to return to normal number of existing customers to ourin the second half of 2010. new datacentre facility in Manchester.The Board has decided to pay an We received the award for Datacentreadditional interim dividend of 8 pence Team of the Year after migrating morein lieu of a final dividend, bringing the than 1,000 devices without any businesstotal dividend for the year to 11 pence interruption, resulting in 100 per cent(2008: 8.2 pence). The increase in positive customer feedback. Additionally,dividend is broadly consistent with our in the datacentre area we have made astated policy of maintaining dividend significant enhancement to the Group’scover within our target range of 2 to offering by investing in a new facility in2.5 times. The dividend will be paid Romford in the UK, which opened inon 1 April 2010 to shareholders on the early 2010. This is the first datacentreregister as at 19 March 2010. outsourcing facility in Europe that will be certified to the highest level of security and reliability, Tier IV.6 Computacenter plc Annual Report and Accounts 2009
Overview Business review Governance“Business expansion had left us with a disparate telephone system that was inefficient and expensive. computacenter helped us deploy an iP-based unified communications solution that enhanced business agility, staff collaboration and the customer experience. Financial statements By consolidating our communications systems and support with computacenter, we will also be able to save at least £1 million over the next 10 years.” Martin Schofield, Retail Operations Manager, Harvey Nichols Computacenter plc Annual Report and Accounts 2009 7
Operating review continuedWe announced a year ago that the The sale of CCD to Ingram Micro wasGroup had embarked on a major ERP finalised in November, completing ourimplementation project. The project exit from the trade distribution market.remains on track and within the capex This disposal frees up approximatelybudget of £32 million of which £22 £20 million of working capital of whichmillion had been spent by the end of £15 million was realised in 2009. It will2009. We are scheduled to roll out the have a negative impact on the Company’snew system in Germany in the second profitability of approximately £1.0 millionhalf of 2010 and in the UK in the first in 2010.half of 2011 with other Group countriesfollowing closely behind. There will be United Kingdoma net cost to the profit and loss in thesecond half of 2010 and the first half of Revenue £1,226.9m2011 as the cost savings that we expectto achieve from the new implementation,will only be available to us once ourtwo major countries have gone live. In Adjusted* operating profitaddition to the cost saving benefits, webelieve the new system will enable usto create greater efficiencies in many ofthe Group’s activities and improve ourcompetitiveness. £37.8m Excluding the effects of the exit from trade distribution, UK revenues fell by 7.3 perThe Group made two acquisitions in cent in 2009 to £1.14 billion (2008: £1.23the year, both in late November, which billion). This fall was driven by producttherefore had minimal impact on our 2009 revenue declines as the condition of theperformance. In the UK we acquired UK economy caused our customersThesaurus Computer Services Limited to reduce capital expenditure where(TCS). TCS gives Computacenter access possible. The fourth quarter showedto IBM mainframe specialist skills and a small revenue increase of 2 per cent.builds on our long-term relationship with Whilst this is encouraging, the VAT rateIBM. With this acquisition Computacenter increase at the end of the period maywill become the most significant have caused the increase in demand.independent System Z provider ofproducts and services in the UK outside Adjusted* operating profit in the UKof IBM. In Germany we acquired systems increased by 27.8 per cent to £37.8provider becom Informationsysteme million (2008: £29.6 million). This profitGmbH (becom). This acquisition also growth could not have been achievedstrengthens our relationship with IBM without the major cost reductionand positions Computacenter as their programme we entered into at thelargest business partner in Europe. We beginning of the year. In 2009 the UK’sbelieve the acquisition will increase our overhead costs have been reduced byannual revenue in Germany by around approximately £22 million compared10 per cent in 2010. Whilst there will be to 2008.some one-off integration costs post the Services revenue grew by 2.2 per centacquisitions, we expect a positive net to £334.0 million (2008: £326.8 million).operating profit in the year ahead. However, more importantly long-term contractual revenue grew by 6.0 per cent whilst professional services revenue, which is more closely linked to product and shorter term projects, declined by 6.8 per cent. The decline in professional services revenue was caused by the lack of new infrastructure projects throughout 2009, the pipeline for which has improved steadily towards the end of the period.8 Computacenter plc Annual Report and Accounts 2009
Overview Business review Governance“Guaranteeing it availability requires a high level of service quality, which can be difficult and expensive to maintain. By partnering with computacenter, we have been able to draw on its skilled resources for both non-core aspects of it management and transformation Financial statements projects, such as a datacentre consolidation. the partnership has already enabled annual savings of £1.5 million and will help safeguard the continuity and quality of our investment services.” Mark Prior, IT Director, Threadneedle Computacenter plc Annual Report and Accounts 2009 9
Operating review continuedAs we have stated before our Although there have been fewerpropositions, particularly in managed significant infrastructure projects than inservices, have gained traction in the previous years, we managed to secure amarket over the last few years as we number of major successes. Wins includefocus on reducing the operating costs the £45 million contract to supply andof our customers’ IT infrastructure. We install the network infrastructure at twoare pleased to announce a number of new datacentres for a leading financialsignificant new wins in our long-term services group and a major businesscontractual services business. transformation including datacentre and network implementations for a majorWe have won a ten-year managed supermarket chain, within its distributionservices contract with global asset network.management firm Threadneedle. Thiscontract, which is now fully operational, We are encouraged by the number ofis an £11 million agreement where customers evaluating and committingComputacenter will host and manage to transformation programmes involvingthe firm’s datacentre infrastructure. This the migration to Microsoft Windows 7,has facilitated Threadneedle making which we see as a key driver for growthsavings in excess of the contract value. in the coming years. An example of this isNHS Oldham has signed a four-year where Severn Trent Water has engagedcontract that will see Computacenter Computacenter as part of a £3.5provide management and support of million project, which will underpin newits IT infrastructure to reduce costs and flexible working practices, increase staffimprove service. productivity and reduce costs.At the beginning of 2010 we signed our We have also had success in the productlargest services contract to date, with a supply side of our business where weretail bank to out-task desktop services as have seen customers consolidatingpart of a five-year agreement covering the suppliers and using the indirect channelbank’s 140,000 users and 16,000 servers to help them reduce their costs. Aover its entire estate including 3,000 good example of this is our recentbranches. We also signed a new five-year win with BP, which has consolidatedfull infrastructure managed services deal hardware and software procurementworth in excess of £40 million with global with Computacenter in Europe andasset management firm Schroders. Both CompuCom, our partner in the US.of these contracts will not start to add BP expects to see a 15 per centsignificantly to our services revenue until reduction in capital expenditure asthe second half of 2010. part of this programme.Whilst the number of new contracts wonis extremely satisfying, we are even morepleased with our retention rate, where wefrequently not only retain the customerbut also increase the contract in scopeand duration. Testament to this is the newsix-year desktop services contract signedwith BT Group in 2009. In retail bankingwe have signed a new contract withProduban (Santander Group IT business)where we have agreed a five-yearextension, which supports its 31,000UK employees.10 Computacenter plc Annual Report and Accounts 2009
Overview Business review Governance“to help reduce costs and enhance efficiency, we outsourced the management of our european network infrastructure to computacenter. via a single network control centre, computacenter manages more than 130,000 network ports and associated Financial statements components. By taking advantage of a shared services model, we have been able to make financial savings while also increasing the stability of our it infrastructure.” Dr. Hartwig Faber, Daimler AG Computacenter plc Annual Report and Accounts 2009 11
Operating review continuedWith the ongoing focus on environmental 2009 can be characterised as a yearissues, 2009 proved a great year for RDC, of lots of small improvements. Servicesour IT equipment disposal, remarketing margin was up a little, operating expensesand redeployment subsidiary. The were down a little and there was someCompany achieved record annual results improvement towards higher-endas part of the Computacenter Group, products and services, all of whichwith overall revenue up by 20 per cent improved the profit performance.to nearly £30 million, while profits grew Our managed services contract baseby 46 per cent. grew by 8.4 per cent to €266.8 millionIn June, RDC was delighted to invite compared to the previous period. Wethe new Chairman of the Environment signed a number of notable outsourcingAgency, Lord Chris Smith, to open a contracts, including a three-yearnew recycling area, and to celebrate its agreement with aerospace companysecond Queen’s Award. The accolade for EADS Astrium. BASF IT services hasEnterprise for Sustainable Development engaged Computacenter to provideis one of only ten awarded in the whole on-site services and logistics supportof the UK. for more than 50,000 desktops and laptops for the BASF Group in Europe.Germany The market for professional servicesRevenue has been challenging. However, our£930.7m networking solutions business saw good results; initiatives aimed at increasing networking services sales yielded strong growth, notably in security andAdjusted* operating profit unified communications. Margins grew£19.6m considerably in 2009 and played an important role in the operating results. Significant wins included a networking managed services contract withIn Germany we saw another year of EADS Astrium. This contract and theencouraging adjusted* operating profit desktop agreement are worth a totalgrowth of 21.9 per cent to €22.0 million of €5.0 million.(2008: €18.0 million). This was achieveddespite a decline in revenues of 1.4 per Our datacentre product businesscent in local currency to €1.03 billion, performed poorly, with revenue andexcluding the acquisition of becom in margins for low-end servers belowlate November. As with elsewhere in our expectations. Future growth in theEurope there was a slowdown in product datacentre business will be assisted bysales and continued margin pressure the becom acquisition.throughout the year, particularly forlow-end servers and PCs. The opportunity created by customer concerns around energy and operational efficiency also led to a number of new business wins in 2009, including a datacentre optimisation project for a leading manufacturer of brake parts. We are helping the manufacturer identify ways to enhance its energy efficiency as part of the contract. While at Immoblienscout24, we are assisting the online property portal company with the implementation of a new datacentre and also providing ongoing support.12 Computacenter plc Annual Report and Accounts 2009
Overview Business review Governance“nhs Oldham wants to ensure that information technology is an enabler to improved health services and delivers value for money. By outsourcing the majority of our ict to computacenter, we have greater certainty and control over both service levels and Statements Financial statements costs. this will enable us to save money and time, which is key to improving patient care.” Steve Sutcliffe, NHS Oldham, Director of Finance Computacenter plc Annual Report and Accounts 2009 13
Operating review continuedFrance Datacentre solutions and services, especially consolidation and virtualisation,Revenue will play a key role in the development of£319.4mAdjusted* operating loss the French business. For example, we won a four-year contract with SPEIG, a subsidiary of COLAS (the French building construction and public works leader) for-£2.7m maintaining its datacentres across 40 countries. Computacenter France’s product revenueWhilst overall performance for declined by 10.8 per cent in local currencyComputacenter France declined slightly compared to 2008. The most significantlast year to an adjusted* operating loss of factor in this revenue decline was due€3.1 million (2008: €2.1 million) it was still to our largest customer in France goingmaterially ahead of our internal, as well through a hiatus in spend, due to the factas external, expectations at the beginning that their contract with us had come toof the year. an end. We are pleased to announce that we have secured a new contract withIn line with the market, revenue declined this customer with a slightly wider scopeby 7.6 per cent to €358.7 million (2008: for another four years. Excluding this€388.0 million). However, encouragingly customer, product revenue grew by 1 perservices revenues grew by 10.2 per cent cent which we believe is materially aheadin local currency, now representing of the market as a whole.18.4 per cent of the total business. The software licensing market is a keyComputacenter France continued development area for Computacenterto demonstrate improvements in its France, supported by a new specialistoperating controls and processes, sales team. Among our softwarewith greater governance of forecasting successes during 2009 was a win withand financial structure. The simplified Airbus France, which involves the supplymanagement structure implemented and the implementation of an anti-virusat the beginning of 2009 resulted in package for 560 users.an 11.6 per cent reduction in operatingcosts, in local currency. We also won a global software licensing contract worth €9 million with energyTo further support services growth in company GDF-SUEZ. The contractFrance, we opened a new helpdesk includes distribution to 51 countries andin Roissy. This facility will be key to will help GDF-SUEZ remove cost andsupporting and growing our desktop complexity from its operations.support business, which benefited froma number of key wins in 2009. For Computacenter France has made realexample, the Conseil Regional Midi- progress in 2009. The local managementPyrénées, a public administrative authority team have made a step change in 2009in the south of France, has engaged as is evidenced by our services growth.Computacenter France to provide We feel confident that the business willsupport services to 1,300 end-users, make financial progress in 2010.as part of a three-year contract.A full managed services contract withElectricité Réseau Distribution Francewas another of our outsourcing successstories in 2009. Worth €4.8 million, thecontract includes support for 1,800desktops as well as the electricityCompany’s network and datacentres.14 Computacenter plc Annual Report and Accounts 2009
Overview Business review Governance“computacenter has a long-term relationship with nationwide and has played a key role in allowing us to optimise and support our it infrastructure – from implementing new cabling for our administration centre locations to simplifying software Financial statements licensing and delivering key infrastructure projects. in april 2009, we signed a five-year it managed services contract with computacenter that will improve cost control, business agility and it service levels.” Peter Stafford, IT Director, Nationwide Computacenter plc Annual Report and Accounts 2009 15
Operating review continuedBenelux Outlook The outlook for our long-term contractualRevenue services business, where we save our£26.2m customers money, remains encouraging and we predict revenue growth, particularly in the UK, in 2010 whereAdjusted* operating loss contracts have already been secured. We-£0.8m also expect some improvement in gross profit compared to 2009 due to improved business take on and economies of scale.Our Benelux operation showed an Our professional services, coupledadjusted* operating loss of €851,000 with our product supply, which is reliantin 2009 (2008: €120,000), with overall on capital expenditure, is more difficultrevenues dropping by 22.1 per cent. to predict.This was due to a major decline of The encouraging signs we saw in the29 per cent in product revenues. The fourth quarter in the UK have continuedproduct business had a difficult year in into the first quarter of 2010. Germanya tough market, particularly within the has seen a challenging start to the yearcorporate sector. when compared with the first quarter ofIn the first half of 2009, we embarked 2009. As is always the case, it is not untilon several initiatives to control the cost we have gone through the end of the firstbase. We suspended product supply quarter, that we can draw any meaningfulactivities in Luxembourg and undertook conclusions about the performance of thea restructuring project in Belgium. Group, for the year as a whole.Despite the decline in revenue, we saw In the longer-term we believe thea number of key managed services and investments we are making in ourproject wins during 2009. Techspace business, together with our strongAero, part of the Safran Group, has balance sheet, positions the Group wellengaged Computacenter Benelux to to take advantage of market opportunities.deploy a new storage infrastructure. While the economic outlook remainsThe project, worth €550,000 will help uncertain, customers will continue tothe company improve data management focus on reducing their operating costsand reduce costs. We are also helping and focusing on core activities.Truvo Netherlands upgrade itstelecommunication systems aftera project win worth €110,000.The Group’s global procurementcapabilities also secured new businessfor Computacenter Benelux during 2009in the form of an international contract mike norriswith a leading biotechnology firm. The Group chief executive Officeragreement covers the supply of hardwareand software. “in the longer-term we believe the investments we are making in our business, together with our strong balance sheet, positions the Group well to take advantage of market opportunities.” Mike Norris, Chief Executive Officer16 Computacenter plc Annual Report and Accounts 2009
marKet Overview“we remain confident about steady growth in the selective outsource market in 2010 and take some encouragement from market forecasts that there will be a return to growth, albeit small, in capital expenditure.”Computacenter operates across Companies are increasingly looking to For many years, operating system OverviewWestern Europe primarily serving the take back control of their strategic IT with upgrades have had little real impactCorporate and Public Sector markets, a combination of selective outsourcing on the investment in new technology.providing IT infrastructure services, and in-house delivery. We are well However, Microsoft Windows 7 isincluding: infrastructure outsourcing; positioned to benefit from the trend of generating significant customer interest,infrastructure design; implementation selectively outsourcing as opposed to as a result of its ability to improve reliabilityand product supply. large end-to-end outsourcing by the and cost of management of the PC major outsourcers, as we are specialists infrastructure. As a stable, secure andIn 2009, mainly due to the recessionary more user friendly operating system, this in this area.environment, the impact on the particular upgrade may help to drive newinfrastructure outsourcing and new Conversely, in 2009 business investment infrastructure projects.infrastructure projects was markedly in new IT infrastructure and thereforedifferent. design and deployment services was No discussion of the current market weak, with hardware sales to the would be complete without a mentionCustomers were and remain primarily of cloud computing. As with any ‘new’ business market across Europe down byfocused on cost reduction; demand for technology, there has been significant 12 per cent**. Computacenter’s product Business reviewselective outsourcing elements of the IT discussion and marketing of the sales to end-users were impacted by thisinfrastructure for customers continued cloud concept, with many observers trend but to a lesser extent, with overallto be robust, as we reduce cost for our proclaiming cloud to be the answer to the product sales for ongoing business downcustomers and they move away from total future of IT. For our part, we’ve embraced by 7.5 per cent. Gartner** predicts a smalloutsourcing to a single vendor. Market the potential of cloud and have integrated growth in business product sales acrossfigures show that in Western Europe it into our offerings – in fact many of our Europe in 2010 of 3 per cent.in 2009, IT infrastructure outsourcing customers have already implementedincreased by 3 per cent* and is expected Consistent with these predictions, as the ‘cloud’ concept in some form; forto increase by 4 per cent* in 2010. European economies slowly emerge example hosted IT services or sharedComputacenter’s Group contracted from recession, we’re seeing a measured infrastructure services. Our existingservices revenues grew by 5.4 per cent but steady development in the nature service and hosting offerings already spanin 2009 in constant currency. of IT infrastructure projects. However, the cloud concept and we are able to the market may be impacted by market this effectively to our customers. lower Government spending on new We’ve found that offering a balanced infrastructure as governments withdraw approach in this area rather than a one- stimuli measures to reduce budget deficits. size-fits-all service resonates better with Against the challenging broader our clients and prospects. market facts and figures economic backdrop, server and desktop In conclusion, we remain confident consolidation and virtualisation have Governance about steady growth in the selective western europe it continued to be two of the few areas outsource market in 2010 and take some infrastructure outsourcing of clear growth in the IT professional encouragement from market forecasts increased by 3 per cent in 2009* services market in 2009 (overall that there will be a return to growth, albeit 3% professional services market decline small, in capital expenditure. However, of 2 per cent†). Such projects generally customers remain cautious and this deliver measurable cost savings and capital expenditure growth is by no efficiency gains in a relatively short means certain. computacenter’s Group space of time and as such have been contracted services revenues favoured over large scale infrastructure grew by 5.4 per cent in 2009 deployments, as customers seek 5.4% a quicker return on investment. We are also beginning to see a gradual change in customer focus from primarily Financial statements cost reduction towards a focus on Predicated growth for it cautious business investment for infrastructure outsourcing growth, as the European economies * Gartner IT Outsourcing Europe Forecast in western europe of 4 per cent slowly improve. Database, December 2009. in 2010* ** Adapted into constant currency growth from 4% Gartner IT Market Databook, December 2005. † Adapted into constant currency growth from Gartner IT Services Europe Forecast Database, December 2009. Computacenter excludes IT management from Gartner’s professional services figure. Computacenter plc Annual Report and Accounts 2009 17
Finance DirectOr’s review“the net funds (excluding csF) improved from £4.6 million to £86.4 million by the end of the year.”turnover and profitability The reconciliation of statutory to adjusted Gross profit percentage for Germany asAfter two consecutive years of growth, results is further explained in the a whole decreased from 13.7 per centGroup revenues reduced in 2009 by segmental reporting note (note 3) to 13.4 per cent of sales, mainly due to2.2 per cent. The exit from the trade to the financial statements. an increasing proportion of sales of lowerdistribution of PCs, laptops and printers margin PCs within product revenue. UKat the end of 2008, and subsequent UK revenues declined in 2009 by 11.8 SG&A reduced by 5.9 per cent incompletion of the sale of the remaining per cent overall but declined by 7.3 per constant currency mainly due to a tighttrade distribution (CCD) business on cent when the impact of the staged focus on control of all variable SG&A27 November 2009 resulted in a withdrawal from trade distribution is costs. The net outcome of the abovereduction of revenues in that business removed. Ongoing product sales declined factors was an improvement in adjustedto £84.7 million (2008: £158.8 million). 10.8 per cent whilst Services revenues operating profit from £14.3 million toExcluding CCD, Group revenues increased by 2.2 per cent, driven by a 6.0 £19.6 million. Included within the adjustedincreased by 0.7 per cent, with product per cent growth in contractual services, operating profit is £0.3 million from becomrevenues declining by 2.3 per cent to offset by a reduction in Professional since acquisition.£1.68 billion. This reduction was partially Services revenues linked to the downturnoffset by an increase in services revenues France in spending on capital projects.of 8.1 per cent to £740.0 million, with Revenue increased by 3.6 per cent toManaged Services growth offsetting The decline in product sales resulted in an £319.4 million (2008: £308.2 million)a contraction in Professional Services. improved gross profit mix, with adjusted whilst revenue in constant currencyThe Professional Services and product gross profit increasing from 14.0 per cent reduced by 7.6 per cent. Constantrevenue decline is mainly due to the lack to 14.8 per cent. This is despite margin currency product revenue reduced byof large infrastructure projects as a result challenges on the start-up of certain new 10.8 per cent whilst service revenueof the recessionary environment. The Managed Service contracts and the more increased by 10.2 per cent. Withingrowth in service revenues across the difficult Professional Services market. this, Professional Services reduced byGroup improves the forward visibility 15.8 per cent whilst Managed Servicesof gross margin generation and Adjusted operating expenses decreased revenue increased by 27.9 per cent.earnings resilience. by £22.0 million (13.3 per cent), reflecting the effects of the cost reduction Gross profit decreased from 12.6 perIn both the UK and Germany, product programme which was initiated in 2008. cent to 11.7 per cent of revenues with therevenues in December were stronger The Selling, General and Administrative favourable mix effect of increased servicesthan anticipated, partially due in both expenses (SG&A) cost reduction included revenues being more than offset by acountries to strong year end activity by the cost reduction from the partial exit reduction in margin due to the renewalcustomers to utilise existing budgets, from trade distribution, the reduction in of a major product contract.augmented in the UK by the VAT rate the mid market product sales businesschange on 1 January 2010. Exceptional charges of £1.6 million and a reorganisation aimed at the were incurred to help reduce operating simplification of the organisation structureAdjusted profit before tax improved by expenses, which declined by 11.6 per including a reduction of the management25.8 per cent from £43.1 million to cent in constant currency although this layers. The cost reduction process was£54.2 million. After taking account is reported as a 0.8 per cent reduction assisted by the recessionary environmentof exceptional items and amortisation when translated into Sterling. which resulted in lower staff attrition,of acquired intangibles, statutory profit recruitment costs and lower travel and The adjusted operating loss increased tobefore tax increased by 22.4 per cent other costs, in total approximately. £2.0 £2.7 million (2008: £1.7 million), which isfrom £39.5 million to £48.4 million. million. Exceptional charges incurred to a better than expected performance in theadjusted operating profit achieve these savings were £3.3 million year, taking account of the impact of theStatutory operating profit increased from in redundancy charges and £1.9 million contract renewal with a large customer.£42.6 million to £52.0 million. However, of vacant property costs.management measure the Group’s Benelux Germany Reported revenue reduced by 12.6 peroperating performance using adjusted Revenue increased by 12.0 per cent cent to £26.2 million (2008: £30.0 million)operating profit, which is stated prior to £930.7 million (2008: £830.7 million) whilst revenue in constant currencyto amortisation of acquired intangibles, whilst revenue in constant currency reduced by 22.1 per cent. In constantexceptional items, and the transfer decreased by 0.1 per cent, however this currency, product revenue reduced byof internal ERP implementation costs, included a revenue contribution of £12.1 29.0 per cent whilst service revenueand after charging finance costs on million from the acquisition of becom reduced by 8.7 per cent.customer-specific financing (CSF) for Informationsysteme Gmbh (‘becom’).which the Group receives regular rental Exceptional costs of £0.2 million were Services revenues increased by 0.3 perincome. Gross profit is also adjusted incurred which helped to reduce SG&A cent and product revenues decreased byto take account of CSF finance costs. by 7.5 per cent in constant currency. 0.3 per cent in constant currency.18 Computacenter plc Annual Report and Accounts 2009
The net result of the above was an Overviewincrease in the operating loss to £0.8million (2008: £0.1 million).acquisitionsOn 26 November 2009, the Groupacquired 100 per cent of the votingshares of becom for a consideration of€2.3 million inclusive of costs. The becombusiness is based in Germany and is aleading provider of large IBM systems.The acquisition of becom has resultedin goodwill arising of £12.1 million.becom will be integrated fully withComputacenter Germany during 2010. Business reviewAs a result, it is expected that goingforward the cash flows will not be reliablyand separately identifiable and thatthe goodwill relating to this acquisitionwill be tested for impairment againstthe Computacenter Germany cash-generating unit.On 27 November 2009 the Groupacquired certain assets and liabilities Table 1of Thesaurus Computer Services Limited Group revenues £mfrom Thesaurus Computer Services half 1 half 2 totalLimited and BDO LLP for a considerationof £0.9 million inclusive of costs. 2007 1,160.3 1,218.8 2,379.1Thesaurus is a private company based 2008 1,250.3 1,309.8 2,560.1in the UK which provides mainframe 2009 1,222.2 1,281.0 2,503.2service solutions. 2009/08 (2.2%) (2.2%) (2.2%)The assets of Thesaurus were acquired Table 2by and the business was immediately adjusted profit before tax £m Governanceintegrated within Computacenter UK. half 1 % half 2 % total %The goodwill arising on the acquisition of£1.5 million has been tested against the 2007 13.1 1.1% 29.6 2.4% 42.7 1.8%Computacenter UK cash generating unit. 2008 11.3 0.9% 31.8 2.4% 43.1 1.7% 2009 18.2 1.5% 36.0 2.8% 54.2 2.2%Details of the acquisitions are shown innote 16 (Business Combinations) and 2009/08 62.1% 13.2% 25.9%note 14 which describes in more detailthe impairment testing of goodwill and Table 3other intangible assets. revenues by country £m 2009 2008Disposals half 1 half 2 half 1 half 2On 27 November 2009 the Group UK 624.9 602.0 708.1 683.1disposed of CCD to Ingram Micro.The Group received consideration of Germany 433.3 497.4 379.8 450.9 Financial statements£3.0 million in cash. After the disposal France 151.1 168.3 147.2 161.0of goodwill of £1.0 million and disposal Benelux 12.9 13.3 15.2 14.8costs of £0.1 million, a profit of total 1,222.2 1,281.0 1,250.3 1,309.8£1.9 million was realised.The disposal does not representa separate major line of businessor geographical area of operationsand hence is not treated as adiscontinued operation. Computacenter plc Annual Report and Accounts 2009 19